Business context and reporting period
American Public Education, Inc. (APEI) filed this Form 10-K for the fiscal year ended December 31, 2020; it is an annual report, not a standalone fourth-quarter filing. APEI provides postsecondary education through APUS, an online institution serving military-affiliated, public-service and other adult learners, and Hondros College of Nursing (HCN), which operates nursing campuses in Ohio and Indiana. The company reported approximately 92,500 students.
Key financial results
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $321.8 million | $286.3 million |
| Operating income | $24.8 million | $12.8 million |
| Operating margin | 7.7% | 4.5% |
| Net income | $18.8 million | $10.0 million |
| Diluted EPS | $1.25 | $0.62 |
| Operating cash flow | $44.8 million | $38.4 million |
- Revenue grew 12.4%; net income rose 88.0%. Net margin was approximately 5.8%, up from 3.5%.
- APUS segment revenue increased 11.2% to $285.8 million; net course registrations rose 11.5% to approximately 353,100. HCN revenue increased 22.4% to $36.1 million; average enrollment rose 18.1%.
- APEI segment operating income was $24.0 million, up 2.2%. HCN moved to $0.7 million operating income from a $10.8 million operating loss in 2019, which included a $7.3 million goodwill impairment.
- Cash, cash equivalents and restricted cash totaled $227.7 million at year-end, versus $202.7 million a year earlier. Current assets were $251.8 million and current liabilities $55.1 million. Total liabilities were $64.1 million; the filing reports no outstanding borrowings at year-end. Operating lease liabilities were $8.8 million.
- Investing activities used $4.2 million; capital expenditures were $4.9 million. Financing activities used $15.7 million, including $13.6 million for share repurchases. Consolidated bad debt expense was $3.8 million, or about 1.2% of revenue, versus $3.9 million, or 1.4%, in 2019.
- Fourth-quarter 2020 revenue was $85.9 million and net income was $7.1 million, compared with $74.4 million and $5.7 million, respectively, in fourth-quarter 2019. Fourth-quarter diluted EPS was $0.47 versus $0.37.
Material changes versus the prior comparable period
- Growth reflected increased APUS course registrations and HCN enrollment. APUS growth was driven substantially by military students using DoD tuition assistance, which generates lower revenue per registration than other funding sources.
- Costs and expenses rose 8.6% to $297.0 million, slower than revenue growth. Selling and promotional expense increased 21.7% to $73.0 million; advertising costs rose to $51.3 million from $40.9 million.
- FY 2020 included $5.6 million of information-technology costs and $5.0 million of professional fees associated with strategic growth opportunities, including the proposed Rasmussen acquisition. The comparable 2019 period included the $7.3 million HCN goodwill impairment and $2.8 million of retirement-related compensation costs.
- Interest income declined to $1.1 million from $3.9 million, reflecting lower interest rates. The company repurchased 547,563 shares in 2020, compared with 1,416,304 in 2019.
Outlook, commentary, risks and unusual items
- Management gave no specific consolidated revenue or earnings guidance. It said existing cash and operating cash flow should fund ongoing operations and planned capital expenditures, while anticipating continued investment in technology and marketing. Planned 2021 IT spending was approximately $4.0–$5.0 million.
- APEI agreed to acquire Rasmussen University for $300 million in cash plus $29 million in non-voting preferred shares, or potentially additional cash instead of the preferred shares, subject to customary adjustments. Closing was expected in the third quarter of 2021, subject to regulatory and other conditions. A $175 million term loan and $20 million revolving facility were committed to help finance the transaction, subject to conditions; these facilities were not year-end debt. On March 1, 2021, after year-end, APEI raised estimated net proceeds of $86.4 million from a common-stock offering.
- COVID-19 shifted HCN between campus, blended and online instruction. Management said the pandemic did not materially adversely affect FY 2020 results, but warned that enrollment demand may ease, operating costs may rise, and changes in teaching could affect student outcomes and licensure.
- Regulatory and outcome risks remain important. HCN’s ADN program had been on provisional approval after repeated failures to meet Ohio NCLEX pass-rate standards; the company said it did not expect to meet the standard in 2020. HCN’s programs met ABHES retention, placement and examination thresholds for the year ended June 30, 2020, and ABHES extended institutional accreditation through February 2027. APUS received provisional Title IV certification through June 30, 2023; ED closed its longstanding APUS program review in January 2021 with no findings.
- DoD tuition assistance, VA benefits and Title IV funding are material revenue sources. In 2020, APUS revenue mix included 43% DoD tuition assistance, 22% VA benefits and 21% Title IV; HCN derived 82% from Title IV. Potential changes to the 90/10 rule, funding availability, accreditation, state authorization or student outcomes could materially affect the business.
- HCN’s 2020 goodwill test found fair value exceeded carrying value by $13.7 million, or 37.1%; management reported no 2020 impairment. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting.
Investor facts to verify
- Track APUS registrations and payor mix, including the revenue and margin effects of increased DoD tuition-assistance registrations.
- Monitor HCN enrollment, bad debt, NCLEX pass rates, Ohio ADN program status and ABHES achievement measures.
- Confirm Rasmussen closing conditions, regulatory approvals, final purchase consideration and financing terms, and assess post-close leverage and integration costs.
- Review 90/10 rule developments and continued access to Title IV, DoD and VA funding, including APUS recertification conditions and HCN recertification timing.
- Assess whether technology and marketing spending produces durable student growth and whether HCN goodwill valuation assumptions remain supportable.