AMERICAN PUBLIC EDUCATION INC annual report, FY2023

American Public Education, Inc. — FY 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023; filed March 5, 2024. The company provides postsecondary education through APUS, Rasmussen University (RU), and Hondros College of Nursing (HCN), and career training through Graduate School USA (GSUSA). The filing reports annual results and unaudited fourth-quarter data. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.

Financial results and liquidity

Metric	FY 2023	FY 2022
Revenue	$600.5 million	$606.3 million
Operating loss	$48.3 million	$137.3 million
Net loss	$47.3 million	$115.0 million
Net loss available to common stockholders	$53.3 million	$115.0 million
Operating margin	(8.0)%	(22.7)%
Cash from operating activities	$45.5 million	$29.2 million
Capital expenditures	$13.9 million	$16.4 million

Revenue fell 1.0%. Lower RU revenue was partly offset by growth at APUS, HCN, and GSUSA.
The smaller operating and net losses primarily reflect lower RU goodwill and intangible-asset impairment charges: $64.0 million in 2023 versus $146.9 million in 2022. Excluding impairment, loss on assets held for sale, and Collegis transition fees, management reported operating margins of 3.4% and 2.2%, respectively.
Bad-debt expense rose to $16.5 million (2.7% of revenue) from $13.5 million (2.2%).
At year-end, cash, cash equivalents, and restricted cash totaled $144.3 million, including $116.7 million unrestricted cash. Total assets were $557.4 million and total liabilities were $265.4 million.
Long-term debt was $99.1 million principal, or $94.7 million net of financing fees; no principal payments were due in 2024, with maturity in September 2027. The company reported a 0.51 net leverage ratio under its credit agreement and compliance with debt covenants at year-end. The variable-rate borrowing cost was 10.96% before the interest-rate-cap offset.
Lease payment obligations totaled $149.1 million, including $18.5 million due in 2024. The company reported $10.9 million of 2024 interest payable, based on the year-end variable rate.
Series A Senior Preferred Stock dividends were $6.0 million in 2023; the preferred dividend rate was 15.35% at year-end. Preferred stock is senior to common stock and carries consent rights and a liquidation preference.

Segment and fourth-quarter performance

APUS: Revenue increased 6.4% to $303.3 million; net course registrations rose 4.9% to approximately 367,600. Segment operating income increased to $84.4 million. Growth in military TA registrations contributed, but these registrations generate lower revenue per registration.
RU: Revenue declined 15.5% to $214.1 million and enrollment fell 11.0%. The segment reported a $103.6 million operating loss, including impairment charges. Nursing enrollment restrictions and leadership departures were among the cited factors.
HCN: Revenue rose 20.9% to $56.9 million and enrollment grew 16.9%, partly reflecting new campuses. The segment operating loss narrowed to $1.4 million.
Fourth quarter 2023: Revenue was $152.8 million, pretax income was $15.1 million, and net income available to common stockholders was $11.5 million, or $0.65 per basic share. The comparable fourth quarter of 2022 reported revenue of $152.4 million and a $6.6 million net loss available to common stockholders.

Material changes, outlook, and key risks

Management’s stated priorities are organic and acquisition-led revenue growth, improved enterprise operating margins, nursing-platform expansion, career-learning growth, better student outcomes, and cost discipline. The filing provides no specific 2024 revenue or earnings guidance.
Cost reductions included a third-quarter workforce reduction of 74 employees and elimination of 57 open roles. Severance cost was approximately $3.0 million; management estimated annualized pretax labor and benefit savings of $15.5 million.
APUS’s 2023 90/10 ratio was 89%; RU’s was 77% and HCN’s 84%. All three institutions reported compliance for 2023, but APUS is close to the 90% limit. Army payment timing and changes to APUS’s TA invoicing could affect future compliance and cash flow. Army receivables were $22.3 million at year-end, including $12.7 million more than 60 days from course start.
On March 4, 2024, the Department of Education (ED) calculated a 2022 consolidated financial-responsibility composite score of 1.1, placing the institutions in the “zone.” APEI disputes the calculation, citing exclusion of deferred tax assets, and planned to respond. If ED maintains its position, heightened cash monitoring and other reporting requirements may apply. The filing estimates that applying HCM1 to APUS and HCN in 2023 would have delayed receipt of approximately $6.2 million until after related disbursements.
APUS remains provisionally certified with ED, with recertification pending, and is subject to an ED program review that includes 90/10 compliance. HLC scheduled an APUS focused visit for March 2024 over concerns about program-development oversight and assessment; a comprehensive mid-cycle visit was scheduled for 2025.
RU remains provisionally certified with ED and subject to growth restrictions, including limits on new programs, locations, and Title IV enrollment. RU enrollment declines and nursing-program NCLEX results are significant risks. RU planned to close its Bloomington, Minnesota ADN program in June 2024; several Florida ADN programs were placed on probation in February 2024. HCN also faces program-level retention monitoring by its accreditor.
New gainful-employment rules take effect July 1, 2024. Based on preliminary ED data using a methodology that differs from the final rules, six RU programs and three APUS programs failed one or more measures; the filing says the earliest a program could lose Title IV eligibility is July 1, 2026.
RU’s transition from Collegis IT services was planned for 2024, with estimated transition costs of $2.9–$3.6 million. Management also cited technology investment, vendor-transition, cybersecurity, bad-debt, competition, student retention, and regulatory risks.
In 2023, the company repurchased 1.52 million common shares for $9.7 million. It repurchased another 251,146 shares for $2.8 million in January 2024, then ceased purchases under the authorization effective February 1, 2024. A separate subsequent event: APEI terminated a planned RU Dallas campus lease in February 2024, paying $2.2 million and recording a $2.1 million loss in Q1 2024.
The company reported no material legal proceedings pending. It recorded a $5.2 million non-cash investment loss in 2023 after an investee’s sale agreement resulted in no proceeds. RU and HCN received 338 and 77 borrower-defense claims, respectively, seeking about $6.1 million and $1.4 million in loan discharges; APEI disputes the claims and says potential recoupment is uncertain.

Important facts for investors to verify

Progress on APUS’s ED recertification and program review, the HLC focused visit, and the disputed 2022 composite score.
APUS’s 90/10 headroom, Army receivable collections, TA billing changes, and resulting cash-flow and leverage effects.
RU enrollment trends, regulatory growth restrictions, Florida and other nursing-program status, and NCLEX outcomes; also HCN retention and accreditation monitoring.
Whether recurring operating performance, excluding impairment and other unusual items, improves as management targets stronger margins; monitor further RU goodwill or intangible impairment risk.
Cash available after restricted balances, preferred dividends, debt service, lease commitments, and planned IT transition spending; confirm the preferred-stock terms and any covenant or consent constraints.