American Public Education, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. APEI provides online and campus-based postsecondary education through American Public University System (APUS) and Hondros College of Nursing (HCN), serving approximately 93,800 students.
Financial results
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $88.5 million | $74.6 million | +18.7% |
| Operating income | $10.6 million | $2.7 million | +$7.9 million |
| Operating margin | 12.0% | 3.6% | +8.4 percentage points |
| Net income | $8.1 million | $2.4 million | +$5.7 million |
| Diluted earnings per share | $0.49 | $0.16 | +$0.33 |
| Cash from operations | $11.2 million | $11.5 million | Down $0.3 million |
Costs and expenses rose 8.3% to $77.9 million, slower than revenue growth; total costs declined from 96.4% to 88.0% of revenue. Net margin increased to 9.1% from 3.2%. Interest income fell to $0.1 million from $0.7 million, primarily due to lower rates.
Segments and operating changes
- APEI segment: Revenue increased 15.4% to $77.4 million; operating income rose to $9.9 million from $3.6 million. APUS net course registrations increased 9.6% to approximately 92,900. Revenue growth also reflected tuition and technology fee increases effective January 2020.
- HCN segment: Revenue increased 47.7% to $11.1 million; operating income was $0.8 million versus an operating loss of $0.9 million. Total enrollment grew 45.1% to approximately 2,300, and new enrollment rose 45.0% to 644.
- HCN growth was attributed in part to nursing demand, pandemic-related competitive changes, marketing, and prior initiatives. Consolidated bad-debt expense increased to $1.5 million from $1.0 million.
Liquidity, capital and cash flows
- Cash, cash equivalents and restricted cash were $320.8 million at March 31, 2021, up from $227.7 million at year-end. Cash provided by operations was $11.2 million; capital expenditures were $1.5 million.
- The cash increase chiefly reflected $86.2 million of net proceeds from a March public offering of 3.68 million shares. No shares were repurchased under the authorized repurchase program during the quarter; $8.4 million remained available under that authorization.
- The company reported no funded borrowings on its balance sheet; operating lease liabilities totaled $10.0 million. Management said existing cash and operating cash flow should fund ongoing operations and planned capital expenditures for the foreseeable future.
- Rasmussen University acquisition financing was expected to include a $175 million senior secured term loan and a $20 million revolver. In April, lenders syndicated expected commitments, subject to final documentation. Expected term-loan pricing was LIBOR, with a 0.75% floor, plus 5.50%, and a 2.0% upfront fee on the term facility.
Outlook, risks and unusual items
- Army tuition assistance disruption: The Army’s transition from GoArmyEd to ArmyIgnitED had not materially affected Q1 revenue, but APUS Army enrollments after quarter-end were adversely affected. Management expected lower Army registrations to hurt Q2 2021 revenue; further disruption could also affect invoicing, receivables, cash flow and bad debt.
- Rasmussen acquisition: The approximately 18,000-student institution was expected to be acquired in Q3 2021 for $300 million in cash plus $29 million in non-voting preferred stock, or potentially additional cash, subject to adjustments and regulatory, accreditation and other closing conditions. Financing terms remained subject to final documentation.
- COVID-19: Management reported no material adverse effect on Q1 results, but warned demand for online and nursing education could moderate or decline as the pandemic abates. HCN could face campus restrictions or increased delivery costs.
- Regulatory exposure: APUS and HCN depend on government education funding. The American Rescue Plan revised the 90/10 rule for future implementation; the definition of federal education assistance funds and resulting business impact were uncertain. APUS revenue also depends on DoD tuition assistance, and HCN relies heavily on Title IV funding.
- Q1 included $1.8 million of technology-transformation costs and $0.5 million of Rasmussen-related professional fees. Management anticipated $4.0–$5.0 million of technology-transformation spending for 2021 and further investment in technology and marketing. No material legal proceedings were pending.
Key facts for investors to verify
- Whether ArmyIgnitED resumed reliable operation and the effect of the transition on APUS registrations, Q2 revenue, collections and bad-debt expense.
- Whether Rasmussen received required approvals, closed on the anticipated timetable, and secured final financing on the disclosed terms.
- Whether enrollment and revenue growth at APUS and HCN continued after Q1, particularly as pandemic-related demand changes.
- How forthcoming 90/10 rulemaking treats DoD tuition assistance and VA benefits, and the implications for funding-source compliance.
- Whether operating cash generation and liquidity remain adequate as acquisition funding, technology investment and other expenses progress.