American Public Education, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is the three months ended March 31, 2023. APEI provides online and campus-based postsecondary education through APUS, Rasmussen University (RU), Hondros College of Nursing (HCN), and Graduate School USA (GSUSA). Financial statements are unaudited.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Revenue | $154.4 million | $149.7 million; up 3.2% |
| Operating income (loss) | $5.2 million | $(5.4) million |
| Operating margin | 3.4% | (3.7)% |
| Net income (loss) | $0.5 million | $(5.7) million |
| Net loss available to common shareholders | $(1.0) million; $(0.06) per share | $(7.2) million; $(0.38) per share |
| Cash provided by operating activities | $20.7 million | $12.8 million |
| Capital expenditures | $6.2 million | $3.2 million |
| Cash, cash equivalents, and restricted cash | $153.2 million | $144.3 million at Dec. 31, 2023 |
Of March 31 cash and restricted cash, $125.3 million was unrestricted and $27.9 million was restricted. Accounts receivable was $44.6 million, down from $51.0 million at year-end. Total liabilities were $270.5 million. Long-term debt, net of financing fees, was $95.0 million; gross term-loan principal was $99.1 million. The revolving facility had no borrowings. The term loan’s stated rate was 10.94% before the interest-rate-cap offset; the company reported compliance with debt covenants and a Credit Agreement net leverage ratio of 0.33x.
Series A preferred stock dividends were $1.5 million for the quarter. Its dividend rate was 15.31% at March 31, and its stated liquidation preference was $53.2 million. Preferred dividends explain why positive consolidated net income still resulted in a net loss attributable to common shareholders.
Material changes and segment results
- APUS: Revenue rose 9.0% to $80.7 million; net course registrations increased 2.8% to about 99,000. Operating income increased to $23.1 million from $17.1 million, with margin improving to 28.6% from 23.1%. Growth reflected higher registrations and 2023 tuition and fee increases.
- RU: Revenue declined 7.5% to $53.1 million as enrollment fell 5.6% to about 13,500, including an 11.3% decrease in on-ground enrollment. The operating loss narrowed to $9.0 million from $12.9 million; margin improved to (16.9)% from (22.4)%. Management cited enrollment caps, low NCLEX pass rates at certain campuses, regulation, competition, and a shift toward lower-revenue online enrollment.
- HCN: Revenue increased 25.2% to $16.4 million and enrollment rose 20.5% to about 3,300. The operating loss narrowed to $0.3 million from $1.3 million; margin improved to (1.8)% from (9.9)%. Growth reflected enrollment, including the Detroit campus, and a 2023 tuition increase.
- Costs and unusual items: Total costs and expenses declined 3.7% to $149.3 million. Lower selling and promotional costs and depreciation and amortization helped; general and administrative expense increased 8.3%, including $1.9 million of IT transition costs. Q1 included a $2.9 million RU lease loss and a non-cash $3.3 million investment impairment that reduced the investment’s carrying value to zero. The prior-year quarter included $2.4 million in transition fees related to terminating RU’s Collegis marketing contract.
Outlook, risks, and contingencies
- The filing provides no specific full-year revenue or earnings guidance. Management expects approximately $1.0 million in additional technology-transformation costs for the remainder of 2024. It also describes possible higher future capital expenditures for technology, campuses, and other growth opportunities.
- ED determined APEI’s 2022 consolidated composite score was 1.1, placing its institutions in the “zone”; APEI disputed the calculation but selected the zone alternative in April 2024. Requirements include heightened cash monitoring (HCM1), additional reporting and oversight, and prior ED approval for certain new programs and locations. Management estimated that if HCM1 had applied to APUS and HCN in 2023, about $6.2 million would have been received after the related student disbursements.
- RU ADN programs at two Florida campuses and a satellite program were placed on probation in March 2024 for consecutive years of NCLEX results below the state standard. A separate Fort Myers program remained on probation for an additional year. The affected Florida programs represented about 10% of RU enrollment.
- HLC conducted a focused visit at APUS following concerns about program-development oversight and assessment; results were to be reviewed by HLC’s Institutional Action Council. New federal gainful-employment regulations were scheduled to take effect July 1, 2024, with the 2024 reporting deadline extended to October 1.
- Other risks include dependence on federal and military tuition programs, Title IV eligibility and regulatory compliance, student recruitment and retention, NCLEX performance, enrollment trends, and variable-rate debt. A 100-basis-point increase in Term SOFR would add approximately $1.0 million in annual interest expense before the cap offset; the $87.5 million interest-rate cap expires December 31, 2024.
- APEI reported no material legal proceedings pending. Management concluded disclosure controls were effective as of March 31, 2024.
Most important facts for investors to verify
- Track ED’s implementation of the zone alternative, HCM1 cash timing, and any effects on liquidity, Title IV participation, or institutional approvals.
- Monitor RU enrollment and Florida nursing-program probation, NCLEX outcomes, and the impact on RU’s operating losses.
- Assess whether APUS and HCN growth and improving segment margins continue, and whether they offset RU weakness and corporate costs.
- Check the earnings impact of the non-cash investment impairment, RU lease actions, IT transition spending, and elevated bad debt expense.
- Review cash generation, capital spending, variable-rate debt exposure, the December 2024 interest-rate-cap expiration, and the preferred stock’s high dividend rate and liquidation preference.