American Public Education(APEI) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited interim consolidated financial statements of American Public Education, Inc. (APEI) for the periods ended September 30, 2024, and December 31, 2023, including balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with accompanying notes detailing significant accounting policies, revenue disaggregation, leases, goodwill and intangible assets, income per common share, long-term debt, segment information, commitments, concentrations, preferred stock, and subsequent events Consolidated Balance Sheets Consolidated Balance Sheet Data (in thousands) | ASSETS (in thousands) | As of September 30, 2024 (Unaudited) | As of December 31, 2023 | |:--------------------------------------|:-------------------------------------|:------------------------| | Cash, cash equivalents, and restricted cash | $162,249 | $144,342 | | Accounts receivable, net | 42,648 | 50,973 | | Total current assets | 236,501 | 217,382 | | Property and equipment, net | 92,861 | 87,503 | | Operating lease assets, net | 97,431 | 100,023 | | Intangible assets, net | 28,234 | 31,539 | | Goodwill | 59,593 | 59,593 | | Total assets | $569,588 | $557,386 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $10,460 | $8,663 | | Accrued compensation and benefits | 22,099 | 16,711 | | Deferred revenue and student deposits | 27,319 | 23,830 | | Total current liabilities | 89,408 | 73,989 | | Lease liabilities, long-term | 96,670 | 96,739 | | Long-term debt, net | 93,092 | 94,682 | | Total liabilities | 279,170 | 265,410 | | Total stockholders' equity | 290,418 | 291,976 | | Total liabilities and stockholders' equity | $569,588 | $557,386 | Consolidated Statements of Income Consolidated Statements of Income Data (in thousands, except per share amounts) | (In thousands, except per share amounts) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Revenue | $153,122 | $150,838 | $460,449 | $447,741 | | Total costs and expenses | 148,993 | 144,438 | 448,918 | 511,979 | | Income (loss) from operations | 4,129 | 6,400 | 11,531 | (64,238) | | Net income (loss) | $2,262 | $(3,328) | $3,149 | $(60,300) | | Preferred stock dividends | 1,531 | 1,525 | 4,597 | 4,469 | | Net income (loss) available to common stockholders | $731 | $(4,853) | $(1,448) | $(64,769) | | Basic income (loss) per common share | $0.04 | $(0.27) | $(0.08) | $(3.55) | | Diluted income (loss) per common share | $0.04 | $(0.27) | $(0.08) | $(3.54) | Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Comprehensive Income (Loss) Data (in thousands) | (In thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) | $2,262 | $(3,328) | $3,149 | $(60,300) | | Total other comprehensive loss | (677) | (343) | (1,454) | (565) | | Comprehensive income (loss) | $1,585 | $(3,671) | $1,695 | $(60,865) | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity Data (in thousands, except share amounts) | (In thousands, except share amounts) | Balance as of Dec 31, 2023 | Balance as of Sep 30, 2024 | |:-------------------------------------|:---------------------------|:---------------------------| | Preferred Stock Amount | $39,691 | $39,691 | | Common Stock Shares | 17,604,371 | 17,710,887 | | Common Stock Amount | $176 | $177 | | Additional Paid-in Capital | $299,561 | $303,670 | | Other Comprehensive Income (loss) | $1,644 | $190 | | Accumulated Deficit | $(49,096) | $(53,310) | | Total Stockholders' Equity | $291,976 | $290,418 | Consolidated Statements of Stockholders' Equity Data (in thousands, except share amounts) | (In thousands, except share amounts) | Balance as of Dec 31, 2022 | Balance as of Sep 30, 2023 | |:-------------------------------------|:---------------------------|:---------------------------| | Preferred Stock Amount | $39,691 | $39,691 | | Common Stock Shares | 18,892,791 | 17,783,615 | | Common Stock Amount | $189 | $178 | | Additional Paid-in Capital | $292,854 | $297,848 | | Other Comprehensive Income (loss) | $3,102 | $2,537 | | Retained Earnings | $13,891 | $(58,864) | | Total Stockholders' Equity | $349,727 | $281,390 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Data (in thousands) | (In thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:-------------------------------|:-------------------------------| | Net cash provided by operating activities | $47,273 | $48,657 | | Net cash used in investing activities | $(17,728) | $(9,382) | | Net cash used in financing activities | $(11,638) | $(13,579) | | Net increase in cash, cash equivalents, and restricted cash | $17,907 | $25,696 | | Cash, cash equivalents, and restricted cash at end of period | $162,249 | $155,154 | Notes to Consolidated Financial Statements Note 1. Nature of the Business - APEI is a provider of online and campus-based postsecondary education and career learning through its subsidiary institutions: American Public University System (APUS), Rasmussen University (RU), Hondros College of Nursing (HCN), and Graduate School USA (GSUSA)[18][19][20][21] - The Company's operations are organized into three reportable segments: APUS Segment, RU Segment, and HCN Segment. GSUSA's activities are included in Corporate and Other[23][24] Note 2. Summary of Significant Accounting Policies - The interim Consolidated Financial Statements are prepared in accordance with GAAP and include APEI and its wholly-owned subsidiaries, with all material intercompany transactions eliminated[25][27] - Restricted cash includes funds held for students from Title IV programs and a $25.1 million restricted certificate of deposit for ED on behalf of RU due to its 2020 composite score being below the minimum required[31] Cash Type Data (in thousands) | Cash Type (in thousands) | September 30, 2024 (Unaudited) | December 31, 2023 | |:-------------------------|:-------------------------------|:------------------| | Cash, cash equivalents, and restricted cash | $162,249 | $144,342 | | Less: restricted cash | $(26,827) | $(27,682) | | Total unrestricted cash | $135,422 | $116,660 | - The Company recorded an investment loss of $3.3 million in Q1 2024 on a cost method investment due to dilution from a convertible debt agreement and a $1.1 million loss in Q2 2024 on the sale of its remaining equity method investment, reducing the book value of equity investments to zero by September 30, 2024[44][45][47] Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Instructional costs and services | $189 | $176 | $609 | $713 | | Selling and promotional | 120 | (25) | 389 | 392 | | General and administrative | 1,452 | 1,582 | 4,504 | 4,920 | | Total stock-based compensation expense | $1,761 | $1,733 | $5,502 | $6,025 | Note 3. Revenue Revenue Type Data (in thousands) | Revenue Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:----------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Instructional services, net | $141,358 | $140,001 | $424,881 | $413,676 | | Graduation fees | 794 | 381 | 1,913 | 1,138 | | Textbook and other course materials | 9,934 | 9,503 | 30,579 | 30,098 | | Other fees | 1,036 | 953 | 3,076 | 2,829 | | Total Revenue | $153,122 | $150,838 | $460,449 | $447,741 | - Deferred revenue at September 30, 2024, was $27.3 million, comprising $16.8 million for in-progress courses/terms and $10.5 million in student deposits, representing the Company's performance obligation for future instructional services[62] Note 4. Leases - The Company's principal leasing activities include operating leases for facilities (office space, campuses) and finance leases for copiers and printers[66][68][74] - Lease expense for operating leases was $4.7 million for the three months and $14.2 million for the nine months ended September 30, 2024, a decrease from the prior year periods[71] - During the nine months ended September 30, 2024, the Company recorded a total loss on leases of $3.7 million, primarily due to a $2.1 million loss from terminating an RU Segment lease for a planned Dallas campus and a $0.4 million impairment from the planned closure of two Wisconsin campuses[72][73] Lease Liabilities (in thousands) | Lease Liabilities (in thousands) | September 30, 2024 | |:---------------------------------|:-------------------| | Operating lease liabilities, current | $13,324 | | Finance lease liabilities, current | 214 | | Operating lease liabilities, long-term | 96,383 | | Finance lease liabilities, long-term | 287 | Note 5. Goodwill and Intangible Assets - Goodwill for the RU and HCN Segments remained at $33.0 million and $26.6 million, respectively, as of September 30, 2024, with no impairment charges recorded during the nine months ended September 30, 2024[78][87] - In Q2 2023, the Company recorded non-cash impairment charges of $53.0 million for RU Segment goodwill and $11.0 million for RU Segment indefinite-lived intangible assets (trade name, accreditation, licensing, Title IV) due to underperformance against internal targets and market conditions[84][85][86] Intangible Assets (in thousands) | Intangible Assets (in thousands) | Gross Amount | Accumulated Amortization | Impairment | Net Carrying Amount (Sep 30, 2024) | |:---------------------------------|:-------------|:-------------------------|:-----------|:-----------------------------------| | Finite-lived intangible assets | | | | | | Student roster | $20,000 | $20,000 | — | $— | | Curricula | 14,563 | 14,550 | — | 13 | | Total finite-lived intangible assets | $40,826 | $40,813 | — | $13 | | Indefinite-lived intangible assets | | | | | | Trade name | 28,498 | — | 8,000 | 20,498 | | Accreditation, licensing, and Title IV | 26,186 | — | 18,500 | 7,686 | | Total indefinite-lived intangible assets | 54,721 | — | 26,500 | 28,221 | | Total intangible assets | $95,547 | $40,813 | $26,500 | $28,234 | Note 6. Income (Loss) Per Common Share Income (Loss) Per Common Share Data (in thousands, except per share amounts) | (In thousands, except per share amounts) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) available to common stockholders | $731 | $(4,853) | $(1,448) | $(64,769) | | Basic weighted average shares outstanding | 17,679 | 17,778 | 17,604 | 18,230 | | Basic income (loss) per common share | $0.04 | $(0.27) | $(0.08) | $(3.55) | | Diluted weighted average shares outstanding | 18,247 | 17,820 | 18,076 | 18,294 | | Diluted income (loss) per common share | $0.04 | $(0.27) | $(0.08) | $(3.54) | Antidilutive Securities (in thousands) | Antidilutive Securities (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Stock options | 104 | 163 | 110 | 163 | | Restricted shares | — | 895 | 22 | 896 | | Total antidilutive securities | 104 | 1,058 | 132 | 1,059 | Note 7. Long-Term Debt - APEI has a senior secured term loan facility of $175.0 million maturing September 1, 2027, and a $20.0 million revolving loan facility maturing September 1, 2026. The Term Loan is presented net of deferred financing fees[94][95] - The Credit Agreement was amended in June 2023 to transition the floating index rate from LIBOR to Term SOFR, with a borrowing rate of 10.86% as of September 30, 2024[96] - The Company made a $2.6 million principal payment on the Term Loan during Q2 2024 and was in compliance with all debt covenants as of September 30, 2024[98][99] Long-Term Debt (in thousands) | Long-Term Debt (in thousands) | September 30, 2024 | December 31, 2023 | |:------------------------------|:-------------------|:------------------| | Credit agreement | $96,425 | $99,063 | | Deferred financing fees | (3,333) | (4,381) | | Total debt | 93,092 | 94,682 | | Long-Term Debt | $93,092 | $94,682 | - The Company uses an interest rate cap agreement to hedge against variable interest rate risk, transitioning from LIBOR to Term SOFR in June 2023, providing protection if Term SOFR exceeds 1.78% until December 31, 2024[103][104] Note 8. Segment Information - The Company operates through three reportable segments: APUS, RU, and HCN. GSUSA's activities are included in Corporate and Other[108] Segment Revenue (in thousands) | Segment Revenue (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | APUS Segment | $76,981 | $76,406 | $234,685 | $223,941 | | RU Segment | 52,604 | 52,073 | 158,773 | 161,511 | | HCN Segment | 15,493 | 13,741 | 48,349 | 41,147 | | Corporate and Other | 8,044 | 8,618 | 18,642 | 21,142 | | Total Revenue | $153,122 | $150,838 | $460,449 | $447,741 | Segment Income (Loss) from Operations (in thousands) | Segment Income (Loss) from Operations (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | APUS Segment | $20,765 | $21,948 | $62,143 | $57,963 | | RU Segment | $(7,609) | $(10,570) | $(25,401) | $(100,708) | | HCN Segment | $(771) | $(641) | $(1,819) | $(2,179) | | Corporate and Other | $(8,256) | $(4,337) | $(23,392) | $(19,314) | | Total income (loss) from operations | $4,129 | $6,400 | $11,531 | $(64,238) | Segment Assets (in thousands) | Segment Assets (in thousands) | As of September 30, 2024 (Unaudited) | As of December 31, 2023 | |:------------------------------|:-------------------------------------|:------------------------| | APUS Segment | $101,767 | $108,749 | | RU Segment | 214,749 | 220,901 | | HCN Segment | 76,115 | 60,270 | | Corporate and Other | 176,957 | 167,466 | | Total Assets | $569,588 | $557,386 | Note 9. Commitments and Contingencies - The Company accrues for costs related to contingencies, including regulatory compliance and legal matters, when probable and estimable, adjusting accruals as new information becomes available[113] - As of the reporting date, the Company has no material legal proceedings pending[114][239] Note 10. Concentration - The Company's students primarily finance education through DoD tuition assistance, VA education benefits, federal Title IV programs, and cash/other sources[115] APUS Segment Revenue by Funding Source | APUS Segment Revenue by Funding Source | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | DoD tuition assistance programs | 42% | 46% | 45% | 47% | | VA education benefits | 25% | 23% | 24% | 22% | | Title IV programs | 19% | 18% | 17% | 17% | | Cash and other sources | 14% | 13% | 14% | 14% | RU Segment Revenue by Funding Source | RU Segment Revenue by Funding Source | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Title IV programs | 78% | 76% | 76% | 75% | | Cash and other sources | 20% | 22% | 22% | 23% | | VA education benefits | 2% | 2% | 2% | 2% | HCN Segment Revenue by Funding Source | HCN Segment Revenue by Funding Source | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Title IV programs | 85% | 79% | 84% | 79% | | Cash and other sources | 14% | 20% | 15% | 20% | | VA education benefits | 1% | 1% | 1% | 1% | Note 11. Preferred Stock - APEI issued $40 million of Series A Senior Preferred Stock in December 2022, with cumulative dividends accruing daily at SOFR plus 10.00% (14.60% as of September 30, 2024)[119][120] - Dividends declared and paid on preferred stock were $1.5 million for the three months and $4.6 million for the nine months ended September 30, 2024[120] - The Series A Senior Preferred Stock has no stated maturity, is not convertible, and is redeemable at the Company's option at a liquidation preference that includes an early redemption premium and a make-whole payment (e.g., $6.0 million make-whole payment as of September 30, 2024)[121][122] Liquidation Preference (in thousands) | Liquidation Preference (in thousands) | September 30, 2024 (Unaudited) | December 31, 2023 | |:--------------------------------------|:-------------------------------|:------------------| | Series A Senior Preferred Stock | $40,069 | $40,072 | | Make whole payment | 6,038 | 12,266 | | Early redemption premium | 2,915 | 2,915 | | Liquidation Preference | $49,022 | $55,253 | Note 12. Subsequent Event - On November 7, 2024, APUS agreed to sell excess real and personal property in Charles Town, West Virginia, for $16.6 million, expecting a pre-tax loss of $1.6 million to $1.8 million, with closing anticipated in early 2025[124] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on APEI's financial condition and results of operations for the three and nine months ended September 30, 2024, compared to the prior year periods. It covers overall financial performance, segment-specific results, critical accounting policies, and liquidity, highlighting revenue growth, net income improvement, and key operational and regulatory developments Forward-Looking Statements - The report contains forward-looking statements regarding regulatory compliance, business growth, cash needs, student enrollment, technology infrastructure, marketing, and financial performance, which are subject to various risks and uncertainties[127][128] Overview - APEI provides online and campus-based postsecondary education to approximately 104,300 students and career learning to 24,000 individuals through APUS, RU, HCN, and GSUSA[131] - APUS serves approximately 87,700 adult learners, primarily military-affiliated (66%), while RU focuses on nursing and health sciences with 13,500 students (6,000 on-ground, 7,500 online). HCN provides nursing education to 3,100 students[132][133][134] - APUS implemented modest tuition increases for master's level students in April 2024, later returning military rates to $250/credit hour. RU and HCN also implemented modest tuition increases to remain competitive[136] - The Company completed a reduction in force in Q3 2023, terminating 74 employees and eliminating 57 open positions, incurring $3.0 million in severance costs[137] - RU consolidated two Minnesota campuses and plans to voluntarily close two Wisconsin campuses by December 2025 and 2026, impacting approximately 90 students[138] - APUS received a Provisional Program Participation Agreement (PPPA) from ED effective July 2024, imposing new reporting requirements due to an open program review. APUS also received 408 borrower defense to repayment (BDTR) claims totaling $6.6 million, which it disputes[140][141] - RU's ADN programs at Tampa, Ocala, and Fort Myers, Florida, were placed on probationary status by the FBN due to not meeting NCLEX pass rate standards. FCIE placed RU on a provisional license due to financial stability concerns and NCLEX pass rates[142][143][144] - HCN's PN programs in Cleveland, Columbus, Dayton, Toledo, and Akron, and Akron ADN program were below the 70% retention benchmark for FY2023, requiring reports to ABHES. OBN restored HCN's PN program to full approval status in July 2024 after 18 months of provisional approval[149][152] - Consolidated revenue increased by 1.5% to $153.1 million for Q3 2024 and by 2.8% to $460.4 million for the nine months ended September 30, 2024. Net income improved significantly from a loss in prior periods[160][161] Critical Accounting Policies and Use of Estimates - Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if indicators exist. The process involves subjective judgment and estimates, including qualitative and quantitative assessments[168] - Fair value in quantitative analysis is estimated by weighting discounted cash flow and guideline public company approaches, using three-year financial forecasts and market participant-based assumptions[169][171] - No impairment charges were necessary for RU and HCN Segment goodwill and indefinite-lived intangible assets during Q3 2024, following a qualitative assessment[172] - In Q2 2023, the Company recorded a $53.0 million non-cash impairment charge for RU Segment goodwill and an $11.0 million charge for RU Segment indefinite-lived intangible assets due to underperformance and market conditions[173][174] Results of Operations - APUS net course registrations increased by 0.2% for the three months and 1.6% for the nine months ended September 30, 2024, primarily due to military-affiliated students utilizing VA benefits[179] - RU total enrollment was flat for the three months but decreased by 2.7% for the nine months ended September 30, 2024, driven by a 9.1% decrease in on-ground enrollment, partially offset by a 3.3% increase in online enrollment[180] - HCN total enrollment increased by 10.4% for the three months and 13.3% for the nine months ended September 30, 2024, primarily due to growth at the Detroit, Michigan campus[181] Statement of Income Data as % of Revenue | Statement of Income Data as % of Revenue | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Revenue | 100.0% | 100.0% | 100.0% | 100.0% | | Instructional costs and services | 49.2% | 48.5% | 48.7% | 49.6% | | Selling and promotional | 21.9% | 22.1% | 21.7% | 23.7% | | General and administrative | 22.9% | 20.5% | 23.0% | 21.6% | | Depreciation and amortization | 3.3% | 4.7% | 3.4% | 5.1% | | Impairment of goodwill and intangible assets | — | — | — | 14.3% | | Loss on leases | — | — | 0.8% | — | | Total costs and expenses | 97.3% | 95.8% | 97.5% | 114.3% | | Income (loss) from operations | 2.7% | 4.2% | 2.5% | (14.3)% | | Net income (loss) | 1.5% | (2.2)% | 0.7% | (13.5)% | Analysis of Consolidated Statements of Income - Consolidated revenue for Q3 2024 increased by $2.3 million (1.5%) to $153.1 million, driven by increases in HCN (12.8%), APUS (0.8%), and RU (1.0%) segments, partially offset by a decrease in GSUSA[185] - Total costs and expenses for Q3 2024 increased by $4.6 million (3.2%) to $149.0 million, including $1.1 million in IT transition services costs. Excluding these, expenses increased by $3.5 million due to higher employee compensation and professional fees[186] - Instructional costs and services increased by 3.0% to $75.4 million in Q3 2024, primarily due to increased employee compensation in APUS and HCN, professional fees in RU, and course materials in HCN[187] - General and administrative expenses increased by 13.4% to $35.0 million in Q3 2024, including $1.1 million in IT transition costs. Consolidated bad debt expense decreased to $4.2 million (2.7% of revenue) from $4.5 million (3.0%) in the prior year[188] - Depreciation and amortization expenses decreased by $1.9 million to $5.1 million in Q3 2024, mainly due to the full amortization of certain definite-lived intangible assets in the RU Segment in 2023[189] - Net income for Q3 2024 was $2.3 million, an increase of $5.6 million from a net loss of $3.3 million in Q3 2023, with no equity investment loss in the current period compared to a $5.2 million loss in the prior year[194][195] - For the nine months ended September 30, 2024, consolidated revenue increased by $12.7 million (2.8%) to $460.4 million. Net income improved by $63.4 million to $3.1 million from a $60.3 million net loss in the prior year[197][210] - Total costs and expenses for the nine months decreased by $63.1 million (12.3%) to $448.9 million, primarily due to the absence of a $64.0 million goodwill and intangible asset impairment charge from the prior year[198][204] - Equity investment loss for the nine months ended September 30, 2024, was $4.4 million, including a $3.3 million non-cash loss from a convertible debt agreement and a $1.1 million loss on the sale of an equity investment[209] Analysis of Operating Results by Reportable Segment - APUS Segment revenue increased by 0.8% to $77.0 million in Q3 2024 and by 4.8% to $234.7 million for the nine months, driven by higher net course registrations and tuition increases[213][214] - RU Segment revenue increased by 1.0% to $52.6 million in Q3 2024 due to tuition increases, despite a 6.3% decrease in on-ground enrollment. For the nine months, revenue decreased by 1.7% to $158.8 million due to a 2.7% decrease in total student enrollment[215][216][217] - HCN Segment revenue increased by 12.8% to $15.5 million in Q3 2024 and by 17.5% to $48.3 million for the nine months, primarily due to a 10.4% and 13.3% increase in total student enrollment, respectively, and a 5% tuition increase[218][219] Liquidity and Capital Resources - Cash and cash equivalents increased by $17.9 million (12.4%) to $162.2 million at September 30, 2024, primarily due to higher revenue and operating income at APUS and decreased common stock repurchases[220] - ED notified the Company that its 2022 consolidated composite score was 1.1, placing its institutions in the 'zone' and requiring participation under the 'zone alternative,' which includes heightened cash monitoring (HCM1) for Title IV disbursements[224] - The Company's Total Net Leverage Ratio under the Credit Agreement decreased to 0.17 at September 30, 2024, from 0.51 at December 31, 2023, due to improved operating results and reduced accounts receivable[225] - Net cash provided by operating activities was $47.3 million for the nine months ended September 30, 2024, a decrease from $48.7 million in the prior year, mainly due to changes in working capital[228] - Net cash used in investing activities increased to $17.7 million for the nine months ended September 30, 2024, from $9.4 million in the prior year, driven by higher capital expenditures for campus relocations and IT[229] - Net cash used in financing activities decreased to $11.6 million for the nine months ended September 30, 2024, from $13.6 million in the prior year, primarily due to a decrease in common stock repurchases ($2.8 million vs. $8.0 million)[230] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily interest rate risk, and its strategies for managing these risks. It highlights the absence of material derivative financial instruments and the use of an interest rate cap agreement to mitigate variable rate indebtedness exposure - The Company has no material derivative financial instruments and maintains cash and cash equivalents in low-risk investments like bank deposits, money market funds, and short-term U.S. Treasury bills[234] - To manage interest rate risk on its variable rate indebtedness, the Company uses an interest rate cap agreement hedging $87.5 million of principal, providing protection if the one-month Term SOFR rate exceeds 1.78% until December 31, 2024[236] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the period - Management, including the principal executive and financial officers, concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024[237] - There were no material changes in internal control over financial reporting during the period covered by the report[238] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section states that the Company is involved in various legal proceedings in the normal course of business but currently has no material legal proceedings pending - The Company is involved in various legal proceedings in the normal course of business but currently has no material legal proceedings pending[239] Item 1A. Risk Factors This section updates and reiterates key risks to the Company's business, including the potential negative impacts of failing to meet financial responsibility standards, significant liabilities from borrower defense to repayment (BDTR) claims, challenges in marketing and expanding APUS, and adverse effects from campus closures or non-compliance with extensive regulatory requirements - The Company's 2022 consolidated composite score of 1.1 placed its institutions in the 'zone,' requiring participation under the 'zone alternative' with heightened cash monitoring (HCM1) and additional reporting requirements, which could negatively impact cash flow[243][244][247] - APUS received 408 BDTR claims totaling $6.6 million, which it disputes. The Company faces potential significant liability if ED grants BDTR relief and seeks recoupment, impacting financial condition and reputation[250] - APUS's marketing strategy faces challenges in attracting non-military students cost-effectively and its rebranding initiative to a global digital university may not yield desired enrollment increases or could impact 90/10 Rule compliance[251][253] - RU's planned and actual campus closures (e.g., Lake Elmo, Minnesota; Green Bay and Wausau, Wisconsin) and program terminations (e.g., Bloomington, Minnesota ADN program) may adversely impact enrollments, reputation, and financial condition[254][255][257] - Failure to comply with extensive regulatory requirements from accrediting agencies, state bodies, and the federal government (ED, DoD, VA) could lead to penalties, operational restrictions, loss of federal funding eligibility, and substantial costs[258][259][260][261] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchase programs and activities, including shares repurchased and remaining authorization Repurchase Program Details | Repurchase Program Details | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares Yet to Be Purchased Under the Plans or Programs (1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |:---------------------------|:---------------------------------|:-----------------------------|:---------------------------------------------------------------------------------|:-----------------------------------------------------------------------------|:---------------------------------------------------------------------------------------------| | July 1, 2024 | — | — | — | 539,789 | 5,979,68 | | July 1, 2024 - July 31, 2024 | — | — | — | 539,789 | 5,979,68 | | August 1, 2024 - August 31, 2024 | — | — | — | 539,789 | 5,979,68 | | September 1, 2024 - September 30, 2024 | — | — | — | 539,789 | 5,979,68 | | Total | — | — | — | 539,789 | $5,979,68 | - The Board approved a stock repurchase program in December 2011 for annual purchases up to cumulative shares issued under equity incentive plans. Additional authorizations of $35.0 million (May 2019), $25.0 million (December 2019), and $10.0 million (November 2023) allow for open market or privately negotiated transactions[266][267] - During Q3 2024, 5,651 shares of common stock were deemed repurchased from employees to satisfy tax-withholding requirements for restricted stock grants, which were not part of the Board-authorized programs[268] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[268] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures to report - There are no mine safety disclosures to report[268] Item 5. Other Information This section reports on Rule 10b5-1 trading arrangements adopted or terminated by directors or officers during the third quarter of 2024 - During Q3 2024, James Kenigsberg, a Director, adopted a Rule 10b5-1 trading arrangement on August 8, 2024, to sell up to 6,969 shares upon vesting of equity awards, with a duration until August 29, 2025[270][271] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file Exhibit List | Exhibit No. | Exhibit Description | |:------------|:--------------------| | 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) | | 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) | | 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | | EX-101.INS | Inline XBRL Instance Document | | EX-101.SCH | Inline XBRL Taxonomy Extension Schema Document | | EX-101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | EX-101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | EX-101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | EX-101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | 104 | Cover Page Interactive Data File | SIGNATURES