American Public Education, Inc. (APEI) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone Q4 filing. Financial statements are audited; quarterly data below is unaudited.
Business context
APEI provides online and campus-based postsecondary education through American Public University System (APUS), Rasmussen University (RU), and Hondros College of Nursing (HCN). On September 1, 2021, APEI acquired RU for an adjusted purchase price of $325.5 million in cash, net of cash acquired. RU results are consolidated only from the acquisition date, limiting year-over-year comparability. APEI acquired substantially all assets of Graduate School USA (GSUSA) on January 1, 2022, after year-end.
Financial performance
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Revenue | $418.8 million | $321.8 million | +30.1% |
| Operating income | $30.4 million | $24.8 million | +22.7% |
| Operating margin | 7.2% | 7.7% | Down 0.5 percentage points |
| Net income | $17.8 million | $18.8 million | Down 5.3% |
| Diluted EPS | $0.97 | $1.25 | Down |
| Operating cash flow | $16.3 million | $44.8 million | Down $28.5 million |
| Cash, cash equivalents and restricted cash | $149.6 million | $227.7 million | Down $78.1 million |
Revenue growth largely reflects the $89.5 million of RU revenue consolidated from September through December, alongside HCN growth; APUS revenue declined slightly. Costs and expenses rose 30.7% to $388.4 million. Instructional costs increased to 41.2% of revenue from 38.0%, while general and administrative costs decreased to 24.7% from 27.3%.
- Segments: APUS revenue was $283.7 million, down 0.8%, with operating income of $51.1 million. RU contributed $89.5 million revenue and $1.6 million operating income for the post-acquisition period. HCN revenue rose 26.9% to $45.8 million; operating income was $1.8 million.
- Q4, unaudited: Revenue was $154.0 million versus $85.9 million in Q4 2020; net income was $9.4 million versus $7.1 million. Q4 2021 includes RU results, so the comparison is not like-for-like.
- Bad debt: Expense increased to $7.8 million, or 1.9% of revenue, from $3.8 million, or 1.2%.
- Acquisition and technology costs: APEI reported $6.3 million of acquisition-related expenses and $6.0 million of technology transformation costs in 2021. It also incurred approximately $1.0 million in severance costs for an August 2021 workforce reduction.
Liquidity, debt and capital
Year-end cash, cash equivalents and restricted cash totaled $149.6 million, including $27.0 million of restricted cash. Net cash used in investing activities was $336.7 million, principally reflecting the RU acquisition. Operating cash flow fell to $16.3 million, affected by acquisition-related funding and working-capital movements, including delayed Army tuition-assistance collections.
- Debt under the credit agreement was $172.8 million principal at year-end; the balance-sheet carrying amount, net of financing fees, was $160.5 million. The $175.0 million term loan bears interest at LIBOR, subject to a 0.75% floor, plus 5.50%; scheduled maturity is September 2027. No revolving-credit borrowings were outstanding.
- APEI reported compliance with its debt covenants at year-end. The agreement includes a maximum total net leverage ratio of 2.0 to 1.0. A rate cap covers $87.5 million of principal against LIBOR above 2% through January 2025.
- In March 2021, APEI raised approximately $86.2 million net from a public offering of 3.68 million shares. It had $8.4 million remaining under its share-repurchase authorization and made no share repurchases in 2021.
- Management said existing cash and operating cash flow were expected to fund operations, debt service and planned capital expenditures for the next 12 months and foreseeable future. No specific earnings or revenue guidance was provided.
Material changes, outlook and risks
- ArmyIgnitED disruption: The Army’s transition from GoArmyEd disrupted APUS tuition-assistance registrations, billing and collections. At year-end, $27.0 million was due from the Army, including $18.2 million more than 60 days from course start. APEI could not predict when the disruption or collections delay would be resolved.
- Enrollment trends: APUS net course registrations declined 2.2% to approximately 345,300. RU enrollment declined year over year in both Q3 and Q4. HCN enrollment increased 27.9% for the year. Management cautioned that pandemic-related demand could moderate further as the pandemic abated.
- Regulatory and student-outcome exposure: RU remained under ED temporary provisional participation terms, including growth restrictions and a Title IV enrollment cap. RU also had an outstanding $23.1 million letter of credit and heightened cash monitoring. HCN received an ED program-review report with findings involving Title IV calculations and reporting; its response was due in April 2022, and any liabilities were undetermined.
- Nursing accreditation and licensure: Several HCN programs reported retention rates of 55%–69%, below ABHES’s 70% threshold; ABHES requested updated results and an action plan. HCN’s Ohio ADN program remained on provisional approval, and certain RU ADN programs had below-threshold NCLEX results, including an Illinois program placed on probation in February 2022.
- Funding and policy: Students rely materially on federal Title IV aid, DoD tuition assistance and VA benefits. The ARPA revision to the 90/10 rule is scheduled to apply to fiscal years beginning on or after January 1, 2023; the definition of covered federal education assistance was not settled in the filing. Title IV represented 34% of APUS, 75% of RU and 81% of HCN cash-basis revenue in 2021 under the then-applicable calculation.
- Integration and execution: RU integration, acquisition-related costs, debt service and technology investment may weigh on results. The GSUSA acquisition adds exposure to federal contracting requirements. APEI’s audited financial statements received an unqualified opinion; however, RU’s internal controls were excluded from management’s and the auditor’s 2021 ICFR assessment.
- COVID-19: Management said COVID-19 did not materially affect 2021 results, but reported enrollment and staffing uncertainty, especially in nursing education. Nursing faculty turnover increased at both RU and HCN.
Most important facts for investors to verify
- Whether ArmyIgnitED collections were received and the $27.0 million Army receivable was resolved or reserved appropriately.
- ED’s final determinations and any financial liabilities or operating restrictions arising from the HCN and RU program reviews.
- Progress on HCN retention and NCLEX outcomes, RU program probation, and continued institutional and program accreditation.
- RU’s removal of its enrollment cap, letter-of-credit requirement and heightened cash monitoring, and the timing and realized benefits of integration.
- Post-acquisition cash generation, debt repayment capacity, interest expense and covenant headroom, including the effect of variable rates.
- How the revised 90/10 rule will treat TA and VA funding, and the resulting effect on each institution’s eligibility and student mix.