American Public Education, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. APEI provides postsecondary education through APUS, Rasmussen University (RU), and Hondros College of Nursing (HCN), and career training through Graduate School USA (GSUSA).
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $150.8m | $149.5m | $447.7m | $453.9m |
| Operating income (loss) | $6.4m | ($1.0m) | ($64.2m) | ($137.1m) |
| Net income (loss) | ($3.3m) | ($3.8m) | ($60.3m) | ($108.5m) |
| Net loss available to common shareholders | ($4.9m) | ($3.8m) | ($64.8m) | ($108.5m) |
| Basic loss per share | ($0.27) | ($0.20) | ($3.55) | ($5.75) |
| Operating margin | 4.2% | (0.7%) | (14.3%) | (30.1%) |
- Cash flow: Nine-month operating cash flow was $48.7m, versus $52.2m. Investing cash use was $9.4m, including $9.5m of capital expenditures; financing cash use was $13.6m, including $4.5m of preferred dividends and $8.0m of common-stock repurchases. Cash, cash equivalents, and restricted cash increased $25.7m to $155.2m; unrestricted cash was $127.9m.
- Debt and liquidity: Long-term debt, net of financing fees, was $94.3m at September 30; the loan’s stated principal was $99.1m. The variable borrowing rate was 10.95%, before the interest-rate cap’s offset. No revolving-credit borrowings were outstanding, and the company reported compliance with its debt covenants. Lease liabilities totaled approximately $111.5m.
- Margins and unusual items: Nine-month results included a $64.0m non-cash RU goodwill and intangible-asset impairment, compared with $144.9m in the prior year. Excluding impairment charges, management reported nine-month operating margins of (0.1%) versus 1.7%, and net loss of $6.9m versus net income of $0.4m. Q3 net loss included a $5.2m after-tax non-cash investment loss after an investee agreed to a sale that would yield APEI no proceeds.
Material changes and segment trends
- Q3 consolidated revenue rose 0.9%. APUS revenue increased 11.2% to $76.4m, HCN increased 20.4% to $13.7m, and GSUSA revenue in Corporate and Other increased 10.0% to $8.6m. RU revenue fell 15.4% to $52.1m.
- APUS: Q3 net course registrations increased 7.6%; revenue growth also reflected April and July tuition and fee increases. Segment operating margin improved to 28.7% from 18.2%, with lower advertising and marketing support costs among the contributors.
- RU: Q3 enrollment declined 10.0%, with nursing enrollment down 26.0%; revenue fell 15.4%. Segment operating margin declined to (20.3%) from (12.8%), excluding the impairment charge. Management cited enrollment pressures, campus enrollment caps, and higher technology, facilities, and classroom-material costs.
- HCN: Q3 enrollment increased 17.0% and revenue rose 20.4%, reflecting enrollment growth and a 5% tuition increase. Its operating margin improved to (4.7%) from (12.2%).
- Cost actions: A Q3 reduction in force eliminated 74 positions and 57 open roles; APEI incurred approximately $3.0m in severance costs and expects approximately $15.5m in annualized labor and benefit savings, not guaranteed.
Outlook, risks, and contingencies
- The filing provides no formal consolidated revenue or earnings guidance. Management expects to fund operations and capital expenditures from operating cash flow, while noting that future technology, campus, and transition costs may vary.
- APEI expects approximately $17.6m of Army tuition-assistance receipts otherwise expected in 2023 to shift into 2024 due to changes in APUS billing timing. It also expected to bill and collect $4.3m in 2024 for older Army course balances. Management said delayed Army payments, federal funding-rule changes, and enrollment mix make APUS’s 2023 compliance with the 90/10 Rule more difficult; the outcome of ED’s APUS review was not yet known.
- RU’s Bloomington, Minnesota ADN program received continuing accreditation for good cause through September 2024, subject to follow-up reporting and a spring 2024 visit. RU paused new enrollment beginning November 2023; failure to retain accreditation or program approval could require closure. RU’s Illinois ADN program also faces accreditation and NCLEX-related uncertainty.
- Other regulatory risks include RU’s provisional Title IV participation and growth restrictions, ED’s ongoing APUS Title IV review, a planned HLC focused visit at APUS in March 2024, and new gainful-employment rules effective July 2024. Management identified certain RU and APUS programs that failed one or both measures in ED’s preliminary program data; results under the final methodology remain uncertain.
- Series A preferred stock dividends accrue at a 15.39% rate as of September 30, 2023; $4.5m was declared and paid during the nine-month period. The preferred stock’s liquidation preference was $57.2m. Variable-rate debt, preferred dividends, regulatory requirements, student enrollment and persistence, and potential additional impairment charges are material risks.
- APEI reported no material legal proceedings pending and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress on RU nursing enrollment, operating performance, and required accreditation, NCLEX, and state approvals—particularly in Minnesota and Illinois.
- APUS’s final 2023 90/10 Rule calculation, the outcome of ED’s review, and the timing and collectability of Army tuition-assistance receivables.
- Whether planned cost savings materialize and how RU’s enrollment and performance affect future goodwill or intangible-asset impairment testing.
- Cash available after restricted funds, debt service, lease commitments, preferred dividends, and IT transition costs; also monitor the floating interest rate and hedge coverage.
- Potential Title IV eligibility impacts from new gainful-employment and financial-responsibility rules, accreditation reviews, and student-loan repayment trends.