American Public Education, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. APEI provides online and campus-based postsecondary education through APUS, Rasmussen University (RU), and Hondros College of Nursing (HCN), plus career learning through Graduate School USA (GSUSA).
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $149.5 million | $98.2 million | $453.9 million | $264.8 million |
| Operating income (loss) | $(1.0) million | $1.3 million | $(137.1) million | $13.9 million |
| Operating margin | (0.7)% | 1.2% | (30.1)% | 5.3% |
| Net income (loss) | $(3.8) million | $(0.3) million | $(108.5) million | $8.4 million |
| Diluted EPS | $(0.20) | $(0.01) | $(5.74) | $0.46 |
| Operating cash flow | Not separately provided | Not separately provided | $52.2 million | $0.6 million |
Q3 revenue rose 52.2%; nine-month revenue rose 71.4%. Comparisons are substantially affected by RU’s September 2021 acquisition and GSUSA’s January 2022 acquisition: 2021 includes only one month of RU and no GSUSA, while 2022 includes both for the applicable periods.
Nine-month results included a $144.9 million non-cash RU goodwill and intangible-asset impairment charge. Excluding that charge, management reported a nine-month operating margin of 1.7% and net income of $0.4 million. The impairment followed RU underperformance versus acquisition projections and lower market valuations; it comprised $131.4 million of goodwill and $13.5 million of indefinite-lived intangible impairment. A related $36.0 million tax benefit was recorded.
Segments and operating trends
- APUS: Q3 revenue was $68.7 million, up 4.3%; nine-month revenue was $211.7 million, up 0.7%. Net course registrations grew 3.2% in Q3 and 1.7% year to date. Segment operating income was $12.5 million for Q3 and $39.3 million for nine months. Management attributed margin improvement to lower professional fees, compensation, and advertising costs, partly offset by a mix shift toward lower-revenue military tuition-assistance registrations.
- RU: Revenue was $61.5 million for Q3 and $192.5 million for nine months. Q3 full-term enrollment was approximately 15,000 versus 16,300 a year earlier; nine-month enrollment declined 7.0%. The nine-month segment operating loss of $153.6 million included the impairment. Management cited softer demand, low unemployment, nursing-faculty shortages, and regulatory enrollment limits.
- HCN: Q3 revenue was $11.4 million, up 1.5%; nine-month revenue was $34.4 million, up 2.8%. Enrollment increased 3.7% in Q3 and 4.8% year to date. The segment recorded operating losses of $1.4 million in Q3 and $3.0 million for nine months, with higher compensation, advertising, technology, and Title IV costs among the cited pressures.
Cash, debt, and liquidity
- Cash, cash equivalents, and restricted cash totaled $185.5 million at September 30, 2022, versus $149.6 million at year-end 2021. The balance includes $26.7 million of restricted cash, including a $24.2 million certificate of deposit securing an ED letter of credit.
- Nine-month operating cash flow was $52.2 million, primarily reflecting Army payments and working-capital timing. Investing cash outflow was $8.2 million, including $10.9 million of capital expenditures; financing cash outflow was $8.2 million, largely from debt principal payments.
- Debt principal outstanding was $166.3 million, with $155.8 million reported net of financing fees; $8.8 million was current. The $20 million revolving facility had no borrowings outstanding. The term loan’s stated rate was 8.02% at quarter-end, before the interest-rate-cap offset. A $87.5 million notional cap protects against three-month LIBOR above 2% through January 2025.
- APEI reported compliance with debt covenants, including a maximum total net leverage ratio of 2.0 to 1.0. Management said existing cash and expected operating cash flow should fund working capital, capital expenditures, leases, and debt obligations for at least 12 months.
Outlook, risks, and unusual items
- Management expected operating margins, excluding the impairment, to remain below prior-year levels for the rest of 2022, citing inflation, labor-cost increases—particularly at RU and HCN—and RU enrollment trends. No formal revenue or EPS guidance is provided in the supplied filing text.
- A November 2, 2022 reduction in force eliminated 78 open positions and terminated 98 non-faculty employees. APEI expects $3.1 million of severance expense in Q4 2022 and approximately $13.5 million in annualized pre-tax labor and benefit savings; realization is not assured.
- RU and Collegis agreed to end the marketing-services contract effective January 31, 2023. Approximately $6.5 million of transition fees are expected, partly in Q4 2022 and the remainder in Q1 2023. RU’s outsourced IT services continue through September 2024; the full cost and operational impact of transitioning services remain uncertain.
- ArmyIgnitED transition disruptions affected APUS billing and collections. At September 30, approximately $13.8 million was due from the Army, including $6.3 million more than 60 days from course start. Collection timing, bad-debt exposure, and future system performance remain risks.
- Regulatory exposure includes new ED rules, especially 90/10 changes expected to count military TA and VA benefits on the federal-funds side of the calculation; RU nursing-program pass-rate, accreditation, and enrollment constraints; and an open RU ED program review with 14 findings. APEI said it expects its next consolidated financial-responsibility composite score may fall in the 1.0–1.4 “zone,” potentially triggering heightened monitoring or delayed Title IV funding. HCN’s program review was closed with approximately $12,000 in liabilities.
- Management reported no material legal proceedings pending and no September-quarter indicators of further goodwill or intangible impairment, but noted future impairments remain possible if estimates or operating assumptions are not achieved. A $3.8 million non-cash, non-taxable gain was recognized on the GSUSA acquisition.
Important facts for investors to verify
- Whether RU enrollment, nursing faculty capacity, NCLEX pass rates, and state or accreditor requirements improve or cause further enrollment restrictions.
- Collection of the Army receivable, the performance of ArmyIgnitED 2.0, and any resulting bad debt, cash-flow, or 90/10 effects.
- APEI’s actual composite score and any ED monitoring, reimbursement, or heightened-cash-monitoring requirements.
- Whether the Collegis transition stays on schedule and within expected cost, and whether the workforce reductions deliver projected savings after severance and other costs.
- Whether operating performance and valuation assumptions support RU’s remaining goodwill and intangible-asset carrying values; the filing cautions that further impairment could be material.