American Public Education, Inc. — FY 2009 Form 10-K
Business and reporting period. The company provides exclusively online postsecondary education through American Military University and American Public University, primarily serving military, veterans, public-service professionals, and other working adults. This annual report covers the fiscal year ended December 31, 2009; quarterly figures below include the fourth quarter. The company reported one operating segment.
Financial performance and liquidity
| Metric | FY 2009 | FY 2008 | Change |
|---|---|---|---|
| Revenue | $149.0 million | $107.1 million | +39% |
| Net course registrations | 207,799 | 147,124 | +41% |
| Operating income | $39.9 million | $25.7 million | +55% |
| Operating margin | 26.8% | 24.0% | +2.8 percentage points |
| Net income | $23.9 million | $16.2 million | +48% |
| Diluted EPS | $1.27 | $0.86 | +48% |
| Cash from operations | $36.8 million | $29.8 million | +24% |
| Capital expenditures | $10.8 million | $10.0 million | +7% |
FY 2009 instructional costs were 39.2% of revenue, down from 40.7%, while selling and promotional costs rose to 13.7% from 11.5%, reflecting higher advertising and admissions staffing. General and administrative costs declined to 16.8% of revenue from 19.9%. The effective tax rate increased to 40.1% from 38.7%, mainly due to lower historical rehabilitation credits.
At year-end, cash and cash equivalents were $74.9 million, working capital was $59.4 million, total assets were $115.8 million, and stockholders’ equity was $82.0 million. The company reported no outstanding debt; its $5 million line of credit was not renewed in 2009. Operating lease obligations totaled $4.7 million. The company reported no off-balance-sheet financing arrangements.
Fourth-quarter 2009 revenue was $43.7 million and net income was $8.4 million, compared with $31.5 million and $5.0 million, respectively, in fourth-quarter 2008. Fourth-quarter 2009 operating cash flow was $13.9 million.
Material changes and business developments
- Revenue growth slowed from 55% in 2008 to 39% in 2009; management expects percentage growth rates to decline further as the revenue base expands, while expecting dollar growth to increase.
- Net course registrations increased 41%. The company reported more than 63,700 students and over 50% of surveyed new students said they learned about the universities through personal referrals.
- Tuition assistance programs sponsored by the Department of Defense accounted for 56% of 2009 revenue, down from 61% in 2008. Title IV student aid accounted for 19% of 2009 revenue, up from 14%.
- The company acquired land in Charles Town for $0.8 million and planned a 40,000-square-foot academic facility, with an estimated additional cost of $8–$9 million over the following 12–18 months.
Outlook, risks, and other notable matters
No specific revenue or earnings guidance was provided. Management said cash from operations and available liquidity should fund ongoing operations and planned capital expenditures for the foreseeable future. Graduate tuition was scheduled to increase from $275 to $300 per credit hour for courses beginning in April 2010; undergraduate tuition was expected to remain unchanged.
- Regulatory status: The Department of Education had provisionally certified the company for Title IV participation through September 30, 2010, following a 2008 change in ownership and control. The company planned to apply for recertification by June 30, 2010. It reported a Department of Education financial-responsibility composite score of 3.0, the maximum.
- Accreditation uncertainty: The Department of Education’s Inspector General recommended considering limits on the Higher Learning Commission’s recognition as a Title IV accreditor. The filing says the Department was considering related regulatory matters; loss of applicable recognition could affect Title IV eligibility.
- Funding and enrollment concentration: A reduction in Department of Defense tuition assistance could materially affect enrollment and revenue. Title IV eligibility is also subject to extensive requirements, monitoring, and possible sanctions.
- Operational and competitive risks: The company planned to transition to a new online classroom platform, a process it described as complex, time-consuming, and potentially costly. It also identified risks from technology outages or security breaches, competition, student retention, and managing rapid growth.
- Legal and audit matters: The company reported no material pending legal proceedings. Its independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Progress and outcome of the company’s Title IV recertification, and any conditions imposed by the Department of Education.
- Developments concerning the Higher Learning Commission’s federal recognition and the company’s accreditation status.
- Trends in Department of Defense tuition assistance and Title IV participation, including the revenue and enrollment effects of any policy changes.
- Whether enrollment growth, retention, and referral rates support continued revenue and margin expansion as growth rates moderate.
- Actual cost, timing, and student impact of the planned classroom-platform transition and Charles Town facility project.