American Public Education(APEI) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended June 30, 2025, reflect a significant increase in net income to $13.4 million, improved operating cash flow to $51.8 million, and a slight decrease in total assets to $537.4 million due to asset sales and preferred stock redemption Consolidated Balance Sheets As of June 30, 2025, total assets decreased to $537.4 million from $570.1 million, primarily due to the reduction of assets held for sale and preferred stock redemption, while cash and cash equivalents increased to $176.6 million Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2025 (Unaudited) | Dec 31, 2024 | | :--- | :--- | :--- | | Total Assets | $537,369 | $570,103 | | Cash, cash equivalents, and restricted cash | $176,579 | $158,941 | | Assets held for sale | $0 | $24,469 | | Total Liabilities | $265,129 | $266,224 | | Long-term debt, net | $94,062 | $93,424 | | Total Stockholders' Equity | $272,240 | $303,879 | | Preferred stock | $0 | $39,691 | Consolidated Statements of Income For the three and six months ended June 30, 2025, revenue increased 6.5% to $162.8 million and $327.3 million respectively, with net income surging to $4.5 million and $13.4 million, driven by segment growth and improved expense management Income Statement Summary (in thousands, except per share data) | Metric | Q2 2025 (Unaudited) | Q2 2024 | YTD 2025 (Unaudited) | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $162,766 | $152,895 | $327,317 | $307,327 | | Income from operations | $7,025 | $2,220 | $19,271 | $7,402 | | Net Income | $4,496 | $371 | $13,389 | $887 | | Net (loss) income available to common stockholders | $(324) | $(1,160) | $7,137 | $(2,179) | | Diluted EPS | $(0.02) | $(0.06) | $0.39 | $(0.12) | - A loss on redemption of preferred stock of $3.5 million was recorded in Q2 2025, impacting net income available to common stockholders[12] Consolidated Statements of Cash Flows Net cash provided by operating activities increased to $51.8 million for the six months ended June 30, 2025, supplemented by $15.4 million from investing activities, while financing activities used $49.5 million primarily for preferred stock redemption Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Activity | 2025 (Unaudited) | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,807 | $33,198 | | Net cash provided by (used in) investing activities | $15,350 | $(11,416) | | Net cash used in financing activities | $(49,519) | $(9,933) | | Net increase in cash | $17,638 | $11,849 | Notes to Consolidated Financial Statements Key notes detail business segments, revenue recognition, asset sales, lease obligations, goodwill, debt, and segment performance, highlighting the post-quarter sale of GSUSA, preferred stock redemption, and revenue concentration from government programs - On July 10, 2025, APEI entered into a definitive agreement to sell its membership interest in GSUSA for $0.5 million, with the sale completed on July 25, 2025, and is expected to result in a loss of $7.0 million to $8.5 million[112] - On June 23, 2025, APEI redeemed all 400 outstanding shares of Series A Senior Preferred Stock for $43.1 million, resulting in a $3.5 million loss on redemption recorded as a reduction to net income available to common stockholders[108] - The company's revenue is highly concentrated, with significant portions derived from DoD tuition assistance, VA education benefits, and Title IV programs across its APUS, RU, and HCN segments[105][106][107] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 6.5% consolidated revenue increase driven by enrollment growth and course registrations, improved operating margins from cost management, strategic initiatives including the APUS, RU, and HCN combination and GSUSA divestiture, and strong liquidity despite preferred stock redemption Overview The company, providing postsecondary education through APUS, RU, and HCN, is pursuing a strategic combination of these institutions, navigating legislative changes like the 'One Big Beautiful Bill Act,' and recently completed the sale of its GSUSA subsidiary - The planned combination of APUS, RU, and HCN into a single institution received HLC approval in June 2025, though implementation may be postponed into the second quarter of 2026 based on ongoing dialogue with the Department of Education (ED) and HLC[121] - The 'One Big Beautiful Bill Act' (OBBBA) was signed into law on July 4, 2025, which will overhaul student loan programs, establish a new program-level accountability framework based on graduate earnings, and create Workforce Pell Grants, effective July 1, 2026[122][123][124] - The company completed the sale of its Graduate School USA (GSUSA) subsidiary on July 25, 2025[135] Results of Operations Consolidated revenue for Q2 2025 increased 6.5% to $162.8 million, driven by growth across all education segments, leading to a significant improvement in operating income to $7.0 million due to modest expense increases Segment Revenue and Operating Income (Loss) - Q2 (in thousands) | Segment | Revenue Q2 2025 | Revenue Q2 2024 | Operating Income (Loss) Q2 2025 | Operating Income (Loss) Q2 2024 | | :--- | :--- | :--- | :--- | :--- | | APUS Segment | $81,731 | $77,048 | $21,442 | $18,291 | | RU Segment | $59,521 | $53,034 | $(1,976) | $(8,826) | | HCN Segment | $18,134 | $16,409 | $(402) | $(744) | - General and administrative expenses increased 10.8% in Q2 2025, including $1.7 million in professional fees related to the planned Combination and the sale of GSUSA[165] - Depreciation and amortization expenses decreased by $1.1 million in Q2 2025, primarily because definite-lived intangible assets in the RU Segment became fully amortized in 2024[166] Liquidity and Capital Resources The company's liquidity improved, with cash and cash equivalents increasing to $176.6 million, driven by $51.8 million from operations and $15.4 million from investing activities, partially offset by $49.5 million used in financing for preferred stock redemption - Cash and cash equivalents increased to $176.6 million at June 30, 2025, from $158.9 million at year-end 2024[199] - During the six months ended June 30, 2025, APUS collected approximately $32.5 million from DoD Tuition Assistance (TA) related to prior periods due to a change in its invoicing approach[200] - In May 2025, a $25.4 million restricted certificate of deposit securing a letter of credit for the Department of Education was released, making the cash unrestricted[204] - The company redeemed all outstanding Series A Senior Preferred Stock in June 2025 for $43.1 million (excluding dividends), a primary use of cash in financing activities[208][211] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on its variable-rate debt through an interest rate cap agreement, effective January 2025, which limits Term SOFR at 5.00% on a $50.0 million notional value through June 2026 - The company is exposed to interest rate risk on its variable-rate debt, where a 100 basis point increase in Term SOFR would increase annual interest expense by approximately $1.0 million[216] - In January 2025, the company entered into a new interest rate cap agreement on a notional value of $50.0 million, which protects against the Term SOFR rate exceeding 5.00% until its expiration in June 2026[216] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[217] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[218] PART II – OTHER INFORMATION Legal Proceedings The company reports that it currently has no material legal proceedings pending - As of the filing date, the company has no material legal proceedings pending[219] Risk Factors The company highlights updated risk factors, including potential delays in the APUS, RU, and HCN combination, and significant risks from the evolving postsecondary education regulatory environment, particularly the impact of the 'One Big Beautiful Bill Act' on financial aid programs - The implementation of the planned combination of APUS, RU, and HCN may be postponed, potentially into the second quarter of 2026, due to ongoing dialogue with the Department of Education and HLC[221] - The company faces risks from potential changes in the federal regulatory environment, including the Trump administration's stated intention to dismantle the Department of Education, which could disrupt operations and funding[222][223] - The recently passed 'One Big Beautiful Bill Act' (OBBBA) introduces significant changes to federal student aid, including new loan caps and an earnings-based accountability framework, which could adversely impact student enrollment and financial results[226] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase shares under its public plans during Q2 2025, with $6.0 million remaining authorized for future repurchases, though 1,286 shares were deemed repurchased for tax withholding - No shares were repurchased under the company's publicly announced stock repurchase programs during the three months ended June 30, 2025[228] - As of June 30, 2025, approximately $6.0 million remained authorized for future share repurchases[228][231] Other Information Effective August 4, 2025, James Kenigsberg was appointed Interim Chief Innovation and Technology Officer and resigned from the Board, while Craig MacGibbon will step down as Executive Vice President, Chief Information Officer on August 19, 2025 - Effective August 4, 2025, James Kenigsberg was appointed Interim Chief Innovation and Technology Officer and resigned from the Board of Directors[232] - Craig MacGibbon will step down from his role as Executive Vice President, Chief Information Officer, effective August 19, 2025[233]