American Public Education, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. The filing also provides unaudited fourth-quarter results. Comparisons with 2021 are not fully comparable because Rasmussen University (RU) was acquired in September 2021 and Graduate School USA (GSUSA) in January 2022.
Business context
APEI provides online and campus-based postsecondary education and career training through American Public University System (APUS), RU, Hondros College of Nursing (HCN), and GSUSA. The company reported approximately 107,100 students across its institutions and three reportable segments: APUS, RU, and HCN. GSUSA is included in Corporate and Other.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $606.3 million | $418.8 million |
| Operating income (loss) | $(137.3) million | $30.4 million |
| Net income (loss) | $(115.0) million | $17.8 million |
| Net income (loss) per diluted share | $(6.08) | $0.97 |
| Cash from operating activities | $29.2 million | $16.3 million |
- Revenue increased 44.8%, primarily because FY2022 included a full year of RU results and GSUSA; APUS revenue rose 0.5% and HCN revenue rose 2.8%.
- Operating margin was negative 22.7%, versus positive 7.2% in 2021. The loss included a $146.9 million non-cash RU goodwill and intangible-asset impairment charge; the impairment was not an operating cash outflow.
- FY2022 included a $36.3 million income tax benefit, a $3.8 million gain on the GSUSA acquisition, and $17.7 million of net interest expense. Interest expense included a $3.9 million write-off of debt issuance costs related to debt prepayment.
- Cash, cash equivalents, and restricted cash were $129.5 million at year-end, including $26.9 million of restricted cash. Current assets were $186.1 million and current liabilities were $70.8 million.
- Term-loan principal was $99.1 million at year-end; the balance-sheet carrying amount, net of deferred financing fees, was $93.2 million. A $65 million December prepayment eliminated scheduled quarterly principal payments until maturity in September 2027. The year-end borrowing rate was 9.57%; estimated 2023 interest payable was $9.2 million.
- APEI issued $40 million of Series A Senior Preferred Stock in December. Dividends accrue at SOFR plus 10% (an initial rate of 14.55%); the preferred stock is senior to common equity and had a reported aggregate liquidation preference of $62.2 million at year-end.
Fourth-quarter results
Q4 2022 revenue was $152.4 million, compared with $154.0 million in Q4 2021. Q4 2022 loss before income taxes was $7.7 million, and net loss available to common stockholders was $6.6 million, or $(0.35) per diluted share. Q4 2021 reported income before taxes of $13.4 million and net income available to common stockholders of $9.4 million, or $0.50 per diluted share.
Material changes, outlook, and risks
- Segment trends: APUS net course registrations increased 1.5% to approximately 350,400, driven mainly by lower-revenue military tuition-assistance registrations. RU enrollment declined 7.4%, with declines across nursing and non-nursing programs. HCN enrollment increased 4.5%.
- Impairment and valuation: RU goodwill and intangible assets were impaired by $146.9 million in 2022. Management reported only a modest excess of RU fair value over carrying value at the annual test and said further impairment was reasonably possible.
- Regulatory exposure: Beginning in 2023, the revised 90/10 calculation counts federal military tuition assistance and veterans’ education benefits on the federal-funds side. APEI said APUS could fail the rule in FY2023, in part because of delayed Army payments. APUS reported 31% under the prior calculation for 2022; those figures do not represent the new 2023 methodology.
- Army receivables: Approximately $26.0 million was due from the Army at year-end, including $16.5 million more than 60 days past the course start date, following ArmyIgnitED system disruptions. Management warned that delays could affect collections, bad debt, and cash flow.
- Nursing oversight: Several RU and HCN nursing programs faced below-benchmark NCLEX outcomes, enrollment restrictions, probationary or warning status, or corrective-action requirements. Consequences could include further enrollment limits or program closure. HCN’s PN programs at four campuses were placed on program-specific warning status in February 2023.
- Other execution and financing risks: RU remained subject to ED growth restrictions and heightened cash monitoring, with a $23.1 million letter of credit secured by restricted cash. APEI also cited integration and cost risks, the planned transition of RU information technology services from Collegis by September 2024, acquisition-related execution risk, and preferred-dividend and debt-service obligations.
- Outlook: Management’s stated priorities are revenue growth, improved enterprise-wide operating margins, continued integration, and investment in student experience and technology. The filing provides no specific consolidated revenue or earnings guidance. Modest tuition increases were planned or implemented for 2023 at the institutions.
Deloitte issued an unqualified opinion on the financial statements and internal control over financial reporting; management and the auditor reported effective controls as of December 31, 2022. The company reported no material legal proceedings pending.
Important facts for investors to verify
- Whether APUS meets the revised 90/10 requirement in 2023, considering the changed treatment of military and veterans’ benefits and the timing of Army payments.
- Collection and aging of Army receivables, subsequent bad-debt expense, and any further payment delays or ArmyIgnitED issues.
- RU enrollment recovery and progress against NCLEX, accreditation, state approval, and ED growth restrictions; HCN’s response to ABHES warnings and student-outcome benchmarks.
- Any additional RU goodwill or intangible-asset impairment, and the assumptions supporting management’s valuation forecasts.
- Cash available for operations after restricted balances, debt service, preferred dividends, leases, and the Collegis transition; confirm the preferred stock’s accrual and liquidation terms.