Business Context and Reporting Period
Company: American Public Education, Inc. (APEI)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: APEI operates the American Public University System, providing exclusively online postsecondary education primarily to military and public service communities through American Military University and American Public University. The company achieved regional accreditation in 2006, enabling participation in federal Title IV student aid programs.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 |
Six Months Ended June 30, 2009 |
Six Months Ended June 30, 2008 |
|---|---|---|---|
| Revenues | $35,713 | $68,874 | $48,240 |
| Net Income | $5,314 | $10,552 | $7,330 |
| Operating Margin | 24.6% | 25.4% | 23.2% |
| Net Cash from Operations | N/A | $12,646 | $12,050 |
| Cash and Equivalents | $57,115 (Balance Sheet) | $57,115 (Balance Sheet) | $34,884 (Balance Sheet) |
| Total Debt | $0 | $0 | $0 |
Note: The company maintains a $5.0 million line of credit but has not borrowed against it.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 43% year-over-year for both the three and six-month periods ended June 30, 2009, driven by a 44% and 42% increase in net course registrations, respectively.
- Profitability: Net income rose 35% for the quarter and 44% for the six-month period compared to the prior year. Operating margins expanded to 24.6% (quarter) and 25.4% (six months) from 23.0% and 23.2% in the prior year periods.
- Expense Trends:
- Selling & Promotional: Increased 97% (quarter) and 98% (six months) due to expanded civilian outreach and advertising.
- Instructional Costs: Increased 37% (quarter) and 33% (six months) but decreased as a percentage of revenue due to operational efficiencies.
- Interest Income: Decreased significantly (85% for the quarter, 91% for six months) due to lower interest rates and a conservative investment strategy.
- Liquidity: Cash and cash equivalents increased to $57.1 million from $47.7 million at year-end 2008 and $34.9 million at June 30, 2008.
Outlook, Risks, and Management Commentary
- Revenue Concentration: Approximately 62-63% of revenue is derived from U.S. Department of Defense tuition assistance programs. A reduction in these programs could significantly impact operations.
- Title IV Growth: Students utilizing Title IV financial aid increased to 18% of net course registrations in the quarter ended June 30, 2009, up from 13% in the prior year.
- Accreditation Risk: The company relies on regional accreditation (Higher Learning Commission) to participate in federal aid programs. New policies adopted in June 2009 regarding institutional control and ownership changes could impact future M&A activities or require additional reviews.
- Capital Expenditures: Management plans to construct a new 40,000 square foot facility in Charles Town, West Virginia, with an estimated cost of $10.0 million over the next 18 to 30 months.
- Seasonality: Management expects slower enrollment growth in the first half of the year, with proportionally greater growth in the fourth quarter.
Investor Verification Checklist
- Verify the sustainability of the 43% revenue growth rate given the company's warning that historical growth rates may not be sustainable.
- Monitor the impact of the new Higher Learning Commission policies on institutional control and potential future acquisitions.
- Assess the dependency on Department of Defense tuition assistance (approx. 63% of revenue) and potential policy changes affecting these funds.
- Review the execution and funding of the planned $10.0 million facility expansion.
- Confirm the continued effectiveness of disclosure controls and procedures as stated by management.