AMERICAN PUBLIC EDUCATION INC (APEI)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K, or this Annual Report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business and operations, and involves risks and uncertainties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors”, “Special Note Regarding Forward-Looking Statements”, and elsewhere in this Annual Report. For a discussion of our financial condition and results of operations for 2023 compared to 2022, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 5, 2024, which discussion is incorporated in this Annual Report by reference and which is available free of charge on the SECs website at www.sec.gov.

OVERVIEW

We are a provider of online and campus-based postsecondary education to approximately 106,700 students, and career learning to approximately 24,600 individuals, through four subsidiary institutions, American Public University System, or APUS, Rasmussen University, or RU, Hondros College of Nursing, or HCN, and Graduate School USA, or GSUSA. Our subsidiary institutions offer purpose-built education programs and career learning designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or to help them prepare for their next career. Our 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 Department of Education, or ED to participate in Title IV programs. Additional information regarding our subsidiary institutions and their regulation is included in the “Business” section of this Annual Report.

Our revenue is largely driven by the number of students enrolled at our institutions, the number of and types of courses that students take, student payor source, and the mix of programs students attend. Our consolidated revenue in 2024 was $624.6 million, representing a $24.0 million, or 4.0%, increase from $600.5 million in 2023. A significant portion of our revenue comes from our institutions’ participation in Title IV programs, APUS’s participation in the Department of Defense, or DoD, tuition assistance, or TA, programs, and other government programs, and this creates significant risks to our operations.

Our operations are organized into three reporting segments:

•American Public University System, 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.

GSUSA does not meet the quantitative thresholds to qualify as a reportable segment. We therefore present its operational activities within “Corporate and Other”. We also include adjustments to reconcile segment results to the Consolidated Financial Statements in “Corporate and Other”, primarily related to unallocated corporate activity and eliminations.

Financial information regarding each of our reportable segments is reported in this Annual Report in the sections “Financial Statements and Supplementary Data” and “– Operating Results by Reportable Segment Year Ended December 31, 2024, Compared to Year Ended December 31, 2023”.

On January 28, 2025, we announced our plan to combine APUS, RU, and HCN into one consolidated HLC-accredited institution that will be a university system encompassing all APUS, RU, and HCN programs, campuses, and operations, or the Combination. The combined institution will be named American Public University System, or the Combined Institution. As a result of the Combination, the Combined Institution will have two divisions, tentatively named (i) APUS Global, comprised of American Military University and American Public University, or APU, and (ii) Rasmussen, comprised of RU’s campus-based and online nursing programs, RU’s healthcare programs, HCN’s campus-based healthcare programs, and RU’s non-healthcare programs, with final division names to be determined closer to closing of the Combination. The structure will allow each

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institution to continue to serve its particular student populations while benefiting from being part of a single university system. The structure is designed to leverage each institution’s strengths to focus our efforts on supporting the military and veterans and expanding our nursing and healthcare platforms to better serve our students. We believe combining our subsidiary institutions into a single university system will strengthen the financial position of our Company as a whole, enable us to operate with greater efficiency, and facilitate innovation across the Company through more direct collaboration among the educational divisions. We anticipate completing the Combination in the third quarter of 2025 subject to obtaining required approvals and ED taking related actions. We anticipate changes to our segment reporting, combining our HCN Segment with our RU Segment. For the year ended December 31, 2024, we incurred approximately $2.2 million in professional fees and expect to incur between approximately $3.0 million and $5.0 million in professional fees in 2025 to complete the Combination. See the Risk Factor with the caption beginning “The planned combination of APUS, RU, and HCN …” and “Business – Regulatory Environment – Accreditation – Institutional Accreditation – The Planned Combination of APUS, RU, and HCN” for more information.

Student Body. At APUS, all coursework is delivered online. As of December 31, 2024, approximately 65% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and as a result APUS is particularly reliant on TA programs, and the DoD budget. At APUS, active-duty military students generally take fewer courses per year on average than non-military students and have a lower revenue per net course registration than students utilizing other funding sources. A significant portion of APUS’s registrations is also attributable to students using Department of Veterans Affairs, or VA education benefits, and funds from Title IV programs. RU nursing students and HCN students generally attend classes at physical campuses and use Title IV program funds. At APUS and for RU programs outside pre-licensure nursing and allied health, all coursework is delivered online. For the fiscal year ended December 31, 2024, 37% of RU students were enrolled in nursing programs, 26% in health sciences programs, 17% in business programs, with the remainder of students in education, technology, design and justice studies programs. For the fiscal year ended December 31, 2024, approximately 65% of HCN students were enrolled in the Practical Nursing, or PN program, while 35% were enrolled in the Associate Degree in Nursing, or ADN program.

Increased Costs and Expenses. Our costs and expenses have increased, excluding impairment charges on goodwill and intangible assets, due in part to the loss on leases for campus closures and consolidations at RU, and campus relocations for HCN. Other cost and expense increases include increases in nursing faculty and employee compensation costs, professional fees associated with the Combination, information technology transition services costs, and the changing needs of our students, including costs for technology required to support students at our institutions.

We believe that in order to continue to attract and retain qualified students our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations and modes of teaching, faculty engagement initiatives, and co-curricular initiatives. These efforts may require obtaining appropriate regulatory approvals, incurring marketing expenses, and making investments in management and capital expenditures, including technology-related expenditures. Initiatives to attract and retain qualified students require significant time, energy, and resources, and if our efforts are not successful, our results of operations, cash flows, and financial condition may be adversely impacted. For more information about the risks related to attracting and retaining qualified students please refer to “Risk Factors – Risks Related to Attracting and Retaining Students”.

Reductions in Force. We completed employee reductions in force in 2022 and 2023. These headcount reductions reflect our ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions.

In the first quarter of 2022, RU completed a reduction in force that resulted in the termination of nine full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce. We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force.

In the fourth quarter of 2022, we completed a reduction in force that resulted in the termination of 98 non-faculty employees and the elimination of 78 open positions across a variety of roles and departments at APEI, APUS, RU and HCN representing approximately 5.8% of our non-faculty workforce. We incurred an aggregate of approximately $3.1 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force.

In the third quarter of 2023, we completed a reduction in force that resulted in the termination of 74 employees, primarily non-faculty, and the elimination of 57 open positions across a variety of roles and departments at APEI, RU, HCN and GSUSA. We incurred an aggregate of approximately $3.0 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force.

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We recorded expenses for termination benefits related to the workforce reductions in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 420, Exit or Disposal Cost Obligations.

Tuition Increases. Providing affordable degree and certificate programs is an important element of our competitive strategy. As more fully described in “Business – Our Institutions and Operations – Our Institutions – Accreditation – Affordability and Cost of Attendance”, certain of our institutions implemented tuition and fee increases in 2023 and 2024. Even with these increases, tuition and fees at our institutions are designed to be affordable and competitive when compared to the tuition and fees at similar institutions offering the same level of flexibility, accessibility, and student experience.

Our Initiatives. Our revenue may decline, and our costs and expenses may increase, as our institutions adjust to changes in their student composition, undertake initiatives to improve the learning experience, and work to attract students who are more likely to persist in their programs. Additional initiatives that we are implementing or may implement that may increase costs and expenses or adversely affect our revenue may include the following:

•altering our institutions’ marketing programs to target the appropriate prospective students;

•combining our institutions into a single university system to strengthen our financial position and enable us to facilitate innovation across the Company through more direct collaboration among the educational units;

•investing in technology related to our overall information technology program to support our current and future needs;

•changing admissions standards, requirements, processes, and procedures;

•implementing more stringent satisfactory academic progress standards;

•changing tuition costs and payment options;

•improving our RU Segment financial results, NCLEX pass rates, and stabilizing enrollment;

•changing fund disbursement methods;

•improving student retention at our HCN Segment; and

•implementing alternative learning delivery methods.

Information technology systems are an essential part of the student experience and our business operations, as discussed more fully in “Business – Information Technology” in this Annual Report. APEI provides information technology services to its institutions through a shared services model. We believe we will need to continue, and potentially increase, our investment of time and money in technology operations and enhancements to support our systems and mission and evaluate when it is appropriate to make significant changes, modifications, or upgrades. We believe we will also need to continue to make investments in information technology in response to competitive pressures in the marketplace, including increased demand for interactive solutions and access from multiple platforms, and to update older systems and to enhance functionality. Information technology operating and capital expenditures may increase in future periods as we accelerate the investment in and refreshment of our information technology systems.

Changes and upgrades to our information technology systems have resulted and may continue to result in our incurring significant costs, including in the short term, and carry risk to our operations and financial results. In 2022, we incurred approximately $3.2 million in information technology costs in our APUS Segment related to our multi-year technology transformation program. In early 2023, we launched a new native mobile application to improve the student experience at APUS. In 2024, we completed the consolidation of APUS’s customer relationship management systems onto a single platform. We also have several other systems that support the student experience, financial aid processing, financial management, human resources processes, marketing, and decision support.

In April 2024, as part of our technology transformation program, we transitioned to a managed service provider for certain services including service desk, student support, end user support, and network support and operations. The second phase of the project included the insourcing of information technology to APEI for RU and was completed as of October 1, 2024. We incurred approximately $3.8 million in information technology transition services costs in 2024. Not all of our information technology spending can be capitalized, and our investments may cost more than expected or fail to be successful. Furthermore, as a result of unsuccessful development efforts, or a result of replacing outdated technology, software, or other technology related assets, we may have assets that become impaired.

In April 2024, APU announced its plan to expand its reach to become a global digital university that integrates emerging technology and enhanced teaching and learning opportunities for faculty and students.

As fully described in “Risk Factors – Risks Related to Attracting and Retaining Students – Planned and actual closure of campuses or termination of programs on certain campuses may adversely impact us and our institutions”, opening new

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campuses, maintaining existing campuses, and closing or consolidating campuses at RU and HCN may result in our incurring significant costs in the future. We expect operating and capital expenditures to increase in future periods as we continue to add new campuses, consolidate existing campuses, and incur maintenance costs at existing campuses.

RU Change in Ownership. The acquisition of RU, or the Rasmussen Acquisition, was required to be reported to, and in some cases approved by, various education regulatory bodies. An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership. In September 2021, in connection with the Rasmussen Acquisition, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective in October 2021, that allowed RU to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application. The TPPPA continued the growth restrictions that ED imposed as a result of RU’s March 2019 change in ownership and control, which was prior to our acquisition of RU, including limitations on new programs and locations, and an enrollment cap, until after ED reviewed and accepted financial statements and compliance audits that cover complete fiscal periods of RU’s Title IV participation under our ownership. For more information on the regulatory review related to the Rasmussen Acquisition and RU’s previous change in ownership and related risks, please refer to “Business – Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures” and “– Regulatory Actions and Restrictions on Operations – Change in Ownership Resulting in a Change of Control”.

Competition. The U.S. postsecondary education market is characterized by intense competition, with approximately 4,500 institutions of higher learning. Due to the increase in online postsecondary offerings, coupled with the prospect of continued uncertainty in postsecondary enrollment in the United States, we face increased competition as students pursue degree-based postsecondary education from a wider selection of offerings. We expect each branch of the Armed Forces and the DoD to continually evaluate their approaches to education, and any resulting changes could have a material adverse effect on APUS’s enrollments. For more information on our competition and its potential impacts, please refer to “Business – Our Market and Competition – Competition” in this Annual Report.

“90/10 Rule” Compliance and Delayed Billing. For fiscal years beginning on or after January 1, 2023, which for our institutions means the year ended December 31, 2023, federal educational assistance funds used to calculate the “90%” side of the ratio include Title IV funds and all other educational assistance funds provided by a federal agency directly to an institution or a student, including the federal portion of any grant funds provided by or administered by a non-federal agency, except for non-Title IV federal educational assistance funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges. The 90/10 Rule no longer permits institutions to count federal aid for veterans and service members as part of the “10%” side of the ratio. Effective January 1, 2023, TA and VA benefits are included in the “90%” side of the ratio, and our institutions’ 90/10 Rule percentages increased, particularly at APUS. While each of our institutions was in compliance with the 90/10 Rule for 2024, with APUS’s relevant percentage for 2024 being 89%, there is no assurance that we will continue to be able to comply in future years, particularly at APUS.

As a result of the problems with TA discussed in further detail in the Risk Factor that begins “Our student registrations, revenue, and cash flow have been adversely impacted...”, approximately $18.4 million in cash payments from the Army to APUS that were expected to be received in 2021 and 2022 were received in 2023. This together with the January 1, 2023, change to the 90/10 Rule and enrollment growth among service members as compared to declines in students who use non-federal educational assistance funds caused APUS’s 90/10 Rule percentage to increase.

In September 2023, APUS changed its approach to invoicing for TA to offset the effect of the receipt of the delayed payments from the Army. APUS took longer to bill TA, which had the effect of delaying into 2024 payments for TA that ordinarily would have been received in 2023. APUS’s change in billing approach resulted in approximately $22.1 million of receivables that we would have expected to receive in 2023 being received in 2024. The change in billing approach positively impacted the “90%” side of the ratio in 2023. In January 2024, APUS separately revised its billing policy for students utilizing TA from two weeks to five weeks after course start date to nine weeks after the course start date. The change in billing approach positively impacted the “90%” side of the ratio in 2024.

In December 2024, APUS implemented another change to its approach to invoicing for TA, delaying into 2025 payments for TA that ordinarily would have been received in 2024. We estimate that APUS’s change in billing approach resulted in approximately $26.4 million of receivables that we would have expected to receive in 2024 being received in 2025. While the change in billing approach positively impacted the “90%” side of the ratio in 2024, it reduced operating cash flow in 2024, may result in increased bad debt expense in 2025, and may cause the “90%” side of the ratio to increase in 2025 or future years, which could have an adverse impact on our cash flow and results of operations, as well as APUS’s ability to comply with the 90/10 Rule in 2025 or future years. The change in billing practice added to our accounts receivable as of December 31,

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2024, and resulted in an increase to our leverage ratios as of December 31, 2024, under our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock as further discussed in “Note 9. Long-Term Debt” and “Note 13. Preferred Stock” included in the Consolidated Financial Statements in this Annual Report.

Regulated Industry. Our institutions operate in a highly regulated industry. For more information on the regulations to which our institutions are subject and recent regulatory developments, please refer to “Business – Regulatory Environment” in this Annual Report. Regulations may impact our financial results in a way that we cannot predict and may have an adverse impact on our financial condition.

OUR KEY FINANCIAL METRICS

Revenue

When reviewing our revenue, we evaluate the following elements: net course registrations and enrollment; tuition rate; net tuition; and other fees.

Net course registrations and enrollment. For financial reporting and analysis purposes, APUS measures its student population in terms of aggregate course enrollments, or net course registrations. Net course registrations, which include one-credit lab courses combined with their related three-credit courses, represent the aggregate number of courses in which students remain enrolled after the date by which they may drop the course without financial penalty. RU and HCN measure their student population in terms of student enrollments. Student enrollment represents the total number of students enrolled in a term immediately after the date students may drop a term without financial penalty.

At APUS, because we recognize revenue over the length of a course, net course registrations and student enrollments in a financial reporting period do not correlate directly with revenue for that period because revenue recognized from courses is not necessarily recognized in the financial reporting period in which the course registrations or enrollments occur. For example, at APUS, revenue in a quarter reflects a portion of the revenue from courses that began in a prior quarter and continued into the quarter, all revenue from courses that began and ended in the quarter, and a portion of the revenue from courses that began but did not end in the quarter. At RU and HCN, generally terms begin and end in a calendar quarter.

The average number of courses taken by students at APUS varies by payor type. For example, Title IV students take more courses on average than TA students. As a result, should the number of APUS’s students who utilize ED’s Title IV programs decrease (or the number of students using TA increase), we anticipate that it may cause the average number of courses per student per term to decrease.

You should not rely on the results of any prior periods as an indication of future net course registrations at APUS, student enrollments at RU and HCN, or consolidated revenue. The composition of our students, changing market demands, and competition make forecasting very difficult, and we are unable to determine if we will continue to grow or what level of growth we will achieve, if any.

Tuition rate. Providing affordable degree and certificate programs is an important element of our competitive strategy. APUS implemented modest tuition and fee increases for non-military and veteran students in the second and third quarters of 2023. In April 2024, APUS implemented an additional tuition increase to master’s level students across all categories, including military, non-military and veteran students, and in September 2024, APUS returned the military rate for master’s level students to the $250 per credit hour rate in effect prior to the April 2024 tuition increase. We believe that APUS’s tuition and fees remain lower than the average in-state cost at public universities. RU implemented modest tuition increases for select programs in the first quarters of 2023 and 2024 for new students for select programs in August 2024, and for returning students for select programs in October 2024. HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs. In the third quarter of 2025, RU plans to implement a tuition increase, similar to the increase implemented in the third and fourth quarters of 2024. The tuition and fee increases at RU and HCN are intended to reflect adjustments to be consistent with the local campus markets. Even with these increases, RU and HCN’s tuition and fees are designed to be affordable and competitive when compared to the tuition and fees at similar institutions offering the same level of flexibility, accessibility, and student experience.

Net tuition. Tuition revenue varies from period to period based on the number of students enrolled at our institutions, the number of and types of courses that students take, student payor source, the mix of programs students attend, the number of students starting courses each month during the period, and the timing of course starts each month or term. Tuition revenue is adjusted to reflect amounts for students who withdraw from a course in the month or term in which the withdrawal occurs. We also provide tuition grants and scholarships to certain students to assist them financially with their educational goals. The cost

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of these grants and scholarships is reported as a reduction of tuition revenue in the period incurred for purposes of establishing net tuition revenue.

Other fees. In addition to tuition, prior to the second quarter of 2023, APUS charged a technology fee of $65 per course to all non-military students. In the second quarter of 2023, the technology fee increased to $85 per course, and in the third quarter of 2023 the technology fee per course was eliminated for all undergraduate students. APUS students are also charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees, when applicable. APUS provides an APUS-funded grant to cover the technology fee for certain students. Technology fee revenue net of technology fee grants was approximately $7.3 million in 2022, $8.1 million in 2023, and $4.7 million in 2024, or 2.6%, 2.7%, and 1.5% of revenue, respectively.

RU and HCN students are charged fees for various items such as applications, testing, books and supplies, laboratory work, technology, and graduation. For example, RU charges a course technology and resource fee of $195 per course and a one-time administrative fee for certain programs, up to $495, for all new, reentering, and program transfer students. Textbook and other course materials revenue for RU and HCN was approximately $49.6 million in 2022, $43.3 million in 2023, and $45.7 million in 2024, or 16.5%, 16.0%, and 16.1% of revenue, respectively.

Costs and Expenses

We categorize our costs and expenses in the following categories: instructional costs and services expenses; selling and promotional expenses; general and administrative expenses; depreciation and amortization; impairment of goodwill and intangible assets; loss on assets held for sale; loss on leases; and loss on disposals of long-lived assets.

Instructional costs and services expenses. Instructional costs and services expenses are directly attributable to the educational services our institutions provide to their students. Instructional costs and services expenses include salaries and benefits for full-time faculty, administrators, and academic advisors, and costs associated with part-time faculty. Instructional costs and services expenses also include costs associated with curriculum development, academic records and graduation, and other services provided by our institutions, such as evaluating transcripts. Instructional costs and services expenses are generally affected by the cost of academic resources, including technology related costs, the efficiency of delivering academic products and services to our students, salaries and benefits for our faculty and other academic and administration personnel, and the level of expenditures for new and existing academic programs. At RU and HCN, instructional costs and services expenses also includes operating expenses directly associated with campus operations, including rent. At APUS, instructional costs and services expenses include expenses related to course materials, learning resources, the library, the APUS-funded book grant program, and instructional pay for part-time faculty that are primarily dependent on the number of students taught.

Selling and promotional expenses. Selling and promotional expenses include salaries and benefits of personnel engaged in student enrollment, advertising costs, and marketing material production costs, and, prior to January 31, 2023, include expenses from the third-party contract with Collegis, LLC, or Collegis, to provide marketing services to RU. Our selling and promotional expenses are generally affected by the cost of advertising media, the efficiency of our selling efforts, salaries and benefits for our selling and admissions personnel, and the level of expenditures for advertising initiatives for new and existing academic programs.

General and administrative expenses. General and administrative expenses include salaries and benefits of employees engaged in corporate management, finance, financial aid processing, information technology, human resources, finance, legal, and compliance, and other corporate functions, the cost of renting and maintaining administrative facilities, technology expenses, and costs for professional services. General and administrative expenses also include bad debt expense. General and administrative expenses are generally affected by the costs of salaries and benefits for our general and administrative personnel, the efficiency of delivering back-office support, including technology services, the costs of services purchased from third-party vendors, including information technology managed service providers, and the level of expenditures for supporting company initiatives.

Depreciation and amortization. We incur depreciation and amortization expenses for costs related to the capitalization of property, equipment, software, and program development on a straight-line basis over the estimated useful lives of the assets. In addition, prior to September 30, 2024, we incurred amortization expense for the amortization of identified intangible assets with a definite life resulting from the Rasmussen Acquisition.

Impairment of goodwill and intangible assets. Impairment of goodwill and intangible assets recognizes the difference between the carrying value of goodwill and intangible asset and the fair value of goodwill and intangible asset.

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Loss on assets held for sale. Loss on assets held for sale is the difference between the asset’s estimated fair value less estimated costs to sell and the asset’s book value at the time the asset is no longer used for operations and reclassified as held for sale in accordance with the held-for-sale criteria.

Loss on leases. Loss on leases recognizes the difference between the estimated remaining economic benefit to the Company and the carrying value of lease’s right-of-use assets, as well as losses incurred as the result of lease terminations.

Loss on disposals of long-lived assets. Loss on disposals of long-lived assets is the difference between the long-lived asset’s residual value and their book value at the time of the asset’s disposition or abandonment.

Interest expense, net. Interest expense, net, consists primarily of interest incurred on our long-term debt, net of any interest income earned on cash and cash equivalents.

Equity Investment Loss. Equity investment loss consists of our proportional share of after-tax income or losses attributable to our equity investment as well as the loss from any other-than-temporary impairment charges, which represents the difference between the carrying value of and fair value of the investment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition and the valuation of goodwill and indefinite-lived intangible assets and assets held for sale. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ and have a material impact on our Consolidated Financial Statements, or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates. The following discussion of our critical accounting policies and estimates is intended to supplement the accounting policies presented in “Note 2. Significant Accounting Policies” included in our Consolidated Financial Statements.

Business combinations. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, the purchase price be allocated to all tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess purchase price over the fair value of the net assets acquired and liabilities assumed is recorded as goodwill. The determination of the fair value of assets acquired and liabilities assumed requires estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, earnings before interest and taxes margins, student attrition rates, royalty rates, discount rates, and useful lives. These estimates are based on assumptions we believe to be reasonable, and, when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill.

Goodwill and indefinite-lived intangible assets.

In connection with the acquisitions of RU and HCN, we recorded goodwill and identified intangible assets. Goodwill is the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reported at the reporting unit level that we have defined as our reporting segments. There was no goodwill recorded in connection with the acquisition of GSUSA reported in Corporate and Other, and there is no goodwill in our APUS Segment. In connection with the acquisitions of RU and HCN, we also recorded identified intangible assets with an indefinite useful life which include trade name, accreditation, licensing, and Title IV, and affiliate agreements, and a definite useful life which include student roster, curricula, student contracts and relationships, lead conversions, and non-compete agreements. There are no indefinite-lived or definite-lived intangible assets in our APUS Segment.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events and circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The process of evaluating goodwill and indefinite-lived intangible assets for impairment is subjective and requires significant judgment and estimates. When performing an optional qualitative analysis, we consider many factors, including general economic conditions, industry and market conditions, certain cost factors, financial performance, and key business drivers (for example, student enrollment), long-term operating plans, and potential changes to significant assumptions and

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estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates.

We estimate fair value in our quantitative analysis by weighting the results from two different valuation approaches. They are: (i) discounted cash flow and (ii) guideline public company. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU and HCN at their estimated weighted-average cost of capital. We incorporate the use of projected financial information and a discount rate that are developed using market participant-based assumptions. The cash-flow projections are based on three-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are updated at least annually and approved by management. Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the fair value of RU and HCN. Values derived under the two valuation methods are then weighted to estimate RU and HCN’s enterprise values. If we determine that the carrying amount of a reporting unit exceeds its fair value, we then calculate the implied fair value of the reporting unit goodwill as compared to its carrying amount to determine the appropriate impairment charge. Although we believe our assumptions are reasonable, actual results may vary significantly and may expose us to material impairment charges in the future. Our methodology for determining fair values remained consistent for the periods presented.

At October 31, 2024, we completed our annual assessment of goodwill and indefinite-lived intangibles for our RU and HCN Segments. The annual assessment concluded that the fair value of goodwill for RU and HCN exceeded their carrying values by approximately $71.9 million, or 62%, and $8.6 million, or 24%, respectively. Significant assumptions in the forecast used in the discounted cash flow valuation model include continued improvement in our RU Segment enrollment and cost containment measures. Our HCN Segment’s significant assumptions in the forecast relate to future campus openings and tuition increases. These assumptions could be negatively affected by and of the following including, but not limited to, changes in our regulatory environment, declines in student enrollment, adverse actions by state boards of nursing including enrollment caps, and increases in our expenses not in our plan. In addition, we determined the fair value of our RU and HCN Segment indefinite-lived intangible asset was greater than their carrying values. Therefore, for the year ended December 31, 2024, there was no impairment of RU and HCN Segment goodwill and indefinite-lived intangible assets.

Significant assumptions inherent to valuation methodologies for goodwill and indefinite-lived intangible assets include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in the higher education market. Future changes, including minor changes in the significant assumption or other factors including revenue, operating income, valuation multiples, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

At December 31, 2024, after recording non-cash impairment charges for RU and HCN Segment goodwill and intangible assets in 2022 and 2023, the carrying value of RU and HCN Segments goodwill was $33.0 million and $26.6 million, respectively, and the carrying value of RU and HCN Segments intangible assets was $24.5 million and $3.7 million, respectively.

For additional details regarding goodwill and indefinite-lived intangible assets please refer to “Note 7. Goodwill and Intangible Assets” included in our Consolidated Financial Statements.

Series A Senior Preferred Stock. On December 28, 2022, we issued $40 million of the Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of our existing common stockholders.

The Series A Senior Preferred Stock has been classified as permanent equity on the accompanying Consolidated Balance Sheets. The Series A Senior Preferred Stock is recorded net of issuance costs. The determination as to permanent equity treatment considered the obligations to the shareholder. The Series A Senior Preferred Stock is only redeemable at our option. Upon a change of control, default, non-compliance event or liquidation event an increased dividend rate is applicable, and dependent on timing, an early premium may be applicable, but the Series A Senior Preferred Stock is not mandatorily redeemable.

We evaluated the Series A Senior Preferred Stock at issuance for the embedded derivative features and the potential need for bifurcation under ASC 815 Derivatives and Hedging- Embedded Derivatives. We engaged an independent valuation firm to assist with the evaluation at issuance. As of December 31, 2022, the embedded features identified for bifurcation were determined to have minimal or no value and therefore deemed to not be material to the financial statements. We reviewed the embedded features as of December 31, 2023, and 2024 and determined that they are not material to the financial statements.

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For additional details regarding the Series A Senior Preferred Stock, please refer to “Note 13. Preferred Stock” included in our Consolidated Financial Statements.

RECENT ACCOUNTING PRONOUNCEMENTS

We consider the applicability and impact of all Accounting Standards Updates, or ASUs. Please refer to “Note 2 Significant Accounting Policies” included in our Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements.

Results of Operations

The following table sets forth statements of income data as a percentage of revenue for each of the years ended:

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Revenue

For the year ended December 31, 2024, our consolidated revenue was $624.6 million, an increase of $24.1 million, or 4.0%, compared to $600.5 million in 2023. The increase in revenue was primarily due to a $13.7 million, or 4.5%, increase in revenue in our APUS Segment, a $10.4 million, or 18.2%, increase in revenue in our HCN Segment, and a $2.2 million, or 1.0%, increase in revenue in our RU Segment, partially offset by a $2.0 million, or 7.5%, decrease in GSUSA revenue included in Corporate and Other.

APUS net course registrations increased approximately 2.9% to 378,400 for the year ended December 31, 2024, from approximately 367,600 in the 2023 period. The increase in net course registrations was primarily due to an increase in registrations by military-affiliated students utilizing VA. Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty.

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For the year ended December 31, 2024, RU enrollment decreased 1.3% as compared to the 2023 period. This decline in enrollment was driven by a 7.5% decrease in on-ground enrollment, partially offset by a 4.5% increase in online enrollment, which has a lower revenue per student. While enrollment declined, revenue increased due to tuition increases effective in the first quarters of 2023 and 2024 and the third and fourth quarters of 2024 for select students and programs, as compared to the prior year period. We believe the overall decline in on-ground enrollment can be attributed to several factors, including self-imposed caps on nursing student enrollment and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition. During the third and fourth quarters of 2024, RU experienced improvements with both on-ground and online enrollment as compared to prior year periods. RU total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

For the year ended December 31, 2024, HCN student enrollment increased approximately 14.9% as compared to the 2023 period. The increase in total student enrollment is primarily due to the continued enrollment growth at the Detroit, Michigan campus that opened in October 2022, the Dayton, Ohio campus which relocated in 2023, and the Columbus and Toledo campuses, in Ohio, which relocated in 2024. HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

Costs and Expenses

For the year ended December 31, 2024, costs and expenses were $591.5 million, a decrease of $57.4 million, or 8.8%, compared to $648.9 million in 2023. Costs and expenses for the year ended December 31, 2024, include $3.8 million in information technology transition services costs in all our segments as well as Corporate and Other, a $3.7 million loss on leases in our RU Segment, $2.2 million in professional fees in Corporate and Other relating to the Combination, and a $1.6 million loss on assets held for sale in our APUS Segment, all on a pre-tax basis. Costs and expenses for the year ended December 31, 2023, include a non-cash goodwill and intangible asst impairment charge of $64.0 million in our RU Segment, and to reflect the corresponding tax impact, a $2.4 million pre-tax loss on assets held for sale in our APUS Segment, and a pre-tax charge of $2.4 million in transition services fees in our RU Segment selling and promotional expenses related to the termination of the marketing contract with Collegis effective January 31, 2023. Costs and expenses for the year ended December 31, 2024, as compared to the prior year period, excluding the items noted above, increased $0.1 million, primarily due to increases in employee compensation costs, other technology costs, bad debt expense, and classroom and course materials costs, partially offset by decreases in depreciation and amortization expenses, advertising costs, and rent costs

Costs and expenses as a percentage of revenue decreased to 94.7% in 2024 from 108.0% in 2023. Excluding the impairment charges, loss on leases, information technology transition services costs, losses on assets held for sale, Collegis transition fees, and professional fees relating to the Combination, costs and expenses were 92.9% of revenue for the year ended December 31, 2024, compared to 96.6% of revenue in the prior year period. Our income before interest and income taxes as a percentage of revenue, or our operating margin, improved to 5.3% in 2024 from negative 8.0% compared to the prior year period. Excluding the charges noted above, our operating margin improved to 7.1% in 2024 from 3.4% compared to the prior year period. The decrease in our costs and expenses as a percentage of revenue and improvement in our operating margin was primarily due to the factors discussed above.

Instructional costs and services expenses. For the year ended December 31, 2024, instructional costs and services expenses were $295.7 million, an increase of approximately $2.8 million, or 1.0%, compared to $292.9 million in 2023. The increase in instructional costs and services expenses was primarily due to increases in employee compensation costs in our APUS and HCN Segments due to an increase in registrations at APUS and enrollments at HCN, an increase in classroom and course materials costs in our HCN Segment, partially offset by decreases in employee compensation costs in our RU Segment and Corporate and Other due to lower enrollments at RU and GSUSA and decreases in technology costs, rent costs, and professional fees in our RU Segment. Instructional costs and services expenses as a percentage of revenue decreased to 47.3% in 2024, compared to 48.8% in 2023.

Selling and promotional expenses. For the year ended December 31, 2024, selling and promotional expenses were $128.8 million, a decrease of $4.2 million, or 3.2%, compared to $133.0 million in 2023. Selling and promotional expenses for the year ended December 31, 2023, include $2.4 million in transition services fees in our RU Segment related to the termination of the Collegis marketing contract, effective January 31, 2023. Other decreases in selling and promotional expenses were primarily due to decreases in advertising costs in our APUS and RU Segments and employee compensation costs and marketing support costs in our RU Segment. The decreased costs were partially offset by increases in employee compensation costs in our APUS and HCN Segments and Corporate and Other, professional fees in our APUS Segment and advertising costs in our HCN Segment. Selling and promotional expenses as a percentage of revenue decreased to 20.6% in 2024, compared to 22.1% in 2023. Excluding the Collegis transition service fees, selling and promotional expenses were 21.7% of revenue in 2023.

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General and administrative expenses. For the year ended December 31, 2024, general and administrative expenses were $142.0 million, an increase of $13.8 million, or 10.8%, compared to $128.2 million in 2023. The increase in general and administrative expenses was primarily due to increases in information technology transition services costs in our APUS and HCN Segments as well as Corporate and Other, and increases in other information technology costs our APUS, RU, and HCN Segments, employee compensation costs in our RU and HCN Segments and Corporate and Other, as well as professional fees in our APUS and RU Segments, and bad debt expense in our HCN Segment, partially offset by decreases in employee compensation costs in our APUS Segment, and other information technology costs in Corporate and Other. General and administrative expenses as a percentage of revenue increased to 22.7% in 2024 compared to 21.3% in 2023.

For the year ended December 31, 2024, consolidated bad debt expense increased to $18.5 million, or approximately 3.0% of revenue, from $16.5 million, or approximately 2.7% of revenue, in 2023. The increase in bad debt expense was primarily due to an increase in the HCN, RU, and APUS Segments of $1.4 million, $0.5 million and $0.1 million, respectively, as compared to the prior year period.

Depreciation and amortization. Depreciation and amortization expenses were $19.3 million in 2024, compared to $27.8 million in 2023, a decrease of $8.5 million or 30.6%, primarily related to the full amortization of certain definite lived intangible assets in our RU Segment in 2023. Depreciation and amortization expenses as a percentage of revenue decreased to 3.1% in 2024 compared to 4.6% in 2023.

Impairment of goodwill and intangible assets. For the year ended December 31, 2024, there were no impairment charges on goodwill and intangible assets. For the year ended December 31, 2023, the non-cash impairment of goodwill and intangible assets of $64.0 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment, and the corresponding tax impact. For additional information regarding the impairment of goodwill and intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 7. Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Annual Report.

Loss on assets held for sale. For the year ended December 31, 2024, we recorded a $1.6 million loss to reduce the carrying value of a real property reclassified to held for sale in our APUS Segment in the fourth quarter of 2024. For the year ended December 31, 2023, we recorded a $2.4 million loss to reduce the carrying value of a real property reclassified to held for sale in our APUS Segment in the fourth quarter of 2023.

Loss on disposal of long-lived assets. The loss on disposal of long-lived assets was $0.4 million in 2024, compared to $0.6 million in 2023.

Stock-based compensation. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was $7.7 million in both 2024 and 2023. Stock-based compensation costs include performance stock unit incentive costs and accelerated expense for retirement-eligible employees.

The table below reflects our stock-based compensation expense recorded in our Consolidated Statements of Income included in our Consolidated Financial Statements for the years ended 2023 and 2024 (in thousands):

Interest expense, net. Interest expense, net of interest income, was $2.1 million in 2024, compared to $4.5 million in 2023. The decrease in interest expense, net was primarily due to the increase in interest income earned for the year ended December 31, 2024, as compared to the prior year period.

Income tax (benefit) expense. For the year ended December 31, 2024, we recognized an income tax expense of $10.4 million, compared to an income tax benefit of $10.7 million in 2023. The effective tax rate was 39.3% and 18.5% in 2024 and 2023, respectively. The effective tax rate in 2024 was impacted by a $4.4 million equity investment loss not deductible for tax purposes, and an increase in non-deductible stock compensation expense in relation to taxable income in 2024, as compared to

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the prior year period. The year ended December 31, 2023, includes a $15.8 million income tax benefit related to the impairment of goodwill and intangible assets.

Equity investment loss. Equity investment loss was $4.4 million for the year ended December 31, 2024, compared to an equity investment loss of $5.2 million in the prior year period. Equity investment loss for the year ended December 31, 2024, includes a $3.3 million non-cash investment loss on a cost method equity investment due to the investee entering into a new convertible debt agreement, which resulted in the conversion of our preferred stock holdings in the investee into common shares, and the dilution of our ownership percentage, and a $1.1 million loss on the sale of the remaining cost method equity investment. Equity investment loss for the year ended December 31, 2023, included a $5.2 million non-cash investment loss related to the sale of the investee with no sales proceeds to us.

Net income (loss). Net income in 2024 was $16.1 million, compared to net loss of $47.3 million in 2023, an increase of $63.4 million. This increase was related to the factors discussed above.

Preferred stock dividends. Preferred stock dividends for the year ended December 31, 2024, were $6.1 million compared to $6.0 million in 2023.

Net income (loss) available to common stockholders. Net income available to common stockholders in 2024 was $10.1 million, compared to net loss available to common stockholders of $53.3 million in 2023, an increase of $63.4 million. This increase was related to the factors discussed above.

Operating Results by Reportable Segment - Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

The table below details our operating results by reportable segment for the periods indicated (in thousands):

APUS Segment

Our APUS Segment revenue was $317.0 million in 2024, an increase of $13.7 million, or 4.5%, compared to $303.3 million in 2023, which was primarily attributable to higher net course registrations and the impact of tuition and fee increases in 2023 and 2024. Net course registrations at APUS increased 2.9% to approximately 378,400 in 2024 compared to the 2023 period. The increase in net course registrations was primarily due to an increase in registrations by military-affiliated students utilizing VA. Income from operations before interest and income taxes was approximately $89.4 million in 2024, an increase of $5.0 million, or 5.9%, compared to the 2023 period. The increase in income from operations before interest and income taxes was due to the changes in revenue and expenses discussed above.

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RU Segment

Our RU Segment revenue was $216.3 million in 2024, an increase of $2.2 million, or 1.0%, compared to $214.1 million in 2023, which was due to tuition increases in 2023 and 2024, partially offset by lower enrollments in 2024. Enrollment at RU decreased approximately 1.3% during the year ended December 31, 2024, as compared to the 2023 period. This decline in enrollment was driven by a 7.5% decrease in on-ground enrollment, partially offset by a 4.5% increase in online enrollment, which has a lower revenue per student. We believe the decline in on-ground enrollment can be attributed to several factors, including self-imposed caps on nursing student enrollment and the overall environment in which RU operates, including as a result of the effects of regulatory matters and competition. During the third and fourth quarters of 2024, RU experienced improvements with on-ground and online enrollments as compared to prior year periods. RU Segment loss from operations before interest and income taxes was $21.8 million in 2024 compared to a loss from operations before income and taxes was $103.6 million in 2023. The RU Segment loss includes impairment charges on goodwill and intangible assets of $64.0 million in 2023, and to reflect the corresponding tax impact.

HCN Segment

Our HCN Segment revenue was approximately $67.3 million in 2024, an increase of $10.4 million, or 18.2%, compared to $56.9 million in the 2023 period, which was primarily attributable to an increase in student enrollment and a 5% tuition increase in the second quarter of 2023. HCN student enrollment increased approximately 14.9% during the year ended December 31, 2024, as compared to the 2023 period. The increase in total student enrollment is primarily due to the continued enrollment growth at the Detroit, Michigan campus which opened in October 2022, the Dayton, Ohio campus which relocated in 2023, and the Columbus and Toledo campuses which relocated in 2024. Loss from operations before interest and income taxes in the HCN Segment was approximately $1.1 million in 2024 compared to a loss from operations of $1.4 million in 2023, an improvement of $0.3 million. The decrease in loss from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash was $144.3 million and $158.9 million at December 31, 2023, and 2024, respectively, representing an increase of $14.6 million, or 10.1%, in the 2024 period. The increase in cash was primarily due to higher revenue and operating income at APUS, TA receivables that we would have expected to receive in 2023 being received in 2024, and a decrease in cash paid for the repurchases of common stock, offset by the change in TA billing policy effective January 1, 2024, the change to how we bill TA at APUS in the fourth quarter of 2024, and higher capital expenditures. We have historically financed operating activities and capital expenditures with cash provided by operating activities. We expect to continue to fund our costs and expenses through cash generated from operations for the next twelve months and beyond. For more on our material cash requirements from known contractual and other obligations, please refer to “Contractual Obligations” below in this Annual Report.

We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term. Another significant source of revenue is derived from TA from the DoD and programs from the Department of Veterans Affairs. Generally, these funds are received within 60 days of the start of the courses to which they relate, however in September 2023, APUS changed its approach to invoicing for TA and is currently taking longer to bill TA, which has the effect of delaying payments. APUS’s change in billing approach resulted in approximately $22.1 million of receivables that we would have expected to receive in 2023 being received in 2024. The change in billing approach positively impacted the “90%” side of the ratio in 2023.

As a result of the problems with TA discussed in further detail in the Risk Factor that begins “Our student registrations, revenue, and cash flow have been adversely impacted...”, approximately $18.4 million in cash payments from the Army to APUS that were expected to be received in 2021 and 2022 were received in 2023. This together with the January 1, 2023, change to the 90/10 Rule and enrollment growth among service members as compared to declines in students who use non-federal educational assistance funds caused APUS’s 90/10 Rule percentage to increase.

In January 2024, APUS revised its billing policy for students utilizing TA from two weeks to five weeks after course start date to nine weeks after the course start date. The changes in billing approach positively impacted the “90%” side of the ratio in 2024. In December 2024, APUS implemented another change to its approach to invoicing for TA, delaying into 2025 payments for TA that ordinarily would have been received in 2024. We estimate that APUS’s change in billing approach resulted in approximately $26.4 million of receivables that we would have expected to receive in 2024 being received in 2025. While the change in billing approach positively impacted the “90%” side of the ratio in 2024, it reduced operating cash flow in 2024, may result in increased bad debt expense in 2025, and may cause the “90%” side of the ratio to increase in 2025 or future

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years, which could have an adverse impact on our cash flow and results of operations, as well as APUS’s ability to comply with the 90/10 Rule in 2025 or future years. The change in billing practice added to our accounts receivable as of December 31, 2024, and resulted in an increase to our leverage ratios as of December 31, 2024, under our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock as further discussed in “Note 9. Long-Term Debt” and “Note 13. Preferred Stock” included in the Consolidated Financial Statements in this Annual Report.

ED evaluates institutions on an annual basis for compliance with specified financial responsibility standards, including a complex formula based on line items from the institution’s audited financial statements. Generally, an institution’s financial ratios must yield a composite score of at least 1.5 for the institution to be deemed financially responsible. A composite score between 1.0 and 1.4 is considered by ED to be in the “zone.” An institution in the “zone” may still participate in Title IV programs as a financially responsible institution through the “zone alternative” as set forth in ED regulations. As a result of ED’s determination our 2022 composite score was between 1.0 and 1.5, APUS, RU and HCN currently operate under the zone alternative to establish financial responsibility. Under the zone alternative, we are required to: (i) make Title IV disbursements to eligible students and parents under the heightened cash monitoring payment method, or HCM1, pursuant to which we would be required to first make disbursements to eligible students and parents and pay any credit balances before we request or receive funds from ED for the amount of those disbursements; (ii) notify ED of certain events, such as an adverse action taken by any of our institution’s accreditors or state authorizing agencies; (iii) provide regular reports to ED relating to our institution’s current operations and future plans; and (iv) require our auditors to express an opinion on our compliance with the requirements under the zone alternative. HCM1 did not have a significant impact on 2024 financial results. Additionally, RU is required to provide 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. Restricted cash includes a $24.3 million restricted certificate of deposit to secure a letter of credit.

Our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement, contain financial covenants that require us to maintain a Total Net Leverage Ratio (as defined in each respective agreement) of no greater than 2.00 to 1.00 and 0.75 to 1.00, respectively, subject to certain exceptions.

Our Total Net Leverage Ratio, under the Credit Agreement, at December 31, 2023, and 2024 was 0.51 and 0.20, respectively. While we do not anticipate that a higher leverage ratio will have material limitations on our expected operations for 2025, it could result in reduced operational flexibility in 2025 and future years.

Budget cuts or constraints, particularly those that impact DoD or include suspension or modifications to TA programs, reductions in force, or cuts to services and tools that we or APUS students rely upon for recruitment, enrollment access, and TA, including in connection with congressional action or inaction relating to the federal debt ceiling, could have a material adverse effect on APUS’s enrollments and on our cash flows, results of operations, and financial condition. Even temporary changes to military activity and budgets may adversely affect operations. For example, funding for the federal government or portions thereof, including the DoD, Department of Homeland Security, and Coast Guard, lapsed and resulted in partial shutdowns in 2018 and 2019. Any future government shutdown could have a material adverse effect on APUS’s enrollments and on our cash flows and results of operations, and U.S. government default on its debt would have broad adverse macroeconomic effects that would materially affect our cash flow and results of operations.

Our operating expenditures may increase in future periods as we continue to invest in the modernization of our information technology systems, advertising, and other expenditures. We are in the midst of a multi-year technology transformation program that we expect will enable us to enhance the learning experience for students, better accommodate new flexible learning modalities, and improve the operational effectiveness of our enterprise. In April 2022, we notified Collegis that we intended to permit RU’s information technology services contract to expire by its terms in September 2024. In December 2023, we entered into an agreement with a managed service provider to outsource a number of our information technology operations, including some that were previously being provided by Collegis, including service desk, student support, end user support, and network management and operations. In April 2024, this transition was completed, and in the third quarter of 2024, we substantially completed the insourcing of information technology services and the outsourcing of certain services to a managed service provider. For the year ended December 31, 2024, we incurred approximately $3.8 million in information technology transition services costs.

Operating and capital expenditures may also increase as we continue to update and invest in our core enterprise systems. At APUS, we have a legacy customized student information system, or SIS, that we refer to as Partnership at a Distance™, or PAD, and proprietary information systems and processes to support PAD. RU uses Anthology Campus Nexus as its SIS. The RU SIS environment is currently hosted with Anthology in a cloud environment. APUS and RU admissions functions are managed inside of Salesforce and connected to PAD for APUS and Anthology for RU to ensure all pertinent information is synchronized appropriately. HCN and GSUSA have their own SIS platforms. In 2025, we plan to replace the

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existing SIS platform used by GSUSA and will also begin moving HCN to a new SIS platform. More broadly, we continue to review and assess our student information and services platforms and their capabilities, including whether to consolidate to a standard platform across more or all our institutions.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance of existing campuses at RU and HCN, the opening of new campuses or the consolidation of existing campuses at RU and HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth. We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies.

On January 28, 2025, we announced the Combination, which we anticipate completing in the third quarter of 2025 subject to obtaining required approvals and ED taking related actions. For the year ended December 31, 2024, we incurred approximately $2.2 million in professional fees and expect to incur between approximately $3.0 million and $5.0 million in professional fees in 2025 to complete the Combination. See the Risk Factor with the caption beginning “The planned combination of APUS, RU, and HCN …”, “Business – Regulatory Environment – Accreditation – Institutional Accreditation – The Planned Combination of APUS, RN, and HCN” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview” for more information.

RU has historically relied on Collegis for a variety of outsourced marketing services and information technology functions under one contract for marketing services and another for information technology functions. In April 2022, we notified Collegis that we intended to permit both contracts to expire by their terms on September 30, 2024. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Expenses for the fourth quarter of 2022 include $3.9 million in transition fees in connection with the termination of the previously outsourced marketing services contract as specific transition obligations were completed, and first quarter of 2023 expenses included the remaining $2.4 million in transition service fees, for total non-recurring transition service fees of $6.3 million. We completed the transition of RU marketing to our in-house centralized marketing team during the first quarter of 2023.

In December 2022, we issued $40 million of Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of our existing common stockholders of the Company. We used a portion of the net proceeds from the sale of the Series A Senior Preferred Stock, along with available cash, to repay approximately $65 million of the outstanding principal balance of our Term Loan. After the repayment, the aggregate amount of the Term Loan outstanding was $99.1 million at December 31, 2022. We are required to pay periodic cash dividends to the holders of our Series A Senior Preferred Stock, which will accrue at an annual rate equal to Term SOFR (as defined in the Certificate of Designation) plus 10.00%, and will increase by 2.0% on June 28, 2025, and another 0.5% on October 1, 2025 and the first day of every following quarter, subject to a maximum of Term SOFR plus 25.0%, other than an increase in the dividend rate in connection with an event of default under the Certificate of Designation. We also have the option, from time to time, to redeem the Series A Senior Preferred Stock pro rata in whole or in part. Payment of dividends or the exercise of this redemption right could adversely impact our liquidity and reduce the amount of cash flow available for working capital, capital expenditures, growth opportunities, and other general corporate purposes.

In connection with the completion of the Rasmussen Acquisition, we entered into a Credit Agreement with Macquarie Capital Funding LLC, as administrative agent and collateral agent, Macquarie Capital (USA) Inc., and Truist Securities, Inc. as joint lead arrangers and bookrunners, and a syndicate of lenders, or the Lenders and, pursuant to the Credit Agreement, the Lenders provided us with (i) the $175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities. We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan. For more information on the Facilities and their terms, please refer to “Note 9. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

We believe our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations, debt, and interest obligations, and planned capital expenditures for the next 12 months and the foreseeable future. However, our future capital requirements and our ability to generate sufficient cash to fund our future operations will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future capital or borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to pay dividends on our Series A Senior Preferred Stock when due, or to fund our other liquidity needs. Failure to achieve business performance consistent with our expectations, including as a result of regulatory action, or to comply with the 90/10 Rule or meet the financial responsibility requirements, or any government shutdown could adversely impact our cash flows and results of operations. In addition, our efforts to comply with the 90/10 Rule could lead us to reduce enrollments or require us to

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make expenditures that would reduce our existing cash available for operations. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness or pay a special dividend to holders of our Series A Senior Preferred Stock, which would also reduce our existing cash available for operations. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Operating Activities

Net cash provided by operating activities was $45.5 million and $48.9 million in 2023, and 2024, respectively. The increase in cash from operating activities is primarily due to higher revenue and operating income at APUS, the receipt of fourth quarter 2023 cash received in the first quarter of 2024, offset by the change in TA billing policy effective January 1, 2024, and the change to how we bill TA at APUS in the fourth quarter of 2024, and changes in working capital due to the timing of receipts and payments. Accounts receivable at December 31, 2024, increased approximately $11.5 million compared to December 31, 2023, primarily related to our APUS Segment as a result of a change in our billing policy during the fourth quarter 2024. Accounts payable, accrued liabilities, and accrued compensation and benefits at December 31, 2024, were approximately $5.3 million higher than December 31, 2023, primarily due to the timing of payment processing.

Investing Activities

Net cash used in investing activities was $13.8 million and $21.1 million in 2023, and 2024, respectively. Investing activities for the years ended December 31, 2023, and 2024, include capital expenditures of $13.9 million and $21.1 million, respectively. The increase in capital expenditures for the year ended December 31, 2024, was primarily due to campus relocations at our HCN and RU Segments and an increase in information technology capital expenditures.

Financing Activities

Net cash used in financing activities was $16.9 million and $13.2 million in 2023 and 2024, respectively. The decrease in cash used in financial activities is primarily due to a decrease in cash used to repurchase our common stock. For the year ended December 31, 2023, we repurchased 1,515,766 shares for an aggregate purchase price of $9.7 million, compared to 251,146 shares of common stock for an aggregate purchase price of $2.8 million, for the year ended December 31, 2024. This decrease in cash used for stock repurchases was partially offset by $2.6 million in principal payments made on our long-term debt in 2024.

Contractual Obligations

Long-term debt

We have long-term debt outstanding under the Credit Agreement of $96.4 million as of December 31, 2024. No principal payments are due in 2025 as a result of the December 2022 prepayments. Interest payable of $9.6 million is due in 2025, assuming the variable rate as of December 31, 2024. For more information on the timing and amount of our future principal and interest payments, please refer to “Note 9. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

Lease obligations

We have leases for office space and campus facilities. As of December 31, 2024, we had lease payment obligations of $137.5 million, with $19.2 million payable in 2025. For more information on the timing and amount of our future lease obligations, please refer to “Note 8. Leases” included in the Consolidated Financial Statements in this Annual Report.

Other purchase obligations

As of December 31, 2024, we had other purchase obligations of $15.8 million, with $9.8 million payable in 2025. In July 2024, RU entered into a contract with a third-party to provide nursing program curriculum upgrades and course materials, and testing services to nursing students, replacing an existing third-party provider. Total annual expense under this contract is estimated to be between approximately $6.0 million and $7.0 million annually through December 31, 2027, based on enrollment, such amount approximately equal to the prior third-party provider.

Impact of Inflation

Recently, the U.S. economy experienced the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business arising from fluctuations in market prices; however, our ability to raise our

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tuition and fees depends on market conditions. APUS, RU, and HCN increased certain tuition and fees in 2023 and 2024, and RU intends to increase tuition in 2025, in order to offset increased faculty costs and other costs, but there may be periods during which we are unable to fully recover increases in our costs.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K, or this Annual report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business and operations, and involves risks and uncertainties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors”, “Special Note Regarding Forward-Looking Statements”, and elsewhere in this Annual Report. For a discussion of our financial condition and results of operations for 2022 compared to 2021, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 14, 2023, which discussion is incorporated in this Annual Report by reference and which is available free of charge on the SECs website at www.sec.gov.

OVERVIEW

We are a provider of online and campus-based postsecondary education, and career learning, to approximately 107,000 students through four subsidiary institutions, American Public University System, or APUS, Rasmussen University, or RU, Hondros College of Nursing, or HCN, and Graduate School USA, or GSUSA. Our subsidiary institutions offer purpose-built education programs and career learning designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or to help them prepare for their next career. Our 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 and are certified by the U.S. Department of Education, or ED, to participate in Title IV programs. Additional information regarding our subsidiary institutions and their regulation is included in the “Business” section of this Annual Report.

On January 1, 2022, or the GSUSA Closing Date, our wholly owned subsidiary, American Public Training LLC, completed our acquisition, or the GSUSA Acquisition, of substantially all the assets of Graduate School USA.

Our revenue is largely driven by the number of students enrolled at our institutions, the number of and types of courses that students take, student payor source, and the mix of programs students attend. Our consolidated revenue in 2023 was $600.5 million, representing a $5.8 million, or 1.0%, decrease from $606.3 million in 2022. A significant portion of our revenue comes from our institutions’ participation in Title IV programs, APUS’s participation in the TA programs, and other government programs, and this creates significant risks to our operations.

Our operations are organized into three reporting segments:

•American Public University System, 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.

GSUSA does not meet the quantitative thresholds to qualify as a reportable segment. We therefore present its operational activities within “Corporate and Other”. We also include adjustments to reconcile segment results to the Consolidated Financial Statements in “Corporate and Other”, primarily related to unallocated corporate activity and eliminations.

Financial information regarding each of our reportable segments is reported in this Annual Report in the sections “Financial Statements and Supplementary Data” and “– Operating Results by Reportable Segment Year Ended December 31, 2023 Compared to Year Ended December 31, 2022”.

Student Body. As of December 31, 2023, approximately 66% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and as a result APUS is particularly reliant on tuition assistance, or TA, programs, and the Department of Defense, or DoD, budget. At APUS, active-duty military students generally take fewer courses per year on average than non-military students and have a lower revenue per net course registration than students utilizing other funding sources. A significant portion of APUS’s registrations are also attributable to students using VA

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education benefits, and funds from Title IV programs. RU nursing students and HCN students generally attend classes at physical campuses and use Title IV program funds. At APUS and for RU programs outside pre-licensure nursing and allied health, all coursework is delivered online. For the fiscal year ended December 31, 2023, 40% of RU students were enrolled in nursing programs, 23% in health sciences programs, 17% in business programs, with the remainder of students in education, technology, design and justice studies programs. For the fiscal year ended December 31, 2023, approximately 65% of HCN students were enrolled in the Practical Nursing, or PN program, while 35% were enrolled in the Associate Degree in Nursing, or ADN program.

Increased Costs and Expenses. Our costs and expenses have increased over time due in part to the acquisitions of RU and GSUSA, campus relocations for RU and HCN, the addition of new HCN campuses, including HCN’s new campus located in suburban Detroit, which opened in October 2022, increases in nursing faculty and employee compensation costs, and the changing needs of our students, including costs for technology required to support students at our institutions.

We believe that in order to continue to attract and retain qualified students our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations and modes of teaching, faculty engagement initiatives, and co-curricular initiatives. These efforts may require obtaining appropriate regulatory approvals, incurring marketing expenses, and making investments in management and capital expenditures, including technology-related expenditures. Initiatives to attract and retain qualified students require significant time, energy, and resources, and if our efforts are not successful, our results of operations, cash flows, and financial condition may be adversely impacted. For more information about the risks related to attracting and retaining qualified students please refer to “Risk Factors – Risks Related to Attracting and Retaining Students”.

Reductions in Force. We completed employee reductions in force in 2021, 2022 and 2023. These headcount reductions reflect our ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions.

In the third quarter of 2021, we completed a reduction in force that resulted in the termination of 11 full-time faculty members at APUS and 28 non-faculty employees across a variety of roles and departments at APEI and APUS, representing approximately 3.2% of the APUS full-time faculty workforce, and 3.1% of the APEI and APUS non-faculty workforce. We incurred approximately $1.0 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force. The reduction in force resulted in approximately $1.4 million in pre-tax labor and benefit savings in 2021.

In the first quarter of 2022, RU completed a reduction in force that resulted in the termination of nine full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce. We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force. The reduction in force resulted in pre-tax labor and benefit savings of approximately $2.7 million in 2022.

In the fourth quarter of 2022, we completed a reduction in force that resulted in the termination of 98 non-faculty employees and the elimination of 78 open positions across a variety of roles and departments at APEI, APUS, RU and HCN representing approximately 5.8% of our non-faculty workforce. We incurred an aggregate of approximately $3.1 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force. The reduction in force resulted in an additional pre-tax labor and benefit savings of approximately $2.3 million in 2022.

In the third quarter of 2023, we completed a reduction in force that resulted in the termination of 74 employees, primarily non-faculty, and the elimination of 57 open positions across a variety of roles and departments at APEI, RU, HCN and GSUSA. We incurred an aggregate of approximately $3.0 million of pre-tax cash expenses associated with employee severance costs as a result of this reduction in force. The reduction in force resulted in an additional pre-tax labor and benefit savings of approximately $6.2 million in 2023, or $15.5 million on an annualized basis.

The cost savings noted above do not include expenses associated with employee severance benefits. We recorded expenses for termination benefits related to the workforce reductions in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 420, Exit or Disposal Cost Obligations.

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Our Initiatives. Our revenue may decline, and our costs and expenses may increase, as our institutions adjust to changes in their student composition, undertake initiatives to improve the learning experience, and work to attract students who are more likely to persist in their programs. Additional initiatives that we are implementing or may implement that may increase costs and expenses or adversely affect our revenue may include the following:

•altering our institutions’ marketing programs to target the appropriate prospective students;

•investing in technology related to our overall information technology program to support our current and future needs;

•changing admissions standards, requirements, processes, and procedures;

•implementing more stringent satisfactory academic progress standards;

•changing tuition costs and payment options;

•improving our RU Segment financial results, NCLEX pass rates, and stabilizing enrollment;

•upgrading or relocating existing campuses and opening additional campuses to meet student needs;

•changing fund disbursement methods; and

•implementing alternative learning delivery methods.

Information technology systems are an essential part of the student experience and our business operations, as discussed more fully in “Business – Information Technology” in this Annual Report. APEI provides information technology services to APUS, HCN, RU, and GSUSA through a shared services model. We believe we will need to continue, and potentially increase, our investment of time and money in technology operations and enhancements to support our systems and mission and evaluate when it is appropriate to make significant changes, modifications, or upgrades. We believe we will also need to continue to make investments in information technology in response to competitive pressures in the marketplace, including increased demands for interactive solutions and access from multiple platforms, and to update older systems and to enhance functionality. Information technology operating and capital expenditures may increase in future periods as we accelerate the investment in and refreshment of our information technology systems.

Changes and upgrades to our information technology systems have resulted and may continue to result in our incurring significant costs, including in the short term, and carry risk to our operations and financial results. In 2021 and 2022, we incurred approximately $6.0 million, and $3.2 million, respectively, in information technology costs in our APUS Segment related to our multi-year technology transformation program. In 2021, we completed work to consolidate HCN and APUS onto a single, cloud-based LMS platform, Brightspace by D2L. We are continuing to consolidate APUS’s customer relationship management systems onto a single platform, the first phases of which we completed in 2022. We also have several other systems that support the student experience, financial aid processing, financial management, human resources processes, marketing, and decision support. In early 2023, we launched a new native mobile application to improve the student experience at APUS. Not all of our information technology spending can be capitalized, and our investments may cost more than expected or fail to be successful. Furthermore, as a result of unsuccessful development efforts, or a result of replacing outdated technology, software, or other technology related assets, we may have assets that become impaired.

We plan to transition all of RU’s information technology services currently outsourced to Collegis back to our operations or to one or more other third-party vendors. As part of that transition and our overall multi-year technology transformation program, in December 2023, we entered into an agreement to outsource a number of our information technology operations to a managed service provider, including service desk, end user support, and network support and operations. As we continue to develop our transition plans, at this time we estimate that the cost of the transition will be between approximately $2.9 million and $3.6 million in 2024.

Opening new campuses and maintaining existing campuses at RU and HCN may result in our incurring significant costs in the future. At RU and HCN, adding new campuses is a necessary step to extend our student reach throughout the United States. For example, during 2021 and 2022, HCN opened new campuses in Akron, Ohio, and Detroit, Michigan, respectively, and in July 2022, RU opened a consolidated Hennepin/Anoka, Minnesota campus by merging two existing campuses and relocating to a new space. Operating and capital expenditures to increase in future periods as we continue to add new campuses and incur maintenance costs at existing campuses.

RU Change in Ownership. The acquisition of RU, or the Rasmussen Acquisition, was required to be reported to, and in some cases approved by, various education regulatory bodies. An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership. In September 2021, in connection with the Rasmussen Acquisition, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective in October 2021, that allowed RU to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application. The TPPPA continued the growth restrictions that ED

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imposed as a result of RU’s March 2019 change in ownership and control, which was prior to our acquisition of RU, including limitations on new programs and locations, and an enrollment cap, until after ED reviewed and accepted financial statements and compliance audits that cover complete fiscal periods of RU’s Title IV participation under our ownership.

In August 2023, ED notified RU that it had approved RU’s continued participation in the Title IV programs under APEI ownership under a Provisional Program Participation Agreement, or PPPA. The PPPA continues to impose certain growth restrictions on RU that were included in the TPPPA, including limitations on new programs and locations and an enrollment cap on the number of students that participate in Title IV programs. ED continues the prior requirement that RU to submit periodic financial and Title IV enrollment reports. The PPPA also imposes new reporting requirements related to accrediting agency actions, government actions, and class actions and new reporting requirements related to student complaints. The PPPA specifies that after ED reviews and accepts financial statements and compliance audits for one complete fiscal year of RU’s Title IV participation under our ownership, RU may seek removal of the enrollment cap and approval for new programs that replace current programs. Although one complete fiscal year of RU’s Title IV participation under APEI’s ownership has passed and we believe that we may now seek approval for new programs that replace current programs, we have not yet confirmed with ED that it has accepted the financial statements and compliance audits for such purpose. The PPPA also specifies that after ED reviews and accepts financial statements and compliance audits that cover the second complete fiscal year of RU’s Title IV participation under our ownership, RU must seek pre-approval for new locations, new programs that are not replacing current programs, and other changes. For the second and third fiscal years of RU’s Title IV participation under APEI’s ownership, RU is also subject to enrollment growth limitations, after which RU can request that ED release RU from further enrollment restrictions. The PPPA no longer requires RU to post the financial responsibility letter of credit that ED had imposed based on the 2019 change in ownership and control of RU, although this letter of credit has not yet been released. We believe we have met all obligations for the release of the letter of credit.

For more information on the regulatory review related to the Rasmussen Acquisition and RU’s previous change in ownership and related risks, please refer to “Business – Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures” and “– Regulatory Actions and Restrictions on Operations – Change in Ownership Resulting in a Change of Control” and “Risk Factor – Risk Related to the Regulation of Our Industry - RU is currently on provisional certification with ED, and the terms of that provisional certification could limit its potential for growth”.

Competition. The U.S. postsecondary education market is characterized by intense competition, with approximately 4,500 institutions of higher learning. Due to the increase in online postsecondary offerings, which accelerated as a result of the COVID-19 pandemic, coupled with the prospect of continued uncertainty in postsecondary enrollment in the United States, we face increased competition as fewer students pursue degree-based postsecondary education from a wider selection of offerings. For example, in 2019, the Navy launched the U.S. Naval Community College, or the USNCC, which supports naval education for enlisted service members. While a number of schools with which APUS competes are participating partners with the USNCC, APUS, as a for-profit educator, is not an eligible partner. Navy-related registrations were 5% of total net registrations, using TA as their primary pay type, in each of the years ended December 31, 2021, 2022, and 2023, respectively. We expect each military branch and the DoD to continually evaluate their approaches to education, and any resulting changes could have a material adverse effect on APUS’s enrollments. For more information on our competition and its potential impacts, please refer to “Business – Our Market and Competition – Competition” in this Annual Report.

“90/10 Rule” Compliance and Delayed Billing. For fiscal years beginning on or after January 1, 2023, which for our institutions means the year ended December 31, 2023, federal educational assistance funds used to calculate the “90%” side of the ratio include Title IV funds and any other educational assistance funds provided by a federal agency directly to an institution or a student, including the federal portion of any grant funds provided by or administered by a non-federal agency, except for non-Title IV federal educational assistance funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges. ED confirmed that the 90/10 Rule no longer permits institutions to count federal aid for veterans and service members as part of the “10%” side of the ratio. As a result, effective January 1, 2023, TA and VA benefits are included in the “90%” side of the ratio, and our institutions’ 90/10 Rule percentages increased, particularly at APUS. While each of our institutions was in compliance with the 90/10 Rule for 2023, with APUS’s relevant percentage for 2023 being 89%, there is no assurance that we will continue to be able to comply in future years, particularly at APUS.

As a result of the problems with TA discussed in further detail in the Risk Factor that begins “Our student registrations, revenue, and cash flow have been adversely impacted...” cash payments from the Army to APUS that were expected in 2021 and 2022 were delayed and were received in 2023. These delayed payments, together with recent modifications to the 90/10 Rule and enrollment growth among service members as compared to declining enrollments from students who use non-federal educational assistance funds caused APUS’s 90/10 Rule percentage to increase. For the year ended December 31, 2023, APUS received approximately $56.3 million in payments from the Army, as compared to $48.8

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million for the year ended December 31, 2022. Of the amount received from the Army in 2023, approximately $18.4 million represented delayed payments that had been expected in prior years. As of December 31, 2023, approximately $22.3 million, of which $12.7 million is older than 60 days from the course start date, was due from the Army, as compared to $26.0 million due from the Army as of December 31, 2022, of which $16.5 million was older than 60 days from the course start date. If we are unable to collect aged amounts due from the Army, this may cause our bad debt expense to increase. Moreover, delayed invoicing may cause the “90%” side of the ratio to increase in 2024 or future years, which could have an adverse impact on our cash flow and results of operations, as well as APUS’s ability to comply with the 90/10 Rule in 2024 or future years.

In September 2023, APUS changed its approach to invoicing for TA, which had the effect of offsetting the receipt of the delayed payments from the Army. APUS is currently taking longer to bill TA, which had the effect of delaying into 2024 payments for TA that ordinarily would have been received in 2023. We estimate that APUS’s change in billing approach resulted in approximately $22.1 million of receivables that we would have expected to receive in 2023 being received in 2024, which may cause the “90%” side of the ratio to increase in 2024 or future years. In addition to the $22.1 million of receivables received in 2024 due to the change in billing timing, in 2024 we expect to bill the Army and collect $4.0 million outstanding from courses that began in 2022 and prior. The change in billing practice also added to our accounts receivable as of December 31, 2023 and resulted in an increase to our leverage ratio as of December 31, 2023 under our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock, as described in Notes 9 and 13 to our audited consolidated financial statements for the year ended December 31, 2023.

In addition, effective January 1, 2024, APUS revised its billing policy for students utilizing TA, which previously ranged from two weeks to five weeks after course start date to nine weeks after the course start date. Billed accounts receivable are considered past due if the invoice has been outstanding for more than 30 days.

Regulated Industry. Our institutions operate in a highly regulated industry. For more information on the regulations to which our institutions are subject and recent regulatory developments, please refer to “Business – Regulatory Environment” in this Annual Report. Regulations may impact our financial results in a way that we cannot predict and may have an adverse impact on our financial condition.

OUR KEY FINANCIAL METRICS

Revenue

When reviewing our revenue, we evaluate the following elements: net course registrations and enrollment; tuition rate; net tuition; and other fees.

Net course registrations and enrollment. For financial reporting and analysis purposes, APUS measures its student population in terms of aggregate course enrollments, or net course registrations. Net course registrations, which include one-credit lab courses combined with their related three-credit courses, represent the aggregate number of courses in which students remain enrolled after the date by which they may drop the course without financial penalty. RU and HCN measure their student population in terms of student enrollments. Student enrollment represents the total number of students enrolled in a term immediately after the date students may drop a term without financial penalty.

At APUS, because we recognize revenue over the length of a course, net course registrations and student enrollments in a financial reporting period do not correlate directly with revenue for that period because revenue recognized from courses is not necessarily recognized in the financial reporting period in which the course registrations or enrollments occur. For example, at APUS, revenue in a quarter reflects a portion of the revenue from courses that began in a prior quarter and continued into the quarter, all revenue from courses that began and ended in the quarter, and a portion of the revenue from courses that began but did not end in the quarter. At RU and HCN, generally terms begin and end in a calendar quarter.

The average number of courses taken by students at APUS varies by payor type. For example, Title IV students take more courses on average than TA students. As a result, should the number of APUS’s students who utilize ED’s Title IV programs decrease (or the number of students using TA increase), we anticipate that it may cause the average number of courses per student per term to decrease.

You should not rely on the results of any prior periods as an indication of future net course registrations at APUS, student enrollments at RU and HCN, or consolidated revenue. The composition of our students, changing market demands, and competition make forecasting very difficult, and we are unable to determine if we will continue to grow or what level of growth we will achieve, if any. Similarly, you should not rely on our operating margins in any prior periods as an indication of our future operating margins.

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Tuition rate. Providing affordable degree and certificate programs is an important element of our competitive strategy. APUS implemented modest tuition and fee increases for non-military and veteran students in the second and third quarters of 2023, but we estimate that APUS’s tuition and fees remain lower than the average in-state cost at public universities. RU implemented modest tuition increases effective in the first quarter of 2023 for select programs, and HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs. At RU and HCN, the tuition increases are adjusted to be consistent with the local campus markets. Even inclusive of these increases, RU and HCN’s tuition and fees are designed to be affordable and competitive when compared to the tuition and fees at similar institutions offering the same level of flexibility, accessibility, and student experience. In the second quarter of 2024, as part of the continuous improvement initiatives in education quality, APUS plans to implement a modest tuition increase to master’s students across all categories, including military, non-military, and veteran students.

Net tuition. Tuition revenue varies from period to period based on the number of students enrolled at our institutions, the number of and types of courses that students take, student payor source, the mix of programs students attend, the number of students starting courses each month during the period, and the timing of course starts each month or term. Tuition revenue is adjusted to reflect amounts for students who withdraw from a course in the month or term in which the withdrawal occurs. We also provide tuition grants and scholarships to certain students to assist them financially with their educational goals. The cost of these grants and scholarships is reported as a reduction of tuition revenue in the period incurred for purposes of establishing net tuition revenue.

Other fees. In addition to tuition, APUS charges a technology fee of $85 to $100 per course, depending on the course. In the second quarter of 2023, the technology fee increased from $65 per course, and in the third quarter of 2023 the technology fee per course was eliminated for all undergraduate students. APUS students are also charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees, when applicable. Prior to September 2023, APUS provided a grant to cover the technology fee for students using TA and other programs, as applicable. Technology fee revenue net of grants was approximately $7.9 million in 2021, $7.3 million in 2022, and $8.1 million in 2023, or 2.8%, 2.6%, and 2.7% of revenue, respectively.

RU and HCN students are charged fees for various items such as applications, testing, books and supplies, laboratory work, technology, and graduation. For example, RU charges a course technology and resource fee of $175 per course and a one-time administrative fee for certain programs, up to $495, for all new, reentering, and program transfer students. Textbook and other course materials revenue for RU and HCN was approximately $22.2 million in 2021, $49.6 million in 2022, and $43.3 million in 2023, or 16.4%, 16.5%, and 16.0% of revenue, respectively.

Costs and Expenses

We categorize our costs and expenses in the following categories: instructional costs and services expenses; selling and promotional expenses; general and administrative expenses; depreciation and amortization; impairment of goodwill and intangible assets; loss on assets held for sale; and loss on disposals of long-lived assets.

Instructional costs and services expenses. Instructional costs and services expenses are directly attributable to the educational services our institutions provide to their students. Instructional costs and services expenses include salaries and benefits for full-time faculty, administrators, and academic advisors, and costs associated with part-time faculty. Instructional costs and services expenses also include costs associated with curriculum development, academic records and graduation, and other services provided by our institutions, such as evaluating transcripts. Instructional costs and services expenses are generally affected by the cost of academic resources, the efficiency of delivering academic products and services to our students, salaries and benefits for our faculty and other academic and administration personnel, and the level of expenditures for new and existing academic programs. At RU and HCN, instructional costs and services expenses also includes operating expenses directly associated with campus operations, including rent. At APUS, instructional costs and services expenses include expenses related to course materials, learning resources, the library, the APUS-funded book grant program, and instructional pay for part-time faculty that are primarily dependent on the number of students taught.

Selling and promotional expenses. Selling and promotional expenses include salaries and benefits of personnel engaged in student enrollment, advertising costs, and marketing material production costs, and, prior to January 31, 2023, include expenses from the third-party contract with Collegis to provide marketing services to RU. Our selling and promotional expenses are generally affected by the cost of advertising media, the efficiency of our selling efforts, salaries and benefits for our selling and admissions personnel, and the level of expenditures for advertising initiatives for new and existing academic programs.

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General and administrative expenses. General and administrative expenses include salaries and benefits of employees engaged in corporate management, finance, financial aid processing, information technology, including expenses from the third-party contract with Collegis to provide IT services to RU, human resources, finance, legal, and compliance, and other corporate functions, the cost of renting and maintaining administrative facilities, technology expenses, and costs for professional services. General and administrative expenses also include bad debt expense. General and administrative expenses are generally affected by the costs of salaries and benefits for our general and administrative personnel, the efficiency of delivering back-office support including technology services, and the level of expenditures for supporting company initiatives.

Depreciation and amortization. We incur depreciation and amortization expenses for costs related to the capitalization of property, equipment, software, and program development on a straight-line basis over the estimated useful lives of the assets. In addition, we incur amortization expense for the amortization of identified intangible assets with a definite life resulting from the Rasmussen Acquisition.

Impairment of goodwill and intangible assets. Impairment of goodwill and intangible assets recognizes the difference between the carrying value of goodwill and intangible asset and the fair value of goodwill and intangible asset.

Loss on assets held for sale. Loss on assets held for sale is the difference between the asset’s estimated fair value less estimated costs to sell and the asset’s book value at the time the asset is no longer used for operations and reclassified as held for sale in accordance with the held-for-sale criteria.

Loss on disposals of long-lived assets. Loss on disposals of long-lived assets is the difference between the long-lived asset’s residual value and their book value at the time of the asset’s disposition or abandonment.

Interest expense, net. Interest expense, net, consists primarily of interest incurred on our long-term debt, net of any interest income earned on cash and cash equivalents.

Equity Investment Loss. Equity investment loss consists of our proportional share of after-tax income or losses attributable to our equity investment as well as the loss from any other-than-temporary impairment charges, which represents the difference between the carrying value of and fair value of the investment.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition and the valuation of goodwill and indefinite-lived intangible assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ and have a material impact on our Consolidated Financial Statements, or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates. The following discussion of our critical accounting policies and estimates is intended to supplement the accounting policies presented in “Note 2. Significant Accounting Policies” included in our Consolidated Financial Statements.

Business combinations. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, the purchase price be allocated to all tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess purchase price over the fair value of the net assets acquired and liabilities assumed is recorded as goodwill. The determination of the fair value of assets acquired and liabilities assumed requires estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, earnings before interest and taxes margins, student attrition rates, royalty rates, discount rates, and useful lives. These estimates are based on assumptions we believe to be reasonable, and, when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill.

Goodwill and indefinite-lived intangible assets.

Goodwill is the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reported at the reporting unit level that we have defined as our

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reporting segments. In connection with our acquisitions of RU and HCN, we recorded $217.4 million and $38.6 million of goodwill, respectively, in our RU and HCN Segments. We recorded non-cash impairment charges in 2022 and 2023 for RU, and 2016 and 2019 for HCN, reducing the carrying value of RU and HCN Segments goodwill to $33.0 million and $26.6 million, respectively. There was no goodwill recorded in connection with the acquisition of GSUSA reported in Corporate and Other, and there is no goodwill in our APUS Segment.

In addition to goodwill, in connection with the acquisitions of RU and HCN, we recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million and $3.7 million, respectively, in our RU and HCN Segments, which include intangible assets related to trade name, accreditation, licensing, and Title IV, and affiliate agreements. We recorded non-cash impairment charges in 2023 and 2022, reducing the carrying value of RU identified intangible assets with an indefinite useful life to $24.5 million. There were no indefinite useful life intangible assets identified as a result of the acquisition of GSUSA reported in Corporate and Other. There are no indefinite-lived intangible assets in our APUS Segment.

We recorded $35.5 million, $4.4 million, and $1.0 million of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN, and GSUSA, respectively, reported in our RU and HCN Segments, and in Corporate and Other. There are no definite-lived intangible assets in our APUS Segment.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events and circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The process of evaluating goodwill and indefinite-lived intangible assets for impairment is subjective and requires significant judgment and estimates. When performing an optional qualitative analysis, we consider many factors, including general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers (for example, student enrollment), long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates.

We estimate fair value in our quantitative analysis by weighting the results from two different valuation approaches. They are: (1) discounted cash flow and (2) guideline public company. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU and HCN at their estimated weighted-average cost of capital. We incorporate the use of projected financial information and a discount rate that are developed using market participant-based assumptions. The cash-flow projections are based on three-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are updated at least annually and approved by management. Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the fair value of RU and HCN. Values derived under the two valuation methods are then weighted to estimate RU and HCN’s enterprise values. If we determine that the carrying amount of a reporting unit exceeds its fair value, we then calculate the implied fair value of the reporting unit goodwill as compared to its carrying amount to determine the appropriate impairment charge. Although we believe our assumptions are reasonable, actual results may vary significantly and may expose us to material impairment charges in the future. Our methodology for determining fair values remained consistent for the periods presented.

During the second quarter of 2022, we completed a qualitative assessment to determine if an interim goodwill impairment test was necessary. The assessment concluded that due to our RU Segment under performance when compared to projections at the time of acquisition, along with our decline in market value and that of comparable companies, it was more likely than not that the fair value of our RU Segment was less than its carrying value. Therefore, we proceeded with a quantitative impairment test. As a result of these assessments, we recorded a non-cash goodwill impairment charge of $131.4 million, and to reflect the corresponding tax impact, in the second quarter of 2022, to reduce the carrying value of the RU Segment goodwill. In addition, we concluded there were indicators of impairment of the RU Segment intangible assets during the second quarter of 2022 and during the annual assessment. We determined the fair value of the RU Segment accreditation, licensing and Title IV indefinite-lived intangible asset was $13.5 million, during the second quarter of 2022, and $2.0 million, during the annual assessment, less than its carrying value. As a result, we recorded total non-cash impairment charges of $15.5 million during 2022 to reduce the carrying value of our RU Segment indefinite-lived intangible assets. There were no indicators of impairment for our HCN Segment.

During the second quarter of 2023, we completed qualitative assessments to determine if an interim goodwill impairment test was necessary. The assessment concluded that due to our RU Segment underperformance when compared to the 2023 internal targets, projected enrollment trends, the decline in financial performance projected for the remainder of 2023 as compared to prior projections, and our market value, it was more likely than not that the fair value of our RU Segment was

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less than its carrying value. Therefore, we proceeded with a quantitative impairment test. As a result of these assessments, we recorded a non-cash goodwill impairment charge of $53.0 million, which reflects the corresponding tax impacts, to reduce the carrying value of the RU Segment goodwill. In addition, we concluded there were indicators of impairment of the RU Segment’s intangible assets. As a result, we recorded non-cash impairment charges of $11.0 million to reduce the carrying value of our RU Segment indefinite-lived intangible assets. There were no indicators of impairment for our HCN Segment.

At October 31, 2022, we completed our annual assessment of goodwill and indefinite-lived intangibles for our RU and HCN Segments. The annual assessment concluded that the fair value of goodwill for RU and HCN exceeded their carrying values by approximately $10.0 million, or 5%, and $4.9 million, or 13%, respectively. Significant assumptions in the forecast used in the discounted cash flow valuation model include the recovery in our RU Segment enrollment in year three to historical norms and two future campus openings in our HCN Segment. These assumptions could be negatively affected by and of the following including, but not limited to, changes in our regulatory environment, declines in student enrollment, adverse actions by state boards of nursing including enrollment caps, and increases in our expenses not in our plan. In addition, as described above, we determined the fair value of our RU Segment’s indefinite-lived intangible asset was less than its carrying value. As a result, we recorded a $2.0 million non-cash impairment charge to reduce the carrying value of our RU Segment indefinite-lived intangible assets for accreditation, licensing and Title IV. There was no impairment to HCN goodwill or indefinite-lived intangible assets. The estimated fair value of our RU Segment does not significantly exceed its carrying amount at the date of testing. We applied a hypothetical ten percent decrease to the fair values of our RU and HCN Segments, which at December 31, 2022, would have triggered additional impairment testing and analysis for our RU Segment. Applying the hypothetical decrease to the fair value of our HCN Segment did not result in an additional impairment.

At October 31, 2023, we completed our annual assessment of goodwill and indefinite-lived intangibles for our RU and HCN Segments. The annual assessment concluded that the fair value of goodwill for RU and HCN exceeded their carrying values by approximately $32.4 million, or 25%, and $7.4 million, or 21%, respectively. Significant assumptions in the forecast used in the discounted cash flow valuation model include the recovery in our RU Segment enrollment and cost containment measures. Our HCN Segment’s significant assumptions in the forecast relate to the addition of a medical assistant program in all Ohio campuses, a future campus opening and future tuition increases. These assumptions could be negatively affected by and of the following including, but not limited to, changes in our regulatory environment, declines in student enrollment, adverse actions by state boards of nursing including enrollment caps, and increases in our expenses not in our plan. In addition, we determined the fair value of our RU Segment’s indefinite-lived intangible asset was greater than its carrying value. As a result, no impairment charge recorded regarding the carrying value of our RU Segment indefinite-lived intangible assets. Additionally, there was no impairment to HCN goodwill or indefinite-lived intangible assets.

At December 31, 2023, after the reduction in carrying value due to the goodwill and intangible assets in 2022 and 2023, and, in the case impairment charges in prior years in the HCN Segment, goodwill is $33.0 million and $26.6 million in the RU and HCN Segments, respectively.

Significant assumptions inherent to valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in the higher education market. Future changes, including minor changes in the significant assumption or other factors including revenue, operating income, valuation multiples, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

For additional details regarding goodwill and indefinite-lived intangible assets please refer to “Note 7. Goodwill and Intangible Assets” included in our Consolidated Financial Statements.

Series A Senior Preferred Stock. On December 28, 2022, we issued $40 million of the Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of our existing common stockholders.

The Series A Senior Preferred Stock has been classified as permanent equity on the accompanying Consolidated Balance Sheets. The Series A Senior Preferred Stock is recorded net of issuance costs. Dividends accrued on the Series A Senior Preferred Stock are presented in preferred stock dividends on the Consolidated Statements of Income. Our preferred stock dividends are cumulative and accrue as contractually obligated. Dividends will be paid upon approval by our Board of Directors.

The determination as to permanent equity treatment considered the obligations to the shareholder. The Series A Senior Preferred Stock is only redeemable at our option. Upon a change of control, default, non-compliance event or liquidation event an increased dividend rate is applicable, and dependent on timing, an early premium may be applicable, but the Series A Senior Preferred Stock is not mandatorily redeemable.

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We evaluated the Series A Senior Preferred Stock at issuance for the embedded derivative features and the potential need for bifurcation under ASC 815 Derivatives and Hedging- Embedded Derivatives. We engaged an independent valuation firm to assist with the evaluation at issuance. As of December 31, 2022, the embedded features identified for bifurcation were determined to have minimal or no value and therefore deemed to not be material to the financial statements. We reviewed the embedded features as of December 31, 2023 and determined that they are not material to the financial statements.

The Series A Senior Preferred Stock has no stated maturity, is not convertible, is not subject to any mandatory redemption, sinking fund or other similar provisions and will remain outstanding unless redeemed at our option. We have the right to redeem the preferred stock pro rata in whole or in part at the price per share equal to the liquidation preference, plus any applicable early premium amount noted in the Certificate of Designation and Purchase Agreement.

The Series A Senior Preferred Stock has no voting rights for directors or otherwise, except as required by law or with respect to certain protective provisions. However, holders of our Series A Senior Preferred Stock have certain consent rights that limit our ability to obtain debt or preferred stock financing or take certain other corporate actions. Without the consent of at least 60% of the then outstanding shares of Series A Senior Preferred Stock, with certain exceptions, we may not, among other things, (i) incur any indebtedness if such incurrence would cause our Total Net Leverage Ratio (as defined in the Purchase Agreement) to exceed 0.75 to 1.00, (ii) issue any capital stock senior to or pari passu with the Series A Senior Preferred Stock, (iii) declare or pay any cash dividends on our common stock, or (iv) repurchase more than an aggregate of $30 million of our common stock.

For additional details regarding the Series A Senior Preferred Stock, please refer to “Note 13. Preferred Stock” included in our Consolidated Financial Statements.

RECENT ACCOUNTING PRONOUNCEMENTS

We consider the applicability and impact of all Accounting Standards Updates, or ASUs. Please refer to “Note 2 Significant Accounting Policies” included in our Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements.

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Results of Operations

The following table sets forth statements of income data as a percentage of revenue for each of the years ended:

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Revenue

For the year ended December 31, 2023, our consolidated revenue was $600.5 million, a decrease of $5.8 million, or 1.0%, compared to $606.3 million in 2022. The decrease in revenue was primarily due to a $39.2 million, or 15.5% decrease in revenue in our RU Segment, partially offset by a $18.2 million, or 6.4% increase in revenue in our APUS Segment, a $9.9 million, or 20.9%, increase in revenue in our HCN Segment, and a $5.3 million, or 25.0%, increase in GSUSA revenue included in Corporate and Other.

APUS net course registrations increased approximately 4.9% to 367,600 for the year ended December 31, 2023 from approximately 350,400 in the 2022 period. The increase in net course registrations was primarily due to an increase in military related registrations from students utilizing TA, which generate a lower revenue per registration. Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty.

For the year ended December 31, 2023, RU enrollment decreased 11.0% as compared to the 2022 period. We believe this decline in enrollment, which reflects year-over-year declines in new and total nursing enrollment, and which was partially offset by an increase in non-nursing program enrollment, can be attributed to several factors, including the prior departure of leadership accountable for enrollment and nursing operations and caps on nursing student enrollment at certain RU campuses. RU total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

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For the year ended December 31, 2023, HCN student enrollment increased approximately 16.9% as compared to the 2022 period. We believe that the increase in total student enrollment is primarily due to the opening of new campuses, including the Detroit, Michigan campus, which opened in October 2022. HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

Costs and Expenses

For the year ended December 31, 2023, costs and expenses were $648.9 million, a decrease of $94.8 million, or 12.8%, compared to $743.7 million in 2022. The decrease in costs and expenses as compared to the prior year period was primarily due to a decrease in the non-cash goodwill and intangible asset impairment charge compared to the prior year period. Costs and expenses for the year ended December 31, 2023, include a non-cash goodwill and intangible asset impairment charge of $64.0 million to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact compared to a non-cash impairment charge and the corresponding tax impact of $146.9 million in the prior year period, a decrease of $82.9 million in the current year period. Other decreases in costs and expenses for the year ended December 31, 2023, as compared to the prior year period include decreases in advertising costs in all segments and decreases in depreciation and amortization costs, partially offset by an increase in employee compensation costs in Corporate and Other and our HCN Segment and a $2.4 million loss on assets held for sale in our APUS Segment.

In 2023, costs and expenses also include the following on a pretax basis: $3.0 million in severance costs related to a reduction in force, and $2.4 million in selling and promotional costs related to the termination of the marketing contract with Collegis. In 2022, costs and expenses also include the following items on a pretax basis: $3.9 million in selling and promotional costs related to the termination of the marketing contract with Collegis, $3.5 million of severance costs related to reductions in force, $3.2 million in information technology costs related to our multi-year technology transformation program, and $1.9 million in professional services costs primarily related to the Rasmussen and GSUSA Acquisitions.

Costs and expenses as a percentage of revenue decreased to 108.0% in 2023 from 122.7% in 2022. Excluding impairment charges, losses on assets held for sale and Collegis transition fees, costs and expenses were 96.6% of revenue for the year ended December 31, 2023, compared to 97.8% of revenue in the prior year period. Our income before interest and income taxes as a percentage of revenue, or our operating margin, improved to negative 8.0% from negative 22.7% compared to the same prior year period. Excluding impairment charges, loss on assets held for sale, and Collegis transition fees, our operating margin improved to 3.4% from 2.2% compared to the same prior year period. The decrease in our costs and expenses as a percentage of revenue and decrease in our operating margin was primarily due to the factors discussed above.

Instructional costs and services expenses. For the year ended December 31, 2023, instructional costs and services expenses were $292.9 million, an increase of approximately $4.4 million, or 1.5%, compared to $288.5 million in 2022. The increase in instructional costs and services expenses was primarily due to increases in employee and faculty compensation costs in our APUS and HCN Segments due to an increase in registrations at APUS and enrollment at HCN, and Corporate and Other due to higher revenue at GSUSA, an increase in classroom materials costs in our RU and HCN Segments, and an increase in facilities maintenance costs in our RU and HCN Segments, partially offset by a decrease in employee and faculty compensation costs in our RU Segment due to a decrease in enrollment, and a decrease in classroom materials costs in our APUS Segment. Instructional costs and services expenses as a percentage of revenue increased to 48.8% in 2023, compared to 47.6% in 2022.

Selling and promotional expenses. For the year ended December 31, 2023, selling and promotional expenses were $133.0 million, a decrease of $21.6 million, or 14.0%, compared to $154.6 million in 2022. The decrease in selling and promotional expenses was primarily due to a decrease in advertising costs in all segments and Corporate and Other, a decrease in employee compensation costs in our APUS Segment, and the transition from Collegis to our in-house marketing function in our RU Segment, partially offset by an increase in employee compensation costs in Corporate and Other. In 2023 and 2022, selling and promotional costs include $2.4 million and $3.9 million, respectively, related to the termination of the Collegis marketing contract effective January 31, 2023. Selling and promotional expenses as a percentage of revenue decreased to 22.1% in 2023, compared to 25.5% in 2022. Excluding the Collegis transition service fees, selling and promotional expenses were 21.7% in 2023 compared to 24.9% in 2022.

General and administrative expenses. For the year ended December 31, 2023, general and administrative expenses were $128.2 million, an increase of $7.9 million, or 6.6%, compared to $120.4 million in 2022. The increase in general and administrative expenses was primarily due to increases in employee compensation costs in Corporate and Other and our RU and HCN Segments, increases in bad debt expense in all segments, and increases in technology costs in all segments and Corporate and Other, partially offset by a decrease in employee compensation costs in our APUS Segment, and a decrease in professional services costs in our APUS and RU Segments. General and administrative expenses as a percentage of revenue increased to 21.3% in 2023 compared to 19.9% in 2022.

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For the year ended December 31, 2023, consolidated bad debt expense increased to $16.5 million, or approximately 2.7% of revenue, from $13.5 million, or approximately 2.2% of revenue, in 2022. The increase in bad debt expense was primarily due to an increase in the APUS, HCN, and RU Segments of $1.3 million, $1.0 million and $0.5 million, respectively, as compared to the prior year period.

Depreciation and amortization. Depreciation and amortization expenses were $27.8 million in 2023, compared to $32.1 million in 2022, a decrease of $4.3 million or 13.4%, primarily related to the full amortization of certain definite lived intangible assets in our RU Segment in 2023. Depreciation and amortization expenses as a percentage of revenue decreased to 4.6% in 2023 compared to 5.3% in 2022.

Impairment of goodwill and intangible assets. For the year ended December 31, 2023, we recorded $64.0 million in non-cash impairment charges in our RU Segment to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact, compared to $146.9 million in 2022. For additional information regarding the impairment of goodwill and intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 7. Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Annual Report.

Loss on assets held for sale. For the year ended December 31, 2023, we recorded a $2.4 million loss to reduce the carrying value of real property held for sale in our APUS Segment. There was no loss on assets held for sale in the year ended December 31, 2022.

Loss on disposal of long-lived assets. The loss on disposal of long-lived assets was $0.6 million in 2023, compared to $1.2 million in 2022. The prior year loss was primarily related to the sale of excess facilities located in Charles Town, West Virginia.

Stock-based compensation. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses in 2023 were $7.7 million in the aggregate, representing a decrease of $0.3 million, or 3.4%, compared to $8.0 million in 2022. Stock-based compensation costs include performance stock unit incentive costs and accelerated expense for retirement-eligible employees.

The table below reflects our stock-based compensation expense recorded in our Consolidated Statements of Income included in our Consolidated Financial Statements for the years ended 2022 and 2023 (in thousands):

Interest expense, net. Interest expense, net of interest income, was $4.5 million in 2023, compared to interest expense, net of interest income of $17.7 million in 2022. The decrease in interest expense was primarily due to the decrease in the outstanding balance in our senior secured term loan facility. In December 2022, we made $65.0 million in prepayments to reduce our outstanding debt and as a result of these prepayments, we wrote off a proportionate amount of unamortized debt issuance costs in the amount of $3.9 million. The write off in 2022 is recorded in interest expense on the Consolidated Statements of Income for the year ended December 31, 2022.

Income tax (benefit) expense. For the year ended December 31, 2023, we recognized an income tax benefit of $10.7 million, compared to an income tax benefit of $36.3 million in 2022. The effective tax rate was 18.5% and 24.0% in 2023 and 2022, respectively. The year ended December 31, 2023 and 2022 includes a $15.8 million and $36.0 million income tax benefit related to the impairment of goodwill and intangible assets, respectively. The 2023 effective tax rate was impacted by higher non-deductible expenses in relation to the pre-tax losses for the period, compared to 2022.

Equity investment loss. Equity investment loss was $5.2 million in 2023, compared to equity investment loss of $21,000 in 2022. The increase is primarily due to a $5.2 million non-cash investment loss related to the investee entering into an agreement to be sold which resulted in no sales proceeds.

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Net income (loss). The net loss in 2023 was $47.3 million, compared to net loss of $115.0 million in 2022, a decrease in loss of $67.7 million. This decrease was related to the factors discussed above.

Preferred stock dividends. Preferred stock dividends for the year ended December 31, 2023 were $6.0 million compared to $48,000 in 2022. The Series A Senior Preferred Stock was issued on December 28, 2022.

Net income (loss) available to common stockholders. The net loss available to common stockholders in 2023 was $53.3 million, compared to net income available to common stockholders of $115.0 million in 2022, a decrease of $61.7 million. This decrease was related to the factors discussed above.

Operating Results by Reportable Segment - Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

The table below details our operating results by reportable segment for the periods indicated (in thousands):

APUS Segment

Our APUS Segment revenue was $303.3 million in 2023, an increase of $18.2 million, or 6.4%, compared to $285.1 million in 2022, which is primarily attributable to higher net course registrations and the impact of tuition and fee increases in the second and third quarters. Net course registrations at APUS increased 4.9% to approximately 367,600 in 2023 compared to the 2022 period. The increase in net course registrations was primarily due to an increase in military related registrations from students utilizing TA, which generate a lower revenue per registration. Income from operations before interest and income taxes was approximately $84.4 million in 2023, an increase of $26.0 million, or 44.4%, compared to the 2022 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

RU Segment

Our RU Segment revenue was $214.1 million in 2023, a decrease of $39.2 million, or 15.5%, compared to $253.3 million in 2022, which was primarily due to lower enrollments. Enrollment at RU decreased approximately 11.0% during the year ended December 31, 2023 as compared to the 2022 period. We believe this decline in enrollment, which reflects year-over-year declines in new and total nursing enrollment, which was partially offset by an increase in non-nursing program enrollment, can be attributed to several factors, including the prior departure of leadership accountable for enrollment and nursing operations and caps on nursing student enrollment at certain RU campuses. RU Segment loss from operations before interest and income taxes was $103.6 million in 2023 compared to a loss from operations before income and taxes was $166.6 million in 2022. The RU Segment loss includes impairment charges on goodwill and intangible assets of $64.0 million in 2023 and $146.9 million in 2022 and the corresponding tax impacts of $15.8 million and $36.0 million, respectively.

HCN Segment

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Our HCN Segment revenue was approximately $56.9 million in 2023, an increase of $9.9 million, or 20.9% compared to $47.1 million in the 2022 period, which is primarily attributable to an increase in student enrollment and a 5% tuition increase in the second quarter of 2023. HCN student enrollment increased approximately 16.9% during the year ended December 31, 2023 as compared to the 2022 period. The increase in HCN total student enrollment was primarily due to the opening of new campuses, including the Detroit, Michigan campus, which opened in October 2022. Loss from operations before interest and income taxes in the HCN Segment was approximately $1.4 million in 2023 compared to a loss from operations of $4.0 million in 2022, an improvement of $2.6 million. The decrease in loss from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash was $129.5 million and $144.3 million at December 31, 2022 and 2023, respectively, representing an increase of $14.9 million, or 11.5%, in the 2023 period. The increase in cash was primarily due to higher revenue and operating income at APUS, increased payments received from the Army including payments related to periods prior to 2023, and the timing of other receipts and payments, partially offset by our investment in capital expenditures, payment of preferred dividends, repurchases of common stock in 2023, and the change in billing approach for TA at APUS. We have historically financed operating activities and capital expenditures with cash provided by operating activities. We expect to continue to fund our costs and expenses through cash generated from operations for twelve months and beyond. For more on our material cash requirements from known contractual and other obligations, please refer to “Contractual Obligations” in this Annual Report.

We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term. Another significant source of revenue is derived from TA from the DoD and programs from the Department of Veterans Affairs. Generally, these funds are received within 60 days of the start of the courses to which they relate.

In 2021, the Army transitioned from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, for soldiers to use to request TA. This transition was beset by delays and disruption of the Army’s TA programs. In connection with the transition, we experienced challenges related to system performance, process changes, and third-party software defects. The disruption to Army TA and resulting decreases in Army registrations had an adverse impact on registrations and revenue, profits and cash flow in the second and third quarters of 2021. In August 2022, the Army transitioned from the initial version of ArmyIgnitED to an upgraded ArmyIgnitED 2.0, with a new third-party service provider, and announced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. In early 2023, we experienced an improvement in Army’s processing of current invoices and payments, while continuing to work with the Army on invoices submitted during the transition to ArmyIgnitED 2.0. For example, due to the transition, ArmyIgnitED does not currently reflect all courses previously taken by soldiers at APUS in the relevant period, and ArmyIgnitED does not reflect all amounts due to APUS. For the year ended December 31, 2023, APUS received approximately $56.3 million in payments from the Army. As of December 31, 2023, approximately $22.3 million, of which $12.7 million is older than 60 days from the course start date, was due from the Army, as compared to $26.0 million due from the Army as of December 31, 2022, of which $16.5 million was older than 60 days from the course start date. There can be no assurance that our continued efforts to mitigate any adverse impact of the transition to ArmyIgnitED 2.0 on accounts receivable, bad debt, and cash flow will be successful.

As discussed in greater detail above in “Overview - 90/10 Rule - Compliance and Delayed Billing”, payments from the Army that were expected in 2021 and 2022 were delayed. Approximately $18.4 million of those delayed payments were received in 2023, which counted toward the “90” side of the 90/10 Rule. In September 2023, APUS changed its approach to invoicing for TA, which offset the receipt of the delayed payments from the Army, resulting in approximately $22.1 million of receivables that we would have expected to receive in 2023 being received in 2024. While the change in billing approach positively impacted the "90%" side of the ratio in 2023, it may cause the “90%” side of the ratio to increase in 2024 or future years. In addition to the $22.1 million of receivables expected to be received in 2024 due to the change in billing timing, in 2024 we expect to bill the Army and collect $4.0 million outstanding from courses that began in 2022 and prior. Effective January 1, 2024, APUS revised its billing policy for students utilizing TA, which previously ranged from two weeks to five weeks after course start date to nine weeks after the course start date. Billed accounts receivable are considered past due if the invoice has been outstanding for more than 30 days.

Our Credit Agreement and the purchase agreement for the shares of Series A Senior Preferred Stock, or the Purchase Agreement, contain financial covenants that require us to maintain a Total Net Leverage Ratio (as defined in each respective agreement) of no greater than 2.00 to 1.00 and 0.75 to 1.00, respectively, subject to certain exceptions. The change in TA

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invoicing added to our accounts receivable as of December 31, 2023 and resulted in an increase to our leverage ratio as of December 31, 2023 under our Credit Agreement and the Purchase Agreement, as described in Notes 9 and 13 to our audited consolidated financial statements for the year ended December 31, 2023.

Our Total Net Leverage Ratio, under the Credit Agreement, at December 31, 2022 and 2023 was 0.67 and 0.51, respectively. While we do not anticipate that a higher leverage ratio will have material limitations on our expected operations for 2024, it could result in reduced operational flexibility in 2024 and future years.

Budget cuts or constraints, including in connection with the failure to increase or a delay in increasing the federal debt ceiling, could negatively affect us by leading to force reductions or cuts to services and tools that we or APUS’s students rely upon for recruitment, enrollment, access, and TA. Even temporary changes to military activity and budgets may adversely affect operations. For example, funding for the federal government or portions thereof, including the DoD, Department of Homeland Security, and Coast Guard, lapsed and resulted in partial shutdowns in 2018 and 2019. Any future government shutdown could have a material adverse effect on APUS’s enrollments and on our cash flows and results of operations, and U.S. government default on its debt would have broad adverse macroeconomic effects that would materially affect our cash flow and results of operations.

As described more fully in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility”, on March 4, 2024, ED notified us that according to its calculations, we had a 2022 consolidated composite score of 1.1 and our institutions were therefore in the “zone.” Although we disagree with ED’s calculation and conclusion and plan to submit a rebuttal to ED, ED may not agree with our position. If ED does not agree with our position, we intend to submit to what are referred to as the “zone alternative” requirements, under which we would be required to: (i) make Title IV disbursements to eligible students and parents under the heightened cash monitoring payment method, or HCM1, pursuant to which we would be required to first make disbursements to eligible students and parents and pay any credit balances before we request or receive funds from ED for the amount of those disbursements; (ii) notify ED of certain events, such as an adverse action taken by any of our institution’s accreditors or state authorizing agencies; (iii) provide regular reports to ED relating to our institution’s current operations and future plans; and (iv) require our auditors to express an opinion on our compliance with the requirements under the zone alternative. While Rasmussen already complies with HCM1, if HCM1 had applied to APUS and HCN in 2023, we estimate that we would have received approximately $6.2 million from ED at a point in time after we had disbursed the related funds.

Our operating expenditures may increase in future periods as we continue to invest in the modernization of our information technology systems, advertising, and other expenditures. For the years ended December 31, 2021 and 2022, we incurred approximately $6.0 million, and $3.2 million, respectively, of information technology costs related to our multi-year technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems. We have a legacy customized SIS at APUS that we refer to as Partnership at a Distance™, or PAD, and proprietary information systems and processes to support PAD, into which we have invested considerable time and money. PAD is designed to enable APUS to provide each student with individualized support at appropriate times from pre-enrollment through and beyond graduation, including student advising, administrative support, and community networking. We continually evaluate PAD for changes and upgrades and anticipate that we will eventually make significant changes to or replace this system. RU uses Anthology Campus Nexus as its SIS. The RU SIS environment is currently hosted with Collegis, which maintains all systems, support, and hosting. RU’s and APUS’s admissions function are managed inside of Salesforce and connected to Anthology for RU and PAD for APUS to ensure all pertinent information is synchronized appropriately. HCN and GSUSA have their own SIS platforms. In 2024, we plan to replace the existing SIS platform used by GSUSA, and will also begin moving HCN to a new SIS platform. More broadly, we continue to review and assess our student information and services platforms and their capabilities, including whether to consolidate to a standard platform across more or all our institutions.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance of existing campuses at RU and HCN, the opening of new campuses at RU and HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth. We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies. For the years ended December 31, 2021 and 2022, we incurred approximately $7.6 million and $1.9 million, respectively, of acquisition-related expenses related to the Rasmussen and GSUSA Acquisitions, which are included in general and administrative expenses on the Consolidated Statements of Income.

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RU has historically relied on Collegis, LLC, or Collegis, for a variety of outsourced marketing services and information technology functions under one contract for marketing services and another for information technology functions. In April 2022, we notified Collegis that we intended to permit both contracts to expire by their terms on September 30, 2024. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Expenses for the fourth quarter of 2022 include $3.9 million in transition fees in connection with the termination of the Collegis marketing services contract as specific transition obligations were completed, and first quarter of 2023 expenses include the remaining $2.4 million in transition service fees, for total non-recurring transition service fees of $6.3 million. We completed the transition of RU marketing to our in-house centralized marketing team during the first quarter of 2023. We plan to transition all of the information technology services currently outsourced to Collegis back to our operations and to one or more third-party vendors in 2024.

In December 2022, we issued $40 million of Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of our existing common stockholders of the Company. We used a portion of the net proceeds from the sale of the Series A Senior Preferred Stock, along with available cash, to repay approximately $65 million of the outstanding principal balance of our Term Loan. After the repayment, the aggregate amount of the Term Loan outstanding was $99.1 million at December 31, 2022. We are required to pay periodic cash dividends to the holders of our Series A Senior Preferred Stock, which will accrue at an annual rate equal to Term SOFR (as defined in the Certificate of Designation) plus 10.00%, and will increase by 2.0% on June 28, 2025 and another 0.5% on October 1, 2025 and the first day of every following quarter, subject to a maximum of Term SOFR plus 25.0%, other than an increase in the dividend rate in connection with an event of default under the Certificate of Designation. We also have the option, from time to time, to redeem the Series A Senior Preferred Stock pro rata in whole or in part. Payment of dividends or the exercise of this redemption right could adversely impact our liquidity and reduce the amount of cash flow available for working capital, capital expenditures, growth opportunities, and other general corporate purposes.

In connection with the completion of the Rasmussen Acquisition, we entered into a Credit Agreement with Macquarie Capital Funding LLC, as administrative agent and collateral agent, Macquarie Capital (USA) Inc., and Truist Securities, Inc. as joint lead arrangers and bookrunners, and a syndicate of lenders, or the Lenders and, pursuant to the Credit Agreement, the Lenders provided us with (i) the $175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities. We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan. For more information on the Facilities and their terms, please refer to “Note 9. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

We believe our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations, debt and interest obligations, and planned capital expenditures for the next 12 months and the foreseeable future. However, our future capital requirements and our ability to generate sufficient cash to fund our future operations will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future capital or borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to pay dividends on our Series A Senior Preferred Stock when due, or to fund our other liquidity needs. Failure to achieve business performance consistent with our expectations, to reverse the decline in enrollments at RU, including as a result of regulatory action, or to comply with the 90/10 Rule or meet the financial responsibility requirements, or any government shutdown could adversely impact our cash flows and results of operations. In addition, our efforts to comply with the 90/10 Rule could lead us to reduce enrollments or require us to make expenditures that would reduce our existing cash available for operations. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness or pay a special dividend to holders of our Series A Senior Preferred Stock, which would also reduce our existing cash available for operations. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Operating Activities

Net cash provided by operating activities was $29.2 million and $45.5 million in 2022, and 2023, respectively. The increase in cash from operating activities is primarily due to improved financial performance and changes in working capital due to the timing of receipts and payments. Accounts receivable at December 31, 2023 increased approximately $8.6 million compared to December 31, 2022, primarily as a result of the change in the timing of billing for students using TA at APUS, partially offset by a decrease in accounts receivable at RU. Accounts payable, accrued liabilities, and accrued compensation and benefits at December 31, 2023 were approximately $4.2 million higher than December 31, 2022, primarily due to the timing of payment processing.

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Investing Activities

Net cash used in investing activities was $13.7 million and $13.8 million in 2022, and 2023, respectively. Investing activities for the years ended December 31, 2022 and 2023 include capital expenditures of $16.4 million and $13.9 million, respectively. The results for the year ended December 31, 2022, include $2.0 million in cash received from the GSUSA Acquisition.

Financing Activities

Net cash used in financing activities was $35.7 million and $16.9 million in 2022 and 2023, respectively. The cash used in financing activities in 2023 includes $6.0 million related to the payment of dividends on our preferred stock and $9.7 million used for the repurchase of our common shares, and $1.0 million for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. The cash used in financing activities in 2022 was due to debt principal prepayments made in December 2022, offset by proceeds from the issuance of our Series A Senior Preferred Stock. As of January 31, 2024, we repurchased an additional 251,000 shares for $2.8 million. Effective February 1, 2024, we ceased purchases under this purchase authorization.

Contractual Obligations

Long-term debt

We have long-term debt outstanding under the Credit Agreement of $99.1 million as of December 31, 2023. No principal payments are due in 2024 as a result of the December 2022 prepayments. Interest payable of $10.9 million is due in 2024, assuming the variable rate as of December 31, 2023. For more information on the timing and amount of our future principal and interest payments, please refer to “Note 9. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

Lease obligations

We have leases for office space and campus facilities. As of December 31, 2023, we had lease payment obligations of $149.1 million, with $18.5 million payable in 2024. For more information on the timing and amount of our future lease obligations, please refer to “Note 8. Leases” included in the Consolidated Financial Statements in this Annual Report.

Other purchase obligations

As of December 31, 2023, we had other purchase obligations of $10.9 million, with $8.2 million payable in 2024. Collegis, a third-party service provider, was previously engaged with RU for marketing services and is currently engaged with RU for information technology services through September 2024. The original agreements were to expire on September 30, 2024. Notices of the non-renewal of the marketing and information technology services contracts were issued to Collegis in April 2022. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Expenses for the fourth quarter of 2022 include $3.9 million in transition fees in connection with the termination of the Collegis marketing services contract as specific transition obligations were completed, and first quarter of 2023 expenses include the remaining $2.4 million in transition service fees, for total non-recurring transition service fees of $6.3 million. We completed the transition of RU marketing to our in-house centralized marketing team during the first quarter of 2023.

Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024 at which time we will complete the transition of information technology services currently provided by Collegis to our operations and to one or more third-party vendors. The total minimum expenses for information technology services through September 30, 2024 is approximately $7.0 million.

We plan to transition all of RU’s information technology services currently outsourced to Collegis back to our operations or to one or more other third-party vendors. As part of that transition, we further evaluated the current and future needs of Company’s information technology infrastructure and determined to outsource a number of our information technology operations to a managed service provider, including service desk, end user support, and network support and operations. As we continue to develop our transition plans, at this time we estimate that the cost of the transition will be between approximately $2.9 million and $3.6 million in 2024.

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Impact of Inflation

Recently, the U.S. economy experienced the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business arising from fluctuations in market prices, however, our ability to raise our tuition and fees depends on market conditions. APUS, RU, and HCN increased certain tuition and fees beginning in 2023, and APUS intends to increase in 2024, in order to offset increased faculty costs and other costs, but there may be periods during which we are unable to fully recover increases in our costs.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K, or this Annual report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business and operations, and involves risks and uncertainties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors”, “Special Note Regarding Forward-Looking Statements”, and elsewhere in this Annual Report. For a discussion of our financial condition and results of operations for 2021 compared to 2020, refer to Part II, Item 7 of our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 2, 2022, which discussion is incorporated in this Annual Report by reference and which is available free of charge on the SECs website at www.sec.gov.

OVERVIEW

We are a provider of online and campus-based postsecondary education, and career learning, to approximately 107,100 students through four subsidiary institutions, American Public University System, or APUS, Rasmussen University, or RU, Hondros College of Nursing, or HCN, and Graduate School USA, or GSUSA. Our subsidiary institutions offer purpose-built education programs and career learning designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or to help them prepare for their next career. Our 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 and are certified by the U.S. Department of Education, or ED, to participate in Title IV programs. Additional information regarding our subsidiary institutions and their regulation is included in the “Business” section of this Annual Report.

On September 1, 2021, we completed the acquisition of RU, or the Rasmussen Acquisition, for an adjusted aggregate purchase price, subject to post-closing working capital adjustments, of $325.5 million in cash, net of cash acquired.

We relied on debt financing pursuant to our Credit Agreement with Macquarie Capital Funding LLC, or the Credit Agreement, to fund a portion of the consideration for the Rasmussen Acquisition. For more information on this financing, please refer to “– Liquidity and Capital Resources – Liquidity – Acquisition of Rasmussen University” and “Note 8. Long-Term Debt” included in the Notes to the Consolidated Financial Statements in this Annual Report. For more information on the Rasmussen Acquisition, please refer to “Note 3. Acquisition Activity” included in the Notes to the Consolidated Financial Statements in this Annual Report, and for more information on the impacts of regulatory action related to the Rasmussen Acquisition, please refer to “– Reportable Segments – RU Change in Ownership” in this Annual Report.

On January 1, 2022, we completed the acquisition of substantially all the assets of GSUSA, for $1.0 million, subject to working capital adjustments. At closing, we received approximately $1.9 million from the seller, which represented 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 that we retained to secure the indemnification obligations of the seller. The purchase price reflects the $0.5 million due to the seller post-closing and additional adjustments to the estimated net working capital at closing.

Our financial results do not include the RU Segment or GSUSA results prior to the respective acquisition closing dates. Therefore, our consolidated results for the year ended December 31, 2021 include the operations of RU for the months of September through December 2021 only, and the consolidated results do not reflect the operations of GSUSA in the 2021 periods. Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which includes unallocated corporate activity and eliminations, and for the year ended December 31, 2022, the operational activities of GSUSA.

Our revenue is largely driven by the number of students enrolled at our institutions, the number of and types of courses that students take, student payor source, and the mix of programs students attend. Our consolidated revenue in 2022 was $606.3 million, representing a $187.5 million, or 44.8%, increase from $418.8 million in 2021. The 2022 revenue increase was primarily due to the inclusion of RU Segment revenue for the full year. A significant portion of our revenue comes from our institutions’ participation in Title IV programs, APUS’s participation in the TA programs, and other government programs, and this creates significant risks to our operations.

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Our operations are organized into three reporting segments:

•American Public University System, 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.

Prior to the Rasmussen Acquisition, we had two reportable segments: the American Public Education, Inc. Segment, or APEI Segment, and the HCN Segment. The APEI Segment previously reported the results of both APUS and unallocated corporate expenses. GSUSA does not meet the quantitative thresholds to qualify as a reportable segment. We therefore present its operational activities within “Corporate and Other”. We also include adjustments to reconcile segment results to the Consolidated Financial Statements in “Corporate and Other”, primarily related to unallocated corporate activity and eliminations, and which also were generally previously reported within the former APEI Segment. Prior periods have been updated to conform to the revised presentation.

Financial information regarding each of our reportable segments is reported in this Annual Report in the sections “Financial Statements and Supplementary Data” and “– Operating Results by Reportable Segment Year Ended December 31, 2022 Compared to Year Ended December 31, 2021”.

Student Body. As of December 31, 2022, approximately 65% of APUS’s students self-reported that they served in the military on active-duty at the time of initial enrollment, and as a result APUS is particularly reliant on tuition assistance programs, or TA, and the Department of Defense, or DoD, budget. At APUS, active-duty military students generally take fewer courses per year on average than non-military students and have a lower revenue per net course registration than other funding sources. A significant portion of APUS’s registrations are also attributable to students using VA education benefits, and funds from Title IV programs. RU nursing students and HCN students generally attend classes at physical campuses and use Title IV program funds. At APUS and for RU programs outside pre-licensure nursing and allied health, all coursework is delivered online. For the fiscal year ended December 31, 2022, 48% of RU students were enrolled in nursing programs, 19% in health sciences programs, 16% in business programs, with the remainder of students in education, technology, design and justice studies programs. For the fiscal year ended December 31, 2022, approximately 60% of HCN students were enrolled in the Practical Nursing, or PN program, while 40% were enrolled in the Associate Degree in Nursing, or ADN program.

Increased Costs and Expenses. Our costs and expenses have increased over time due in part to the acquisitions of RU and GSUSA, the addition of new HCN campuses, including HCN’s new campus located in suburban Detroit, which opened in October 2022, increases in nursing faculty and employee compensation, as well as increases in advertising and Title IV costs as a result of increased competition and rising inflation rates, and the changing needs of our students, including costs for technology required to support students at our institutions. For example, in 2022, we continued to incur expenses to invest in replacements and upgrades to our information technology systems.

We believe that in order to continue to attract and retain qualified students our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations and modes of teaching, faculty engagement initiatives, and co-curricular initiatives. These efforts may require obtaining appropriate regulatory approvals, incurring marketing expenses, and making investments in management and capital expenditures, including technology-related expenditures. Initiatives to attract and retain qualified students require significant time, energy, and resources, and if our efforts are not successful, our results of operations, cash flows, and financial condition may be adversely impacted. For more information about the risks related to attracting and retaining qualified students please refer to “Risk Factors – Risks Related to Attracting and Retaining Students”.

Reductions in Force. We implemented multiple reductions in force in 2021 and 2022. On August 9, 2021, we completed a reduction in force that resulted in the termination of 11 full-time faculty members at APUS and 28 non-faculty employees across a variety of roles and departments at APEI and APUS, representing approximately 3.2% of the APUS full-time faculty workforce, and 3.1% of the APEI and APUS non-faculty workforce. We incurred approximately $1.0 million of pre-tax cash expenses associated with employee severance benefits as a result of this reduction in force. The reduction in force resulted in $1.4 million and $3.3 million in pre-tax labor and benefit savings in 2021 and 2022, respectively.

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On January 14, 2022, RU completed a reduction in force that resulted in the termination of nine full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce. We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance benefits as a result of this reduction in force. The reduction in force resulted in pre-tax labor and benefit savings of approximately $2.7 million in 2022.

Additionally, on November 2, 2022, we completed a reduction in force that resulted in the termination of 98 non-faculty employees and the elimination of 78 open positions across a variety of roles and departments representing approximately 5.8% of our non-faculty workforce. We incurred an aggregate of approximately $3.1 million of pre-tax cash expenses associated with employee severance benefits as a result of this reduction in force, all of which were incurred in the fourth quarter of 2022. The reduction in force resulted in pre-tax labor and benefit savings in 2022 of approximately $2.3 million, or approximately $13.5 million on an annualized basis. We anticipate a portion of these annualized cost savings to be reinvested in the business in future years.

The cost savings noted above do not include expenses associated with employee severance benefits. We recorded expenses for termination benefits related to the workforce reductions in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 420, Exit or Disposal Cost Obligations.

Our Initiatives. Our revenue may decline, and our costs and expenses may increase, as our institutions adjust to changes in their student composition, undertake initiatives to improve the learning experience, and work to attract students who are more likely to persist in their programs. Additional initiatives that we are implementing or may implement that may increase costs and expenses or adversely affect our revenue may include the following:

•altering our institutions’ marketing programs to target the appropriate prospective students;

•investing in technology related to our overall information technology transformation program;

•insourcing RU marketing and information technology functions and services from Collegis;

•changing admissions standards, requirements, processes, and procedures;

•implementing more stringent satisfactory academic progress standards;

•changing tuition costs and payment options;

•upgrading existing campuses and opening additional campuses to meet student needs;

•changing fund disbursement methods; and

•implementing alternative learning delivery methods.

Information technology systems are an essential part of the student experience and our business operations, as discussed more fully in “Business – Information Technology” in this Annual Report. APEI provides information technology services to APUS, HCN, RU, and GSUSA through a shared services model. We are in the midst a multi-year technology transformation program to enable us to enhance the learning experience for students, to better accommodate new flexible learning modalities, and to improve our operational effectiveness. We believe we will need to continue, and potentially increase, our investment of time and money in technology operations and enhancements to support our systems and mission and evaluate when it is appropriate to make significant changes, modifications, or upgrades. We believe we will also need to continue to make investments in information technology in response to competitive pressures in the marketplace, including increased demands for interactive solutions and access from multiple platforms, and to update older systems and to enhance functionality. We also expect operating and capital expenditures to increase in future periods as we accelerate the investment in and refreshment of our information technology systems.

Changes and upgrades to our information technology systems have resulted and may continue to result in our incurring significant costs, including in the short term, and carry risk to our operations and financial results. In 2021 and 2022, we incurred approximately $6.0 million, and $3.2 million, respectively, in information technology costs in our APUS Segment related to our multi-year technology transformation program. In 2021, we completed work to consolidate HCN and APUS onto a single, cloud-based LMS platform, Brightspace by D2L. We are continuing to consolidate APUS’s customer relationship management systems onto a single platform, the first phases of which we completed in 2022. We also have several other systems that support the student experience, financial aid processing, financial management, human resources processes, marketing, and decision support. In early 2023, we will be launching a new native mobile application to improve the student experience at APUS. Not all of our information technology spending can be capitalized, and our investments may cost more than expected or fail to be successful. Furthermore, as a result of unsuccessful development efforts, or a result of replacing outdated technology, software, or other technology related assets, we may have assets that become impaired.

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Opening new campuses and maintaining existing campuses at RU and HCN may result in our incurring significant costs in the future. At RU and HCN, adding new campuses is a necessary step to extend our student reach throughout the U.S. For example, during 2021 and 2022, HCN opened new campuses in Akron, Ohio, and Detroit, Michigan, respectively, and in July 2022, RU opened a consolidated Hennepin/Anoka, Minnesota campus by merging two existing campuses and relocating to a new space. We expect operating and capital expenditures to increase in future periods as we continue to add new campuses and incur maintenance costs at existing campuses.

RU Change in Ownership. The Rasmussen Acquisition was required to be reported to, and in some cases approved by, various education regulatory bodies. An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership. ED does not provide pre-closing approval. In September 2021, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective in October 2021, that allows RU to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application. The TPPPA continues the growth restrictions that ED imposed as a result of RU’s previous March 2019 change in ownership, including limitations on new programs and locations, and an enrollment cap, until after ED reviews and accepts financial statements and compliance audits that cover complete fiscal periods of RU’s Title IV participation under our ownership. The growth restrictions under the TPPPA could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students, and limiting its ability to continue to evolve to address current needs by providing new or changed programs. For more information on the regulatory review related to the Rasmussen Acquisition and RU’s previous change in ownership, please refer to the sections in “Business – Regulatory Environment” entitled “Student Financing Sources and Related Regulations/Requirements – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures” and “Regulatory Actions and Restrictions on Operations –Change in Ownership Resulting in a Change of Control”.

Competition. The U.S. postsecondary education market is characterized by intense competition, with approximately 4,500 institutions of higher learning. Due to the increase in online postsecondary offerings, which accelerated as a result of the COVID-19 pandemic, coupled with the prospect of continued postsecondary enrollment declines in the United States, we face increased competition as fewer students pursue degree-based postsecondary education from a wider selection of offerings. For example, the Navy recently launched the U.S. Naval Community College, which supports naval education for enlisted service members. While a number of schools with which APUS competes are participating partners with the U.S. Naval Community College, APUS is not an eligible partner. Navy-related registrations were 5% of total net registrations, using TA as their primary pay type, in each of the years ended December 31, 2020, 2021, and 2022, respectively. We expect each military branch and the DoD to continually evaluate their approaches to education, and any resulting changes could have a material adverse effect on APUS’s enrollments. For more information on our competition and its potential impacts, please refer to “Business – Our Market and Competition – Competition” in this Annual Report.

ArmyIgnitED. APUS relies on the ability of the Armed Forces to process service members’ participation in TA programs, and from time-to-time changes to processes have impacted the ability of service members to participate in the TA programs. The Army in 2021 transitioned from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, for soldiers to use to request TA. This transition was beset by delays and disruption of the Army’s TA programs. In connection with the transition, we experienced challenges related to system performance, process changes, and third-party software defects. The disruption to Army TA and resulting decreases in Army registrations had an adverse impact on registrations and revenue, profits and cash flow for the quarters ending June 30, 2021 and September 30, 2021. In addition, due to the transition, ArmyIgnitED does not currently reflect all courses previously taken by soldiers at APUS in the relevant period, and ArmyIgnitED does not reflect all amounts due to APUS. In August 2022, the Army transitioned from the initial version of ArmyIgnitED to an upgraded ArmyIgnitED 2.0, with a new third-party service provider, and announced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. As part of this change, the Army stopped allowing institutions to submit invoices from July 30, 2022 until August 29, 2022, which impacted our ability to collect on our accounts receivable, caused our accounts receivable to increase and, as a result, may cause our bad debt expense to increase. As of December 31, 2022, approximately $26.0 million, of which $16.5 million is older than 60 days from the course start date, was due from the Army due to the disruption caused by the transition to ArmyIgnitED and upgrade to ArmyIgnitED 2.0. There can be no assurance that our efforts to mitigate any adverse impact of the transition to ArmyIgnitED 2.0 on accounts receivable, bad debt, and cash flow will be successful or that ArmyIgnitED 2.0 will work as expected.

Regulated Industry. Our institutions operate in a highly regulated industry. For more information on the regulations to which our institutions are subject and recent regulatory developments, please refer to “Business – Regulatory Environment” in this Annual Report. Regulations may impact our financial results in a way that we cannot predict and may have an adverse impact on our financial condition.

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OUR KEY FINANCIAL METRICS

Revenue

When reviewing our revenue, we evaluate the following elements: net course registrations and enrollment; tuition rate; net tuition; and other fees.

Net course registrations and enrollment. For financial reporting and analysis purposes, APUS measures its student population in terms of aggregate course enrollments, or net course registrations. Net course registrations, which include one-credit lab courses combined with their related three-credit courses, represent the aggregate number of courses in which students remain enrolled after the date by which they may drop the course without financial penalty. RU and HCN measure their student population in terms of student enrollments. Student enrollment represents the total number of students enrolled in a course immediately after the date students may drop a course without financial penalty.

Because we recognize revenue over the length of a course, net course registrations and student enrollments in a financial reporting period do not correlate directly with revenue for that period because revenue recognized from courses is not necessarily recognized in the financial reporting period in which the course registrations or enrollments occur. For example, at APUS, revenue in a quarter reflects a portion of the revenue from courses that began in a prior quarter and continued into the quarter, all revenue from courses that began and ended in the quarter, and a portion of the revenue from courses that began but did not end in the quarter. At RU and HCN, generally programs begin and end in a calendar quarter.

The average number of courses per term at APUS varies by payor type. For example, Title IV students take more courses per term than TA students. As a result, should the number of APUS’s students who utilize ED’s Title IV programs decrease (or the number of students using TA increase), we anticipate that it may cause the average number of courses per student per term to decrease.

You should not rely on the results of any prior periods as an indication of future net course registrations at APUS, student enrollments at RU and HCN, or consolidated revenue. The composition of our students, changing market demands, and competition make forecasting very difficult, and we are unable to determine if we will continue to grow or what level of growth we will achieve, if any. Similarly, you should not rely on our operating margins in any prior periods as an indication of our future operating margins.

Tuition rate. Providing affordable degree and certificate programs is an important element of our competitive strategy. APUS plans to adopt modest tuition and fee increases for non-military students effective in the second quarter of 2023, but we estimate that APUS’s tuition and fees will remain lower than the average in-state cost at public universities. RU adopted modest tuition increases, which took effect on January 3, 2023, for select programs to help offset the increased costs of delivering a quality education, and HCN plans to implement a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs to offset the increased costs of delivering a quality, competitive education. At RU and HCN, the tuition increases are adjusted to be consistent with the local campus markets. Even inclusive of these increases, RU and HCN’s tuition and fees are designed to be affordable and competitive when compared to the tuition and fees at similar institutions offering the same level of flexibility, accessibility, and student experience.

Net tuition. Tuition revenue varies from period to period based on the aggregate number of students attending courses and the number of courses students are attending during the period, the student payor source, the mix of programs that students are attending during the period, the number of students starting courses each month during the period, and the timing of course starts each month or term. Tuition revenue is adjusted to reflect amounts for students who withdraw from a course in the month or term in which the withdrawal occurs. We also provide tuition grants and scholarships to certain students to assist them financially with their educational goals. The cost of these grants and scholarships is reported as a reduction of tuition revenue in the period incurred for purposes of establishing net tuition revenue.

Other fees. In addition to tuition, APUS charges a per course technology fee of $65 or $100 per course, depending on the course. In the second quarter of 2023, APUS plans to increase the technology fee up to $150 per course for non-military students. APUS students are also charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees, when applicable. APUS provides a grant to cover the technology fee for students using TA and other programs, as applicable. Technology fee revenue net of grants was approximately $8.3 million in 2020, $7.9 million in 2021, and $7.3 million in 2022, or 2.6%, 2.8%, and 2.6% of revenue, respectively.

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RU and HCN students are charged fees for various items such as applications, testing, books and supplies, laboratory work, technology, and graduation. For example, RU charges a course technology and resource fee of $175 per course and a one-time administrative fee for certain programs, up to $495, for all new, reentering, and program transfer students.

Costs and Expenses

We categorize our costs and expenses in the following categories: instructional costs and services expenses; selling and promotional expenses; general and administrative expenses; loss on disposals of long-lived assets; impairment of goodwill and intangible assets; and depreciation and amortization.

Instructional costs and services expenses. Instructional costs and services expenses are directly attributable to the educational services our institutions provide to their students. Instructional costs and services expenses include salaries and benefits for full-time faculty, administrators, and academic advisors, and costs associated with part-time faculty. Instructional costs and services expenses also include costs associated with curriculum development, academic records and graduation, and other services provided by our institutions, such as evaluating transcripts. Instructional costs and services expenses are generally affected by the cost of academic resources, the efficiency of delivering academic products and services to our students, salaries and benefits for our faculty and other academic and administration personnel, and the level of expenditures for new and existing academic programs. At RU and HCN, instructional costs and services expenses also includes operating expenses directly associated with campus operations, including rent. At APUS, instructional costs and services expenses include expenses related to course materials, learning resources, the library, the APUS-funded book grant program, and instructional pay for part-time faculty that are primarily dependent on the number of students taught.

Selling and promotional expenses. Selling and promotional expenses include salaries and benefits of personnel engaged in student enrollment, advertising costs, and marketing material production costs, and include expenses from the third-party contract with Collegis to provide marketing services to RU, which was terminated effective January 31, 2023. Our selling and promotional expenses are generally affected by the cost of advertising media, the efficiency of our selling efforts, salaries and benefits for our selling and admissions personnel, the level of expenditures for advertising initiatives for new and existing academic programs, and costs incurred in connection with the third-party contract at RU. We believe the impact of competition and the rising cost of internet search and other advertising media has caused our student acquisition costs to increase. This trend may continue, and our student acquisition costs may continue to increase.

General and administrative expenses. General and administrative expenses include salaries and benefits of employees engaged in corporate management, finance, financial aid processing, information technology (including expenses from the third-party contract with Collegis to provide IT services to RU), human resources, facilities, compliance, and other corporate functions, the cost of renting and maintaining administrative facilities, technology expenses, and costs for professional services. General and administrative expenses also include bad debt expense. General and administrative expenses are generally affected by the costs of salaries and benefits for our general and administrative personnel, the efficiency of delivering back-office support including technology services, and the level of expenditures for supporting company initiatives.

Loss on disposals of long-lived assets. Loss on disposals of long-lived assets is the difference between the long-lived assets’ residual value and their book value at the time of the assets’ disposition or abandonment.

Impairment of goodwill and intangible assets. Impairment of goodwill and intangible assets recognizes the difference between the carrying value of goodwill and intangible assets and the fair value of goodwill and intangible assets.

Depreciation and amortization. We incur depreciation and amortization expenses for costs related to the capitalization of property, equipment, software, and program development on a straight-line basis over the estimated useful lives of the assets. In addition, we incur amortization expense for the amortization of identified intangible assets with a definite life resulting from the Rasmussen Acquisition.

Interest Income (Expense). Interest income (expense) consists primarily of interest expense incurred on our long-term debt, net of any interest income earned on cash and cash equivalents, and, prior to 2021, interest income earned on cash and cash equivalents.

Equity Investment Loss. Equity investment loss consists of our proportional share of after-tax income or losses attributable to our equity investment as well as the loss from any other-than-temporary impairment charges, which represents the difference between the carrying value of and fair value of the investment.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition and the valuation of goodwill and indefinite-lived intangible assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ and have a material impact on our Consolidated Financial Statements, or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates. The following discussion of our critical accounting policies and estimates is intended to supplement the accounting policies presented in “Note 2. Significant Accounting Policies” included in our Consolidated Financial Statements.

Business combinations. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, the purchase price be allocated to all tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess purchase price over the fair value of the net assets acquired and liabilities assumed is recorded as goodwill. The determination of the fair value of assets acquired and liabilities assumed requires estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, earnings before interest and taxes margins, student attrition rates, royalty rates, discount rates, and useful lives. These estimates are based on assumptions we believe to be reasonable, and, when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we recorded adjustments to the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill.

Goodwill and indefinite-lived intangible assets.

Goodwill is the excess of the purchase price of an acquired business over the fair value of the assets acquired and liabilities assumed. Goodwill is not amortized. Goodwill is reported at the reporting unit level that we have defined as our reporting segments. We recorded $217.4 million of goodwill in our RU Segment in connection with the RU acquisition and $38.6 million of goodwill in our HCN Segment in connection with the HCN acquisition. There was no goodwill recorded in connection with the acquisition of GSUSA reported in Corporate and Other, and there is no goodwill in our APUS Segment.

In addition to goodwill, in connection with the acquisitions of RU and HCN, we 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, Title IV, and affiliate agreements. There were no indefinite useful life intangible assets identified as a result of the acquisition of GSUSA. There are no indefinite-lived intangible assets in our APUS Segment.

We recorded $35.5 million, $4.4 million, and $1.0 million of identified intangible assets with a definite useful life in connection with the acquisitions of RU, HCN, and GSUSA, respectively. There are no indefinite-lived intangible assets in our APUS Segment.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually, and more frequently if events and circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. The process of evaluating goodwill and indefinite-lived intangible assets for impairment is subjective and requires significant judgment and estimates. When performing an optional qualitative analysis, we consider many factors including: general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers (for example, student enrollment), long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates.

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We estimate fair value in our quantitative analysis by weighting the results from three different valuation approaches. They include: (1) discounted cash flow; (2) guideline public company; and (3) guideline transaction for comparable transactions. Under the discounted cash flow method, fair value was determined by discounting the estimated future cash flows of RU and HCN at their estimated weighted-average cost of capital. We incorporate the use of projected financial information and a discount rate that are developed using market participant based assumptions. The cash-flow projections are based on three-year financial forecasts developed by management that include revenue projections, capital spending trends, and investment in working capital to support anticipated revenue growth, which are updated at least annually and approved by management. Under the guideline public company method, pricing multiples from other public companies in the public higher education market were used to determine the fair value of RU and HCN. Under the comparable transaction method, pricing terms from other transactions in the higher education market were used to determine the fair value. Values derived under the three valuation methods are then weighted to estimate RU and HCN’s enterprise values. If we determine that the carrying amount of a reporting unit exceeds its fair value, we then calculate the implied fair value of the reporting unit goodwill as compared to its carrying amount to determine the appropriate impairment charge. Although we believe our assumptions are reasonable, actual results may vary significantly and may expose us to material impairment charges in the future. Our methodology for determining fair values remained consistent for the periods presented.

At October 31, 2021, we annually assessed goodwill and indefinite-lived intangible assets for our HCN Segment, resulting in no impairment. Due to the timing of the RU acquisition, a quantitative analysis was not conducted for our RU Segment at October 31, 2021.

During the second quarter of 2022, we completed a qualitative assessment to determine if an interim goodwill impairment test was necessary for our RU Segment. The assessment concluded that due to our RU Segment under performance when compared to the 2022 internal targets, enrollment declines in the second quarter 2022, projected enrollment trends, the decline in financial performance projected for the remainder of 2022, and our decline in market value and that of comparable companies, it was more likely than not that the fair value of our RU Segment was less than its carrying value. We proceeded with a quantitative impairment test as of May 31, 2022. As a result, we recorded a non-cash goodwill impairment charge of $131.4 million, and to reflect the corresponding tax impact, to reduce the carrying value of the RU Segment goodwill. In addition, we concluded there were indicators of impairment of the RU Segment accreditation, licensing and Title IV indefinite-lived intangible assets. We determined the fair value of the intangible asset was $11.0 million, or $13.5 million less than its carrying value. As a result, we recorded a non-cash impairment charge of $13.5 million to reduce the carrying value of our RU Segment indefinite-lived intangible assets. There were no indicators of impairment for our HCN Segment.

At October 31, 2022, we completed our annual assessment of goodwill and indefinite-lived intangibles for our RU and HCN Segments. The annual assessment concluded that the fair value of goodwill for RU and HCN exceeded their carrying values by approximately $10.0 million, or 5%, and $4.9 million, or 13%, respectively. Significant assumptions in the forecast used in the discounted cash flow valuation model include the recovery in our RU Segment enrollment in year three to historical norms and two future campus openings in our HCN Segment. These assumptions could be negatively affected by and of the following including, but not limited to, changes in our regulatory environment, declines in student enrollment, adverse actions by state boards of nursing including enrollment caps, and increases in our expenses not in our plan. In addition, we determined the fair value of our RU Segment’s indefinite-lived intangible asset was less than its carrying value. As a result, we recorded a $2.0 million non-cash impairment charge to reduce the carrying value of our RU Segment indefinitely-lived intangible assets for accreditation, licensing and Title IV to $9.0 million. There was no impairment to HCN goodwill or indefinite-lived intangible assets. The estimated fair value of our RU Segment does not significantly exceed its carrying amount at the date of testing. We applied a hypothetical ten percent decrease to the fair values of our RU and HCN Segment, which at December 31, 2022, would have triggered additional impairment testing and analysis for our RU Segment. Applying the hypothetical decrease to the fair value of our HCN Segment did not result in an additional impairment.

At December 31, 2022, after the reduction in carrying value due to the goodwill and intangible assets in 2022, and, in the case impairment charges in prior years in the HCN Segment, goodwill is $86.0 million and $26.6 million in the RU and HCN Segments, respectively.

Significant assumptions inherent to valuation methodologies for goodwill include, but are not limited to, prospective financial information, growth rates, terminal value, discount rates, and comparable multiples from publicly traded companies in the higher education market. Future changes, including minor changes in the significant assumption or other factors including revenue, operating income, valuation multiples, and other inputs to the valuation process may result in future impairment charges, and those charges could be material.

For additional details regarding goodwill and indefinite-lived intangible assets please refer to “Note 6. Goodwill and Intangible Assets” included in our Consolidated Financial Statements.

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Series A Senior Preferred Stock. On December 28, 2022, we issued $40 million of the Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of existing common stockholders of the Company. Additionally, we accrued $48,000 in dividends for the period ended December 31, 2022.

The Series A Senior Preferred Stock has been classified as permanent equity on the accompanying Consolidated Balance Sheets. The Series A Senior Preferred Stock is recorded net of issuance costs. Dividends accrued on the Series A Senior Preferred Stock are included in preferred stock dividends on the Consolidated Statements of Income. Our preferred stock dividends are cumulative and accrue as contractually obligated. Dividends will be paid upon approval by the Board of Directors.

The determination as to permanent equity treatment considered the obligations to the shareholder. The Series A Senior Preferred Stock is only redeemable at the Company’s option. Upon a change of control, default, non-compliance event or liquidation event an increased dividend rate is applicable, and dependent on timing, an early premium may be applicable, but the Series A Senior Preferred Stock is not mandatorily redeemable.

The Company evaluated the Series A Senior Preferred Stock at issuance for the embedded derivative features and the potential need for bifurcation under ASC 815 Derivatives and Hedging- Embedded Derivatives. The Company engaged an independent valuation firm to assist with the evaluation. As of December 31, 2022, the embedded features identified for bifurcation were determined to have minimal or no value and therefore deemed to not be material to the financial statements.

The Series A Senior Preferred Stock has no stated maturity, is not convertible, is not subject to any mandatory redemption, sinking fund or other similar provisions and will remain outstanding unless redeemed at the Company’s option. The Company has the right to redeem the preferred stock pro rata in whole or in part at the price per share equal to the liquidation preference, plus any applicable early premium amount noted in the Certificate of Designation and Purchase Agreement.

The Series A Senior Preferred Stock has no voting rights for directors or otherwise, except as required by law or with respect to certain protective provisions. Without the consent of at least 60% of the then outstanding shares of Series A Senior Preferred Stock, with certain exceptions, the Company may not, among other things, (i) incur any indebtedness if such incurrence would cause the Company’s Total Net Leverage Ratio (as defined in the Purchase Agreement) to exceed 0.75:1, (ii) issue any capital stock senior to or pari passu with the Series A Senior Preferred Stock, (iii) declare or pay any cash dividends on the Company’s common stock, or (iv) repurchase more than an aggregate of $30 million of the Company’s common stock.

For additional details regarding the Series A Senior Preferred Stock, please refer to “Note 11. Stockholders’ Equity” included in our Consolidated Financial Statements.

RECENT ACCOUNTING PRONOUNCEMENTS

We consider the applicability and impact of all Accounting Standards Updates, or ASUs. Please refer to “Note 2 Significant Accounting Policies” included in our Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements.

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Results of Operations

The following table sets forth statements of income data as a percentage of revenue for each of the years ended:

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Our results of operations for the years ended December 31, 2021 and 2022 do not include the financial results for RU and GSUSA prior to their acquisition dates, of September 1, 2021 and January 1, 2022, respectively. Therefore, the prior year period presented is not directly comparable to the current period.

For a more detailed discussion of our results by reportable segment, please refer to “Operating Results by Reportable Segment” in this Annual Report.

Revenue

For the year ended December 31, 2022, our consolidated revenue was $606.3 million, an increase of $187.5 million, or 44.8%, compared to $418.8 million in 2021. The increase in revenue was primarily due to the inclusion of the RU Segment and GSUSA. For the year ended December 31, 2022, RU Segment revenue increased $163.8 million, and GSUSA generated $21.1 million. In 2021, RU Segment contributed four months of revenue and GSUSA was not yet acquired. The increase in revenue was also due to revenue increases of $1.4 million, or 0.5%, in revenue in our APUS Segment and $1.3 million, or 2.8%, in our HCN Segment.

APUS net course registrations increased approximately 1.5% to 350,400 for the year ended December 31, 2022 from approximately 345,300 in the 2021 period. The increase in net course registrations was primarily due to an increase in military related registrations from students utilizing TA, which generate a lower revenue per registration. Net course registrations represent the total number of courses for which students remain enrolled after the date by which they may drop a course without financial penalty.

For the year ended December 31, 2022, RU enrollment decreased 7.4% as compared to the prior year period in 2021. We believe this decline in enrollment, which reflects year-over-year declines in new and total nursing enrollment, as well as declines in non-nursing and online programs, was caused, in part, by caps on nursing student enrollment at certain RU campuses, reduced demand for nursing education due to record low unemployment in some RU markets, increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals, and unexpected leadership departures.

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In February 2022, the Illinois ADN Program was placed on probationary status by the Illinois Department of Professional Regulation, or IDPR, as a result of which RU is required to temporarily reduce admitted students in the program by 25% and has two years to demonstrate evidence of implementing strategies to correct deficiencies and satisfy the required NCLEX pass rate. Additionally, in July 2022, we implemented a voluntary enrollment reduction in RU’s Bloomington, Minnesota ADN Program as part of an effort to meet desired faculty to student ratios and improve student performance. RU is now required to maintain a specified faculty to student ratio in 2023 for the Bloomington ADN Program, which constrains our ability to increase enrollments for that program based on our ability to attract and retain qualified faculty. Finally, based on the first-time NCLEX pass rate in the Bloomington ADN Program in the third quarter of 2022, RU has informed the Minnesota Board of Nursing, or MBN, that RU would voluntarily further reduce enrollments in the program starting with the quarterly cohort in January 2022. The various factors adversely impacting NCLEX pass rates and RU enrollments, including nursing enrollments, including those described in “Risk Factors” in this Annual Report, are expected to continue to negatively impact RU’s results.

For the year ended December 31, 2022, HCN student enrollment increased approximately 4.5% as compared to the prior year period in 2021. We believe that the increase in total student enrollment at HCN was due, in part, to the opening of the Akron campus in April 2021 and the Detroit, Michigan campus in October 2022, and to the Indiana State Board of Nursing action to increase the maximum enrollment at the Indianapolis campus, which effective for the 2022 calendar year, increased maximum enrollment to 200 students per calendar year from 30 students in 2021. HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

Costs and Expenses

For the year ended December 31, 2022, costs and expenses were $743.7 million, an increase of $355.3 million, or 91.5%, compared to $388.4 million in 2021. The increase in costs and expenses as compared to the prior year period was primarily due to the inclusion of 12 months of RU Segment expenses in 2022 as compared to four months in 2021, the inclusion of GSUSA in Corporate and other expenses in 2022, and a non-cash impairment charge of $146.9 million to reduce the carrying value of RU Segment goodwill and intangible assets, and to reflect the corresponding tax impact for the year ended December 31, 2022. For the year ended December 31, 2022, the increase in RU Segment and GSUSA costs and expenses were $184.9 million and $22.8 million, respectively, excluding the goodwill and intangible assets impairment charge in the RU Segment. Other increases in costs and expenses include employee compensation costs, bad debt expense, instructional materials costs, and advertising costs in our HCN Segment and employee compensation costs in Corporate and Other. The increase in cost and expenses were partially offset by decreases in employee compensation costs and professional fees in our APUS Segment.

In 2022, costs and expenses include the following items on a pretax basis: $3.2 million in information technology costs related to our multi-year technology transformation program and $1.9 million in professional fees primarily related to the Rasmussen and GSUSA acquisitions in Corporate and Other. In 2021, costs and expenses include the following items on a pretax basis: $7.6 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other and $6.0 million in information technology costs related to our multi-year technology transformation program.

Costs and expenses as a percentage of revenue increased to 122.7% in 2022 from 92.8% in 2021. Our income before interest and income taxes as a percentage of revenue, or our operating margin, decreased to negative 22.7% from 7.2% compared to the same prior year period. The increase in our costs and expenses as a percentage of revenue and decrease in our operating margin was primarily due to the factors discussed above.

Instructional costs and services expenses. For the year ended December 31, 2022, instructional costs and services expenses were $288.5 million, an increase of approximately $115.9 million, or 67.1%, compared to $172.6 million in 2021. The increase in instructional costs and services expenses was primarily due to the inclusion of RU Segment and GSUSA instructional costs and services expenses of $94.3 million and $13.9 million, respectively, for the full year in 2022, compared to four months of RU Segment instructional costs and services expenses and no GSUSA instructional services costs and expenses in the prior year period. The increase was also due to increases in employee compensation costs and instructional materials costs in our HCN Segment and increases in graduation event costs and in employee compensation costs in our APUS Segment. Instructional costs and services expenses as a percentage of revenue were 47.6% in 2022, compared to 41.2% in 2021.

Selling and promotional expenses. For the year ended December 31, 2022, selling and promotional expenses were $154.6 million, an increase of $61.3 million, or 65.7%, compared to $93.3 million in 2021. The increase in selling and promotional expenses was primarily due to the inclusion of RU Segment and GSUSA selling and promotional expenses of $56.0 million and $4.1 million, respectively, for the full year in 2022, compared to four months of RU Segment selling and

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promotional expenses and no GSUSA selling and promotional expenses in the prior year period. The increase is also due to increases in employee compensation costs in our HCN Segment and Corporate and Other and increases in marketing costs in our APUS Segment, partially offset by decreases in employee compensation costs and advertising costs in our APUS Segment. Selling and promotional expenses as a percentage of revenue were 25.5% in 2022 compared to 22.3% in 2021.

General and administrative expenses. For the year ended December 31, 2022, general and administrative expenses were $120.4 million, an increase of $17.0 million, or 16.4%, compared to $103.4 million in 2021. The increase in general and administrative expenses was primarily due to the inclusion of additional RU Segment and GSUSA general and administrative expenses of $18.4 million and $4.2 million, respectively, for the full year in 2022, compared to four months of RU Segment general and administrative expenses and no GSUSA general and administrative expenses in the prior year period. The increase was also due to an increase in IT maintenance costs in the APUS Segment, HCN Segment, and Corporate and Other. These increases were partially offset by a decrease in consulting costs in the APUS Segment, HCN Segment and Corporate and Other. In 2022, general and administrative expenses include the following costs on a pre-tax basis: $3.2 million of information technology costs related to our multi-year technology transformation program; and $1.9 million in professional fees primarily related to the RU and GSUSA Acquisitions in Corporate and Other. In 2021, general and administrative expenses include the following costs on a pre-tax basis: $7.6 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other; and $6.0 million of information technology costs related to our multi-year technology transformation program. General and administrative expenses as a percentage of revenue were 19.9% in 2022 compared to 24.7% in 2021.

For the year ended December 31, 2022, consolidated bad debt expense increased to $13.5 million, or approximately 2.2% of revenue, from $7.8 million, or approximately 1.9% of revenue, in 2021. The increase in bad debt expense was primarily due to the inclusion of $5.0 million and $0.1 million of RU Segment and GSUSA bad debt expense, respectively, for the year ended December 31, 2022, as compared to four months of RU Segment bad debt expense in 2021, no GSUSA bad debt expense in the prior year period, and an increase in bad debt expense at RU in the fourth quarter of 2022.

Loss on disposal of long-lived assets. The loss on disposal of long-lived assets was $1.2 million in 2022, compared to $1.3 million in 2021.

Depreciation and amortization. Depreciation and amortization expenses were $32.1 million in 2022, compared to $17.8 million in 2021, an increase of $14.3 million or 80.3%. The increase in depreciation and amortization expenses was primarily due to the inclusion of $16.2 million and $0.6 million of RU Segment and GSUSA depreciation and amortization expenses, respectively, for the year ended December 31, 2022, as compared to four months of RU Segment depreciation and amortization expenses and no GSUSA depreciation and amortization expenses in the prior year period. These increases were partially offset by a decrease in our APUS Segment depreciation and amortization expense.

Impairment of goodwill and intangible assets. The non-cash, pre-tax impairment of goodwill and intangible assets of $146.9 million resulted from the reduction of the carrying value of goodwill and intangible assets in our RU Segment, and the corresponding tax impact. For additional information regarding the impairment of goodwill and intangible assets, and a discussion of the potential for future impairment charges for goodwill and intangible assets, please refer to the discussion in “Note 6. Goodwill and Intangible Assets” included in the Consolidated Financial Statements in this Annual Report.

Stock-based compensation. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses in 2022 were $8.0 million in the aggregate, representing an increase of $0.4 million, or 4.6%, compared to $7.7 million in 2021. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

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The table below reflects our stock-based compensation expense recorded in our Consolidated Statements of Income included in our Consolidated Financial Statements for the years ended 2021 and 2022 (in thousands):

Interest income (expense). Interest expense, net of interest income, was $17.7 million in 2022, compared to net interest expense of $4.3 million in 2021. The increase in interest expense in 2022 as compared to 2021 was due to the twelve months of interest on a secured term loan facility in the aggregate principal amount of $175.0 million entered into in connection with the Rasmussen Acquisition, or the Term Loan, compared to four months in the prior year period. In addition, as a result of our December 2022 prepayments on the Term Loan totaling $65.0 million, we wrote off a proportionate amount of unamortized debt issuance costs in the amount of $3.9 million. The write off is recorded in interest expense on the Consolidated Statements of Income for the year ended December 31, 2022.

Income tax (benefit) expense. Due to pre-tax losses in 2022, we recognized an income tax benefit for 2022 of $36.3 million, compared to income tax expense of $7.5 million in 2021. The effective tax rate was 24.0% benefit and 29.7% expense in 2022 and 2021, respectively. As a percent of pre-tax loss in 2022 versus pre-tax income in 2021, the decrease in our effective tax rate for 2022 is due to a higher overall state tax rate in 2022 compared to 2021 and the impact of ASU 2016-09. The effective tax rate for 2022 includes expense of $0.6 million compared to a benefit of approximately $0.3 million related to ASU 2016-09 in 2021.

Equity investment loss. Equity investment loss was $0.02 million in 2022, compared to equity investment loss of $0.8 million in 2021.

Net income (loss). The net loss in 2022 was $115.0 million, compared to net income of $17.8 million in 2021, a decrease of $132.8 million. This decrease was related to the factors discussed above, and is primarily due to the non-cash, pre-tax impairment of goodwill and intangible assets of $146.9 million, and the corresponding tax impact of $36.0 million.

Preferred stock dividends. Preferred stock dividends accrued in 2022 were $48,000. The Series A Senior Preferred Stock issuance occurred in December 2022, and the first dividend payments will be made in 2023. There were no preferred stock dividends in 2021.

Net income (loss) available to common stockholders. The net loss available to common stockholders in 2022 was $115.0 million, compared to net income available to common stockholders of $17.8 million in 2021, a decrease of $132.8 million. This decrease was related to the factors discussed above.

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Operating Results by Reportable Segment - Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

The table below details our operating results by reportable segment for the periods indicated (in thousands):

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.

APUS Segment

Our APUS Segment revenue was $285.1 million in 2022, an increase of $1.4 million, or 0.5%, compared to $283.7 million in 2021, which is primarily attributable to higher net course registrations. Net course registrations at APUS increased 1.5% to approximately 350,400 in 2022 compared to the 2021 period. The increase in net course registrations was primarily due to an increase in military related registrations from students utilizing TA, which generate a lower revenue per registration. Income from operations before interest and income taxes was approximately $58.5 million in 2022, an increase of $7.4 million, or 14.5%, compared to the 2021 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

RU Segment

Our RU Segment revenue was $253.3 million in 2022, an increase of $163.8 million, or 183.0%, compared to $89.5 million in 2021, as 2021 included only four months of revenue. RU Segment loss from operations before interest and income taxes was $166.6 million in 2022 compared to income from operations before income and taxes was $1.6 million in 2021. The RU Segment loss includes impairment charges on goodwill and intangible assets of $146.9 million, and the corresponding tax impact of $36.0 million. Enrollment at RU decreased approximately 7.4% during the year ended December 31, 2022 as compared to the 2021 period. We believe this decline in enrollment, which reflects year-over-year declines in new and total nursing enrollment, as well as declines in non-nursing program and online enrollments, was caused, in part, to caps on nursing student enrollment at certain RU campuses, reduced demand for nursing education due to record low unemployment in some RU markets, and increasing pay for nurses resulting in fewer available nursing faculty to educate and oversee clinicals.

HCN Segment

Our HCN Segment revenue was approximately $47.1 million in 2022, an increase of $1.3 million, or 2.8% compared to $45.8 million in the 2021 period, which is primarily attributable to an increase in student enrollment. HCN student enrollment increased 4.5% in 2022 compared to the 2021 period. The increase in HCN total student enrollment was primarily due to the opening of the Akron campus in April 2021 and the Detroit, Michigan campus in October 2022, and to the

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Indianapolis campus, which effective for the 2022 calendar year could enroll up to 200 students per calendar year compared to 30 students in 2021. Loss from operations before interest and income taxes in the HCN Segment was approximately $4.0 million in 2022 compared to income from operations of $1.8 million in 2021, a decrease of $5.8 million. The decrease in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

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Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash were $149.6 million and $129.5 million at December 31, 2021 and 2022, respectively, representing a decrease of $20.2 million, or 13.5%, in the 2022 period. The decrease in cash was due to the prepayment of debt, partially offset by an increase in cash provided by operations, and the proceeds from our Series A Senior Preferred Stock offering in December 2022. We have historically financed operating activities and capital expenditures with cash provided by operating activities. We expect to continue to fund our costs and expenses through cash generated from operations. For more on our material cash requirements from known contractual and other obligations, please refer to “Contractual Obligations” in this Annual report.

We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term. Another significant source of revenue is derived from TA from the DoD and programs from the Department of Veterans Affairs. Generally, these funds are received within 60 days of the start of the courses to which they relate.

In 2021, the Army transitioned from its legacy system, GoArmyEd, to a new system, ArmyIgnitED, for soldiers to use to request TA. This transition was beset by delays and disruption of the Army’s TA programs. In connection with the transition, we experienced challenges related to system performance, process changes, and third-party software defects. The disruption to Army TA and resulting decreases in Army registrations had an adverse impact on registrations and revenue, profits and cash flow for the quarters ending June 30, 2021 and September 30, 2021. In addition, due to the transition, ArmyIgnitED does not currently reflect all courses previously taken by soldiers at APUS in the relevant period, and ArmyIgnitED does not reflect or all amounts due to APUS. In August 2022, the Army transitioned from the initial version of ArmyIgnitED to an upgraded ArmyIgnitED 2.0, with a new third-party service provider, and announced that all TA requests for courses beginning on or after October 1, 2022 must be submitted via ArmyIgnitED 2.0. As part of this change, the Army stopped allowing institutions to submit invoices from July 30, 2022 until August 29, 2022, which impacted our ability to collect on our accounts receivable, caused our accounts receivable to increase and, as a result, may cause our bad debt expense to increase. For the year ended December 31, 2022, APUS received approximately $48.8 million in payments from the Army. As of December 31, 2022, approximately $26.0 million, of which $16.5 million is older than 60 days from the course start date, was due from the Army due to the disruption caused by the transition to ArmyIgnitED and upgrade to ArmyIgnitED 2.0. There can be no assurance that our efforts to mitigate any adverse impact of the transition to ArmyIgnitED 2.0 on accounts receivable, bad debt, and cash flow will be successful or that ArmyIgnitED 2.0 will work as expected.

Furthermore, some payments from the Army that were expected in 2022 were delayed until 2023, which is expected to cause APUS’s 90/10 Rule percentage to increase and could make it more difficult for APUS to meet the 90/10 Rule requirements for 2023. Failure to meet the 90/10 Rule for fiscal 2023, which would require APUS to notify ED and students of this failure, could subject us to heightened regulatory scrutiny and possible adverse regulatory action, and could damage our reputation, which would have a material adverse impact on our results of operation, cash flow, and financial condition. Steps that we may take to reduce our 90/10 Rule percentage in order to comply with the 90/10 Rule, may require us to make significant cash expenditures to acquire new students who do not receive educational assistance funds provided by a federal agency, which would reduce the amount of cash we have available to fund our operations. Furthermore, any future delays in receipt of funds from the Army, or other service branches could have an adverse impact on our cash flow and results of operations. For more information about the risks related to the Army’s transition to new systems for soldiers to request TA please refer to “Risk Factors – Risks Related to Attracting and Retaining Students”.

The United States is nearing the federal debt ceiling, the Department of the Treasury has begun implementing measures to prevent a default on the U.S. national debt, and certain members of Congress have called for negotiations to reduce federal spending in exchange for increasing the debt ceiling. Budget cuts or constraints, including in connection with the failure to increase or a delay in increasing the federal debt ceiling, could negatively affect us by leading to force reductions or cuts to services and tools that we or APUS’s students rely upon for recruitment, enrollment, access, and TA. Even temporary changes to military activity and budgets may adversely affect operations. For example, funding for the federal government or portions thereof, including the DoD, Department of Homeland Security, and Coast Guard, lapsed and resulted in partial shutdowns in 2018 and 2019. Any future government shutdown could have a material adverse effect on APUS’s enrollments and on our cash flows and results of operations, and U.S. government default on its debt would have broad adverse macroeconomic effects that would materially affect our cash flow and results of operations.

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Our operating expenditures may increase in future periods as we continue to invest in the modernization of our information technology systems, advertising, and other expenditures. For the years ended December 31, 2020, 2021 and 2022, we incurred approximately $5.9 million, $6.0 million, and $3.2 million, respectively, of information technology costs related to our multi-year technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems. APUS completed the migration of all students to the new learning management system in the first quarter of 2021, and completed the first phases of the implementation of the new customer relationship management system in January 2022. APUS will continue to evaluate the Partnership At a Distance™, or PAD, customized student information and services system for possible changes and upgrades and anticipate that we will eventually make significant changes to that system as well.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance of existing campuses at RU and HCN, the opening of new campuses at RU and HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth. Professional fees may continue to be elevated or increase as we continue the integration of RU and the integration of GSUSA, and continue to evaluate investments in strategic growth opportunities and enhancements to our business capabilities. We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies. For the years ended December 31, 2020, 2021, and 2022, we incurred approximately $4.3 million, $7.6 million and $1.9 million, respectively, of acquisition-related expenses, which are included in general and administrative expenses on the Consolidated Statements of Income.

RU has historically relied on Collegis, LLC, or Collegis, for a variety of outsourced marketing services and information technology functions under one contract for marketing services and another for information technology functions. In April 2022, we notified Collegis that we intended to permit both contracts to expire by their terms on September 30, 2024. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Approximately $6.5 million in transition related fees became due to Collegis as specific transition obligations were completed. We paid approximately $3.3 million in transition fees to Collegis in the fourth quarter of 2022, with the remainder to be paid in the first quarter of 2023. Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024.

We have completed the transition of RU marketing in-house to our centralized marketing team and plan to transition all of the information technology services currently outsourced to Collegis back to our operations or to one or more other third-party vendors. As we continue to develop our transition plans, at this time we are unable to predict the full costs of the transition, in which periods we will incur those costs, or the impact on our financial results, but the transition may cause us to incur significant costs, which could adversely affect our financial condition, results of operations, and cash flows.

We raised additional capital to finance the Rasmussen Acquisition, and we may also need additional capital in the future, including to finance other business acquisitions and investments in technology or to achieve growth or fund other business initiatives.

In December 2022, we issued $40 million of Series A Senior Preferred Stock, $0.01 par value per share, to affiliates of existing common stockholders of the Company. We used a portion of the net proceeds from the sale of the Series A Senior Preferred Stock, along with available cash, to repay approximately $65 million of the outstanding principal balance of our Term Loan. After the repayment, the aggregate amount of the Term Loan outstanding was $99.1 million at December 31, 2022. We are required to pay periodic cash dividends to the holders of our Series A Senior Preferred Stock, which will accrue at an annual rate equal to Term SOFR (as defined in the Certificate of Designation) plus 10.00%, and will increase by 2.0% on June 28, 2025 and another 0.5% on October 1, 2025 and the first day of every following quarter, subject to a maximum of Term SOFR plus 25.0%, other than an increase in the dividend rate in connection with an event of default under the Certificate of Designation. We also have the option, from time to time, to redeem the Series A Senior Preferred Stock pro rata in whole or in part. Payment of dividends or the exercise of this redemption right could adversely impact our liquidity and reduce the amount of cash flow available for working capital, capital expenditures, growth opportunities, and other general corporate purposes.

In connection with the completion of the Rasmussen Acquisition, on September 1, 2021, or the Closing Date, we entered into a Credit Agreement with Macquarie Capital Funding LLC, as administrative agent and collateral agent, Macquarie Capital (USA) Inc., and Truist Securities, Inc. as joint lead arrangers and bookrunners, and a syndicate of lenders, or the Lenders and, pursuant to the Credit Agreement, the Lenders provided us with (i) the $175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities. We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan. For more

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information on the Facilities and their terms, please refer to “Note 8. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

We believe our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations, debt and interest obligations, and planned capital expenditures for the next 12 months and the foreseeable future. However, our future capital requirements and our ability to generate sufficient cash to fund our future operations will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future capital or borrowings will be available to us in an amount sufficient to enable us to service our indebtedness, to pay dividends on our Series A Senior Preferred Stock when due, or to fund our other liquidity needs. Failure to achieve business performance consistent with our expectations, to reverse the decline in enrollments at RU, including as a result of regulatory action, or to comply with the 90/10 Rule, or any government shutdown could adversely impact our cash flows and results of operations. In addition, our efforts to comply with the 90/10 Rule could lead us to reduce enrollments or require us to make expenditures that would reduce our existing cash available for operations. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness or pay a special dividend to holders of our Series A Senior Preferred Stock, which would also reduce our existing cash available for operations. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Operating Activities

Net cash provided by operating activities was $16.3 million and $29.2 million in 2021 and 2022, respectively. The increase in cash from operating activities is primarily due to payments received from Army and other changes in working capital due to the timing of receipts and payments. In 2021, cash flow from operations was negatively impacted by the timing of the Rasmussen Acquisition. RU receives the majority of its cash receipts during the first month of each fiscal quarter while disbursements occur throughout the quarter. Pursuant to the terms of the Rasmussen Acquisition, the seller in the transaction retained substantially all of the cash held by RU on the Closing Date. Accordingly, from the Closing Date through September 30, 2021, and continuing through mid-October 2021 when RU entered into its TPPPA, APEI funded the majority of RU’s operations. Cash flow from operating activities also increased due to lower estimated tax payments in 2022 compared to the prior year. Tax payments for income taxes were approximately $7.5 million in 2021 compared to $4.0 million in 2022.

Investing Activities

Net cash used in investing activities was $336.7 million and $13.7 million in 2021, and 2022, respectively. This decrease in investing activities was primarily related to the $325.5 million of cash used for the Rasmussen Acquisition in 2021. The increase in capital expenditures in 2022 as compared to the 2021 period was primarily due to the inclusion of RU Segment capital expenditures of $9.3 million in the 2022 period.

Financing Activities

Net cash provided by financing activities was $242.3 million in 2021, compared to $35.7 million of net cash used in financing activities in 2022. The cash used in financing activities in 2022 was due to debt principal prepayments made in December 2022, offset by proceeds from the issuance of our Series A Senior Preferred Stock. Cash provided by financing activities in 2021 was due to our underwritten public offering of common stock for aggregate net proceeds of approximately $86.2 million and proceeds of $175.0 million from the Term Loan in connection with the Rasmussen Acquisition, partially offset by debt issuance costs of $13.6 million.

Contractual Obligations

Long-term debt

We have long-term debt outstanding under the Credit Agreement of $99.1 million as of December 31, 2022. No principal payments are due in 2023 as a result of the December 2022 prepayments. Interest payable of $9.2 million is due in 2023, assuming the variable rate as of December 31, 2022. For more information on the timing and amount of our future principal and interest payments, please refer to “Note 8. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

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Lease obligations

We have leases for office space and campus facilities. As of December 31, 2022, we had lease payment obligations of $153.8 million, with $18.8 million payable in 2023. In connection with the acquisition of GSUSA on January 1, 2022, we assumed lease obligations in the aggregate of $50.0 million over 15 years for GSUSA’s Washington, D.C., headquarters facility. For more information on the timing and amount of our future lease obligations, please refer to “Note 7. Leases” included in the Consolidated Financial Statements in this Annual Report.

Other purchase obligations

As of December 31, 2022, we had other purchase obligations of $14.7 million, with $8.3 million payable in 2023. RU is a party to service contracts with a third party, Collegis, to provide marketing and information technology services. The agreements expire September 30, 2024. Notices of the non-renewal of the marketing and information technology services contracts were issued to Collegis in April 2022. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, rather than having the contract expire by its terms in September 2024. Approximately $6.5 million in transition related fees became due to Collegis as specific transition obligations were completed. We paid approximately $3.3 million in transition fees to Collegis in the fourth quarter of 2022, with the remainder to be paid in the first quarter of 2023. We have completed the transition of RU marketing in-house to our centralized marketing team.

Outsourced information technology services under the Collegis information technology contract will continue until September 30, 2024. The total minimum value for marketing and information technology services over the remaining periods, excluding the transition-related fees in connection with the termination of the marketing services, are approximately $1.1 million and $15.8 million, respectively. We plan to transition all of the information technology services currently outsourced to Collegis back to our operations or to one or more other third-party vendors.

Impact of Inflation

The U.S. economy is experiencing the highest rates of inflation since the 1980s. Historically, we have not experienced significant inflation risk in our business arising from fluctuations in market prices, however, our ability to raise our tuition and fees depends on market conditions. While APUS, RU, and HCN plan to increase certain tuition and fees beginning in 2023, including in order to offset increased faculty costs, there may be periods during which we are unable to fully recover increases in our costs.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements that are based on management’s current expectations, estimates, and projections about our business and operations, and involves risks and uncertainties. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” and elsewhere in this Annual Report.

OVERVIEW

American Public Education, Inc., or APEI, is a provider of online and campus-based postsecondary education to approximately 108,400 students through three subsidiary institutions. Our subsidiary institutions offer programs designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities designed to advance students in their current professions or help them prepare for their next career. Our 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 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. Additional information regarding our subsidiary institutions and their regulation is included in the “Business - Company Overview” and “Business - Regulatory Environment” sections of this Annual Report.

On September 1, 2021, or the Closing Date, we completed the acquisition of Rasmussen University, or the Rasmussen Acquisition, for an adjusted aggregate purchase price, subject to post-closing working capital adjustments of $325.5 million in cash, net of cash acquired. Upon completion of the Rasmussen Acquisition, Rasmussen University, or RU, became a wholly owned subsidiary of APEI. On September 9, 2021, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. RU is also pursuing other post-closing notices and consents related to the change in ownership. For the year ended December 31, 2021, we incurred approximately $6.3 million of acquisition-related expenses, which are included in general and administrative expenses in the Consolidated Statements of Income.

Our consolidated results for the years ended December 31, 2020 and 2021 reflect the operations of our APUS and HCN Segments only and include the results of our RU Segment from the Closing Date. We did not consolidate the RU Segment prior to the Closing Date. Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which primarily includes unallocated corporate activity and eliminations.

For more information on the Rasmussen Acquisition, please refer to “Note 3. Acquisition Activity” included in the Consolidated Financial Statements in this Annual Report, and the sections entitled “– Regulatory and Legislative Activity – Rasmussen Acquisition Regulatory Review” above.

We relied on debt financing pursuant to a credit agreement to fund a portion of the consideration for the Rasmussen Acquisition. For more information on this financing, please refer to “– Liquidity and Capital Resources – Liquidity – Acquisition of Rasmussen University” below and “Note 8. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

Our revenue is largely driven by the number of students enrolled at our institutions, the number of and types of courses that they take, student payor source, and the mix of programs that students are attending. Our consolidated revenue in 2021 was $418.8 million, representing a $97.0 million, or 30.1%, increase from $321.8 million in 2020. Our consolidated revenue in 2020 was $321.8 million, representing an $35.5 million, or 12.4%, increase from $286.3 million in 2019. The 2021 revenue increase was primarily due to the inclusion of RU Segment revenue from the Closing Date through December 31, 2021, as well as an increase in student enrollment at HCN during that period, partially offset by a decrease in APUS net registrations. The 2020 revenue increase was due to increases in net course registrations at APUS and student enrollment at HCN.

We believe the decrease in net course registrations at APUS was due, in part, to the temporary suspension and disruption of the Army’s TA program beginning in February 2021, resulting from delays in the transition from its legacy system used by soldiers to request TA, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education as the COVID-19 pandemic abated prior to the omicron variant.

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We believe that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures as compared to the prior year, and the continued impact of new initiatives implemented in 2019 and 2020 such as the Direct Entry ADN Program and the institutional affordability grant. Additionally, the opening of a new campus in Akron, Ohio in April 2021 contributed to an increase in new student enrollment.

Our operations are organized into three reporting segments:

•American Public University System, 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.

Prior to the acquisition of RU, we had two reportable segments: the American Public Education, Inc. Segment, or APEI Segment, and the Hondros College of Nursing, or HCN Segment. Post-acquisition, we have three reportable segments: the APUS Segment, which was previously included within the APEI Segment; the RU Segment; and the HCN Segment. The APEI Segment previously reported the results of both APUS and unallocated Company expenses. Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which primarily includes unallocated corporate activity and eliminations, which generally were previously reported within the APEI Segment. Prior periods have been updated to conform to the revised presentation.

Financial information regarding each of our reportable segments is reported in this Annual Report in the sections “Financial Statements and Supplementary Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Operating Results by Reportable Segment Year Ended December 31, 2021 Compared to Year Ended December 31, 2020.”

For a discussion of the financial results of operations for the fiscal year ended December 31, 2020 compared to the fiscal year ended December 31, 2019, refer to Part II, Item 7 of our 2020 Form 10-K filed with the SEC on March 9, 2021 which discussion is incorporated in this Annual Report by reference and which is available free of charge on the SECs website at www.sec.gov.

The COVID-19 pandemic did not materially impact our results of operations during the years ended December 31, 2020 and 2021. We believe that the pandemic contributed to increased registrations and enrollments across our subsidiary institutions in 2020, and, as the COVID-19 pandemic abated in 2021 prior to the omicron variant, we believe near-term demand for our programs moderated. However, any future impact on our operations remains uncertain. For more information on the operational and regulatory impacts of and potential risks related to COVID-19, please refer to the sections entitled “Business - Company Overview - COVID-19 Pandemic” and “Risk Factors – Risks Related to the COVID-19 Pandemic” in this Annual Report and to “- Results of Operations” below.

Student Body. As of December 31, 2021, approximately 63% of APUS’s students self-reported that they served in the military on active duty at the time of initial enrollment, and as a result APUS is particularly reliant on TA and the DoD’s budget. At APUS, active duty military students generally take fewer courses per year on average than non-military students and have a lower revenue per net course registration than other funding sources. A significant portion of APUS’s registrations are also attributable to students using Department of Veterans Affairs, or VA, education benefits, and funds from ED’s Title IV financial aid programs, or Title IV programs. RU nursing students and HCN students generally attend classes at physical campuses, except as a result of the impact of the COVID-19 pandemic, and use Title IV program funds. For the fiscal year ended December 31, 2021, 50% of RU students were enrolled in nursing programs, 19% in health sciences programs, 15% in business programs, with the remainder of students in education, technology, design and justice studies programs. For the fiscal year ended December 31, 2021, approximately 63% of HCN students were enrolled in the PN Program, while 37% were enrolled in the ADN program.

We believe that in order to continue to attract and retain qualified students our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations and modes of teaching, faculty engagement initiatives, and co-curricular initiatives that may require obtaining appropriate federal, state, and accrediting approvals; incur marketing expenses; and make investments in management and capital expenditures, including technology-related expenditures. Initiatives to attract and retain qualified students and control the growth of expenditures require significant time, energy, and resources, and if our efforts are not successful, our results of operations, cash flows, and financial condition

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may be adversely impacted. For more information about the risks related to these challenges please refer to “Risk Factors - Risks Related to Attracting and Retaining Students.”

Increased Costs and Expenses; Our Initiatives. Our costs and expenses have increased over time due in part to the acquisition of RU, the addition of new HCN campuses located in Indianapolis, Indiana, which opened in April 2020, and Akron, Ohio, which opened in April 2021, as well as the changing needs of our students including costs for technology required to support students at APUS. In addition, in 2021 we continued to incur expenses to evaluate and invest in replacements and upgrades to our information technology systems, in our APUS Segment.

On August 5, 2021, in connection with an evaluation and review of our costs and expenses, we initiated a plan to reduce costs. The plan includes a reduction in force that resulted in the termination of 11 full-time faculty members at APUS, and 28 non-faculty employees across a variety of roles and departments at APEI and APUS, representing approximately 3.2% of the APUS full-time faculty workforce, and 3.1% of the APEI and APUS non-faculty workforce. We completed this workforce reduction by August 9, 2021. We incurred approximately $1.0 million of pre-tax cash expenses associated with employee severance benefits. The reduction in force resulted in $1.4 million in pre-tax labor and benefit savings in 2021, and is expected to result in savings in the range of approximately $2.6 million to $3.6 million in 2022. These cost savings do not include expenses associated with employee severance benefits.

Additionally, on January 14, 2022, RU completed a reduction in force that resulted in the termination of 9 full-time faculty members and 19 non-faculty employees across a variety of roles and departments at RU, representing approximately 3.0% of RU’s full-time faculty workforce, and 2.1% of RU’s non-faculty workforce. We incurred an aggregate of approximately $0.4 million of pre-tax cash expenses associated with employee severance benefits. The reduction in force is expected to result in pre-tax labor and benefit savings in the range of $2.5 million to $3.5 million in 2022. These cost savings do not include expenses associated with employee severance benefits.

The actual costs and benefits savings expected for 2022 are preliminary and may vary based on various factors, including changes in underlying assumptions and projections. We recorded expenses for termination benefits related to the workforce reductions in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 420, Exit or Disposal Cost Obligations. There is no certainty that these cost reduction initiatives, or any other expense reduction initiative, will have the intended benefits of reducing costs and expenses over the long-term, or whether there will be adverse impacts, including as a result of the loss of valuable employees.

Our revenue may decline, and our costs and expenses may increase, as our institutions adjust to changes in their student composition, undertake initiatives to improve the learning experience, and attract students who are more likely to persist in their programs. Additional initiatives that we implement that may increase costs and expenses or adversely affect our revenue may include the following:

•altering our institutions’ marketing programs to target the appropriate prospective students;

•investments in technology related to our overall information technology transformation program;

•changes to admissions standards and requirements;

•updates to the admissions process and procedures;

•implementing more stringent satisfactory academic progress standards;

•changing tuition costs and payment options;

•opening additional campuses to meet student needs;

•changing fund disbursement methods; and

•implementing alternative learning delivery methods.

Information technology systems are an essential part of the student experience and our business operations. Pursuant to the shared services model discussed in “Business – Company Overview – Reporting Segments” above, through APEI we now provide information technology services to APUS, HCN, and to a lesser extent RU. We believe we will need to continue, and potentially increase, our investment of time and money in technology operations and enhancements to support our systems and mission, and evaluate when it is appropriate to make significant changes, modifications, or upgrades. We believe we will need to continue to make investments in information technology in response to competitive pressures in the marketplace, including increased demands for interactive solutions and access from multiple platforms, and to update older systems and to enhance functionality. We also expect operating and capital expenditures to increase in future periods as we accelerate the investment in and refreshment of our information technology systems.

Changes and upgrades to our information technology systems may result in us incurring significant costs, including in the short term, and carry risk to our operations and financial results. For example, in 2019, 2020, and 2021, we incurred

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approximately $2.1 million, $5.6 million, and $6.0 million, respectively, in information technology costs related to our multi-year technology transformation program in our APUS Segment. Our learning management system upgrade was completed in early 2021 and the first phases of our customer relationship management system upgrade were completed in January 2022. These types of changes are not without risk to our operations and financial results. Our investments in information technology systems will result in an increased level of spending. Not all of our information technology spending can be capitalized, and our investments may cost more than expected or fail to be successful. Furthermore, as a result of unsuccessful development efforts, or a result of replacing outdated technology, software or other technology related assets, we may have assets that become impaired.

Opening new campuses and maintaining existing campuses at RU and HCN may result in us incurring significant costs in the future. At RU and HCN, adding new campuses is a necessary step to extend our student reach throughout the U.S. For example, during 2021, we opened a new HCN campus in Akron, Ohio, and we are in the process of opening a RU campus in suburban Brooklyn Park, Minnesota, with the intent to consolidate two existing campuses currently located in that area. We expect operating and capital expenditures to increase in future periods as we continue to add new campuses and incur maintenance costs at existing campuses.

RU Change in Ownership. The Rasmussen Acquisition was required to be reported to, and in some cases approved by, various education regulatory bodies. An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership. ED does not provide pre-closing approval.

In July 2021, ED notified RU that in connection with RU’s March 2019 change in ownership, ED was imposing certain temporary growth restrictions on the institution, including imposing limitations on new programs and locations and imposing a cap on the number of students that participate in Title IV programs who can be enrolled. ED also continued to require RU to submit periodic financial and enrollment reports, a requirement that it had imposed on RU in connection with the financial responsibility letter of credit discussed in “Regulatory Environment - Regulatory Actions and Restrictions on Operations - Rasmussen Acquisition Regulatory Review”. On September 9, 2021, RU timely submitted a change in ownership and control application to ED seeking approval to participate in the Title IV programs under our ownership. ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, effective as of October 14, 2021, that allows RU to continue disbursing Title IV funds during the period of ED’s review of the change in ownership application. The TPPPA continues the growth restrictions that ED imposed as a result of the March 2019 change in ownership, including the same enrollment cap. The TPPPA specifies that after ED reviews and accepts financial statements and compliance audits that cover one complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU may seek to have the enrollment cap removed and may seek approval for new programs that replace current programs. The TPPPA also specifies that at least until after ED reviews and accepts financial statements and compliance audits that cover the second complete fiscal year of RU’s Title IV participation under APEI’s ownership, RU must seek pre-approval for new locations, new programs that are not replacing current programs, and other changes. The growth restrictions under the TPPPA could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students, and limiting its ability to continue to evolve to address current needs by providing new or changed programs. In connection with the Rasmussen Acquisition, state agencies, accreditors, boards of nursing, and other relevant regulators also may require further action with respect to the Rasmussen Acquisition. For example, the Higher Learning Commission, or HLC requires an additional site visit within six months after the Closing Date, and that visit occurred in February 2022. Additionally, some regulators will require approval after the change in ownership in order to continue proper licensure, accreditation, approval, or authorization. RU is also pursuing other post-closing notices and consents related to the change in ownership.

APUS Accreditation. APUS has institutional accreditation from HLC and several of its academic programs have programmatic accreditations granted by accrediting agencies that review specialized and professional programs in specific fields and disciplines. In August 2021, HLC granted APUS re-accreditation, with the next reaffirmation of accreditation scheduled for 2030-2031. As part of the process, APUS moved to the Open Pathway designation, which affords institutions greater opportunity to pursue institutional improvement projects than the previous Standard Pathway designation.

RU Accreditation. RU has institutional accreditation from HLC, with an Open Pathways designation, and several of its academic programs have programmatic accreditations granted by accrediting agencies that review specialized and professional programs in specific fields and disciplines. For more information regarding RU and HLC, please refer to “Regulatory Environment - Accreditation”.

HCN Accreditation. HCN is institutionally accredited by ABHES. HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by the Ohio Board of Nursing, and the PN Program is accredited by the Indiana State Board of Nursing the National League for Nursing Commission for Nursing Education

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Accreditation, or NLN CNEA. For more information regarding our institutions’ accreditation, please refer to “Regulatory Environment - Accreditation”.

Competition from Armed Forces Institutions. In March 2020, the Navy announced a new “Education Strategy for Seapower 2020” that is intended to be a new comprehensive education strategy. As part of this strategy, the Navy, in cooperation with the U.S. Marine Corps and the U.S. Coast Guard, in January 2021 began piloting online courses for the new United States Naval Community College, a community college supporting naval education for enlisted service members, and plans to enroll as many as 5,500 students into targeted associate’s degree programs with partner colleges and universities in an expanded pilot phase that began in January 2022. Navy-related registrations were 5% of total registrations in each of the years ended December 31, 2019, 2020, and 2021, respectively. While a number of schools with which APUS competes participate in this program, APUS is not an eligible partner. We expect each military branch and the DoD to continually evaluate their approaches to education, and any resulting changes could have an impact on the funds available to service members to pursue their education at APUS. Changes in funding allocations could have a material adverse effect on APUS’s enrollments.

ArmyIgnitED. APUS relies on the ability of the Armed Forces to process service members’ participation in TA programs, and from time-to-time changes to processes have impacted the ability of service members to participate in the TA programs. In February 2021, the Army suspended access to its legacy GoArmyEd portal, which had been used by soldiers to request TA, as part of a scheduled replacement by the new ArmyIgnitED portal. The suspension was scheduled to last until the launch of ArmyIgnitED on March 8, 2021, but technical difficulties on March 8, 2021 after the portal’s launch caused access to the upgraded portal to be suspended further. During the suspension, soldiers, Army education counselors, and education institutions such as APUS did not have access to the portal and soldiers were unable to register for courses through the Army’s TA program. The Army announced on March 18, 2021 that TA-eligible soldiers could register for courses beginning on or after March 8, 2021 and then retroactively apply for TA for those courses once the TA system came online in ArmyIgnitED. Soldiers could continue to directly register for courses with the expectation that TA can be retroactively applied for, and the Army has created a process for soldiers to seek reimbursement. On July 19, 2021, the ArmyIgnitED system went live for soldiers seeking to use TA for courses at APUS. We continue to experience challenges related to system performance, process changes and software defects, and there is no assurance that the new portal will ever work correctly or efficiently or will not have continuing impacts on soldiers’ ability to participate in the TA programs or receive funds under those programs. The disruption to Army TA and resulting decreases in Army registrations had an adverse impact on registrations and revenue for the quarters ending June 30, 2021 and September 30, 2021. As of December 31, 2021, approximately $27.0 million in accounts receivable, of which $18.2 million is older than 60 days from the course start date, was due from the Army due to the disruption associated with the transition to ArmyIgnitED.

ED Program Participation Agreement and Program Reviews. As discussed more fully in “Student Financing Sources and Related Regulations/Requirements - Department of Education - Regulation of Title IV Financial Aid Programs,” in September 2016 ED began a program review of APUS’s administration of the Title IV programs during the 2014-2015 and 2015-2016 award years. In June 2020, APUS timely applied for recertification to participate in Title IV programs. ED subsequently notified APUS that it had completed its review of APUS’s application and had granted APUS provisional certification until June 30, 2023. ED issued APUS a provisional program participation agreement, or PPPA, outlining the terms of provisional certification. As described in the PPPA, the reason ED granted approval on a provisional basis is because APUS was subject to an open program review at the time of renewal. The program review was closed on January 27, 2021 with no findings, penalties, or further action required.

In July 2017, ED began a program review of RU’s administration of Title IV program during the 2015-2016 and 2016-2017 award years. RU has not received a program review report from ED.

In August 2021, ED began an off-site program review of HCN’s administration of Title IV programs during the 2019-2020 and 2020-2021 award years. In January 2022, HCN received a preliminary program review report from ED. The report includes findings related to failure to prorate fees, return of Title IV funds calculations that were not properly computed, untimely and inaccurate reporting to the National Student Loan Data System, incomplete verification, and cost of attendance formulation deficiencies. HCN’s response to ED is due by April 2022.

At this time, we cannot predict the outcome of the RU and HCN program reviews, when they will be completed, or whether ED will place any liability or other limitations on RU or HCN as a result of the reviews.

Regulated Industry. Our institutions operate in a highly regulated industry. For more information on the regulations to which our institutions are subject, please refer to the “Business - Company Overview” and “Business - Regulatory Environment” section of this Annual Report. Such regulations may impact our financial results in a way that we cannot predict and may have an adverse impact on our financial condition.

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Our Key Financial Results Metrics

Revenue

When reviewing our revenue, we evaluate the following components: net course registrations and enrollment, tuition rate, net tuition and other fees.

Net course registrations and enrollment. For financial reporting and analysis purposes, APUS measures its student population in terms of aggregate course enrollments, or net course registrations. Net course registrations, which include one-credit lab courses combined with their related three-credit courses, represent the aggregate number of courses in which students remain enrolled after the date by which they may drop the course without financial penalty. RU and HCN measure its student population in terms of student enrollments. Student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

Because we recognize revenue over the length of a course, net course registrations and student enrollments in a financial reporting period do not correlate directly with revenue for that period because revenue recognized from courses is not necessarily recognized in the financial reporting period in which the course registrations or enrollments occur. For example, at APUS, revenue in a quarter reflects a portion of the revenue from courses that began in a prior quarter and continued into the quarter, all revenue from courses that began and ended in the quarter, and a portion of the revenue from courses that began but did not end in the quarter. At RU and HCN, generally programs begin and end in a calendar quarter.

The average number of courses per term at APUS varies by payor type. For example, ED’s Title IV programs require participating students to take more courses per term than students participating in TA. As a result, should the number of APUS’s students who utilize ED’s Title IV programs decrease (or the number of students using TA increase), we anticipate that it may cause the average number of courses per student per term to decrease.

You should not rely on the results of any prior periods as an indication of future net course registrations at APUS, student enrollments at RU and HCN, or consolidated revenue. The composition of our students, changing market demands and competition, make forecasting very difficult, and we are unable to determine if we will continue to grow or what level of growth we will achieve, if any. Similarly, you should not rely on our operating margins in any prior periods as an indication of our future operating margins.

Tuition rate. Providing affordable degree and certificate programs is an important element of our competitive strategy. We estimate that APUS’s tuition is lower than the average in-state rates at public universities. APUS’s January 2020 tuition increase was its first increase since July 2015 and was intended to help support increased investments in academic learning and student operations. RU and HCN’s tuition and fees are also designed to be affordable and competitive when compared to the costs of similar institutions offering the same level of flexibility, accessibility, and student experience. Tuition and certain fees at HCN were increased approximately 3% effective with the January 2019 term, and there were no tuition increases in 2020 and 2021. RU makes target adjustments to tuition rates to be consistent with the local campus markets.

Net tuition. Tuition revenue varies from period to period based on the aggregate number of students attending courses and the number of courses they are attending during the period, the student payor source, the mix of programs that students are attending during the period, as well as the number of students starting courses each month during the period and the timing of the start of a course each month or term. Tuition revenue is adjusted to reflect amounts for students who withdraw from a course in the month or term the withdrawal occurs. We also provide tuition grants and scholarships to certain students to assist them financially with their educational goals. The cost of these grants and scholarships is reported as a reduction of tuition revenue in the period incurred for purposes of establishing net tuition revenue.

Other fees. In addition to tuition, APUS charges a per course technology fee of $65 per course. APUS may alter this fee in the future as it did with a $15 increase in January 2020. APUS students are also charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees, when applicable. APUS provides a grant to cover the technology fee for students using TA and other programs, as applicable. Technology fee revenue net of grants was approximately $7.0 million in 2019, $8.3 million in 2020, and $7.9 million in 2021, or 2.4%, 2.6%, and 2.8% of revenue, respectively.

RU and HCN students are charged fees for various items such as application, testing, books and supplies, lab, technology and graduation. In addition, RU charges a course technology and resource fee of $175 per course and a one-time administrative fee for certain programs, up to $495, for all new, reentering, and program transfer students.

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Costs and Expenses

We categorize our costs and expenses in the following categories: instructional costs and services expenses; selling and promotional expenses; general and administrative expenses; loss on disposals of long-lived assets; impairment of goodwill; and depreciation and amortization.

Instructional costs and services expenses. Instructional costs and services expenses are directly attributable to the educational services our institutions provide to their students. Instructional costs and services expenses include salaries and benefits for full-time faculty, administrators, and academic advisors, and costs associated with part-time faculty. Instructional costs and services expenses also include costs associated with curriculum development, academic records and graduation, as well as other services provided by our institutions, such as evaluating transcripts. Instructional costs and services expenses are generally affected by the cost of academic resources, the efficiency of delivering academic products and services to our students, salaries and benefits for our faculty and other academic and administration personnel, and the level of expenditures for new and existing academic programs. At RU and HCN, instructional costs and services expenses also includes operating expenses directly associated with campus operations, including rent. At APUS, instructional costs and services expenses include expenses related to course materials, learning resources, the library, the book grant program, and instructional pay for part-time faculty that are primarily dependent on the number of students taught.

Selling and promotional expenses. Selling and promotional expenses include salaries and benefits of personnel engaged in student enrollment, advertising costs, and marketing material production costs, and include expenses from a third-party contract to provide marketing services to RU entered into prior to the Closing Date. Our selling and promotional expenses are generally affected by the cost of advertising media, the efficiency of our selling efforts, salaries and benefits for our selling and admissions personnel, the level of expenditures for advertising initiatives for new and existing academic programs, and costs incurred in connection with the third-party contract at RU. We believe the impact of competition, and the rising cost of internet search and other advertising media has caused our student acquisition costs to increase. This trend may continue, and our student acquisition costs may continue to increase.

General and administrative expenses. General and administrative expenses include salaries and benefits of employees engaged in corporate management, finance, financial aid processing, information technology, including expenses from a third-party contract to provide IT services that RU entered into prior to the Closing Date, human resources, facilities, compliance and other corporate functions, the cost of renting and maintaining administrative facilities, technology expenses, and costs for professional services. General and administrative expenses also include bad debt expense. General and administrative expenses are generally affected by the costs of salaries and benefits for our general and administrative personnel, the efficiency of delivering back-office support including technology services, and the level of expenditures for supporting company initiatives.

Loss on disposals of long-lived assets. Loss on disposals of long-lived assets is the difference between the long-lived assets’ residual value and their book value at the time of the assets’ disposition or abandonment.

Impairment of goodwill. Impairment of goodwill recognizes the difference between the carrying value of goodwill and the fair value of goodwill.

Depreciation and amortization. We incur depreciation and amortization expenses for costs related to the capitalization of property, equipment, software, and program development on a straight-line basis over the estimated useful lives of the assets. In addition, we incur amortization expense for the amortization of identified intangible assets with a definite life resulting from our acquisition of RU.

Interest Income (Expense). Interest income (expense) consists primarily of interest expense incurred on our long-term debt, net of any interest income earned on cash and cash equivalents, and, prior to 2021, interest income earned on cash and cash equivalents.

Equity Investment Loss. Equity investment loss consists of our proportional share of after-tax income or losses attributable to our equity investment as well as the loss from any other-than-temporary impairment charges, which represents the difference between the carrying value of and fair value of the investment.

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Critical Accounting Policies and Estimates

The discussion of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition and the valuation of goodwill and indefinite-lived intangible assets. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our Consolidated Financial Statements. The following discussion of our critical accounting policies and estimates is intended to supplement the accounting policies presented in “Note 2. Significant Accounting Policies” included in our Consolidated Financial Statements.

Business combinations. We account for business combinations using the acquisition method of accounting, which requires that once control is obtained, the purchase price be allocated to all tangible assets and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. Any excess purchase price over the fair value of the net assets acquired is recorded as goodwill. The determination of the fair value of assets acquired and liabilities assumed requires estimates and assumptions with respect to the timing and amounts of cash flow projections, revenue growth rates, earnings before interest and taxes margins, student attrition rates, royalty rates, discount rates, and useful lives. These estimates are based on assumptions we believe to be reasonable, and, when appropriate, include assistance from independent third-party valuation firms. During the measurement period, which is up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding adjustment to goodwill. We applied the acquisition method of accounting to the acquisition of RU, which closed on September 1, 2021, and recorded $216.9 million and $86.5 million of Goodwill and Intangible Assets, respectively, representing 91.7% of the total purchase consideration. For additional information regarding our acquisitions, please refer to “Note 3. Acquisition Activity”, included in our Consolidated Financial Statements.

Goodwill and indefinite-lived 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.

In connection with the September 1, 2021 acquisition of RU, we recorded $216.9 million of goodwill, representing the excess of the purchase price over the amount assigned to the assets acquired and the fair value assigned to the identified intangible assets. We also recorded identified intangible assets with an indefinite useful life in the aggregate amount of $51.0 million respectively, which includes trade name, accreditation, licensing and Title IV, and recorded $35.5 million of identified intangible assets with a definite useful life.

In connection with the November 1, 2013 acquisition of HCN, we recorded $38.6 million of goodwill, representing the excess of the purchase price over the amount assigned to the new assets acquired and the fair value assigned to identified intangible assets. We also recorded $3.7 million of indefinite-lived intangible assets as part of the HCN acquisition.

We annually assess goodwill and indefinite-lived intangible assets for impairment, or more frequently if events and circumstances indicate that goodwill might be impaired. If the carrying value exceeds fair value, the asset is considered impaired and is reduced to fair value. In assessing goodwill impairment, we may choose to initially evaluate qualitative factors to determine if it is more likely than not that the fair value is less than its carrying amount. If the qualitative assessment is not conclusive, then the impairment analysis for goodwill is performed using a quantitative approach.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment and estimates at many points during the analysis. When performing an optional qualitative analysis, we consider many factors including: general economic conditions, industry and market conditions, certain cost factors, financial performance and key business drivers, long-term operating plans, and potential changes to significant assumptions and estimates used in the most recent fair value analysis. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions and estimates. Actual results may differ and have a material impact or our results of operations and financial position, and subsequent events are not necessarily indicative of the reasonableness of the original assumptions or estimates. At December 31, 2021, we performed a qualitative analysis of RU and HCN, resulting in no indications of impairment. Due to the timing of the RU acquisition, the first quantitative analysis for RU will be performed in September 2022.

We utilize the services of an independent third-party valuation firm to complete the quantitative analysis and estimate fair value. In completing their analysis, the valuation firm weights the results of four different valuation methods: (1)

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discounted cash flow; (2) guideline company; (3) guideline transaction for comparable transactions; and (4) guideline transaction for private equity transactions. Under the discounted cash flow method, cash flows are discounted by an estimated risk weighted average cost of capital, which is intended to reflect the overall level of inherent risk. Under the guideline company method, valuation metrics from other education companies are used to determine the value. Under the comparable transaction method, pricing terms from other transactions in the higher education market are used to determine the value. Under the private equity method, pricing terms from private equity transactions are used to determine the value. Values derived under the four valuation methods are then weighted to estimate the enterprise value. The analysis includes significant estimates and assumptions from management, including revenue growth rates, operating margins and future economic and market conditions, among others. Additionally, the valuation firm’s analysis includes significant assumptions with respect to discount rates and assumed royalty rates. If the fair value is less than the carrying value, the asset is reduced to fair value.

During the year ended December 31, 2019, we completed interim goodwill impairment tests during the first and third quarters, as a result of circumstances that included HCN’s continued underperformance against revised 2019 internal targets and overall 2019 financial performance. The valuations determined that HCN’s fair value was less than the carrying value. As a result, we recorded pretax, non-cash impairment charges of $7.3 million.

We evaluated events and circumstances related to the valuation of goodwill of HCN for the years ended December 31, 2020 and 2021 and determined there were no indicators of impairment and concluded that HCN’s fair value was more than the carrying value; consequently, there was no 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. Our October 31, 2021 annual assessment concluded that the fair value of HCN exceeded the carrying value by approximately $20.1 million, or 51.8%.

The 2019, 2020, and 2021 annual assessments concluded HCN’s indefinite-lived assets were not impaired.

For additional details regarding goodwill and indefinite-lived intangible assets please refer to “Note 6. Goodwill and Intangible Assets” included in our Consolidated Financial Statements.

For additional information on our critical accounting policies, including information regarding estimates and assumptions, please refer to “Note 2. Significant Accounting Policies” included in our Consolidated Financial Statements.

Recent Accounting Pronouncements

We consider the applicability and impact of all Accounting Standards Updates, or ASUs. Please refer to “Note 2 Significant Accounting Policies” included in our Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements.

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Results of Operations

The following table sets forth statements of income data as a percentage of revenue for each of the years ended:

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Our results of operations for the years ended December 31, 2020 and 2021 reflect the operations of our APUS and HCN Segments, and results of our RU Segment from the Closing Date through December 31, 2021, and Corporate and Other which primarily includes unallocated corporate activity and eliminations. We did not consolidate the RU Segment prior to the Closing Date.

For a more detailed discussion of our results by reportable segment, please refer to “Analysis of Operating Results by Reportable Segment” below.

Revenue

Our consolidated revenue in 2021 was $418.8 million, an increase of $97.0 million or 30.1%, compared to $321.8 million in 2020. The increase in revenue was primarily due to the inclusion of RU Segment revenue from the Closing Date through December 31, 2021 of $89.5 million, as well as a $9.7 million, or 26.9%, increase in revenue in our HCN Segment, partially offset by a $2.2 million, or 0.8%, decrease in revenue in our APUS Segment.

APUS net course registrations decreased approximately 2.2% to 345,300 for the year ended December 31, 2021 from approximately 353,100 in the 2020 period. Net course registrations represent the total number of courses in which students remain enrolled after the date by which they may drop a course without financial penalty. The decrease in net course registrations is due, in part, to the temporary suspension and disruption of the Army’s TA program beginning in February 2021, resulting from delays in the transition from its legacy system used by soldiers to request TA, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education as the COVID-19 pandemic abated prior to the omicron variant.

RU student enrollment decreased approximately 0.6% to 16,300 for the three months ended September 30, 2021 as compared to the 2020 period. For the three months ended December 31, 2021, RU enrollment decreased approximately 3.4% to 17,100 as compared to the prior year period. We believe these declines in enrollment may have been caused, in part, by a moderation in near-term demand for RU’s programs as the COVID-19 pandemic abated prior to the omicron variant.

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HCN student enrollment increased approximately 27.9% for the year ended December 31, 2021 compared to the same period in 2020. The increase in student enrollment was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures as compared to the prior year, the opening of a new campus in Akron, Ohio in April 2021, and the continued impact of new initiatives implemented in 2019 and 2020, such as the Direct Entry ADN Program and the institutional affordability grant.

Costs and Expenses

Costs and expenses were $388.4 million in 2021, an increase of $91.3 million, or 30.7%, compared to $297.1 million in 2020. The increase in costs and expenses as compared to the prior year period was primarily due to the inclusion of our RU Segment costs and expenses from the Closing Date through December 31, 2021 of $87.9 million. Other increases include professional fees in our APUS Segment, employee compensation costs, bad debt expense, instructional materials costs, and advertising costs in our HCN Segment, and professional fees primarily related to the integration planning of the Rasmussen Acquisition, employee compensation costs, and advertising costs in Corporate and Other. The cost and expenses increases were partially offset by decreases in employee compensation costs, advertising expenses, and instructional materials costs in our APUS Segment.

In 2021, costs and expenses include the following items on a pretax basis: $7.6 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other; and $6.0 million in information technology costs related to our multi-year technology transformation program in our APUS Segment. In 2020, costs and expenses include the following on a pretax basis: a $10.4 million increase in advertising costs in our APUS and HCN Segments as compared to the prior year; $5.6 million in information technology costs related to our multi-year technology transformation program in our APUS Segment; and $5.0 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other.

Costs and expenses as a percentage of revenue increased to 92.8% in 2021 from 92.3% in 2020. Our income before interest and income taxes as a percentage of revenue, or our operating margin, decreased to 7.2% from 7.7% compared to the same prior year period. The increase in our costs and expenses as a percentage of revenue and decrease in our operating margin was primarily due to the inclusion of RU costs and expenses from the Closing date through December 31, 2021.

Instructional costs and services expenses. Instructional costs and services expenses in 2021 were $172.6 million, an increase of approximately $50.4 million, or 41.2%, compared to $122.2 million in 2020. The increase in instructional costs and services expenses was primarily due to the inclusion of RU Segment instructional costs and services expenses from the Closing Date through December 31, 2021 of $49.0 million, as well as increases in employee compensation costs and instructional materials costs in our HCN Segment, partially offset by decreases in employee compensation costs, instructional materials costs, and credit card processing fees in our APUS Segment. Instructional costs and services expenses as a percentage of revenue were 41.2% in 2021, compared to 38.0% in 2020.

Selling and promotional expenses. Selling and promotional expenses in 2021 were $93.3 million, an increase of $20.3 million, or 27.8%, compared to $73.0 million in 2020. The increase in selling and promotional expenses was primarily due to the inclusion of RU Segment selling and promotional expenses from the Closing Date through December 31, 2021 of $23.2 million, as well as increases in employee compensation costs in our APUS and HCN Segments and increases in advertising costs in our HCN Segment, partially offset by decreases in advertising costs in our APUS Segment. Selling and promotional expenses as a percentage of revenue were 22.3% in 2021 compared to 22.7% in 2020.

General and administrative expenses. General and administrative expenses in 2021 were $103.4 million, an increase of $15.4 million, or 17.5%, compared to $88.0 million in 2020. The increase in general and administrative expenses was primarily due to the inclusion of RU Segment general and administrative expenses from the Closing Date through December 31, 2021 of $7.6 million, as well as increases in professional fees primarily related to the integration planning of the Rasmussen Acquisition and employee compensation costs in Corporate and Other, an increase in professional fees in our APUS Segment, and increases in bad debt expense and employee compensation costs in our HCN Segment. In 2021, general and administrative expenses include the following costs on a pre-tax basis: $7.6 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other; and $6.0 million of information technology costs related to our multi-year technology transformation program in our APUS Segment. In 2020, general and administrative expenses include the following costs on a pre-tax basis: $5.6 million in information technology costs related to our multi-year technology program in our APUS Segment, and $5.0 million in professional fees primarily related to the Rasmussen Acquisition in Corporate and Other. General and administrative expenses as a percentage of revenue were 24.7% in 2021 compared to 27.3% in 2020.

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Consolidated bad debt expense increased to $7.8 million, or approximately 1.9% of revenue, in 2021, from $3.8 million, or approximately 1.2% of revenue, in 2020. The increase in bad debt expense was primarily due to the inclusion of our RU Segment bad debt expense from the Closing Date through December 31, 2021 of $2.4 million, as well as increases in bad debt expense in our HCN Segment, partially offset by a decrease in our APUS Segment. We believe the increase in bad debt expense in our HCN Segment was driven by an increase in enrollment and changes in the processing of federal student aid.

Loss on disposal of long-lived assets. The loss on disposal of long-lived assets was $1.3 million in 2021, compared to $0.9 million in 2020.

Depreciation and amortization. Depreciation and amortization expenses were $17.8 million in 2021, compared to $13.0 million in 2020, an increase of $4.8 million or 36.9%. The increase in depreciation and amortization was primarily due to the inclusion of our RU Segment depreciation and amortization expenses from the Closing Date through December 31, 2021 of $8.0 million, partially offset by decreases in our APUS Segment depreciation and amortization expense due to lower capital expenditures and lower total investment in property and equipment net of depreciation.

Stock-based compensation. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses in 2021 were $7.7 million in the aggregate, representing an increase of $0.6 million, or 8.2%, compared to $7.1 million in 2020. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs. The increase in stock-based compensation costs was due to additional performance unit incentive costs, and additional grants as a result of the Rasmussen Acquisition.

The table below reflects our stock-based compensation expense recorded in our Consolidated Statements of Income included in our Consolidated Financial Statements for the years ended 2020 and 2021 (in thousands):

Interest income (expense). Interest expense, net of interest income, was $4.3 million in 2021, compared to interest income of $1.1 million in 2020. Interest expense in 2021 was due to the secured term loan facility in the aggregate principal amount of $175.0 million entered into in connection with the Rasmussen Acquisition, or the Term Loan.

Income Tax Expense. We recognized tax expense from operations for 2021 and 2020 of $7.5 million and $7.0 million, respectively, or an effective tax rate of 29.7% and 27.2% in 2021 and 2020, respectively. The increase in our effective tax rate for 2021 is due to a higher amount of non-deductible expenses in 2021 in Corporate and Other, and a higher overall state tax rate. The effective tax rate for 2021 includes a benefit of approximately $0.3 million related to ASU No. 2016-09. There was no material impact related to ASU No. 2016-09 for 2020.

Equity Investment Loss. Equity investment loss was $0.8 million in 2021, compared to equity investment loss of $0.0 million in 2020. The equity investment loss for the year ended December 31, 2021 includes an impairment loss of $0.8 million on one of our cost method investments.

Net Income. Net income was $17.8 million in 2021, compared to net income of $18.8 million in 2020, a decrease of $1.0 million, or 5.3%. This decrease was related to the factors discussed above.

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Operating Results by Reportable Segment - Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The table below details our operating results by reportable segment for the periods indicated (in thousands):

The RU Segment reflects the operations of RU, which was acquired on the Closing Date, through December 31, 2021. We did not consolidate the financial results of the RU Segment prior to the Closing Date.

Adjustments to reconcile segment results to the Consolidated Financial Statements are included in “Corporate and Other”, which primarily includes unallocated corporate activity and eliminations, including charges for the value of courses taken by our non-APUS employees at APUS.

APUS Segment

Our APUS Segment revenue was $283.7 million in 2021, a decrease of $2.2 million, or 0.8%, compared to $285.9 million in 2020, which is primarily attributable to lower net course registrations, partially offset by higher revenue per net course registration. Net course registrations at APUS decreased 2.2% to approximately 345,300 in 2021 compared to the 2020 period. The decrease in net course registrations is due in part to the temporary suspension and disruption of the Army’s TA program beginning in February 2021 resulting from delays in the transition from its legacy system used by soldiers to request TA, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education as the COVID-19 pandemic abated prior to the omicron variant. Income from operations before interest and income taxes was approximately $51.1 million in 2021, an increase of $7.6 million, or 17.5%, compared to the 2020 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

RU Segment

Our RU Segment revenue was $89.5 million for the period from the Closing Date through December 31, 2021 and RU Segment income from operations before interest and income taxes was $1.6 million for the period. Enrollment at RU decreased approximately 0.6% to 16,300 for the three months ended September 30, 2021 as compared to the 2020 period. For the three months ended December 31, 2021, RU enrollment decreased approximately 3.4% to 17,100 as compared to the prior year period. We believe these declines in enrollment may have been caused, in part, by a moderation in near-term demand for RU’s programs as the COVID-19 pandemic abated prior to the omicron variant.

HCN Segment

Our HCN Segment revenue was approximately $45.8 million in 2021, an increase of $9.7 million, or 26.9% compared to $36.1 million in the 2020 period, which is primarily attributable to an increase in student enrollment. HCN student enrollment increased 27.9% in 2021 compared to the 2020 period. We believe that the increase in HCN’s enrollment in 2021

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was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures as compared to the prior year, the continued impact of new initiatives implemented in 2019 such as the Direct Entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. Income from operations before interest and income taxes in the HCN Segment was approximately $1.8 million in 2021, an increase of $1.1 million, or 153.3%, compared to the 2020 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.

Liquidity and Capital Resources

Cash, cash equivalents, and restricted cash were $227.7 million and $149.6 million at December 31, 2020 and 2021, respectively, representing a decrease of $78.1 million, or 34.3%, in the 2021 period. The decrease in cash was due to the Rasmussen Acquisition, partially offset by net proceeds of approximately $86.2 million from the underwritten public offering of 3,680,000 shares of our common stock completed on March 1, 2021 and net proceeds from the Term Loan.

We derive a significant portion of our revenue from our participation in ED’s Title IV programs, for which disbursements are governed by federal regulations. We have typically received disbursements under Title IV programs within 30 days of the start of the applicable course or term.

Another significant source of revenue is derived from TA from the DoD and programs from the VA. Generally, these funds are received within 60 days of the start of the courses to which they relate. Disruptions related to the Army’s transition to a new system for soldiers to use to request TA have adversely impacted APUS’s ability to invoice the Army for Army registrations and have adversely impacted accounts receivable balances and cash flow from operations. As of December 31, 2021, approximately $27.0 million, of which $18.2 million is older than 60 days from the course start date, was due from the Army due to the disruption associated with the transition to ArmyIgnitED. We cannot predict when this disruption will be completely resolved and the Army’s systems fully operational or the timing of expected cash receipts from the Army.

We have historically financed operating activities and capital expenditures with cash provided by operating activities. We expect to continue to fund our costs and expenses through cash generated from operations. We believe our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations, debt and interest obligations, and planned capital expenditures for the next 12 months and the foreseeable future. For more on our material cash requirements from known contractual and other obligations, please refer to “Contractual Obligations” below.

Our operating expenditures may increase in future periods as we continue to invest in the modernization of our information technology systems, advertising, and other expenditures. For the years ended December 31, 2019, 2020 and 2021, we incurred approximately $2.1 million, $5.9 million, including $0.3 million of capital costs, and $6.0 million, respectively, of information technology costs related to our multi-year technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems. APUS completed the migration of all students to the new learning management system in the first quarter of 2021, and completed the first phases of the implementation of the new customer relationship management system in January 2022. APUS will continue to evaluate the Partnership At a Distance™, or PAD, customized student information and services system for possible changes and upgrades and anticipate that we will eventually make significant changes to that system as well.

Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the maintenance of existing campuses at RU and HCN, the opening of new campuses at RU and HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth. Professional fees may continue to be elevated or increase as we continue the integration of RU and the integration of GSUSA, and continue to evaluate investments in strategic growth opportunities and enhancements to our business capabilities. We also expect to continue to explore opportunities to invest in the education industry, which could include purchasing or investing in other education-related companies or companies developing new technologies. For the years ended December 31, 2020 and 2021, we incurred approximately $4.3 million and $7.6 million, respectively, of acquisition-related expenses, which are included in general and administrative expenses on the Consolidated Statements of Income.

We raised additional capital to finance the Rasmussen Acquisition, as discussed below, and we may also need additional capital in the future, including to finance other business acquisitions and investments in technology or to achieve growth or fund other business initiatives. In February 2021, we filed a shelf registration statement in order to help facilitate potential public offerings of up to $300 million of our securities. On March 1, 2021, we completed an underwritten public offering of 3,680,000 shares of our common stock at a price to the public of $25.00 per share for net proceeds of approximately $86.2 million, after deducting underwriting discounts and commissions and offering expenses, and we have approximately $213.8 million of room available under our shelf registration statement for future offerings.

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Acquisition of Rasmussen University

In connection with the completion of the Rasmussen Acquisition, on the Closing Date, we entered into a Credit Agreement with Macquarie Capital Funding LLC, as administrative agent and collateral agent, Macquarie Capital (USA) Inc., and Truist Securities, Inc. as joint lead arrangers and bookrunners, and a syndicate of lenders, or the Lenders and, pursuant to the Credit Agreement, the Lenders provided us with (i) the $175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20.0 million, or together with the Term Loan, the Facilities. We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan. For more information on the Facilities and their terms, please refer to “Note 8. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

Our future capital requirements will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

Acquisition of Graduate School USA

On August 11, 2021, we announced that we had entered into an agreement to acquire substantially all of the assets of Graduate School USA, or GSUSA, one of the largest providers of training to the federal government workforce, for approximately $1.0 million, subject to working capital adjustments. We closed on this acquisition on January 1, 2022.

Operating Activities

Net cash provided by operating activities was $44.8 million and $16.3 million in 2020 and 2021, respectively. The decrease in cash from operating activities is primarily due to the timing of the Rasmussen Acquisition. RU receives the majority of its cash receipts during the first month of each fiscal quarter while disbursements occur throughout the quarter. Pursuant to the terms of the Rasmussen Acquisition, the seller in the transaction retained substantially all of the cash held by RU on the Closing Date. Accordingly, from the Closing Date through September 30, 2021, and continuing through mid-October when RU entered into its TPPPA, APEI funded the majority of RU’s operations. Cash flow from operating activities also decreased due to changes in working capital due to the timing of receipts and payments, and higher estimated tax payments in 2021 compared to the prior year. Tax payments for income taxes were approximately $5.9 million in 2020 compared to $7.5 million in 2021. The following changes in working capital accounts had a negative impact on operating cash flow for the year ended December 31, 2021, as compared to the prior year period: deferred revenue of $27.7 million due to the acquisition of RU occurring during the quarterly and academic third quarter term; accounts payable, accrued compensation and benefits, and accrued liabilities of $5.2 million due in part to higher incentive-based compensation payments in the current year period; and changes in accounts receivable primarily due to the disruption caused by the Army’s transition to the ArmyIgnitED system. Disruptions related to the Army’s transition to a new system for soldiers to use to request TA have adversely impacted APUS’s ability to invoice the Army for Army registrations and may impact future accounts receivable balances and cash flow from operations. As of December 31, 2021, approximately $27.0 million, of which $18.2 million is older than 60 days from the course start date, was due from the Army due to the disruption caused by the transition to ArmyIgnitED.

Investing Activities

Net cash used in investing activities was $4.2 million and $336.7 million in 2020, and 2021, respectively. This increase was primarily related to the $325.5 million of cash used for the Rasmussen Acquisition, as well as increases in capital expenditures. The increase in capital expenditures was primarily due to the inclusion of our RU Segment capital expenditures from the Closing Date through December 31, 2021 of $6.0 million.

Financing Activities

Net cash used in financing activities was $15.7 million in 2020, compared to $242.3 million of net cash provided by financing activities in 2021. The increase in cash provided by financing activities in 2021 was due to our underwritten public offering of common stock for aggregate net proceeds of approximately $86.2 million and proceeds of $175.0 million from the Term Loan in connection with the Rasmussen Acquisition, partially offset by debt issuance costs of $13.6 million. For the year ended December 31, 2020, we used $13.6 million to repurchase shares of our common stock in accordance with our share repurchase program. There were no share repurchases for the year ended December 31, 2021.

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Contractual Obligations

Long-term debt

We have long-term debt outstanding under the Credit Agreement of $172.8 million as of December 31, 2021. Principal payments payable in 2022 are $8.8 million. Interest payable of $10.6 million is due in 2022, assuming the variable rate as of December 31, 2021. For more information on the timing and amount of our future principal and interest payments, please refer to “Note 8. Long-Term Debt” included in the Consolidated Financial Statements in this Annual Report.

Operating lease obligations

We have operating leases for office space and campus facilities. As of December 31, 2021 we had lease payment obligations of $108.0 million, with $16.0 million payable in 2022. In connection with the acquisition of GSUSA on January 1, 2022, we have also assumed an operating lease obligation in the aggregate of $50.0 million over 15 years for GSUSA’s Washington, D.C., headquarters facility. For more information on the timing and amount of our future lease obligations, please refer to “Note 7. Leases” included in the Consolidated Financial Statements in this Annual Report.

Other purchase obligations

Our other purchase obligations primarily consist of non-cancelable obligations primarily for marketing and IT services. As of December 31, 2021, we had other purchase obligations of $62.8 million, with $25.4 million payable in 2022. The majority of purchase obligations are related to service agreements entered into by RU prior to the Closing Date with Collegis to provide marketing and IT services and that expire September 30, 2024. The total minimum value of the service contracts over the remaining approximately three-year period is approximately $52.7 million.

Impact of Inflation

We do not believe that inflation had a material impact on our results of operations in 2020 or 2021. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.