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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 
 

For the quarterly period ended March 31, 2022

 
or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 
 
For the transition period from ______ to ______

 
Commission File Number: 001-33810
 apei-20220331_g1.jpg
AMERICAN PUBLIC EDUCATION, INC.
(Exact name of registrant as specified in its charter)
Delaware01-0724376
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
111 West Congress Street, Charles Town, West Virginia
25414
(Address of principal executive offices)(Zip Code)
             
 
(304724-3700
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $.01 par valueAPEINasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒

The total number of shares of common stock outstanding as of May 6, 2022 was 18,856,352.




AMERICAN PUBLIC EDUCATION, INC.
FORM 10-Q
INDEX
 
2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN PUBLIC EDUCATION, INC.
Consolidated Balance Sheets
(In thousands)
As of March 31, 2022As of December 31, 2021
ASSETS(Unaudited) 
Current assets:  
Cash, cash equivalents, and restricted cash (Note 2)$170,943 $149,627 
Accounts receivable, net of allowance of $11,769 in 2022 and $11,396 in 2021
33,664 36,026 
Prepaid expenses15,527 11,681 
Income tax receivable4,766 5,303 
Total current assets224,900 202,637 
Property and equipment, net100,052 102,417 
Operating lease assets, net104,484 77,943 
Goodwill243,993 243,486 
Intangible assets, net82,094 85,082 
Other assets, net15,887 14,043 
Total assets$771,410 $725,608 
LIABILITIES AND STOCKHOLDERS’ EQUITY 
Current liabilities:  
Accounts payable$11,273 $13,497 
Accrued compensation and benefits17,552 15,131 
Accrued liabilities13,791 10,819 
Deferred revenue and student deposits27,920 21,776 
Lease liabilities, current14,416 13,705 
Long-term debt, current8,750 8,750 
Total current liabilities93,702 83,678 
Lease liabilities, long-term96,859 69,488 
Deferred income taxes7,456 5,059 
Long-term debt, net150,212 151,771 
Total liabilities348,229 309,996 
Commitments and contingencies (Note 10)
Stockholders’ equity:  
Preferred stock, $.01 par value; 10,000 shares authorized; no shares issued or outstanding
  
Common stock, $.01 par value; 100,000 shares authorized; 18,856 issued and outstanding in 2022; 18,709 issued and outstanding in 2021
189 187 
Additional paid-in capital287,295 286,385 
Accumulated other comprehensive income1,432 108 
Retained earnings134,265 128,932 
Total stockholders’ equity423,181 415,612 
Total liabilities and stockholders’ equity$771,410 $725,608 

The accompanying notes are an integral part of these Consolidated Financial Statements.
3


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Income
(In thousands, except per share amounts)

 Three Months Ended March 31,
 20222021
 (Unaudited)
Revenue$154,747 $88,541 
Costs and expenses: 
Instructional costs and services71,698 32,319 
Selling and promotional39,319 19,402 
General and administrative29,589 23,524 
Loss on disposals of long-lived assets793 8 
Depreciation and amortization8,148 2,651 
Total costs and expenses149,547 77,904 
Income from operations before interest and income taxes5,200 10,637 
Gain on acquisition (Note 3)4,533  
Interest (expense) income(3,355)114 
Income before income taxes6,378 10,751 
Income tax expense1,040 2,639 
Equity investment loss(5)(5)
Net income $5,333 $8,107 
Net income per common share:  
Basic$0.28 $0.50 
Diluted$0.28 $0.49 
Weighted average number of common shares:
Basic18,805 16,211 
Diluted18,879 16,422 

The accompanying notes are an integral part of these Consolidated Financial Statements.

4


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Comprehensive Income
(In thousands)


Three Months Ended March 31,
20222021
(Unaudited)
Net income$5,333 $8,107 
Other comprehensive income, net of tax:
Unrealized gain on hedging derivatives, net of taxes1,324  
Comprehensive income$6,657 $8,107 

The accompanying notes are an integral part of these Consolidated Financial Statements.
5


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)

Additional Paid-in CapitalAccumulated Other Comprehensive Income (loss)Retained EarningsTotal Stockholders’ Equity
 Common Stock
 SharesAmount
Balance as of December 31, 202014,809 $148 $195,597 $ $111,180 $306,925 
Issuance of common stock in public offering3,680 37 86,168 86,205 
Issuance of common stock under employee benefit plans272 3 (3)— —  
Deemed repurchased shares of common and restricted stock for tax withholding(90)(1)(2,772)— — (2,773)
Stock-based compensation— — 2,180 — — 2,180 
Net income— — — — 8,107 8,107 
Balance as of March 31, 202118,671 $187 $281,170  $119,287 $400,644 


Additional Paid-in CapitalAccumulated Other Comprehensive Income (loss)Retained EarningsTotal Stockholders’ Equity
 Common Stock
 SharesAmount
Balance as of December 31, 202118,709 $187 $286,385 $108 $128,932 $415,612 
Issuance of common stock under employee benefit plans218 3 (3)— —  
Deemed repurchased shares of common and restricted stock for tax withholding(71)(1)(1,443)— — (1,444)
Stock-based compensation— — 2,356 — — 2,356 
Unrealized gain on hedging derivatives, net of taxes— — — 1,324 — 1,324 
Net income— — — — 5,333 5,333 
Balance as of March 31, 202218,856 $189 $287,295 $1,432 $134,265 $423,181 

The accompanying notes are an integral part of these Consolidated Financial Statements.
6


AMERICAN PUBLIC EDUCATION, INC.
Consolidated Statements of Cash Flows
(In thousands)
 
 Three Months Ended March 31,
 20222021
 (Unaudited)
Operating activities  
Net income$5,333 $8,107 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization8,148 2,651 
Amortization of debt issuance costs654  
Stock-based compensation2,356 2,180 
Equity investment loss5 5 
Deferred income taxes901 1,646 
Loss on disposals of long-lived assets793 8 
Gain on acquisition(4,533) 
Other5 3 
Changes in operating assets and liabilities: 
Accounts receivable, net of allowance for bad debt6,644 4,210 
Prepaid expenses(3,623)(2,989)
Income tax receivable/payable537 905 
Operating leases, net1,218 27 
Other assets241 228 
Accounts payable (2,492)(779)
Accrued compensation and benefits2,401 (3,389)
Accrued liabilities2,492 (1,159)
Deferred revenue and student deposits4,175 (428)
Net cash provided by operating activities25,255 11,226 
Investing activities  
Cash received from acquisition, net of cash paid1,932  
Capital expenditures(2,965)(1,528)
Proceeds from the sale of real property754  
Net cash used in investing activities(279)(1,528)
Financing activities  
Cash paid for repurchase of common stock(1,444)(2,773)
Cash received from issuance of common stock 86,205 
Cash paid for principal on borrowings and finance leases(2,216) 
Net cash (used in) provided by financing activities(3,660)83,432 
Net increase in cash, cash equivalents, and restricted cash21,316 93,130 
Cash, cash equivalents, and restricted cash at beginning of period149,627 227,686 
Cash, cash equivalents, and restricted cash at end of period$170,943 $320,816 
Supplemental disclosure of cash flow information  
Interest paid$2,700 $ 
Income taxes paid$41 $62 

The accompanying notes are an integral part of these Consolidated Financial Statements.

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AMERICAN PUBLIC EDUCATION, INC.
Notes to Consolidated Financial Statements
Note 1. Nature of the Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education and, with the acquisition of Graduate School USA, career learning to students through the following subsidiary institutions:

American Public University System, Inc., or APUS, provides online postsecondary education directed primarily at the needs of the military, military-affiliated, public service and service-minded communities through American Military University, or AMU, and American Public University, or APU. APUS is institutionally accredited by the Higher Learning Commission, or HLC.

Rasmussen College, LLC, which is referred to herein as Rasmussen University, or RU, a nursing- and health sciences-focused institution, provides postsecondary education to students at its 23 campuses across six states and online. The Company completed the acquisition of RU, or the Rasmussen Acquisition, on September 1, 2021, or the RU Closing Date. Please refer to “Note 3. Acquisition Activity” for more information on this acquisition. The Consolidated Financial Statements do not include the operating results or financial position of RU for any periods prior to the RU Closing Date. RU is institutionally accredited by HLC.

National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at six campuses in Ohio and one campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES.

American Public Training LLC, which is referred to herein as Graduate School USA, or GSUSA, provides career learning in-person and online to the federal workforce through a catalog of over 300 courses specializing in foundational and continuing professional development, as well as leadership training to advance the performance of government agencies through the competency and career advancement of their employees. The Company completed the acquisition of substantially all the assets of GSUSA, or the GSUSA Acquisition, on January 1, 2022, or the GSUSA Closing Date. Please refer to “Note 3. Acquisition Activity” for more information on this acquisition. The Consolidated Financial Statements do not include the operating results or financial position of GSUSA for any periods prior to the GSUSA Closing Date. GSUSA is accredited by the Accrediting Council for Continuing Education and Training, or ACCET.

GSUSA operates as a stand-alone subsidiary of APEI, however GSUSA does not meet the quantitative thresholds to qualify as a reportable segment; therefore, this operating segment is combined and presented within “Corporate and Other”. Please refer to “Note 9. Segment Information” for more information on the Company’s reporting segments.

The Company’s subsidiary institutions are licensed or otherwise authorized by state authorities to offer postsecondary education programs to the extent the institutions believe such licenses or authorizations are required, and APUS, RU, and HCN are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs. During the third quarter of 2021, the Company revised its reportable segments, as discussed further in “Note 9. Segment Information”. Prior period segment disclosures have been restated to conform to the current period presentation.

    The Company’s operations are organized into three reportable segments:

American Public University System Segment, or APUS Segment. This segment reflects the operational activities of APUS.

Rasmussen University Segment, or RU Segment. This segment reflects the operational activities of RU.

Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”. These adjustments include unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment, and, effective January 1, 2022, the operational activities of GSUSA.
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Note 2. Summary of Significant Accounting Policies

A summary of the Company’s significant accounting policies follows:

Basis of Presentation and Accounting

The accompanying unaudited, interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP.

Business Combinations

The Company accounts for business combinations in accordance with Financial Accounting Standards Bureau, or FASB, Accounting Standards Codification 805, Business Combinations, or ASC 805, which requires the acquisition method to be used for all business combinations. Under ASC 805, the assets and liabilities of an acquired company are reported at business fair value along with the fair value of acquired intangible assets at the date of acquisition. Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed, and the fair value assigned to identifiable intangible assets.

Principles of Consolidation

The accompanying unaudited interim Consolidated Financial Statements include the accounts of APEI and its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for audited annual financial statement presentations. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s financial position, results of operations, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. This Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021, or the Annual Report.

Use of Estimates

In preparing financial statements in conformity with GAAP, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates these estimates and judgments on an ongoing basis and bases its estimates on experience, current and expected future conditions, and various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from those estimates under different assumptions or conditions, and the impact of such differences may be material to the Consolidated Financial Statements.

Cash and Cash Equivalents

The Company considers all short-term highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of demand deposits with financial institutions, money market funds, and U.S. Treasury bills. Cash and cash equivalents are Level 1 assets in the fair value reporting hierarchy.

Restricted Cash

Restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs. As a trustee of these Title IV program funds, the Company is required to maintain and restrict these funds pursuant to the terms of the program participation agreement with ED. Restricted cash also includes amounts to secure letters of credit, including $24.2 million in a restricted certificate of deposit account to secure a letter of credit for the benefit of ED on behalf of RU in connection with RU’s 2020 composite score, which is used by ED for determining compliance with financial responsibility standards, being below the minimum required, and a $0.6 million restricted certificate of deposit to secure a letter of credit in lieu of a security deposit for a RU leased campus. Restricted cash on the Consolidated Balance Sheets as of
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March 31, 2022 and December 31, 2021, excluding the restricted certificates of deposit, was $1.6 million and $2.2 million, respectively. Total restricted cash as of March 31, 2022 and December 31, 2021 was $26.4 million and $27.0 million, respectively.

Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed. Goodwill is not amortized. Intangible assets are recorded at their estimated fair value as of the acquisition date and are classified as either indefinite-lived or definite-lived. Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment or more frequently if circumstances indicate potential impairment.
Definite-lived intangible assets are amortized on a straight-line basis over the estimated useful life of the asset.
Stock-based Compensation

Stock-based payments may include incentive stock options or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance shares, performance units, cash-based awards, other stock-based awards, including unrestricted shares, or any combination of the foregoing. Stock-based compensation cost is recognized as expense, generally over a three-year vesting period, using the straight-line method for employees and the graded-vesting method for members of the Board of Directors, and is measured using the Company’s closing stock price on the date of the grant. An accelerated one-year period is used to recognize stock-based compensation cost for employees who have reached certain service and retirement eligibility criteria on the date of grant. The fair value of each option award is estimated at the date of grant using a Black-Scholes option-pricing model that uses certain assumptions, including assumptions with respect to expected stock price volatility and the risk-free interest rate.

Judgment is required in estimating the percentage of share-based awards that are expected to vest, and in the case of performance stock units, or PSUs, the level of performance that will be achieved and the number of shares that will be earned. The Company estimates forfeitures of share-based awards at the time of grant and revises such estimates in subsequent periods if actual forfeitures differ from original estimates. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. If actual results differ significantly from these estimates, stock-based compensation expense could be higher and have a material impact on the Consolidated Financial Statements. Estimates are subjective and are not intended to predict actual future events, and subsequent events are not indicative of the reasonableness of the original estimates of fair value.

Stock-based compensation expense for the three months ended March 31, 2022 and 2021 was as follows (in thousands):
Three Months Ended March 31,
 20222021
(Unaudited)
Instructional costs and services$459 $466 
Selling and promotional296 309 
General and administrative1,601 1,405 
Total stock-based compensation expense$2,356 $2,180 

Incentive-based Compensation

The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2022 and 2021, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees. The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as the satisfaction of individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant. To the extent performance goals are not met, compensation cost is not ultimately
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recognized against the goals and, to the extent previously recognized, compensation cost is reversed. Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected. During the three months ended March 31, 2022 and 2021, the Company recognized an aggregate expense associated with the Company’s annual incentive-based compensation plans of $1.8 million and $1.2 million, respectively.

Income Taxes

The Company determines its interim tax provision by applying the estimated income tax rate expected for the full calendar year to income before income taxes for the period adjusted for discrete items.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates, or ASUs, issued by the FASB. All ASUs issued subsequent to the filing of the Annual Report on March 2, 2022 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations.

Note 3. Acquisition Activity

Acquisition of Rasmussen University

On the RU Closing Date, the Company completed the Rasmussen Acquisition pursuant to a membership interest purchase agreement dated October 28, 2020, or the Purchase Agreement, acquiring RU for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, and net of cash acquired, of $325.5 million in cash.

The Company applied the acquisition method of accounting to the Rasmussen Acquisition, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill. Goodwill reflects the fair value associated with the RU workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition. The goodwill recorded as part of the acquisition was allocated to the RU Segment in the amount of $217.4 million and is deductible for tax purposes.

The preliminary opening balance sheet is subject to adjustment based on a final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and goodwill. The Company has up to one year from the RU Closing Date, or the measurement period, to complete the allocation of the purchase price. As the Company finalizes its assessment of the fair values of certain acquired assets and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur. During the three months ended March 31, 2022, the Company recorded a $0.5 million increase in goodwill recorded in connection with the Rasmussen Acquisition based on the final working capital adjustment.


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The following table summarizes the components of the estimated consideration along with the purchase price allocation (in thousands):

Purchase Price AllocationAmount
Cash and cash equivalents$329,000 
Working capital adjustment and additional cash contributions2,333 
Total consideration 331,333 
Assets acquired:
Cash and cash equivalents5,200 
Accounts receivable10,700 
Prepaid expenses4,600 
Property and equipment, net36,996 
Operating lease assets75,800 
Deferred tax asset3,049 
Intangible assets86,500 
Other assets600 
Total assets acquired223,445 
Liabilities assumed:
Accounts payable 1,200 
Accrued expenses6,142 
Deferred revenue22,700 
Operating lease liabilities, current11,200 
Operating lease liabilities, long-term67,000 
Other liabilities1,300 
Total liabilities assumed109,542 
Net assets acquired113,903 
Goodwill$217,430 

The fair value of the identified intangible assets, including the trade name, student roster, and lead conversions were determined using the income-based approach. The fair value of curricula and accreditation, licensing, and Title IV identified intangible assets were determined using the cost approach. The table below presents a summary of intangible assets acquired and the useful lives of these assets (in thousands):

Intangible AssetsUseful lifeAmount
Trade nameIndefinite26,500 
Accreditation, licensing and Title IVIndefinite24,500 
Student roster2 years20,000 
Curricula3 years14,000 
Lead conversions2 years1,500 
$86,500 

Acquisition of Graduate School USA

On the GSUSA Closing Date, the Company completed the GSUSA Acquisition pursuant to an Asset Purchase Agreement dated August 10, 2021 by and among American Public Training LLC, and Graduate School USA, or the Seller, for an aggregate purchase price of $1.0 million, subject to working capital adjustments. At closing, the Company received
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approximately $1.9 million from the Seller, which represents the estimated net working capital at closing net of the initial cash payment to the Seller of $0.5 million which is the purchase price less $0.5 million retained by the Company to secure the indemnification obligations of the Seller. The purchase price reflects the $0.5 million due to Seller post-closing, and additional adjustments to the estimated net working capital at closing.

The Company applied the acquisition method of accounting to the GSUSA Acquisition, whereby the assets acquired and liabilities assumed were recognized at fair value on the GSUSA Closing Date. There was no goodwill recorded as a result of the GSUSA Acquisition, but an approximate $4.5 million noncash, non-taxable gain on the acquisition was recorded and is included as a separate line item on the Consolidated Statements of Income for the three months ended March 31, 2022.

The preliminary opening balance sheet is subject to adjustment based on a final assessment of the fair values of certain acquired assets and liabilities assumed. The Company has up to one year from the GSUSA Closing Date, or the measurement period, to complete the allocation of the purchase price. As the Company finalizes its assessment of the fair values of certain acquired assets and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments occur.

The following table summarizes the components of the estimated consideration along with the purchase price allocation (in thousands):

Purchase Price Allocation (Unaudited)Amount
Cash and cash equivalents$1,000 
Working capital adjustment(3,388)
Total consideration (2,388)
Assets acquired:
Accounts receivable4,282 
Prepaid expenses1,096 
Property and equipment, net400 
Operating lease assets31,635 
Intangible assets965 
Total assets acquired38,378 
Liabilities assumed:
Accounts payable and accrued expenses810 
Deferred revenue1,969 
Lease liabilities, current1,179 
Lease liabilities, long-term30,779 
Deferred tax liability1,496 
Total liabilities assumed36,233 
Net assets acquired2,145 
Gain on acquisition$4,533 

The gain on acquisition represents the excess of the fair value of net assets acquired over consideration paid. The consideration paid represents a substantial discount to the book value of GSUSA’s net assets at the GSUSA Closing Date, primarily due to the fair value adjustments related to the trade name, fixed assets, and right-of-use lease assets and liabilities compared to book value. The gain on acquisition was primarily the result of the impact of the COVID-19 pandemic on GSUSA’s revenue and earnings, and a lack of access to capital by the Seller. The agreed upon purchase price reflected the fact that GSUSA may need additional capital to fund operating losses.

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The fair value of the identified intangible assets, including customer contracts and relationships and trade name were determined using the income-based approach. The fair value of curricula and accreditation and licensing identified intangible assets were determined using the cost approach. The table below presents a summary of intangible assets acquired and the useful lives of these assets (in thousands):

Intangible Assets (Unaudited)Useful lifeAmount
Customer contracts and relationships2.5 years744 
Curricula3 years158 
Trade name1 year35 
Accreditation and licenses2.5 years28 
$965 

Pro forma financial information relating to the GSUSA Acquisition is not presented because the GSUSA Acquisition did not represent a significant business acquisition for the Company.

For the three months ended March 31, 2022, the Company incurred approximately $0.9 million of acquisition-related expenses related to RU and GSUSA, and for the three months ended March 31, 2021, the Company incurred approximately $0.6 million of acquisition-related expenses related to RU. These expenses are included in general and administrative expenses on the Consolidated Statements of Income.

Note 4. Revenue
    
Disaggregation of Revenue

    In the following table, revenue, shown net of grants and scholarships, is disaggregated by type of service provided. The table also includes a reconciliation of the disaggregated revenue with the reportable segments (in thousands):

Three Months Ended March 31, 2022
(Unaudited)
APUSRUHCNCorporate and Other Consolidated
Instructional services, net of grants and scholarships$72,585 $55,917 $9,733 $3,017 $141,252 
Graduation fees335    335 
Textbook and other course materials 10,294 1,663  11,957 
Other fees170 888 145  1,203 
Total Revenue$73,090 $67,099 $11,541 $3,017 $154,747 

Three Months Ended March 31, 2021
(Unaudited)
APUSRUHCNCorporate and OtherConsolidated
Instructional services, net of grants and scholarships$76,885 $ $9,365 $(67)$86,183 
Graduation fees373    373 
Textbook and other course materials  1,631  1,631 
Other fees218  136  354 
Total Revenue$77,476 $ $11,132 $(67)$88,541 


The RU Segment reflects the operations of RU, which was acquired on the RU Closing Date. The Company did not consolidate the financial results of the RU Segment prior to the RU Closing Date.
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Corporate and Other includes tuition and contract training revenue earned by GSUSA from the GSUSA Closing Date through March 31, 2022. Contract career learning revenue represents both individual and customized training programs and is recognized when the services are performed. Additionally, the APUS Segment charges the HCN Segment and corporate employees for the value of courses taken by HCN Segment employees at APUS. The elimination of this intersegment revenue is included within Corporate and Other.

Contract Balances and Performance Obligations

The Company had no contract assets or deferred contract costs as of March 31, 2022 and December 31, 2021.
The Company recognizes a contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, or starts a term, in the case of RU and HCN. Deferred revenue at March 31, 2022 was $27.9 million and includes $10.7 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $17.2 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2021 was $21.8 million and includes $12.9 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $8.9 million in student deposits. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods.
The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with students that have an expected duration of one year or less.
When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables. The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change.
The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable. Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations. Consideration is also given to any specific known risk areas among the existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS, RU, and GSUSA do not charge interest on past due accounts receivable. HCN charges interest on payment plans when a student graduates or otherwise exits the program. Interest charged by HCN on payment plans was immaterial for the periods presented.

Note 5. Leases

The Company’s principal leasing activities include facilities, classified as operating leases, and, as a result of the GSUSA Acquisition, copiers and printers, classified as finance leases.

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

the lease transfers ownership of the asset at the end of the lease;
the lease grants an option to purchase the asset which the lessee is expected to exercise;
the lease term reflects a major part of the asset’s economic life;
the present value of the lease payments equals or exceeds the fair value of the asset; or
the asset is specialized with no alternative use to the lessor at the end of the term.    

Operating Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company leases corporate office space in Maryland under an operating lease that expires in May 2023. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating leases that expire through October 2033. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, under operating leases that expire through June 2029. GSUSA leases classroom and administrative office space in Washington, D.C. and Honolulu, Hawaii under operating leases that expire through September 2036.
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Operating lease assets are right-of-use, or ROU, assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the operating lease assets, net, and lease liabilities, current and long-term, on the Consolidated Balance Sheets. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three month periods ended March 31, 2022 and 2021 was $5.0 million and $0.8 million, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the three month periods ended March 31, 2022 and 2021 was $4.8 million and $0.7 million, respectively, and is included in operating cash flows.

Finance Leases

In connection with the GSUSA Acquisition, the Company acquired leases for copiers and printers that are classified as finance leases and expire on December 31, 2024. The Company pledged the assets financed to secure the outstanding leases. As of March 31, 2022, the total finance lease liability was $0.3 million with an average interest rate of 3.75%. The ROU asset is recorded within Property and equipment, net on the Consolidated Balance Sheets. Lease amortization expense associated with the Company’s finance leases was approximately $0.03 million for the three months ended March 31, 2022 and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s finance and operating leases as of March 31, 2022 (dollars in thousands):

Maturity of Lease Liabilities (Unaudited)Operating LeasesFinance Leases
2022 (remaining)$14,148 $85 
202316,072 114 
202414,436 113 
202513,284  
202612,830  
202712,586  
2028 and beyond55,551  
Total future minimum lease payments$138,907 $312 
Less: imputed interest(27,928)(16)
Present value of operating lease liabilities$110,979 $296 
Less: lease liabilities, current(14,312)(104)
Lease liabilities, long-term$96,667 $192 

Balance Sheet Classification (Unaudited)
Current
Operating lease liabilities, current$14,312 
Finance lease liabilities, current104 
Long-term
Operating lease liabilities, long-term96,667 
Finance lease liabilities, long-term192 
Total lease liabilities$111,275 

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Other Information (Unaudited)
Weighted average remaining lease term (in years)
Operating leases5.35
Finance leases2.75
Weighted average discount rate
Operating leases4.0 %
Finance leases3.8 %
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Note 6. Goodwill and Intangible Assets

    In connection with its acquisitions, the Company applied ASC 805, using the acquisition method of accounting. In connection with the Rasmussen Acquisition, the Company recorded $217.4 million of goodwill, representing the excess of the purchase price over the fair value of assets acquired and liabilities assumed, including identifiable intangible assets. The Company previously recorded goodwill in the amount of $38.6 million in connection with its acquisition of HCN, and later recorded impairment charges reducing the carrying value of our goodwill to $26.6 million. There was no goodwill recorded in connection with the acquisition of GSUSA.

The following table summarizes the changes in the carrying amount of goodwill by reportable segment as of March 31, 2022 (in thousands):

RU SegmentHCN SegmentTotal Goodwill
(Unaudited)
Goodwill as of December 31, 2021$216,923 $26,563 $243,486 
Goodwill acquired   
Impairment   
Adjustments507  507 
Goodwill as of March 31, 2022$217,430 $26,563 $243,993 

In addition to goodwill, in connection with the acquisitions of RU and HCN, the Company recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, which includes trade name, accreditation, licensing and Title IV, and affiliate agreements. There were no indefinite useful life intangible assets identified as a result of the GSUSA Acquisition. The Company recorded $35.5 million, $4.4 million and $1.0 million, respectively, of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN and GSUSA. Amortization expense related to definite lived intangibles assets was approximately $4.0 million for the three months ended March 31, 2022.

The following table represents the balance of the Company’s intangible assets as of March 31, 2022 (in thousands):
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Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
(Unaudited)
Finite-lived intangible assets
Student roster$20,000 5,833 14,167 
Curricula
14,563 3,140 11,423 
Student and customer contracts and relationships4,614 3,944 670 
Lead conversions1,500 438 1,062 
Non-compete agreements
86 86  
Tradename35 9 26 
Accreditation and licenses28 3 25 
Total finite-lived intangible assets$40,826 $13,453 $27,373 
Indefinite-lived intangible assets
Trade name
28,498 — 28,498 
Accreditation, licensing and Title IV
26,186 — 26,186 
Affiliation agreements37 — 37 
Total indefinite-lived intangible assets
54,721 — 54,721 
Total intangible assets
$95,547 $13,453 $82,094 

The following table represents the balance of the Company’s intangible assets as of December 31, 2021 (in thousands):

Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Finite-lived intangible assets
Student roster$20,000 3,333 16,667 
Curricula14,405 1,961 12,444 
Student contracts and relationships3,870 3,870  
Lead conversions1,500 250 1,250 
Non-compete agreements86 86  
Total finite-lived intangible assets$39,861 $9,500 $30,361 
Indefinite-lived intangible assets
Trade name28,498 — 28,498 
Accreditation, licensing and Title IV
26,186 — 26,186 
Affiliation agreements37 — 37 
Total indefinite-lived intangible assets
54,721 — 54,721 
Total intangible assets$94,582 $9,500 $85,082 

The Company evaluated events and circumstances related to the valuation of goodwill and intangibles, recorded within our RU and HCN Segments, through March 31, 2022 and 2021, respectively, to determine if there were indicators of impairment. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic. These evaluations concluded there were no indicators of impairment during the three months ended March 31, 2022 and 2021, and consequently, there was no impairment of goodwill or intangible assets during those periods.

Determining fair value of goodwill and intangible assets requires judgment and the use of significant estimates and assumptions, including, but not limited to, fluctuations in enrollments, revenue growth rates, operating margins, discount rates, and future market conditions. Given the current competitive and regulatory environment, the impact of COVID-19, and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of the Company’s interim and annual goodwill impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions are not realized, the Company may record goodwill impairment charges in future periods. It is
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not possible at this time to determine if any such future impairment charge would result or whether such charge would be material.

    For additional information on goodwill and intangible assets, see the Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report.

Note 7. Net Income Per Common Share
 
Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of restricted stock and option awards. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands).
Three Months Ended March 31,
20222021
(Unaudited)
Basic weighted average shares outstanding18,805 16,211 
Effect of dilutive restricted stock and options74 211 
Diluted weighted average shares outstanding18,879 16,422 

The table below reflects a summary of securities that could potentially dilute basic net income per common share in future periods that were not included in the computation of diluted earnings per share because the effect would have been antidilutive (in thousands).

Three Months Ended March 31,
20222021
(Unaudited)
Antidilutive securities:
Stock Options103 18 
Restricted Shares173 3 
Total antidilutive securities276 21 

Note 8. Long-Term Debt

In connection with the Rasmussen Acquisition, APEI, as borrower, entered into a Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, as administrative agent and collateral agent, Macquarie Capital USA Inc. and Truist Securities, Inc., as lead arrangers and joint bookrunners, and certain lenders party thereto. The Credit Agreement provides for (i) a senior secured term loan facility in an aggregate original principal amount of $175 million, or the Term Loan, with a scheduled maturity date of September 1, 2027 and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or the Revolving Credit Facility, which together with the Term Loan, is referred to as the Facilities, with a scheduled maturity date of September 1, 2026, the full capacity of which may be utilized for the issuance of letters of credit. The Revolving Credit Facility also includes a $5.0 million sub-facility for swing line loans. The Term Loan, the proceeds of which were used as part of the cash consideration for the Rasmussen Acquisition, was fully funded on the Closing Date and is presented net of the debt issuance costs at origination of $13.1 million on the Consolidated Balance Sheets. The debt issuance costs are being amortized using the effective interest method over the term of the Term Loan. Debt issuance costs of $0.5 million related to the Revolving Credit Facility were recorded as an asset and are being amortized to interest expense over the term of the Revolving Credit Facility. There were no borrowings outstanding on the Revolving Credit Facility at March 31, 2022 and December 31, 2021.

Outstanding borrowings under the Facilities bear interest at a per annum rate equal to LIBOR (subject to a 0.75% floor) plus 5.50%, which shall increase by an additional 2.00% on all past due obligations if APEI fails to pay any amount when due. An unused commitment fee in the amount of 0.50% is payable quarterly in arrears based on the average daily unused
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amount of the commitments under the Revolving Credit Facility. APEI is also required to make principal payments of the Term Loan on the last day of each quarter, in an amount equal to $2.2 million per quarter.

The Credit Agreement contains customary affirmative and negative covenants, including limitations on APEI’s and its subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions, as well as customary representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Facilities. In addition, the Credit Agreement contains a financial covenant that requires APEI to maintain a Total Net Leverage Ratio of no greater than 2.0 to 1.0. At March 31, 2022, the Company was in compliance with all debt covenants.

Long-term debt consists of the following as of March 31, 2022 (in thousands):

Long-Term debt (Unaudited)
Credit agreement$170,625 
Deferred financing fees(11,663)
Total debt158,962 
Less: Current portion(8,750)
Long-Term Debt$150,212 

Scheduled maturities of long-term debt at March 31, 2022 are as follows (in thousands):

Maturities of Long-Term Debt (Unaudited)Loan Payments
2022 (remaining)6,562 
20238,750 
20248,750 
20258,750 
20268,750 
2027129,063 
Total170,625 

Derivatives and Hedging

The Company is subject to interest rate risk, as all outstanding borrowings under the Credit Agreement are subject to a variable rate of interest. On September 30, 2021, the Company entered into an interest rate cap agreement to manage its exposure to the variable rate of interest with a total notional value of $87.5 million. This interest rate cap agreement, designated as a cash flow hedge, provides the Company with interest rate protection in the event the LIBOR rate exceeds 2.0%. The interest rate cap is effective October 1, 2021 and will expire on January 1, 2025.

Changes in the fair value of the interest rate cap designated as a hedging instrument that effectively offset the variability of cash flows associated with our variable-rate, long-term debt obligations are reported in accumulated other comprehensive income. These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings.

At March 31, 2022, the $2.3 million fair value of the interest rate cap is recorded in Other assets on the Consolidated Balance Sheets. The unrealized gain of $1.8 million is included as other comprehensive income.

Note 9. Segment Information
 
In connection with the Rasmussen Acquisition (as further described in Note 3, “Acquisition Activity”), the Company revised its reportable segments to reflect the manner in which the chief operating decision-maker evaluates performance and allocates resources, and to include RU as a separately reportable segment. Prior to the third quarter of 2021, the Company had
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two reportable segments: the American Public Education, Inc. Segment, or APEI Segment, and the Hondros College of Nursing, or HCN Segment. Post-acquisition, the Company has three reportable segments: the APUS Segment, which was previously included within the former APEI Segment; the RU Segment; and the HCN Segment. The APEI Segment previously reported the results of both APUS and remaining unallocated Company expenses. GSUSA does not meet the quantitative thresholds to qualify as a reportable segment; therefore, its operational activities are presented below within “Corporate and Other”. Adjustments to reconcile segment results to the Consolidated Financial Statements, including unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment, are also included in “Corporate and Other”. Prior periods have been updated to conform to the revised presentation.

In accordance with FASB ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APUS, RU, and HCN Segments.
 
A summary of financial information by reportable segment is as follows (in thousands):    

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Three Months Ended March 31,
20222021
(Unaudited)
Revenue:
APUS Segment$73,090 $77,476 
RU Segment67,099  
HCN Segment11,541 11,132 
Corporate and Other3,017 (67)
Total Revenue$154,747 $88,541 
Depreciation and amortization:
APUS Segment$1,701 $2,493 
RU Segment6,079  
HCN Segment222 148 
Corporate and Other146 10 
Total Depreciation and amortization$8,148 $2,651 
Income (loss) from operations before interest and income taxes:
APUS Segment$13,182 $14,031 
RU Segment891  
HCN Segment(995)783 
Corporate and Other(7,878)(4,177)
Total income from operations before interest and income taxes$5,200 $10,637 
Interest (expense) income:
APUS Segment$39 $91 
RU Segment3  
HCN Segment2 2 
Corporate and Other(3,399)21
Total Interest (expense) income$(3,355)$114 
Income tax expense (benefit):
APUS Segment$4,674 $3,767 
RU Segment306  
HCN Segment(316)205 
Corporate and Other(3,624)(1,333)
Total Income tax expense $1,040 $2,639 
Capital expenditures:
APUS Segment$441 $971 
RU Segment1,924  
HCN Segment500 557 
Corporate and Other100  
Total Capital Expenditures$2,965 $1,528 
    
A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands):

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As of March 31, 2022As of December 31, 2021
(Unaudited)
Assets:
APUS Segment$136,573 $126,926 
RU Segment426,073 429,299 
HCN Segment50,803 51,936 
Corporate and Other157,961 117,447 
Total Assets$771,410 $725,608

Note 10. Commitments and Contingencies
 
The Company accrues for costs associated with contingencies including, but not limited to, regulatory compliance and legal matters when such costs are probable and can be reasonably estimated. Liabilities established to provide for contingencies are adjusted as further information develops, circumstances change, or contingencies are resolved. The Company bases these accruals on management’s estimate of such costs, which may vary from the ultimate costs and expenses, associated with any such contingency.

     From time to time, the Company is involved in legal matters in the normal course of its business.

Note 11. Concentration

    Our students utilize various payment sources and programs to finance their education expenses, including funds from: the U.S. Department of Defense, or DoD, tuition assistance programs, or TA, education benefit programs administered by the U.S. Department of Veterans Affairs, or VA, and federal student aid from Title IV programs; and cash and other sources.

     A summary of APUS Segment revenue derived from students by primary funding source is as follows (unaudited):
Three Months Ended March 31,
20222021