American Public Education, Inc. — Q1 2010 Form 10-Q
Business and period: For the three months ended March 31, 2010. APEI provides online postsecondary education primarily to military and public-service communities through American Public University System, including American Military University and American Public University. The company reports one operating segment.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Q1 2010 | Q1 2009 | Change |
|---|---|---|---|
| Revenue | $47.3 | $33.2 | +43% |
| Operating income | $13.1 | $8.7 | +50% |
| Operating margin | 27.8% | 26.3% | +1.5 percentage points |
| Net income | $7.6 | $5.2 | +46% |
| Diluted EPS | $0.40 | $0.28 | +43% |
| Operating cash flow | $14.2 | $6.3 | +127% |
| Capital expenditures | $3.7 | $1.8 | Increased |
Net margin was 16.2%, versus 15.8% a year earlier. Costs and expenses grew 40%, slower than revenue growth; selling and promotional costs rose 64% as the company expanded civilian-market outreach. Instructional costs increased 41% with higher course registrations. General and administrative costs increased 26%, but declined as a share of revenue from 18.3% to 16.1%.
Balance sheet and liquidity
- Cash and cash equivalents were $85.5 million at March 31, 2010, up from $74.9 million at December 31, 2009 and $53.0 million at March 31, 2009.
- Current assets were $97.9 million and current liabilities $32.1 million at quarter-end. Total assets were $127.7 million; total liabilities were $36.9 million.
- The balance sheet reports no borrowings or other debt line item. The company funded operations and capital spending primarily from operating cash flow.
- Operating cash flow benefited from a $4.7 million increase in income taxes payable, as well as higher earnings. Investing cash outflow was $3.8 million, primarily reflecting $3.7 million of capital expenditures.
Changes, outlook, and risks
- Net course registrations increased 39% year over year; management attributed revenue growth primarily to more registrations from new civilian students.
- Department of Defense tuition-assistance students generated about 53% of Q1 revenue, down from 59% a year earlier. Title IV financial-aid users accounted for 20% of net course registrations (about 12,800), compared with 16% (about 7,500) in Q1 2009. Management cautioned that reductions in either funding program could significantly affect operations.
- Management expects capital expenditures to continue increasing in the near term, including for a Charles Town facility under construction and a new learning management system. It believes cash, operating cash flow, and other liquidity sources will fund ongoing operations and planned capital expenditures for the foreseeable future. No specific revenue or earnings guidance was provided.
- Management expects enrollment growth to be seasonally slower in the first half and proportionally strongest in the fourth quarter; seasonal enrollment and largely fixed administrative costs may cause results to fluctuate.
- The quarterly effective tax rate was 41.9%, above the estimated annual rate of 40.2%, primarily due to a state-tax adjustment recorded in the quarter.
- The company reported no material pending legal proceedings and no material impact expected from the accounting-standard adoptions discussed. Management stated disclosure controls were effective as of March 31, 2010.
Investor verification priorities
- Verify the drivers and sustainability of registration growth, particularly civilian enrollment and the increased marketing spend.
- Monitor exposure to Department of Defense tuition assistance and Title IV programs, including funding rules and payment timing.
- Assess whether planned facility and learning-management-system spending remains within cash-flow capacity and produces expected benefits.
- Review operating cash-flow quality, especially the contribution from the increase in income taxes payable.
- Check subsequent filings for updated guidance, enrollment trends, tax-rate developments, and material regulatory or legal matters.