American Public Education, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; filed May 11, 2015. Unaudited consolidated financial statements. APEI provides online and campus-based postsecondary education through APUS and Hondros College of Nursing (HCON), serving approximately 113,080 students.
Financial results
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $85.4 million | $88.6 million; down 3.6% |
| Operating income | $14.5 million; 16.8% margin | $16.7 million; 18.9% margin |
| Net income | $8.8 million; diluted EPS $0.51 | $10.4 million; diluted EPS $0.59 |
| Operating cash flow | $7.1 million | $12.4 million |
| Capital expenditures | $5.3 million | $4.6 million |
| Cash and cash equivalents | $112.3 million at March 31 | $115.6 million at December 31, 2014 |
| Total liabilities | $61.0 million | $63.7 million at December 31, 2014 |
Cash used in investing activities was $5.4 million and cash used in financing was $5.0 million, including $4.7 million of cash paid for share repurchases. Current assets were $136.5 million and current liabilities $45.0 million (approximately 3.0x current ratio). The balance sheet reports no debt. Cash includes restricted Title IV funds of $2.6 million. Management said operating cash flow and other liquidity sources should fund operations and planned capital expenditures for the foreseeable future.
Changes and segment performance
- Revenue fell primarily because APEI Segment net course registrations declined 5.9% to 99,600, attributed to military-market challenges, increased competition, and narrower, more targeted marketing. APEI revenue decreased 4.8% to $77.5 million; segment operating income fell 16.9% to $13.3 million, and margin declined to 17.2% from 19.7%.
- HCON revenue rose 10.9% to $8.0 million, supported by enrollment growth and tuition increases. Enrollment increased approximately 22.5%; segment operating income rose 71.4% to $1.2 million, and margin improved to 14.5% from 9.7%.
- Consolidated costs and expenses decreased 1.1% to $71.0 million, but increased as a share of revenue to 83.2% from 81.1%. Depreciation and amortization rose 17.9% to $4.6 million, reflecting capital investment and a larger fixed-asset base. Net income decreased 15.4%.
- Accounts receivable, net, increased to $9.2 million from $6.1 million, while the related allowance increased to $13.6 million from $10.7 million. Bad-debt expense decreased to $4.1 million from $5.1 million.
Outlook, risks, and other notable items
- No quantified earnings or revenue guidance was provided. Management cautioned that quarterly results fluctuate with enrollment and expenses, and said it cannot guarantee the strategic initiatives will reverse APEI's revenue decline.
- Effective July 1, 2015, APUS planned undergraduate tuition increases of $20 per credit hour to $270 and graduate increases of $25 to $350. Grants keep tuition at current levels for specified active-duty military and affiliated students. The filing says the effect on registrations and results is unknown and could be adverse.
- APUS introduced a free, non-credit admissions assessment in April 2015 for applicants outside specified exempt groups, ended a $50-per-course technology-fee grant for applicants identified as veterans, and began moving financial-aid processing to a third-party vendor. Management expected the vendor transition to finish by year-end 2015 and noted implementation costs and risks.
- APUS revenue depends substantially on government-linked funding: APEI Segment revenue sources were Title IV 33%, DoD tuition assistance 35%, VA benefits 20%, and cash and other 12%. Approximately 86% of HCON revenue came from students receiving federal student aid. Changes to these programs could materially affect the business.
- APUS changed its revenue treatment for certain withdrawing students effective January 1, 2015, recognizing outstanding amounts only when collectability is reasonably assured. Management did not expect a material effect. HCON remained under a Temporary Provisional Program Participation Agreement pending federal approval relating to its change in ownership.
- The company reported no material pending legal proceedings, no material changes to contractual commitments, and no off-balance-sheet financing arrangements. Disclosure controls were assessed as effective.
Facts for investors to verify
- Whether APUS registrations stabilize or continue to decline, and whether the new admissions, marketing, and tuition measures affect enrollment.
- Whether HCON's enrollment and operating improvements continue, and the status and conditions of its federal provisional participation approval.
- The costs, execution, and service continuity of APUS's financial-aid vendor transition.
- Cash generation and capital spending trends, including the effect of working-capital movements and share repurchases.
- Exposure to Title IV, DoD, and VA funding rules and any material changes to student funding or regulatory requirements.