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 30, 20172023

 
or
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
image0a19.jpg
AMERICAN PUBLIC EDUCATION, INC.
(Exact name of registrant as specified in its charter)
Delaware01-0724376
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
Delaware111 West Congress Street, Charles Town, West Virginia01-072437625414
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueAPEINasdaq 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”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. Yes ☐ No x☒









The total number of shares of common stock outstanding as of November 3, 20172023 was 16,267,814.17,783,615.





Index

AMERICAN PUBLIC EDUCATION, INC.
FORM 10-Q
INDEX
 
Page
PART I – FINANCIAL INFORMATION
3
1427
2842
2943
PART II – OTHER INFORMATION
2943
2943
3449
3449
3449
3450
3550
3651
Index
2


PART I – FINANCIAL INFORMATION


Item 1. Financial Statements
AMERICAN PUBLIC EDUCATION, INC.
Consolidated Balance Sheets (Current Period Unaudited)
(In thousands)
 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 20166,389
 6,949
Prepaid expenses6,651
 5,327
Income tax receivable757
 —
Total current assets180,056
 158,627
Property and equipment, net92,169
 97,687
Assets held for sale—
 2,100
Investments14,716
 14,611
Goodwill33,899
 33,899
Other assets, net9,061
 8,696
Total assets$329,901
 $315,620
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities: 
  
Accounts payable$5,041
 $6,853
Accrued liabilities13,613
 14,124
Deferred revenue21,994
 20,639
Income tax payable—
 559
Total current liabilities40,648
 42,175
Deferred income taxes9,231
 8,775
Total liabilities49,879
 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 2016162
 161
Additional paid-in capital179,708
 177,061
Retained earnings100,152
 87,448
Total stockholders’ equity280,022
 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)
As of September 30, 2023As of December 31, 2022
ASSETS(Unaudited) 
Current assets:  
Cash, cash equivalents, and restricted cash (Note 2)$155,154 $129,458 
Accounts receivable, net of allowance of $14,430 in 2023 and $13,328 in 202229,046 42,353 
Prepaid expenses14,752 11,409 
Income tax receivable4,173 2,871 
Total current assets203,125 186,091 
Property and equipment, net98,460 100,892 
Operating lease assets, net101,632 108,870 
Deferred income taxes48,666 35,355 
Goodwill59,593 112,593 
Intangible assets, net32,796 54,734 
Other assets, net10,999 16,521 
Total assets$555,271 $615,056 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:  
Accounts payable$7,976 $3,808 
Accrued compensation and benefits18,645 15,010 
Accrued liabilities12,205 13,784 
Deferred revenue and student deposits29,243 23,760 
Lease liabilities, current14,207 14,396 
Total current liabilities82,276 70,758 
Lease liabilities, long-term97,289 101,420 
Long-term debt, net94,316 93,151 
Total liabilities273,881 265,329 
Commitments and contingencies (Note 10)
Stockholders’ equity:  
Preferred stock, $.01 par value; 10,000,000 shares authorized; 400 shares issued and outstanding in 2023 and 2022, respectively. ($142,874 and $155,587 liquidation preference per share, $57,150 and $62,235 in aggregate, for 2023 and 2022, respectively) (Note 12)39,691 39,691 
Common stock, $.01 par value; 100,000,000 shares authorized; 17,783,615 issued and outstanding in 2023; 18,892,791 issued and outstanding in 2022178 189 
Additional paid-in capital297,848 292,854 
Accumulated other comprehensive income2,537 3,102 
(Accumulated deficit) retained earnings(58,864)13,891 
Total stockholders’ equity281,390 349,727 
Total liabilities and stockholders’ equity$555,271 $615,056 


 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 services28,723
 28,357
 87,513
 86,968
Selling and promotional14,640
 13,139
 44,083
 44,592
General and administrative17,237
 17,125
 51,625
 50,703
Loss on disposals of long-lived assets390
 5,145
 1,558
 5,870
Impairment of goodwill—
 4,735
 —
 4,735
Depreciation and amortization4,690
 4,910
 14,160
 14,624
Total costs and expenses65,680
 73,411
 198,939
 207,492
Income from operations before interest income and income taxes7,599
 392
 22,224
 27,022
Interest income17
 37
 43
 111
Income before income taxes7,616
 429
 22,267
 27,133
Income tax expense3,294
 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:       
Basic16,248,623
 16,074,701
 16,225,869
 16,057,710
Diluted16,375,512
 16,233,229
 16,351,563
 16,174,723


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

Index3


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Cash Flows (Unaudited)Income
(In thousands)thousands, except per share amounts)

 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
 (Unaudited)(Unaudited)
Revenue$150,838 $149,535 $447,741 $453,890 
Costs and expenses: 
Instructional costs and services73,228 71,817 222,115 215,604 
Selling and promotional33,315 40,917 106,205 116,082 
General and administrative30,885 29,667 96,907 89,179 
Impairment of goodwill and intangible assets (Note 6)— — 64,000 144,900 
(Gain) loss on disposals of long-lived assets(16)178 17 962 
Depreciation and amortization7,026 7,982 22,735 24,249 
Total costs and expenses144,438 150,561 511,979 590,976 
Income (loss) from operations before interest and income taxes6,400 (1,026)(64,238)(137,086)
Gain on acquisition (Note 3)— — — 3,828 
Interest expense, net(792)(3,594)(3,668)(10,339)
Income (loss) before income taxes5,608 (4,620)(67,906)(143,597)
Income tax expense (benefit)3,712 (860)(12,839)(35,152)
Equity investment loss, net of tax(5,224)(2)(5,233)(13)
Net loss$(3,328)$(3,762)$(60,300)$(108,458)
Preferred stock dividends1,525 — 4,469 — 
Net loss available to common stockholders$(4,853)$(3,762)$(64,769)$(108,458)
Loss per common share:  
Basic$(0.27)$(0.20)$(3.55)$(5.75)
Diluted$(0.27)$(0.20)$(3.54)$(5.74)
Weighted average number of common shares:
Basic17,778 18,885 18,230 18,854 
Diluted17,820 18,927 18,294 18,906 
 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 amortization14,160
 14,624
Stock-based compensation4,262
 3,972
Equity investment income(105) (653)
Deferred income taxes456
 (1,505)
   Loss on disposals of long-lived assets1,558
 5,870
   Impairment of goodwill—
 4,735
   Other312
 10
Changes in operating assets and liabilities:   
Accounts receivable, net of allowance for bad debt560
 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 revenue1,355
 (370)
Net cash provided by operating activities29,259
 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 property1,493
 —
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 stock100
 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 equivalents19,908
 31,957
Cash and cash equivalents at beginning of period146,351
 105,734
Cash and cash equivalents at end of period166,259
 137,691
    
Supplemental disclosure of cash flow information 
  
Income taxes paid10,528
 14,894


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


Index
4


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)


Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(Unaudited)(Unaudited)
Net loss$(3,328)$(3,762)$(60,300)$(108,458)
Other comprehensive (loss) income, net of tax:
Unrealized gain on hedging derivatives274 1,652 1,283 4,091 
Tax effect(84)(410)(365)(1,015)
Unrealized gain on hedging derivatives, net of taxes190 1,242 918 3,076 
Reclassification of gains to net income(768)(63)(2,072)(63)
Tax effect235 16 589 16 
Reclassifications of gains to net income, net of taxes(533)(47)(1,483)(47)
Total other comprehensive (loss) income(343)1,195 (565)3,029 
Comprehensive loss$(3,671)$(2,567)$(60,865)$(105,429)


The accompanying notes are an integral part of these Consolidated Financial Statements.
5

AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)

Additional Paid-in CapitalAccumulated Other Comprehensive Income (loss)Retained Earnings (Accumulated Deficit)Total Stockholders’ Equity
 Preferred StockCommon Stock
 SharesAmountSharesAmount
Balance as of December 31, 2022400 $39,691 18,892,791 $189 $292,854 $3,102 $13,891 $349,727 
Preferred Stock dividends— — — — — — (1,457)(1,457)
Issuance of common stock under employee benefit plans— — 245,638 3 (3)— — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (85,023)(1)(994)— — (995)
Stock-based compensation— — — — 2,224 — — 2,224 
Repurchased and retired shares of common stock— — (75,000)(1)1 — (371)(371)
Other comprehensive loss— — — — — (475)— (475)
Net loss— — — — — — (5,740)(5,740)
Balance as of March 31, 2023400 39,691 18,978,406 $190 $294,082 $2,627 $6,323 $342,913 
Preferred Stock dividends— — — — — — (1,487)(1,487)
Issuance of common stock under employee benefit plans— — 53,756 1(1)— — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (1,416)— (7)— — (7)
Stock-based compensation— — — — 2,068 — — 2,068 
Repurchased and retired shares of common stock— — (1,260,357)(13)— — (7,615)(7,628)
Other comprehensive gain— — — 253 253 
Net loss— — — — (51,232)(51,232)
Balance as of June 30, 2023400 $39,691 17,770,389 $178 $296,142 $2,880 $(54,011)$284,880 
Preferred Stock dividends— — — — — — (1,525)(1,525)
Issuance of common stock under employee benefit plans— — 18,140 1(1)— — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (4,914)(1)(26)— — (27)
Stock-based compensation— — — — 1,733 — — 1,733 
Other comprehensive loss— — — — — (343)(343)
Net loss— — — — — — (3,328)(3,328)
Balance as of September 30, 2023400 $39,691 17,783,615 $178 $297,848 $2,537 $(58,864)$281,390 

The accompanying notes are an integral part of these Consolidated Financial Statements.
6



AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands, except share amounts)

Additional Paid-in CapitalAccumulated Other Comprehensive Income (loss)Retained EarningsTotal Stockholders’ Equity
 Preferred StockCommon Stock
 SharesAmountSharesAmount
Balance as of December 31, 2021— $— 18,709,171 $187 $286,385 $108 $128,932 $415,612 
Issuance of common stock under employee benefit plans— — 218,512 3 (3)— — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (71,331)(1)(1,443)— — (1,444)
Stock-based compensation— — — — 2,356 — — 2,356 
Repurchased and retired shares of common stock— — — — — — — — 
Other comprehensive gain— — — — — 1,324 — 1,324 
Net income— — — — — — 5,333 5,333 
Balance as of March 31, 2022— — 18,856,352 $189 $287,295 $1,432 $134,265 $423,181 
Issuance of common stock under employee benefit plans— — 22,185 — — — — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (782)— (10)— — (10)
Stock-based compensation— — — — 2,350 — — 2,350 
Repurchased and retired shares of common stock— — — — — — — — 
Other comprehensive gain— — — — — 510— 510 
Net loss— — — — — — (110,029)(110,029)
Balance as of June 30, 2022— — 18,877,755 $189 $289,635 $1,942 $24,236 $316,002 
Issuance of common stock under employee benefit plans— — 22,578 — — — — — 
Deemed repurchased shares of common and restricted stock for tax withholding— — (8,257)— (80)— — (80)
Stock-based compensation— — — — 1,997 — — 1,997 
Other comprehensive gain— — — — — 1,195 — 1,195 
Net loss— — — — — — (3,762)(3,762)
Balance as of September 30, 2022— — 18,892,076 $189 $291,552 $3,137 $20,474 $315,352 

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


7

AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Cash Flows
(In thousands)
 Nine Months Ended September 30,
 20232022
 (Unaudited)
Operating activities  
Net loss$(60,300)$(108,458)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Depreciation and amortization22,735 24,249 
Amortization of debt issuance costs1,240 1,937 
Stock-based compensation6,025 6,703 
Equity investment loss, net of tax5,233 13 
Deferred income taxes(13,311)(38,916)
Loss on disposals of long-lived assets17 962 
Impairment of goodwill and intangible assets64,000 144,900 
Gain on acquisition— (3,828)
Other— 16 
Changes in operating assets and liabilities: 
Accounts receivable, net of allowance for bad debt13,307 12,781 
Prepaid expenses(3,343)279 
Income tax receivable/payable(1,302)1,141 
Operating leases, net3,003 1,236 
Other assets(351)210 
Accounts payable4,168 (5,232)
Accrued compensation and benefits3,635 3,437 
Accrued liabilities(1,582)6,975 
Deferred revenue and student deposits5,483 3,840 
Net cash provided by operating activities48,657 52,245 
Investing activities  
Cash received from acquisition, net of cash paid— 1,951 
Capital expenditures(9,505)(10,905)
Proceeds from the sale of real property123 765 
Net cash used in investing activities(9,382)(8,189)
Financing activities  
Cash paid for repurchase of common stock(9,028)(1,534)
Preferred stock dividends paid(4,466)— 
Cash paid for principal on borrowings and finance leases(85)(6,649)
Net cash used in financing activities(13,579)(8,183)
Net increase in cash, cash equivalents, and restricted cash25,696 35,873 
Cash, cash equivalents, and restricted cash at beginning of period129,458 149,627 
Cash, cash equivalents, and restricted cash at end of period$155,154 $185,500 
Supplemental disclosure of cash flow information  
Interest paid$7,863 $8,747 
Income taxes paid$1,551 $3,392 

The accompanying notes are an integral part of these Consolidated Financial Statements.
8

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 herein as the “Company,” is a provider of online and campus-based postsecondary education, and career learning through Graduate School USA, to approximately 86,500 students through the operations of twofollowing 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 safetyservice-minded communities through two brands: American Military University, or AMU, and American Public University, or APU. APUS is regionallyinstitutionally accredited by the Higher Learning Commission.Commission, or HLC.


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

•National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides postsecondary nursing education to students enrolled at fiveits eight campuses in three states. HCN is institutionally accredited by the State of OhioAccrediting Bureau for Health Education Schools, or ABHES.

•American Public Training LLC, which is referred to herein as well asGraduate School USA, or GSUSA, provides career learning and leadership training in-person and online to serve the needs of the nursing and healthcare communities. HCNfederal workforce. GSUSA is nationally accredited by the Accrediting Council of Independent Collegesfor Continuing Education and Schools,Training, or ACICS, and 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.ACCET.


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


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


•American Public EducationUniversity System Segment, or APEI APUS Segment.This segment reflects the operational activities at APUS, other corporateof APUS.

•Rasmussen University Segment, or RU Segment. This segment reflects the operational activities and minority investments.
of RU.


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


Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other.” These adjustments include unallocated corporate activity and eliminations, and the operational activities of GSUSA. GSUSA operates as a stand-alone subsidiary of APEI, but does not meet the quantitative thresholds to qualify as a reportable segment, and does not have other requisite characteristics as a reportable segment. Therefore, GSUSA’s results are combined and presented within “Corporate and Other.”

Please refer to “Note 9. Segment Information” for more information on the Company’s reporting segments.

Note 2. Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies follows:

Basis of presentationPresentation and accountingAccounting


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

9

Business Combinations

The Company accounts for comparative purposesbusiness combinations in accordance with Financial Accounting Standards Board Accounting Standards Codification 805, Business Combinations, or FASB ASC 805, which requires the acquisition method to conformbe used for all business combinations. Under ASC 805, the assets and liabilities of an acquired company are reported at business fair value along with the current presentation.fair value of acquired intangible assets at the date of acquisition.


Principles of consolidationConsolidation


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


Unaudited Interim Consolidated Financial Information


The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for completeaudited 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 consolidatedfinancial 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, 2017.2023. This Quarterly Report on Form 10-Q, or this Quarterly Report, should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in itsthe Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, or the Annual Report.

Index


Use of Estimates


The preparation of the Consolidated Financial StatementsIn preparing financial statements in accordanceconformity with GAAP, requires managementthe 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 Consolidated Financial Statementsestimates and accompanying notes.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 couldmay differ from those estimates.estimates under different assumptions or conditions, and the impact of such differences may be material to the Consolidated Financial Statements.


Cash and Cash Equivalents

The Company considers all short-term highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of demand deposits with financial institutions, money market funds, and U.S. Treasury bills. Cash and cash equivalents are Level 1 assets in the fair value reporting hierarchy.

Restricted Cash


Cash andRestricted cash equivalents includes funds held for students for unbilled educational services that were received from Title IV programs. As a trustee of these Title IV program funds, the Company is required to maintain and restrict these funds pursuant to the terms of each subsidiary institution’sthe program participation agreement with ED. Restricted cash also includes amounts to secure letters of credit, including $24.3 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $0.7 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for a RU leased campus. Restricted cash on the Company’s Consolidated Balance Sheets was approximately $2.2 million atas of September 30, 20172023 and $1.6 million at December 31, 2016. Changes in2022, excluding the restricted certificates of deposit, was $2.3 million and $2.0 million, respectively. Total restricted cash that represent funds heldas of September 30, 2023 and December 31, 2022 was $27.3 million and $26.9 million, respectively.

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Cash and cash equivalents and restricted cash as of September 30, 2023 and December 31, 2022 were as follows (in thousands):
As of September 30, 2023As of December 31, 2022
(Unaudited)
Cash, cash equivalents, and restricted cash$155,154 $129,458 
Less: restricted cash(27,295)(26,939)
Total unrestricted cash$127,859 $102,519 

Investments

The Company accounts for students as described above are includedits equity method and cost method investments under FASB ASC 321, Investments - Equity Securities. The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in value, and the potential recovery period. For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows from operating activities onor other appropriate valuation methods. If it is probable that the Company’s Consolidated StatementsCompany will not recover the carrying amount of Cash Flows because these restricted funds are relatedthe investment, the impairment is considered other-than-temporary and recorded in equity investment loss, net of tax, and the equity investment balance is reduced to a core activityits fair value.

For each reporting period, the Company evaluates its cost method investments for observable price changes. Factors the Company may consider when evaluating an observable price change may include significant changes in the regulatory, economic or technological environment, changes in general market conditions, bona fide offers to purchase or sell similar investments, and other criteria.
Management must exercise significant judgment in evaluating the potential impairment of its operations.
Recent Accounting Pronouncements

equity and cost method investments.
The Company considers the applicabilityevaluated its equity method and impact of all Accounting Standards Updates, or ASUs, issued by the Financial Accounting Standards Board, or FASB. ASUs issued, but not listed below, were assessed and determined to be either not applicable or expected to have minimal impact on the Company’s consolidated financial position and/or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The standard is a comprehensive model to use in accountingcost method investments 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 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 the effective date of ASU 2014-09. The deferral will result in this standard being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Earlier application is permitted onlyimpairment as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within those reporting periods. Entities must use eitherSeptember 30, 2023, and concluded the fair value of 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 oncost method investment was less than 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.amount. As a result, the $5.1Company recorded an investment loss of $5.2 million, current deferrednet of tax, asset as of December 31, 2016 was reclassified against the $13.9 million non-current deferred tax liability on the Company’s Consolidated Balance Sheets in these Consolidated Financial Statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which changes how entities account for certain aspects of share-based payments 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 election at the time of adoption to either estimate the number of awards that are expected to vest (consistent with existing GAAP) or account 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 of the beginning of the period of adoption. The new guidance 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 to apply the cash flow guidance prospectively; therefore, prior periods have not been adjusted. The Company also elected to continue to estimate the number of awards that are expected to vest using the forfeiture option. The adoption of ASU 2016-09 increased the Company’s income tax expense by approximately $0.5 million for the three months ended March 31, 2017. There was no impact in the three months ended June 30, 2017 andduring the three months ended September 30, 2017. The company anticipates an increase2023. This investment loss is included in reported incomeequity investment loss, net of tax, expense between $0.6 million and $0.9 million in the first quarterConsolidated Statements of 2018Income and is due to expiring stock optionsthe investee entering into an agreement to be sold which will result in no sales proceeds to the Company. The investment loss recorded eliminated the difference between the fair value and the book value of the cost method investment. There were no indicators of impairment during the three and nine months ended September 30, 2022. The Company’s equity method and cost method investments are included in Other assets, net on the accompanying Consolidated Balance Sheets. As of September 30, 2023, the aggregate carrying amount of the Company’s investments accounted for under ASC 321 was approximately $3.3 million.

Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. Goodwill is not amortized. The Company accounts for goodwill and indefinite-lived intangible assets in accordance with an exercise price greater than the current stock price.FASB ASC 350, Intangibles Goodwill and Other, increases in income tax expense may occur throughout the year for the vesting of restricted stock, determined by the stock price at the end of each reporting period.
In January 2017, the FASB issuedand Accounting Standards Update, or ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step two from. The Company’s goodwill and intangible assets are deductible for tax purposes.
The Company annually assesses goodwill for impairment in the fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill impairmentmight be impaired. Impairment testing consists of an optional qualitative assessment as well as a quantitative test. Instead, ifThe quantitative test compares the carrying amountfair value of a reporting unit exceedsto its carrying value. If the carrying value of the reporting unit is greater than zero and its fair value an impairment loss should be recognized in anis greater than its carrying amount, equal tothere is no impairment. If the excess, but limited tocarrying value is greater than the total amount of goodwill allocated tofair value, the reporting unit. The guidance must be applied on a prospective basis and disclosure ofdifference between the nature of and reason for the change in accounting principle 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 equipmenttwo values is recorded at cost less accumulated depreciation, except theas an impairment.

Finite-lived intangible assets acquired assets of HCN, which werein business combinations are recorded at fair value at theon their acquisition date. Depreciationdate and amortization are calculatedamortized on a straight-line basis over the estimated useful lives of the assets. Different depreciation and amortization methods 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 DistanceTM 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 for the Costs of Computer Software Developed or Obtained for Internal Use, and classified as property and equipment. These costs are amortized over the estimated useful life 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.

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The carrying amounts of long-livedCompany reviews its intangible assets are reviewed whenever certainfor impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amountsamount of an asset may not be recoverable. Losses incurred on long-livedIf such assets are reported asnot recoverable, an impairment loss on disposalsis recognized to the extent the carrying amount of long-livedthe assets exceeds the fair value of the assets.

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For additional details regarding goodwill and intangible assets, please refer to “Note 6. Goodwill and Intangible Assets” in these unaudited interim Consolidated Financial Statements.


Stock-based Compensation
Note 4. Assets Held
The Company accounts for Salestock-based compensation in accordance with FASB ASC 718, Stock Compensation, which requires companies to expense share-based compensation based on fair value, and ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing.


Assets held    Stock-based compensation cost is recognized as an expense generally over a three-year vesting period using the straight-line method for saleemployees and the graded-vesting method for members of the Company’s Board of Directors. It is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at December 31, 2016 represented excess real property located in Charles Town, West Virginiathe date of grant using a Black-Scholes option-pricing model that uses certain assumptions. The Company makes assumptions with respect to expected stock price volatility based on the average historical volatility of the Company’s common stock. In addition, the Company determines the risk-free interest rate by selecting the U.S. Treasury constant maturity for the APEI Segment, which was no longersame maturity as the estimated life of the option quoted on an investment basis in use due toeffect at the relocationtime of employees to a new facility. Long-lived assets are classified as heldgrant for sale whenthat business day.

Judgment is required in estimating the assetspercentage of share-based awards that are expected to vest, and in the case of performance stock units, the level of performance that will be soldachieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Company’s Consolidated Financial Statements. Estimates of fair value are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made under ASC 718.

Stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022 was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
(Unaudited)(Unaudited)
Instructional costs and services$176 $229 $713 $1,096 
Selling and promotional(25)302 392 814 
General and administrative1,582 1,466 4,920 4,793 
Total stock-based compensation expense$1,733 $1,997 $6,025 $6,703 

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 next 12 monthsCompany’s operating expenses. For the years ending December 31, 2023 and meet2022, the other relevant held-for-sale criteria. As such,Management Development and Compensation Committee of the property was recordedBoard approved an annual incentive arrangement for senior management employees. The aggregate amount of awards payable, if any, is dependent upon the achievement of certain Company financial and operational goals and the satisfaction of individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the lower“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 carrying valueCompany’s stock on the date of grant. To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed. Amounts accrued are subject to change in future interim periods if actual future financial results or fair value, less costoperational performance are better or worse than expected. During the three months
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ended September 30, 2023, the Company recognized an aggregate benefit associated with the Company’s current year annual incentive-based compensation plans of approximately $0.7 million compared to sell, until the asset was sold.

Duringan aggregate expense of approximately $0.4 million during the three months ended September 30, 2016, 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 fair value of $2.1 million for a net sales price of $1.5 million.2022. During the nine months ended September 30, 2017,2023, the Company recognized an aggregate expense of approximately $3.2 million compared to an aggregate expense of approximately $2.9 million during the nine months ended September 30, 2022.

Income Taxes

The Company has historically calculated the provision for income taxes during the interim reporting periods by applying an estimate of the annual effective tax rate for the full calendar year to income before income taxes for the period, adjusted for discrete items. For the three and nine months ended September 30, 2023, the Company has elected to utilize the actual effective tax rate as allowed by FASB ASC 740, Accounting for Income Taxes. The Company calculated the interim tax provision for the three and nine months ended September 30, 2023, as if it was the annual period and determined the income tax expense or benefit on that basis. The Company believes that the actual effective tax rate for the three and nine months ended September 30, 2023, is a lossbetter estimate than the annual effective tax rate, as the annual effective tax rate method is highly sensitive to insignificant changes to estimated annual tax expense.

Recent Accounting Pronouncements

The Company considers the applicability and impact of $0.6all ASUs issued by the FASB. All ASUs issued subsequent to the filing of the Annual Report on March 14, 2023, were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations.

Note 3. Acquisition Activity

Acquisition of Graduate School USA

On January 1, 2022, or the GSUSA Closing Date, the Company completed the acquisition of GSUSA, or the GSUSA Acquisition, pursuant to an Asset Purchase Agreement dated August 10, 2021, by and between American Public Training LLC, and Graduate School USA, or the Seller, for an aggregate purchase price of $1.0 million, subject to working capital adjustments. At closing, the Company received approximately $1.9 million from the Seller, which represented the estimated net working capital at closing net of an initial cash payment to the Seller of $0.5 million, which was the purchase price less $0.5 million retained by the Company to secure the indemnification obligations of the Seller. The purchase price reflects the $0.5 million due to the Seller post-closing, and additional adjustments to the estimated net working capital at closing.

The Company applied the acquisition method of accounting to the GSUSA Acquisition, whereby the assets acquired and liabilities assumed were recognized at fair value on the GSUSA Closing Date. There was no goodwill recorded as a result of the GSUSA Acquisition, but an approximate $4.5 million non-cash, non-taxable gain on the acquisition was recorded and is included as a separate line item on the Consolidated Statements of Income.

The preliminary opening balance sheet was subject to adjustment based on a final assessment of the fair value of certain acquired assets and liabilities assumed. The Company had up to one year from the GSUSA Closing Date, or the measurement period, to complete the allocation of the purchase price. The Company completed its assessment of the fair values of certain acquired assets and liabilities assumed during the measurement period, and, as a result, during the second quarter of 2022, the Company recorded a $0.7 million decrease in the gain on acquisition for a net gain of $3.8 million based on the final working capital adjustment.

The following table summarizes the components of the estimated consideration along with the purchase price allocation (in thousands):
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Purchase Price AllocationAmount
Cash and cash equivalents$1,000 
Working capital adjustment(2,450)
Total consideration(1,450)
Assets acquired:
Accounts receivable4,282 
Prepaid expenses1,096 
Property and equipment, net400 
Operating lease assets31,635 
Intangible assets965 
Total assets acquired38,378 
Liabilities assumed:
Accounts payable and accrued liabilities810 
Deferred revenue1,969 
Lease liabilities, current1,179 
Lease liabilities, long-term30,779 
Deferred income taxes1,263 
Total liabilities assumed36,000 
Net assets acquired2,378 
Gain on acquisition$3,828 

The gain on acquisition represents the excess of the fair value of net assets acquired over consideration paid. The consideration paid represents a substantial discount to the book value of GSUSA’s net assets at the GSUSA Closing Date, primarily due to the fair value adjustments related to the trade name, fixed assets, and right-of-use, or ROU, lease assets and liabilities compared to book value. The gain on acquisition was primarily the result of prior financial results, a lack of access to capital by the Seller, and the agreed upon purchase price that reflected the fact that GSUSA may need additional capital to fund operating losses.

The fair values of the customer contracts and relationships and trade name intangible assets were determined using the income-based approach. The fair values of the curricula and accreditation and licensing identified intangible assets were determined using the cost approach. The table below presents a summary of intangible assets acquired and the useful lives of these assets (in thousands):

Intangible AssetsUseful lifeAmount
Customer contracts and relationships2.5 years$744 
Curricula3 years158 
Trade name1 year35 
Accreditation and licenses2.5 years28 
$965 

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

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Note 4. Revenue
Disaggregation of Revenue

    In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):


Three Months Ended September 30, 2023
(Unaudited)
APUSRUHCNCorporate and OtherConsolidated
Instructional services, net of grants and scholarships$75,879 $43,743 $11,761 $8,618 $140,001 
Graduation fees381 — — — 381 
Textbook and other course materials— 7,707 1,796 — 9,503 
Other fees146 623 184 — 953 
Total Revenue$76,406 $52,073 $13,741 $8,618 $150,838 

Three Months Ended September 30, 2022
(Unaudited)
APUSRUHCNCorporate and OtherConsolidated
Instructional services, net of grants and scholarships$68,173 $50,973 $9,619 $7,843 $136,608 
Graduation fees374 — — — 374 
Textbook and other course materials— 9,814 1,631 — 11,445 
Other fees188 761 159 — 1,108 
Total Revenue$68,735 $61,548 $11,409 $7,843 $149,535 

Nine Months Ended September 30, 2023
(Unaudited)
APUSRUHCNCorporate and OtherConsolidated
Instructional services, net of grants and scholarships$222,224 $135,452 $34,858 $21,142 $413,676 
Graduation fees1,138 — — — 1,138 
Textbook and other course materials— 24,304 5,794 — 30,098 
Other fees579 1,755 495 — 2,829 
Total Revenue$223,941 $161,511 $41,147 $21,142 $447,741 

Nine Months Ended September 30, 2022
(Unaudited)
APUSRUHCNCorporate and OtherConsolidated
Instructional services, net of grants and scholarships$210,094 $160,213 $29,082 $15,187 $414,576 
Graduation fees1,089 — — — 1,089 
Textbook and other course materials— 29,906 4,917 — 34,823 
Other fees546 2,419 437 — 3,402 
Total Revenue$211,729 $192,538 $34,436 $15,187 $453,890 
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Corporate and Other includes tuition and contract training revenue earned by GSUSA and the elimination of intersegment revenue for courses taken by employees of one segment at other segments.

Contract Balances and Performance Obligations

The Company had no contract assets or deferred contract costs as of September 30, 2023 and December 31, 2022.
The Company recognizes a contract liability, or deferred revenue, when a student begins a course, in the case of APUS and GSUSA, or starts a term, in the case of RU and HCN. Deferred revenue at September 30, 2023 was $29.2 million and included $18.0 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $11.2 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2022 was $23.8 million and included $13.0 million in future revenue that had not yet been earned for courses and terms that were in progress, as well as $10.8 million in student deposits. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods.
The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with students that have an expected duration of one year or less.
When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables. The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change.
The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable. Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations. Consideration is also given to any specific known risk areas among the existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS, RU, and GSUSA do not charge interest on past due accounts receivable. HCN charges interest on payment plans when a student graduates or otherwise exits the program. Interest charged by HCN on payment plans was immaterial for the periods presented.

Note 5. Leases

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

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

•the lease transfers ownership of the asset at the end of the lease;
•the lease grants an option to purchase the asset that the lessee is expected to exercise;
•the lease term reflects a major part of the asset’s economic life;
•the present value of the lease payments equals or exceeds the fair value of the asset; or
•the asset is specialized with no alternative use to the lessor at the end of the term.    

Operating Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company leases corporate office space in Maryland and, beginning in January 2023, in Florida, under operating leases that expire in May 2024 and January 2026, respectively. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 22 campuses located in six states under operating leases that expire through October 2033. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases eight campuses located in three states under operating leases that expire through December 2032. GSUSA leases classroom and administrative office space in Washington, D.C. and Honolulu, Hawaii, under operating leases that expire through September 2036.

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Operating lease assets are ROU assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Lease liabilities, current and long-term, on the Consolidated Balance Sheets. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three and nine months ended September 30, 2023 was sold, which$5.3 million and $15.7 million, respectively, compared to $5.0 million and $15.1 million for the three and nine months ended September 30, 2022, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the three and nine months ended September 30, 2023 was $5.0 million and $15.2 million, respectively, compared to $4.8 million and $14.7 million for the three and nine months ended September 30, 2022, respectively, and is included in loss on long-lived assets in these Consolidated Financial Statements.operating cash flows.


Finance Leases
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,GSUSA Acquisition, the Company is entitledacquired leases for copiers and printers that are classified as finance leases and expire on December 31, 2024. The Company pledged the assets financed to certain rights, includingsecure the right to representationoutstanding leases. As of September 30, 2023, the total finance lease liability was $0.1 million, with an average interest rate of 3.75%. The ROU assets are recorded within Property and equipment, net on the Board of Directors of Fidelis Education. The Company accountsConsolidated Balance Sheets. Lease amortization expense associated with the Company’s finance leases was approximately $27,000 and $81,000 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 information technology training company, New Horizons Worldwide, Inc., which represents approximately 20% of the fully diluted equity of NWHW Holdings. During the three and nine months ended September 30, 2016,2023 and 2022, respectively, and is recorded within Depreciation and amortization expense on the Company received a dividendConsolidated Statements of $3.0 millionIncome.

The following tables present information about the amount and timing of cash flows arising from NWHW Holdings. The Company accounts for its investmentthe Company’s operating and finance leases as of September 30, 2023 (dollars in NWHW Holdings using the equity method of accounting, and therefore recorded a corresponding reduction in the carrying amount of its investment.thousands):


Maturity of Lease Liabilities (Unaudited)Operating LeasesFinance Leases
2023 (remaining)$4,832 $28 
202418,345 113 
202516,765 — 
202615,844 — 
202715,653 — 
202814,228 — 
2029 and beyond52,408 — 
Total future minimum lease payments$138,075 $141 
Less: imputed interest(26,716)(4)
Present value of operating lease liabilities$111,359 $137 
Less: lease liabilities, current(14,098)(109)
Lease liabilities, long-term$97,261 $28 

17

Balance Sheet Classification (Unaudited)
Current:
Operating lease liabilities, current$14,098 
Finance lease liabilities, current109 
Long-term:
Operating lease liabilities, long-term97,261 
Finance lease liabilities, long-term28 
Total lease liabilities$111,496 

Other Information (Unaudited)
Weighted average remaining lease term (in years):
Operating leases8.52
Finance leases1.25
Weighted average discount rate:
Operating leases4.5 %
Finance leases3.8 %

Note 6. Goodwill and Intangible Assets


In connection with its November 1, 2013 acquisition of HCN,acquisitions, the Company has applied FASB ASC 805Business Combinations, using the acquisition method of accounting. The Company recorded $217.4 million and $38.6 million of goodwill in connection with the RU and HCN acquisitions, respectively, representing the excess of the purchase price over the amount assigned to the netfair value of assets acquired and liabilities assumed, including identifiable intangible assets. The Company recorded non-cash impairment charges in 2022 and 2023 for RU, and 2016 and 2019 for HCN, reducing the faircarrying value assignedof RU and HCN goodwill to $33.0 million and $26.6 million, respectively. There was no goodwill recorded in connection with the acquisition of GSUSA.

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, which include trade name, accreditation, licensing, and Title IV, and affiliate agreements. The Company recorded $8.1non-cash impairment charges in 2022 and 2023, reducing the carrying value of RU identified intangible assets with an indefinite useful life to $24.5 million. There were no indefinite useful life intangible assets identified as a result of the GSUSA Acquisition. There are no indefinite-lived intangible assets in the APUS Segment.

The Company recorded $35.5 million, $4.4 million and $1.0 million of identified intangible assets.assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA, respectively. There are no definite-lived intangible assets in the APUS Segment. The Company recorded amortization expense related to definite lived intangibles assets of approximately $3.0 million and $10.9 million for the three and nine months ended September 30, 2023, respectively, compared to $4.0 million and $11.9 million for the three and nine months ended September 30, 2022, respectively.


In August 2016,The Company accounts for goodwill and indefinite-lived intangible assets in accordance with FASB ASC 350, Intangibles Goodwill and Other, and ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The Company completedannually assesses goodwill for impairment, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. Goodwill impairment testing consists of an interim goodwilloptional qualitative assessment and recordedas well as a $4.7 million impairment. Subsequently, the Company completed its annual goodwill assessment and determined thatquantitative test. The quantitative test compares the fair value exceededof the reporting unit to its carrying value. If the carrying value. In connection withvalue of the preparation of these unaudited interim Consolidated Financial Statements,reporting unit is greater than zero and its fair value is greater than its carrying amount, there is no impairment. If the carrying value is greater than the fair value, the difference between the two values is recorded as an impairment.

During the three months ended June 30, 2023, the Company completed a qualitative assessment of RU and HCN Segment goodwill thatto determine if an interim goodwill impairment testing was necessary. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions. The Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount resulting from RU’s underperformance when compared to 2023 internal targets, projected enrollment trends, the decline in financial performance projected for the remainder of 2023 as compared to prior projections, and the Company’s market value. There were no
18

indicators of impairment at HCN.As a reviewresult, the Company completed a quantitative impairment test related to the valuation of allits RU Segment goodwill during the second quarter of 2023. The implied fair value of RU Segment goodwill was calculated and compared to the recorded value. As a result, the Company recorded a non-cash impairment charge of $53.0 million, and the corresponding tax impact of $15.8 million to reduce the carrying value of RU Segment goodwill to $33.0 million. The impairment charge recorded eliminated the difference between the fair value and book value of RU Segment goodwill.

The Company also evaluated events and circumstances related to the valuation of its intangible assets recorded within the RU and HCN Segments to determine if there were indicators of impairment. The Company concluded there were indicators of impairment during the three months ended June 30, 2023 of the RU Segment intangible assets. There were no indicators of impairment at HCN. As a result, the Company recorded a non-cash impairment charge of $11.0 million to reduce the carrying values of the RU Segment trade name and RU Segment accreditation, licensing and Title IV indefinite-lived intangible assets during the second quarter of 2023 to $18.5 million and $6.0 million, respectively. The impairment charge recorded eliminated the difference between the fair value of the trade name and accreditation, licensing, and Title IV indefinite lived intangible assets, and their book values.

In total, the Company recorded non-cash impairment charges of $64.0 million during the three months ended June 30, 2023 related to RU Segment goodwill and intangible assets, and the corresponding tax impact of $15.8 million.

During the three months ended September 30, 2023 the Company performed a qualitative analysis for the RU and HCN Segments’ goodwill and indefinite-lived intangible assets. As part of the analysis, the Company considered the events and circumstances listed in FASBexpressly required by ASC 350,Intangibles - Goodwill and Other, in addition to other entity-specific factors. For example,Factors considered included RU and HCN’s financial and enrollment performance against internal targets, economic factors, and the Company consideredcontinued favorable growth outlook for nursing education. After completing the increase inqualitative review of goodwill for the RU and HCN student enrollment and revenueSegments 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,2023, the Company considered the quantitative analysis performed at the last annual goodwill assessment that determinedconcluded it was more likely than not that the fair value exceededof the RU and HCN Segments was more than the carrying value. After reviewvalue and therefore no quantitative impairment test and no impairment charge was necessary.

During the three months ended June 30, 2022, the Company completed a qualitative assessment to determine if an interim goodwill impairment test was necessary. The Company concluded it was more likely than not the fair value of the Company’s RU Segment was less than its carrying amount as a result of circumstances that included RU’s performance to date against 2022 internal targets and overall 2022 financial performance to date. There were no indicators of impairment at HCN. Therefore, the Company proceeded with a quantitative impairment test related to the valuation of its RU Segment goodwill during the second quarter of 2022. The implied fair value of goodwill was calculated and compared to the recorded goodwill. As a result, during the second quarter of 2022, the Company recorded a non-cash impairment charge of $131.4 million, and the corresponding tax impact of $36.0 million, to reduce the carrying value of RU Segment goodwill. The impairment charge recorded eliminated the difference between the fair value and book value of RU Segment goodwill.

Further, during the three months ended June 30, 2022, the Company also evaluated events and circumstances it wasrelated to the valuation of its intangible assets recorded within the RU and HCN Segments to determine if there were indicators of impairment. These evaluations concluded thatthere were indicators of impairment during the second quarter of 2022 of RU Segment intangible assets. There were no indicators of impairment at HCN. As a result, during the second quarter of 2022, the Company recorded a non-cash impairment charge of $13.5 million to reduce the carrying value of RU Segment accreditation, licensing, and Title IV indefinite-lived intangible assets. The impairment charge recorded eliminated the difference between the fair value of the accreditation, licensing, and Title IV indefinite lived intangible assets, and its book value.

In total, during the three months ended June 30, 2022, the Company recorded non-cash impairment charges of $144.9 million related to RU Segment goodwill was not impairedand intangible assets, and $36.0 million related to the corresponding tax impact.



19

The following table summarizes the changes in the carrying amount of goodwill by reportable segment for the nine months ended September 30, 2023 (in thousands):

APUS SegmentRU SegmentHCN SegmentTotal Goodwill
(Unaudited)
Goodwill as of December 31, 2021$— $216,923 $26,563 $243,486 
Goodwill acquired— — — — 
Impairment— (131,400)— (131,400)
Adjustments— 507 — 507 
Goodwill as of December 31, 2022$— $86,030 $26,563 $112,593 
Goodwill acquired— — — — 
Impairment— (53,000)— (53,000)
Goodwill as of September 30, 2023$— $33,030 $26,563 $59,593 

The following table represents the balance of the Company’s intangible assets as of September 30, 2017.2023 (in thousands):


Gross Carrying AmountAccumulated AmortizationImpairmentNet Carrying Amount
(Unaudited)
Finite-lived intangible assets
Student roster$20,000 $20,000 $— $— 
Curricula14,563 10,219 — 4,344 
Student and customer contracts and relationships4,614 4,391 — 223 
Lead conversions1,500 1,500 — — 
Non-compete agreements86 86 — — 
Tradename35 35 — — 
Accreditation and licenses28 20 — 8 
Total finite-lived intangible assets$40,826 $36,251 $— $4,575 
Indefinite-lived intangible assets
Trade name28,498 — 8,000 20,498 
Accreditation, licensing, and Title IV26,186 — 18,500 7,686 
Affiliation agreements37 — — 37 
Total indefinite-lived intangible assets54,721 — 26,500 28,221 
Total intangible assets$95,547 $36,251 $26,500 $32,796 
Index
20




The following table represents the balance of the Company’s intangible assets as of December 31, 2022 (in thousands):

Gross Carrying AmountAccumulated AmortizationImpairmentNet Carrying Amount
Finite-lived intangible assets
Student roster$20,000 $13,333 $— $6,667 
Curricula14,563 6,680 — 7,883 
Student contracts and relationships4,614 4,168 — 446 
Lead conversions1,500 1,000 — 500 
Non-compete agreements86 86 — — 
Tradename35 35 — — 
Accreditation and licenses28 11 — 17 
Total finite-lived intangible assets$40,826 $25,313 $— $15,513 
Indefinite-lived intangible assets
Trade name28,498 — — 28,498 
Accreditation, licensing, and Title IV26,186 — 15,500 10,686 
Affiliation agreements37 — — 37 
Total indefinite-lived intangible assets54,721 — 15,500 39,221 
Total intangible assets$95,547 $25,313 $15,500 $54,734 

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

21

Note 7. Net IncomeLoss Per Common Share
 
Basic net incomeLoss per common share is based oncalculated by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net loss available to common stockholders is net loss adjusted for preferred stock dividends declared. Diluted net incomeloss per common share increasesis calculated by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding, increased by the shares used in the per share calculation by the dilutive effects of options and restricted stock and option awards. Stock options areThe table below reflects the calculation of loss per common share and the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted loss per common share (in thousands, expect per share amounts).

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(Unaudited)(Unaudited)
Loss per common share
Net loss$(3,328)$(3,762)$(60,300)$(108,458)
Preferred Stock Dividend1,525 — 4,469 — 
Net loss available to common shareholders$(4,853)$(3,762)$(64,769)$(108,458)
Basic weighted average shares outstanding17,778 18,885 18,230 18,854 
Loss per common share$(0.27)$(0.20)$(3.55)$(5.75)
Diluted loss per common share
Net loss available to common shareholders$(4,853)$(3,762)$(64,769)$(108,458)
Basic weighted average shares outstanding17,778 18,885 18,230 18,854 
Effect of dilutive restricted stock and options42 42 64 52 
Diluted weighted average shares outstanding17,820 18,927 18,294 18,906 
Diluted loss per common share$(0.27)$(0.20)$(3.54)$(5.74)

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

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(Unaudited)(Unaudited)
Antidilutive securities:
Stock options163,382 135,597 163,382 135,597 
Restricted shares894,703 613,074 895,152 581,042 
Total antidilutive securities1,058,085 748,671 1,058,534 716,639 

Note 8. Long-Term Debt

In connection with the acquisition of RU, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, or the Agent, Macquarie Capital USA Inc. and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto, or the Lenders. The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $175 million, or the Term Loan, with a scheduled maturity date of September 1, 2027 and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or the Revolving Credit Facility, which together with the Term Loan is anti-dilutive.referred to as the Facilities, with a scheduled maturity date of September 1, 2026, the full capacity of which may be utilized for the issuance of letters of credit. The Revolving Credit Facility also includes a $5.0 million sub-facility for swing line loans. The Term Loan, the proceeds of which were used as part of the cash consideration for the acquisition of RU, was fully funded on September 1, 2021, the closing date of the acquisition of RU, and is presented net of deferred financing fees on the
22

Consolidated Balance Sheets. Deferred financing fees are being amortized using the effective interest method over the term of the Term Loan. As of September 30, 2023 and December 31, 2022, the remaining unamortized deferred financing fees were $4.7 million and $5.9 million, respectively. Deferred financing fees of $0.5 million related to the Revolving Credit Facility were recorded as an asset and are being amortized to interest expense over the term of the Revolving Credit Facility. There were 124,999no borrowings outstanding under the Revolving Credit Facility as of September 30, 2023 and 129,583 anti-dilutive stock options excludedDecember 31, 2022.

In June 2023, in connection with the cessation of publication of the London Interbank Offered Rate, or LIBOR, the Credit Agreement was amended to change the applicable floating index rate at which interest on borrowings under the Facilities would accrue from LIBOR to Term Secured Overnight Financing Rate, or Term SOFR (as defined in the Credit Agreement, as amended), a forward-looking term rate. Outstanding borrowings under the Facilities bear interest at a per annum rate equal to Term SOFR (plus a credit spread adjustment ranging from 0.11448% to 0.42826% depending on the interest period selected by APEI and subject to a 0.75% floor after giving effect to such adjustment) plus 5.50%, which shall increase by an additional 2.00% on all past due obligations if APEI fails to pay any amount when due. As of September 30, 2023, the Facilities borrowing rate was 10.95%, excluding any offset from the calculation forinterest rate cap agreement described below. An unused commitment fee in the threeamount of 0.50% is payable quarterly in arrears based on the average daily unused amount of the commitments under the Revolving Credit Facility.

In December 2022, APEI made prepayments totaling $65.0 million on the Term Loan. With this prepayment, APEI is not required to make quarterly principal payments on the Term Loan until payment of the outstanding principal amount at maturity in September 2027.

The Credit Agreement contains customary affirmative and nine months endednegative covenants, including limitations on APEI’s and its subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, and enter into affiliate transactions, in each case, subject to certain exceptions, as well as customary representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Facilities. In addition, the Credit Agreement contains a financial covenant that requires APEI to maintain a Total Net Leverage Ratio of no greater than 2.0 to 1.0. As of September 30, 2017, respectively, compared2023, APEI was in compliance with all debt covenants.

For additional information on certain restrictions placed on the Company’s indebtedness pursuant to 246,074 and 248,674 anti-dilutive stock options excluded from the calculation forterms of the three and nine months ended Company’s Series A Senior Preferred Stock, please refer to “Note 12. Preferred Stock” in these Consolidated Financial Statements.

Long-term debt consists of the following as of September 30, 2016, respectively.2023 and December 31, 2022 (in thousands):

As of September 30, 2023As of December 31, 2022
(Unaudited)
Credit agreement$99,063 $99,063 
Deferred financing fees(4,747)(5,912)
Total debt94,316 93,151 
Less: Current portion— — 
Long-Term Debt$94,316 $93,151 
Note 8. Income Taxes
Scheduled maturities of long-term debt at September 30, 2023 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited)Loan Payments
2027$99,063 
Total$99,063 

23

Derivatives and Hedging

The Company is subject to U.S. Federal income taxesinterest rate risk, including because all outstanding borrowings under the Credit Agreement are subject to a variable rate of interest. On September 30, 2021, the Company entered into an interest rate cap agreement to manage its exposure to the variable rate of interest with a total notional value of $87.5 million. This interest rate cap agreement, designated as wella cash flow hedge, provided the Company with interest rate protection in the event LIBOR exceeded 2.0%. The interest rate cap was effective October 1, 2021, and was scheduled to expire on January 1, 2025.

In connection with cessation of publication of LIBOR, the Company terminated its existing interest rate cap agreement and entered into a new interest rate cap agreement that transitioned the benchmark rate to Term SOFR effective June 30, 2023. The new interest rate cap agreement is structured in a way that there is no change in the value to the Company and provides the Company with interest rate protection in the event that the Term SOFR rate exceeds 1.78%. The new interest rate cap agreement will expire on December 31, 2024.

Changes in the fair value of the interest rate cap designated as income taxesa hedging instrument that effectively offset the variability of multiple state jurisdictions. For Federalcash flows associated with the Company’s variable-rate long-term debt obligations are reported in accumulated other comprehensive income. These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

As of September 30, 2023 and state tax purposes,December 31, 2022, the tax years from 2013 to 2016 remain open to examination.

fair value of the interest rate cap totaled $3.7 million and $4.5 million, respectively, and was recorded in Other assets, net on the Consolidated Balance Sheets. The Company recognized tax expenseunrealized gain 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 expense2023, of $9.7$0.3 million and $10.5$1.3 million, respectively, or effective tax ratesnet of taxes, is included in accumulated other comprehensive income. During the three and 43.2% and 37.9%, respectively. The effective tax rate for the nine months ended September 30, 2017 includes approximately $0.52023, the Company reclassified $0.8 million in additionaland $2.1 million, respectively, from other comprehensive 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 duringinterest expense. 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, 2016437,971
 $21.54
Shares granted278,934
 $23.36
Vested shares(184,670) $25.88
Shares forfeited(31,450) $21.07
Non-vested, September 30, 2017500,785
 $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 2012,2022, 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 unablereclassified $0.1 million from other comprehensive income to make reasonable assumptions regarding the future.interest expense. 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-freeestimates that approximately $1.1 million will be reclassified from accumulated other comprehensive income into 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): next twelve months.

 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 promotional200
 168
 559
 524
General and administrative1,137
 813
 2,745
 2,371
Stock-based compensation expense in operating income1,566
 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 10.9. Segment Information
 
The Company has two operating segments thatthree reportable segments: the APUS Segment, the RU Segment, and the HCN Segment. GSUSA does not meet the quantitative thresholds to qualify as a reportable segment and does not have other requisite characteristics as a reportable segment, therefore, its operational activities are managedpresented below within “Corporate and Other.” Adjustments to reconcile segment results to the Consolidated Financial Statements, including unallocated corporate activity and eliminations, are also included in the following reportable segments:“Corporate and Other.”


•American Public Education Segment, or APEI Segment; and

•Hondros College of Nursing Segment, or HCN 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 SegmentAPUS, RU, and HCN Segment.Segments.
 
A summary of financial information by reportable segment is as follows (unaudited)(in thousands):


24

 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 Segment8,394
 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 Segment355
 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 Segment744
 (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 Segment287
 (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 Segment109
 72
 348
 678
Total Capital expenditures$2,754
 $2,766
 $6,535
 $9,670
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
(Unaudited)(Unaudited)
Revenue:
APUS Segment$76,406 $68,735 $223,941 $211,729 
RU Segment52,073 61,548 161,511 192,538 
HCN Segment13,741 11,409 41,147 34,436 
Corporate and Other8,618 7,843 21,142 15,187 
Total Revenue$150,838 $149,535 $447,741 $453,890 
Depreciation and amortization:
APUS Segment$1,316 $1,573 $4,007 $4,860 
RU Segment5,229 6,015 17,351 18,254 
HCN Segment314 248 927 693 
Corporate and Other167 146 450 442 
Total Depreciation and amortization$7,026 $7,982 $22,735 $24,249 
Income (loss) from operations before interest and income taxes:
APUS Segment$21,948 $12,532 $57,963 $39,338 
RU Segment(10,570)(7,900)(100,708)(153,562)
HCN Segment(641)(1,392)(2,179)(3,017)
Corporate and Other(4,337)(4,266)(19,314)$(19,845)
Total income (loss) from operations before interest and income taxes$6,400 $(1,026)$(64,238)$(137,086)
Interest income (expense):
APUS Segment$728 $69 $1,557 $146 
RU Segment10 30 11 38 
HCN Segment26 5 68 10 
Corporate and Other(1,556)(3,698)(5,304)$(10,533)
Total Interest expense, net$(792)$(3,594)$(3,668)$(10,339)
Income tax expense (benefit):
APUS Segment$5,969 $(3,557)$15,689 $11,628 
RU Segment(635)(2,183)(22,813)(38,564)
HCN Segment(271)66 (456)(816)
Corporate and Other(1,351)4,814 (5,259)(7,400)
Total Income tax expense (benefit)$3,712 $(860)$(12,839)$(35,152)
Capital expenditures:
APUS Segment$1,243 $811 $2,892 $2,209 
RU Segment214 1,942 3,499 6,860 
HCN Segment331 776 1,363 1,666 
Corporate and Other1,164 67 1,751 170 
Total Capital Expenditures$2,952 $3,596 $9,505 $10,905 


Index

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


25


As of September 30, 2017 As of December 31, 2016As of September 30, 2023As of December 31, 2022
(In thousands)(Unaudited)
Assets:   Assets:
American Public Education Segment$280,431
 $267,260
Hondros College of Nursing Segment49,470
 48,360
APUS SegmentAPUS Segment$93,918 $113,551 
RU SegmentRU Segment220,819 300,625 
HCN SegmentHCN Segment59,491 59,820 
Corporate and OtherCorporate and Other181,043 141,060 
Total Assets$329,901
 $315,620
Total Assets$555,271 $615,056 



Note 11.10. 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 beis 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 12.11. Concentration


APUS    The Company’s students utilize various payment sources and programs to finance their educationaleducation expenses, including funds from: the U.S. Department of Defense, or DoD, tuition assistance programs; federal student aid from Title IV programs; andprograms, or TA; education benefit programs administered by the U.S. Department of Veterans Affairs, or VA education benefits; as well asVA; federal student aid from Title IV programs; and cash and other sources. Reductions in or changes to DoD tuition assistance, 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.

A summary of APEIAPUS Segment revenue derived from APUS students by primary funding source is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)(Unaudited)
2023202220232022
DoD tuition assistance programs46%45%47%46%
VA education benefits23%22%22%21%
Title IV programs18%19%17%19%
Cash and other sources13%14%14%14%
A summary of RU Segment revenue derived from students by primary funding source is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)(Unaudited)
2023202220232022
Title IV programs76%74%75%74%
Cash and other sources22%24%23%24%
VA education benefits2%2%2%2%

    A summary of HCN Segment revenue derived from students by primary funding source is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(Unaudited)(Unaudited)
2023202220232022
Title IV programs79%80%79%80%
Cash and other sources20%18%20%18%
VA education benefits1%2%1%2%

Note 12. Preferred Stock

On December 28, 2022, APEI issued $40 million of the Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of existing common stockholders of the Company.

The Series A Senior Preferred Stock has cumulative dividends that accrue daily at the initial annual rate, which is equal to SOFR (selected by the Company for each divided period), plus 10.00%, or an initial rate of 14.55% for the first dividend period, a three-month dividend period. On the 30-month anniversary of issuance, the dividend rate spread shall increase by 2.00% per annum and shall increase by 0.50% per annum at the beginning of each full fiscal quarter thereafter. The dividend rate spread increases 6.00% in the event of default, a change of control, or other non-compliance as noted in the related Certificate of Designation and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement. Other than an increase in the dividend rate spread relating to default, in no event will the dividend rate spread exceed SOFR plus 25.00%. As of September 30, 2023, the dividend rate was 15.39% based on a three-month dividend period. Dividend periods will be monthly, every three months or every six months, at the Company’s option, and the Company currently anticipates using a three-month period. Dividends will be paid, after declaration by the Company’s Board of Directors, for each dividend period. If the Company selects a six-month dividend period, an interim dividend payment will be required for each three-month period therein. During the three and nine months ended September 30, 20172023, $1.5 million and $4.5 million, respectively, of dividends were declared and paid on the Series A Senior Preferred Stock.

The Series A Senior Preferred Stock has no stated maturity, is not convertible, is not subject to any mandatory redemption, sinking fund or other similar provisions, and will remain outstanding unless redeemed at the Company’s option. The Company has the right to redeem the Series A Senior Preferred Stock pro rata in whole or in part at the price per share equal to the liquidation preference, or the Liquidation Preference, plus any applicable early premium amount noted in the Certificate of Designation and Purchase Agreement.

The Liquidation Preference of $57.2 million and $62.2 million as of September 30, 20162023 and December 31, 2022, respectively, is based on the occurrence of a liquidation event, which is also considered an event of default as defined in the Certificate of Designation. The Liquidation Preference includes an early redemption premium amount and a make-whole payment for any redemption of the securities prior to June 30, 2025. As of September 30, 2023 and December 31, 2022, the make-whole payment included in the Liquidation Preference was $14.2 million and $19.3 million, respectively. The make-whole payment included in the Liquidation Preference will be reduced quarterly until June 30, 2025, at which time it will be eliminated. Events of default trigger an increase of the dividend rate spread of 6.00% and an early premium amount, as defined in the Certificate of Designation.

The following table lists the components of the liquidation preference for the periods presented below (unaudited).(in thousands):
As of September 30, 2023As of December 31, 2022
(Unaudited)
Series A Senior Preferred Stock (plus accrued and unpaid dividends)$40,072 $40,069 
Make whole payment14,163 19,251 
Early redemption premium2,915 2,915 
Liquidation Preference$57,150 $62,235 
 Three Months Ended
September 30,		 Nine Months Ended
September 30,
 2017 2016 2017 2016
DoD tuition assistance programs36.3% 35.3% 36.5% 35.8%
Title IV programs27.4% 29.5% 26.9% 29.2%
VA education benefits22.8% 22.3% 22.7% 22.1%
Cash and other sources13.5% 12.9% 13.9% 12.9%

HCN students also utilize various payment sources and programsThe Series A Senior Preferred Stock has no voting rights for directors or otherwise, except as required by law or with respect to finance their educational expenses, including Title IV programs and VA education benefits. Forcertain protective provisions. Without the nine months ended September 30, 2017 and 2016, approximately 83.5% and 84.4%, respectively,consent of HCN Segment revenue was derived from Title IV programs.

Note 13. Subsequent Event

Index

On December 1, 2015,at least 60% of the then outstanding shares of Series A Senior Preferred Stock, with certain exceptions, the Company made a $3.5may not, among other things, (i) incur any indebtedness if such incurrence would cause the Company’s Total Net Leverage Ratio (as defined in the Purchase Agreement) to exceed 0.75:1, (ii) issue any capital stock senior to or pari passu with the Series A Senior Preferred Stock, (iii) declare or pay any cash dividends on the Company’s common stock, or (iv) repurchase more than an aggregate of $30 million 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.common stock.


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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,”APEI, and its subsidiary institutions collectively unless the context indicates otherwise. All quarterly information in this Management’s Discussion and Analysis is unaudited. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this reportQuarterly 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, 2016,2022, or theour Annual Report.


Forward-Looking Statements


Some of the statements contained in thisThis Quarterly Report on Form 10-Q that are not historical facts arecontains forward-looking statements withinintended to be covered by the meaning ofsafe 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 or expressions that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements. The forward-lookingForward-looking statements in this Quarterly Report include, without limitation, statements regarding:

•changes in and our ability to comply with the extensive regulatory framework applicable to our industry, including the 90/10 Rule, as well as state law and regulations and accrediting agency requirements, and the expected impacts of any non-compliance;
•our ability to manage, grow, and diversify our business and execute our business initiatives and strategy;
•our cash needs and expectations regarding cash flow from operations, including the impacts of our debt service and the dividend payments that are required to be paid on our Series A Senior Preferred Stock;
•our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist, and improve student outcomes;
•changes to and expectations regarding our student enrollment, net course registrations, and the composition of our student body, including the pace of such changes;
•our ability to maintain, develop, and grow our technology infrastructure to support our student body;
•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 U.S. Department of Defense, or DoD, or branches of the U.S. Armed Forces, including actions related to the disruption of DoD tuition assistance programs, or TA, and ArmyIgnitED, and expectations regarding the effects of those actions;
•federal appropriations and other budgetary matters, including government shutdowns;
•changes in enrollment in postsecondary degree-granting institutions and workforce needs;
•the competitive environment in which we operate;
•our cost savings efforts and their benefits;
•our ability to manage and influence our bad debt expense;
•our use of our share repurchase program; 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, assumptionsus and expectations can change as a resultare 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 factorsRisks and uncertainties involved in forward-looking statements include, those that we discuss in this sectionamong others:

•our dependence on the effectiveness of this Quarterly Report on Form 10-Q, in the “Risk Factors” section of this Quarterly Report on Form 10-Q, in the “Risk Factors” section of the Annual Report, andour ability to attract students who persist in our various filings with institutions’ programs;
•our inability to effectively market our programs or expand into new markets;
•the SEC. You should read these factors and the other cautionary statements made in this Quarterly Report on Form 10-Q in combination with the more detailed descriptionloss of our business inability to receive funds under TA programs or the Annual Report as being applicablereduction, elimination, or suspension of TA, or continued disruption due to allsystems used to request TA;
•our inability to maintain enrollments from military students;
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•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 failure to successfully adjust to future market demands;
•our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation, the consequences thereof, and risks related forward-looking statements wherever they appear in this Quarterly Report. If oneto any actions we may take to prevent or morecorrect such failure;
•adverse impacts of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. 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 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 Statesrecent Department of Education, or ED, negotiated rulemakings;
•our failure to meet applicable NCLEX pass rates and other NCLEX standards, and the consequences thereof;
•our failure to comply with the “90/10 Rule”;
•our loss of eligibility to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs, or ability to process Title IV financial aid;
•our inability to recognize the benefits of our cost savings efforts;
•economic and market conditions in the United States and abroad and changes in interest rates;
•risks related to business combinations and acquisitions, including integration challenges, business disruption, dilution of stockholder value, and diversion of management attention;
•risks related to our substantial indebtedness and our Series A Preferred Stock; and
•our dependence on and need to continue to invest in our technology infrastructure.

Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Quarterly Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC. It is important that you read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements herein, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements, except as required by law.

Overview

Background

    We are a provider of online and campus-based postsecondary education to approximately 106,300 students worldwide through American Public University System, or APUS, Rasmussen University, or RU, and Hondros College of Nursing, or HCN, and career learning through Graduate School USA, or GSUSA. These subsidiary institutions are purpose-built to deliver inclusive, high-quality education that empowers learners to achieve their ambitions, serve their communities, and realize a return on their educational investment. Our subsidiary institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and APUS, RU, and HCN, are certified by ED to participate in Title IV programs.

Acquisitions

On January 1, 2022, or the GSUSA Closing Date, our wholly owned subsidiary, American Public Training LLC, completed our acquisition, or the GSUSA Acquisition, of substantially all the assets of Graduate School USA, or the Seller, for $1.0 million, subject to working capital adjustments. At closing, we received approximately $1.9 million from the Seller, which represents the estimated net working capital at closing net of the initial cash payment to the Seller of $0.5 million, which is the purchase price less $0.5 million we retained to secure the indemnification obligations of the Seller. The purchase price reflects the $0.5 million due to the Seller post-closing and additional adjustments to the estimated net working capital at closing.

For more information on the GSUSA Acquisition, please refer to, “Note 3. Acquisition Activity” included in the Notes to the Consolidated Financial Statements in our Annual Report and in this Quarterly Report.

Our wholly-ownedInstitutions

    Our wholly owned operating subsidiary institutions include the following:
Index



•American Public University System, Inc., orreferred to herein as APUS, provides online postsecondary education to approximately 90,000 adult learners, directed primarily at the 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
28

University, or APU, which is focusedAPU. As of September 30, 2023, approximately 66% of APUS students self-reported that they served in the military on educating non-military students. 
active duty at the time of initial enrollment.


APUS has•Rasmussen College, LLC, referred to herein as Rasmussen University, or RU, provides nursing- and health sciences-focused postsecondary education to over 13,500 students at its 22 campuses in six states and online. As of September 30, 2023, approximately 84,7005,700 students are pursuing nursing degrees at RU, approximately 90% of whom are enrolled in RU’s pre-licensure nursing degree programs.

•National Education Seminars, Inc., referred to herein as Hondros College of Nursing, or HCN, provides nursing education to approximately 2,800 students at eight campuses in three states. All of HCN’s students are enrolled in its pre-licensure nursing degree programs.

•American Public Training LLC, referred to herein as Graduate School USA, or GSUSA, provides career learning and offers 108 degree programsleadership training in-person and 107 certificate programsonline to the federal workforce, through a catalog of over 300 courses specializing in diverse fields of study including business administration, health science, technology, criminal justice, educationfoundational and liberal arts,continuing professional development, as well as national security, military studies, intelligence,leadership training to advance the performance of government agencies through the competency and homeland security. APUS is regionally accredited by the Higher Learning Commission, or HLC.career advancement of their employees. GSUSA operational activities are presented within “Corporate and Other.”


Tuition Increases

In connection with the previously disclosed organizational realignment ofApril and July 2023, 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 applicationimplemented tuition 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 a group of HLC Board of Trustees members and HLC staff will present a proposed framework to the full HLC Board of Trusteesfee increases 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,non-military and HLC staff will issue its report after reviewing any such updates. Weveteran students. Even with these tuition and fee increases, we believe that APUS’s tuition and fees remain lower than the earliestaverage in-state cost at public universities. RU implemented tuition increases, which took effect on January 3, 2023, for select programs to help offset the increased cost of delivering a quality education, and HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs to offset the increased cost of delivering a quality, competitive education.

Cost and Expense Reductions

During the three months ended September 30, 2023, we completed a reduction in force that resulted in the HLC Boardtermination of Trustees would make74 employees and the elimination of 57 open positions across a determinationvariety of roles and departments at APEI, RU, HCN and GSUSA. The headcount reductions reflect our ongoing efforts focused on the changerealigning our organizational structure, eliminating redundancies, and optimizing certain functions. We incurred an aggregate of structure application is February 2018. HLC had planned to visit APUS in February 2017 as partapproximately $3.0 million of a standard mid-cycle review. However,pre-tax cash expenses associated with employee severance costs as a result of the change-of-structure application process, HLC postponed that mid-cycle review untilthis reduction in force, all of which were incurred in the third quarter of 2018. We are unable2023. The reduction in force is expected to predict whether HLC will approve APUS’s applicationresult in pre-tax labor and whetherbenefit savings in 2023 of approximately $6.2 million, excluding severance costs, 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.approximately $15.5 million in savings on an annualized basis.


In September 2016, ED beganNovember 2022, we completed a program reviewreduction in force that resulted in the termination of APUS’s administration98 non-faculty employees and the elimination of the Title IV programs during the 2014-201578 open positions across a variety of roles and 2015-2016 award years. The program review remains open and ongoing. At this time, we cannot predict the outcomedepartments representing approximately 5.8% of the program review, when it will be completed, or whether ED will place any liability or other limitations on APUSour non-faculty workforce. We incurred an aggregate of approximately $3.1 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force, all of which were incurred in the review.fourth quarter of 2022. The reduction in force resulted in pre-tax labor and benefit savings of approximately $2.3 million in 2022.


In April 2017, APUSJanuary 2022, RU completed a reduction in force that resulted in the termination of nine full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce. We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force. The reduction in force resulted in pre-tax labor and benefit savings of approximately $2.7 million in 2022.

Regulatory and Legislative Activity

The Accreditation Commission for Education in Nursing, or ACEN, accredits certain RU Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, programs at certain RU campuses. In September 2021, ACEN granted RU’s ADN program in Bloomington, Minnesota continued accreditation with conditions, requiring it to strengthen its verification process by implementing new proceduresdemonstrate compliance with all applicable accreditation criteria within two years. In June 2023, ACEN’s site visit team recommended denial of continuing accreditation for prospective non-military students,the program based on the team’s findings that the program did not demonstrate compliance with certain accreditation criteria related to student outcomes. RU thereafter responded to the recommendation detailing RU’s belief that good cause existed not to deny continuing accreditation. On October 6, 2023, RU received notice from ACEN that the ACEN board had granted continuing accreditation for good cause until September 2024. ACEN also requested a follow-up report for good cause to be submitted in advance of a required follow-up site visit in spring 2024 due to a finding of non-compliance
29

related to an effortalleged lack of evidence that originated in April 2015the program implements actions based on data analysis to improve the program completion rate. In conjunction with the implementationspring 2024 follow-up visit, the ACEN board will also conduct a focused visit due to a complaint received by ACEN related to student clinical preparation and graduate clinical performance. If the ACEN board grants continuing accreditation following its review of a requirementthe follow-up report and spring 2024 site visit report, the next evaluation visit will be scheduled for prospective studentsspring 2031. If the ACEN board denies continuing accreditation following its review of the report and the spring 2024 visit, the program can apply for an additional year of continuing accreditation for good cause. In August 2023, RU decided to complete a free, noncredit admissions assessment. APUS has made multiple changesvoluntarily pause new enrollments beginning in November 2023. Due to previously self-imposed enrollment caps in this program and the assessment process since its original implementation and may further modify itpause on new enrollments, enrollment in the future in orderBloomington, MN ADN program currently represents less than 2% of RU’s current total enrollment. If RU is unable 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 identifyingobtain accreditation or candidacy status with ACEN or another nursing accreditor, RU would likely have to close its Bloomington, Minnesota ADN program, which would have an adverse impact on RU’s enrollments and enrolling students that are likely to succeedRU’s 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.


InThe State of Illinois enacted legislation in August 2023, which takes effect January 1, 2024, that we believe could positively impact RU ADN program in Illinois by providing the program with additional time to improve National Council Licensure Examination, or NCLEX, pass rates. The legislation changes the Illinois NCLEX pass rate requirements from a one-year measurement based on first attempts only to a three-year average that includes all test attempts. It also temporarily removes all nursing programs from probationary status for a period of three years. The resulting removal from probationary status of RU’s Illinois ADN program may be viewed favorably by ACEN or another nursing program accreditor and may result in RU’s Illinois ADN program obtaining ACEN accreditation following a site visit in February 2024, which we also believe will allow RU to be deemed to have met Illinois’ requirement for its Illinois ADN program to have achieved accreditation by the end of 2022 in satisfaction of state approval requirements.

ED recently released a final rule amending and expanding the current financial responsibility, administrative capability, and certification regulations, which takes effect July 2017, APUS began accepting applications for two applied doctoral programs in Strategic Intelligence and Global Security with1, 2024. Under 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 programsamended regulations, institutions will be successfulrequired to meet additional financial responsibility criteria and must report certain “financial responsibility” events to ED. In addition, ED may find that an institution has failed the administrative capability requirements if it: does not provide adequate financial aid counseling or how they will impact our results of operations, cash flows,career services; has been subject to a negative action by a state or financial condition.

In July 2017, the Council on Education for Public Health,federal agency, court, or CEPH, notified APUS that the CEPH Board of Councilors acted in June 2017accreditor; fails 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,verify high school diplomas; 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 will have on our financial position or results of operations.

In September 2017, Dr. Karan H. Powell announced that she would retire from her role as President of APUS on October 15, 2017. Dr. Wallace E. Boston was appointed Interim President of APUS until a permanent replacement is appointed. We incurred approximately $1.3 million in costs related to the retirement of Dr. Powell in the period ending September 30, 2017.

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.

National Education Seminars, Inc., which we refer to as Hondros College of Nursing, or HCN, provides nursing education to approximately 1,800 students at five campuses in the State of Ohio, as well as online. HCN offers a Diploma in Practical Nursing, or PN Program, and an Associate Degree in Nursing, or ADN Program. The campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo. HCN also offers an online Registered Nurse to Bachelor of Science in Nursing completion program, which we refer to as the RN-to-BSN Program, predominately todoes not timely place students in Ohio.

We acquired HCN on November 1, 2013. In January 2016, we received a letter fromclinical or externship opportunities. ED approving the change in ownershipmay require institutions that fail to meet these financial responsibility and control of HCN and granting HCN provisional certificationadministrative capability criteria to participate in Title IV programs until December 31, 2018. HCN receivedunder a fully executed Provisional Program Participation Agreement,provisional certification or PPPA,submit financial protection. ED may also impose additional requirements on the institution’s participation 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 from the Accrediting Council of Independent Colleges and Schools, or ACICS, the State of Ohio Board of Nursing, or OBN, and the Ohio State Board of Career Colleges and Schools, or Ohio State Board. The new campus began operations in January 2017. HCN incurred expenses related to the start-up of the new campus. We cannot predict whether HCN’s new campus will be successful or how it will impact our results of operations, cash flows, or financial condition.

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 annually certain campus-level and program-level data (e.g., retention rates, placement rates, and licensure exam pass rates) for purposes of monitoring student achievement against established requirements, including minimum “standards” and expected “benchmarks.” To satisfy ACICS’s standards, the retention rate, placement rate, and licensure exam pass rate each must exceed 60%. To satisfy ACICS benchmarks, each rate must exceed 70%. If ACICS determines that an institution’s campus-level or program-level data do 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. In May 2017, ACICS published
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proposed changes to its Accreditation Criteria to clarify certain aspects of the new policy. ACICS accepted the proposed changes as final effective August 4, 2017.

For the reporting year July 1, 2015 through June 30, 2016, several HCN campuses 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; and the Cleveland and Dayton campuses, which were placed on campus-level Reporting status related to their retention 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 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 impose a civil penalty of not more than $3,500 for each violation.

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 OBN require that nursing education programs, such as HCN’s PN and ADN Programs have a pass raterestrictions on the relevant National Council Licensure Examination,enrollment, addition of new programs, 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 pass rate, 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. 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 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 continues to fail to meet the requirements, the OBN may propose to continue provisional approval for a set time period or may propose to withdraw its approval of the program pursuant to an adjudication proceeding. HCN has been implementing changes, including the curriculum changes discussed in our Annual Report, that are designed to help increase 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 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 on our results of operations, cash flows, and financial condition.acquisitions.


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Cohort Default Rate

For more information on the potential risks associated with these HCN initiatives and HCN more generally, please refer to our Annual 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, whichas 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 rateany single year, or exceeds 30% for three consecutive years, thean 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 2017,2023, ED released final official cohort default rates for institutions for federal fiscal year 2014,2020, with ED reporting a 23.6%zero percent cohort default rate for APUS, RU and an 11.4% cohort default rate for HCN. These rates were favorably impacted by regulatory relief provided in connection with the COVID-19 pandemic pursuant to which borrowers with Title IV program student loans were not required to make payments. 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 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 commitments 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 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
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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 procedures 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, ED published a notice in the Federal Register to announce that in light of the existence and potential consequences of pending litigation that had been brought in federal court 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 standard and process for determining whether a borrower 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 a negotiated rulemaking committee to develop proposed regulations to revise the Borrower Defense Regulations and to address certain other related matters. ED held two public hearings 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 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’s 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 required in order to comply with 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 date 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 Title IV programs only in respect of educational programs that prepare students 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 hearings 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.
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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 Regulations as a whole have not been delayed or altered. Accordingly, pending additional guidance or instruction from ED, APUS and HCN must 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 benefits to students who were enrolled in schools that closed after January 2015 if their credits did not transfer.

We cannot predict the extent to which the aforementioned regulatory activity or any other potential regulatory or legislative activity 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.

Reportable Segments


Our operations are organized into twothree reportable segments:
•American Public EducationUniversity System Segment, or APEI APUS Segment.This segment reflects the operational activities of APUS, other corporateAPUS.

•Rasmussen University Segment, or RU Segment. This segment reflects the operational activities and minority investments.
of RU.


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

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Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other.” These adjustments include unallocated corporate activity and eliminations, and the operational activities of GSUSA.

Summary of Results


ForConsolidated revenue for the three month periodmonths ended September 30, 2017, our consolidated revenue decreased2023 increased to $150.8 million from $73.8 million to $73.3$149.5 million, or by 0.7%0.9%, overcompared to the comparable prior year period. Our net loss for the three months ended September 30, 2023 was $3.3 million, compared to a net loss of $3.8 million in the prior year period, an increase of $0.4 million. The results for the three months ended September 30, 2023, include a non-cash investment loss of $5.2 million, net of tax, on one of our cost method equity investments, due to the investee entering into an agreement to be sold which will result in no sales proceeds. Our operating margins increased from 0.5% to 10.4%4.2% for the three month periodmonths ended September 30, 2017, over2023, compared to negative 0.7% in the comparable prior year period. For the nine month period ended September 30, 2017, our consolidated

Consolidated revenue decreased from $234.5 million to $221.2 million, or by 5.7%, over the
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comparable prior year period.  Our operating margins decreased from 11.5% to 10.0% for thenine month period ended September 30, 2017, over the comparable prior year period.

For the three month period ended September 30, 2017, APEI Segment revenue decreased from $67.1 million to $64.9 million, or by 3.3%, over the comparable prior year period. APEI Segment operating margins increased from 8.4% to 10.6% for the three month period ended September 30, 2017, over the comparable prior year period. For the ninemonth period ended September 30, 2017, APEI Segment revenue decreased from $212.9 million to $197.3 million, or by 7.3%, over the comparable prior year period. APEI Segment operating margins decreased from 14.7% to 10.4% for the nine month period ended September 30, 2017, over the comparable prior year period. Net course registrations 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. 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, APEI2023, decreased to $447.7 million from $453.9 million, or by 1.4%, compared to the prior year period. Results for the nine months ended September 30, 2023, include a non-cash impairment charge of $64.0 million in our RU Segment recordedto reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact, and a non-cash investment loss of $5.2 million, net of tax, on disposalone of long-livedour cost method investments in Corporate and Other. Results for the nine months ended September 30, 2022, include a non-cash impairment charge of $144.9 million in our RU Segment to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact. Our operating margins increased to negative 14.3% for the nine months ended September 30, 2023 from negative 30.1% in the prior year period. Our net loss for the nine months ended September 30, 2023, was $60.3 million, compared to net loss of $108.5 million in the prior year period, a decrease of $48.2 million. Excluding the impact of the non-cash impairment charges, for the nine months ended September 30, 2023 and 2022, our operating margin was negative 0.1% and positive 1.7%, respectively, and our net loss was $6.9 million, compared to net income of $0.4 million in the prior year period. The net loss for the nine months ended September 30, 2023, includes a non-cash investment loss of $5.2 million, net of tax.

APUS net course registrations for the three months ended September 30, 2023, increased to approximately 92,300 from approximately 85,800, an increase of 6,500, or 7.6%, compared to the prior year period. APUS Segment revenue for the three months ended September 30, 2023, increased to $76.4 million from $68.7 million, or by 11.2%, compared to the prior year period. The revenue increase for the period was greater than the increase in net course registrations due to the April and $1.6July tuition and fee increases. APUS net course registrations for the nine months ended September 30, 2023, increased to approximately 276,900 from approximately 263,200, or approximately 5.2%. APUS Segment revenue nine months ended September 30, 2023, increased to $223.9 million respectively.from $211.7 million, or by 5.8%, compared to the prior year period. During the comparable prior year periods, APEI Segment recordednine month period, the impact of the April and July tuition and fee increases was partially offset by a loss on disposals of long-lived assets of $5.1 million and $5.9 million, respectively.

change in student mix to more students that utilize military TA at a lower revenue per net course registration. For the three month periodmonths ended September 30, 2017, HCN2023, APUS Segment operating margins increased to 28.7% from 18.2% in the prior year period and increased to 25.9% from 18.6% for the nine months ended September 30, 2023, compared to the prior year period.

RU total enrollment for the three months ended September 30, 2023, decreased to approximately 13,500 from approximately 15,000, a decrease of 1,500, or 10.0%, compared to the prior year period. RU Segment revenue increasedfor the three months ended September 30, 2023, decreased to $52.1 million from $6.7 million to $8.4$61.5 million, or by 24.6%15.4%, overcompared to the comparableprior year period. RU total enrollment for the nine months ended September 30, 2023, decreased 11.5%, as compared to the prior year period. RU Segment revenue for the nine months ended September 30, 2023, decreased to $161.5 million from $192.5 million, or by 16.1%, compared to the prior year period. In both periods, the revenue decrease was greater than the enrollment decrease due to a change in student mix to more online students that have lower revenue per enrollment, partially offset by tuition increases implemented in January 2023. RU Segment operating margins decreased to negative 20.3% from negative 12.8% for the three months ended September 30, 2023, and improved to negative 62.4% for the nine months ended September 30, 2023, from negative 79.8% in the prior year period.
HCN total enrollment for the three months ended September 30, 2023, increased to approximately 2,800 from approximately 2,400, an increase of approximately 400, or 17.0%, compared to the prior year period. HCN Segment operating margins increased from negative 78.2% to 8.9%revenue for the three month periodmonths ended September 30, 2017, over2023, increased to $13.7 million from $11.4 million, or by 20.4%, compared to the comparable prior year period. ForHCN total enrollment for the nine month period months ended September 30, 2017, HCN Segment revenue2023, increased from $21.7 millionapproximately 16.4%, as compared to $23.8 million, or by 10.1%, over the comparable prior year period. HCN Segment operating margins increased from negative 19.3% to 7.5%revenue for the nine month period months ended September 30, 2017, over2023, increased to $41.1 million from $34.4 million, or by 19.5%, compared to the comparable prior year period. Enrollment at HCN forIn both periods, the revenue increase was greater than the enrollment increase due to tuition increases in the second quarter of 2023. For the three month periodmonths ended September 30, 2017 increased2023, HCN Segment operating margins improved to negative 4.7% from 1,610 to 1,790, or approximately 11.2% overnegative 12.2% in the comparable prior year period, and for the nine month periodsthree months ended September 30, 2017 and September 30, 2016 enrollment was unchanged. HCN student enrollment represents2022. For 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, 2016,2023, HCN Segment recorded a $4.7 million impairment charge on goodwill.

We believe these changes in revenue and operating margins are primarily dueimproved to the factors discussed belownegative 5.3% from negative 8.8% in the “Results of Operations” section of this Management’s Discussion and Analysis.prior year period.
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Critical Accounting Policies and Use of Estimates
 
Goodwill and indefinite-lived intangible assets. Goodwill is the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reported at the reporting unit level that we have defined as our reporting segments. In connection with our acquisitions of RU and HCN, we recorded $217.4 million and $38.6 million of goodwill, respectively, in our RU and HCN Segments. The Company recorded non-cash impairment charges in 2022 and 2023 for RU, and 2016 and 2019 for HCN, reducing the carrying value of RU and HCN Segment goodwill to $33.0 million and $26.6 million, respectively. There was no goodwill recorded in connection with the acquisition of GSUSA reported in Corporate and Other, and there is no goodwill in our APUS Segment.

In addition to goodwill, in connection with the acquisitions of RU and HCN, we recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, in our RU and HCN Segments, which include intangible assets related to trade name, accreditation, licensing, and Title IV, and affiliate agreements. The Company recorded non-cash impairment charges in 2022 and 2023, reducing the carrying value of RU identified intangible assets with an indefinite useful life to $24.5 million. There were no indefinite useful life intangible assets identified as a result of the acquisition of GSUSA reported in Corporate and Other. There are no indefinite-lived intangible assets in our APUS Segment.

We recorded $35.5 million, $4.4 million, and $1.0 million of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN, and GSUSA, respectively, reported in our RU and HCN Segments, and in Corporate and Other. There are no definite-lived intangible assets in our APUS Segment.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events or changes in circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The process of evaluating goodwill and indefinite-lived intangible assets for impairment is subjective and requires significant judgment and estimates. When performing an optional qualitative analysis, we consider many factors, including general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers (for example, student enrollment), long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates.

We estimate fair value in our quantitative analysis by weighting the results from three different valuation approaches. They include: (1) discounted cash flow; (2) guideline public company; and (3) guideline transaction for comparable transactions. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU and HCN at their estimated weighted-average cost of capital. We incorporate the use of projected financial information and a discount rate that are developed using market participant-based assumptions. The cash-flow projections are based on three-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are updated at least annually and approved by management. Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the fair value of RU and HCN. Under the comparable transaction method, pricing terms from other transactions in the higher education market were used to determine the fair value. Values derived under the three valuation methods are then weighted to estimate RU and HCN’s enterprise values. If we determine that the carrying amount of a reporting unit exceeds its fair value, we then calculate the implied fair value of the reporting unit goodwill as compared to its carrying amount to determine the appropriate impairment charge. Although we believe our assumptions are reasonable, actual results may vary significantly and may expose us to material impairment charges in the future. Our methodology for determining fair values remained consistent for the periods presented.

During the three months ended September 30, 2023 and 2022, we completed a qualitative analysis for the RU and HCN Segments’ goodwill and indefinite-lived intangible assets. As part of the analysis, the Company considered the events and circumstances expressly required by ASC 350, in addition to other entity-specific factors. Factors considered included RU and HCN’s financial and enrollment performance against internal targets, economic factors, and the continued favorable growth outlook for nursing education. After completing the qualitative review of goodwill for the RU and HCN Segments for the three months ended September 30, 2023 and 2022, the Company concluded it was more likely than not that the fair value of the RU and HCN Segments were more than the carrying value and therefore no quantitative impairment test and no impairment charge was necessary.

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During the second quarter of 2023, we completed qualitative assessments to determine if an interim goodwill impairment test was necessary. We concluded that due to our RU Segment underperformance when compared to the 2023 internal targets, projected enrollment trends, the decline in financial performance projected for the remainder of 2023 as compared to prior projections, and our market value, it was more likely than not that the fair value of our RU Segment was less than its carrying value. Therefore, we proceeded with a quantitative impairment test. As a result of these assessments, during the second quarter of 2023, we recorded a non-cash goodwill impairment charge of $53.0 million to reduce the carrying value of the RU Segment goodwill, and to reflect the corresponding tax impact. In addition, we concluded there were indicators of impairment of the RU Segment’s intangible assets. As a result, during the second quarter of 2023, we recorded non-cash impairment charges of $11.0 million to reduce the carrying value of our RU Segment indefinite-lived intangible assets. There were no indicators of impairment for our HCN Segment.

During the second quarter of 2022, we completed a qualitative assessment to determine if an interim goodwill impairment test was necessary. We concluded that it was more likely than not that the fair value of our RU Segment was less than its carrying value. Therefore, we proceeded with a quantitative impairment test. We also completed our annual assessment at October 31, 2022 of goodwill and indefinite-lived intangibles for RU and HCN Segments. As a result of these assessments, we recorded a non-cash goodwill impairment charge of $131.4 million, and to reflect the corresponding tax impact, in the second quarter of 2022, to reduce the carrying value of the RU Segment goodwill. In addition, we concluded there were indicators of impairment of the RU Segment intangible assets during the second quarter of 2022 and during the annual assessment. We determined the fair value of the RU Segment accreditation, licensing and Title IV indefinite-lived intangible asset was $13.5 million, during the second quarter of 2022, and $2.0 million, during the annual assessment, less than its carrying value. As a result, we recorded total non-cash impairment charges of $15.5 million during 2022 to reduce the carrying value of our RU Segment indefinite-lived intangible assets. There were no indicators of impairment for our HCN Segment.

Determining fair value requires judgment and the use of significant estimates and assumptions, including fluctuations in enrollments, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in the higher education market. Future changes, including minor changes in the significant assumption or other factors including revenue, operating income, valuation multiples, and other inputs to the valuation process may result in future impairment charges, and those charges could be material. Given the current competitive and regulatory environment and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions are not realized, the Company may record additional goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or whether such charge would be material.

For more 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
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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 MomentumTM, 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 MomentumTM 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 ninemonths ended September 30, 20172023, compared to the three and nine months ended September 30, 2016.2022. 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.reportable segments. Our student population varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. We expect quarterly fluctuations in operating results to continue as a result of various enrollment patterns and changes in revenue and expenses.


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 negative impact on our results of operations. As discussed in this Quarterly Report on Form 10-Q and in our Annual Report, we are undertaking certain strategic initiatives,including those discussed above in the “Overview” section of this Management’s Discussion 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. We cannot predict whether these initiatives will 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 and revenue, any such adjustments and costs may have an adverse impact on our results of operations or financial condition.
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.

Our consolidated resultsAPUS net course registrations for the three and nine months ended September 30, 20172023, increased to approximately 92,300 from approximately 85,800, an increase of 6,500, or 7.6%, compared to the prior year period. APUS net course registrations for the nine months ended September 30, 2023, increased to approximately 276,900 from approximately 263,200, or 5.2%. The increase in net course registrations during the three and 2016 reflectnine months ended September 30, 2023, was primarily due to increases in military registrations from students utilizing TA which is at a lower revenue per net course registration. APUS Segment operating margins increased to 28.7% for the three months ended September 30, 2023, from 18.2% for the prior year period, and increased to 25.9% for the nine months ended September 30, 2023, from 18.6% for the prior year period. The increase in the operating margin was primarily due to increases in revenue during the three and nine months ended September 30, 2023, and decreases in advertising and marketing support costs and credit card processing fees, partially offset by increases in technology costs and bad debt expense as compared to the prior year period.

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RU total enrollment for the three months ended September 30, 2023, was 13,500 compared to 15,000 for the three months ended September 30, 2022, a decrease of 1,500, or 10.0%, driven by a 26.0% decrease in nursing enrollment. RU enrollment for the nine months ended September 30, 2023, decreased 11.5%, driven by a 22.2% decrease in nursing enrollment. We believe this decline in enrollment, which reflects year-over-year declines in new and total nursing enrollment was caused, in part, by the prior departure of leadership accountable for enrollment and nursing operations and caps on nursing student enrollment at certain RU campuses. Excluding the impact of our APEIthe non-cash impairment charge discussed above, RU Segment operating margin decreased to negative 20.3% for the three months ended September 30, 2023 from negative 12.8% in the prior year period, and decreased to negative 22.7% for the nine months September 30, 2023, from negative 4.5% in the prior year period. The decrease in the operating margin was primarily due to decreases in revenue during the three and nine months ended September 30, 2023, and increases in technology costs due in part to the Collegis contract mandated annual fee increase, facilities costs, and classroom materials costs, partially offset by decreases in advertising costs and employee compensation costs as compared to the prior year period. Additionally, the nine months ended September 30, 2023, includes increases in bad debt expense as well as $2.4 million in transition services fees related to the termination of the Collegis, LLC, or Collegis, marketing contract effective January 31, 2023, as compared to the prior year period.

HCN Segments. total enrollment for the three months ended September 30, 2023, increased to approximately 2,800 from approximately 2,400, an increase of approximately 400, or 17.0%, compared to the prior year period. HCN total enrollment for the nine months ended September 30, 2023, increased approximately 16.4%, as compared to the prior year period. We believe that the increase in new and total student enrollment at HCN is due, in part, to enrollment growth in recently opened campuses including the opening of the Detroit, Michigan campus in October 2022. HCN Segment operating margin improved to negative 4.7% from negative 12.2% for the three months ended September 30, 2023, and improved to negative 5.3% for the nine months ended September 30, 2023, from negative 8.8% in the prior year period. The improvement in the operating margin is primarily due to increases in revenue and decreases in advertising costs partially offset by increases in employee compensation costs, bad debt expense, and facilities costs, as compared to the prior year period.

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


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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:
Index
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
(Unaudited)(Unaudited)
Revenue100.0 %100.0 %100.0 %100.0 %
Costs and expenses:  
Instructional costs and services48.5 48.0 49.6 47.5 
Selling and promotional22.1 27.4 23.7 25.6 
General and administrative20.5 19.8 21.6 19.6 
Impairment of goodwill and intangible assets— — 14.3 31.9 
Loss on disposals of long-lived assets— 0.1 — 0.2 
Depreciation and amortization4.7 5.3 5.1 5.3 
Total costs and expenses95.8 100.7 114.3 130.1 
Loss from operations before interest and income taxes4.2 (0.7)(14.3)(30.1)
Gain on acquisition— — — 0.8 
Interest expense, net(0.5)(2.4)(0.8)(2.3)
Loss from operations before income taxes3.7 (3.1)(15.1)(31.6)
Income tax expense (benefit)2.5 (0.6)(2.9)(7.7)
Equity investment loss, net of tax(3.5)— (1.2)— 
Net loss(2.2)(2.5)(13.5)(23.9)
Preferred Stock Dividend1.0 — 1.0 — 
Net loss available to common shareholders(3.2)%(2.5)%(14.5)%(23.9)%


 
Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2017 2016 2017
 2016
Revenue100.0% 100.0 % 100.0% 100.0%
Costs and expenses: 
  
    
Instructional costs and services39.2
 38.4
 39.6
 37.1
Selling and promotional20.0
 17.8
 19.9
 19.0
General and administrative23.5
 23.2
 23.3
 21.7
Loss on disposals of long-lived assets0.5
 7.0
 0.7
 2.5
Impairment of goodwill—
 6.4
 —
 2.0
Depreciation and amortization6.4
 6.7
 6.4
 6.2
Total costs and expenses89.6
 99.5
 89.9
 88.5
        
Income from operations before interest income and income taxes10.4
 0.5
 10.1
 11.5
Interest income—
 0.1
 —
 —
        
Income from operations before income taxes10.4
 0.6
 10.1
 11.5
Income tax expense4.5
 0.1
 4.4
 4.5
Equity investment gain0.1
 —
 —
 0.3
Net Income6.0% 0.5 % 5.7% 7.3%

Three Months Ended September 30, 20172023 Compared to Three Months Ended September 30, 20162022


Revenue. Our consolidated revenue for the three months ended September 30, 20172023, was $73.3$150.8 million, a decreasean increase of $0.5$1.3 million, or 0.7%0.9%, compared to $73.8$149.5 million for the three months ended September 30, 2016.2022. The increase in revenue decrease iswas primarily due to a $2.2$7.7 million, or 3.3%,11.2% increase in revenue decrease in our APEIAPUS Segment, a $2.3 million, or 20.4%, increase in revenue in our HCN Segment, and a $0.8 million, or 10.0%, increase in GSUSA revenue included in Corporate and Other, partially offset by a $1.7$9.5 million, or 24.6%15.4%, decrease in revenue increase in our HCNRU Segment. The APEIRU Segment revenue decrease was primarily due to a 4.3%10.0% decrease in total student enrollment driven by a 26.0% decrease in nursing enrollment as compared to the prior year period, partially offset by increases in tuition in certain programs implemented in January 2023. The APUS Segment revenue increase was primarily due to a 7.6% increase in net course registrations.registrations and tuition and fee increases implemented in April and July 2023, as compared to the prior year period. The HCN Segment revenue increase was primarily due to an 11.2%a 17.0% increase in total student enrollment, and anas well as a 5% tuition increase in revenue per student dueimplemented during the second quarter, compared to a change in student mix and other factors.the prior year period.


Costs and expenses.Costs and expenses for the three months ended September 30, 20172023, were $65.7$144.4 million, a decrease of $7.7$6.1 million, or 10.5%4.1%, compared to $73.4$150.6 million for the three months ended September 30, 2016.2022. The decrease in costs and expenses was primarily due to goodwill impairment expense recorded duringfor the three months ended September 30, 20162023, as compared to the prior year period were due primarily to decreases in our HCN Segmentadvertising costs, depreciation and a decrease in loss on disposals of long-lived assets in our APEI Segmentamortization costs, and marketing support material costs, partially offset by increases in technology costs, bad debt expense, and employee compensation costs including costs related to the retirement of the APUS President, and classroom subscription services expense in our APEI Segment.APUS and HCN Segments due to an increase in registrations at APUS and enrollments at HCN. Costs and expenses as a percentage of revenue decreased to 89.6%95.8% for the three months ended September 30, 2017,2023, from 99.5%100.7% for the three months ended September 30, 2016. The decrease in costs and expenses as a percentage of revenue was primarily due to the goodwill impairment expense recorded during the three months ended September 30, 2016 in our HCN Segment and a lower loss on disposals of long-lived assets in our APEI Segment.2022.
 
Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended September 30, 20172023, were $28.7$73.2 million, representing an increase of 1.3% from $28.4$1.4 million, or 2.0%, compared to $71.8 million for the three months ended September 30, 2016.2022. The increase in instructional costs and services expenses was primarily the result ofdue to increases in
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employee compensation expensescosts in our APUS and HCN SegmentSegments due to an increase in registrations at APUS and enrollments at HCN, and Corporate and Other due to higher revenue at GSUSA, an increase in classroom material costs in our RU and HCN Segments, and an increase in classroom subscription services expensetechnology costs in our APEIRU Segment, due in part to the Collegis contract mandated annual fee increase, partially offset by decreases in professional fees and instructional materials expenseemployee compensation costs in our APEIRU Segment. Instructional costs and services expenses as a percentage of revenue were 39.2%increased to 48.5% for the three months ended September 30, 2017, compared to 38.4%2023 from 48.0% for the three months ended September 30, 2016. The increase in instructional costs and services expenses as a percentage of revenue was primarily due to the increase in instructional costs and services expenses during a period when consolidated revenue decreased.2022.
Selling and promotional expenses. Our selling and promotional expenses for the three months ended September 30, 20172023, were $14.6$33.3 million, representing an increasea decrease of 11.4% from $13.1$7.6 million, or 18.6%, compared to $40.9 million for the three months ended September 30, 2016.2022. The increase
Index

decrease in selling and promotional expenses was primarily the result of an increasedue to decreases in advertising expenses andcosts in all our segments, a decrease in marketing support materials expensecosts in our APEI Segment.APUS Segment and decreases in employee compensation costs in our RU and HCN Segments and Corporate and Other. Selling and promotional expenses as a percentage of revenue increaseddecreased to 20.0%22.1% for the three months ended September 30, 2017,2023, from 17.8%27.4% for the three months ended September 30, 2016. The increase in selling and promotional expenses as a percentage of revenue was primarily due to the increase in selling and promotional expenses during a period when consolidated revenue decreased.2022.


General and administrative expenses. Our general and administrative expenses for the three months ended September 30, 20172023, were $17.2$30.9 million, representing an increase of 0.7% from $17.1$1.2 million, or 4.1%, compared to $29.7 million for the three months ended September 30, 2016.2022. The increase in general and administrative expenses was primarily relateddue to increases in employee compensation costs, including costs related to the retirement of the APUS President, partially offset by decreasesan increase in bad debt expense in our APEIAPUS and HCN Segments, an increase in technology costs in our HCN and APUS Segments and Corporate and Other, an increase in professional fees in Corporate and Other, partially offset by decreases in employee compensation costs, primarily in our APUS Segment. BadConsolidated bad debt expense for the three months ended September 30, 20172023, was $1.2$4.5 million, or 1.6%3.0% of revenue, compared to $1.6$3.7 million, or 2.2%2.5% of revenue in the prior year period. The decrease in bad debt expense 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%20.5% for the three months ended September 30, 2017,2023, from 23.2%19.8% for the three months ended September 30, 2016. The increase2022. As we continue to evaluate enhancements to our business capabilities, particularly in technology, we expect to incur additional costs and that our general and administrative expenses as a percentage of revenue was primarily duewill vary from time to the increase in general and administrative expenses during a period when consolidated revenue decreased.time.

Loss on disposals of long-lived assets. The(Gain) loss on disposals of long-lived assets.The gain on sale of long-lived assets was $16,000 for the three months ended September 30, 2017 was $0.4 million as2023, compared to $5.1a loss of $178,000 for the three months ended September 30, 2022.
Depreciation and amortization expenses. Depreciation and amortization expenses were $7.0 million and $8.0 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.

Depreciation2023 and amortization expenses. Depreciation and amortization expenses were $4.7 million and $4.9 million for the three months ended September 30, 2017 and 2016,2022, respectively. Depreciation and amortization expenses as a percentage of revenue decreased to 6.4%was 4.7% and 5.3% for the three months ended September 30, 2017, from 6.7% for the three months ended September 30, 2016. The decrease in depreciation2023 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.2022, respectively.


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$1.7 million and $1.3$2.0 million for the three months ended September 30, 20172023 and 2016,2022, respectively. For additional information regarding our stock-based and otherStock-based 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 taxcosts include accelerated expense for the three months ended September 30, 2017retirement-eligible employees and September 30, 2016 of $3.3performance stock unit incentive costs.

Interest expense, net. Interest expense, net, was $0.8 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$3.6 million for the three months ended September 30, 20172023 and a loss2022, respectively. The decrease in interest expense was primarily due to the decrease in the outstanding balance in our senior secured term loan facility. In December 2022, we made $65.0 million in prepayments to reduce our outstanding debt.
Income tax expense (benefit). We recognized income tax expense of $0.02$3.7 million for the three months ended September 30, 2016, respectively.2023, compared to an income tax benefit of $0.9 million in the prior year period, respectively, or an effective tax rate of 66.2% in 2023, compared to an effective tax rate benefit of 18.6% in 2022. The increase in the effective tax rate in 2023 is primarily due to a change in our estimated state apportionment, reducing the expected future benefit for our net deferred tax assets.


Net income.loss. Our net incomeloss was $4.4$3.3 million, compared to a net loss of $3.8 million, for the three months ended September 30, 2017, compared to net income of $0.3 million for the three months ended September 30, 2016,2023 and 2022, respectively, an increase of $4.0$0.4 million. This increase was related to the factors discussed above.


Preferred stock dividends. Preferred stock dividends for the three months ended September 30, 2023, were $1.5 million. Our Series A Senior Preferred Stock was issued in December 2022, and therefore there were no preferred stock dividends in the comparable prior year period.

Net loss available to common stockholders. The net loss available to common stockholders for the three months ended September 30, 2023, was $4.9 million, compared to net loss available to common stockholders of $3.8 million for the three months ended September 30, 2022, an increase of $1.1 million. This increase in net loss available to common shareholders was related to the factors discussed above.
Index
36



Nine Months Ended September 30, 20172023 Compared to Nine Months Ended September 30, 20162022


Revenue. Our consolidated revenue for the nine months ended September 30, 20172023, was $221.2$447.7 million, a decrease of $13.4$6.1 million, or 5.7%1.4%, compared to $234.5$453.9 million for the nine months ended September 30, 2016.2022. The decrease in revenue decrease iswas primarily due to a $15.5$31.0 million, or 7.3%, revenue16.1% decrease in revenue in our APEIRU Segment, partially offset by a $2.2$12.2 million, or 10.1%,5.8% increase in revenue in our APUS Segment, a $6.7 million, or 19.5% increase in revenue in our HCN Segment.Segment, and a $5.9 million, or 38.1%, increase in GSUSA revenue included in Corporate and Other. The APEIRU Segment revenue decrease was primarily due to a result of a 6.7%11.5% decrease in net course registrations.total student enrollment, partially offset by tuition increases in certain programs implemented in January 2023, as compared to the prior year period. The HCNAPUS Segment revenue increase was primarily due to a result of an5.2% increase in net course registrations and tuition and fee increases implemented in April and July 2023, as compared to the prior year period. The HCN Segment revenue per student relatedincrease was primarily due to a change16.4% increase in total student mix and other factors.enrollment compared to the prior year period, as well as a 5% tuition increase implemented during the second quarter, compared to the prior year period.


Costs and expenses.Costs and expenses for the nine months ended September 30, 20172023, were $198.9$512.0 million, a decrease of $8.6$79.0 million, or 4.1%13.4%, compared to $207.5$591.0 million for the nine months ended September 30, 2016. The2022. Costs and expenses for the nine months ended September 30, 2023, include a non-cash impairment charge of $64.0 million to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact. This compares to a non-cash impairment charge and the corresponding tax impact of $144.9 million in the prior year period, a decrease of $80.9 million in the current year period. Other increases in costs was primarily relatedand expenses for the nine months ended September 30, 2023, as compared to goodwill impairment expense recordedthe prior year period include increases in employee compensation costs in our APUS and HCN Segment during the third quarter of 2016,Segments due to an increase in registrations at APUS and enrollments at HCN, technology costs, bad debt expense, and facilities costs, partially offset by a decrease in lossadvertising costs and depreciation and amortization costs. Excluding impairment charges, on disposals of long-lived assetsa pre-tax basis costs increased $1.9 million as compared to the prior year period and bad debt expenseinclude $2.4 million in transition services fees in our APEIRU Segment partially offset by costsselling and promotional expenses related to the retirementtermination 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.contract with Collegis, effective January 31, 2023. Costs and expenses as a percentage of revenue increaseddecreased to 89.9%114.3% for the nine months ended September 30, 2017,2023, from 88.5%130.1% for the nine months ended September 30, 2016. The increase in2022. Excluding impairment charges and Collegis transition service fees, costs and expenses as a percentagewere 99.5% of revenue was primarily duefor the three months ended September 30, 2023, compared to our consolidated98.3% of revenue decreasing at a rate greater thanin the decrease in our costs and expenses.prior year period.

Instructional costs and services expenses. Our instructional costs and services expenses for the nine months ended September 30, 20172023, were $87.5$222.1 million, representing an increase of 0.6% from $87.0$6.5 million, or 3.0%, compared to $215.6 million for the nine months ended September 30, 2016.2022. The increase in instructional costs and services expenses was primarily the result ofdue to increases in classroom subscription services expense in our APEI Segment and employee compensation costs in our APUS and HCN Segments due to an increase in registrations and APUS and enrollments at HCN, higher nursing faculty compensation costs, and classroom materials costs in our HCN Segment, higher employee compensation costs in Corporate and Other due to higher revenue at GSUSA, and increases in technology costs, facilities costs and professional services costs in our RU Segment, partially offset by decreases in instructional materials expenseemployee compensation costs in our APEIRU Segment and classroom materials costs in our APUS Segment. Instructional costs and services expenses as a percentage of revenue were 39.6%increased to 49.6% for the nine months ended September 30, 2017, compared to 37.1%2023, from 47.5% 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.2022.
Selling and promotional expenses. Our selling and promotional expenses for the nine months ended September 30, 20172023 were $44.1$106.2 million, representing a decrease of 1.1% from $44.6$9.9 million, or 8.5%, compared to $116.1 million for the nine months ended September 30, 2016.2022. The decrease in selling and promotional expenses was primarily the result of a decreasedue to decreases in advertising expensescosts in our APEI Segmentall segments and Corporate and Other, partially offset by an increase$2.4 million in marketing support materialstransition services fees in our APEI Segment.RU Segment related to the termination of the Collegis marketing contract effective January 31, 2023. Selling and promotional expenses as a percentage of revenue increaseddecreased to 19.9%23.7% for the nine months ended September 30, 2017,2023 from 19.0%25.6% for the nine months ended September 30, 2016. The increase in2022. Excluding the Collegis transition service fees, selling and promotional expenses as a percentagewere 23.2% of revenue was duefor the nine months ended September 30, 2023, compared to our consolidated25.6% of revenue decreasing at a rate greater thanin the decrease in our selling and promotional expenses.prior year period.


General and administrative expenses. Our general and administrative expenses for the nine months ended September 30, 20172023, were $51.6$96.9 million, representing an increase of 1.8% from $50.7$7.7 million, or 8.7%, compared to $89.2 million for the nine months ended September 30, 2016.2022. The increase in general and administrative expenses was primarily relateddue to an increaseincreases in legal expenses,employee compensation costs incurred in connection with the retirement of the former APUS President,our RU and HCN Segments and Corporate and Other, increases in bad debt expense in all segments, and increases in technology costs in all segments and Corporate and Other, partially offset by decreases in professional fees in our APEI Segment partially offset by decreases inAPUS and RU Segments and Corporate and Other. Consolidated bad debt expense and financial aid processing fees in our APEI Segment. Bad debt expense for the nine months ended September 30, 20172023, was $3.5$12.3 million, or 1.6%2.7% of revenue, compared to $5.5$9.4 million, or 2.4%2.1% of revenue in the prior year period. General and administrative expenses as a percentage of revenue increased to 23.3%21.6% for the nine months ended September 30, 2017,2023, from 21.7%19.6% for the nine months ended September 30, 2016. The increase2022. As we continue to evaluate enhancements to our business
37

capabilities, particularly in technology, we expect to incur additional costs and that our general and administrative expenses as a percentage of revenue was duewill vary from time to the increase in general and administrative expenses during a period when consolidated revenue decreased.time.

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 million as compared to $5.9$17,000 and $1.0 million for the nine months ended September 30, 2016.2023 and 2022, respectively. The nine months ended September 30, 2016 includes a $4.0 millionprior year loss onwas primarily related to the abandoned developmentsale of a new student course registration engineexcess facilities located in our APEI Segment.Charles Town, West Virginia.

Impairment of goodwill. The impairment of goodwill forand intangible assets. For the nine months ended September 30, 2016 of $4.72023, we recorded $64.0 million resulted from the reduction ofin non-cash impairment charges in our RU Segment to reduce the carrying value of RU Segment goodwill in our HCN Segment.

Depreciation and amortization expenses. Depreciationintangible assets, and amortization expenses were $14.2 million and $14.6to reflect the corresponding tax impact, compared to $144.9 million for the nine months ended September 30, 20172022. For additional information regarding the impairment of goodwill and 2016,intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 6. Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Quarterly Report.

Depreciation and amortization expenses. Depreciation and amortization expenses were $22.7 million and $24.2 million for the nine months ended September 30, 2023 and 2022, respectively. Depreciation and amortization expenses as a percentage of revenue increased to 6.4%were 5.1% and 5.3% for the nine months ended September 30, 2017, from 6.2% for the nine months ended2023 and September 30, 2022, respectively.
Index


2016. The increase in depreciation and amortization expenses as a percentage of revenue was due to consolidated revenue decreasing at a rate greater than the decrease in depreciation and amortization expense.

Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was $4.3were $6.0 million and $4.0$6.7 million for the nine months ended September 30, 20172023 and 2016,2022, respectively. For additional information regarding our stock-basedStock-based compensation costs include accelerated expense for retirement-eligible employees and other compensation expenses, please referperformance stock unit incentive costs.

Gain on acquisition. The $3.8 million gain on acquisition for the for the nine months ended September 30, 2022, resulted from the GSUSA Acquisition and represents the excess of the fair value of net assets acquired over consideration paid.

Interest expense, net. Interest expense, net, was $3.7 million and $10.3 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease in interest expense was primarily due to “Note 9. Stock-Based Compensation”the decrease in the Notesoutstanding balance in our senior secured term loan facility. In December 2022, we made $65.0 million in prepayments to Consolidated Financial Statements in this Quarterly Report.reduce our outstanding debt.
 
Income tax expense.expense (benefit). We recognized an income tax benefit of $12.8 million and $35.2 million, for the nine months ended September 30, 2023 and 2022, respectively, or an effective tax rate benefit of 18.9% in 2023 compared to an effective tax rate benefit of 24.5% in 2022. The nine months ended September 30, 2023 and 2022 include a $15.8 million and $36.0 million income tax benefit related to the impairment of goodwill and intangible assets, respectively. Excluding the $15.8 million and $36.0 million income tax benefits, the income tax expense for the nine months ended September 30, 20172023 and September 30, 2016 of $9.72022 was $3.0 million and $10.5$0.8 million, respectively, or effective tax rates of 43.2% and 37.9%, respectively. The increase in ouran effective tax rate forof 75.8% and 65.1%. The 2023 effective tax rate, excluding the nineimpairment charge and the corresponding tax impact, was impacted by the items impacting the three months ended September 30, 20172023, and higher non-deductible expenses in relation to the pre-tax loss for the period. The higher effective tax rate in 2022, excluding the impairment charge and the corresponding tax impact, is due to higher non-deductible expenses in relation to the implementation of ASU 2016-09, Compensation - Stock Compensation (Topic 718) which resulted in $0.5 million in additionalpre-tax income tax expense, changes in state tax apportionment, and adjustments related to taxes paid 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 thatperiod.

Net loss. Our net loss was reported when the stock options were issued is now recorded in the income statement.

Equity investment income. Equity investment income was $0.1$60.3 million and $0.7$108.5 million for the nine months ended September 30, 20172023 and September 30, 2016, respectively. Equity investment income2022, respectively, a decrease in net loss of $48.2 million. This decrease was related to the factors discussed above.

Preferred stock dividends. Preferred stock dividends for the nine months ended September 30, 2016 includes $0.72023 were $4.5 million. The Series A Senior Preferred Stock was issued in December 2022, and therefore there were no preferred stock dividends issued in the comparable prior year period.

Net loss available to common stockholders. The net loss available to common stockholders was $64.8 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 $12.7and $108.5 million for the nine months ended September 30, 2017, compared to net income of $17.3 million for the nine months ended September 30, 2016,2023 and 2022, respectively, a decrease in net loss available to common stockholders of $4.6 million, or 26.4%.$43.7 million. This decrease was related to the factors discussed above.


38

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 September 30,Nine Months Ended September 30,
2023202220232022
(Unaudited)(Unaudited)
Revenue:
APUS Segment$76,406 $68,735 $223,941 $211,729 
RU Segment52,073 61,548 161,511 192,538 
HCN Segment13,741 11,409 41,147 34,436 
Corporate and Other8,618 7,843 21,142 15,187 
Total Revenue$150,838 $149,535 $447,741 $453,890 
Income (loss) from operations before interest and income taxes:
APUS Segment$21,948 $12,532 $57,963 $39,338 
RU Segment(10,570)(7,900)(100,708)(153,562)
HCN Segment(641)(1,392)(2,179)(3,017)
Corporate and Other(4,337)(4,266)(19,314)(19,845)
Total loss from operations before interest and income taxes$6,400 $(1,026)$(64,238)$(137,086)
 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 Segment8,394
 6,738
 23,845
 21,655
Total Revenue$73,279
 $73,803
 $221,163
 $234,514
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 Segment744
 (5,267) 1,779
 (4,189)
Total Income from operations before interest income and income taxes$7,599
 $392
 $22,224
 $27,022


Index

APEIAPUS Segment


For the three months ended September 30, 2017,2023, the $2.2$7.7 million, decreaseor 11.2%, increase to approximately $64.9$76.4 million in revenue in our APEIAPUS Segment was primarily attributable to lowerhigher net course registrations. Net course registrations at APUS decreased 4.3%increased 7.6% to approximately 81,00092,300 from approximately 85,800 in the prior year period, primarily due to an increase in registration by military students utilizing TA, and tuition and fee increases implemented in April and July 2023. Income from operations before interest and income taxes increased to $21.9 million, or by 75.1%, during the three months ended September 30, 20172023, from $12.5 million in the prior year period, an increase of $9.4 million, as a result of the increase in revenue and an overall decrease in expenses as 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. Income from operations before interest income and income taxes in our APEI Segment was $6.9 million during the three months ended September 30, 2017, an increase 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.2022.


For the nine months ended September 30, 2017,2023, the $15.5$12.2 million, decreaseor 5.8%, increase to approximately $197.3$223.9 million in revenue in our APEIAPUS Segment was primarily attributable to lowerhigher net course registrations. Net course registrations at APUS decreased 6.7%increased 5.2% to approximately 244,700276,900 from approximately 263,200 in the prior year period, primarily due to an increase in registration by military students utilizing TA, and tuition and fee increases implemented in April and July 2023. Income from operations before interest and income taxes increased to $58.0 million, or by 47.3%, during the nine months ended September 30, 2017,2023, from $39.3 million in the prior year period, an increase of $18.6 million, as a result of the increase in revenue and an overall decrease in expenses as compared to the same period in 2016. We believe that the decrease in APUS’s net course registrations for the nine 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. Income from operations before interest income and income taxes in our APEI Segment was $20.4 million during the nine months ended September 30, 2017, a decrease of 34.5% compared to the same period of 2016, primarily as a result of decreased revenue partially offset by a reduction in losses on disposals of long-lived assets.2022.

HCNRU Segment


For the three months ended September 30, 2017,2023, the $1.7$9.5 million, or 15.4%, decrease to approximately $52.1 million in revenue in the RU Segment was primarily due to a 10.0% decrease in total student enrollment driven by a 26.0% decrease in nursing enrollment as compared to the prior year period, partially offset by tuition increases in certain programs implemented in January 2023. The RU Segment loss from operations before interest and income taxes was $10.6 million for the three months ended September 30, 2023, compared to a loss from operations of $7.9 million in the prior year period.

For the nine months ended September 30, 2023, the $31.0 million, or 16.1%, decrease to approximately $161.5 million in revenue in the RU Segment was primarily due to a 11.5% decrease in total student enrollment driven by a 22.2% decrease in nursing enrollment, partially offset by tuition increases in certain programs which took effect in January 2023, as compared to
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the same period in 2022. The RU Segment loss from operations before interest and income taxes was $100.7 million for the nine months ended September 30, 2023, compared to a loss from operations of $153.6 million for the nine months ended September 30, 2022.

We believe this decline in total nursing enrollment was caused, in part, by changes in nursing operations management and caps on nursing student enrollment at certain RU campuses.

HCN Segment

For the three months ended September 30, 2023, the $2.3 million, or 20.4% increase to approximately $8.4$13.7 million in revenue in our HCN Segment was primarily attributabledue to anyear-over-year increase in total student enrollment. HCNenrollment, as well as a 5% tuition increase implemented during the second quarter. Total student enrollment increased 11.2%17.0% to approximately 1,800 during the three months ended September 30, 20172,800 students as compared to the same period in 2016. Income2022. The loss from operations before interest income and income taxes in our HCN Segment was $0.7$0.6 million during the three months ended September 30, 2017,2023, compared to a loss from operations before interest and income taxes of $5.3$1.4 million compared toin the same period in 2022, a decrease of 2016. The increase was primarily as a result of goodwill impairment expense of $4.7 million recognized during the three months ended September 30, 2016.$0.8 million.


For the nine months ended September 30, 2017,2023, the $2.2$6.7 million, or 19.5% increase to approximately $23.8$41.1 million in revenue in our HCN Segment was primarily attributabledue to an increaseyear-over-year increases in revenue pertotal student related to a change in student mix and other factors. HCNenrollment. Total student enrollment remained unchanged during the nine months ended September 30, 2017increased 16.4%, as compared to the same period in 2016. Income2022. The loss from operations before interest income and income taxes in our HCN Segment was $1.8$2.2 million during the nine months ended September 30, 2017,2023, compared to a loss from operations before interest and income taxes of $4.2$3.0 million duringin the same period in 2022, a decrease of 2016,$0.8 million.

We believe that the increase in total student enrollment is primarily a resultdue to the opening of goodwill impairment expense of $4.7 million recognized duringnew campuses, including the three months ended September 30, 2016.Detroit, Michigan campus, which opened in October 2022.


Liquidity and Capital Resources

Liquidity
 
Cash and cash equivalents were $155.2 million and $129.5 million at September 30, 2023 and December 31, 2022, respectively, representing an increase of $25.7 million, or 19.9%. The increase in cash was primarily due to payments received by APUS from the Army, which totaled approximately $51.3 million during the nine months ended September 30, 2023, of which approximately $18.1 million in payments related to periods prior to 2023, and the timing of other receipts and payments. We have historically financed operating activities and capital expenditures during the nine months ended September 30, 2017 and September 30, 2016 with cash provided by operating income. Cashactivities. We expect to continue to fund our costs and expenses through cash equivalents were $166.3 milliongenerated from operations. For more on our material cash requirements from known contractual and $146.4 million at September 30, 2017 and December 31, 2016, respectively, representing an increaseother obligations, please refer to the section entitled “Contractual Obligations” in Item 7 of $19.8 million, or 13.5%. Cash and cash equivalents at September 30, 2017 increased by $28.6 million from $137.7 million, or 20.7%, as compared to September 30, 2016.Part II of our Annual Report.

We derive a significant portion of our revenue from tuition assistance programs from the DoD. 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.course or term. Another significant source of revenue is derived from TA from the DoD and programs from the U.S. Department of Veterans Affairs. Generally, these funds are received within 60 days of the start of the courses to which they relate.

The Higher Education Act of 1965, as amended, requires for-profit education institutions to comply with what is commonly referred to as the 90/10 Rule, which imposes sanctions on institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs and other federal educational assistance funds, as calculated under ED’s regulations. Payments from the Army that were expected in 2021 and 2022 were delayed and have been received in 2023. As of September 2023, approximately $18.1 million in these delayed Army payments had been received in 2023. These factors,delayed Army payments, together with recent changes to the number90/10 Rule and faster enrollment growth among service members than non-military growth, has caused APUS’s 90/10 Rule percentage to increase and are making it more difficult for APUS to meet the 90/10 Rule requirements for 2023. Failure to meet the 90/10 Rule for fiscal 2023, which would require APUS to notify ED and students of courses starting each month, affectthis failure, would lead to placement of APUS on provisional certification status for two years with respect to its Title IV participation, could subject us to heightened regulatory scrutiny and possible adverse regulatory action, and could damage our operatingreputation, which would have a material adverse impact on our results of operation, cash flow.

We expectflow, and financial condition. Steps that we may take to continuereduce our 90/10 Rule percentage in order to comply with the 90/10 Rule may require us to make significant cash expenditures to acquire new students who do not receive educational assistance funds provided by a federal agency, which would reduce the amount of cash we have available to fund our costs and expenses through cash generatedoperations. Furthermore, any future delays in receipt of funds from operations. Basedthe Army or other service branches could have an adverse impact on our current level of operations, we believe that our cash flow from operations and results of operations. For more information please refer to the section entitled “Risk Factors” in our existing cash and cash equivalents will provideAnnual Report.
Index
40



adequate fundsDuring the third quarter of 2022, the Army transitioned from the initial version of ArmyIgnitED, a system for ongoing operationssoldiers to use to request TA, to ArmyIgnitED 2.0, with a new third-party service provider, and planned capital expendituresannounced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. As part of this change, the foreseeable future. Army stopped allowing institutions to submit invoices from July 30, 2022 until August 29, 2022, which impacted our ability to collect on our accounts receivable and caused our accounts receivable to increase. In early 2023, we experienced an improvement in Army’s processing of current invoices and payments, while continuing to work with the Army on invoices submitted during the transition to ArmyIgnitED 2.0. Beginning in September of 2023, we began to change our approach to invoicing for TA to offset the effect of the receipt of the delayed payments from the Army. Previously, TA was typically billed by branch of service on a course-by-course basis when a student either started or completed a course. Beginning in September 2023, APUS is taking longer to bill TA, which we expect will have the effect of delaying into 2024 payments for TA that ordinarily would have been received in 2023. We anticipate that APUS’s change in billing approach will result in approximately $17.6 million of receivables that we would have expected to receive in 2023 will instead be received in 2024, which amount is consistent with the amount of the delayed Army payments that were received in 2023. As of September 30, 2023, approximately $13.5 million, of which $5.0 million is older than 60 days from the course start date, was due from the Army, as compared to $26.0 million due from the Army as of December 31, 2022, of which $16.5 million was older than 60 days from the course start date. In addition to the $17.6 million of receivables that will be received in 2024 due to the change in billing timing, we would expect to bill the Army and collect $4.3 million outstanding from courses that began in 2022 and prior, in 2024.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, including as a result of insourcing of information technology functions and marketing services from Collegis, the maintenance or relocation of existing campuses at RU and HCN and GSUSA’s classroom and administrative facility, 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

Professional fees may continue to be elevated or increase as we continue the integration of RU and GSUSA and continue to evaluate enhancements to our business capabilities, particularly in technology.

RU has historically relied on Collegis for a variety of outsourced marketing services and information technology functions under one contract for marketing services and another for information technology functions. In April 2022, we notified Collegis that we will continueintended to make expenditurespermit both contracts to investexpire by their terms on September 30, 2024. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in strategic opportunities and to enhance our business capabilities. We will continue to explore opportunities to investSeptember 2024. Expenses for the fourth quarter of 2022 include $3.9 million in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies. We may need additional capitaltransition fees in connection with any changethe termination of the Collegis marketing services contract as specific transition obligations were completed, and first quarter of 2023 expenses include the remaining $2.4 million in transition service fees, for total non-recurring transition service fees of $6.3 million.

Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024. The total minimum expenses for information technology services over the remaining period is approximately $9.3 million.

We plan to transition all of the information technology services currently outsourced to Collegis back to our current leveloperations or to one or more other third-party vendors. As we continue to develop our transition plans, at this time we estimate that the cost of operations, including if we werethe transition will be between approximately $1.3 million and $1.5 million for the remainder of 2023, and between approximately $2.0 million and $3.5 million in 2024.

Share Repurchase Program

On March 16, 2023, our Board of Directors confirmed the availability under our existing share repurchase program to pursue significant business acquisitions or investment opportunities, or determinerepurchase up to make other significant investments inapproximately $8.0 million of shares of our business.common stock. We fully expended this $8.0 million as of April 30, 2023, and repurchased a total of 1,335,357 shares of our common stock.


Operating Activities


Net cash provided by operating activities was $29.3$48.7 million and $42.7$52.2 million for the nine months ended September 30, 20172023 and September 30, 2016,2022, respectively. The decrease in cash from operating activities was primarily due to lower net incomean increase in negative cash flow from operations in our RU Segment, and changes in working capital due to the timing of receipts and payments. Accounts receivable at September 30, 2023 decreased approximately $13.3 million compared to December 31, 2022,
41

primarily as a result of improvement in Army’s processing of invoices and payments to APUS. Accounts payable, accrued liabilities, and receipts.accrued compensation and benefits at September 30, 2023 were approximately $6.2 million higher than December 31, 2022, primarily due to the timing of payment processing.

Investing Activities
 
Net cash used in investing activities was $8.0$9.4 million and $9.1$8.2 million for the nine months ended September 30, 20172023 and 2022, respectively. Investing activities for the nine months ended September 30, 2016, respectively. This decrease was primarily related to decreased2023 include capital expenditures of $9.5 million compared to capital expenditures of $10.9 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and equity investments partially offset by increased capitalized program development costs. 2022, proceeds from the sale of real property were $0.1 million and $0.8 million, respectively. The nine months ended September 30, 2022, includes $2.0 million in cash received from the GSUSA Acquisition.


Financing Activities
 
Net cash used in financing activities was $1.3$13.6 million and $1.6$8.2 million for the nine months ended September 30, 20172023 and 2022, respectively. Financing activities for the nine months ended September 30, 2016, respectively. The decrease2023, include $4.5 million related to the payment of dividends on our preferred stock and $8.0 million used for the repurchase of our common shares, and $1.0 million for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. For the nine months ended September 30, 2022, the cash used in financing activities was primarily due to $1.5 million used 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 repurchasesdeemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants and $6.6 million in principal payments on our long-term debt. Due to debt prepayments made in December 2022, no principal payments are required on our outstanding debt until 2027.

Contractual Commitments
We have various contractual obligations consisting of operating leases and purchase obligations. Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements. For a summary of our contractual obligations, please refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities”Item 7 of Part II of our Annual Report and “Item 2. Unregistered SalesReport.

Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024. The total minimum expenses for information technology services over the remaining period is approximately $9.3 million. We plan to transition all of Equity Securities and Use of Proceeds - Repurchases” of Part II of this Quarterly Report on Form 10-Q.

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 referredthe information technology services currently outsourced to as structured finance or special purpose entities.
Contractual Commitments
There were no material changesCollegis back to our contractual commitments outsideoperations or to one or more other third-party vendors in the future. In October 2022, RU and Collegis mutually agreed to the termination of the ordinary coursemarketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Expenses for the fourth quarter of 2022 include $3.9 million in transition fees in connection with the termination of the Collegis marketing services contract as specific transition obligations were completed, and first quarter of 2023 expenses include the remaining $2.4 million in transition service fees, for total non-recurring transition service fees of $6.3 million. We completed the transition of RU marketing in-house to our businesscentralized marketing team during the nine months ended September 30, 2017.first quarter of 2023.


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 30, 2017.2023. We maintain our cash and cash equivalents in bank deposit accounts, which maymoney 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 in interest rates would not have a material effect on the fair market value of our portfolio.
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Interest Rate Risk
We are subject to risk from adverse changes in interest rates, primarily relating to our investing of excess funds in cash equivalents bearing variable interest rates, which are tied to various market indices. Our future investment income will vary due to changes in interest rates. At September 30, 2017, a 10% increase or decrease in interest rates would not have a material impact on the fair market value of our future earnings, fair values, or cash flows relatedportfolio.

Interest Rate Risk
We are subject to investmentsrisk from changes in cash equivalents.

There has been no material changeinterest rates primarily relating to our market risk orinvestment of funds in short-term U.S. treasury bills issued at a discount to their par value. Our future investment income will vary due to changes in interest rates.

In the normal course of business, we employ established policies and procedures to manage our exposure to changes in interest rates. For every 100 basis points increase in Term SOFR on our variable rate indebtedness, we would incur an incremental $1.0 million in interest expense per year, excluding any offset from the interest rate sensitivity duringcap agreement. To reduce our
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exposure to market risks from increases in interest rates on our variable rate indebtedness we entered into a hedging arrangement in the three months ended form of an interest rate cap agreement. The new interest rate cap agreement, as further discussed in “Note 8 Long-Term Debt” included in the Notes to the Consolidated Financial Statements in this Quarterly Report, provides us with interest rate protection in the event the one-month Term SOFR rate increases above 1.78% and has a December 31, 2024 termination date. As of September 30, 2017.2023, the interest rate cap agreement hedged $87.5 million of principal under our term loan.


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 30, 2017.2023. Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2017.2023.
 
Changes in Internal Control over Financial Reporting
 
There waswere no changechanges 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 hashave materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.



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 AMUtime, 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“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“Risk Factors” section of our Annual Report,Report.

RU’s Bloomington, Minnesota ADN program has been adversely impacted by regulatory action and heightened scrutiny as supplemented by the Risk Factors sectiona result of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017.

Participation in the tuition assistance programs of the DoD requires compliance with numerous regulations, with which the failure to complymeet applicable regulatory and accreditor requirements, and further action by regulators and accreditors could leadresult in additional adverse impacts or cause us to a loss of an abilityhave to participate in these programs or other adverse events.close the program.


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
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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 andRU’s Bloomington, Minnesota ADN program 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 bebeen subject to a range of penaltiesadverse action and heightened scrutiny 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, which would result in a material adverse effect on our 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 period 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 institutions that 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.

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 recognitionregulators as a national accreditor.

The ineligibilityresult of HCNcontinued failure to participate in Title IV programs would have a material adverse effect on HCN’s enrollmentsmeet applicable regulatory and on our revenue, results of operations,accreditor requirements, and financial condition.

ACICS adopted a more rigorous policy on student achievement measures,further action by such regulators, 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,”we believe to measure student retention, graduate placement and licensure exam passage rates. To satisfy ACICS’s
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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 programsreasonably possible, could decline, or we could be forced to cease enrollments at those campuses or in those programs, which could have a material adverseadversely 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
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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 changes to the PN Program curriculum. If the Ohio State Board finds that 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 on our enrollments or eventually on our ability to continue the program.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing educationBloomington, Minnesota ADN program that is approved by the OBN. Regulations of the OBN require 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 pass rate, the program may face various consequences. On March 8, 2017, OBN placed HCN’s ADN Program on provisional approval becausepotentially the ADN Program has not met the OBN pass rate standard for four consecutive years, which we believe has been negatively affected by the pass ratesprograms 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 pass rate that meets or exceeds 95%all 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 approval for a set time period or may propose to withdraw approval pursuant to an adjudication proceeding. HCN has been implementing changes, including the curriculum 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 situation could have an adverse impact on our ability to enroll students and eventually our ability to continue the program, any ofRU’s Minnesota campuses, which would have an adverse effect on our results of operations, cash flows, and financial condition. In September 2021, ACEN placed conditions on the Bloomington, Minnesota ADN program’s continued accreditation, requiring it to demonstrate compliance with all applicable accreditation criteria within two years. In June 2023, ACEN’s site visit team recommended denial of continuing accreditation for the program based on the team’s findings that the program did not demonstrate compliance with certain accreditation criteria related to student outcomes. RU thereafter responded to the recommendation detailing RU’s belief that good cause existed not to deny continuing accreditation. On October 6, 2023, RU received notice from ACEN that the ACEN board had granted continuing accreditation for good cause until September 2024. ACEN also requested a follow-up report for good cause be submitted in advance of a follow-up visit in spring 2024 due to a finding of non-compliance related to an alleged lack of evidence that the program implements actions based on data analysis to improve the program completion rate.In conjunction with the spring 2024 follow-up visit, the ACEN board will also conduct a focused visit due to a complaint received by ACEN related to student clinical preparation and graduate clinical performance. If the ACEN board denies continuing accreditation

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following its review of the follow-up report and the spring 2024 site visit report, the program can apply for an additional year of continuing accreditation for good cause. There can be no assurance that ACEN will allow continuing accreditation following its spring 2024 visit or that if continuing accreditation is denied, an application for an additional year of continuing accreditation for good cause would be successful. In August 2023, RU decided to voluntarily pause new enrollments beginning in November 2023. Due to previously self-imposed enrollment caps and the pause on new enrollments, enrollment in this program currently represents less than 2% of RU’s current total enrollment. A Minnesota statute requires nursing programs in the state to provide evidence of current accreditation in order to meet state approval requirements. If RU is unable to obtain accreditation or candidacy status with ACEN or another national nursing accrediting body, RU would likely have to close its Bloomington, Minnesota ADN program, which would have an adverse impact on RU’s enrollments and RU’s and our results of operations, cash flows, and financial condition.

In addition, a stipulation and consent order with the Minnesota Board of Nursing, or MBN, requires the Bloomington, Minnesota ADN program to among other things reach applicable NCLEX pass rate standards by the end of 2023 and maintain a specified student to faculty ratio in 2023, with a potential penalty up to and including withdrawal of program approval. The student to faculty ratio limit constrains our ability to enroll students based on our ability to attract and retain qualified faculty and as of the Q3 NCLEX results, Bloomington Minnesota ADN program has not reached the applicable NCLEX pass rate standards. RU paused enrollments in the Bloomington ADN program, but there can be no assurance that these or other efforts will improve NCLEX scores above the applicable threshold or by the required deadline, if at all, or that the program will be found to be in compliance with the order. As a result of the order, the Minnesota Office of Higher Education, or MOHE, informed RU that it expects RU to identify a clinical site for each student within 50 miles from the student’s home, disclose to potential students that RU may not be able to satisfy the MBN’s order, provide options for students unable to complete the program if the MBN were to withdraw program approval, including a refund option, and provide MOHE with copies of any reports submitted to MBN or ACEN as they become available. The MBN order and MOHE’s related scrutiny could have an adverse impact on our reputation and ability to enroll students, and could result in the closure of the Bloomington, Minnesota ADN program in early 2024, which would have an adverse impact on RU’s enrollments and RU’s and our results of operations, cash flows, and financial condition. RU paused enrollments in the Bloomington, MN ADN program for the January 2023 quarter start date.

We may not achieve the anticipated benefits of our cost savings efforts, including reductions in force, and any savings may be offset by increased costs in other areas.

During the three months ended September 30, 2023, we completed a reduction in force that resulted in the termination of 74 employees and the elimination of 57 open positions across a variety of roles and departments. The reduction in force is expected to result in approximately $15.5 million in savings on an annualized basis. The headcount reductions reflect our ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions. We continue to examine our cost structure for additional opportunities in the near term. There can be no assurance that we will be successful or recognize the benefits we anticipate from our cost savings efforts.

Furthermore, some of the savings anticipated in 2023 will be offset in the short-term by severance and other related costs, and over the long-term may be offset by increases to wages and salaries necessary to remain competitive, or by additional hiring if we determine it is necessary. A reduction in force may also result in increased costs, as opposed to cost savings, including due to associated legal risks, and could distract management and employees. This headcount reduction, together with previous headcount reductions, could also adversely affect employee morale and make it more difficult to hire and retain qualified personnel.

ED’s recently finalized new gainful employment requirements could materially and adversely affect our business after they take effect.

Pursuant to new gainful employment regulations, or the GE regulations, that will take effect July 1, 2024, ED will determine the Title IV eligibility of gainful employment programs based in part on satisfaction of specified performance levels of two performance measures defined by the regulations: the debt-to-earnings rates (which include two rates, the discretionary debt-to-earnings rate and the annual debt-to-earnings rate) and the earnings premium measure. ED previously released a data set, referred to as the program performance data, or the PPD, that includes calculations of the two metrics for certain programs. The methodology ED used to produce the PPD differs from the methodology that will be used to identify programs under the final GE regulation, primarily due to data limitations. However, out of the 30 RU programs, 47 APUS programs, and three HCN programs (including one no longer offered at HCN) that ED assessed in the PPD provided by ED, six current RU programs and three APUS programs failed one or both of the new measures. The six RU programs failing in the PPD represent 7.4% of total student enrollment for the three months ended September 30, 2023. The three APUS programs failing in the PPD represent 2.1% of total net course registrations for the nine months ended September 30, 2023.
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Programs that fail to achieve the specified GE performance measures in two of any three successive years for which the debt-to-earnings rates or the earnings premium measure are calculated would lose access to Title IV funding. Under the GE regulations, the failure of any of our institutions’ programs to meet the required metrics could therefore adversely impact those institutions and programs. We expect that the earliest a program could lose eligibility is July 1, 2026. In addition, programs that fail any of the metrics in a year would need to warn enrolled and prospective students that the program risks losing access to Title IV funding. At this time, it is difficult to predict whether our institutions’ programs will satisfy the future gainful employment metrics, including whether the programs identified as failing in the PPD will in fact fail or whether other programs will fail or pass.

ED is conducting and will in the future conduct compliance reviews of our institutions, which could disrupt our institutions’ operations and adversely affect their performance.

ED regularly conducts program reviews of educational institutions that are participating in Title IV programs and the ED OIG regularly conducts audits and investigations of such institutions. ED finalized a Title IV program review of RU in July 2023 and APUS is currently subject to an ongoing Title IV program review.

In September 2022, RU received a program review report from ED with respect to the previously disclosed open program review for the 2015-2016 and 2016-2017 award years. ED asserted 14 findings of noncompliance with Title IV rules, including rules related to Title IV administration, policies, and consumer information and reporting requirements, and the federal work study, Pell Grant, and Federal Supplemental Educational Opportunity Grant programs. The program review report required RU to do a review in connection with the federal work study finding, prepare policies and procedures, return small amounts of funds to two students, provide training, and take other actions in connection with the findings, and to provide a response, which RU timely provided. In July 2023, RU received a final program review report from ED in which ED found that all the findings of noncompliance with Title IV rules had been resolved with a total liability of approximately $4,200 including a de minimis amount of interest associated with the liability.

In July 2023, ED began a program review of APUS’s administration of Title IV programs during the 2021-2022 and 2022-2023 award years that includes a review of compliance with the 90/10 Rule. At this time, we cannot predict the outcome of the APUS program review, when it will be completed, whether there will be any adverse findings in the resulting program review report, what findings there may be related to 90/10 Rule compliance, if any, or whether ED will place any liability or other limitations on APUS as a result of the review.

If the Massachusetts Attorney General finds that we did not comply with Massachusetts state lawresults of compliance reviews or regulations, weother proceedings are unfavorable to us, our institutions may be required to pay significant financial penalties and/monetary damages or modify or curtail our operations.

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 continue to cooperate with the Attorney General’s office and 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 claimsfines, limitations, loss of failureTitle IV funding, injunctions, or other penalties, including the requirement to comply with Massachusetts state 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 rangemake refunds. Any one of potential impact this inquiry might have on our financial conditions or results 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.

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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, as a result of the change-of-structure application process, HLC postponed that mid-cycle review until 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 to predict whether HLC will approve APUS’s change of structure application and whether such approval will be subject 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 otherwisethese sanctions APUS, we could incur increased costs, fail to realize the efficiencies that we expect 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 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 couldmaterially adversely affect our business, financial condition, results of operations, and cash flows.flows and result in the imposition of significant restrictions on us and our institutions, which may materially adversely affect our ability to operate. In addition, even if our institutions adequately address issues raised by an agency review, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews.



HLC moved APUS from the Open Pathway for reaffirmation of accreditation to the Standard Pathway, which will result in a comprehensive site visit occurring for the mid-cycle review in year four of the ten year accreditation cycle instead of a panel review.


HLC has determined to conduct a focused visit at APUS in March 2024 after HLC raised potential concerns regarding APUS’s compliance with standards related to program development oversight and program assessment processes as a result of certain courses not being available for students in one program. Pursuant to HLC policy, APUS has transitioned from the Open Pathway to the Standard Pathway because of the decision to conduct a focused visit. As a result of this transition, APUS will be subject to a comprehensive site-visit for the year four mid-cycle review under the Standard Pathway, to take place in 2024-2025. The reaffirmation of accreditation site visit date remains unchanged and will take place 2030-2031.

HLC’s focused visit will result in a written report addressing the topics of concern identified in the action letter calling for the focused visit. The focused visit team report will include a recommendation to accept the report or may call for additional monitoring, sanction, show-cause order, or withdrawal of accreditation. Although APUS would have the opportunity to respond prior to any HLC action on the report, we cannot be sure that the HLC team will not identify deficiencies at APUS during the focused visit or call for negative accreditation-related action against APUS as a result.

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RU’s Illinois ADN program has been adversely impacted by regulatory action, including as a result of the failure to meet applicable NCLEX pass rates, and further action by regulators and accreditors could result in additional adverse impacts.


RU’s Illinois ADN program has not met state-established first-time NCLEX benchmarks for three consecutive years. In February 2022, RU’s Illinois ADN program was placed on probationary status by the Illinois Department of Financial and Professional Regulation, or IDFPR, as a result of which RU is required to temporarily reduce admitted students in the program by 25% and has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. If after two years the pass rate does not satisfy the required standard, the program will be reevaluated by the IDFPR for a determination as to whether the program will be allowed to continue on probation or whether it should be disapproved. In August 2023, the State of Illinois enacted legislation, which takes effect January 1, 2024, that will provide the program with additional time to improve NCLEX pass rates. The legislation changes the Illinois NCLEX pass rate requirements from a one-year measurement based on first attempts only to a three-year average that includes all test attempts and temporarily removes all nursing programs from probationary status for a period of three years.

An Illinois statute also requires nursing programs in the state to have achieved accreditation by the end of 2022 in order to meet state approval requirements. RU’s Illinois ADN program has been in candidacy status for initial accreditation with ACEN since July 2020. Although the IDFPR has indicated that candidacy status satisfies this requirement, the IDFPR could change its position. ACEN will not grant accreditation to a program on probationary status with the IDFPR, as RU’s Illinois ADN program is. The current candidacy is set to expire in July 2024. If ACEN ultimately denies initial accreditation and RU is unable to obtain accreditation or candidacy status with another national nursing accrediting body, RU would likely have to close the Illinois ADN program. Removal from probationary status pursuant to the newly enacted Illinois legislation described above may be viewed favorably by ACEN or another nursing program accreditor and may result in RU’s Illinois ADN program obtaining ACEN accreditation following a site visit in February 2024, which we also expect will allow RU to be deemed to have met Illinois’ requirement for its Illinois ADN program to have achieved accreditation by the end of 2022 to meet state approval requirements. However, there is no assurance that this legislation will benefit RU’s Illinois ADN program as anticipated or that the program will meet the new NCLEX pass rate requirements.

Our institutions may lose eligibility to participate in Title IV programs if their student loan default rates are too high, and our future growth could be impaired as a result.

As described more fully under “Regulatory Environment – Student Financing Sources and Related Regulations/ Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Student Loan Defaults” in our Annual Report, to remain eligible to participate in Title IV programs, an educational institution’s federal student loan cohort default rates must remain below certain specified levels. If an institution’s cohort default rate equals or exceeds 30% for any given year, it must establish a default prevention task force and develop a default prevention plan with measurable objectives for improving the cohort default rate. Educational institutions will lose eligibility to participate in Title IV programs if their cohort default rate is equal to or greater than 30% for three consecutive years, or if the cohort default rate exceeds 40% for any given year.

Government policies to minimize the adverse economic impact of the COVID-19 pandemic have artificially lowered our institutions’ cohort default rates, which nevertheless may be higher than otherwise expected as a result of the pandemic. Congress and ED implemented a temporary freeze on student loan payments and interest accruals, which means borrowers are less likely to default on their loans and our institutions’ cohort default rates are lower not because borrowers are making timely repayments but because the government is allowing them not to make payments. In June 2023, the Fiscal Responsibility Act was enacted, ending the freeze on payments and interest accruals. Accordingly, interest accrual on federal student loans resumed on September 1, 2023 and payments became due beginning October 1, 2023, which may lead to an increase in defaults and therefore an increase in our institutions’ cohort default rates.

ED has announced a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies. ED has also announced other actions intended to provide debt relief and support for student loan borrowers, such as instituting a new income-driven repayment plan. However, there can be no assurance that our institutions’ cohort default rates will benefit from these efforts, and the eventual end of the “on-ramp” period may also lead to an increase in defaults.

If one of our institutions loses its eligibility to participate in Title IV programs because of high student loan default rates, students would no longer be eligible to use Title IV program funds at that institution, which would significantly reduce that institution’s enrollments and revenue and cash flows and have a material adverse effect on our results of operations. In addition, if Congress or ED restricts permitted types of default prevention assistance, the default rates of our former students
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may be negatively impacted. Congress could also increase the measuring period, which could also negatively impact student default rates.

RU is currently on provisional certification with ED, and the terms of that provisional certification could limit its potential for growth.

In July 2021, ED notified RU that in connection with its March 2019 change in ownership, ED was imposing certain temporary growth restrictions on the institution, including limitations on new programs and locations and a cap on enrollments by students that participate in Title IV programs. Additionally, ED required RU to submit periodic financial and enrollment reports, a requirement that it had imposed on RU in connection with a financial responsibility letter of credit previously imposed on RU. RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership and, effective October 2021, ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, that allowed RU to continue disbursing Title IV funds while ED reviewed the change in ownership application. The TPPPA continued the growth restrictions imposed as a result of the previous change in ownership, with certain qualifications more fully described in “Regulatory Environment – Regulatory Actions and Restrictions on Operations” and “-Student Financing Sources and Related Regulations/Requirements” in our Annual Report.

In August 2023, ED notified RU that it had approved RU’s continued participation in the Title IV programs under APEI ownership. In the Provisional Program Participation Agreement, or PPPA, that RU executed in connection with the approval, ED continues to impose certain growth restrictions on RU that were included in the TPPPA, including limitations on new programs and locations and an enrollment cap on the number of students that participate in Title IV programs. ED also continues to require RU to submit periodic financial and Title IV enrollment reports. The PPPA no longer requires RU to post the financial responsibility letter of credit that ED had imposed based on the 2019 change in ownership and control of RU, although this letter of credit has not yet been released. We believe we have met all obligations for the release of the letter of credit. The PPPA also imposes new reporting requirements related to accrediting agency actions, government actions, and class actions and new reporting requirements related to student complaints. The PPPA specifies that after ED reviews and accepts financial statements and compliance audits for one complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU may seek removal of the enrollment cap and approval for new programs that replace current programs. The PPPA also specifies that at least until after ED reviews and accepts financial statements and compliance audits that cover the second complete fiscal year of RU’s Title IV participation under our ownership, RU must seek pre-approval for new locations, new programs that are not replacing current programs, and other changes.

These growth restrictions could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students, and limiting its ability to continue to evolve to address current education or market needs by providing new or changed programs. The growth restrictions could also have an adverse effect on our ability to grow revenue or meet investors’ and financial analysts’ expectations for financial performance.

If one or more of our institutions does not comply with the 90/10 Rule for two consecutive years, it or they will lose eligibility to participate in federal student financial aid programs.

The HEA requires all for-profit education institutions to comply with what is commonly referred to as the 90/10 Rule, which imposes sanctions on institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs and other federal educational assistance funds, as calculated under ED’s regulations. As more fully described in “Regulatory Environment–Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – The ‘90/10 Rule’” in our Annual Report, for fiscal years beginning on or after January 1, 2023, federal funds used to calculate the “90%” side of the ratio include Title IV funds and any other educational assistance funds provided by a federal agency directly to an institution or a student, including the federal portion of any grant funds provided by or administered by a non-federal agency, except for non-Title IV federal funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges. ED confirmed that the 90/10 Rule would no longer permit institutions to count federal aid for veterans and service members as part of the “10%” side of the ratio. As a result, effective January 1, 2023, TA and VA benefits are included in the “90%” side of the ratio, and our institutions’ 90/10 Rule percentages are increasing, particularly at APUS.

Cash payments from the Army to APUS that were expected in 2021 and 2022 have been received in 2023, which together with recent amendments to the 90/10 Rule and faster enrollment growth among service members than non-military growth has caused APUS’s 90/10 Rule percentage to increase. Beginning in September 2023, APUS changed its practice with respect to the timing of TA invoices to offset the impact in 2023 of the delayed receipt of cash payments from the Army that would have otherwise been received in prior years. There can be no assurance that APUS will be in compliance with the 90/10
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Rule for 2023, and this change in practice could make it more difficult to comply with the 90/10 Rule for 2024. This change in practice will add to our accounts receivable as of December 31, 2023, as well as result in an increase to our leverage ratios as of December 31, 2023 under our Credit Agreement, as described in Note 8 to our audited consolidated financial statements for the year ended December 31, 2022. Depending on what our leverage ratio is for the year ended December 31, 2023, we could be subject to limitations on our ability to incur additional indebtedness, pay dividends, or otherwise comply with the terms of our preferred stock. While we do not anticipate a higher leverage ratio will have material limitations on our expected operations for fiscal 2023, it could result in reduced operational flexibility. In addition, given the recent modifications of the 90/10 Rule, we also anticipate more general scrutiny of practices and compliance with the 90/10 Rule across the industry. As noted in the risk factor with the caption beginning “ED is conducting and will in the future conduct compliance reviews...”, ED is currently conducting a regular program review at APUS, which includes among other things a review of APUS’s compliance with the 90/10 Rule. Subsequent to ED’s site visit to APUS as part of the program review, APUS changed the way it calculates certain elements of 90/10 based on preliminary feedback from ED, which had the effect of a modest increase to the “90%” side of the ratio. At this time, we cannot predict whether ED could have further feedback or findings on APUS’s 90/10 compliance and related practices, whether as a result of the program review or otherwise.

Failure of one of our institutions to meet the 90/10 Rule for any fiscal year would require the institution to notify ED and students of this failure, would result in the institution being on provisional status for two fiscal years, could subject the institution to heightened regulatory scrutiny and possible adverse regulatory action, and could damage the institution’s reputation, which would have a material adverse impact on our results of operation, cash flow, and financial condition. Failure of an institution to meet the 90/10 Rule for two consecutive fiscal years results in the institution becoming ineligible to participate in Title IV programs for at least two fiscal years, and would have a material adverse impact on our results of operation, cash flow, and financial condition.

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


Repurchases


During the periodthree months ended September 30, 2017,2023, 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 PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum 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)
July 1, 2023— — — 746,141 397,136 
July 1, 2023 - July 31, 2023— — — 755,359 397,136 
August 1, 2023 - August 31, 2023— — — 755,359 397,136 
September 1, 2023 - September 30, 2023— — — 755,359 397,136 
Total— $— — 755,359 $397,136 
 
(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, or Board, 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 each 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 shares 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 from time to time enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of share repurchases are subject to a variety of factors, including liquidity, cash flow, stock price, general business and market conditions, and applicable legal requirements. The authorization does not obligate the Company to acquire any shares, and repurchases may be commenced or suspended and the program may be discontinued at any time based on market conditions and other factors that the Company deems appropriate. 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 plan.

(3)During the three month period ended September 30, 2023, we were deemed to have repurchased 4,914 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 as described in footnotes 1 and 2 of this table.

Item 3. Defaults Upon Senior Securities
 
None.


Item 4. Mine Safety Disclosures


None.


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Item 5. Other Information
 
None.    During the three months ended September 30, 2023, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
 
Index

Item 6. Exhibits
Exhibit No.Exhibit Description
Exhibit No.Exhibit Description
10.1+31.1
Letter Agreement dated September 28, 2017, by and among American Public Education, Inc., American Public University System, Inc. and Karan H. Powell (1)
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. (1)
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 20022002. (1).
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. (2)
EX-101.INS
EX-101.INS **Inline 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
+Management contract or compensatory plan or 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.Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


(1)Filed herewith.
(2)Furnished herewith.

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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. BostonAngela SeldenNovember 7, 20172023
Dr. Wallace E. BostonAngela Selden
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Richard W. Sunderland, Jr.November 7, 20172023
Richard W. Sunderland, Jr.
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

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