Business context and reporting period
American Public Education, Inc. (APEI) filed this unaudited Form 10-Q for the three months ended March 31, 2022. Its education businesses include APUS, Rasmussen University (RU), and Hondros College of Nursing (HCN); Graduate School USA (GSUSA), acquired January 1, 2022, is included in Corporate and Other.
Year-over-year comparisons are not directly comparable: Q1 2022 includes RU, acquired September 1, 2021, and GSUSA, while Q1 2021 includes neither. APEI reported approximately 107,100 students across its institutions.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Revenue | $154.7 million | $88.5 million; up 74.8% |
| Operating income / margin | $5.2 million / 3.4% | $10.6 million / 12.0% |
| Net income | $5.3 million | $8.1 million |
| Diluted EPS | $0.28 | $0.49 |
| Operating cash flow | $25.3 million | $11.2 million |
| Cash, cash equivalents and restricted cash | $170.9 million | $149.6 million at December 31, 2021 |
| Debt | $170.6 million principal; $159.0 million net carrying amount | $8.8 million current portion; $150.2 million long-term, net |
Revenue growth primarily reflects the acquired businesses. Despite the increase in revenue, operating margin declined as costs rose, including acquisition-related expenses, compensation, marketing, and depreciation and amortization. Q1 2022 net income included a $4.5 million noncash gain on the GSUSA acquisition. Interest expense was $3.4 million, versus $0.1 million of interest income in Q1 2021.
Cash increased by $21.3 million during the quarter. Operating cash flow benefited in part from Army payments and working-capital timing. Investing cash use was $0.3 million, including $3.0 million of capital expenditures, offset by acquisition-related cash received and real-property sale proceeds. Financing cash use was $3.7 million, including debt principal payments. Reported cash includes $26.4 million of restricted cash at March 31, 2022. Current assets were $224.9 million and current liabilities were $93.7 million. APEI said existing cash and expected operating cash flow should fund needs for at least 12 months and the foreseeable future.
The $175 million senior secured term loan bears variable interest at LIBOR (subject to a 0.75% floor) plus 5.50%; the $20 million revolving facility had no borrowings outstanding. APEI was in compliance with its debt covenants at quarter-end. An interest-rate cap hedges $87.5 million of principal above a 2% LIBOR threshold through January 2025.
Material changes and segment performance
- APUS: Revenue declined 5.7% to $73.1 million; operating income was $13.2 million. Net course registrations rose 1.2% to approximately 94,000, but timing and a higher mix of lower-revenue military tuition-assistance registrations reduced revenue per registration.
- RU: Q1 revenue was $67.1 million and operating income was $0.9 million. Enrollment was approximately 16,200 versus 17,300 in the prior-year quarter; RU was not consolidated in that earlier period.
- HCN: Revenue increased 3.7% to $11.5 million, while operating results shifted to a $1.0 million loss from $0.8 million income. Enrollment increased 8.1% to approximately 2,500.
- Corporate and Other: Revenue was $3.0 million and operating loss was $7.9 million; this includes GSUSA activity and unallocated corporate costs.
APEI completed the GSUSA asset acquisition for a stated $1.0 million purchase price, subject to working-capital adjustments; the preliminary accounting recorded a $4.5 million gain. RU completed a reduction in force affecting 28 employees; APEI reported approximately $0.4 million of severance expense and expected $2.5 million to $3.5 million of 2022 labor and benefit savings.
Outlook, risks and contingencies
Management expects operating margins to remain below prior-year levels for the rest of 2022, citing inflation, higher labor costs—particularly at RU and HCN—and enrollment trends, especially at RU. Management said it could not predict when RU enrollment would return to growth. APEI said COVID-19 did not materially affect Q1 2022 results.
Key risks include RU enrollment softness and nursing-faculty shortages; dependence on Title IV, Department of Defense tuition assistance and VA funding; and regulatory changes. APEI expects proposed 90/10 changes could count TA and VA benefits toward the federal-funds portion of the calculation, potentially increasing its institutions’ percentages, particularly APUS. ED informational gainful-employment metrics showed eight RU programs and three APUS programs failing one or both contemplated measures; final rules and outcomes remain uncertain.
RU plans to transition outsourced IT and marketing services away from Collegis when contracts expire in September 2024. The company said transition costs and financial effects are not yet clear and the change could create operational challenges. The filing reports no material legal proceedings pending. It also notes that $19.4 million was due from the Army at March 31, 2022, including $10.5 million more than 60 days from course start, and that timing of further collections is uncertain.
Important facts for investors to verify
- How much of reported revenue and cash-flow growth reflects acquisitions versus underlying performance, given the non-comparable periods?
- Whether RU enrollment stabilizes and whether APUS revenue per registration and HCN profitability improve.
- Army receivable collections and continued processing of tuition-assistance invoices and payments.
- Final ED rules, including 90/10 and gainful-employment requirements, and their effects on program eligibility and funding mix.
- Debt-service capacity under variable rates, and the cost, timing and execution risk of the Collegis transition.