UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
						SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2020



o☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
						SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: - 001-33810

AMERICAN PUBLIC EDUCATION, INC.

(Exact name of registrant as specified in its charter)


Delaware		01-0724376
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

~~Delaware~~111 West Congress Street, Charles Town, West Virginia		~~01-0724376~~25414
~~(State or other jurisdiction of~~		~~(I.R.S. Employer~~
~~Incorporation or organization)~~	~~Identification No.)~~

~~111 West Congress Street~~

~~Charles Town, West Virginia 25414~~

(Address ~~including zip code,~~ of principal executive offices)(Zip Code)

(304) 724-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

APEI

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~ o

~~Accelerated filer~~ x

~~Non-accelerated filer~~ o

~~Smaller reporting company~~ o

~~(Do not check if a smaller reporting company)~~

Emerging growth companyo

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o☐ No x☒

The total number of shares of common stock outstanding as of ~~November 3, 2017~~August 7, 2020 was~~16,267,814.~~ 14,797,011.

~~Index~~

AMERICAN PUBLIC EDUCATION, INC.

FORM 10-Q

INDEX

~~Index~~

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Balance Sheets ~~(Current Period Unaudited)~~

(In thousands)


	As of June 30, 2020		As of December 31, 2019
ASSETS	(Unaudited)
Current assets:
Cash, cash equivalents, and restricted cash (Note 2)	$	216,038	$	202,740
Accounts receivable, net of allowance of $5,758 in 2020 and $6,174 in 2019	6,922		11,325
Prepaid expenses	9,426		7,087
Income tax receivable	2,601		1,757
Total current assets	234,987		222,909
Property and equipment, net	74,079		78,495
Operating lease assets, net	10,483		11,658
Investments	10,502		10,502
Goodwill	26,563		26,563
Other assets, net	5,087		4,770
Total assets	$	361,701	$	354,897

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,034	$	3,546
Accrued compensation and benefits	17,105		13,753
Accrued liabilities	8,551		8,270
Deferred revenue and student deposits	20,783		17,426

Operating lease liabilities, current	2,379		2,283
Total current liabilities	53,852		45,278
Operating lease liabilities, long-term	8,277		9,495
Deferred income taxes	5,961		3,391
Total liabilities	68,090		58,164

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock, $.01 par value; Authorized shares - 10,000; 0 shares issued or outstanding	—		—
Common stock, $.01 par value; Authorized shares - 100,000; 14,797 issued and outstanding in 2020; 15,178 issued and outstanding in 2019	148		152
Additional paid-in capital	191,996		190,620
Retained earnings	101,467		105,961
Total stockholders’ equity	293,611		296,733
Total liabilities and stockholders’ equity	$	361,701	$	354,897

As of September 30, 2017 As of December 31, 2016
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 166,259
$ 146,351
Accounts receivable, net of allowance of $6,572 in 2017 and $8,077 in 2016 6,389
6,949
Prepaid expenses 6,651
5,327
Income tax receivable 757
—
Total current assets 180,056
158,627
Property and equipment, net 92,169
97,687
Assets held for sale —
2,100
Investments 14,716
14,611
Goodwill 33,899
33,899
Other assets, net 9,061
8,696
Total assets $ 329,901
$ 315,620

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:

Accounts payable $ 5,041
$ 6,853
Accrued liabilities 13,613
14,124
Deferred revenue 21,994
20,639
Income tax payable —
559
Total current liabilities 40,648
42,175
Deferred income taxes 9,231
8,775
Total liabilities 49,879
50,950

Commitments and contingencies (Note 11)

Stockholders’ equity:

Preferred stock, $.01 par value; Authorized shares - 10,000; no shares issued or outstanding —
—
Common stock, $.01 par value; Authorized shares - 100,000; 16,249 issued and outstanding in 2017; 16,109 issued and outstanding in 2016 162
161
Additional paid-in capital 179,708
177,061
Retained earnings 100,152
87,448
Total stockholders’ equity 280,022
264,670
Total liabilities and stockholders’ equity $ 329,901
$ 315,620

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

~~Index~~

~~AMERICAN PUBLIC EDUCATION, INC.~~

~~Consolidated Statements of Income (Unaudited)~~

~~(In thousands, except share and per share amounts)~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(Unaudited) (Unaudited)
Revenue $ 73,279
$ 73,803
$ 221,163
$ 234,514
Costs and expenses:

Instructional costs and services 28,723
28,357
87,513
86,968
Selling and promotional 14,640
13,139
44,083
44,592
General and administrative 17,237
17,125
51,625
50,703
Loss on disposals of long-lived assets 390
5,145
1,558
5,870
Impairment of goodwill —
4,735
—
4,735
Depreciation and amortization 4,690
4,910
14,160
14,624
Total costs and expenses 65,680
73,411
198,939
207,492
Income from operations before interest income and income taxes 7,599
392
22,224
27,022
Interest income 17
37
43
111
Income before income taxes 7,616
429
22,267
27,133
Income tax expense 3,294
85
9,668
10,524
Equity investment income (loss) 44
(18 ) 105
653
Net income $ 4,366
$ 326
$ 12,704
$ 17,262

Net Income per common share:

Basic $ 0.27
$ 0.02
$ 0.78
$ 1.07
Diluted $ 0.27
$ 0.02
$ 0.78
$ 1.07
Weighted average number of common shares:
Basic 16,248,623
16,074,701
16,225,869
16,057,710
Diluted 16,375,512
16,233,229
16,351,563
16,174,723

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

~~Index~~3

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of ~~Cash Flows (Unaudited)~~Income

(In thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)
Revenue	$	82,127	$	70,560	$	156,743	$	144,001
Costs and expenses:
Instructional costs and services	30,744		28,725		59,974		56,640
Selling and promotional	17,056		14,087		35,242		29,134
General and administrative	21,737		18,123		42,740		37,188
Loss on disposals of long-lived assets	158		4		324		130
Impairment of goodwill	—		—		—		5,855
Depreciation and amortization	3,391		3,943		6,729		7,994
Total costs and expenses	73,086		64,882		145,009		136,941
Income from operations before interest income and income taxes	9,041		5,678		11,734		7,060
Interest income, net	179		1,135		881		2,188
Income before income taxes	9,220		6,813		12,615		9,248
Income tax expense	2,532		1,898		3,506		1,835
Equity investment income (loss)	1		6		—		(1,481)
Net income	$	6,689	$	4,921	$	9,109	$	5,932

Net income per common share:
Basic	$	0.45	$	0.30	$	0.61	$	0.36
Diluted	$	0.45	$	0.30	$	0.61	$	0.36
Weighted average number of common shares:
Basic	14,789		16,512		14,907		16,522
Diluted	14,948,000		16,653		15,026		16,671

Nine Months Ended
September 30,
2017 2016
(Unaudited)
Operating activities
Net income $ 12,704
$ 17,262
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 14,160
14,624
Stock-based compensation 4,262
3,972
Equity investment income (105 ) (653 )
Deferred income taxes 456
(1,505 )
   Loss on disposals of long-lived assets 1,558
5,870
   Impairment of goodwill —
4,735
   Other 312
10
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for bad debt 560
2,039
Prepaid expenses and other assets (1,445 ) 677
Income tax receivable (757 ) (1,182 )
Accounts payable (1,812 ) (617 )
Accrued liabilities (1,430 ) (1,492 )
Income taxes payable (559 ) (682 )
Deferred revenue 1,355
(370 )
Net cash provided by operating activities 29,259
42,688
Investing activities

Capital expenditures (6,535 ) (9,670 )
Capitalized program development costs and other assets (3,005 ) (1,464 )
Proceeds from sale of real property 1,493
—
Equity investment —
(950 )
Dividend received from equity investment —
2,957
Net cash used in investing activities (8,047 ) (9,127 )
Financing activities

Cash paid for repurchase of common stock (1,404 ) (630 )
Cash received from issuance of common stock 100
28
Excess tax benefit from stock-based compensation —
(1,002 )
Net cash used in financing activities (1,304 ) (1,604 )
Net increase in cash and cash equivalents 19,908
31,957
Cash and cash equivalents at beginning of period 146,351
105,734
Cash and cash equivalents at end of period 166,259
137,691

Supplemental disclosure of cash flow information

Income taxes paid 10,528
14,894

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

~~Index~~

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)


				Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance as of December 31, 2018	16,425	$	164	$	187,172	$	133,930	$	321,266
Issuance of common stock under employee benefit plans	251	3		(3)		—		—
Deemed repurchased shares of common and restricted stock for tax withholding	(83)	(1)		(2,509)		—		(2,510)
Stock-based compensation	—	—		3,319		—		3,319
Repurchased and retired shares of common stock	(327)	(3)		—		(9,548)		(9,551)
Net income	—	—		—		5,932		5,932
Balance as of June 30, 2019	16,266	$	163	$	187,979	$	130,314	$	318,456


				Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance as of December 31, 2019	15,178	$	152	$	190,620	$	105,961	$	296,733
Issuance of common stock under employee benefit plans	240	2		(2)		—		—
Deemed repurchased shares of common and restricted stock for tax withholding	(73)	(1)		(1,945)		—		(1,946)
Stock-based compensation	—	—		3,323		—		3,323
Repurchased and retired shares of common stock	(548)	(5)		—		(13,603)		(13,608)
Net income	—	—		—		9,109		9,109
Balance as of June 30, 2020	14,797	$	148	$	191,996	$	101,467	$	293,611

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

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Cash Flows

(In thousands)


	Six Months Ended June 30,
	2020		2019
	(Unaudited)
Operating activities
Net income	$	9,109	$	5,932
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,729		7,994
Stock-based compensation	3,323		3,319
Equity investment loss	—		1,481
Deferred income taxes	2,570		891
Loss on disposals of long-lived assets	324		130
Impairment of goodwill	—		5,855
Other	10		62
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for bad debt	4,403		7,646
Prepaid expenses	(2,727)		(2,407)
Income tax receivable/payable	(844)		(3,864)
Operating leases, net	53		364
Other assets	(317)		292
Accounts payable	1,202		(4,187)
Accrued compensation and benefits	3,352		(3,612)
Accrued liabilities	1,201		3,080
Deferred revenue and student deposits	3,357		744
Net cash provided by operating activities	31,745		23,720
Investing activities
Capital expenditures	(2,893)		(2,957)
Net cash used in investing activities	(2,893)		(2,957)
Financing activities
Cash paid for repurchase of common stock	(15,554)		(12,061)
Net cash used in financing activities	(15,554)		(12,061)
Net increase in cash, cash equivalents, and restricted cash	13,298		8,702
Cash, cash equivalents, and restricted cash at beginning of period	202,740		212,131
Cash, cash equivalents, and restricted cash at end of period	$	216,038	$	220,833

Supplemental disclosure of cash flow information
Income taxes paid	$	1,780	$	4,809

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

AMERICAN PUBLIC EDUCATION, INC.

Notes to Consolidated Financial Statements

Note 1. Nature of the Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to approximately ~~86,500~~85,400 students through ~~the operations of two~~2 subsidiary institutions:

•American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and ~~public safety~~service-minded communities through American Military University, or AMU, and American Public University, or APU. APUS is ~~regionally~~institutionally accredited by the Higher Learning ~~Commission.~~Commission, or HLC.

•National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at ~~five~~5 campuses in ~~the State of~~ Ohio, ~~as well as online~~and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities. HCN is ~~nationally~~institutionally accredited by the Accrediting ~~Council of Independent Colleges and~~Bureau for Health Education Schools, or ~~ACICS,~~ABHES. In March 2020, in response to the novel coronavirus COVID-19 global pandemic, HCN, leveraging the expertise of APUS, shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. There can be no assurance that HCN will not need to again further limit campus interactions or close its campuses in response to the RN-to-BSN Program is accredited by the Commission on Collegiate Nursing Education. In June 2016, HCN was notified that its Diploma in Practical Nursing and Associates Degree in Nursing Programs have been granted pre-accreditation candidacy status by the National League for Nursing Commission for Nursing Education Accreditation.COVID-19 pandemic or as a result of location regulations.

The Company’s institutions are licensed or otherwise authorized, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

The Company’s operations are organized into ~~two~~2 reportable segments:

•American Public Education Segment, or APEI Segment.This segment reflects the operational activities at APUS, other corporate activities, and minority investments.

•Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN.

Note 2. Summary of Significant Accounting Policies

Basis of ~~presentation~~Presentation and ~~accounting~~Accounting

The accompanying unaudited, interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. ~~Certain prior year amounts have been reclassified for comparative purposes to conform with the current presentation.~~

Principles of ~~consolidation~~Consolidation

The accompanying unaudited interim Consolidated Financial Statements include accounts of APEI and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for ~~complete~~audited annual financial statement presentations. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s ~~consolidated~~financial position, results of operations, ~~financial position,~~ and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2020. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in ~~its~~the Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, or the Annual Report.

~~Index~~

Use of Estimates

~~The preparation of the Consolidated Financial Statements~~In preparing financial statements in ~~accordance~~conformity with GAAP, ~~requires management~~the Company is required to make estimates and assumptions that affect the reported amounts inof assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these ~~unaudited interim~~estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to the Company’s Consolidated Financial ~~Statements and accompanying notes. Actual results could differ from those estimates.~~Statements.

Restricted Cash

Cash, ~~and~~ cash equivalents, and restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs. ~~As a trustee of these Title IV program funds, the~~The Company is required to maintain and restrict these funds pursuant to the terms of ~~each subsidiary~~the applicable institution’s program participation agreement with ~~ED.~~the U.S. Department of Education. Restricted cash on the Company’s Consolidated Balance Sheets was approximately ~~$2.2~~$1.3 million at ~~September~~both June 30, ~~2017~~2020 and ~~$1.6 million at~~ December 31, ~~2016. Changes~~2019.

Investments

The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in ~~restricted~~value, and the potential recovery period. For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods. If it is probable that ~~represent funds held~~the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment income (loss), and the equity investment balance is reduced to fair value.

Each reporting period the Company evaluates its cost method investments for ~~students~~observable price changes. Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria.

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

The Company evaluated its equity method and cost method investments for impairment as ~~described above are~~of June 30, 2020, including a review of any impacts related to the COVID-19 pandemic, and determined NaN of the investments were impaired.

Goodwill and Indefinite-lived Intangible Assets

The Company evaluated events and circumstances related to the valuation of goodwill through June 30, 2020 to determine if there were indicators of impairment. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic. This evaluation concluded there were no indicators of impairment during the period, and consequently, there was 0 impairment during the three and six months ended June 30, 2020.

During the three months ended March 31, 2019, the Company completed an interim goodwill impairment test as a result of circumstances that included HCN’s underperformance against 2019 internal targets and overall 2019 financial performance. The implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $28.0 million, or $5.9 million less than its carrying value. There was 0 impairment

of the intangible assets. As a result, the Company recorded a pretax, non-cash charge of $5.9 million to reduce the carrying value of its goodwill in our HCN Segment.

For additional information on goodwill and intangible assets see the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in ~~cash flows~~the Annual Report.

Stock-based Compensation

Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing. Stock-based compensation cost is recognized as expense generally over a three-year vesting period using the straight-line method for employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model.

Judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of performance stock units, or PSUs, the level of performance that will be achieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from ~~operating activities~~original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s ~~Consolidated Statements~~consolidated financial statements. Estimates of ~~Cash Flows because~~fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. 2017 Omnibus Plan, or the 2017 Plan, to increase the number of shares available for issuance thereunder by 1,425,000 and to extend the term of the 2017 Plan to May 15, 2030, as well as to clarify limitations on repricing.

Stock-based compensation expense for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)
Instructional costs and services	$	402	$	406	$	880	$	809
Selling and promotional	218		199		476		393
General and administrative	953		1,025		1,967		2,117
Stock-based compensation expense in operating income	$	1,573	$	1,630	$	3,323	$	3,319

Incentive-based Compensation

The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2020 and 2019, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees. The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted ~~funds~~stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant, and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant. To the extent performance goals are ~~related~~not met, compensation cost is not ultimately recognized against the goals and, to ~~a core activity~~the extent previously recognized, compensation cost is reversed. Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than

expected. The Company recognized an aggregate expense associated with the Company’s incentive-based compensation plans of approximately $1.8 million and $3.1 million during the three and six month periods ended June 30, 2020, respectively, compared to an aggregate expense of $0.7 million and $1.4 million during the three and six month periods ended June 30, 2019, respectively.

Other Employee Benefits

On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. Employee Stock Purchase Plan, or ESPP, to increase the number of shares of the Company’s common stock available for issuance under the plan by 100,000 shares and extend the term of the ESPP to May 15, 2030. As of June 30, 2020, 106,088 shares remained available for purchase under the ESPP, including the 100,000 additional shares reserved under the plan following the stockholder approval.

Income Taxes

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

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses, which is included inAccounting Standards Codification, or ASC, Topic 326, Measurement of Credit Losses on Financial Instruments with certainamendments made to the standard in November 2018 through ASU No. 2018-9, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The new guidance revises the accounting requirements related to the measurement of credit losses and will require entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. The guidance is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The adoption of this standard effective January 1, 2020 did not have a material impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or software licenses. The accounting for the service element of a hosting arrangement that is a service contract is not affected by this amendment. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard effective January 1, 2020 using the prospective approach. The adoption of this standard effective January 1, 2020 did not have a material impact on its Consolidated Financial Statements.

The Company considers the applicability and impact of all ~~Accounting Standards Updates, or~~ ASUs issued by the ~~Financial Accounting Standards Board, or~~ FASB. All other ASUs issued ~~but not listed below,~~subsequent to the filing of the Annual Report on March 10, 2020 were assessed and determined to be either inapplicable or not ~~applicable or~~ expected to have ~~minimal~~a material impact on the Company’s consolidated financial position and/or results of operations.

Note 3. Revenue

Disaggregation of Revenue

In ~~May 2014,~~ the ~~FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts~~following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with ~~Customers (Topic 606)~~. the reportable segments (in thousands):


	Three Months Ended June 30, 2020
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	73,082	$	7,268	$	(22)	$	80,328
Graduation fees	275		—		—		275
Textbook and other course materials	—		1,194		—		1,194
Other fees	190		140		—		330
Total Revenue	$	73,547	$	8,602	$	(22)	$	82,127


	Three Months Ended June 30, 2019
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	62,973	$	6,238	$	(29)	$	69,182
Graduation fees	274		—		—		274
Textbook and other course materials	—		799		—		799
Other fees	201		104		—		305
Total Revenue	$	63,448	$	7,141	$	(29)	$	70,560


	Six Months Ended June 30, 2020
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	139,638	$	13,659	$	(39)	$	153,258
Graduation fees	601		—		—		601
Textbook and other course materials	—		2,223		—		2,223
Other fees	402		259		—		661
Total Revenue	$	140,641	$	16,141	$	(39)	$	156,743


	Six Months Ended June 30, 2019
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	128,171	$	13,013	$	(56)	$	141,128
Graduation fees	584		—		—		584
Textbook and other course materials	—		1,661		—		1,661
Other fees	414		214		—		628
Total Revenue	$	129,169	$	14,888	$	(56)	$	144,001

The ~~standard is~~APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

Contract Balances and Performance Obligations

The Company has 0 contract assets or deferred contract costs as of June 30, 2020 and December 31, 2019.

The Company recognizes a ~~comprehensive model~~contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, or starts a term, in the case of HCN. Deferred revenue at June 30, 2020 was $20.8 million and includes $12.0 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $8.8 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2019 was $17.4 million and includes $9.6 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $7.8 million in student deposits. Deferred revenue represents the Company’s performance obligation to ~~use in accounting~~transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods.

The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for ~~revenue arising from~~ contracts with customers ~~and supersedes the revenue recognition requirements in FASB Accounting Standards Codification, or ASC, 605,~~ ~~Revenue Recognition, as well as other various sections~~that have an expected duration of the ASC. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. The authoritative guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. More judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard also includes a cohesive set of disclosure requirements including comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 was initially intended to be effective for fiscal years, and the interim periods within these fiscal years, beginning on or after December 15, 2016. In August, 2015, the FASB issued ASU 2015-14, ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This update defers for~~ one year or less.

When the ~~effective date of ASU 2014-09. The deferral will result~~Company begins performing its obligations, a contract receivable is created, resulting in this standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within those reporting periods. Entities must use either a full retrospective approach for all periods presented in the period of adoption or a modified retrospective approach.

~~The FASB has issued three ASUs in addition to ASU 2015-14 that amend certain aspects of ASU 2014-09.~~

~~ASU No. 2016-08,~~ ~~Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), issued in March 2016, clarifies certain aspects of the principal versus agent guidance.~~

~~ASU No. 2016-10,~~ ~~Identifying Performance Obligations and Licensing, issued in April 2016, clarifies guidance related to identifying performance obligations and licensing implementation.~~

~~ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers - Narrow Scope Improvements and Practical Expedients~~, issued in May 2016, provides amendments and practical expedients in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09.

The Company is continuing to evaluate the impact the new revenue recognition standard will have on its Consolidated Financial Statements by analyzing each revenue stream including the recommended five-step evaluation process, comparing historical accounting policies and practices to the new standard, and by carrying out a management-approved implementation plan. The Company expects to adopt the provisions of this standard in the first quarter of 2018 using the modified retrospective approach.

~~In November 2015, the FASB issued ASU No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes~~. The standard requires that deferred tax assets and deferred tax liabilities be classified as non-current on the balance sheet rather than being separated into current and non-current. This standard was effective for fiscal years, and interim

~~Index~~

periods within those years, beginning after December 15, 2016. The guidance permitted either retrospective or prospective application. The Company adopted this ASU effective January 1, 2017 and it was applied retrospectively. As a result, the $5.1 million current deferred tax asset as of December 31, 2016 was reclassified against the $13.9 million non-current deferred tax liabilityaccounts receivable on the Company’s Consolidated Balance ~~Sheets~~Sheets. The Company accounts for receivables in ~~these Consolidated Financial Statements.~~

~~In March 2016,~~accordance with FASB ASC 310, Receivables. The Company uses the ~~FASB issued ASU No. 2016-09,~~ ~~Compensation-Stock Compensation (Topic 718): Improvements~~portfolio approach, a practical expedient, to ~~Employee Share-Based Payment Accounting, which changes how entities account for certain aspects of share-based payments~~evaluate if a contract exists and to employees. This guidance requires excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement, and could introduce volatility to the Company’s provision for income taxes. Excess tax benefits must be presented as an operating activity on the statement of cash flows rather than a financing activity. ASU 2016-09 requires companies to make an accounting policy electionassess collectability at the time of ~~adoption to either estimate the number of awards that~~contract inception based on historical experience. Contracts are ~~expected to vest (consistent with existing GAAP)~~subsequently reviewed for collectability if significant events or ~~account~~circumstances indicate a change.

The allowance for ~~forfeitures when they occur. The forfeiture election provision must be applied using a retrospective transition approach, with a cumulative-effect adjustment recorded to retained earnings as~~doubtful accounts is based on management’s evaluation of the ~~beginning~~status of existing accounts receivable. Among other factors, management considers the age of the ~~period~~receivable, the anticipated source of ~~adoption. The new guidance~~payment, and historical allowance considerations. Consideration is ~~effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted ASU 2016-09 effective January 1, 2017 and elected~~also given to ~~apply~~any specific known risk areas among the ~~cash flow guidance prospectively; therefore, prior periods have~~existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS does not ~~been adjusted. The Company also elected to continue to estimate~~charge interest on past due accounts receivable. HCN charges interest on payment plans when a student leaves upon graduation or exit of the ~~number of awards that are expected to vest using the forfeiture option. The adoption of ASU 2016-09 increased the Company’s~~program. Interest income ~~tax expense by approximately $0.5 million for~~earned on open receivables during the three ~~months ended March 31, 2017. There was no impact in the three~~and six months ended June 30, ~~2017~~2020 was approximately $4,300 and $8,600, compared to interest income of approximately $3,000 and $8,000 earned during the three and six months ended ~~September~~June 30, ~~2017.~~2019.

For the three and six months ended June 30, 2020, there were no material impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

Note 4. Leases

The ~~company anticipates an increase in reported income tax expense between $0.6 million~~Company has operating leases for office space and ~~$0.9 million~~campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the ~~first quarter~~lease term when it is reasonably certain that the option will be exercised. The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through June 2023. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases6 campuses, located in the suburban areas of ~~2018 due~~Cincinnati, Cleveland, Columbus, Dayton, and Toledo, Ohio, and, beginning in April 2020, Indianapolis, Indiana, under operating leases that expire through June 2029.

Operating lease assets are right of use, or ROU, assets, which represent the right to ~~expiring stock options with an exercise price greater than~~use the ~~current stock price. Other increases in income tax expense may occur throughout the year~~underlying assets for the ~~vesting of restricted stock, determined by~~lease term. Operating lease liabilities represent the ~~stock price~~obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets at June 30, 2020 and December 31, 2019. These assets and lease liabilities are recognized at the ~~end~~lease commencement date based on the present value of ~~each reporting period.~~

~~In January 2017,~~lease payments over the ~~FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying~~lease term. When the ~~Test for Goodwill Impairment, which eliminates step two from~~lease does not provide an implicit interest rate, the ~~goodwill impairment test. Instead, if~~Company uses an incremental borrowing rate based on information available at lease commencement to determine the ~~carrying amount of a reporting unit exceeds its fair~~present value an impairment loss should be recognized in an amount equal to the excess, but limited to the total amount of goodwill allocated to the reporting unit. The guidance must be applied on a prospective basis and disclosure of the ~~nature of~~lease payments. The ROU assets include all remaining lease payments and ~~reason~~exclude lease incentives.

Lease expense for ~~the change in accounting principle~~operating leases is required upon transition. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company intends to early adopt ASU 2017-04 with its 2017 annual goodwill impairment test and currently anticipates that the implementation of this standard will not have a material impact on its Consolidated Financial Statements.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~, which provides guidance about which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. ASU 2017-09 is effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. The guidance should be applied prospectively to an award modified on or after the adoption date. The Company does not plan to early adopt, will apply the guidance prospectively, and currently anticipates that the implementation of this standard will not have a material impact on its Consolidated Financial Statements.

~~There have been no other applicable material pronouncements issued since the filing of the Company’s Annual Report.~~

~~Note 3. Property and Equipment~~

All property and equipment is recorded at cost less accumulated depreciation, except the acquired assets of HCN, which were recorded at fair value at the acquisition date. Depreciation and amortization are calculatedrecognized on a straight-line basis over the ~~estimated useful lives of the assets. Different depreciation and amortization methods~~lease term. There are ~~used for tax purposes. Maintenance and repairs are expensed as incurred, while other costs are capitalized if they extend the useful life of the asset.~~

~~The Company’s Partnership At a Distance~~^TM system, or PAD, is a customized student information and services system used by APUS to manage admissions, online orientation, course registrations, tuition payments, grade reporting, progress toward degrees, and various other functions. Costs associated with this system have been capitalized in accordance with FASB ASC Subtopic 350-40, ~~Accounting~~0 variable lease payments. Lease expense for the ~~Costs of Computer Software Developed or Obtained~~three and six month periods ended June 30, 2020 was $0.7 million and $1.5 million, respectively, compared to $0.6 million and $1.2 million for ~~Internal Use~~,the three and ~~classified as property and equipment.~~six month periods ended June 30, 2019, respectively. These costs are ~~amortized over~~primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the ~~estimated useful life~~present value of five years. The company also capitalizes certain costs for academic program development. These costs are transferred to property and equipment upon completion of each program and amortized over an estimated life not to exceed three years.

~~Index~~

The carrying amounts of long-lived assets are reviewed whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. Losses incurred on long-lived assets are reported as loss on disposals of long-lived assets in these unaudited interim Consolidated Financial Statements.

~~Note 4. Assets Held for Sale~~

Assets held for sale at December 31, 2016 represented excess real property located in Charles Town, West Virginia for the APEI Segment, which was no longer in use due to the relocation of employees to a new facility. Long-lived assets are classified as held for sale when the assets are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria. As such, the property was recorded at the lower of the carrying value or fair value, less cost to sell, until the asset was sold.

~~During~~operating lease liabilities during the three ~~months~~and six month periods ended ~~September~~June 30, ~~2016,~~2020 was $0.7 million and $1.4 million, respectively and is included in

operating cash flows. Cash paid for amounts included in the Company recognized a loss of $0.5 million when the asset was classified as held for sale and the net book value was adjusted to fair value. In May 2017, the APEI Segment sold the asset held for sale with a fairpresent value of ~~$2.1 million for a net sales price of $1.5 million. During~~operating lease liabilities during the ~~nine months~~three and six month periods ended ~~September~~June 30, ~~2017, the Company recognized a loss of~~2019 was $0.6 million ~~when the asset was sold, which~~and $1.2 million, respectively, and is included in ~~loss on long-lived assets in these Consolidated Financial Statements.~~operating cash flows.

~~Note 5. Investments~~

In February 2013, the Company made a $4.0 million investment in preferred stock of Fidelis Education, Inc., or Fidelis Education, representing approximately 22% of its fully diluted equity. On February 1, 2016, the Company made an additional $950,000 investment in preferred stock of Fidelis Education, increasing its investment in Fidelis Education to approximately 23% of its fully diluted equity. Fidelis Education offers a learning relationship management platform that has the goal of improving education advising and career mentoring services offered to students as they pursue college degrees. In connection with the investment, the Company is entitled to certain rights, including the right to representation on the Board of Directors of Fidelis Education. The Company accounts for its investments in Fidelis Education under the equity method of accounting. Therefore, the Company recorded the investments at cost and recognizes its share of earnings or losses in Fidelis Education in the periods for which they are reported with a corresponding adjustment in the carrying amount of the investment.

~~On September 30, 2012, the Company made a $6.8 million investment in preferred stock of NWHW Holdings, Inc., or NWHW Holdings, a holding company that operates an~~following tables present information technology training company, New Horizons Worldwide, Inc., which represents approximately 20% of the fully diluted equity of NWHW Holdings. During the three months ended September 30, 2016, the Company received a dividend of $3.0 million from NWHW Holdings. The Company accounts for its investment in NWHW Holdings using the equity method of accounting, and therefore recorded a corresponding reduction in the carrying amount of its investment.

~~Note 6. Goodwill and Intangible Assets~~

~~In connection with its November 1, 2013 acquisition of HCN, the Company applied FASB ASC 805,~~ ~~Business Combinations, using the acquisition method of accounting. The Company recorded $38.6 million of goodwill, representing the excess of the purchase price over~~about the amount ~~assigned to~~and timing of cash flows arising from the ~~net assets acquired and the fair value assigned to identified intangible assets, and recorded $8.1 million of identified intangible assets.~~

In August 2016, the Company completed an interim goodwill assessment and recorded a $4.7 million impairment. Subsequently, the Company completed its annual goodwill assessment and determined that the fair value exceeded the carrying value. In connection with the preparation of these unaudited interim Consolidated Financial Statements, the Company completed a qualitative assessment of goodwill that included a review of all the events and circumstances listed in FASB ASC 350, ~~Intangibles - Goodwill and Other~~, in addition to other entity-specific factors. For example, the Company considered the increase in HCN student enrollment and revenue for the three months ended September 30, 2017 as compared to the same period in 2016. The Company also considered that the competitive marketplace in the HCN industry did not change and that the capital markets for education companies increased in recent periods. Lastly, the Company considered the quantitative analysis performed at the last annual goodwill assessment that determined that the fair value exceeded the carrying value. After review of events and circumstances it was concluded that goodwill was not impairedCompany’s operating leases as of ~~September~~June 30, ~~2017.~~2020 (dollars in thousands):

~~Index~~


Maturity of Lease Liabilities (Unaudited)	Lease Payments
2020 (remaining)	$	1,423
2021	2,903
2022	2,857
2023	1,909
2024	928
2025	498
2026 and beyond	1,742
Total future minimum lease payments	12,260
Less imputed interest	(1,604)
Present value of operating lease liabilities	$	10,656


Balance Sheet Classification
Operating lease liabilities, current	$	2,379
Operating lease liabilities, long-term	8,277
Total operating lease liabilities	$	10,656


Other Information
Weighted average remaining lease term (in years)	5.2
Weighted average discount rate	5.2	%

Note 7.5. Net Income Per Common Share

Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of ~~options and~~ restricted stock awards. ~~Stock options are not included~~The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands).


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
	(Unaudited)			(Unaudited)
Basic weighted average shares outstanding	14,789	16,512	14,907	16,522
Effect of dilutive restricted stock	159	141	119	149
Diluted weighted average shares outstanding	14,948	16,653	15,026	16,671

During the ~~computation~~three and six month periods ended June 30, 2020, the Company had 33,329 and 145,427 shares of restricted stock, respectively, excluded from the diluted earnings per share ~~when their~~calculation because the effect ~~is anti-dilutive. There~~would have been antidilutive. During the three and six month periods ended June 30, 2019, the Company had 12,774 and 37,738 shares of restricted stock, respectively, that were ~~124,999~~excluded from the calculation as antidilutive. For both the three and ~~129,583 anti-dilutive~~six month periods ended June 30, 2020 there were 51,134 stock options excluded from the calculation ~~for~~as antidilutive. For the three and ~~nine~~ ~~months~~six month periods ended ~~September~~June 30, ~~2017, respectively, compared to 246,074 and 248,674 anti-dilutive~~2019 there were 0 stock options ~~excluded from the calculation for the three and~~ ~~nine~~ ~~months ended~~ ~~September 30, 2016, respectively.~~outstanding.

~~Note 8. Income Taxes~~

The Company is subject to U.S. Federal income taxes as well as income taxes of multiple state jurisdictions. For Federal and state tax purposes, the tax years from 2013 to 2016 remain open to examination.

The Company recognized tax expense for the three months ended September 30, 2017 and September 30, 2016 of $3.3 million and $0.1 million, respectively, or effective tax rates of 43.0% and 20.7%, respectively. For the nine months ended September 30, 2017 and September 30, 2016, the Company recognized tax expense of $9.7 million and $10.5 million, respectively, or effective tax rates of and 43.2% and 37.9%, respectively. The effective tax rate for the nine months ended September 30, 2017 includes approximately $0.5 million in additional income tax expense due to the implementation of ASU 2016-09, ~~Compensation - Stock Compensation (Topic 718).~~ Under ASU 2016-09, excess tax benefits and tax deficiencies associated with stock based compensation must be recognized in the income statement and in operating activities on the statements of cash flows. Previously, the excess tax benefits and tax deficiencies were recorded in additional paid-in capital under stockholders’ equity on the balance sheet and under financing activities on the statements of cash flows. Because expiring stock options with an exercise price greater than the current stock price expired during the three months ended March 31, 2017, the reversal of the tax benefit that was reported when the stock options were issued is now recorded in the income statement.

~~Note 9. Stock-Based Compensation~~

On March 31, 2017 the Company’s Board of Directors adopted the American Public Education, Inc. 2017 Omnibus Incentive Plan, or 2017 Incentive Plan, and on May 12, 2017, or the Effective Date, the Company’s stockholders approved the 2017 Incentive Plan, at which time the 2017 Incentive Plan became effective. Upon effectiveness of the 2017 Incentive Plan, the Company ceased making awards under the American Public Education, Inc. 2011 Omnibus Incentive Plan, or the 2011 Incentive Plan. The 2017 Incentive Plan allows the Company to grant up to 1,675,000 shares, as well as shares of the Company’s common stock that were available for issuance under the American Public Education, Inc. 2011 Incentive Plan as of the Effective Date. In addition, the number of shares of common stock available under the 2017 Incentive Plan will be increased from time to time by the number of shares subject to outstanding awards granted under the 2011 Incentive Plan, the American Public Education, Inc. 2007 Omnibus Incentive Plan and the American Public Education, Inc. 2002 Stock Incentive Plan that terminate by expiration or forfeiture, cancellation or otherwise without issuance of such shares following the Effective Date. Prior to 2012, the Company issued a mix of stock options and restricted stock, but since 2011 the Company has not issued any stock options.

~~Restricted Stock and Restricted Stock Unit Awards~~

Stock-based compensation expense related to restricted stock and restricted stock unit grants is expensed over the vesting period using the straight-line method for Company employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s stock price on the date of grant. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The table below summarizes the restricted stock and restricted stock unit awards activity for the ~~nine~~ ~~months ended September 30, 2017 (unaudited):~~

~~Index~~

Number
of Shares

Weighted-Average
Grant Price
and Fair Value
Non-vested, December 31, 2016 437,971
$ 21.54
Shares granted 278,934
$ 23.36
Vested shares (184,670 ) $ 25.88
Shares forfeited (31,450 ) $ 21.07
Non-vested, September 30, 2017 500,785
$ 21.24

~~Option Awards~~

The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model. Prior to 2012, the Company calculated the expected term of stock option awards using the “simplified method” in accordance with ~~Securities and Exchange Commission Staff Accounting Bulletins No. 107 and 110~~ because the Company lacked historical data and was unable to make reasonable assumptions regarding the future. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of peers with similar attributes. In addition, the Company determines the risk-free interest rate by selecting the U.S. Treasury five-year constant maturity, quoted on an investment basis in effect at the time of grant for that business day. Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under FASB ASC 718. ~~Options previously granted vest ratably over periods of three to five years and expire seven to ten years from the date of grant. Option activity is summarized as follows (unaudited):~~

Number
of Options

Weighted
Average
Exercise Price

Weighted-Average
Contractual
Life (Years)

Aggregate
Intrinsic
Value
(In thousands)
Outstanding, December 31, 2016 259,969
$ 34.68
0.53 246
Options granted —
$ —

Awards exercised (14,002 ) $ 6.99

Awards forfeited (132,351 ) $ 35.17

Outstanding, September 30, 2017 113,616
$ 37.52
0.26 $ —

Exercisable, September 30, 2017 113,616
$ 37.52
0.26 $ —

~~Stock-Based Compensation Expense~~

~~Stock-based compensation expense charged against income during the three and~~ ~~nine~~ ~~months ended September 30, 2017 and 2016 is as follows (unaudited):~~

Three Months Ended
September 30, Nine Months Ended
September 30,
2017
2016 2017
2016
(In thousands)
Instructional costs and services $ 229
$ 274
$ 958
$ 1,077
Selling and promotional 200
168
559
524
General and administrative 1,137
813
2,745
2,371
Stock-based compensation expense in operating income 1,566
1,255
4,262
3,972
Tax benefit (620 ) (504 ) (1,688 ) (1,566 )
Stock-based compensation expense, net of tax $ 946
$ 751
$ 2,574
$ 2,406

~~Index~~

As of September 30, 2017, there was $6.9 million of total unrecognized compensation cost, representing unrecognized compensation cost associated with non-vested restricted stock and restricted stock units. The total remaining cost is expected to be recognized over a weighted average period of 1.9 years.

Note ~~10.~~6. Segment Information

The Company has ~~two~~2 operating segments that are managed in the following reportable segments:

•American Public Education Segment, or APEI ~~Segment;~~Segment; and

•Hondros College of Nursing Segment, or HCN ~~Segment.~~Segment.

In accordance with FASB ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APEI ~~Segment~~ and HCN ~~Segment.~~Segments.

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)
Revenue:
American Public Education Segment	$	73,547	$	63,448	$	140,641	$	129,169
Hondros College of Nursing Segment	8,602		7,141		16,141		14,888
Intersegment elimination	(22)		(29)		(39)		(56)
Total Revenue	$	82,127	$	70,560	156,743		$	144,001
Depreciation and amortization:
American Public Education Segment	$	3,221	$	3,688	$	6,415	$	7,470
Hondros College of Nursing Segment	170		255		314		524
Total Depreciation and amortization	$	3,391	$	3,943	6,729		$7,994
Income (loss) from operations before interest income and income taxes:
American Public Education Segment	$	9,077	$	6,589	$	12,655	$	14,111
Hondros College of Nursing Segment	(35)		(910)		(921)		(7,056)
Intersegment elimination	(1)		(1)		—		5
Total income from operations before interest income and income taxes	$	9,041	$	5,678	11,734		$	7,060
Interest income, net:
American Public Education Segment	$	177	$	1,123	867		$	2,170
Hondros College of Nursing Segment	2		12		14		18
Total Interest income, net	$	179	$	1,135	881		$	2,188
Income tax expense (benefit):
American Public Education Segment	$	2,537	$	2,132	3,752		$	3,798
Hondros College of Nursing Segment	(5)		(234)		(246)		(1,963)
Total Income tax expense (benefit)	$	2,532	$	1,898	3,506		$	1,835
Capital expenditures:
American Public Education Segment	$	999	$	1,229	$	2,744	$	2,574
Hondros College of Nursing Segment	25		143		149		383
Total Capital expenditures	$	1,024	$	1,372	2,893		$2,957

The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

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

2017 2016 2017
2016
(In thousands)
Revenue:
   American Public Education Segment $ 64,885
$ 67,065
$ 197,318
$ 212,859
   Hondros College of Nursing Segment 8,394
6,738
23,845
21,655
Total Revenue $ 73,279
$ 73,803
$ 221,163
$ 234,514
Depreciation and amortization:
   American Public Education Segment $ 4,335
$ 4,550
$ 13,117
$ 13,619
   Hondros College of Nursing Segment 355
360
1,043
1,005
Total Depreciation and amortization $ 4,690
$ 4,910
$ 14,160
$ 14,624
Income from operations before interest income and income taxes:
   American Public Education Segment $ 6,855
$ 5,659
$ 20,445
$ 31,211
   Hondros College of Nursing Segment 744
(5,267 ) 1,779
(4,189 )
Total Income from operations before interest income and income taxes $ 7,599
$ 392
$ 22,224
$ 27,022
Interest income, net:
   American Public Education Segment $ 17
$ 37
$ 43
$ 111
   Hondros College of Nursing Segment —
—
—
—
Total Interest income, net $ 17
$ 37
$ 43
$ 111
Income tax expense:
   American Public Education Segment $ 3,007
$ 2,100
$ 8,975
$ 12,111
   Hondros College of Nursing Segment 287
(2,015 ) 693
(1,587 )
Total Income tax expense $ 3,294
$ 85
$ 9,668
$ 10,524
Capital expenditures:
   American Public Education Segment $ 2,645
$ 2,694
$ 6,187
$ 8,992
   Hondros College of Nursing Segment 109
72
348
678
Total Capital expenditures $ 2,754
$ 2,766
$ 6,535
$ 9,670

~~Index~~

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


	As of June 30, 2020		As of December 31, 2019
	(Unaudited)
Assets:
American Public Education Segment	$	312,479	$	305,896
Hondros College of Nursing Segment	49,222		49,001
Total Assets	$	361,701	$	354,897

As of September 30, 2017 As of December 31, 2016
(In thousands)
Assets:
American Public Education Segment $ 280,431
$ 267,260
Hondros College of Nursing Segment 49,470
48,360
Total Assets $ 329,901
$ 315,620

Note ~~11.~~7. Commitments andContingencies

The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and can be reasonably estimated. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate costs and expenses, associated with any such contingency.

From time to time the Company may be involved in legal matters in the normal course of its business.

On August 3, 2017, the Company received from the Attorney General of the Commonwealth of Massachusetts a Civil Investigative Demand, or CID, dated July 31, 2017, relating to an investigation of alleged unfair or deceptive acts or practices by AMU in connection with the recruitment and retention of students and the financing of education. The CID requires the production of documents and information relating to recruitment, enrollment, job placement and other matters. The Company continues to cooperate with the Attorney General’s office and cannot predict the eventual scope, duration or outcome of the investigation at this time, including whether any potential loss, or range of potential losses, is probable or reasonably estimable.

Note ~~12.~~8. Concentration

APUS students utilize various payment sources and programs to finance their educational expenses, including funds from: Department of Defense, or DoD, tuition assistance programs; ~~federal student aid from Title IV programs; and~~ education benefit programs administered by the U.S. Department of Veterans Affairs, or ~~VA education benefits;~~VA; and federal student aid from Title IV programs; as well as cash and other sources. Reductions in or changes to DoD tuition assistance, VA education benefits, Title IV programs, ~~VA education benefits,~~ and other payment sources could have a significant impact on the Company’s ~~business, operations, financial condition and cash flows.~~operations. As of June 30, 2020, approximately 59% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment. Active duty military students generally take fewer courses per year on average than non-military students.

A summary of APEI Segment revenue derived from ~~APUS~~ students by primary funding source for the three and ~~nine~~ ~~months~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019 is included in the table below (unaudited).:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
DoD tuition assistance programs	44%	40%	43%	40%
VA education benefits	21%	23%	22%	22%
Title IV programs	20%	24%	21%	24%
Cash and other sources	15%	13%	14%	14%

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
DoD tuition assistance programs 36.3% 35.3% 36.5% 35.8%
Title IV programs 27.4% 29.5% 26.9% 29.2%
VA education benefits 22.8% 22.3% 22.7% 22.1%
Cash and other sources 13.5% 12.9% 13.9% 12.9%

~~HCN students also utilize various payment sources and programs to finance their educational expenses, including Title IV programs and VA education benefits. For the~~ ~~nine~~ ~~months ended September 30, 2017 and 2016, approximately 83.5% and 84.4%, respectively,~~ A summary of HCN Segment revenue ~~was~~ derived from ~~Title IV programs.~~students by primary funding source for the three and sixmonth periods ended June 30, 2020 and 2019 is included in the table below (unaudited):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Title IV programs	83%	80%	82%	80%
Cash and other sources	15%	18%	16%	18%
VA education benefits	2%	2%	2%	2%

~~Note 13. Subsequent Event~~

~~Index~~

On December 1, 2015, the Company made a $3.5 million investment in preferred stock of RallyPoint, an online social network for members of the military. The Company’s investment represented approximately 14% of RallyPoint’s fully diluted equity and entitled APEI to two board observer seats. On October 24, 2017, the Company made an additional $300,000 investment in preferred stock of RallyPoint. Subsequent to the additional investment, the Company’s fully diluted ownership was unchanged and the Company continues to be entitled to two board observer seats.

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.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 ~~report~~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, ~~2016,~~2019, or ~~the~~our Annual Report.

Forward-Looking Statements

~~Some of the statements contained in this~~This Quarterly Report ~~on Form 10-Q that are not historical facts are~~contains forward-looking statements ~~within~~intended to be covered by the ~~meaning of~~safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements, including statements regarding our operations, performance and financial condition, strategic initiatives, and the regulatory and competitive environments affecting our business, to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Quarterly Report on Form 10-Q is filed with the Securities and Exchange Commission, or the SEC. We may ~~in some cases,~~ use words such as ~~“project,”~~ “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements. ~~The forward-looking~~Forward-looking statements in this Quarterly Report include, without limitation, statements regarding:

•changes to and expectations regarding our student enrollments, net course registrations, and the composition of our student body;

•our ability to maintain, develop, and grow our technology infrastructure to support our student body;

•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;

•our plans for, marketing of, and initiatives at, 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 branches of the United States Armed Forces;

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

•our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements;

•our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist;

•the competitive environment in which we operate;

•our cash needs and expectations regarding cash flow from operations;

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

•our ability to manage, grow, and diversify our business and execute our business initiatives and strategy;

•our expectations regarding the effects of and our response to the COVID-19 pandemic, including our ability to successfully shift to blended in person and online learning at HCN, impacts on business operations and our financial results, and our ability to take advantage of emergency relief and to comply with related regulations; and

•our financial performance generally.

Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to ~~us. These beliefs, assumptions~~us and ~~expectations can change as a result~~are not guarantees of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition and results of operations may vary materially from those expressed in our forward-looking statements.future results. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. ~~These important~~Risks and uncertainties involved in forward-looking statements include, among others:

•the effects, duration and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, particularly at HCN and as a result of working remotely;

•our dependence on the effectiveness of our ability to attract students who persist in our institutions’ programs;

•our inability to effectively market our programs;

•adverse effects of changes our institutions make to improve the student experience and enhance their ability to identify and enroll students who are likely to succeed;

•our inability to maintain strong relationships with the military and maintain enrollments from military students;

•our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation;

•our loss of eligibility to participate in Title IV programs or ability to process Title IV financial aid;

•our need to successfully adjust to future market demands by updating existing programs and developing new programs; 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 ~~include those that we discuss~~and the factors described elsewhere in ~~this section of~~ this Quarterly Report, ~~on Form 10-Q,~~including in the “Risk Factors” section, in the “Risk Factors” section of ~~this Quarterly Report on Form 10-Q, in the “Risk Factors” section of the~~our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC. ~~You should~~It is important that you read these factors and the other cautionary statements made in this Quarterly ~~Report on Form 10-Q in combination with the more detailed description of our business in the Annual~~ Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If ~~one or more~~any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may ~~vary~~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 forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements ~~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 on-campus postsecondary education to approximately ~~86,500~~85,400 students through two subsidiary institutions. Our subsidiary institutions offer programs designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities that may advance students in their current professions or help them prepare for their next career. Our subsidiary institutions are licensed or otherwise authorized by state authorities, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

On March 11, 2020, the World Health Organization declared the novel coronavirus COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The pandemic did not materially impact our results of operations during the six month period ended June 30, 2020. However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain. For example, in March 2020, we implemented our business continuity plans and employees transitioned to a remote workforce, and HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. While not yet material, ongoing and future impacts of the COVID-19 pandemic may cause additional disruption of educational services provided to our students, cause a disruption in revenue, lead to increased absenteeism in our workforce, increase costs for HCN to continue to deliver courses in person and online, be considered a triggering event to evaluate the value of HCN goodwill, lead to an impairment of APEI investments, impact the recoverability of receivables, and lead to an increase in bad debt expense and cohort default rates, among other impacts. For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly Report.

Our wholly-owned operating subsidiary institutions include the following:

~~Index~~

•American Public University System, Inc., or APUS, which provides online postsecondary education ~~directed primarily at~~to approximately 83,700 adult learners. APUS is an accredited university system with a history of serving the academic needs of the military, military-affiliated, public service and ~~public safety communities. APUS is an online university system, which includes:~~service-minded communities through two brands: American Military University, or AMU, ~~which is focused on educating military students,~~ and American Public University, or ~~APU, which is focused on educating non-military students.~~

APU.

APUS ~~has approximately 84,700 students and~~ offers ~~108~~124 degree programs and ~~107~~112 certificate programs in diverse fields of study, ~~including~~with a particular focus on those relevant to today’s job market and emerging fields. Fields of study include traditional academics, such as business administration, health science, technology, criminal justice, education and liberal arts, as well as public service-focused fields of study such as national security, military studies, intelligence, and homeland security. APUS ~~is regionally accredited by~~has institutional accreditation from the Higher Learning Commission, or ~~HLC.~~

~~In connection with the previously disclosed organizational realignment of APUS,~~ HLC, requested that APUS submit an application to enable HLC to determine whether APUS’s proposal to enter into a shared-services model with APEI constitutes a change in organization or structure that requires HLC prior approval. On December 22, 2016, APUS submitted the requested change-of-structure application. HLC is currently reviewing APUS’s application and ~~as part of the review process conducted an on-site visit to APUS in early May 2017. On June 26, 2017, HLC notified APUS that HLC has delayed completing and issuing a report~~several of its ~~on-site visit because HLC staff believes that HLC’s Criteria~~academic programs have specialized accreditation granted by industry governing organizations.

On April 7, 2020 APUS announced Momentum 2020, a $20.0 million scholarship initiative for ~~Accreditation and related policies do not provide an explicit frame~~undergraduate students of ~~reference for how the Criteria for Accreditation should~~four-year, primarily campus-based institutions who may be ~~applied to a shared-services model between an accredited institution and a related entity. On July 7, 2017, HLC notified APUS that~~experiencing disruptions at its June 29, 2017 meeting the HLC Board of Trustees authorized the commencement of a process to develop a framework for applying the Criteria of Accreditation to such shared-services models through HLC’s Change of Control, Structure or Organization process. HLC indicated that a group of HLC Board of Trustees members and HLC staff will present a proposed frameworktheir home institutions due to the ~~full HLC Board of Trustees~~coronavirus pandemic. Momentum 2020 will enable students to continue their education by

taking up to two undergraduate courses for ~~its consideration at its November 2017 meeting. HLC indicated that APUS will have an opportunity to update its application after~~transfer using a framework is approved, and HLC staff will issue its report after reviewing any such updates. We believe that the earliest that the HLC Board of Trustees would make a determination on the change of structure application is February 2018. HLC had planned to visit APUS50% tuition grant for each course started in February 2017 as part of a standard mid-cycle review. However, as a result of the change-of-structure application process, HLC postponed that mid-cycle review until the third quarter of 2018. We are unable to predict whether HLC will approve APUS’s application and whether or not such approval will be subject to limitations or conditions. Further, we are unable to predict what changes, if any, HLC may require to APUS’s organizational realignment and how such changes may impact our business, operations, financial condition, results of operations, and cash flows.

~~In September 2016, ED began a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years. The program review remains open and ongoing.~~May through August 2020 unless otherwise extended. At this time, we cannot predict the ~~outcome of the program review, when it will be completed, or whether ED will place any liability or other limitations on APUS as a result of the review.~~

In April 2017, APUS continued to strengthen its verification process by implementing new procedures for prospective non-military students, an effort that originated in April 2015 with the implementation of a requirement for prospective students to complete a free, noncredit admissions assessment. APUS has made multiple changes to the assessment process since its original implementation and may further modify it in the future in order to better identify college-ready students. For example, in July 2017 APUS implemented a process requiring enhanced verification of prospective non-military students’ prior transcripts. Even if our admissions process initiatives are successful in achieving the desired result of identifying and enrolling students that are likely to succeed and improving the student experience, they could result in adverse impacts on APUS enrollments. These initiatives require significant time, energy and resources, and if our efforts are not successful, they may adversely impact ~~our results of operations, cash flows and financial condition.~~

In July 2017, APUS began accepting applications for two applied doctoral programs in Strategic Intelligence and Global Security with the first cohorts scheduled to begin in January 2018. The programs meet the need for higher-level education and research combined with professional practice in these fields. We expect to incur start-up expenses ranging from approximately $0.4 million to $0.6 million during the remainder of 2017. We cannot predict whether APUS’s new programs will be successful or how they will impact our results of operations, cash flows, or financial condition.

In July 2017, the Council on Education for Public Health, or CEPH, notified APUS that the CEPH Board of Councilors acted in June 2017 to accredit the Master of Public Health program for a five-year term, extending until July 1, 2022.

~~Index~~

On August 3, 2017, we received from the Attorney General of the Commonwealth of Massachusetts a Civil Investigative Demand, or CID, dated July 31, 2017, relating to an investigation of alleged unfair or deceptive acts or practices by AMU in connection with the recruitment and retention of students and the financing of education. The CID requires the production of documents and information relating to recruitment, enrollment, job placement and other matters. We are cooperating with the Attorney General’s office and cannot predict the eventual scope, duration or outcome of the investigation at this ~~time. Furthermore, we cannot predict what affect, if any, the CID~~initiative will have on our ~~financial position~~revenue, operating margins, or ~~results of operations.~~income.

~~In September 2017, Dr. Karan H. Powell announced that she would retire from her role as President of APUS on October 15, 2017.~~On June 30, 2020, we entered into an Amendment to Amended and Restated Employment Agreement, or the Amendment, with Dr. Wallace E. Boston, ~~was appointed Interim~~the President of APUS. The Amendment amends Dr. Boston’s Amended and Restated Employment Agreement, which had contemplated that Dr. Boston would retire as APUS ~~until a permanent replacement is appointed. We incurred approximately $1.3 million in costs related~~President on June 30, 2020. Pursuant to the ~~retirement~~Amendment, Dr. Boston will now retire as APUS President on August 12, 2020 when Dr. Wade Dyke assumes the role of ~~Dr. Powell in the period ending September 30, 2017.~~APUS President.

APUS is in the process of adopting new general education requirements and anticipates the implementation of the new requirements in the first quarter of 2018. These new requirements will change the courses that are required of all students. While we believe the changes in the general education requirements are beneficial for our students and will result in a better and more positive educational experience, we cannot predict what effect, if any, these new requirements will have on the total number of registrations, student persistence, or our financial position or results of operations.

For more information on the potential risks associated with the above APUS initiatives, APUS more generally, and applicable accreditation matters, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

•National Education Seminars, Inc., which we refer to as Hondros College of Nursing, or HCN,, provides nursing education to approximately ~~1,800~~1,700 students at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the ~~State~~needs of ~~Ohio, as well as online. HCN offers a Diploma in Practical Nursing, or PN Program,~~local nursing and ~~an Associate Degree in Nursing, or ADN Program.~~healthcare communities that addresses the persistent supply-demand gap of nurses that is evident nation-wide. The Ohio campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo. In March 2020, in response to the COVID-19 global pandemic, HCN, ~~also offers an~~leveraging the expertise of APUS, shifted to a blended model with online ~~Registered Nurse~~delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to ~~Bachelor of Science~~offer courses in ~~Nursing completion program, which we refer to as the RN-to-BSN Program, predominately to students in Ohio.~~

a virtual setting for those that prefer remote course learning.

~~We acquired~~ HCN on November 1, 2013. In January 2016, we received a letter from ED approving the change in ownership and control of HCN and granting HCN provisional certification to participate in Title IV programs until December 31, 2018. HCN received a fully executed Provisional Program Participation Agreement, or PPPA, in February 2016. While provisionally certified, HCN operates under the PPPA, which requires HCN to apply for and receive approval from the Secretary of Education before initiating any substantial changes, such as establishing an additional location at which at least 50% of an eligible program will be offered and Title IV program funds will be disbursed, offering academic programs at higher than the bachelor’s degree level, or adding a new education program. In June 2016, ED approved HCN’s application to open a new campus in suburban Toledo, Ohio. HCN had previously obtained required approvals fromis institutionally accredited by the Accrediting ~~Council of Independent Colleges and~~Bureau for Health Education Schools, or ~~ACICS, the State of~~ABHES, and HCN’s Ohio ~~Board of Nursing, or OBN,~~locations and programs are approved by the Ohio State Board of Career Colleges and Schools, or the Ohio State Board. ~~The new campus~~HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by the Ohio Board of Nursing, or OBN, and the PN Program is accredited by the National League for Nursing Commission for Nursing Education Accreditation, or NLN CNEA.

In April 2020, HCN began ~~operations~~classes for the first cohort of students enrolled in ~~January 2017. HCN incurred expenses related to~~ the ~~start-up of the new campus. We cannot predict whether~~PN Program at HCN’s new campus ~~will be successful~~in Indianapolis, Indiana. Classes began online as a result of the COVID-19 pandemic but have since shifted to a blended learning model. HCN has been authorized by the Indiana Board for Proprietary Education/Indiana Commission for Higher Education to offer instruction at the campus in Indiana. The Indiana State Board of Nursing has voted to grant initial accreditation and authorized the admission of the first cohort of students. HCN has also notified NLN CNEA of the opening of the Indianapolis campus. While NLN CNEA approval is not required to begin classes, NLN CNEA may accept the notification or ~~how it will impact our results~~take other actions, such as requesting follow-up information or imposing conditions. NLN CNEA’s March 2020 Board of ~~operations, cash flows,~~Commissioners meeting was canceled due to the COVID-19 pandemic. HCN has not received any additional requests or follow up communication.

Beginning January 1, 2020, HCN began offering an institutional grant to students demonstrating financial ~~condition.~~need to cover the difference between the total cost of tuition and fees and the amount of all eligible financial aid resources. The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources. HCN awarded approximately $45,200 and $69,700 of institutional grants during the three and six month periods ended June 30, 2020, respectively.

Each of HCN’s campuses is nationally accredited by ACICS. By decision dated December 12, 2016, the Secretary of ED withdrew and terminated ED’s recognition of ACICS, as discussed more fully in “Regulatory and Legislative Activity” below in this Quarterly Report and in our Annual Report.

~~ACICS requires accredited institutions to submit~~ABHES annually ~~certain campus-level and program-level data (e.g., retention rates, placement rates, and licensure exam pass rates) for purposes of monitoring~~reviews student achievement ~~against established requirements,~~indicators, including ~~minimum “standards” and expected “benchmarks.” To satisfy ACICS’s standards, the~~ retention rate, placement rate, and ~~licensure exam~~licensing and credentialing examination pass ~~rate each must exceed 60%. To satisfy ACICS benchmarks, each rate must exceed 70%. If ACICS~~rate. Under ABHES policy, ABHES may withdraw accreditation at any time if it determines that an ~~institution’s campus-level~~institution fails to demonstrate at least a 70% retention rate for each program, a 70% placement rate for each program, or ~~program-level data do not satisfy one~~a 70% pass rate on mandatory licensing and credentialing examinations, or ~~more standards~~fails to meet the state-mandated results for credentialing or ~~benchmarks, ACICS~~licensure. Alternatively, ABHES may ~~take~~in its discretion provide opportunity for a program to come into compliance within a period of time specified by ABHES, and ABHES may extend the period for achieving compliance if a program demonstrates improvement over time or other good cause. In February 2020, ABHES notified HCN that it had taken additional actions with respect to certain ~~actions. In January 2017, ACICS published a new policy, effective December 6, 2016, that defines~~HCN programs at certain locations related to those programs’ performance in ~~terms of metric ranges when a particular action will be taken~~relation to ABHES student achievement indicators. Specifically, ABHES: (i) placed the PN programs at the ~~campus~~Dayton and Toledo campuses on program ~~levels, including placement on~~specific warning status because the programs have failed to meet the 70% retention rate threshold since HCN’s 2017-2018 annual

report and informed HCN that those programs must meet the retention rate threshold by May 1, 2020; (ii) removed the ADN programs at the Cleveland and Toledo campuses from outcomes reporting status ~~issuance of a~~after placement rates for those programs at those locations met the 70% compliance ~~warning, issuance of a show-cause directive, or issuance of an adverse action. In~~threshold; (iii) continued outcomes reporting status for the PN program at the Columbus campus because it has not met the retention rate compliance threshold and reconfirmed that it has until May ~~2017, ACICS published~~

~~Index~~

~~proposed changes~~1, 2021 to ~~its Accreditation Criteria~~do so; and (iv) directed HCN to ~~clarify certain aspects~~provide evidence to ABHES that the ADN programs at each of the ~~new policy. ACICS accepted~~Columbus, Cleveland, Cincinnati, Dayton, and Toledo campuses and the ~~proposed changes~~PN programs at the Cleveland and Cincinnati campuses met the retention rate compliance threshold for the period from July 1, 2019 through March 31, 2020 and informed HCN that those programs must meet the compliance threshold by May 1, 2021. On April 22, 2020, HCN notified ABHES that, as ~~final effective August 4, 2017.~~

of March 31, 2020, HCN met the 70% retention rate threshold at each campus location. For the reporting year July 1, ~~2015~~2019 through June 30, ~~2016, several HCN campuses~~2020, HCN’s programs satisfied ABHES’s threshold requirements for retention rates, placement rates, and programs did not satisfy ACICS student achievement measures. As a result, HCN received notices from ACICS, particularly with respect to the PN Program at the Cleveland campus, which received a program-level Show-Cause Directive related to its placement rate that was later vacated; the Cleveland campus, which received a campus-level Compliance Warning related to its placement rates; the ADN Program at the Cleveland campus, which received a program-level Compliance Warning related to its placement rate;mandatory licensure and ~~the Cleveland and Dayton campuses, which were placed on campus-level Reporting status related to their retention~~credentialing examination pass rates. In response to some of these actions by ACICS, HCN was required to develop Improvement Plans. In addition, in connection with the campus-level Compliance Warning for the Cleveland campus, HCN submitted required information to ACICS. For more information related to these actions from ACICS and the required responses from HCN, see our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017.

HCN has an in-process application for accreditation by Accrediting Bureau of Health Education Schools, or ABHES, a national accreditor for allied health schools that is recognized by ED for federal student financial aid purposes. ABHES policies require that institutions and programs applying for ABHES accreditation must advise ABHES immediately of any adverse or potentially adverse action, including a Show-Cause Directive, by another accrediting agency. HCN timely notified ABHES of the ACICS Show-Cause Directive for the PN Program at the Cleveland campus, of HCN’s response, and when the Show-Cause Directive was vacated.ABHES also reserves the right not to grant initial accreditation if an institution is on probation or an equivalent status imposed by another accrediting agency. At this time, we cannot predict how ABHES will respond to ACICS’s actions described above, including how they will impact any decision with respect to initial accreditation of HCN or any of HCN’~~s programs or campuses as part of that initial accreditation decision.~~

In August 2017, the Ohio State Board notified HCN of a formal disciplinary action against HCN’s Cincinnati campus because the campus discontinued offering one version of the PN Program curriculum allegedly without the Ohio State Board’s permission and implemented a new PN Program curriculum. It was alleged that at least three students enrolled in the discontinued curriculum were unable to complete the PN Program without incurring substantial costs and time to transfer into and complete the program with the new curriculum. On August 10, 2017, HCN requested a hearing before the Ohio State Board with respect to the notification and HCN is cooperating with the Ohio State Board on resolution of the matter. If the Ohio State Board findsThere can be no assurance that HCN ~~violated the Ohio State Board’s requirements, it could limit, suspend, revoke or refuse~~will be able to ~~issue or renew a certificate of registration or program authorization or impose a civil penalty of not more than $3,500 for each violation.~~continue to demonstrate compliance in all cases.

The Ohio Board of Nursing conducted a routine site visit regarding the HCN PN Program from July 24 to July 25, 2017. On August 9, 2017 the OBN notified HCN that it did not make any adverse findings as a result of the visit.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program ~~that is~~ approved by the OBN. ~~Regulations of the~~The OBN ~~require~~requires that nursing education programs ~~such as HCN’s PN and ADN Programs~~ have a pass rate on the relevant National Council Licensure Examination, or NCLEX, that is at least 95% of the national average for first-time candidates in a calendar year. If a program does not attain ~~such~~this pass rate, the program may face various consequences. OnIn March 8, 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program ~~has~~had not met the ~~OBN~~ pass rate standard for four consecutive ~~years. We believe the ADN program pass rate has been negatively affected by the pass rates at HCN’s Cleveland campus over the last several~~ years. The OBN will consider restoring a program to Full Approval status ~~after a program is placed on provisional status due to low NCLEX scores~~ if the program ~~attains a~~meets the pass rate ~~that meets or exceeds 95% of the national average for first-time candidates~~standard for at least two consecutive years. If a program on provisional approval ~~continues to fail~~fails to meet OBN requirements at the ~~requirements,~~end of the time period established for provisional approval, the OBN may propose to continue provisional approval for a set time period or may propose to withdraw ~~its approval of~~approval. In March 2020, the ~~program pursuant to an adjudication proceeding.~~OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year. HCN has been implementing changes, including ~~the~~ curriculum, admissions, and academic achievement and course retake policy changes ~~discussed in our Annual Report,~~ that are designed to ~~help increase~~improve NCLEX scores over time, but there is no assurance that these changes will be ~~successful. Similarly, the actions HCN is taking to improve its student achievement measures may~~successful or will not be successful in resolving existing issues or may fail to prevent additional issues from arising with respect to other campuses or programs. Any consequences that result from failure to meet testing standards or student achievement measures may have ~~an adverse impact~~negative effects on ~~our results of operations, cash flows, and financial condition.~~HCN’s enrollment.

~~Index~~

For more information on the potential risks associated with these HCN initiatives and HCN more generally, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain levels. Pursuant to requirements of the Higher Education Opportunity Act enacted in 2008, which amended the Higher Education Act, if the cohort default rate for any year exceeds 40%, an institution loses eligibility to participate in Title IV programs, and if the institution’s cohort default rate exceeds 30% for three consecutive years, the institution loses eligibility to participate in Title IV programs. If an institution’s cohort default rate is equal to or greater than 30% in any year it must establish a default prevention task force. In September 2017, ED released final official cohort default rates for institutions for federal fiscal year 2014, with ED reporting a 23.6% cohort default rate for APUS and an 11.4% cohort default rate for HCN. Additional information regarding student loan default rates, prior year default rates, and potential risks associated with them is available in our Annual Report.

Regulatory and Legislative Activity

~~As more fully explained in our Annual Report, service members of~~In October 2018, ED announced that a negotiated rulemaking committee broadly focused on accreditation and innovation, or the United States Armed Forces are eligible to receive tuition assistance from their branch of service through the Uniform Tuition Assistance Program of the Department of Defense, or DoD tuition assistance programs. Service members may use the DoD tuition assistance programs to pursue postsecondary degrees at institutions that are accredited by accrediting agencies recognized by the Secretary of Education. Each institution participating in the DoD tuition assistance programs is required by a DoD rule to sign a DoD-developed standard Memorandum of Understanding, or MOU, outlining certain commitmentsAccreditation and agreements between the institution and DoD prior to being permitted to participate in the DoD tuition assistance programs. Both APUS and HCN have signed the MOU. APUS is approved and HCN is currently awaiting DoD’s approval to participate in the DoD tuition assistance programs. We do not anticipate that participation in the DoD tuition assistance programs will have a material impact on HCN’s enrollments or revenue.

~~By signing the MOU, APUS agreed~~Innovation Committee, would prepare proposed regulations related to, among other things, participate in DoD’s Third Party Education Assessment. In January 2017, DoD announced that its Third Party Education Assessment will take the form of a new Voluntary Education Institutional Compliance Program, or ICP, which will replace the former process, the Military Voluntary Education Review. The ICP will utilize a sampling approach to review regularly the 2,700 educational institutions that participate in the DoD tuition assistance programs. Each year, DoD will select randomly 200 institutions and use a risk-based model to select 50 additional institutions. The risk-based model will take into account several data elements, including: rate of course completion; total verified complaints; changes in enrollment of students receiving tuition assistance; ratio of graduation rate relative to cost per course; changes in graduation rate; and total number of enrollment transactions processed. The ICP will be an iterative process with three stages. After each stage, DoD will narrow the list of institutions subject to heightened review in the following stage. DoD will share the findings from each stage with other government agencies and regulators. An institution that is selected and has no issues will be exempt from random selection for three years and from risk-based selection for one year. By signing the MOU, APUS also agreed to participate in the ICP when requested. APUS was notified on May 8, 2017 that it is included in the first set of 250 institutions selected to participate in the ICP. On May 29, 2017, APUS submitted a self-assessment as part of the first stage of the ICP, and has not received a response. ~~Within six months after receipt of any~~ assessment report findings, institutions must resolve the findings and provide information to DoD regarding corrective actions taken. In instances when the resolution cannot be completed within six months, the institution must submit a status report every three months until the finding is resolved. An educational institution that demonstrates an unwillingness to resolve a finding may be subject to penalties ranging from a written warning to revocation of the MOU and termination of the institution’s participation in the DoD tuition assistance programs.

In early May 2017, the Coast Guard announced that the funding limit for active duty Coast Guard members using DoD tuition assistance for fiscal year 2017 was expected to be exhausted in mid to late May 2017, and that once these funds were exhausted, tuition assistance for active duty Coast Guard members would be suspended and no new tuition assistance applications would be accepted or authorized for the remainder of the fiscal year ending September 30, 2017. However, on May 19, 2017, the Coast Guard announced that additional funding for tuition assistance had been received and tuition assistance applications would continue to be processed under existing eligibility criteria. For more information related to the DoD tuition assistance programs and their potential risks, please refer to our Annual Report.

As more fully explained in our Annual Report, by decision dated December 12, 2016, the Secretary of the U.S. Department of Education, or ED, withdrew and terminated ED’s recognition of ACICS. When the Secretary withdraws the recognition of an accrediting agency, a postsecondary educational institution may be allowed to continue its participation in the Title IV programs on a provisional basis for a period not to exceed 18 months from the date of the Secretary’s decision to allow

~~Index~~

the institution to seek accreditation from another recognized accrediting agency. ED has indicated that during the period of provisional participation it will deem an ACICS-accredited institution to hold recognized accreditation and will require the institution to comply with certain conditions and restrictions. On December 21, 2016, HCN and ED executed a revised PPPA and addendum to the PPPA in which HCN agreed to comply with ED’s conditions and requirements. HCN has an in-process application for accreditation by the Accrediting Bureau of Health Education Schools, or ABHES. ABHES is a national accreditor for allied health schools recognized by ED. As part of the accreditation application process, ABHES conducted a site visit to each HCN location in October 2017.

On December 15, 2016, ACICS filed a motion for a temporary restraining order and preliminary injunction against ED in the United States District Court for the District of Columbia. ACICS asked the court to stay the Secretary’s decision terminating ACICS’s recognition status, restore ACICS’s recognition status, and enjoin ED from enforcing the requirements for ACICS-accredited institutions, including those set forth in ED’s revised PPPA. On December 20, 2016, the court denied ACICS’s request for a temporary restraining order, and on February 21, 2017, the court denied ACICS’s request for a preliminary injunction. On March 31, 2017, ACICS filed a motion for summary judgment seeking to vacate the Secretary’s decision terminating ACICS’s recognition status and requesting that the court return ACICS’s petition for continued recognition to ED for reconsideration. On April 28, 2017, ED filed a cross-motion for summary judgment. Briefing on the motions was completed on May 26, 2017, and the court may schedule a hearing to assist in its consideration of the motions. On October 4, 2017, ACICS announced that it had submitted to ED a formal petition for recognition as a national accreditor.

As discussed more fully in our Annual Report, on November 1, 2016, ED published final regulations, which we refer to as the Borrower Defense Regulations, to, among other things, establish a new federal standard and a process for determining whether a Direct Loan borrower has a defense to repayment on a Direct Loan based on an act or omission of an institution. On January 19, 2017, ED published additional regulations to establish procedural rules governing the two-part borrower defense and recovery proceedings where ED asserts borrower defense claims on behalf of a group of borrowers. The regulations published January 19, 2017 also amend ED’s existing regulations governing the process used to assess a fine, limitation, suspension, or termination against an institution by adding procedurescourses offered through which ED may seek to recover a monetary liability assessed against an institution under ED’s previous borrower defense regulations that remain in effect. The regulations published on January 19, 2017 were effective immediately.~~On June 16, 2017,~~distance education. ED published a notice of proposed rulemaking on April 2, 2020 based on consensus language agreed to by the Accreditation and Innovation Committee and accepted public comments on the proposal until May 4, 2020. The proposed rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs. For example, the ~~Federal Register~~proposed rulemaking clarifies and simplifies requirements related to ~~announce~~direct assessment programs, including with respect to eligibility requirements and subscription-based programs. The proposed rulemaking also provides new definitions for “academic engagement,” “distance education,” and “regular and substantive interaction” in order to provide further clarity regarding the instructional requirements for distance education programs. ED announced that it plans to release a final rule before November 1, 2020, which would allow the rule to go into effect on July 1, 2021.

The COVID-19 pandemic has resulted in ~~light~~widespread disruptions in higher education, particularly with respect to institutions that engage in on-ground delivery of education, and a number of related regulatory developments. The pandemic led to the ~~existence~~shifting of HCN’s courses to a blended model with online delivery of its courses and ~~potential consequences~~on campus delivery of ~~pending litigation~~certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. HCN’s next comprehensive evaluation for renewal of accreditation by ABHES had been ~~brought in federal court~~scheduled for April 2020, but has been postponed due to ~~challenge~~ the Borrower Defense Regulations, ED decided to postpone indefinitely the implementation of certain provisions of the Borrower Defense Regulations. Provisions postponed indefinitely include the portions of the Borrower Defense Regulations that would have (i) established a new federal standardpandemic and ~~process for determining whether a borrower~~related disruptions. ABHES has a defense to repayment on a Direct Loan based on an act or omission of an institution, (ii) prohibited institutions that participate in the Direct Loan program from using certain contractual provisions regarding dispute resolution, such as pre-dispute arbitration agreements or class action waivers, and required certain notifications and disclosures regarding the use of arbitration, and (iii) revised ED’s financial responsibility standards and added related disclosure requirements. Certain other provisions of the Borrower Defense Regulations that are not the subject of pending litigation have not been delayed and became effective July 1, 2017. On June 16, 2017, ED announced that it intends to ~~convene~~hold a ~~negotiated rulemaking committee~~virtual comprehensive evaluation meeting, but has not yet announced a date. In addition, ED has issued numerous statements that provide guidance on how institutions are permitted to ~~develop proposed regulations~~handle certain federal student financial aid requirements under certain circumstances related to ~~revise~~responses to the ~~Borrower Defense Regulations~~COVID-19 pandemic.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, in response to ~~address certain other~~COVID-19 and its related ~~matters. ED held two public hearings and solicited written comment from~~effects. Due to the COVID-19 pandemic, many higher education institutions shifted to distance learning as campuses shut down as a result of the public health emergency. The CARES Act includes provisions

designed to provide relief to higher education institutions in connection with ~~respect~~the COVID-19 pandemic. The CARES Act created the Higher Education Emergency Relief Fund, or HEERF, that includes $12.6 billion in funding for higher education institutions. The CARES Act authorizes ED to allocate funding based on a statutory formula that accounts for the relative share of full-time students who are Pell Grant recipients. Students who were enrolled exclusively in distance education courses prior to the ~~agenda~~COVID-19 emergency are excluded from this calculation. Wholly online institutions were not eligible to receive an allocation of funding under the HEERF given the allocation formula’s exclusion of students enrolled exclusively in distance education courses prior to the onset of the COVID-19 emergency. ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation. No allocation of HEERF funds was made to APUS by ED.

The CARES Act requires recipient institutions to use at least 50% of their HEERF funds to provide emergency grants to students for expenses related to the disruption of campus operations due to COVID-19. The CARES Act also permits institutions to use up to 50% of their HEERF funds to cover any costs associated with significant changes to the delivery of instruction due to COVID-19, so long as such costs do not include payment to contractors for the ~~negotiated rulemaking committee, which is expected~~provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to ~~meet for~~athletics, sectarian instruction, or religious worship. Although HCN incurred costs to shift its operations and delivery of instruction in light of COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students. As of June 30, 2020, HCN had distributed its entire allocation of $3.1 million in HEERF funds to eligible students.

The CARES Act also includes waivers of certain Higher Education Act provisions related to the first time in November 2017. We submitted written comments on the agenda for the negotiated rulemaking committee on July 12, 2017. On August 30, 2017, ED announced that as part of the negotiated rulemaking committee to develop proposed regulations to revise the Borrower Defense Regulations it will form a subcommittee to focus on potential modifications to ED’sfederal student financial responsibility regulations. On October 24, 2017, ED published an interim final rule in the Federal Register to delay until July 1, 2018 the effective date of the provisions of the Borrower Defense Regulations identified in the June 16, 2017 notice. ED stated that delay to a specific date, namely July 1, 2018 or July 1 of a later year, is requiredaid programs in order to ~~comply~~provide regulatory flexibility to institutions in connection with COVID-19-related disruptions. The CARES Act modifies processes related to the Higher Education Act’s master calendar requirements for rulemaking. On October 24, 2017, ED also published a notice in the Federal Register announcing ED’s intent to delay beyond July 1, 2018 to July 1, 2019 the effective datereturn of the provisions of the Borrower Defense Regulations identified in the June 16, 2017 notice, because ED determined it would not be practicable to engage in negotiated rulemaking and publish final regulations before July 1, 2018.

~~Under the Higher Education Act of 1965, or HEA, as amended, proprietary schools are generally eligible to participate in~~unearned Title IV ~~programs only~~funds in ~~respect of educational programs that prepare students~~connection with student withdrawals during the COVID-19 pandemic, extends time limits for “gainful employment in a recognized occupation.” On October 31, 2014, ED published final regulations related to gainful employment, or the Final GE Regulations. On June 16, 2017, ED announced that it intends to convene a negotiated rulemaking committee to develop proposed regulations to revise the Final GE Regulations. ED held two public hearingsPell Grants and solicited written comment from the public with respect to the agenda for the negotiated rulemaking committee, which is expected to meet for the first time in December 2017. We submitted written comments on the agenda for the negotiated rulemaking committee on July 12, 2017.

~~Index~~

Previously, on March 7, 2017, ED announced that it would provide institutions subject to the Final GE Regulations additional time to comply with certain aspects of the Final GE Regulations. In particular, ED extended to July 1, 2017 the deadline for an institution to submit an alternative earnings appeal to the debt-to-earnings rates that were released by ED in January 2017. In addition, ED extended to July 1, 2017 the date by which an institution was required to update disclosures for each of their GE programs using the 2017 disclosure template published by ED on January 19, 2017. On June 30, 2017, ED announced that, in response to a court order, it would further extend the deadline for an institution to submit an alternative earnings appeal. On August 18, 2017, ED established October 6, 2017 as the deadline for all programs to file a notice of intent to file an alternate earnings appeal and February 1, 2018 as the deadline for all programs to submit an alternate earnings appeal. On June 30, 2017, ED also announced that it will allow institutions until July 1, 2018 to comply with certain disclosure requirements in the Final GE Regulations, including requirements to include a link to the disclosure template in promotional materials and to distribute directly a copy of the disclosure template to prospective students. The June 30, 2017 announcement did not change the July 1, 2017 deadline for the requirement to provide a completed disclosure template, or a link thereto, on GE program web pages, and the Final GE RegulationsDirect Loans as a ~~whole have not been delayed or altered. Accordingly, pending additional guidance or instruction from ED, APUS~~result of withdrawals during this period, allows for flexibility in measuring the satisfactory academic progress of students, and ~~HCN must~~permits institutions to continue ~~to comply with the other requirements of the Final GE Regulations.~~

Executive Order 13777, “Enforcing the Regulatory Reform Agenda,” signed by the President on February 24, 2017, directs Federal agencies including ED to establish a Regulatory Reform Task Force to evaluate existing regulations and make recommendations to the agency head regarding the regulations. The first Progress Report from the ED Regulatory Reform Task Force identifies a list of over 150 ED regulations that will be reviewed by the Task Force. The Progress Report also notes that the Task Force will review 1,772 issues of policy-related guidance that are subject to the Executive Order. In connection with Executive Order 13777, on June 22, 2017, ED announced that it was seeking public input on regulations that may be appropriate for repeal, replacement, or modification. We submitted written comments on September 20, 2017.

Beginning July 1, 2017, in accordance with the Consolidated Appropriations Act, 2017, institutions that participate in the Title IV programs may award Pell Grant funds for up to 150% of a student’s standard scheduled Pell Grant in one award year. This provision, which commonly is referred to as “year-round Pell”, is intended to allow students to graduate more quickly and with less debt. To be eligible for the additional Pell Grant funds, a student must be otherwise eligible to receive Pell Grant funds and must be enrolled at least half-time in the payment period for which the student receives additional Pell Grant funds in excess of 100% of the student’s standard scheduled award.

On August 16, 2017, the President signed into law the Harry W. Colmery Veterans Educational Assistance Act of 2017, commonly known as the Forever GI Bill. The bill makes several changes to the administration of VA education benefits. Among other things, for service members who left the military after January 1, 2013, the bill removes a requirement that they use their Post-9/11 GI Bill benefits within 15 years after their last 90-day period of active-duty service. The bill also alters the way the VA calculates eligibility for VA education benefits by providing additional benefits to service members with at least 90 days but less than six months of active-duty service. Additionally, the bill will restore VA education benefitsmaking federal work study payments to students who ~~were enrolled in schools~~can no longer meet work study obligations during the period. Additionally, the CARES Act suspends payments for Federal Family Education Loans and Direct Loans until September 30, 2020. During this period, these loans will not accrue interest and ED will suspend involuntary collection practices. However, borrowers may choose to make payments towards principal on these loans voluntarily.

On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that ~~closed~~allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the NCLEX. Graduates of OBN-approved nursing education programs, such as HCN’s programs, may apply for a temporary license that would be valid until the earlier of March 1, 2021 and 90 days after ~~January 2015 if their credits did not transfer.~~the period of emergency ends.

We cannot predict the extent to which the aforementioned regulatory activity or any other potential regulatory or legislative activity, including as a result of COVID-19, may impact us or our institutions, nor can we predict the possible associated burdens and costs. Additional information regarding the regulatory and legislative environment and potential risks associated with it is available in our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

Reportable Segments

Our operations are organized into two reportable segments:

•American Public Education Segment, or APEI Segment.This segment reflects the operational activities of APUS, other corporate activities, and minority ~~investments.~~

investments; and

•Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN.

Summary of Results

For the three ~~month period~~months ended ~~September~~June 30, ~~2017,~~2020, our consolidated revenue ~~decreased~~increased to $82.1 million from ~~$73.8 million to $73.3~~$70.6 million, or by ~~0.7%~~16.4%, ~~over~~compared to the ~~comparable~~ prior year period. Our operating margins increased to 11.0% from ~~0.5% to 10.4%~~8.0% for the three ~~month period~~months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period. For the ~~nine~~ ~~month period~~six months ended ~~September~~June 30, ~~2017,~~2020, our consolidated revenue ~~decreased~~increased to $156.7 million from ~~$234.5 million to $221.2~~$144.0 million, or by ~~5.7%~~8.8%, ~~over~~compared to the

~~Index~~

~~comparable~~ prior year period. Our operating margins ~~decreased~~increased to 7.5% from ~~11.5% to 10.0%~~4.9% for the ~~nine~~ ~~month period~~six months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period. Net income increased to $6.7 million from $4.9 million, or by 35.9%, compared to the prior year period.

For the three ~~month period~~months ended ~~September~~June 30, ~~2017,~~2020, APEI Segment revenue ~~decreased~~increased to $73.5 million from ~~$67.1 million to $64.9~~$63.4 million, or by ~~3.3%~~15.9%, ~~over~~compared to the ~~comparable~~ prior year period. Net course registrations at APUS for the three months ended June 30, 2020 increased to approximately 89,600 from approximately 75,900, or approximately 18.1%, compared to the prior year period.

APEI Segment operating margins increased to 12.3% from ~~8.4% to 10.6%~~10.4% for the three ~~month period~~months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period.

For the ~~ninemonth period~~six months ended ~~September~~June 30, ~~2017,~~2020, APEI ~~Segment~~segment revenue ~~decreased~~increased to $140.6 million from ~~$212.9~~$129.2 million, to ~~$197.3 million~~, or by ~~7.3%~~8.9% compared to the prior year period. Net course registrations at APUS for the six months ended June 30, 2020 increased to approximately 174,400 from approximately 160,200, or approximately 8.9%, ~~over~~compared to the ~~comparable~~ prior year period. APEI Segment operating margins decreased to 9.0% from ~~14.7%~~ to ~~10.4%~~10.9% for the ~~nine month period~~six months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period. ~~Net~~

The increase in net course registrations is primarily due to an increase in military-related registrations from students utilizing DoD tuition assistance which is at ~~APUS decreased 4.3% and 6.7% for the three and~~ ~~nine~~ ~~month periods ended September 30, 2017, respectively, over the comparable prior year periods.~~a lower revenue per net course registration than other funding sources. Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty. During the three and nine months ended September 30, 2017, APEI Segment recorded a loss on disposal of long-lived assets of $0.4 million and $1.6 million, respectively. During the comparable prior year periods, APEI Segment recorded a loss on disposals of long-lived assets of $5.1 million and $5.9 million, respectively.

For the three ~~month period~~months ended ~~September~~June 30, ~~2017,~~2020, HCN Segment revenue increased to $8.6 million from ~~$6.7 million to $8.4~~$7.1 million, or by ~~24.6%~~20.5%, ~~over~~compared to the ~~comparable~~prior year period. Total enrollment at HCN for the three months ended June 30, 2020 increased to approximately 1,700 from approximately 1,500, or approximately 13.7%, as compared to the prior year period. New student enrollment at HCN for the three months ended June 30, 2020 increased to 492 from 314, or approximately 56.7%, as compared to the prior year period. HCN Segment operating margins increased to negative 0.4% from negative ~~78.2% to 8.9%~~12.7% for the three ~~month period~~months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period.

For the ~~nine~~ ~~month period~~six months ended ~~September~~June 30, ~~2017,~~2020, HCN Segment revenue increased to $16.1 million from ~~$21.7 million to $23.8~~$14.9 million, or by ~~10.1%~~8.4%, ~~over~~compared to the ~~comparable~~ prior year period. HCN Segment operating margins increased to negative 5.7% from negative ~~19.3% to 7.5%~~47.4% for the ~~nine~~ ~~month period~~six months ended ~~September~~June 30, ~~2017, over~~2020, compared to the ~~comparable~~ prior year period. ~~Enrollment at HCN for the three month period ended September 30, 2017 increased from 1,610 to 1,790, or approximately 11.2% over the comparable prior year period, and for the~~ ~~nine~~ ~~month periods ended September 30, 2017 and September 30, 2016~~

The increase in new student enrollment was ~~unchanged.~~due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty. ~~During the three and nine months ended~~ ~~September 30, 2016, HCN Segment recorded a $4.7 million impairment charge on goodwill.~~

We believe ~~these~~the changes in revenue and operating margins are primarily due to the factors discussed below in the “Results of Operations” section of this Management’s Discussion and Analysis.

Critical Accounting Policies and Use of Estimates

For information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Use of Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

We provide incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within our operating expenses. For the year ending December 31, 2017, our Compensation Committee approved an annual incentive arrangement generally applicable to senior management employees, with the aggregate amount of any awards payable dependent upon the achievement of certain Company financial and operational goals as well as individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, determination regarding incentive awards is not expected to be made until after the results for the year ending December 31, 2017 are finalized. Because assessing actual performance against many of these objectives cannot generally occur until at or near year-end, determining the amount of expense that we incur in our interim financial statements for incentive-based compensation involves the judgment of management. Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected. During the three months ended September 30, 2017, management determined that certain financial and operational goals related to cash incentive awards would not be achieved. Therefore, the previously recorded accruals related to these awards were reduced during the period. As a result, we recognized an aggregate benefit of approximately $0.4 million for the three months ended September 30, 2017 and $0.9 million of expense for the ~~nine~~ month periods ended September 30, 2017, compared to $0.8 million and $2.5 million of expense for the three and nine month periods ended September 30, 2016, respectively, associated with our 2017 and 2016 incentive-based compensation plans.

In the past we have invested in, and in the future we expect to continue to invest in, improving the APUS student experiences and our business operations. These investments can result in an increased level of spending, and may cost more than expected or fail to be successful. As a result, these types of changes are not without risk to our operations and financial results. For example, unsuccessful development or improvement efforts, or replacing assets that have not been fully depreciated, could result in our having to impair long-lived assets. For example, for the year ended December 31, 2016, APUS reported a $4.0

~~Index~~

~~million cost associated with the abandonment of development of a new student course registration system. We could incur further impairments in the future.~~

~~In the first quarter of 2017, APUS launched Momentum~~^TM, a competency-based education, or CBE, program. In September 2017, the ED Office of the Inspector General, or ED OIG, issued a final audit report concluding that a non-profit university that had previously received approval from ED to offer competency-based programs for purposes of the Title IV programs, did not satisfy institutional eligibility requirements to participate in the Title IV programs due to the relative level of student enrollments in correspondence courses. ED OIG recommended that ED’s Federal Student Aid division require repayment of Title IV program funds. To the extent that the issues raised by ED OIG’s report or other developments impacting the assessment by ED of CBE programs would cause delays or prevent ED’s approval of Momentum^TM~~for participation in federal student aid programs, our investment in the program may be impaired.~~

Results of Operations

Below we have included a discussion of our operating results and material changes in our operating results during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. 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 APEI and HCN 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 expenses.

The higher education industry has experienced rapid changes due to technological developments, evolving student needs, regulatory challenges, increased competition, and challenges in the military markets. We believe that these factors have contributed to a decline in enrollments at our institutions and have had a negativeCOVID-19 did not materially impact on our results of ~~operations. As discussed~~operations during the three and six months ended June 30, 2020. However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain. For example, in March 2020, in response to the pandemic, HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. While not yet material, ongoing and future impacts may cause additional disruption of educational services provided to students, increase costs for HCN to continue to deliver courses in person and online, and could be considered a triggering event to evaluate the value of HCN goodwill, impairment of investments, and recoverability of receivables. For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly ~~Report~~Report. In addition, during the three and six months ended June 30, 2020, and thereafter, we have experienced a significant decrease in interest

rates, including in connection with the COVID-19 pandemic, and we expect to continue to earn reduced interest income on ~~Form 10-Q and~~our invested funds.

Enrollment at HCN improved for the three months ended June 30, 2020 as compared to the prior year period due in ~~our Annual Report, we are undertaking certain strategic initiatives,including those discussed above~~part to an increase in demand for nursing education, a change in the ~~“Overview” section~~competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of ~~this Management’s Discussion~~new initiatives implemented in 2019 such as the direct entry ADN Program, and ~~Analysis, that we believe over~~ the ~~long term may increase our ability to compete for new students, enroll students who are more college ready, and retain existing and future students.~~implementation of the institutional affordability grant in the first quarter of 2020. We cannot predict whether ~~these~~our initiatives and efforts will continue to be successful over the long term and cannot guarantee ~~that we will be able to reverse our revenue decline. Although we cannot predict what adjustments may be necessary or costs may be incurred as a result of our institutions’ decline in enrollments~~continued enrollment and revenue ~~any such adjustments and costs may have an adverse impact on~~growth in our ~~results~~HCN Segment. The success of ~~operations or financial condition.~~these efforts could also be adversely affected by future impacts of the COVID-19 pandemic.

For more information on the initiatives discussed above, our operations, and related risk factors, please refer to ~~our Annual Report and~~ the “Overview” section of this Management’s Discussion and ~~Analysis.~~Analysis and our Annual Report.

Our consolidated results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 reflect the operations of our APEI and HCN Segments. For a more detailed discussion of our results by reportable segment, refer to our Analysis of Operating Results by Reportable Segment.

Analysis of Consolidated Statements of Income

For the Consolidated Statements of Income, refer to our Financial Statements: Consolidated Statements of Income. The following table sets forth statements of income data as a percentage of revenue for each of the periods ~~indicated (unaudited):~~indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)

Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Instructional costs and services	37.4		40.7		38.2		39.3
Selling and promotional	20.8		20.0		22.5		20.2
General and administrative	26.5		25.7		27.3		25.8
Loss on disposals of long-lived assets	0.2		—		0.2		0.1
Impairment of goodwill	—		—		—		4.1
Depreciation and amortization	4.1		5.6		4.3		5.6
Total costs and expenses	89.0		92.0		92.5		95.1

Income from operations before interest income and income taxes	11.0		8.0		7.5		4.9
Interest income, net	0.2		1.6		0.5		1.5

Income from operations before income taxes	11.2		9.6		8.0		6.4
Income tax expense	3.1		2.7		2.2		1.3
Equity investment loss	—		—		—		(1.0)
Net income	8.1	%	6.9	%	5.8	%	4.1	%

~~Index~~

Three Months Ended
September 30,
Nine Months Ended
September 30,
2017 2016 2017
2016
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:

Instructional costs and services 39.2
38.4
39.6
37.1
Selling and promotional 20.0
17.8
19.9
19.0
General and administrative 23.5
23.2
23.3
21.7
Loss on disposals of long-lived assets 0.5
7.0
0.7
2.5
Impairment of goodwill —
6.4
—
2.0
Depreciation and amortization 6.4
6.7
6.4
6.2
Total costs and expenses 89.6
99.5
89.9
88.5

Income from operations before interest income and income taxes 10.4
0.5
10.1
11.5
Interest income —
0.1
—
—

Income from operations before income taxes 10.4
0.6
10.1
11.5
Income tax expense 4.5
0.1
4.4
4.5
Equity investment gain 0.1
—
—
0.3
Net Income 6.0 % 0.5 % 5.7 % 7.3 %

Three Months Ended ~~September~~June 30, ~~2017~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2019

Revenue. Our consolidated revenue for the three months ended ~~September~~June 30, ~~2017~~2020 was ~~$73.3~~$82.1 million, ~~a decrease~~an increase of ~~$0.5~~$11.5 million, or ~~0.7%~~16.4%, compared to ~~$73.8~~$70.6 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The increase in revenue ~~decrease is~~was due to a ~~$2.2~~$10.1 million, or ~~3.3%~~15.9%, increase in revenue ~~decrease~~ in our APEI Segment ~~partially offset by~~and a ~~$1.7~~$1.4 million, or ~~24.6%~~20.5%, increase in revenue ~~increase~~ in our HCN Segment. ~~The~~In our APEI Segment, ~~revenue decrease was primarily due to a 4.3% decrease in~~ net course ~~registrations.~~registrations by new students increased 30.0% and total net course registrations increased 18.1% during the three months ended June 30, 2020, as compared to the prior year period. The HCN Segment revenue increase was primarily due to ~~an 11.2%~~a 56.7% increase in new student enrollment and ana 13.7% increase in ~~revenue per student due to a change in student mix and other factors.~~total enrollment.

Costs and expenses. Costs and expenses for the three months ended ~~September~~June 30, ~~2017~~2020 were ~~$65.7~~$73.1 million, ~~a decrease~~an increase of ~~$7.7~~$8.2 million, or ~~10.5%~~12.6%, compared to ~~$73.4~~$64.9 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~decrease~~increase in costs and expenses for the three months ended June 30, 2020 as compared to the prior period was primarily due to ~~goodwill impairment expense recorded during the three months ended September 30, 2016~~an increase in employee compensation costs, advertising and marketing support costs, and professional fees in our APEI Segment and an increase in instructional materials costs in our HCN Segment ~~and~~partially offset by a decrease in ~~loss on disposals of long-lived assets~~commencement and travel costs in our APEI ~~Segment partially offset by increases~~Segment. The three months ended June 30, 2020 includes the following costs on a pre-tax basis: $2.1 million increase in ~~employee compensation~~advertising costs ~~including~~compared to the prior year period, $1.3 million in professional fees associated with growth opportunities, and $1.0 million in information technology costs related to the ~~retirement~~replacements and upgrades to our information technology systems, including the replacements of ~~the APUS President,~~our learning management and ~~classroom subscription services expense in our APEI Segment.~~customer relationship management systems. Costs and expenses as a percentage of revenue decreased to ~~89.6%~~89.0% for the three months ended ~~September~~June 30, ~~2017,~~2020, from ~~99.5%~~92.0% for the three months ended ~~September~~June 30, ~~2016.~~2019. The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the ~~goodwill impairment expense recorded during the three months ended September 30, 2016~~increase in ~~our HCN Segment~~costs and ~~a lower loss on disposals of long-lived assets in our APEI Segment.~~expenses.

Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended ~~September~~June 30, ~~2017~~2020 were ~~$28.7~~$30.7 million, ~~representing~~ an increase of ~~1.3%~~$2.0 million, or 7.0%, from ~~$28.4~~$28.7 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The increase in instructional costs and services expenses was primarily ~~the result of increases~~due to an increase in employee compensation ~~expenses~~costs in our ~~HCN~~APEI Segment and an increase in ~~classroom subscription services expense~~employee compensation and instructional materials costs in our ~~APEI~~HCN Segment partially offset by ~~decreases~~a decrease in ~~professional fees~~commencement and ~~instructional materials expense~~travel costs in our APEI Segment. Instructional costs and services expenses as a percentage of revenue ~~were 39.2%~~decreased to 37.4% for the three months ended ~~September~~June 30, ~~2017, compared to 38.4%~~2020, from 40.7% for the three months ended ~~September~~June 30, ~~2016.~~2019. The ~~increase~~decrease in instructional costs and services expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in instructional costs and services ~~expenses during a period when consolidated revenue decreased.~~expenses.

Selling and promotional expenses. Our selling and promotional expenses for the three months ended ~~September~~June 30, ~~2017~~2020 were ~~$14.6~~$17.1 million, ~~representing~~ an increase of ~~11.4%~~$3.0 million, or 21.1%, from ~~$13.1~~$14.1 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The increase

~~Index~~

in selling and promotional expenses was primarily ~~the result of~~due to an increase in advertising ~~expenses~~costs in our APEI and HCN Segments and an increase in employee compensation costs and marketing support ~~materials expense~~costs in our APEI Segment partially offset by a decrease in travel costs in our APEI Segment. Advertising costs increased $1.9 million in our APEI Segment and $0.2 million in our HCN Segment and marketing support costs increased $0.5 million in our APEI Segment as compared to the prior year period. Selling and promotional expenses as a percentage of revenue increased to 20.8% for the three months ended June 30, 2020, from 20.0% for the three months ended ~~September~~June 30, ~~2017, from 17.8% for the three months ended September 30, 2016.~~2019. The increase in selling and promotional expenses as a percentage of revenue was primarily due to ~~the increase in~~ selling and promotional expenses ~~during~~increasing at a ~~period when~~rate greater than the increase in our consolidated ~~revenue decreased.~~revenue.

General and administrative expenses. Our general and administrative expenses for the three months ended ~~September~~June 30, ~~2017~~2020 were ~~$17.2~~$21.7 million, ~~representing~~ an increase of ~~0.7%~~$3.6 million, or 19.9%, from ~~$17.1~~$18.1 million for the three months ended ~~September~~June 30, ~~2016.~~2019. The increase in general and administrative expenses was primarily related to increases in employee compensation costs, including costs related to the retirement of the APUS President, partially offset by decreases in bad debt expense in our APEI Segment. Bad debt expense for the three months ended ~~September~~June 30, ~~2017 was $1.2 million, or 1.6% of revenue,~~2020 as compared to ~~$1.6 million, or 2.2% of revenue in~~ the prior year ~~period. The decrease in bad debt expense~~period was primarily ~~due to changes in student mix, changes in admissions and verification, and changes in other processes. General and administrative expenses as a percentage of revenue increased to 23.5% for~~ the three months ended September 30, 2017, from 23.2% for the three months ended September 30, 2016. The increase in general and administrative expenses as a percentage of revenue was primarily due to the increase in general and administrative expenses during a period when consolidated revenue decreased.

~~Loss on disposals of long-lived assets.~~ The loss on disposals of long-lived assets for the three months ended September 30, 2017 was $0.4 million as compared to $5.1 million for the three months ended September 30, 2016. The three months ended September 30, 2016 includes a $4.0 million loss on the abandoned development of a new student course registration engine in our APEI Segment.

~~Impairment of goodwill.~~ ~~The impairment of goodwill for the three months ended September 30, 2016 of $4.7 million resulted from the reduction of the carrying value of goodwill in our HCN Segment.~~

~~Depreciation and amortization expenses.~~ Depreciation and amortization expenses were $4.7 million and $4.9 million for the three months ended September 30, 2017 and 2016, respectively. Depreciation and amortization expenses as a percentage of revenue decreased to 6.4% for the three months ended September 30, 2017, from 6.7% for the three months ended September 30, 2016. The decrease in depreciation and amortization expenses as a percentage of revenue was due to our depreciation and amortization expenses decreasing at a rate greater than our consolidated revenue.

~~Stock-based compensation expenses.~~ Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $1.6 million and $1.3 million for the three months ended September 30, 2017 and 2016, respectively. For additional information regarding our stock-based and other compensation expenses, please refer to “Note 9. Stock-Based Compensation” in the Notes to Consolidated Financial Statements in this Quarterly Report.

~~Income tax expense.~~ We recognized income tax expense for the three months ended September 30, 2017 and September 30, 2016 of $3.3 million and $0.1 million, respectively, or effective tax rates of 43.0% and 20.7%, respectively. The increase in our effective tax rate for the three months ended September 30, 2017 is primarily due to changes in the apportionment of state taxes and adjustments related to taxes paid for 2016. The reduction in the effective tax rate for the three months ended September 30, 2016 is related to a change in the apportionment of state taxes and favorable adjustments related to taxes paid for the 2015 tax year.

~~Equity investment income.~~ ~~Equity investment income was $0.04 million for the three months ended September 30, 2017 and a loss of $0.02 million for the three months ended September 30, 2016, respectively.~~

~~Net income.~~ Our net income was $4.4 million for the three months ended September 30, 2017, compared to net income of $0.3 million for the three months ended September 30, 2016, an increase of $4.0 million. This increase was related to the factors discussed above.

~~Index~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Revenue.~~ Our consolidated revenue for the nine months ended September 30, 2017 was $221.2 million, a decrease of $13.4 million, or 5.7%, compared to $234.5 million for the nine months ended September 30, 2016. The revenue decrease is due to a $15.5 million, or 7.3%, revenue decrease in our APEI Segment, partially offset by a $2.2 million, or 10.1%, revenue increase in our HCN Segment. The APEI Segment revenue decrease was a result of a 6.7% decrease in net course registrations. The HCN revenue increase was primarily a result of an increase in ~~revenue per student related to a change in student mix and other factors.~~

~~Costs and expenses.~~ Costs and expenses for the nine months ended September 30, 2017 were $198.9 million, a decrease of $8.6 million, or 4.1%, compared to $207.5 million for the nine months ended September 30, 2016. The decrease in costs was primarily related to goodwill impairment expense recorded in our HCN Segment during the third quarter of 2016, a decrease in loss on disposals of long-lived assets and bad debt expense in our APEI Segment partially offset by costs related to the retirement of the former APUS President, increases in legal expenses, employee compensation costs ~~marketing support materials expense~~ and classroom subscription services expense in our APEI Segment. Costs and expenses as a percentage of revenue increased to 89.9% for the nine months ended September 30, 2017, from 88.5% for the nine months ended September 30, 2016. The increase in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue decreasing at a rate greater than the decrease in our costs and expenses.

~~Instructional costs and services expenses.~~ Our instructional costs and services expenses for the nine months ended September 30, 2017 were $87.5 million, representing an increase of 0.6% from $87.0 million for the nine months ended September 30, 2016. The increase in instructional costs and services expenses was primarily the result of increases in classroom subscription services expense in our APEI Segment and employee compensation costs in our HCN Segment partially offset by decreases in instructional materials expense in our APEI Segment. Instructional costs and services expenses as a percentage of revenue were 39.6% for the nine months ended September 30, 2017, compared to 37.1% for the nine months ended September 30, 2016. The increase in instructional costs and services expenses as a percentage of revenue was due to the increase in instructional costs and services expenses during a period when consolidated revenue decreased.

~~Selling and promotional expenses.~~ Our selling and promotional expenses for the nine months ended September 30, 2017 were $44.1 million, representing a decrease of 1.1% from $44.6 million for the nine months ended September 30, 2016. The decrease in selling and promotional expenses was primarily the result of a decrease in advertising expenses in our APEI Segment partially offset by an increase in marketing support materials in our APEI Segment. Selling and promotional expenses as a percentage of revenue increased to 19.9% for the nine months ended September 30, 2017, from 19.0% for the nine months ended September 30, 2016. The increase in selling and promotional expenses as a percentage of revenue was due to our consolidated revenue decreasing at a rate greater than the decrease in our selling and promotional expenses.

~~General and administrative expenses.~~ Our general and administrative expenses for the nine months ended September 30, 2017 were $51.6 million, representing an increase of 1.8% from $50.7 million for the nine months ended September 30, 2016. The increase in general and administrative expenses was primarily related to an increase in legal expenses, costs incurred in connection with the retirement of the former APUS President, and increases in professional fees in our APEI Segment partially offset by decreases in employee compensation costs in our HCN Segment and bad debt expense ~~and financial aid processing fees~~ in our APEI Segment. ~~Bad~~For the three months ended June 30, 2020, general and administrative expenses include approximately $1.3 million in professional fees associated with growth opportunities, and $1.0 million of information technology costs related to replacements and upgrades to our information technology systems in our APEI Segment, including replacements of our learning management and customer relationship management systems. Consolidated bad debt expense for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 was ~~$3.5~~$1.0 million, or ~~1.6%~~1.2% of revenue, compared to ~~$5.5~~$0.9 million, or ~~2.4%~~1.3% of revenue in the prior year period. General and administrative expenses as a percentage of revenue increased to ~~23.3%~~26.5% for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2020, from ~~21.7%~~25.7% for the ~~nine~~three months ended ~~September~~June 30, ~~2016.~~2019. The increase in general and administrative expenses as a percentage of revenue was primarily due to ~~the increase in~~ general and administrative expenses ~~during~~increasing at a ~~period when~~rate greater than the increase in our consolidated ~~revenue decreased.~~revenue. As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect our general and administrative expenses related to professional fees will vary from time to time, with an increase expected in the third quarter of 2020.

Loss on disposals of long-lived assets. The loss on disposals of long-lived assets ~~for the nine months ended September 30, 2017~~ was ~~$1.6~~$0.2 million ~~as compared to $5.9~~and $0.0 million for the ~~nine~~three months ended ~~September~~June 30, ~~2016. The nine months ended September 30, 2016 includes a $4.0 million loss on the abandoned development of a new student course registration engine in our APEI Segment.~~2020 and 2019, respectively.

~~Impairment of goodwill.~~ ~~The impairment of goodwill for the nine months ended September 30, 2016 of $4.7 million resulted from the reduction of the carrying value of goodwill in our HCN Segment.~~

Depreciation and amortization expenses. Depreciation and amortization expenses were ~~$14.2~~$3.4 million and ~~$14.6~~$3.9 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Depreciation and amortization expenses as a percentage of revenue ~~increased~~decreased to ~~6.4%~~4.1% for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2020, from ~~6.2%~~5.6% for the ~~nine~~three months ended ~~September~~June 30,

~~Index~~

~~2016.~~ 2019. The ~~increase~~decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to ~~consolidated revenue decreasing at~~ a ~~rate greater than the~~ decrease in depreciation and amortization ~~expense.~~expenses during a period when consolidated revenue increased.

Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was ~~$4.3~~approximately $1.6 million for both the three months ended June 30, 2020 and 2019. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income. Interest income was $0.2 million and ~~$4.0~~$1.1 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~For additional information regarding our stock-based and other compensation expenses, please refer~~The decrease was due to ~~“Note 9. Stock-Based Compensation”~~a decrease in interest rates when compared to the ~~Notes to Consolidated Financial Statements in this Quarterly Report.~~prior year period.

Income tax expense. We recognized income tax expense of $2.5 million and $1.9 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016 of $9.7 million and $10.5 million,~~2019, respectively, or effective tax rates of ~~43.2%~~27.5% and ~~37.9%~~27.8%, respectively. The ~~increase~~effective tax rate for the three months ended June 30, 2020 includes a lower amount of non-deductible expenses in proportion to pre-tax income as compared to the prior period. There was no material impact to our effective tax rate for the ~~nine~~three months ended ~~September~~June 30, ~~2017 is due to~~2020 as a result of the ~~implementation~~effects of ~~ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718)~~ ~~which resulted in $0.5~~the COVID-19 pandemic and related programs.

Equity investment income (loss). Equity investment income was $0.0 million ~~in additional income tax expense, changes in state tax apportionment,~~ and ~~adjustments related to taxes paid~~$0.01 million for 2016. Under ASU 2016-09, excess tax benefits and tax deficiencies associated with stock based compensation must be recognized in the income statement and in operating activities on the statements of cash flow. Previously, the excess tax benefits and tax deficiencies were recorded in additional paid-in capital under stockholders’ equity on the balance sheet and under financing activities on the statements of cash flow. Because expiring stock options with an option price greater than the current stock price expired during the three months ended ~~March 31, 2017, the reversal of the tax benefit that was reported when the stock options were issued is now recorded in the income statement.~~June 30, 2020 and 2019, respectively.

~~Equity investment income.~~ Equity investment income was $0.1 million and $0.7 million for the nine months ended September 30, 2017 and September 30, 2016, respectively. Equity investment income for the nine months ended September 30, 2016 includes $0.7 million in income related to our share of earnings from NWHW Holdings, Inc.’s favorable adjustment of its deferred tax asset valuation allowance.

Net income. Our net income was ~~$12.7~~$6.7 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2020, compared to net income of ~~$17.3~~$4.9 million for the ~~nine~~three months ended ~~September~~June 30, ~~2016, a decrease~~2019, an increase of ~~$4.6 million, or 26.4%.~~$1.8 million. This ~~decrease~~increase was related to the factors discussed above.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue. Our consolidated revenue for the six months ended June 30, 2020 was $156.7 million, an increase of $12.7 million, or 8.8%, compared to $144.0 million for the six months ended June 30, 2019. The increase in revenue was due to a $11.5 million, or 8.9% increase in our APEI Segment and a $1.3 million, or 8.4%, increase in revenue in our HCN Segment. In our APEI Segment, net course registrations by new students and total net course registrations increased 14.4% and 8.9%, respectively, during the six months ended June 30, 2020, as compared to the prior year period. The HCN Segment revenue increase was primarily due to a 43.3% increase in new student enrollment and a 1.5% increase in total enrollment.

Costs and expenses. Costs and expenses for the six months ended June 30, 2020 were $145.0 million, an increase of $8.1 million, or 5.9%, compared to $136.9 million for the six months ended June 30, 2019. The increase in costs and expenses was primarily due to increases in employee compensation costs, advertising and marketing support costs, professional fees, and information technology costs in our APEI Segment and increases in advertising costs, instructional materials costs, facilities costs, and bad debt expense in our HCN Segment partially offset by decreases in commencement and travel costs in our APEI Segment. The six months ended June 30, 2020 includes the following costs on a pre-tax basis: $4.6 million increase in advertising costs compared to the prior year period, $1.9 million in professional fees associated with growth opportunities, and $1.9 million in information technology costs related to the replacements and upgrades to our information technology systems, including the replacements of our learning management and customer relationship management systems. Costs and expenses for the six months ended June 30, 2019 include a $5.9 million pretax, non-cash impairment of goodwill in our HCN Segment. Costs and expenses as a percentage of revenue decreased to 92.5% for the six months ended June 30, 2020, from 95.1% for the six months ended June 30, 2019. The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Instructional costs and services expenses. Our instructional costs and services expenses for the six months ended June 30, 2020 were $60.0 million, an increase of $3.4 million, or 5.9%, from $56.6 million for the six months ended June 30, 2019. The increase in instructional costs and services expenses was primarily due to an increase in employee compensation costs in our APEI Segment and increases in employee compensation costs, instructional materials costs, and facilities costs in our HCN Segment, partially offset by a decrease in commencement and travel costs in our APEI Segment. Instructional costs and services expenses as a percentage of revenue decreased to 38.2% for the six months ended June 30, 2020, from 39.3% for the

six months ended June 30, 2019. The decrease in instructional costs and services expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in instructional costs and services expenses.

Selling and promotional expenses. Our selling and promotional expenses for the six months ended June 30, 2020 were $35.2 million, an increase of $6.1 million, or 21.0%, from $29.1 million for the six months ended June 30, 2019. The increase in selling and promotional expenses was primarily the result of increased advertising and marketing support costs, and employee compensation costs in our APEI Segment and an increase in advertising costs in our HCN Segment. Advertising costs increased $4.2 million and marketing support costs increased $0.5 million in our APEI Segment and advertising costs increased $0.4 million in our HCN Segment as compared to the prior year period. Selling and promotional expenses as a percentage of revenue increased to 22.5% for the six months ended June 30, 2020, from 20.2% for the six months ended June 30, 2019. The increase in selling and promotional expenses as a percentage of revenue was primarily due to selling and promotional expenses increasing at a rate greater than the increase in our consolidated revenue.

General and administrative expenses. Our general and administrative expenses for the six months ended June 30, 2020 were $42.7 million, an increase of $5.5 million, or 14.9%, from $37.2 million for the six months ended June 30, 2019. The increase in general and administrative expenses was primarily related to an increase in employee compensation costs, professional fees, and information technology costs in our APEI Segment and an increase in bad debt expense in our HCN Segment partially offset by a decrease in employee compensation costs in our HCN Segment. For the six months ended June 30, 2020, general and administrative expenses includes the following costs on a pre-tax basis: $1.9 million in professional fees associated with growth opportunities, $1.9 million of information technology costs related to replacements and upgrades to our information technology systems in our APEI Segment, including replacements of our learning management and customer relationship management systems. During the six month period ended June 30, 2019, our APEI Segment incurred approximately $1.4 million of pretax professional fees associated with growth opportunities. Consolidated bad debt expense for the six months ended June 30, 2020 was $2.0 million, or 1.3% of revenue, compared to $1.9 million, or 1.3% of revenue in the prior year period. General and administrative expenses as a percentage of revenue increased to 27.3% for the six months ended June 30, 2020, from 25.8% for the six months ended June 30, 2019. The increase in general and administrative expenses as a percentage of revenue was primarily due to general and administrative expenses increasing at a rate greater than the increase in our consolidated revenue. As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect our general and administrative expenses related to professional fees will vary from time to time, with an increase expected in the third quarter of 2020.

Loss on disposals of long-lived assets. The loss on disposals of long-lived assets was $0.3 million and $0.1 million for the six months ended June 30, 2020 and 2019, respectively.

Impairment of goodwill. The $5.9 million pretax, non-cash impairment of goodwill for the six months ended June 30, 2019 resulted from the reduction of the carrying value of goodwill in our HCN Segment. There was no impairment of goodwill for the six months ended June 30, 2020.

Depreciation and amortization expenses. Depreciation and amortization expenses were $6.7 million and $8.0 million for the six months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expenses as a percentage of revenue decreased to 4.3% for the six months ended June 30, 2020, from 5.6% for the six months ended June 30, 2019. The decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to a decrease in depreciation and amortization expenses during a period when consolidated revenue increased.

Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was approximately $3.3 million for both the six months ended June 30, 2020 and 2019. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income. Interest income was $0.9 million and $2.2 million for the six months ended June 30, 2020 and 2019, respectively. The decrease was due to a decrease in interest rates when compared to the prior year period.

Income tax expense. We recognized income tax expense of $3.5 million and $1.8 million for the six months ended June 30, 2020 and 2019, respectively, or effective tax rates of 27.8% and 23.6%, respectively. The increase in the effective tax rate for the six months ended June 30, 2020 is primarily due to the benefit from ASU No. 2016-09 Compensation - Stock Compensation (Topic 718), in our APEI Segment for the six months ended June 30, 2019. The effective tax rate for the six months ended June 30, 2020 includes income tax expense of $0.1 million related to ASU No. 2016-09, compared to an income tax expense benefit of $0.5 million for the six months ended June 30, 2019.

Equity investment income (loss). There was no equity investment income or loss for the six months ended June 30, 2020 compared to a loss of $1.5 million for the six months ended June 30, 2019.

Net income. Our net income was $9.1 million for the six months ended June 30, 2020, compared to net income of $5.9 million for the six months ended June 30, 2019, an increase of 53.6%, or $3.2 million. This increase 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 ~~(unaudited)~~(in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(Unaudited)						(Unaudited)
Revenue:
American Public Education Segment	$	73,547	$	63,448	$	140,641	$	129,169
Hondros College of Nursing Segment	8,602		7,141		16,141		14,888
Intersegment elimination	(22)		(29)		(39)		(56)
Total Revenue	$	82,127	$	70,560	156,743		$	144,001
Income (loss) from operations before interest income and income taxes:
American Public Education Segment	$	9,077	$	6,589	$	12,655	$	14,111
Hondros College of Nursing Segment	(35)		(910)		(921)		(7,056)
Intersegment elimination	(1)		(1)		—		5
Total income from operations before interest income and income taxes	$	9,041	$	5,678	$	11,734	$	7,060

~~Index~~

APEI Segment

For the three months ended ~~September~~June 30, ~~2017,~~2020, the ~~$2.2~~$10.1 million, ~~decrease~~or 15.9%, increase to approximately ~~$64.9~~$73.5 million in revenue in our APEI Segment was attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources. Net course registrations at APUS increased 18.1% to approximately 89,600 from approximately 75,900 during the three months ended June 30, 2020 compared to the same period in 2019. Income from operations before interest income and income taxes was $9.1 million during the three months ended June 30, 2020, an increase of 37.8% compared to the same period in 2019 as a result of an increase in revenue due to increases in registrations discussed above.

For the six months ended June 30, 2020, the $11.5 million, or 8.9%, increase to approximately $140.6 million in revenue in our APEI Segment was primarily attributable to ~~lower~~higher net course ~~registrations.~~registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources. Net course registrations at APUS ~~decreased 4.3%~~increased 8.9% to approximately ~~81,000~~174,400 from approximately 160,200 during the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the same period in 2016. We believe that the decrease in APUS’s net course registrations for the three months ended September 30, 2017 was primarily attributable to challenges associated with competition for students and challenges in the military market, the continuing effects of prior periods of decreased registrations, and ongoing declines in new student net course registrations resulting in decreased returning student net course registrations.2019. Income from operations before interest income and income taxes in our APEI Segment was ~~$6.9~~$12.7 million during the ~~three~~six months ended ~~September~~June 30, ~~2017, an increase~~2020, a decrease of ~~21.1% compared to the same period of 2016, primarily as a result of a reduction in losses on disposals of long-lived assets.~~

For the nine months ended September 30, 2017, the $15.5 million decrease to approximately $197.3 million in revenue in our APEI Segment was primarily attributable to lower net course registrations. Net course registrations at APUS decreased 6.7% to approximately 244,700 during the nine months ended September 30, 2017,10.3% compared to the same period in ~~2016.~~2019, as a result of increases in costs and expenses including higher compensation costs, advertising costs, professional fees and technology costs.

HCN Segment

For the three months ended June 30, 2020, the $1.4 million, or 20.5%, increase to approximately $8.6 million in revenue in our HCN Segment was attributable to an increase in total student enrollment. HCN total student enrollment increased 13.7% to approximately 1,700 from approximately 1,500 students during the three months ended June 30, 2020 compared to the same period in 2019. New student enrollment at HCN for the three month period ended June 30, 2020

increased to 492 from 314, or approximately 56.7%, as compared to the comparable prior year period. We believe that the ~~decrease~~increase in ~~APUS’s net course registrations~~HCN’s total student enrollment for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2020 was ~~primarily attributable~~due in part to ~~challenges associated with competition~~an increase in demand for ~~students and challenges~~nursing education, a change in the ~~military market,~~competitive environment due to COVID-19, an increase in marketing expenditures, the ~~continuing effects~~continued impact of ~~prior periods~~new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of ~~decreased registrations, and ongoing declines~~the institutional affordability grant in ~~new student net course registrations resulting in decreased returning student net course registrations. Income~~the first quarter of 2020. The loss from operations before interest income and income taxes in our ~~APEI~~HCN Segment was ~~$20.4 million~~$35,000 during the ~~nine~~three months ended ~~September~~June 30, ~~2017,~~2020, compared to a ~~decrease~~loss of ~~34.5% compared to~~$0.9 million in the same period ~~of 2016,~~in 2019, primarily as a result of ~~decreased~~the increase in revenue ~~partially offset by a reduction in losses on disposals of long-lived assets.~~due to higher enrollment discussed above.

~~HCN Segment~~

For the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2020, the ~~$1.7~~$1.3 million, or 8.4%, increase to approximately ~~$8.4~~$16.1 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment. HCN new student enrollment increased ~~11.2% to approximately 1,800~~43.3% and total student enrollment increased 1.5% during the ~~three~~six months ended ~~September~~June 30, ~~2017~~2020 compared to the same period in ~~2016. Income~~2019. We believe that the increase in HCN’s enrollment for the six months ended June 30, 2020 was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. The loss from operations before interest income and income taxes in our HCN Segment was ~~$0.7~~$0.9 million during the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2020, compared to a loss ~~from operations~~ of ~~$5.3~~$7.1 million ~~compared to~~in the same period ~~of 2016. The increase was~~in 2019, primarily as a result of ~~goodwill impairment expense of $4.7 million recognized during~~ the ~~three months ended September 30, 2016.~~

~~For the nine months ended September 30, 2017, the $2.2 million increase to approximately $23.8 million in revenue in our HCN Segment was primarily attributable to an~~ increase in revenue ~~per student related~~due to ~~a change in student mix~~higher enrollment discussed above and ~~other factors. HCN student enrollment remained unchanged during~~ the ~~nine months ended September 30, 2017 as compared to the same period in 2016. Income from operations before interest income and income taxes in our HCN Segment was $1.8~~$5.9 million ~~during the nine months ended September 30, 2017, compared to a loss of $4.2 million during the same period of 2016, primarily a result~~pretax, non-cash impairment of goodwill ~~impairment expense of $4.7 million recognized during the three months ended September 30, 2016.~~in 2019.

Liquidity and Capital Resources

Liquidity

We financed operating activities and capital expenditures during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September 30, 2016~~2019 with cash provided by operating ~~income.~~activities. Cash and cash equivalents were ~~$166.3~~$216.0 million and ~~$146.4~~$202.7 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, representing an increase of ~~$19.8~~$13.3 million, or ~~13.5%~~6.6%. Cash and cash equivalents at ~~September~~June 30, ~~2017 increased~~2020 decreased by ~~$28.6~~$4.8 million from ~~$137.7~~$220.8 million, or ~~20.7%~~2.2%, as compared to ~~September~~June 30, ~~2016.~~2019.

We derive a significant portion of our revenue from tuition assistance programs from the Department of Defense, or DoD. Generally, these funds are received within 60 days of the start of the courses to which they relate. We also participate in programs from the U.S. Department of Veterans Affairs, or VA. Generally, these funds are received within 60 days of the start of the courses to which they relate. Another significant source of revenue is derived 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. These factors, together with the number of courses starting each month, affect our operating cash flow.~~course or term.

We expect to continue to fund our costs and expenses through cash generated from operations. Based on our current level of operations, we believe that our cash flow from operations and our existing cash and cash equivalents will provide

~~Index~~

adequate funds for ongoing operations and planned capital expenditures for the foreseeable future. We expect operating expenditures to increase in future periods as we accelerate the investment inand modernization of our information technology systems and increase marketing and other expenditures. In 2019, we incurred approximately $2.1 million to evaluate and invest in replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship systems, and to inform the scope and duration of the larger overall information technology transformation program. Through the six months ended June 30, 2020, we incurred approximately $2.1 million, including $0.2 million of capital costs, of the anticipated 2020 spending of between approximately $6.0 million and $8.0 million on our information technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems. APUS signed a contract for a replacement customer relationship management system in the first quarter of 2020 and began its first cohort of students in a new learning management system in March 2020. We will continue to evaluate our Partnership At a Distance™, or PAD, customized student information and services system for possible changes and upgrades and anticipate that we will eventually make significant changes to that system, as well. Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the opening of new campuses at 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 expect ~~that~~professional fees to increase during 2020 as we ~~will continue to make expenditures to invest~~evaluate investments in strategic growth opportunities and enhancements to ~~enhance~~ our business capabilities. We ~~will~~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. We may also need additional capital in ~~connection with any change in our current level of operations,~~the future, including ~~if we were~~ to ~~pursue significant~~finance business acquisitions ~~or investment opportunities, or determine to make other significant~~and investments in technology or to achieve growth or fund other business initiatives.

Share Repurchase Program

On May 2, 2019, our ~~business.~~Board of Directors authorized the repurchase of up to $35.0 million of our common stock, and on December 5, 2019, the Board approved an additional authorization of up to $25.0 million of shares. We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. We have no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time. The authorization under this program is in addition to our repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

~~Operating Activities~~

~~Net cash provided by operating activities was $29.3 million~~During the three and ~~$42.7 million for the~~ ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, the Company repurchased 0 and ~~September~~547,563 shares of common stock, respectively. At June 30, ~~2016, respectively. The decrease in cash from operating activities was primarily due to lower net income and changes in working capital due to the timing of payments and receipts.~~2020, there remains $8.4 million available under our share repurchase authorization.

~~Investing Activities~~

~~Net cash used in investing activities was $8.0 million and $9.1 million for the~~ ~~nine~~ months ended September 30, 2017 and September 30, 2016, respectively. This decrease was primarily related to decreased capital expenditures and equity investments partially offset by increased capitalized program development costs.

~~Financing Activities~~

~~Net cash used in financing activities was $1.3 million and $1.6 million for the~~ ~~nine~~ ~~months ended September 30, 2017 and September 30, 2016, respectively. The decrease in cash used in financing activities for the~~ ~~nine~~ ~~months ended September 30, 2017 was primarily related to a reduction in excess tax benefit due to the accounting change for stock based compensation.~~ For additional information on our repurchases of our common stock, please refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of Part II of our Annual Report and “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Repurchases” of Part II of this Quarterly ~~Report on Form 10-Q.~~Report.

Operating Activities

Net cash provided by operating activities was $31.7 million and $23.7 million for the six months ended June 30, 2020 and 2019, respectively. The increase in cash from operating activities is primarily due to changes in working capital due to the timing of receipts and payments, and lower estimated tax payments in 2020. Accounts receivable at June 30, 2020, was approximately $4.4 million lower than December 31, 2019 due to the timing of payment processing by customers. Accounts payable, accrued compensation and benefits, and accrued liabilities at June 30, 2020 were approximately $5.8 million higher than December 31, 2019 primarily due to additional incentive compensation costs and the timing of expenditures and the processing of payments.

Investing Activities

Net cash used in investing activities was $2.9 million and $3.0 million for the six months ended June 30, 2020 and 2019, respectively. This decrease was primarily related to a decrease in capital expenditures and capitalized program development costs, compared to the comparable prior year period.

Financing Activities

Net cash used in financing activities was $15.6 million and $12.1 million for the six months ended June 30, 2020 and 2019, respectively. The increase in cash used in financing activities for the six months ended June 30, 2020 was related to $13.6 million used to repurchase our common stock during the three months ended March 31, 2020 in accordance with our share repurchase program, and increased cash used for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. For the six months ended June 30, 2019, $9.6 million was used to repurchase our common stock in accordance with our share repurchase program.

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Contractual Commitments

~~There~~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.

In February 2020, APUS entered into a 48 month agreement with a customer relationship management platform provider. The total value of the contract over that 48 month period is approximately $3.5 million. Other than that agreement, there were no material changes to our contractual commitments outside of the ordinary course of our business during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~.2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to the impact of interest rate changes and may be subject to changes in the market values of future investments. We invest our excess cash in bank overnight deposits. We had no material derivative financial instruments or derivative commodity instruments as of ~~September 30, 2017~~.

Market Risk

We had no material derivative financial instruments or derivative commodity instruments as of ~~September~~June 30, ~~2017.~~2020. We maintain our cash and cash equivalents in bank deposit accounts, ~~which may~~money market funds and short-term U.S. treasury bills. The bank deposits exceed federally insured limits. We have historically not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk on cash and cash equivalents. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, ~~an immediate 100 basis point change~~a 10% increase or decrease in interest rates would not have a material ~~effect~~impact on the fair market value of our portfolio.

~~Index~~

Interest Rate Risk

We are subject to risk from ~~adverse~~ changes in interest rates primarily relating to our ~~investing~~investment of ~~excess~~ funds in ~~cash equivalents bearing variable interest rates, which are tied~~short-term U.S. treasury bills issued at a discount to ~~various market indices.~~their par value. Our future investment income will vary due to changes in interest rates. For example, during the period ended June 30, 2020 and thereafter, we have experienced a significant decrease in interest rates, including in connection with the COVID-19 pandemic, and we expect to continue to reduce interest income earned on our invested funds. However, the decrease in interest income did not have a material impact on our earnings. At ~~September~~June 30, ~~2017~~,2020, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash ~~flows related to investments in cash equivalents.~~flows.

~~There~~Notwithstanding the impacts of COVID-19, there has been no material change to our market risk or interest rate ~~sensitivity~~risk during the ~~three~~six months ended ~~September~~June 30, ~~2017~~.2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of ~~September~~June 30, ~~2017~~.2020. Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017~~.2020.

Changes in Internal Control over Financial Reporting

There ~~was~~were no ~~change~~changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting. Beginning in March 2020, in response to the COVID-19 pandemic, we implemented our business continuity plan and transitioned to a remote workforce. Although the impacts of the COVID-19 pandemic have not resulted in any changes in our internal control that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, we are continually monitoring and assessing the COVID-19 pandemic and the impact it may have on our operations, including our internal control.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

~~On August 3, 2017, the Company received from the Attorney General of the Commonwealth of Massachusetts a Civil Investigative Demand, or CID, dated July 31, 2017, relating~~ From time to ~~an investigation of alleged unfair or deceptive acts or practices by AMU~~time, we have been and may be involved in connection with the recruitment and retention of students and the financing of education. The CID requires the production of documents and information relating to recruitment, enrollment, job placement and other matters. The Company continues to cooperate with the Attorney General’s office and cannot predict the eventual scope, duration or outcome of the investigation at this time, including whether any potential loss, or range of potential losses, is probable or reasonably estimable. Furthermore, the Company cannot predict what affect, if any, the investigative demand willvarious legal proceedings. We currently have ~~on its financial position or results of operations.~~no material legal proceedings pending.

Item 1A. Risk Factors

An investment in our stock involves a high degree of risk. You should carefully consider the risks set forth in the Risk Factors section of our Annual Report ~~on Form 10-K for the year ended December 31, 2016, or the Annual Report,~~ and ~~all of~~ the other information set forth in this Quarterly Report on Form 10-Q, our Annual Report, and the additional information in the other reports we file with the ~~Securities and Exchange Commission.~~SEC. If any of the risks contained in those reports actually occur, our business, results of operation, financial condition, and liquidity could be harmed, the value of our securities could decline and you could lose all or part of your investment. With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual ~~Report, as supplemented by~~Report.

The COVID-19 pandemic has caused us to have to adjust our operations, which could adversely affect the ~~Risk Factors section~~student experience, particularly at HCN, and could have additional adverse effects on our business, financial condition, or results of operations.

The ongoing COVID-19 pandemic required us to shift from campus-based to a blended model at HCN with online delivery of its courses and limited in person interactions, have nearly all of our ~~Quarterly Report~~employees work remotely, and implement business continuity processes. Ongoing impacts could also cause a disruption of educational services provided to students and increase costs for HCN to continue to deliver courses in person and online. HCN has fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. There can be no assurance that these and other protective measures we have implemented or may put in place will be successful in preventing cases of COVID-19 among our employees and students, or that HCN will not need to again further limit campus interactions or close its campuses. Furthermore, we have limited experience delivering HCN’s curriculum online, and to the extent HCN utilizes online learning HCN’s students may not experience the same level of success in coursework or with NCLEX scores as they would in a traditional campus environment. If HCN is not able to continue to deliver instruction on ~~Form 10-Q~~campus and HCN is not able to effectively create and manage online or blended versions, or otherwise arrange for ~~the quarterly period ended March 31, 2017.~~

~~Participation in the tuition assistance programs~~delivery, of all of the ~~DoD requires compliance~~required elements of HCN’s academic programs, HCN’s students may not be able to complete their studies with ~~numerous regulations, with which the failure to comply could lead to a loss of an~~HCN, impacting their ability to ~~participate in these programs~~graduate and obtain licensure, employment or their other ~~adverse events.~~

In order to participate in the DoD tuition assistance programs, institutions must, among other things, comply with a Memorandum of Understanding, or MOU, that specifies terms and conditions of participation in DoD tuition assistance programs. By signing the MOU, APUS agreed to participate in DoD’s Third Party Education Assessment. In January 2017, DoD announced that its Third Party Education Assessment will take the form of a new Voluntary Education Institutional Compliance Program, or ICP, which will replace the former process, the Military Voluntary Education Review. The ICP will utilize a sampling approach to review regularly the 2,700 educational institutions that participate in the DoD tuition assistance

~~Index~~

programs. Each year, DoD will select randomly 200 institutions and use a risk-based model to select 50 additional institutions. The risk-based model will take into account several data elements, including: rate of course completion; total verified complaints; changes in enrollment of students receiving tuition assistance; ratio of graduation rate relative to cost per course; changes in graduation rate; and total number of enrollment transactions processed. The ICP will be an iterative process with three stages. After each stage, DoD will narrow the list of institutions subject for heightened review in the following stage. DoD will share the findings from each stage with other government agencies and regulators. An institution that is selected and has no issues will be exempt from random selection for three years and from risk-based selection for one year. By signing the MOU, APUS also agreed to participate in the ICP when requested. APUS was notified on May 8, 2017 that it is included in the first set of 250 institutions selected to participate in the ICP. On May 29, 2017, APUS submitted a self-assessment as part of the first stage of the ICP, and has not received a response. Within six months after receipt of any assessment report findings, institutions must resolve the findings and provide information to DoD about corrective actions taken. In instances when the resolution cannot be completed within six months, the institution must submit a status report every three months until the finding is resolved. An educational institution that demonstrates an unwillingness to resolve a finding may be subject to a range of penalties from a written warning to revocation of the MOU and termination of the institution’s participation in the DoD tuition assistance programs. If we are no longer able to receive funds from DoD tuition assistance programs, or if those programs are reduced, eliminated, or temporarily suspended, our enrollments and revenue could be significantly reduced, whichdesired outcomes. This would ~~result in~~likely have a material adverse effect on our business, financial condition or results of operations. Furthermore, the need to practice social distancing also increases the demand for space in HCN’s facilities and HCN may need to obtain additional facilities or place caps on program size, which would adversely impact our results of operations.

While we have not experienced significant changes in interactions with students other than by temporarily shifting to online and then blended in person and online learning at HCN, we may experience such impacts in the future if the COVID-19 pandemic and its effects are prolonged or increase in scope. For example, APUS faculty, substantially all of whom work remotely in ordinary circumstances, and our student support services teams, many of whom routinely work in our offices, may experience increasing difficulty in continuing to provide quality instruction and support to our students if current social distancing and future “stay-at-home” orders impact the communities in which they live, causing disruption in their lives that could impact their ability to provide a quality product, lead to increase absenteeism, or impact their ability to continue working. Almost all of the remainder of our workforce is working remotely, and we have implemented business continuity processes, which has led to decreased operational efficiency and other challenges inherent in doing things in a manner different than our ordinary course operations. If faculty, student support services staff, administrators, or other skilled personnel cease working or are unable to work as efficiently or effectively due to the effects of the COVID-19 pandemic, we could lose capacity and expertise critical to our operations and the delivery of instruction and services to students. Over time, any reduction in operating efficiencies or other business challenges could compound or worsen, adversely impacting our operations and our ability to provide services to our students. For example, the economic downturn, restrictions on business activities, and other effects of the COVID-19 pandemic could result in the inability of our third-party vendors to serve us, which could disrupt integral business processes. Remote working and the implementation of business continuity processes also generally create operational challenges around information technology matters, including, for example, an enhanced risk of cyber events and more difficulty in responding to them. It is not practical to estimate or identify all potential risks that could arise from having substantially all of our workforce working remotely or other impacts of the COVID-19 pandemic and there may be risks that are not reasonably foreseeable. There could be significant adverse effects on our business, financial condition, and results of operations ~~and financial condition.~~

If ACICS loses its ability to serve as an accrediting agency for Title IV program purposes and HCN is unable to obtain recognition from another recognized accrediting agency, HCN would lose its ability to participate in Title IV programs and DoD tuition assistance programs.

By decision dated December 12, 2016 the Secretary of ED withdrew and terminated ED’s recognition of ACICS, which accredits HCN. As described below, ACICS has appealed the Secretary’s decision in the U.S. District Court for the District of Columbia. When the Secretary withdraws the recognition of an accrediting agency, a postsecondary educational institution may be allowed to continue its participation on a provisional basis in the Title IV programs for a periodthat we have not to exceed 18 months from the date of the Secretary’s decision to allow the institution to seek accreditation from another recognized accrediting agency. During this period of provisional participation, ED will deem an ACICS-accredited institution to hold recognized accreditation, and ED will require the institution to comply with additional conditions. ED will also impose certain additional requirements on ACICS-accredited institutionsidentified or that we do not meet certain milestones toward accreditation by another recognized accrediting agency. On December 21, 2016, HCN and ED executed a revised PPPA and addendum to the PPPA in which HCN agreed to comply with ED’s conditions and requirements. HCN has an in-process application for accreditation by ABHES, an accrediting agency that is recognized by ED.currently expect will be material.

On December 15, 2016, ACICS filed a motion for a temporary restraining order and preliminary injunction against ED in the U.S. District Court for the District of Columbia. ACICS asked the court to stay the Secretary’s decision terminating ACICS’s recognition status, restore ACICS’s recognition status, and enjoin ED from enforcing the requirements for ACICS-accredited institutions, including those set forth in ED’s PPPA. On December 20, 2016, the court denied ACICS’s request for a temporary restraining order, and on February 21, 2017, the court denied ACICS’s request for a preliminary injunction. On March 31, 2017, ACICS filed a motion for summary judgment seeking to vacate the Secretary’s decision terminating ACICS’s recognition status and requesting that the court return ACICS’s petition for continued recognition to ED for reconsideration. On April 28, 2017, ED filed a cross-motion for summary judgment. Briefing on the motions was completed as of May 26, 2017, and the court may schedule a hearing to assist in its consideration of the motions. If the court does not restore ACICS’s recognition status, HCN would not be eligible to participate in Title IV programs beyond June 12, 2018, unless HCN becomes accredited by another accrediting agency recognized by ED within that period. In addition, the approval status and in some cases funding provided by other agencies could be adversely affected by the loss of accreditation by ACICS. On October 4, 2017, ACICS announced that it had submitted to ED a formal petition for recognition as a national accreditor.

The ~~ineligibility of HCN to participate in Title IV programs would have a material adverse effect on HCN’s enrollments~~ongoing COVID-19 pandemic and ~~on our revenue, results of operations, and financial condition.~~

ACICS adopted a more rigorous policy on student achievement measures, which resulted in the PN Program at the HCN Cleveland campus receiving a Program-Level Show-Cause Directive on March 9, 2017 that was later vacated, the HCN Cleveland campus receiving a Compliance Warning on April 10, 2017, the Cleveland and Dayton campuses receiving a Reporting status on April 26, 2017, and the ADN Program at the HCN Cleveland campus receiving a Compliance Warning on April 27, 2017.

Beginning in 2012, ACICS, HCN’s accreditor, established requirements, including minimum “standards” and expected “benchmarks,” to measure student retention, graduate placement and licensure exam passage rates. To satisfy ACICS’s

~~Index~~

standards, the retention rate, placement rate, and licensure exam pass rate each must exceed 60%. To satisfy ACICS’s benchmarks, each rate must exceed 70%. If ACICS determines that an institution’s campus-level or program-level data does not satisfy one or more standards or benchmarks, ACICS may take certain actions. In January 2017, ACICS published a new policy, effective December 6, 2016, that defines in terms of metric ranges when a particular action will be taken at the campus and program levels, including placement on reporting status, issuance of a compliance warning, issuance of a Show-Cause Directive, or issuance of an adverse action.

For the reporting year July 1, 2015 through June 30, 2016, several HCN campuses and programs did not satisfy ACICS student achievement measures. On March 9, 2017, HCN received a program-level Show-Cause Directive for the PN Program at the Cleveland campus. ACICS took such action under the new policy because the placement rates initially reported for the PN Program at the Cleveland campus were between 50 - 59.9% for two consecutive years. Subsequently, on March 21, 2017, ACICS notified HCN that ACICS had granted HCN’s request to supplement the data that was used to calculate certain HCN placement rates, including the 2016 placement rate for the PN Program at the Cleveland campus that in part resulted in the Show-Cause Directive. On May 5, 2017, ACICS notified HCN that based on inclusion of the additional data, the 2016 placement rate for the PN Program at the Cleveland campus was 60%, which satisfies the ACICS “standard” but does not satisfy the ACICS “benchmark.” As a result, ACICS vacated the program-level Show-Cause Directive. We are unable to determine whether ACICS will take other action, such as placing HCN on a program-level Reporting status for the PN Program at the Cleveland campus. If a Reporting status is imposed, HCN may be required to develop and implement an Improvement Plan that includes specific activities that have been implemented to improve the programs that are impacting the program-level placement rate.

HCN received a notice from ACICS on April 10, 2017 that ACICS had issued a campus-level Compliance Warning for the Cleveland campus. ACICS took such action under the new policy because the campus-level placement rate for the Cleveland campus, which is calculated based on placements for the PN Program and the ADN Program, was between 50 - 59.9% for one year in 2016. The campus-level placement rate utilized to issue the Compliance Warning included the supplemental data discussed above. In response to the Compliance Warning, HCN was required to submit certain information to ACICS by June 1, 2017, including: an Improvement Plan that includes specific activities that have been implemented to improve the programs that are impacting campus-level placement rates; and additional placement rate information for the period July 1, 2016 to March 31, 2017. HCN submitted the required information to ACICS on June 1, 2017.

ACICS notified HCN on April 26, 2017 that ACICS had placed the Cleveland and Dayton campuses on campus-level Reporting status. ACICS took such action under the new policy because the campus-level retention rate for each of the Cleveland and Dayton campuses was between 60 - 69.9% for one year in 2016. In response to being placed on Reporting status, HCN is required, with respect to each of the Cleveland and Dayton campuses, to implement an Improvement Plan that includes specific activities being considered for purposes of positively impacting campus-level retention rates. HCN staff for each campus may also be required to attend ACICS’s Student Achievement Workshop/Webinar.

HCN received a notice from ACICS on April 27, 2017 that ACICS had issued a program-level Compliance Warning for the ADN Program at the Cleveland campus. ACICS took such action under the new policy because, taking into account the supplemental data discussed above, the program-level placement rate for the ADN Program at the Cleveland campus was between 50 - 59.9% for one year in 2016. In response to the Compliance Warning, HCN is required to develop an Improvement Plan that includes specific activities being considered and in progress for purposes of positively impacting the program-level placement rate.

If any of the HCN campuses or programs, whether addressed above or otherwise, fails to satisfy ACICS achievement measures, enrollment in such HCN campuses or programs could decline, or we could be forced to cease enrollments at those campuses or in those programs, which could have a material adverse impact on HCN’s student enrollment, revenue, and cash flows. The actions HCN is taking to improve its student achievement measures may not be successful in resolving existing issues or may fail to prevent additional issues arising with respect to other campuses or programs.

By decision dated December 12, 2016, the Secretary of ED withdrew and terminated ED’s recognition of ACICS, as discussed more fully above in this section and in our Annual Report. HCN has an in-process application for accreditation by the Accrediting Bureau of Health Education Schools, or ABHES, a national accreditor for allied health schools that is recognized by ED for federal student financial aid purposes. ABHES policies require that institutions and programs applying for ABHES accreditation must advise ABHES immediately of any adverse or potentially adverse action, including a Show-Cause Directive, by another accrediting agency. HCN timely notified ABHES of the ACICS Show-Cause Directive, HCN’s response, and when the Show-Cause Directive was vacated. ABHES also reserves the right not to grant initial accreditation if an institution is on probation or an equivalent status imposed by another accrediting agency. At this time, we cannot predict how ABHES will

~~Index~~

respond to ACICS’s actions described above, including how they will impact any decision with respect to initial accreditation of HCN or any of HCN’s programs or campuses as part of that initial accreditation decision.

~~The Ohio State Board of Career Colleges and Schools, or Ohio State Board, has initiated formal disciplinary action against HCN’s Cincinnati campus based on allegations related to~~resulting changes to ~~the PN Program curriculum. If the Ohio State Board finds that~~our teaching methodology at HCN ~~violated the Ohio State Board’s requirements, it could limit, suspend, or revoke a certificate of registration or program authorization or impose a civil penalty.~~

In August 2017, HCN received notice from the Ohio State Board of Career Colleges and Schools that the Ohio State Board was initiating formal disciplinary action against HCN’s Cincinnati campus because the campus discontinued offering one version of the PN Program curriculum allegedly without the Ohio State Board’s permission and implemented a new PN Program curriculum. It was alleged that at least three students enrolled in the discontinued curriculum were unable to complete without transferring into the new program and incurring substantial costs and time to complete the program. As permitted, on August 10, 2017, HCN requested a hearing before the Ohio State Board with respect to the notification and HCN is cooperating with the Ohio State Board on the matter. If the Ohio State Board finds that HCN violated the Ohio State Board’s requirements, it could limit, suspend, revoke or refuse to issue or renew a certificate of registration or program authorization or may impose a civil penalty of not more than $3,500 for each violation.

~~The Ohio Board of Board of Nursing, or the OBN, has placed HCN’s ADN Program on provisional approval because the ADN Program has not met the OBN pass rate standard for four consecutive years, which~~ could have an adverse ~~effect~~impact on the ability of HCN’s graduates to obtain professional licensure, employment, or other outcomes, which could reduce our enrollments ~~or eventually on~~and revenue, limit our ability to ~~continue the program.~~offer educational programs, and potentially lead to litigation that could be costly to us.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program that is approved by the OBN. ~~Regulations of the~~The OBN ~~require~~requires that nursing education programs such as HCN’s PN and ADN Programs have a pass rate on the relevant ~~National Council Licensure Examination, or~~ NCLEX that is at least 95% of the national average for first-time candidates in a calendar year. IfAs discussed more fully in “Regulatory Environment - State Authorization/Licensure of Our Institutions” in Part I, Item 1 of our Annual Report, failure to satisfy that requirement can result in the OBN taking certain adverse actions, including placement of a program ~~does not attain such pass rate,~~on provisional status or withdrawal of approval pursuant to an adjudication proceeding. In March 2017, the ~~program may face various consequences. On March 8, 2017,~~ OBN placed HCN’s ADN Program on provisional approval because the ADN Program has not met the OBN pass rate standard for four consecutive ~~years, which we believe has been negatively affected by~~years. In March 2020, the ~~pass rates at~~OBN found that HCN’s ~~Cleveland campus over~~ADN Program did not meet the ~~last several years. The~~ OBN ~~will consider restoring a program to Full Approval status after a program is placed on provisional status due to low NCLEX scores if the program attains a~~ pass rate that meets or exceeds 95% of the national average for first-time candidates for at least two consecutive years. If a program on provisional approval fails to meet and maintain the requirements of the OBN at the end of the time period established for provisional approval, the OBN may propose to continue provisional approvalstandard in 2019 for a ~~set time period or may propose to withdraw approval pursuant to an adjudication proceeding.~~seventh consecutive year. HCN has been implementing changes, including ~~the~~ curriculum, admissions, and academic achievement and course retake policy changes ~~discussed in our Annual Report,~~ that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be ~~successful. This~~successful or will not have negative effects on HCN’s enrollment. In addition, we cannot be certain that factors beyond our control, such as the ongoing COVID-19 pandemic, which previously led to the temporary shifting of HCN’s courses to online delivery and then to a blended model of in person and online, will not have a negative impact on the student experience, student outcomes and NCLEX scores. If HCN is unable to improve NCLEX scores over time, this situation could have an adverse impact on our ability to enroll students and eventually our ability to continue ~~the program,~~HCN’s ADN Program, any of which would have an adverse effect on our results of operations, cash flows, and financial condition.

If the Massachusetts Attorney General finds that we did not comply with Massachusetts state law or regulations, we may be required to pay significant financial penalties and/or modify or curtail our operations.

On ~~August 3, 2017, we received from~~March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the ~~Attorney General~~NCLEX. Graduates of OBN-approved nursing education programs, such as HCN’s programs, may apply for a temporary license that would be valid until of the ~~Commonwealth~~earlier of ~~Massachusetts a Civil Investigative Demand, or CID, dated July 31, 2017, relating to an investigation~~March 1, 2021 and 90 days after the period of ~~alleged unfair or deceptive acts or practices by AMU in connection with~~emergency ends. However, the ~~recruitment~~length of the emergency period remains unclear, and retention of students and the financing of education. The CID requires the production of documents and information relating to recruitment, enrollment, job placement and other matters. We continue to cooperate with the Attorney General’s office andwe cannot predict the ~~eventual scope, duration, or outcome of the investigation at this time. At the conclusion of the investigation, we may be subject to claims of failure to comply with Massachusetts state~~effect Ohio’s emergency relief law or regulations and may be required to pay significant financial penalties and/or modify or curtail our operations. Other state attorneys general may also initiate inquiries into APEI or its subsidiaries. Based on information available to us at present, we cannot reasonably estimate a range of potential impact this inquiry mightwill have on our ~~financial conditions~~NCLEX scores, if any.

If HCN’s graduates fail to obtain professional licensure or ~~results~~employment or experience other negative outcomes in their chosen fields of operations, if any, because it is uncertain what remedies the Attorney General might ultimately seek in connection with the inquiry, if any. See the risk factor entitled “Investigations by state Attorneys General, Congress, and governmental agencies may result in increased regulatory burdens and costs” in Item 1A of Part I of our Annual Report for additional information on risks associated with investigations.

~~Index~~

~~We have announced an organizational realignment, and challenges encountered due to the realignment may cause strategic or operational challenges and adversely impact us.~~

On July 1, 2016, Dr. Powell, the then-current provost of APUS, assumed the Presidency of APUS in anticipation of an organizational realignment. Dr. Wallace E. Boston, who had been serving as the President of APUS and the CEO of APEI, remained in his position as CEO of APEI, providing strategic and leadership support to APUS, HCN, and other APEI ventures. During 2016, we invested capital and human resources in the transition and planned realignment, as well as in changes to our systems and training of employees, among other things. HLC, as the institutional accreditor for APUS, requested that APUS submit an application to enable HLC to determine whether APUS’s proposal to enter into a shared-services model with APEI constitutes a change in organization or structure that requires HLC’s prior approval. On December 22, 2016, APUS submitted the requested change of structure application.

HLC is currently reviewing APUS’s application and as part of the review process conducted an on-site visit to APUS in early May 2017. On June 26, 2017, HLC notified APUS that HLC has delayed completing and issuing a report of its on-site visit because HLC staff believes that HLC’s Criteria for Accreditation and related policies do not provide an explicit frame of reference for how the Criteria for Accreditation should be applied to a shared-services model between an accredited institution and a related entity. On July 7, 2017, HLC notified APUS that at its June 29, 2017 meeting the HLC Board of Trustees authorized the commencement of a process to develop a framework for applying the Criteria of Accreditation to such shared-services models through HLC’s Change of Control, Structure or Organization process. HLC indicated that members of the HLC Board of Trustees and HLC staff would present a proposed framework to the full HLC Board of Trustees for its consideration at its November 2017 meeting. HLC indicated that APUS will have an opportunity to update its application after a framework is approved, and HLC staff will issue its report after reviewing any such updates. HLC had planned to visit APUS in February 2017 as part of a standard mid-cycle review. However,study, including as a result of the ~~change-of-structure application process, HLC postponed that mid-cycle review until~~COVID-19 pandemic and the ~~third quarter of 2018.~~

~~We believe that the earliest that the HLC Board of Trustees would make a determination on the change of structure application is February 2018. We are unable~~resulting changes to ~~predict whether HLC will approve APUS’s change of structure application~~our academic program, we and ~~whether such approval will~~our institutions could be ~~subject~~exposed to limitations or conditions. If HLC does not approve the realignment, imposes limitations or conditions on the realignment, takes longer than expected to take action with respect to the realignment, or otherwise sanctions APUS, we could incur increased costs, fail to realize the efficiencieslitigation, including class-action litigation, claiming that we ~~expect~~are at fault for such failure, which would force us to incur legal and ~~incur additional strategic or operational challenges.~~

~~Effective October 15, 2017, Dr. Powell retired from her role as President of APUS. Dr. Boston was appointed Interim President of APUS until~~other expenses that could have a ~~permanent replacement is appointed.~~

As with any leadership or operational change, each of the implementation of the planned realignment and the search and appointment of a new President for APUS could lead to strategic and operational challenges, distractions of management from other key initiatives, inefficiencies or increased costs, any of which could adversely affectmaterial adverse effect on our business, financial condition, results of operations, and cash flows. Adverse impacts on HCN resulting from the COVID-19 pandemic could also lead to an impairment of goodwill.

Our success and financial performance depend on the effectiveness of our ability to attract students who persist in our institutions’ programs.

A variety of factors impact our ability to attract new, qualified students in a cost-effective manner, and these students must remain active in our institutions’ programs. In 2020, we launched a new marketing campaign focusing on affordability and return on investment for learners. Our marketing efforts, including our new campaign, may be less successful than we anticipate in attracting qualified students. It may also be difficult to assess the value of our efforts if we are unable to ascertain whether and to what extent these efforts will impacted by extrinsic events, including the ongoing COVID-19 pandemic and the related economic downturn. More generally, we are unable to estimate the level of disruption that the ongoing COVID-19 pandemic and the related economic downturn will have on our business, including our ability to attract new, qualified students and the ability of our existing students to continue to persist in our programs. For example, the pandemic could have an adverse effect on student enrollment if current or prospective students are unable to pay for tuition or related costs of postsecondary education, or otherwise decide not to pursue postsecondary education in light of the COVID-19 pandemic and related economic, health, family, or other hardships they are facing.

If we are unable to successfully pursue HCN’s program initiatives and expansions, including opening new HCN campuses, our future growth may be impaired.

We experienced decreases in enrollment at HCN in 2019, which resulted in a significant decline in revenue in our HCN Segment. The success of HCN will depend on our ability to maintain and increase student enrollments in HCN’s programs and grow HCN’s on-campus offerings. As part of our strategy, we intend to open new campuses for HCN, such as the new campus in suburban Toledo, Ohio that began operations in early 2017, and our new campus in Indianapolis, Indiana. Such actions require us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any requirements from those agencies related to a new location. Adding new locations may also require significant financial investments, human resource capabilities, and new clinical placement relationships. In addition, regulatory authorities may place limitations or restrictions on new programs or campuses, including by only provisionally accrediting programs or limiting the number of initial enrollees. For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a

~~Index~~

PN Program at HCN’s Indianapolis campus, but growth beyond an initial cohort of up to 30 students for the first year is subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort. The Indiana State Board of Nursing will not grant the Indianapolis campus full accreditation status until the first cohort graduates, and may not grant full accreditation at that time if the program has a pass rate lower than one standard deviation below the average national pass rate. The increase of student enrollments and growth of HCN’s on-campus offerings, including through opening of new campuses and full accreditation of those campuses, may be adversely affected by events beyond our control.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals, open, accredit and attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise manage effectively the operations of newly established campuses, our results of operations and financial condition could be adversely affected. In addition, the inability to expand existing programs efficiently, or successfully, including as a result of constraints on our operations due to COVID-19, pursue new program initiatives, and add new campuses would harm our ability to grow our business and could have an adverse impact on our financial condition.

Economic and market conditions could affect our enrollments, success with placement and persistence and cohort default rates in the U.S. or abroad.

Our business has been in the past and may in the future be adversely affected by a general economic slowdown or recession in the U.S. or abroad, such as the economic downturn associated with the COVID-19 pandemic. Adverse economic developments could result in a reduction in the number of jobs available to our graduates and lower salaries being offered in connection with available employment, which, in turn, could result in declines in our success with placements and persistence. In addition, adverse economic developments could adversely affect the ability or willingness of our former students to repay student loans, which could increase our institutions’ student loan cohort default rates, require increased time, attention, and resources to manage these defaults, adversely affect the recoverability of receivables, and increase our bad debt expense, among other impacts. Higher default rates may also adversely impact our eligibility to participate in some Title IV programs, which could adversely impact our operations and financial condition. The CARES Act provides temporary relief for federal student loan borrowers by suspending payments on federal student loans until September 30, 2020. During this period, interest will not accrue and involuntary collection procedures will be suspended. However, this relief is not permanent and we cannot predict whether additional relief will be granted or what the impact of the end of this temporary relief will be.

Our institutions’ students are able to borrow Title IV loans in excess of their tuition and fees. The excess is received by such students as a credit balance payment. Normally, if a student withdraws, our institutions must return any unearned Title IV funds, which may include a portion of the credit balance payment, and must seek to collect from the student any resulting amounts owed to the institution. The CARES Act provides that institutions are not required to return Title IV funds to ED in connection with a student who withdraws from the institution during the payment period or period of enrollment as a result of a government-declared COVID-19-related emergency. However, a protracted economic slowdown could negatively impact such students’ ability to satisfy debts to the institution, including debts that result from returns of unearned Title IV amounts. As a result, the amount of Title IV funds we would have to return without repayment from our institutions’ students could increase, and our financial results could suffer.

The CARES Act and COVID-19-related regulatory guidance may contain provisions that could benefit some institutions more than others, their provisions may be ambiguous or subject to change, we may have difficulty adjusting our systems to comply, and failure to comply could subject us to penalties.

As more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Regulatory and Legislative Activity,” in March 2020, Congress passed the CARES Act in response to COVID-19 and its related effects. Wholly online institutions are effectively ineligible for any of the $12.6 billion in funding from ED available to higher education institutions under the higher education emergency relief fund established by the CARES Act. ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation. No allocation of HEERF funds was made to APUS by ED. As part of the process to receive its allocation, HCN signed a funding certification and agreement setting forth terms and conditions, including compliance with relevant CARES Act provisions and applicable law.

religious worship. Although HCN incurred costs to shift its delivery of instructions and operations due to COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students.

Our institutions’ failure to comply with applicable CARES Act provisions, including provisions related to funding and waivers of Title IV requirements, or with ED guidance related to the COVID-19 pandemic, both of which contain ambiguities, could result in administrative sanctions including fines, restrictions on our ability to participate in Title IV programs, debarment and suspension, and liabilities under applicable law, such as the False Claims Act. The CARES Act and related ED guidance waive certain federal student financial aid requirements in connection with COVID-19 developments and, to the extent such waivers apply to our institutions, we may have difficulty adjusting our systems to comply with those waivers and our institutions’ failure to comply with those waivers. In addition, ED guidance related to the COVID-19 pandemic may change as the pandemic continues. We cannot predict what additional regulatory actions may be taken or legislation put in place in connection with the COVID-19 pandemic or what impact such regulations or legislation may have on us or our institutions, if any.

Our institutions’ failure to comply with ED’s regulations related to distance education could result in actions that would have a material adverse effect on our enrollments, revenue, and results of operations.

In October 2018, ED announced the Accreditation and Innovation Committee would prepare proposed regulations related to, among other things, courses offered through distance education. ED published a notice of proposed rulemaking in April 2020 based on consensus language agreed to by the Accreditation and Innovation Committee. The proposed rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs. New proposed definitions related to “academic engagement,” “distance education,” and “regular and substantive interaction” provide further clarity regarding the instructional requirements that distance education programs must abide by in order to remain eligible for Title IV disbursements. Failure to comply with these standards could lead to adverse actions by ED. However, we cannot predict what regulations will be ultimately adopted following the notice-and-comment process. Any final rules would be effective July 1, 2021 at the earliest.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases

During the ~~period~~three months ended ~~September~~June 30, ~~2017~~,2020, we did not repurchase any shares of our common ~~stock other than shares that were deemed to have been repurchased to satisfy employee minimum tax withholding requirements in connection with the vesting of restricted stock grants.~~stock. The table and footnotes below provide details regarding our repurchase programs (unaudited):

Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)
July 1, 2017 - July 31, 2017 —
$ —
—
615,368
$ 148,008
August 1, 2017 - August 31, 2017 —
—
—
615,368
148,008
September 1, 2017 - September 30, 2017 —
—
—
615,368
148,008
Total —
$ —
—
615,368
$ 148,008


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)
April 1, 2020	—	$	—	—	284,725	$	8,396,734
April 1, 2020 - April 30, 2020	—	—		—	284,725	8,396,734
May 1, 2020 - May 31, 2020	—	—		—	299,843	8,396,734
June 1, 2020 - June 30, 2020	—	—		—	312,816	8,396,734
Total	—	$	—	—	312,816	$	8,396,734

~~(1)~~

On December 9, 2011, our Board of Directors approved a stock repurchase program for our common stock, under which we may annually purchase up to the cumulative number of shares issued or deemed issued under our equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions. The stock repurchase program may be suspended or discontinued at any time and will be funded using our available cash.

~~(2)~~

On May 14, 2012, our Board of Directors authorized a program to repurchase up to $20 million of shares of our common stock. On each of March 14, 2013, June 13, 2014, and June 12, 2015 our Board of Directors increased the authorization by an additional $15 million of shares, for a cumulative increase of $45 million of shares and a total cumulative authorization of $65 million shares. Subject to market conditions, applicable legal requirements and other factors, the repurchases may be made from time to time in the open market or privately negotiated transactions. The authorization does not obligate us to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors as we deem appropriate.

~~(3)~~

~~During the~~ ~~nine~~ month period ended September 30, 2017, we were deemed to have repurchased 59,310 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. These repurchases were not part of the stock repurchase program authorized by our Board of Directors as described in footnotes 1 and 2 to this table.

(1)On December 9, 2011, our Board of Directors approved a stock repurchase program for our common stock, under which we could annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions. The stock repurchase program does not obligate us to repurchase any shares, may be suspended or discontinued at any time, and is funded using our available cash.

(2)On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of our common stock, and on December 5, 2019, our Board approved an additional authorization of up to $25.0 million of shares. We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. We have no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time. The authorization under this program is in addition to our repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

(3)During the three month period ended June 30, 2020, no shares of common stock were deemed to have been repurchased for common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

~~Index~~

Item 6. Exhibits



Exhibit No.			Exhibit Description

10.1+			~~Letter~~Amendment Number One to the American Public Education, Inc. 2017 Omnibus Incentive Plan (1)
10.2+			Amendment Number Two to the American Public Education, Inc. Employee Stock Purchase Plan (1)
10.3+			Amendment to Amended and Restated Employment Agreement dated ~~September 28, 2017,~~June 30, 2020, by and among American Public ~~Education,~~University System, Inc., American Public ~~University System,~~Education, Inc., and ~~Karan H. Powell (1)~~Wallace E. Boston Jr.
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002~~2002..
32.1			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-101.INS **			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
EX-101.SCH **			Inline XBRL Taxonomy Extension Schema Document
EX-101.CAL **			Inline XBRL Taxonomy Extension Calculation Linkbase Document
EX-101.DEF **			Inline XBRL Taxonomy Extension Definition Linkbase Document
EX-101.LAB **			Inline XBRL Taxonomy Extension Label Linkbase Document
EX-101.PRE **			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


+			Management contract or compensatory plan or ~~arrangement~~arrangement.


(1)			Incorporated by reference to exhibit filed with Registrant’s Current Report on Form 8-K (File No. 001-33810), filed with the Commission on ~~September 29, 2017.~~May 15, 2020.

~~Index~~35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



						AMERICAN PUBLIC EDUCATION, INC.
			/s/ ~~Dr. Wallace E. Boston~~Angela Selden			~~November 7, 2017~~August 10, 2020
			~~Dr. Wallace E. Boston~~Angela Selden
			President and Chief Executive Officer
			(Principal Executive Officer)


			/s/ Richard W. Sunderland, Jr.			~~November 7, 2017~~August 10, 2020
			Richard W. Sunderland, Jr.
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)




			Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1416
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2829
Item 4. Controls and Procedures			29


PART II – OTHER INFORMATION


Item 1. Legal Proceedings			29
Item 1A. Risk Factors			2930
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 3. Defaults Upon Senior Securities			34
Item 4. Mine Safety Disclosures			34
Item 5. Other Information			34
Item 6. Exhibits			35

SIGNATURES			36



	As of September 30, 2017		As of December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents (Note 2)	$	166,259	$	146,351
Accounts receivable, net of allowance of $6,572 in 2017 and $8,077 in 2016	6,389		6,949
Prepaid expenses	6,651		5,327
Income tax receivable	757		—
Total current assets	180,056		158,627
Property and equipment, net	92,169		97,687
Assets held for sale	—		2,100
Investments	14,716		14,611
Goodwill	33,899		33,899
Other assets, net	9,061		8,696
Total assets	$	329,901	$	315,620

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,041	$	6,853
Accrued liabilities	13,613		14,124
Deferred revenue	21,994		20,639
Income tax payable	—		559
Total current liabilities	40,648		42,175
Deferred income taxes	9,231		8,775
Total liabilities	49,879		50,950

Commitments and contingencies (Note 11)

Stockholders’ equity:
Preferred stock, $.01 par value; Authorized shares - 10,000; no shares issued or outstanding	—		—
Common stock, $.01 par value; Authorized shares - 100,000; 16,249 issued and outstanding in 2017; 16,109 issued and outstanding in 2016	162		161
Additional paid-in capital	179,708		177,061
Retained earnings	100,152		87,448
Total stockholders’ equity	280,022		264,670
Total liabilities and stockholders’ equity	$	329,901	$	315,620



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
	(Unaudited)					(Unaudited)
Revenue	$	73,279	$	73,803		$	221,163	$	234,514
Costs and expenses:
Instructional costs and services	28,723		28,357			87,513		86,968
Selling and promotional	14,640		13,139			44,083		44,592
General and administrative	17,237		17,125			51,625		50,703
Loss on disposals of long-lived assets	390		5,145			1,558		5,870
Impairment of goodwill	—		4,735			—		4,735
Depreciation and amortization	4,690		4,910			14,160		14,624
Total costs and expenses	65,680		73,411			198,939		207,492
Income from operations before interest income and income taxes	7,599		392			22,224		27,022
Interest income	17		37			43		111
Income before income taxes	7,616		429			22,267		27,133
Income tax expense	3,294		85			9,668		10,524
Equity investment income (loss)	44		(18		)	105		653
Net income	$	4,366	$	326		$	12,704	$	17,262

Net Income per common share:
Basic	$	0.27	$	0.02		$	0.78	$	1.07
Diluted	$	0.27	$	0.02		$	0.78	$	1.07
Weighted average number of common shares:
Basic	16,248,623		16,074,701			16,225,869		16,057,710
Diluted	16,375,512		16,233,229			16,351,563		16,174,723



	Number of Shares		Weighted-Average Grant Price and Fair Value
Non-vested, December 31, 2016	437,971		$	21.54
Shares granted	278,934		$	23.36
Vested shares	(184,670	)	$	25.88
Shares forfeited	(31,450	)	$	21.07
Non-vested, September 30, 2017	500,785		$	21.24



	Number of Options		Weighted Average Exercise Price		Weighted-Average Contractual Life (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding, December 31, 2016	259,969		$	34.68	0.53	246
Options granted	—		$	—
Awards exercised	(14,002	)	$	6.99
Awards forfeited	(132,351	)	$	35.17
Outstanding, September 30, 2017	113,616		$	37.52	0.26	$	—

Exercisable, September 30, 2017	113,616		$	37.52	0.26	$	—