American Public Education (APEI) 10-K2023 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

 

(Mark One)

☐ Transition report pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

  

American Public Education, Inc.

 

  

 

 

 

 

 

The total number of shares of common stock outstanding as of March 1, 2024, was 17,505,345.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

AMERICAN PUBLIC EDUCATION, INC.

 

FORM 10-K

INDEX

This Annual Report on Form 10-K, or this Annual Report, including the sections entitled “Business”, “Risk Factors”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words or expressions that convey future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Annual Report include statements about:

Forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance, taking into account information currently available to us, and are not guarantees of future results. There are a number of important

Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Annual Report, including in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. You should read these factors and the other cautionary statements made in this Annual Report as being applicable to all related forward-looking statements wherever they appear in this Annual Report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance, or achievements expressed or implied by these forward-looking statements.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date of this Annual Report. We undertake no obligation to publicly update any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, or otherwise, except as required by law.

We are subject to a variety of risks and uncertainties, including risks that could have a material adverse effect on our business, financial condition, results of operations, and cash flows. The following summary of the principal factors that make an investment in our securities speculative or risky should not be relied upon as an exhaustive summary of the material risks facing us. You should read the following summary together with the more detailed description of risks that we deem material described under “Risk Factors” in Item 1A of this Annual Report and the other information contained in this Annual Report before investing in our securities.

Risks Related to the Regulation of Our Industry

Risks Related to Our Business

Risks Related to Our Technology Infrastructure

PART I

COMPANY OVERVIEW

Our Vision and Mission

Our vision is for education that transforms lives, advances careers, and improves communities. Our mission is to Power Potential and Prosperity for Those Who Serve. Our institutions of advanced learning are purpose-built to prepare service-minded students for employment, careers, and leadership in a diverse and changing world. We are the number one educator of active-duty military and of veterans through American Public University System, a national leader in pre-licensure nursing education, focused on a Diploma in Practical Nursing, or PN degree, and an Associate Degree in Nursing, or ADN degree, through Rasmussen University and Hondros College of Nursing, and operate one of the largest providers of training to the federal government and public workforce through Graduate School USA.

Our Institutions

We have four subsidiary institutions: American Public University System, Rasmussen University, Hondros College of Nursing, and Graduate School USA.

American Public University System

APUS provides online postsecondary education to approximately 89,800 adult learners. APUS traces its roots to American Military University, or AMU, which was founded in 1991, as a distance-learning, graduate-level institution for military officers seeking an advanced degree in military studies. Since then, APUS has broadened its focus to include other military communities, veterans, and public service and public service-minded communities, with a focus on educating those who serve, and has two components: AMU, which is focused on educating students from the military, national security, military-affiliated and service communities, like police, firefighters, emergency personnel, and government employees, and American Public University, or APU, which is focused on educating career-focused working adults with an emphasis on educating professionals working in service-related communities, including nursing, public health, public administration, and business administration. Today, a majority of APUS students are undergraduate-level students in addition to its graduate and certificate students.

APUS is exclusively an online institution of higher learning, designed to meet the needs of the military, military-affiliated, public service, and working adult students. Many of these students serve in positions requiring extended and irregular work schedules, are on-call for rapid response missions, participate in extended deployments and exercises, travel or relocate frequently, and often must balance family and work demands. Although APUS’s focus has broadened since its founding, it continues to have an emphasis on its relationship with the military community. 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 approximately 11% of APUS’s students self-reported that they are a military veteran. The remainder of APUS’s students are other military or military-affiliated professionals (such as reservists or National Guard members), public service professionals (such as law enforcement personnel or other first responders), and other non-military students (such as working adult students and military spouses).

APUS is institutionally accredited by The Higher Learning Commission, or HLC, a regional accrediting agency recognized by the U.S. Department of Education, or ED. Most other higher education institutions accept APUS’s courses for transfer credit as a result of this accreditation. HLC will conduct a focused visit at APUS in March 2024 after raising concerns regarding compliance with standards related to program development oversight and program assessment processes as a result of course availability in one program. APUS has a Standard Pathway designation, having transitioned from the Open Pathway in 2023 because of HLC’s decision to conduct a focused visit. All institutions on the Standard Pathway, including APUS, must undergo a mid-cycle comprehensive evaluation. A reaffirmation of accreditation site visit date will take place 2030-2031.

Rasmussen University

RU provides nursing- and health sciences-focused postsecondary education to over 14,100 students at its 22 campuses in six states and online. At the beginning of its 123-year history, RU focused on educating business students to prepare them for practical careers in bookkeeping, secretarial services, and accounting. RU’s foundation of education that transforms lives created an institution built to serve those not typically served by traditional higher education. While RU continues to offer programs across a broad range of study including business, technology, and education, it expanded its breadth and embarked on providing healthcare education in 2006. Today, RU offers a comprehensive “ladder” of nursing degrees, including pre-licensure PN and ADN degrees, post-licensure Bachelor of Science in Nursing, or BSN, and RN to BSN degrees, Master of Science degrees in Nursing, Specialties and Nurse Practitioner, and a Doctorate of Nurse Practice.

RU is committed to innovation in program delivery. For example, RU offers competency-based education, or CBE, helping to advance this learning approach where students learn by doing, manage their pace, and stay connected with faculty and peers. Additionally, virtually every nursing program at RU incorporates online content alongside lab and clinical or classroom components. As of December 31, 2023, approximately 5,700 students are pursuing nursing degrees at RU, over 90% of whom are enrolled in RU’s pre-licensure nursing degree programs, and approximately 8,400 students are enrolled in non-nursing programs.

RU is institutionally accredited by HLC with an Open Pathway designation, and all of RU’s Nursing programs are programmatically accredited by specialty nursing accrediting bodies. As with APUS, most other higher education institutions accept RU’s courses for transfer credit as a result of RU’s HLC accreditation.

APEI acquired RU on September 1, 2021, which we refer to as the Rasmussen Acquisition, adding what we believe is an attractive portfolio of programs to APEI, with a strong alignment around mission and culture.

Hondros College of Nursing

HCN provides nursing education to approximately 3,100 students across eight campuses in three states. HCN offers pre-licensure nursing programs that are designed to prepare individuals for productive careers through both a PN degree and an ADN degree, and two Direct Entry ADN degree options that offer an accelerated graduation pathway for students who meet certain transfer, academic, and entrance exam requirements.

HCN’s students principally receive on-campus instruction at one of HCN’s campuses and online for certain courses for those that prefer remote course learning. As of December 31, 2023, approximately 65% of HCN students were enrolled in a PN program and 35% were enrolled in an ADN program.

HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES, a national accrediting agency recognized by ED. HCN’s PN program is accredited by the National League for Nursing Commission for Nursing Education Accreditation, or NLN CNEA.

Graduate School USA

GSUSA, based in Washington, DC, is one of the largest providers of career learning to the federal government and public employee workforce. We acquired substantially all of the assets of GSUSA on January 1, 2022, advancing our focus on delivering training that provides students with pathways to employment and career advancement. GSUSA provides contract training to more than 100 federal government agency customers and through direct enrollment by federal, state, and municipal government employees, contractors, and non-government employees.

GSUSA provides career learning online as well as in-person at its headquarters facility in Washington, D.C. and at government and customer sites. GSUSA offers a catalog of more than 300 courses specializing in foundational and continuing professional development, as well as leadership training and practice management through its Center for Leadership and Management and Government Audit Training Institute. GSUSA trained over 27,000 individuals in 2023.

GSUSA is accredited by the Accrediting Council for Continuing Education and Training, or ACCET.

Our Segments

We have three reportable segments: the APUS Segment; the RU Segment; and the HCN Segment. Unallocated corporate activity, eliminations, and GSUSA’s results are included in “Corporate and Other” in the Consolidated Financial Statements. Financial information regarding each of our reportable segments is reported and discussed in this Annual Report in the sections entitled “Financial Statements and Supplementary Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

The following information for our segments is as of and for the year ended December 31, 2023.

2023 Developments and Future Financial Objectives

Campus Expansions and Relocations

In 2023, HCN relocated its former Fairborn, Ohio campus, located in a suburb of Dayton, Ohio, to a new, larger and more convenient, location in Dayton to better serve its students. HCN also intends to relocate its Toledo and Columbus, Ohio campuses to new, larger locations nearby. These relocations are expected to be completed in the summer and fall of 2024, respectively. In April 2023, RU completed the relocation of its Topeka, Kansas, campus to a new, larger location to expand its campus footprint and offer larger classrooms with improved nursing skills and simulation labs. In addition, RU intends to combine two campuses located in Ocala, Florida, into a single, expanded campus to improve the student experience.

Insourcing of Marketing and Information Technology

RU has historically outsourced the vast majority of its marketing and information technology functions through two contracts, one for each of marketing and information technology, with Collegis, LLC, or Collegis. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract, effective January 31, 2023, and completed the transition of RU marketing to our in-house centralized marketing team. Outsourced information technology services under the Collegis information technology contract will continue through September 2024, when we intend to allow the contract to expire, and transition all information technology functions currently outsourced to Collegis back to our operations and to one or more third-party vendors. In December 2023, we entered into an agreement to outsource certain of our information technology operations to a managed service provider, including service desk, end user support, and network support and operations.

Executive Leadership Changes

During 2023, we made strategic hires aimed at bolstering our ability to deliver improved student experience and outcomes, accelerating growth and transformation, including a new President of RU, a new President of GSUSA, and a new

Rasmussen University Regulatory Metrics

RU’s new leadership team focused in 2023 on improving various regulatory metrics at RU, particularly NCLEX pass rates. We increased our focus on these metrics in 2023 in light of RU’s ADN enrollment declines, as a result of both voluntary and imposed enrollment caps in large part due to NCLEX pass rates below requisite state thresholds, as discussed further in the Risk Factors captioned “RU is currently on provisional certification with ED, and the terms of that provisional certification could limit its potential for growth” and “Continued declines in enrollments at RU could materially adversely affect RU’s and our profitability, financial condition, results of operations, and cash flows.” We believe that initiatives put in place by RU’s leadership during 2023, together with changes to the NCLEX that were implemented in April 2023, resulted in improvements to RU NCLEX pass rates, including improvements in the ADN program pass rates at nearly every campus in the second half of 2023 as compared to the first half of 2023. We expect NCLEX pass rates and regulatory metrics more generally to be a continued area of focus and improvement in 2024.

90/10 Compliance Outlook

We had a sustained focus in 2023 on the “90/10 Rule, which is described under “Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility” below. While each of our institutions was in compliance with the 90/10 Rule for 2023, APUS’s relevant percentage for 2023 was 89%. In 2023, enrollments from students who use TA funds trended upward, while enrollments from students who use non-federal educational assistance funds continued to decline, causing APUS’s 90/10 percentage to increase and move closer to the threshold. Compliance with the “90/10” Rule will continue to be an area of focus, and despite our efforts, there can be no assurance that we will continue to be able to comply in future years, particularly at APUS. See the Risk Factors captioned “If one or more of our institutions does not comply with the 90/10 Rule, it or they will lose eligibility to participate in federal student financial aid programs” and “Our student registrations, revenue, and cash flow have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition to new systems for soldiers to request TA” for more information.

Cost and Expense Reductions

During 2023, we initiated several cost and expense reduction efforts, including a reduction in force in the third quarter that resulted in the termination of 74 employees and the elimination of 57 open positions across a variety of roles and departments at APEI, RU, HCN and GSUSA. The headcount reductions reflect our ongoing efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions. We incurred an aggregate of approximately $3.0 million of pretax cash expenses associated with employee severance costs as a result of this reduction in force, all of which were incurred in the third quarter of 2023. The reduction in force is expected to result in pre-tax labor and benefit savings of approximately $15.5 million on an annualized basis.

Share Repurchase Program

On March 16, 2023, our Board of Directors confirmed the availability under an existing share repurchase program to repurchase up to approximately $8.0 million of shares of our common stock. We fully expended this $8.0 million as of April 30, 2023, and repurchased a total of 1,335,357 shares of our common stock. On November 27, 2023, the Board of Directors authorized a new program to repurchase up to an additional $10.0 million of shares of our common stock. In the fourth quarter, we repurchased 180,409 shares of our common stock under this repurchase authorization for an aggregate purchase amount of $1.6 million. In the aggregate, in 2023 we repurchased 1,515,766 shares of our common stock for $9.7 million. In January 2024, we repurchased 251,146 shares of our common stock for an aggregate purchase amount of $2.8 million. Effective February 1, 2024, we ceased purchases under this purchase authorization.

Financial Objectives

We strive to build on the momentum created by our actions and achievements in fiscal 2023 and to continue to execute on our strategic plan. Specifically, we are focused broadly on (i) achieving public market scale by growing the revenue of our enterprise organically and inorganically and (ii) delivering improved enterprise-wide operating margins.

Our Market and Competition

Market Characteristics

The overall U.S. postsecondary education market is large, with approximately 4,500 institutions of higher learning, diverse in its business models, and fragmented such that no one institution has a significant market share. Most postsecondary institutions, including for-profit postsecondary institutions, regardless of where they are located, how they are organized, or who they serve, face challenges, including:

In addition to the characteristics outlined above, the U.S. postsecondary education market is characterized by intense competition. Competitive factors include, among other things:

Institutions Serving Military Students

APUS has focused on serving the military community since its founding, and the community continues to be a primary source of APUS students. Approximately 2,500 institutions serve military students through participation in Department of Defense, or DoD, tuition assistance, or TA, programs, including APUS. APUS’s primary competitors for military students are other institutions offering online instruction and colleges and universities offering on-campus instruction near military installations.

We believe that APUS will continue to see competition in the military community from both not-for-profit and for-profit schools, as well as from the Armed Forces themselves, including through distance learning programs. For example, the Navy in 2019 launched the U.S. Naval Community College, or the USNCC, a community college supporting naval education for enlisted service members. The USNCC now provides education to approximately 2,600 service members, and it plans to eventually achieve the capability to accommodate up to 25,000 students. While a number of schools with which APUS competes are participating partners with the USNCC, as a for-profit institution, APUS is not an eligible partner. As traditional not-for-profit public and private schools advance online capabilities, we believe that they will also present increasing competition for APUS.

The U.S. military is demonstrating increased levels of support for credentials other than degrees, which we believe could lead to enhanced competition from institutions serving military students. For example, Credentialing Opportunities On-Line, or COOL, is a program for each of the military branches and DoD civilians that links military occupations and experiences to civilian credentials (e.g., occupational certifications, licenses, and apprenticeships). The Army also offers an

Nursing Programs

RU and HCN’s nursing programs are offered as campus-based programs in the geographic areas surrounding their campuses. In the approximately 20 market areas where RU and HCN’s combined 30 on-ground nursing campuses are located, we compete with a mix of community colleges, public and private postsecondary institutions, and other career-focused nursing colleges offering similar pre-licensure nursing programs. Because of the relatively local focus of these pre-licensure programs, our competitive environment is moderately fragmented and affected by various factors specific to the states and particular areas where campuses are located, including local supply and demand for nurses and nursing schools. We are also continuing to focus on growing our post-licensure nursing programs, for which the competitive environment is less fragmented and has larger competitors, including because RN to BSN and other post-licensure degrees are available online as well as in traditional campus-based environments.

Other Public and Postsecondary Institutions

Within the broader postsecondary education market, our institutions compete primarily with not-for-profit, public, and private two-year and four-year colleges, as well as other for-profit schools, particularly those that offer online learning programs. Due to an increase in online postsecondary offerings, we face increased competition as students pursue degree and credential-based postsecondary education from a wider selection of online offerings. For example, we anticipate increased competition from campus-based postsecondary institutions as they continue to increase online degree programs and develop more non-traditional programs.

Most public institutions are aided by substantial government subsidies. Public and private not-for-profit institutions benefit from grants, tax-exemptions, contributions, and other financial resources not widely available to for-profit institutions. Many public competitors also benefit from longstanding name recognition and are able to directly recruit students in a more cost-effective manner, especially in their local markets. Many private institutions are able to make larger investments in marketing, as their cost of tuition is higher than tuition at our institutions.

Non-Traditional Competition

We also face competition from competing schools and others providing non-traditional education programs, often without charge or at low costs, including:

We believe that our institutions will continue to face new competition from non-traditional programs.

Our Opportunities

Active-Duty Military and Veterans

The U.S. military community will continue to be an important market segment for online education. We believe service members will continue to seek respected universities that provide military-focused support services coupled with an

We believe that military veterans represent another important addressable market for online education. The U.S. Census Bureau estimates that in 2023 there were approximately 1.4 million veterans aged 18 to 34 and 3.9 million veterans aged 35 to 54. We believe that our military heritage, affordability, and online offerings are attractive to veterans. New policies and campaigns to facilitate the hiring of veterans may lower barriers to non-military jobs and facilitate veteran-owned businesses. As these policies and campaigns lower barriers to non-military jobs and facilitate veteran-owned businesses, we believe online universities offer valuable educational opportunities for veterans regardless of where they live, work, or learn.

Nursing

The expanding need for healthcare coupled with a nursing shortage continues to drive significant demand for nursing education. Projected employment for licensed practical nurses and registered nurses is expected to grow by approximately 5% and 6% annually, respectively, from 2022 to 2032, according to the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook. When factoring in the need to replace workers who transfer to different occupations or exit the labor force, such as to retire, the U.S. Bureau of Labor Statistics projects openings each year for registered nurses of approximately 193,100, and approximately 54,400 for practical nurses, through 2032.

There is significant unmet demand from qualified students for nursing educational programs. Despite anticipated job opportunity growth, qualified applicants are not always accepted by nursing programs, primarily due to program selectivity, a shortage of clinical sites, faculty, and resource constraints. However, given the state and regulatory approvals necessary, investment in campuses, specialized programmatic knowledge and related accreditations, clinical placement requirements, time to receive approval to grow enrollments, and various standards that nursing schools must meet, we believe there are challenges for new entrants to nursing education. We also believe we may distinguish ourselves from our competitors by developing direct partnerships with healthcare providers as they become more involved in educating and training their future workforces, of which nurses are the largest segment.

Career Learning

U.S. employers are increasingly reporting significant gaps between required skills and the capabilities of their workforce. Working adults also recognize the need to be lifelong learners. We believe employers and professional associations will seek partnerships with academic institutions to advance the skills and productivity of their workforce through higher education and career learning programs, which we see as an opportunity, particularly for APUS, RU, and GSUSA. We also believe that there is an opportunity to expand the APUS brand more broadly to attract students beyond its historical constituency.

Our Competitive Strengths

Return on Educational Investment and Affordability

Our institutions are committed to continually assessing and enhancing our academic programs and student services to offer a high-quality education and facilitate successful outcomes for our students and graduates that align with employer needs. In addition, as described in “Our Institutions and Operations – Human Capital” below, our institutions focus on excellence by hiring experienced faculty and continuing to develop their capabilities.

Providing affordable, quality degree and certificate programs is an important element of our competitive strategy. The combined tuition and fees at APUS are generally less than the average in-state cost at a public university. APUS’s low tuition and fees, in combination with APUS-funded tuition grants and book grants provided to all undergraduate students result in significant savings and mean that APUS students are not required to take on as much debt as they might at another institution. APUS’s generous transfer credit policy, and use of open educational resources, further reduce a student’s out-of-pocket costs.

Tuition and fees at RU and HCN are also designed to be affordable and competitive when compared with those of similar institutions offering the same level of flexibility, accessibility, and student experience. RU students may also lower their total cost of attendance through self-directed assessments, which provide savings by permitting students who demonstrate proficiency in a subject to test out of courses. Similarly, HCN students may apply performance-based grants and needs-based grants toward the balance of their tuition. Please refer to “Our Institutions and Operations – Our Institutions – Affordability and Cost of Attendance” below.

Relevant Offerings Aligned with Demand

Our institutions offer programs aligned to jobs that U.S. Bureau of Labor Statistics data and non-governmental organizations have indicated as high growth areas. Our institutions are also committed to continually assessing and enhancing our academic programs and student services to offer a high-quality education and facilitate successful outcomes for our students and graduates that align with employer needs. The depth and breadth of APUS’s and RU’s non-nursing program offerings are designed to effectively address the diverse needs of students who enter into education programs with vastly different educational and career backgrounds and goals. For example, APUS utilizes Industry Advisory Councils to evaluate its current curriculum and determine the career relevance of programs and degrees, which facilitate efforts to connect APUS’s curriculum to the industries and the students it serves and to deliver a high-quality academic product. RU and HCN, meanwhile, create new nurses to meet the significant imbalance of supply and demand that exists for nurses by preparing and training nursing students to enter the nursing profession as licensed nurses.

Flexible Program Offerings

Our institutions offer flexible learning modalities to meet the needs of busy working adults. APUS offers online delivery with monthly starts and academic support offerings are individualized to students’ needs, while RU offers CBE programs, a blend of online and in person courses for their nursing and other healthcare-related programs, and flexible start dates and online courses for other programs. HCN offers PN and ADN programs that accommodate working adults by offering on-campus instruction, online instruction for certain courses, as well as daytime and evening/weekend options. GSUSA offers virtual and in-person instructor-led, blended, and on demand online courses to accommodate the need for immediate application-specific training.

Market Leadership

Our status as a market leader in key areas we serve means that we operate from a position of strength in those areas. APUS is the number one educator of active-duty military and of veterans. Since its founding, APUS has broadened its focus to include other military communities, veterans, and public service and service-minded communities, with a focus on a broad purpose of “educating those who serve.” 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 approximately 11% of APUS’s students self-reported that they are a military veteran. We are also a national leader in pre-licensure nursing education. RU has more than 5,700 nursing students at its 22 campuses across six states and online with over 90% of those students pursuing a pre-licensure PN degree, ADN degree, or post-licensure BSN degree. Finally, we are one of the largest providers of training to the federal and public employee workforces through GSUSA with its extensive portfolio of government agency customers and directly enrolled federal government employees.

Expansive Nursing Footprint

Our institutions train nurses at 30 campuses across nine states and online. Given the state and regulatory approvals necessary, the investment in physical campus facilities, the specialized programmatic knowledge and related accreditations, clinical placement requirements, the time to receive approval to grow nursing enrollments and various standards that nursing schools must meet, we believe nursing education – and in particular first or pre-licensure nursing education – provides us with opportunities to distinguish ourselves from our competitors. In addition, we believe we are one of the only educators with a full “ladder” of nursing curriculum from PN to Doctoral degrees.

Our Business Strategy and Goals

Win with Service-Minded Students

At our core is a recognition of the importance of individuals who serve the country and society at large. We aim to deliver on our vision of education that transforms lives, advances careers, and improves communities by “educating those who serve.” Our institutions are purpose-built to educate the service-minded student by offering programs designed to prepare individuals for contributions to their profession and society and to provide opportunities to advance students in their current professions or help them prepare for their next career.

We seek to offer curriculum in bundles that resonate with service-minded students. We expect to continue to focus on education that provides real skills and pathways to employment and career advancement in fields that align with demand. We aim to deliver differentiated, memorable learner experiences across the entire student journey.

Deliver a Return on Higher Education Investment

We seek to maximize a student’s return on their educational investment. We believe learners are looking for a practical solution that provides value in return for their educational investment and that fits their lifestyle and values. We believe there are opportunities to create awareness and attract college-ready students with the primary message of affordability and value.

Grow a National Nursing Platform

We are focused on expanding nursing opportunities through geographic campus expansion and the expansion of our programs and course offerings. This focus includes expansion of our post-licensure enrollments, particularly at RU where key post-licensure programs have already been established and are primarily delivered online, which represents an opportunity for our alumni and other already-licensed nurses to advance their nursing careers. We also seek to enhance provider partnerships to act as a catalyst for enrollment growth and defray student costs. We intend to continue to seek opportunities for both organic and inorganic growth, including by exploring acquisitions of other nursing schools.

Build a Career Learning Platform

We believe that our institutions provide us with a foundation from which we can build a career learning platform. We intend to expand GSUSA into new domains and models. We seek to enter into new, and expand existing nursing provider partnerships such as those at HCN. For example, during the fourth quarter of 2022, HCN entered into a tuition scholarship program with a national healthcare provider to provide scholarships to ADN students at its Toledo, Ohio campus in exchange for a work commitment following graduation. In the fall of 2023, HCN partnered with another national healthcare organization to provide similar scholarships to ADN students at its Columbus, Ohio campus. Additionally, among our institutions’ offerings are certificate programs, credentialing, and CBE programs.

Transform the Company to Achieve Sustainable Growth

We aim to increase our public market scale by growing the revenue of our enterprise organically and inorganically and delivering improved enterprise-wide operating margins. We intend to develop capabilities to drive organic growth and plan to continue to assess and pursue strategic investments and acquisitions and integrate and grow them for inorganic growth. Our strategy is organized around areas where we believe we have “the right to win.” For example, we will continue to focus on being the top educator for active-duty military and veterans and pre-licensure nurses. We also aim to deliver improved enterprise-wide operating margins by continuing to exercise financial discipline and taking steps such as our efforts focused on realigning our organizational structure, eliminating redundancies, and optimizing certain functions.

Focus on Regulatory Metrics

We strive to deliver a quality, competitive education, which goes hand-in-hand with demonstrating compliance with various regulatory standards and metrics. We expect to continue to focus on the core elements of our business that are necessary to meet these standards and metrics. For example, in our nursing programs, we continue to be focused on improving various achievement metrics, particularly around NCLEX pass rates and retention statistics, and at APUS, we continue to focus on making sure we comply with the 90/10 Rule.

Optimize Our Cost Structure Through the Shared Services Model

We aim to deliver better, faster, more cost effective, responsible, scalable results for our institutions by providing shared services to them, as noted in “Our Institutions and Operations” below. We believe that the shared services model promotes the efficient use of resources.

OUR INSTITUTIONS AND OPERATIONS

Our Institutions

Programs and Areas of Study

We offer a total of 184 degree programs, 134 certificate programs, and four diploma programs, through our institutions. We offer programs across a broad range of fields of study, including public service-focused fields such as nursing, national security, military studies, intelligence, and homeland security, as well as traditional academic fields such as business, health science, information technology, justice studies, education, and liberal arts. In addition, through GSUSA, our offerings also include career learning opportunities in leadership, finance, human resources, and other fields of study critical to the federal government workforce.

APUS offers 137 degree programs and 111 certificate programs across five schools of study. More than 1,800 distinct courses are available in either eight- or sixteen-week formats. Most APUS academic terms begin on the first Monday of each

RU offers a comprehensive “ladder” of nursing degrees, including a pre-licensure Diploma in PN, ADN degree, and a BSN degree, as well as the post-licensure RN to BSN degree, Master of Science in Nursing degree and Doctorate of Nurse Practice. In addition, RU also offers a post-graduate nursing certificate. HCN offers on-campus instruction leading to a Diploma in PN and an ADN degree, as well as a Direct Entry ADN degree option that offers an accelerated graduation pathway for students who meet certain transfer, academic and entrance exam requirements. Portions of these programs are taught online. Academic terms for HCN’s PN and ADN programs begin four times each year, with courses starting in January, April, July, and October. Graduates of RU and HCN’s PN and ADN programs are eligible to seek licensure after passing the applicable National Council Licensure Examination, or NCLEX, exams.

GSUSA offers professional development and training courses for federal government agencies and the federal government workforce, serving organizations and individuals with programs designed to support organizational missions, career and occupational development, and the personal ambitions of adult learners. GSUSA’s offerings include more than 300 courses across 14 program areas.

Student Body

Overall, our institutions have approximately 107,000 students enrolled online and at 30 campuses across nine states, with enrollment calculated differently depending on the institution. In addition, GSUSA trained over 27,000 individuals in 2023.

The student body of APUS consists of approximately 89,800 enrolled students, most of whom are employed full-time. Student enrollment is defined as the number of unique active students, including those who take an approved leave of absence, who are currently attending a course or have completed at least one course within the last 12 months. 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 approximately 11% of APUS’s students self-reported that they are a military veteran. The remainder of APUS’s students are other military or military-affiliated professionals (such as reservists or National Guard members), public service professionals (such as law enforcement personnel or other first responders), and other non-military students (such as working adult students and military spouses). Many APUS students have significant prior education and career experiences; 91% are working adults and the average age of APUS students is 31. APUS is designed to serve those adult learners with tailored offerings to support them in successfully reaching their individual goals.

RU provides education to approximately 14,100 enrolled students. Student enrollment is defined as the number of unique active students, including those who take an approved leave of absence. RU offers programs across a broad range of fields of study, with a focus on healthcare, specifically nursing education. At RU, 81% of students are over the age of 25 and 73% are female. As of December 31, 2023, approximately 5,700 students are pursuing nursing degrees at RU, over 90% of whom are enrolled in RU’s pre-licensure degree programs.

HCN provides nursing education to approximately 3,100 students at eight campuses in three states. The average HCN student is approximately 33 years old and 93% of HCN students are female.

Accreditation

Our institutions have institutional accreditation, and their programs often have programmatic or specialized accreditation. Institutional accreditation is an important attribute of our institutions. Colleges and universities depend, in part, on accreditation in evaluating transfers of credit and applications to graduate schools. Students and sponsors of tuition reimbursement programs look to accreditation for quality assurance, and employers rely on institutions’ accredited status when evaluating a candidate’s credentials. In 2023, APUS transitioned from the Open Pathway designation to the Standard Pathway designation. As a result of this transition, APUS will be subject to a focused site-visit in March 2024 and will be subject to a

In addition to institutional accreditation, certain of our programs offered have received specialized accreditation. For example, the Accreditation Council for Business Schools and Programs accredits approximately 15 different business-focused academic programs offered by APUS and accredits APUS’s accounting program under a specialized accounting accreditation. The Commission on Collegiate Nursing Education accredits the Bachelor and Master of Science in Nursing programs at APUS and RU. Certain programs offered by RU have received specialized accreditation as well. For example, RU’s ADN and Licensed Practical Nursing programs are accredited by the Accrediting Commission for Education in Nursing. HCN’s PN program is accredited by NLN CNEA.

RU and HCN’s locations and programs are approved by state agencies as well. For example, the nursing education programs offered by RU and HCN are approved by the relevant state boards of nursing.

For more information on accreditation and licensure, please refer to “Regulatory Environment – Accreditation” and “Regulatory Environment – State Authorization/Licensure” in this Annual report.

Admissions and Admissions Standards

We work to attract students who are more likely to persist and succeed in our programs and continue to work to identify and implement changes and initiatives in an effort to attract and enroll more college-ready students more effectively. We welcome students to apply for admission at any time through online application processes at APUS, HCN, and RU. The current qualification for most undergraduate programs is a high school diploma or General Education Development certificate. Applicants for graduate programs must hold a bachelor’s degree from an accredited U.S. institution or an equivalent foreign institution. Certain programs may have additional admissions standards and restrictions. For example, RU and HCN require prospective nursing students to achieve qualifying entrance exam scores for certain programs.

Affordability and Cost of Attendance

Tuition and Fees

APUS implemented tuition and fee increases for its non-military and veteran students in the second and third quarters of 2023. At APUS, following the tuition increases, tuition for undergraduate courses is $350 per credit hour, while tuition for master’s level classes is $425 per credit hour. In general, a bachelor’s degree may be earned for $42,000 in tuition costs at current tuition rates, and APUS master’s degrees may be earned for $15,300 in tuition at current tuition rates. APUS does not charge an admission fee or fees for services such as registration, course drops, or similar events that trigger fees at many other institutions. Because APUS is an exclusively online institution, there are no required resident fees, such as for parking, food service, student union, and recreation. Students taking graduate courses at APUS are charged a technology fee of $85 per course. When applicable, APUS students are charged certain additional fees, such as graduation, late registration, transcript request, and comprehensive examination fees. 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.

RU’s costs vary among its programs and between part-time and full-time attendance. In January 2023, RU implemented tuition increases for select programs to help offset the increased cost of delivering a quality education. RU’s ADN program typically costs $409 per credit hour in addition to course fees. Credit hour costs range from $199 per credit hour to

HCN’s costs vary among its programs. In the second quarter of 2023, HCN implemented a 5% increase in tuition and fees across all programs to offset the increased cost of delivering a quality, competitive education. HCN’s PN program may be completed for approximately $19,600 in tuition and fees and the ADN program may be completed for approximately $27,800 in tuition and fees, depending on the campus location. Fees include the cost of examination review materials, lab fees, and test review fees, among others. Some of these costs are payable to HCN and others are payable to third parties. HCN’s students also incur costs for textbooks, supplies, uniforms, and its technology package. These costs vary by program and are paid for by HCN’s students as the textbooks or supplies are needed. HCN estimates that over the life of its programs, a student’s costs related to textbooks and supplies will be approximately $4,000 for the PN program and $6,000 for the ADN program.

At RU and HCN, tuition increases are adjusted to be consistent with the local campus markets. Even inclusive of recent 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.

Grants and Other Fee Reduction Opportunities

Prior to September 2023, to support APUS’s active-duty military students using TA, APUS provided an APUS-funded tuition grant so that undergraduate and master’s students who are eligible for TA benefits and their spouses and dependents had a net tuition of $250 per credit hour. In September 2023, APUS removed the APUS-funded tuition grant and APUS began providing a Preferred Military Rate of $250 per credit hour for undergraduate and master’s level courses, for all U.S. active-duty service members, National Guard members, Reservists, and military families. Active-duty military students using TA at the undergraduate level are expected to generally have no out-of-pocket expenses. In the second quarter of 2023, coinciding with the tuition increases described above, APUS added a 10% Veteran Grant for veterans and veteran’s family members, on standard undergraduate and master’s level courses. In addition, veterans who qualify for 100% of their Post-9/11 Veterans Educational Assistance Act of 2008, or Post-9/11 GI Bill, benefits are expected to generally have no out-of-pocket expenses either.

Active-duty military undergraduate students and their spouses and dependents enrolled in courses for academic credit at APUS receive textbooks and certain course materials at no additional cost to them through an APUS-funded institutional book-grant program. APUS also utilizes open access and online library materials where appropriate and works with various publishers to reduce the cost of textbooks and course materials for both graduate students who pay for textbooks and course materials and for APUS, which funds the book grant.

At RU, students can lower their total cost of attendance through self-directed assessments, which provide savings by permitting students who demonstrate proficiency in a subject to test out of courses. Self-directed assessments, when available, may be attempted for a prepaid fee, which is generally $149 per attempt.

HCN students may apply performance-based grants and needs-based grants toward the balance of their tuition after all other funding sources. HCN offers an institutional affordability grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources. The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources.

HCN offers its students an extended payment plan option. The extended payment plan is designed to assist students with educational costs including tuition and fees. Payment plans require ongoing payments while the student is enrolled in a program and extend after the last day of attendance or graduation. To the extent interest is applied, it is generally fixed and does not accrue until the student departs the program or graduates. The extended payment plan options do not impose any origination fees.

Sources of Student Financing and Financial Aid

Our students finance their education through a combination of individual resources, ED’s Title IV programs, private loans, state and federal grants, institutional grants, TA, Department of Veterans Affairs, or VA, educational benefits, and corporate reimbursement programs. Most students rely on some form of financial aid in addition to their individual resources. At APUS, students utilizing DoD’s TA programs as their primary source of payment accounted for 48%, those utilizing VA education benefits 22%, those utilizing ED’s Title IV programs 17%, and those utilizing cash and other sources 13%, of

Participation in TA, VA education benefits, and Title IV programs adds to our institutions’ regulatory burden and results in increased regulatory scrutiny, as described more fully below in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements”. Federal legislative activity and actions by ED, DoD, and VA may adversely impact the ability of our students to obtain tuition financing, which as with any other limitations on tuition financing could have a material adverse effect on enrollments and our financial condition, as described more fully below in “Risk Factors – Risks Related to Our Business”.

Student Retention and Academic Outcomes

Our institutions are focused on executing initiatives that will more effectively support their students and help improve those students’ educational outcomes. Improved engagement is an important element in our goal of retaining qualified students. For example, APUS and RU improve engagement through, among other things, faculty engagement initiatives and co-curricular initiatives to increase the level of engagement and collaboration in the classroom and strengthen the bond between those institutions and their students. We also carry out initiatives intended to improve the educational outcomes of our students. For example, RU’s Council for Nursing Excellence is dedicated to helping students pass the NCLEX exam the first time by identifying student-specific challenge areas and providing customized tutoring resources and faculty training. We believe these initiatives contributed to improved NCLEX scores at certain campuses in 2023. RU also plans to integrate NCLEX testing simulation and preparation tools throughout the curriculum and to conduct a curriculum assessment to identify areas where RU can better enable student mastery and success.

Career Development

We believe assisting students in advancing their careers in their current profession or securing employment after completion of their programs or courses is an essential part of our mission. Our institutions offer an array of career services, including complementary personalized career advice for students and alumni through direct interaction with career services staff, career events such as in-person and virtual job fairs and on-campus recruiting, and institution-sponsored online job boards. APUS also offers career planning tools, such as an interest assessment to identify career options that fit student interests and guides to careers associated with student majors, and career preparation services, such as mock interview services, resume review services, and social media review services to improve students’ employer-facing online profiles. RU provides a variety of self-service resources, including access to a networking, job posting, a career research website, online resume building and interview preparation tools, webinars, and video tutorials, as well as online programmatic advising by dedicated career services advisors. We strive to link students directly with employers where we can. For example, during the fourth quarter of 2022, HCN entered into a tuition scholarship program with a national healthcare provider to provide scholarships to ADN students at its Toledo, Ohio campus in exchange for a work commitment following graduation. In the fall of 2023, HCN partnered with another national healthcare organization to provide similar scholarships to ADN students at its Columbus, Ohio campus.

Marketing and Branding

We strive to align our marketing efforts with our business and strategy and to tailor our marketing approach to our educational offerings and the students we serve. This approach encompasses all our learning modalities, from online to on-campus to hybrid, and all our educational outcomes, from certification to degree, and leading to the career outcomes students seek after they leave us. As part of these efforts, we continue to highlight certain key marketing and branding messages that align with our strategy, including educating those who serve, affordability and value.

We execute our marketing efforts through both direct-to-student and business-to-business channels. Our marketing relationship with students extends across the entire student journey from recruitment to post-graduation and includes efforts to drive student awareness, improve student onboarding, increase persistence, improve student performance, and focus on career outcomes. We aim to market to students wherever they may be, through their chosen media or marketing channel, and in the geographies where they are located. Our approach includes in-person and relationship-based marketing as well as digital (including search, company-owned and external content, social media, and streaming services), and more traditional media television, radio, and print marketing efforts.

We also work with partners we believe can provide us with better access to students who will persist in our institutions’ programs. Nearly 25% of our RU enrollments are associated with an alliance or partner relationship. We have agreements with over 300 employers whose employees pursue an education at RU. At APUS, this includes partnerships with community colleges, which prepare students for transfer opportunities to APUS for bachelor’s degree programs. At RU and HCN, we have begun establishing new partnerships with healthcare providers to further career outcomes and defray costs of education, as discussed more fully in “Our Institutions – Career Development” above.

Marketing efforts tailored for our institutions consider prospective and current students, including their respective educational goals. To that end, APUS marketing has historically had a relationship-based focus on building long-term relationships with businesses, professional organizations, and individuals in the military, military-affiliated, and public service communities. We also have programs at APUS that aim to assist members of the military as they transition into private sector jobs. RU and HCN nursing program marketing includes leveraging relationships with and marketing to the healthcare community, and in late 2022 we increased our non-nursing marketing for RU in response to demand, which continued throughout 2023 and which we expect will continue as part of our 2024 marketing strategy.

In 2022, we began efforts to centralize our marketing organization. Our centralized team is currently providing all marketing and branding services through a shared service model to APUS and GSUSA, and providing many of these services for HCN. RU historically relied on Collegis for a variety of outsourced marketing services. In October 2022, RU and Collegis mutually agreed to the termination of the marketing services contract effective January 31, 2023, and we have completed the transition of RU marketing to our in-house centralized marketing team. We are also developing marketing expertise that spans a variety of functional areas and to extend our use of marketing technology and analytics. We currently use technology and analytics to improve marketing mix, audience targeting, new initiatives, messaging, and creative decisions, as well as advertising development, delivery, and testing. In 2023, to support all of our institutions, we also hired subject matter experts in all key marketing functional areas.

Information technology systems are essential to our student experience and our business operations. APEI provides information technology services to our institutions through a shared services model. In addition, RU is party to a service agreement with Collegis to provide information technology services through September 2024. RU currently relies on Collegis for a variety of outsourced information technology functions, including data center, learning management system, user support, and network and voice services, and its technology infrastructure is currently hosted, managed, and supported by Collegis.

Our Ongoing Technology Transition

We are in the midst of a multi-year technology transformation program to 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 intend to permit RU’s contract with Collegis to expire by its terms in September 2024. We plan to insource all the technology and services currently provided by Collegis to cloud services or third-party vendors over which we will have management oversight. As part of the transition from Collegis, we plan to continue looking more broadly for opportunities to further improve operational effectiveness across our information technology operations and rationalize our technology portfolio. For example, in December 2023, we entered into an agreement to outsource a number of our information technology operations, including some that were previously being handled by Collegis, to a managed service provider, including service desk, end user support, network support and operations.

Student Information and Instructional Delivery

Our core enterprise systems are (i) our student information and services systems, or SIS, platforms which our institutions use to interact with and provide support to students in areas such as admissions, registration, tuition payment, grade reporting, progress toward degrees, and various other functions, (ii) our learning management systems, or LMS, platforms, which our institutions use to deliver course content and support teaching, learning, and collaboration, and (iii) our customer relationship management systems, or CRM, which manage our admissions functions.

At APUS, we have a legacy customized 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 Collegis, which maintains all systems, support, and hosting for RU. 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 2024, we plan to replace the existing SIS

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.

In 2021, we consolidated APUS and HCN onto a single, cloud based LMS platform, Brightspace by D2L. RU uses Blackboard Ultra as its LMS platform. This environment is hosted with Blackboard, which is now owned by Anthology. All RU support for Blackboard Ultra is currently provided by Collegis.

We are continuing to consolidate APUS’s customer relationship management systems onto a single platform, the first phases of which were completed in 2022. In early 2023, at APUS we launched a new native mobile application to improve the student experience. The APUS mobile application provides current and future students with university information and access to academic tools via mobile and tablet, 24/7. Key features include registration, academic dashboard, task Manager, program tracker, and real-time notifications.

In addition to our student information and services systems, LMS platforms, and CRM systems, we also have several other systems that support the student experience, financial aid processing, fiscal management, human resources processes, marketing, and decision support.

Our Information Technology Infrastructure

The backbone of our information technology infrastructure currently consists of two co-location data centers. Our technology environment is managed internally and through a third-party managed service provider. Student access to our systems is provided through redundant data carriers. RU’s network is fully redundant through a software-defined wide area network infrastructure. We intend to continue to migrate much of our infrastructure and core applications to a cloud computing model with the goal of improving the reliability, scalability, agility, and security of our core infrastructure and applications.

Human Capital

Strategy and Values

Our ability to deliver on our mission and to continue to transform our enterprise to focus on quality student outcomes and on sustainable growth is tightly aligned with our human capital strategy. Our performance depends on the talents, experience, and efforts of our employees, and on our ability to foster a culture and practice of high performance, innovation, cooperation, integrity, and respect. We seek to be a destination for high-potential employees and desire to build a bench of future leaders by developing best-in-class human capital capabilities. During 2023, our key human capital efforts focused on centralizing certain components of our human capital strategy, including implementing a common talent acquisition methodology and common talent management and talent review process, as well as centralizing and improving responses to human capital inquiries through our HR Operations AskHR team. We also continue to implement a streamlined and proactive approach to employee communication to drive connectivity, engagement, and efficiencies.

As of December 31, 2023, APEI’s employee population comprised the following:

Our employees have diverse backgrounds, influenced in part by the geography in which our headquarters, administrative facilities, and campuses are located, and by the communities we serve, in particular military, military-affiliated, veteran, and nursing communities.

As of December 31, 2023, our employee diversity was as follows:

Talent Development and Retention

We believe the quality of our faculty and non-faculty staff is critical to the student experience and student outcomes and is therefore vital to our institutions’ success. Hiring competition is intense, especially for faculty in specialized areas and qualified executives. RU and HCN also compete with both nursing schools and traditional employers of healthcare professionals to fill open faculty positions. A nursing faculty shortage continues, adversely affecting our ability to recruit and retain qualified nursing faculty at RU and HCN. We believe that current job market dynamics, including low unemployment, have further increased the challenge of hiring and employee retention. We strive to retain our talent and closely track retention among our employees, both faculty and staff. In 2023, we had full-time employee turnover of approximately 19%, of which 73% was voluntary and 27% was involuntary. In 2022, we had full-time employee turnover of approximately 28%, of which, 70% was voluntary and 30% was involuntary. Although we have taken additional steps to retain our current faculty and source and recruit talent, there can be no assurance that our efforts will be successful.

Our strategic initiatives require our personnel to perform at a high level and to adapt and learn new skills and capabilities. New faculty members complete on-boarding, orientation, and training. All faculty have annual development opportunities and requirements. In addition, our institutions regularly review faculty performance. We have implemented a centralized talent and transformation team to focus on improving internal learning and development practices and succession planning to ensure that we cultivate skills needed to deliver high quality student outcomes and help grow our operations. In 2023, we executed an enterprise-wide talent review for all vice-president and above employees to ensure a consistent review of talent and more meaningful development plans for those leaders, as well as enhanced succession planning. We also invested in both change management and integration talent at the Company level to assist in further integrating our institutions, and we continued our centralized and consistent compliance training approach across the organization. We are committed to working to ensure that new hires and employees are fully trained on key compliance issues at hire and also on an annual basis during the duration of employment. We also review all required compliance trainings annually to ensure the training is comprehensive.

Staffing our Institutions

We believe that hiring and retaining well-educated and qualified faculty members is important to our success. We continue to centralize more of our talent acquisition function in an effort to improve talent search efficiency, increase the consistency of our sourcing practices, and strengthen hiring processes. This centralization has significantly reduced our time to fill metrics and improved our ability to assess talent needs company-wide.

At APUS, approximately 65% of our full-time faculty have a terminal degree in their field of study, and virtually all undergraduate faculty members hold graduate degrees. Many APUS faculty members have relevant experience at other universities and within military, corporate, and government institutions. At RU and HCN, all nursing faculty have earned a BSN or higher. In addition to having the necessary educational requirements, RU and HCN seek faculty members who have demonstrated experience in the field of nursing.

Employee Engagement and Relations

We measure employee engagement, including faculty, on an ongoing basis by soliciting feedback, including a company-wide annual employee engagement survey for all employees, in order to understand the views of our employees. The results from engagement surveys are used to implement programs and processes designed to enhance employee engagement and improve the employee and faculty experience. None of our employees are parties to a collective bargaining agreement, and management considers employee relations to be good.

Health and Safety

We are committed to the health and well-being of our employees and assess our well-being initiatives and marketplace trends on an ongoing basis. Beginning in 2022, and continuing in 2023, we have increased our focus on employee well-being and have enhanced our Total Rewards Team, which is focused on benefits and well-being. In 2023, we added paid parental leave to support our employees and their families and additional paid time off, including time for volunteerism, as additional retention tools.

Since the abatement of the COVID-19 pandemic, we have allowed employees to return to a hybrid work setting. Employees are continuing to follow a blended model of working onsite and remotely, and we have committed to determining the optimal mix of site-based, flexible, and fully remote work models on a department and role basis.

Community Impact

We intend for our Inclusion and Impact Council to lead efforts to ensure that we positively impact the communities in which our employees work and live, including by organizing volunteer opportunities. Beginning in 2023, we provided full-time employees, faculty, and staff with eight hours of additional paid time off for volunteering and giving back to society.

Intellectual Property

We and our institutions own and exercise rights associated with patents, copyrights, trademarks, service marks, domain names, agreements, and registrations to protect our intellectual property.

Our institutions own or license all course syllabi and course and instructional materials developed by their faculty and employees and, as such, these course materials may be used by our institutions in current and future courses as needed to facilitate instruction and may be modified by our institutions to meet evolving course or curriculum requirements. In general, our institutions do not assert ownership claims to scholarly works of their faculty, such as articles and books, which were not developed as course materials. Such intellectual property of our institutions’ individual faculty members remains the property of each such faculty member and is reserved specifically for use only by the faculty member who owns it unless the faculty member grants permission for use by others.

Our institutions rely on agreements under which they obtain rights to use course content developed by faculty members and other third-party content providers. Our institutions own the copyright for a work by a faculty member where there has been express agreement on such ownership, if the institutions compensated the faculty member for the particular product, or if the institutions funded the research in whole or in part.

We or our institutions have secured or claim rights to trademarks for various names and terms used in our and their respective businesses, including rights in “American Public Education, Inc.,” “American Public University System,” “American Military University,” “American Public University,” “Graduate School USA”, “Rasmussen University”, and others. In connection with our acquisition of HCN, we received a royalty-free, irrevocable, exclusive, transferable, sublicensable license to use the name “Hondros College of Nursing” and, instead of “Nursing,” any other qualifier directly related to nursing, medicine, or healthcare in connection with the business and operations of HCN. The trademarks and service marks we use are central to our institutions’ brand identities overall and marketing efforts, including how prospective students identify them.

Our institutions also own rights to internet domain names pertaining to their brand names and other unique descriptors. We and our institutions vigorously defend against infringement of intellectual property rights, including trademarks, service marks and copyrights.

Seasonality and Quarterly Fluctuations

We experience fluctuations in quarterly results and, therefore, the results in any quarter may not represent the results we may achieve in any subsequent quarter or full year. Operating results fluctuate as a result of seasonal or other variations in enrollments. For example, historically, across our institutions, our enrollments are higher in the fall term when students traditionally start their education. Our student population also varies as a result of new enrollments, graduations, student attrition, the success of our marketing programs, and other reasons that we cannot always anticipate. We expect quarterly fluctuations to continue.

Available Information About Us

APEI was incorporated in Delaware in 2002 as the successor to a Virginia corporation incorporated in 1991. Our website is www.apei.com. We make available, free of charge through our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information on or available through our website is not incorporated by reference in this Annual Report, and any reference to our website is intended to be an inactive textual reference only.

We and our institutions are regulated by (i) accrediting agencies, (ii) state regulatory bodies, and (iii) the federal government through ED. APUS, RU, and HCN are approved to participate in TA programs administered by DoD and veterans’ education benefits programs administered by the VA and are therefore also subject to oversight by those agencies. Regulations,

The postsecondary education regulatory environment is complex and continues to evolve. Changes in or new interpretations of law, regulations, standards, and policies could have material consequences for our institutions’ accreditation, authorization to operate in various states, permissible activities, receipt of funds under student financial assistance programs, and cost of doing business. The postsecondary education regulatory environment has also changed and may change in the future as a result of U.S. federal elections, changes in Presidential administrations and control of Congress, and legislative activity at the state level.

Additional information regarding the regulatory and legislative environment and potential risks associated with it is available below and in the section entitled “Risk Factors” in this Annual Report.

Accreditation

Institutional Accreditation

Programmatic Accreditation and Professional Recognition

The Accreditation Commission for Education in Nursing, or ACEN, accredits certain RU PN and ADN programs at certain RU locations. RU’s Illinois ADN program has been in candidacy status for initial accreditation with ACEN since July 2020. ACEN will not grant accreditation to a program on probationary status with the Illinois Department of Financial and Professional Regulation, or IDFPR, as RU’s Illinois ADN program is. The current candidacy is set to expire in July 2024.

RU’s Bloomington, Minnesota ADN program has been subject to adverse action and heightened scrutiny from ACEN, which is its programmatic accreditor, and other regulators as a result of continued failure to meet applicable accreditor and regulatory requirements. As more fully discussed in the Risk Factor with the caption beginning “RU’s planned closure of its Bloomington, Minnesota ADN program…” in December 2023, RU informed the Minnesota Board of Nursing, or MBN, that it intends to voluntarily close the Bloomington, Minnesota ADN program on June 15, 2024. The MBN voted to approve the voluntary closure of the Bloomington, Minnesota ADN program at its February 1, 2024 meeting. Due to previous self-imposed enrollment caps and the pause on new enrollments, enrollment in this program currently represents less than 2% of RU’s current total enrollment. For all students enrolled in the Bloomington, Minnesota ADN program graduating after June 2024, their enrollment record will be transferred to RU’s St. Cloud, Minnesota ADN program. However, there can be no assurance that any or all remaining students in the program will transfer to the St. Cloud campus.

In September 2022, ACEN granted RU’s ADN and PN programs in Moorhead, Minnesota and RU’s ADN program in Overland Park, Kansas continued accreditation with conditions, in each case because the program experienced first-time NCLEX pass rates below ACEN’s required threshold. For the two Moorhead, Minnesota programs, ACEN also identified evidence of noncompliance with respect to analysis and use of assessment data in program decision-making. The ADN programs have two years, and the PN program has 18 months, from the date the conditions were imposed, to demonstrate compliance with all criteria related to the standard for which the programs were found to be in noncompliance, though ACEN does not necessarily have to take action on any particular timetable. If compliance is not achieved by the end of the monitoring period, ACEN may deny continuing accreditation absent good cause. In February 2024, RU’s Moorhead, Minnesota PN program submitted to ACEN a follow-up report and an application for continuing accreditation for good cause. If ACEN determines areas of non-compliance remain, ACEN could withdraw the PN program’s accreditation or grant it continuing accreditation for good cause.

RU’s Moorhead, Minnesota PN program is currently approved with the MBN, but first-time NCLEX pass rates have been below the standard for three consecutive years. RU expects that the MBN will place RU’s Moorhead, Minnesota PN program on conditional approval status and issue a corrective action order following the MBN’s April 2024 Board meeting.

State Authorization/Licensure

Our institutions are subject to regulation by the states in which they operate. The level of oversight varies from state to state, and such regulations change frequently. State laws typically establish standards for instruction, faculty qualifications, administrative procedures, marketing, recruiting, financial operations, and other operational matters. Some states prescribe regulations related to an institution’s financial condition, and some states require the posting of surety bonds. State laws and regulations may affect our institutions’ ability to offer educational programs, open locations, and award degrees. If one of our institutions fails to comply with a state’s requirements, it may lose its state licensure or authorization, which would result in the institution’s inability to enroll students in that state and could result in the institution’s inability to receive Title IV program funds and TA funds, at least for students in that state.

ED regulations specify how an institution may demonstrate, as required by ED, that it is authorized to offer postsecondary education programs by the state(s) where it is located, including the state where its main campus is located, which we refer to as its “home” state, and that the home state otherwise satisfies ED requirements. If ED determines that an institution does not have the required state approval, the institution will be ineligible to participate in Title IV programs. If one of our institutions were to lose its ability to participate in Title IV programs in connection with home state authorization requirements, it would also lose its ability to participate in TA and VA, be unable to operate in the state, grant credentials, and lose institutional accreditation.

ED regulations require that an institution that offers postsecondary education through distance education to students located in a state in which the institution is not physically located or in which the institution is otherwise subject to the state’s jurisdiction must meet the state’s requirements to be legally offering postsecondary distance education in that state or must be covered by a state authorization reciprocity agreement, like SARA. ED regulations also now specify the required methodology for determining the state in which a student is located for purposes of satisfying state authorization requirements for distance education courses and require an institution to disclose certain information related to whether programs leading to professional licensure meet applicable state requirements, regardless of program modality.

State Authorization and Professional Licensure

Beginning July 1, 2024, new ED regulations will require institutions that offer postsecondary education programs leading to employment in an occupation that requires licensure or certification to meet certain additional requirements in order for those programs to maintain eligibility to participate in Title IV programs. In each state in which the institution is located, in which students enrolled in distance education are located, or where a student enrolled after July 1, 2024 attests that they intend to seek employment, the program must: (1) meet all applicable federal or state agency accreditation or pre-accreditation requirements, including as a condition of employment in the occupation for which the program prepares the students; (2) satisfy the applicable state education requirements for professional licensure or certification so that a student seeking employment may qualify to take any licensure or certification exam needed to practice or find employment in the state; and (3) comply with all applicable state laws related to closure.

APUS is authorized to enroll students from each of the 50 states and the District of Columbia. APUS is headquartered in Charles Town, West Virginia, and is authorized to offer its programs by the West Virginia Higher Education Policy Commission, or WVHEPC. Under current law, if APUS were to lose its accreditation by HLC, WVHEPC may suspend, withdraw, or revoke APUS’s authorization. Failure to comply with WVHEPC requirements could result in APUS losing its authorization from WVHEPC, its accreditation by HLC, its eligibility to participate in Title IV programs and TA, or its ability to offer certain programs, any of which could force APUS to cease operations. APUS participates in SARA. APUS also has obtained authorization to operate in California, which is the only state that is a non-SARA jurisdiction.

RU is headquartered in Bloomington, Minnesota, and has 22 campuses across Florida, Illinois, Kansas, Minnesota, North Dakota, and Wisconsin. HCN is headquartered in Westerville, Ohio, and has six campuses in Ohio, one in Indiana, and one in Michigan. RU and HCN have obtained from the relevant state postsecondary education agencies the requisite authorizations, approvals, or registrations for the states in which they have campuses. In addition, the nursing education programs offered by RU and HCN are approved by the relevant state boards of nursing. RU and HCN participate in SARA and RU has also obtained authorization to operate in California, which is the only state that is a non-SARA jurisdiction. HCN does not offer online programs in California.

To maintain regulatory approval from the state board of nursing or equivalent body in the states that we operate, an educational program must maintain a certain pass rate on the relevant licensure exam, as defined by the state. If a program does not attain this pass rate, the program may face various consequences, including development and implementation of a plan of corrective action, issuance of a corrective order, or revocation of approval pursuant to an adjudication proceeding. In Indiana, a program that is under initial accreditation may not be granted full accreditation if the program’s pass rate is lower than one standard deviation below the average national pass rate. In addition, if the program’s pass rate is lower than one standard deviation below the average national pass rate for three consecutive years, the program may be subject to additional oversight or a change in accreditation status.

A stipulation and consent order with the MBN required RU’s Bloomington, Minnesota ADN program to, among other things, reach applicable NCLEX pass rate standards by the end of 2023 and maintain a specified student to faculty ratio in 2023, with a potential penalty up to and including withdrawal of program approval. The Bloomington, Minnesota ADN program did not reach the applicable NCLEX pass rates by the end of 2023. As a result, on December 29, 2023, RU informed the MBN that it intended to voluntarily close the Bloomington, Minnesota ADN program on June 15, 2024. The MBN approved the voluntary closure of the Bloomington, Minnesota ADN program at its February 1, 2024 meeting.

In February 2022, RU’s Illinois ADN program was placed on probationary status by the IDFPR. Therefore, 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. The requirement provided that after two years if the pass rate does not satisfy the required standard, the program will be reevaluated by the IDFPR for a determination as to whether the program will be allowed to continue on probation or whether it should be disapproved. An Illinois statute also required nursing programs to have achieved accreditation by the end of 2022 in order to meet state approval requirements. RU’s Illinois ADN program is currently in candidacy status with ACEN and was deemed by IDFPR to meet the state’s accreditation requirement based on such candidacy status, but actual accreditation has not yet been granted. The current candidacy status is set to expire in July 2024. Although the IDFPR has indicated that candidacy status satisfies this requirement, the IDFPR could change its position.

The State of Illinois enacted legislation in August 2023, which took effect on January 1, 2024, that we believe could positively impact RU’s Illinois ADN program by providing the program with additional time to improve NCLEX pass rates.

Kansas regulations were amended, effective January 2022, to increase the threshold first-time pass rate to 80% and change corrective actions for noncompliance. In April 2022, RU’s Kansas ADN program was issued a notice of concern by the Kansas Board of Nursing, or KBN, requiring RU to submit to the KBN a plan of action to improve its NCLEX pass rates. The Kansas ADN program has until April 2024 to increase its NCLEX pass rate to the regulatory standard. RU’s Kansas ADN program’s first-time pass rate exceeded the threshold pass rate for 2023.

In February 2023, the Florida Board of Nursing, or FBN, placed RU’s Fort Myers, Florida ADN program on probation until its pass rate reaches the applicable threshold for a calendar year. RU is required to disclose this status to active and prospective students. If the program fails to achieve the required NCLEX pass rate within two years following placement on probation, FBN may extend the program’s status for a year if the program is demonstrating progress toward achievement. However, absent further extension or achievement of the required rate by the end of the extension, Florida law provides that FBN shall terminate the program. In February 2024, FBN also placed RU’s Ocala, Florida and Tampa/Brandon, Florida ADN programs on probation – a status that must be disclosed to active and prospective students – until the programs’ pass rates reach the applicable threshold for a calendar year. RU was required to present an action plan to FBN on February 7, 2024, detailing benchmarks to measure progress toward achieving the required NCLEX pass rate. In January 2024, legislation that would significantly overhaul the regulation of Florida nursing programs in ways that could materially adversely impact RU’s Florida ADN and PN programs was introduced in the Florida senate, but at this time there can be no assurance that the legislation will be enacted as drafted or at all.

Rasmussen University had its annual review in January 2024, with the Florida Commission for Independent Education, or FCIE, where it waived a decision. Rasmussen is expected to appear on the May 2024, agenda where FCIE will review Florida campus NCLEX scores and campus income statements. Based on FCIE review, the FCIE may place Rasmussen on a provisional license due to recent NCLEX pass rates and campus income statements. If placed on provisional status, the Florida program would have one year to increase its NCLEX scores as well as improve its financials. If Rasmussen is unable to improve NCLEX scores and financials over time, this situation could have an adverse impact on their ability to enroll students and eventually our ability to continue offering our programs in Florida.

HCN’s ADN program has been on provisional approval status in Ohio since March 2017 due to not meeting the first-time pass rate standard for five consecutive years. The Ohio Board of Nursing, or OBN, will consider restoring a program to full approval status if the program meets the first-time pass rate standard for at least two consecutive years. In January 2023, OBN placed HCN’s PN program on provisional approval for a period of 18 months due to two self-reported instances of noncompliance with faculty credential and program records requirements. As a result, HCN must submit to OBN progress reports evidencing that it meets and maintains nursing program requirements. Additionally, HCN will host a site visit from OBN in 2024 after which OBN may reconsider the provisional approval status. If a program on provisional approval fails to meet OBN requirements at the end of the time period established for provisional approval, in this case as of June 2024, OBN may propose to continue provisional approval for a set time period or may propose to withdraw approval.

RU and HCN have been implementing changes to their ADN programs, including programmatic certification improvement plans at RU, and curriculum, academic achievement, and course retake policy changes at HCN, in order to help prepare students and graduates for successful performance on the NCLEX exam. However, there is no assurance that these changes will be successful in the required time periods or will not have negative effects on RU’s or HCN’s enrollment. If RU and HCN are unable to improve NCLEX scores over time, and in some cases by the deadlines imposed on their programs at certain campuses and in certain states as discussed above, this situation could have an adverse impact on their ability to enroll students and eventually our ability to continue offering the ADN programs at the applicable campuses.

Failure to comply with state authorization or licensure requirements has impacted and could in the future restrict our institutions’ ability to recruit or enroll students or result in other sanctions, including fines and penalties. New laws, regulations, interpretations, or changed circumstances related to our institutions’ educational programs could increase our cost of doing business and affect our ability to recruit students and offer programs in particular states, which could, in turn, adversely affect

Our students finance their education through a combination of Title IV programs, TA, education benefits administered by the VA, private loans, corporate reimbursement programs, individual resources, and institutional grants, and in the case of HCN, an extended payment plan option. Participation in federal student aid programs, including those administered by the DoD and VA, and the extended payment plan option at HCN, adds to the regulation of our operations.

The Higher Education Act of 1965, as amended, or the HEA, and related ED regulations subject us to significant scrutiny in the form of numerous standards we must satisfy in order to participate in and administer Title IV programs. The federal government provides support for postsecondary education through the Title IV programs in the form of grants and loans to eligible students who can use those funds to enroll in an eligible educational program at any institution that has been certified by ED. An institution will be certified to participate in the Title IV programs only if, among other things, it enters into a written program participation agreement, or PPA, with ED, which conditions participation in Title IV programs upon compliance with ED regulations and any additional conditions specified in the PPA.

ED recently released a final rule modifying and expanding the current financial responsibility, administrative capability, and certification regulations, which takes effect July 1, 2024. Under the modified regulations, institutions will be required to meet additional financial responsibility criteria and must report certain “financial responsibility” events to ED. Such events include certain mandatory and discretionary triggers that capture financial circumstances that may not be reflected in an institution’s financial statements, including instances where an institution faces a potential loss of Title IV funding. Under the new rule, if ED determines that an institution has 90/10 Rule violations, high borrower default rates, or certain pending legal and administrative actions, it will require the institution to post “financial protection”, such as a letter of credit. ED may also require the institution to post financial protection if it determines that certain discretionary triggers may have an adverse effect on the financial condition of the institution, such as pending accrediting agency or government agency actions, high annual dropout rates, or pending borrower defense claims. If ED requires financial protection as a result of more than one mandatory or discretionary trigger, ED will require separate financial protection for each individual trigger. In addition to financial protection, ED may require institutions that fail to meet these financial responsibility criteria to participate in Title IV programs under a provisional certification. ED may also impose additional requirements on the institution’s participation in Title IV programs, such as restrictions on enrollment, addition of new programs, or acquisitions.

Higher Education Act

The HEA must be periodically reauthorized by Congress and each Title IV program must be funded through appropriations acts on an annual basis. The most recent comprehensive reauthorization occurred in 2008 when Congress reauthorized most HEA programs through the 2014 federal fiscal year. The reauthorization has been temporarily extended in the years that have followed. Congress previously considered comprehensive legislation to reauthorize the HEA, including proposals from Republicans and Democrats, referred to as the Student Aid Improvement Act and the College Affordability Act, respectively, and Congress could consider such legislation again in the future.

Title IV program aid is primarily awarded to students on the basis of financial need, generally defined as the difference between the cost of attending an institution and the amount a student can reasonably contribute. Our students receive grants and loans to fund their education under several Title IV programs, of which the two largest are Direct Loans and Pell Grants. Some of our students may also be eligible for other Title IV grant programs, such as the Federal Supplemental Education Opportunity Grant. The Title IV programs are subject to Congressional action in terms of appropriations and other legislation that may affect funding levels, student eligibility, and other requirements. For example, the Pell Grant program could be subject to cuts or

To be eligible and certified to participate in Title IV programs, an institution must be accredited by an accrediting body recognized by ED, must be authorized to operate by the appropriate regulatory authority in each state where the institution maintains a physical presence, and must comply with specific standards and procedures set forth in the HEA and the regulations issued thereunder by ED.

In July 2021, in connection with RU’s March 2019 change in ownership that preceded our acquisition of RU, ED imposed certain temporary growth restrictions on RU, including limitations on new programs and locations and a cap on enrollments of students who participate in Title IV programs. Additionally, ED required RU to submit periodic financial and enrollment reports and a financial responsibility letter of credit. 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 and, effective October 2021, ED and RU entered into a Temporary Provisional Program Participation Agreement, or TPPPA, that allowed RU to continue disbursing Title IV funds while ED reviewed the change in ownership application. The TPPPA continued the restrictions that ED imposed as a result of the March 2019 change in ownership. In

In June 2021, HCN timely applied for recertification to participate in Title IV programs. ED subsequently notified HCN that it had been granted Provisional Certification for all Title IV programs until September 30, 2023. ED granted approval on a Provisional basis because HCN was subject to an open program review at the time of recertification. As described in “Compliance with Regulatory Standards and Effect of Regulatory Violations – Compliance Reviews,” in July 2022, HCN received a final program review determination from ED, and in September 2022, ED notified HCN that it had closed the program review and no further action was required though the provisional designation remained. In June 2023, HCN again timely applied for recertification. ED subsequently notified HCN that it had been granted non-provisional participation in all Title IV programs effective August 15, 2023 and expiring June 30, 2026.

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. The formula focuses on three financial ratios: (1) equity ratio (which measures the institution’s capital resources, financial viability, and ability to borrow); (2) primary reserve ratio (which measures the institution’s viability and liquidity); and (3) net income ratio (which measures the institution’s profitability or ability to operate within its means). Generally, an institution’s financial ratios must yield a

ED may also apply the financial responsibility standards to other entities under common ownership with an eligible institution. At the request of ED, for purposes of evaluating the financial responsibility of our institutions, including the composite score calculation, we supply consolidated financial statements to ED. Because ED does not review each of our institution’s financial statements separately, a determination by ED that our consolidated financial statements do not satisfy the “financial responsibility” requirements could cause all of our institutions to lose access to Title IV program funding or result in other penalties or conditions on continued participation. Although our consolidated composite score is expected to be above 1.5 at our next financial responsibility test, there is no assurance that it will remain at 1.5 or above in the future or that if it falls in the “zone” in the future that we will be able to demonstrate financial responsibility.

On March 4, 2024, ED notified us that in calculating our composite score for the fiscal year-ended December 31, 2022, it excluded our deferred tax assets from its calculation of our assets. As a result, ED calculated that we had a 2022 consolidated composite score of 1.1 and our institutions were therefore in the “zone.” We disagree with ED’s calculation and conclusion and intend to submit a timely response to ED supporting our position that our deferred tax assets should not be excluded from the calculation and that our composite score was above 1.5 for the year-ended December 31, 2022. However, there can be no assurance that ED will agree with our position. If ED does not accept our position, we intend to comply with the zone alternative requirements. Under the zone alternative requirements, 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.

Institutions with composite scores below 1.5 do not qualify for approval from SARA unless, in the case of scores above 1.0, the home state exercises its discretion to consider additional financial information. Eligibility for SARA is determined separately for each of our institutions by the SARA portal agency in the institution’s home state. If the respective SARA portal agency for APUS, RU, or HCN were not to renew the institution’s approval due to a low composite score, we would need to obtain approval or exemptions in states in which the affected institution offers distance education programs or discontinue the affected institution’s offerings to students in such states. In addition, some states have adopted financial standards that are similar to ED’s composite score, which means an affected institution may be unable to obtain licensure in that state if it were to lose SARA participation. And, because composite scores are viewed as a measure of financial responsibility, other regulators or accreditors could consider a composite score that is in “zone” negatively, which could have an impact on their interactions with us and what they permit us to do.

As of September 30, 2020, prior to the Rasmussen Acquisition, RU had a composite score equal to 1.4. RU elected to post a letter of credit with ED totaling $23.1 million, which represented 10% of the Title IV program funds received by RU during its then most recently completed fiscal year. Upon the closing of the Rasmussen Acquisition, RU was required to fund this letter of credit using a restricted deposit account that required a deposit of 105%, or $24.2 million, to secure the RU letter of credit. Under the TPPPA for RU described above, ED continued to require a letter of credit at least until 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. 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, but we understand from communications with ED that financial statements for the year ended December 31, 2022 remain under review by ED. Additionally, RU continues to be required to make Title IV disbursements to eligible students and parents under HCM1.

The American Rescue Plan Act, or ARPA, which was enacted in March 2021, modifies the HEA’s 90/10 Rule to require that a for-profit institution derive not less than 10 percent of its revenue from sources other than “federal education assistance funds”. ED published final regulations in October 2022 that address ARPA’s modifications to the 90/10 Rule. The new regulations provide that for fiscal years beginning on or after January 1, 2023, and therefore for our institutions the year ended December 31, 2023, federal 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 funds provided directly to a student to cover expenses other than tuition, fees, and other institutional charges. ED confirmed that the 90/10 Rule would no longer permit 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. In March 2021, the Army launched ArmyIgnitED, to replace GoArmyED as its system for processing the Army’s TA funds for participating institutions. Issues related to the launch of ArmyIgnitED resulted in cash payments from the Army to APUS that were expected in 2021 and 2022 to be received in 2023, which, together with the change to the 90/10 Rule, enrollment growth among service members as compared to declines in students who use non-federal educational assistance funds and the delayed receipt of funds have caused and may continue to cause, APUS’s 90/10 Rule percentage to increase, making it more difficult to satisfy the 90/10 Rule. 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 can be no assurance that we will continue to be able to comply in future years, particularly at APUS. See the Risk Factor captioned “If one or more of our institutions does not comply with the 90/10 Rule, it or they will lose eligibility to participate in federal student financial aid programs” for more information.

The final regulations also include other requirements, including: institutions must request and disburse Title IV funds before the end of the fiscal year (or, for institutions operating under the reimbursement method or the heightened cash monitoring method, make disbursements by the end of the fiscal year and report the funds in the “90%” side of the ratio for that fiscal year); institutions are restricted in when and how they can count institutional loans and alternative financing arrangements as non-federal revenue; institutions may, under certain circumstances, include non-federal revenue from non-Title IV programs in their 90/10 calculation; and institutions must notify ED and students in a timely manner if they fail the 90/10 Rule.

Using the applicable 90/10 formula, the following table contains the percentage of cash-basis revenue earned from Title IV program funds:

In September 2023, ED released final official cohort default rates for institutions for federal fiscal year 2020 with ED reporting a zero percent cohort default rate for APUS, RU, and HCN. These cohort default rates were favorably impacted by regulatory relief provided in connection with the COVID-19 pandemic pursuant to which borrowers with Title IV program student loans were not required to make payments on their federal loans. As explained further in “Student Loan Defaults” below, interest accrual on federal student loans resumed on September 1, 2023, and payments became due beginning October 1, 2023, which may lead to higher default rates in the future.

The final official ED cohort default rates for APUS, RU, and HCN for the federal fiscal years 2018, 2019 and 2020 are as follows:

ED has announced a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period will not be considered delinquent, reported to

If one of our institutions loses its eligibility to participate in Title IV programs because of high student loan default rates, students would no longer be eligible to use Title IV program funds at that institution, which would significantly reduce that institution’s enrollments and revenue and cash flows and have a material adverse effect on our results of operations. In addition, if Congress or ED restricts permitted types of default prevention assistance, the default rates of our former students may be negatively impacted. Congress could also increase the measuring period, which could also negatively impact student default rates.

Programs that fail to achieve the specified performance levels of the GE measures in two of any three successive years for which the debt-to-earnings rates or the earnings premium measure are calculated would lose access to Title IV funding. Under the GE regulations, the failure of any of our institutions’ programs to satisfy the required specified performance levels could adversely impact those institutions and programs. We expect that the earliest a program could lose eligibility is July 1, 2026. In addition, programs that fail any of the metrics in a year will be required to warn enrolled and prospective students that the program risks losing access to Title IV funding. At this time, it is difficult to predict whether our institutions’ programs will satisfy the performance levels of future GE metrics, including whether the programs identified as failing in the PPD will in fact fail or whether other programs will fail or pass.

If 5% or more of such returns were not timely made, the institution may be required to submit a letter of credit in favor of ED equal to 25% of the amount of unearned Title IV funds the institution was required to return for its most recently completed fiscal year. If ED determines that one of our institutions has repeatedly failed to comply with ED regulations, it may take adverse action against the institution on the basis of the repeated finding or may find that the institution has failed to demonstrate administrative capability, as described above. As described in Compliance with Regulatory Standards and Effect of Regulatory Violations – Compliance Reviews, in January 2022, HCN received a program review report from ED that included a finding related to return of Title IV funds calculations that were not properly calculated. In connection with that finding, HCN was required to conduct a full file review and have the review tested by an independent auditor. In July 2022, HCN issued a final program review determination with respect to all findings, resulting in total liabilities of approximately $12,000. On August 15, 2023 the U.S. Department of Education recertified HCN's Title IV Program Participation Agreement with no restrictions and removed the prior provisional classification.

In March 2021, ED announced a revised approach for determining relief for borrowers who successfully assert borrower relief claims. Under this new approach, a borrower will receive full loan relief when evidence shows that the institution engaged in certain misconduct. This policy rescinded the prior administration’s formula that generally granted only partial loan relief for borrower defense claims. Under the 2016 Borrower Defense Regulations and the 2019 Borrower Defense Regulations, ED may initiate a separate proceeding to collect from an institution the amount of relief granted based on a BDTR claim.

On November 1, 2022, ED published final regulations with an effective date of July 1, 2023 to address BDTR, loan discharge, pre-dispute arbitration and class-action waivers, among other issues, or the 2022 Borrower Defense Regulations. The 2022 Borrower Defense Regulations will create a single standard and streamlined process for relief that will: apply to all future and pending BDTR claims as of July 1, 2023 instead of standards varying based on the date of the borrower’s first loan disbursement; allow students to assert borrower defenses related to Direct Consolidation Loans; define what kinds of misconduct could lead to borrower defense discharges (substantial misrepresentation, substantial omission of fact, breach of contract, aggressive and deceptive recruitment, and certain judgments or final ED actions); establish a reconsideration process for borrowers whose claims are not approved for a full discharge; create a process for forming groups of borrowers and adjudicating claims based on the common facts of those group claims; and provide a clear timeline for adjudication of group and individual claims. The 2022 Borrower Defense Regulations indicate that ED will hold colleges accountable for the cost of discharges, including by establishing a recoupment process separate from the approval of BDTR claims and making a recoupment determination based on the standards in place at the time the loan was first disbursed. The effective date of the 2022 Borrower Defense Regulations is currently enjoined nationwide by court order, which means ED currently cannot apply the 2022 Borrower Defense Regulations to any institution.

As a result of the 2022 Borrower Defense Regulations injunction, ED announced that while it will not adjudicate any borrower defense applications under the 2022 Borrower Defense Regulations unless and until the effective date is reinstated, it will continue to adjudicate borrower defense applications under the 2016 Borrower Regulations and 2019 Borrower Defense Regulations if required pursuant to a court ordered settlement. In 2022, ED joined a class settlement agreement that would result in a blanket grant of automatic, presumptive relief for all BDTR applications filed by students at certain institutions through June 22, 2022, but our institutions were not included in the blanket grant of relief. The class settlement agreement would also provide certain expedited review of borrower defense claims related to institutions excluded from the automatic relief list, as well as for borrowers who applied during the period after execution of the settlement and before final approval. Borrowers had to have submitted an application by November 15, 2022 in order to receive expedited review.

In December 2023, RU received from ED 338 BDTR claims, all of which had submission dates between June 23, 2022 and November 15, 2022 for students attending RU between 2000 and 2022, seeking in the aggregate a discharge of approximately $6.1 million in loans. In December 2023, HCN received from ED 77 BDTR claims, all of which were dated between June 23, 2022 and November 15, 2022 for students attending HCN between 2007 and 2022, seeking in the aggregate a discharge of approximately $1.4 million in loans. RU and HCN dispute the validity of these claims and have filed responses to them with ED. We are unable to predict whether ED will grant BDTR relief for the claims, or if so, whether it will seek recoupment from RU and/or HCN. While we have not received any claims with respect to APUS at this time, we believe is it reasonably likely that we will receive claims in the future. Refer to the Risk Factor captioned “ED rules related to BDTR claims may create significant liability that could have an adverse effect on our business” for additional information.

Department of Defense

Regulation of Tuition

Service members of the U.S. Armed Forces are eligible to receive tuition assistance from their branch of service through the DoD’s TA program. Service members may use TA to pursue postsecondary degrees at institutions that are accredited by accrediting agencies recognized by ED. APUS participates in TA, and for students in APUS undergraduate, and beginning January 2020, for students in APUS master’s programs, APUS provided grants so that APUS tuition rates per credit hour can be 100% covered by TA provided that the student does not exceed their annual funding limits per student. RU and HCN also participate in TA. RU’s active-duty military students in most undergraduate programs and master’s level graduate programs receive per credit tuition pricing at a tuition rate that is commensurate with available TA funding to allow tuition charges to be 100% covered by TA. HCN offers an alumni achievement grant of up to $1,200 to assist qualifying PN program alumni as they progress into the ADN program, as well as an institutional affordability grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources.

DoD requires educational institutions to meet certain criteria, including generally having at least 20 students on base, and to request access in writing that outlines among other things the specific purpose of the visit, in order to access installations solely to provide counseling, and generally prohibits education institutions from holding regular or recurring office hours on installations solely to provide counseling. This limits APUS’s ability to support existing students and serve new students. If APUS is not able to improve its access to military installations and its existing students on those installations, or find alternative methods to serve those students, its military enrollments may decline.

Several federal government agencies have established an online student complaint system for service members, veterans, and their families to report negative experiences at education institutions and training programs administering the Post-9/11 GI Bill, TA, and other military-related education benefit programs. An institution having recurring substantive complaints, or demonstrating an unwillingness to resolve complaints, may face a range of penalties, including revocation of its MOU and removal from participation in TA.

Congressional inaction on budgetary matters has led to lapses in funding, resulting in government shutdowns, and subsequent policy changes that have affected federal student aid programs at DoD. A future government shutdown, particularly one that includes DoD or suspension or resulting modification of TA programs, including in connection with the failure to increase or a delay in increasing 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.

Funding shortfalls have also affected DoD federal student aid programs. For example, as a result of the expected exhaustion of annual TA benefits available to sailors, in May 2019, the Navy ceased approving TA funds for eligible sailors until the start of the government’s fiscal year 2020. Currently, Navy service members must have a minimum of three years of service before becoming eligible to use TA and cannot be in their last year of service, and for TA and the Navy College Program for Afloat College Education, funding is capped at 18 semester hours per fiscal year combined, and career funding is capped at 120 semester hours combined. In addition, eligible sailors can only use TA to fund two courses each quarter of the fiscal year, and reservists on one-year orders are ineligible for TA.

In 2024, Congress approved an approximately 5.9% increase in the funds appropriated for DoD federal student aid programs; however, it is unclear whether the increased funding will encourage the military branches to expand service member eligibility for TA programs, or the amount of the service member annual benefit. We expect each military branch and the DoD to continually evaluate their approach to education funding, and the resulting changes could have an impact on the funds available to service members to pursue their education at our institutions.

The VA administers education benefits provided by federal law, including the Montgomery GI Bill, or GI Bill, and the Post-9/11 GI Bill. APUS, RU and HCN are approved to provide education to veterans and members of the selective reserve and their dependents in West Virginia for APUS, and by the state approving agencies in states where RU and HCN campuses are located. In order for an institution to participate in VA education benefits, it must be a participant in the Title IV programs.

The Johnny Isakson and David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 2020, or the Isakson Roe Act, enacted in January 2021, modified policies related to GI Bill and other VA-administered education funds, in part to align VA requirements with DoD and ED requirements related to student financial aid. Section 1018 of the Isakson Roe Act mandates that schools that receive veterans education benefits: (i) provide VA students with information on total cost of an education program, an estimate of debt the student will have upon graduation, graduation rates, requirements to obtain any license, certification, or approval for which the course of education is designed to provide preparation, and certain other information; (ii) inform VA students of the availability and potential eligibility of federal financial aid before packaging or arranging private student loans or alternative financing programs; (iii) avoid fraudulent and unduly aggressive recruiting or automatic renewal techniques; (iv) avoid misrepresentations or payment of incentive compensation on the basis of securing enrollments; (v) provide VA students with information regarding graduation requirements; (vii) obtain required approvals from the institutions’ accrediting agency for new courses or programs; (viii) maintain a policy to accommodate service members and reservists to be readmitted if they are temporarily unable to attend due to service requirements; and (ix) appoint a point of contact to provide academic and financial aid advising.

The Responsible Education Mitigating Options and Technical Extensions Act, enacted in December 2021, provides COVID-19 related extensions to certain veterans education benefits and clarifies that the Isakson Roe Act Section 1018 prohibition on incentive compensation does not apply to foreign students residing outside the U.S. who are ineligible for federal student financial aid.

Institutions were generally required to be in compliance with the Isakson Roe Act by August 2021. However, the Isakson Roe Act allowed institutions to seek from the VA a one-academic-year waiver of Section 1018. Subsequently, the REMOTE Act delayed the effective date of the Isakson Roe Act’s Section 1018 requirements to August 1, 2022, and institutions were permitted to seek a one-academic-year waiver of that deadline beginning June 15, 2022. RU did not seek a waiver of the August 1, 2021 compliance deadline, and it satisfied Section 1018 requirements by that deadline. In September 2021, APUS and HCN received waivers for the requirements of Section 1018 for the period August 1, 2021 through July 31, 2022. APUS and HCN did not seek additional waiver extensions, and they satisfied Section 1018 requirements by July 31, 2022.

The Training in High-Demand Roles to Improve Veteran Employment Act, or the THRIVE Act, enacted in June 2021, amended provisions related to veterans education programs found in ARPA and the Isakson Roe Act. The legislation requires the VA to work with the Department of Labor to determine the list of high-demand occupations for rapid retraining assistance, excludes programs pursued solely through distance learning on a half-time basis or less from the housing stipend available to those in the retraining program, and requires the Government Accountability Office to report on the outcomes and effectiveness of retraining programs. The legislation also requires the VA to take disciplinary action if a person with whom an institution has an agreement to provide educational or recruiting services violates the VA’s incentive compensation prohibitions.

On August 26, 2022, the President signed into law the Ensuring the Best Schools for Veterans Act of 2022, which modifies how the VA implements the rule generally forbidding use of VA benefits for students enrolling in a program in which more than 85% of students enrolled in the program have any portion of their tuition, fees, or other charges paid to or for them by the institution or by the VA, or the 85/15 Requirement. Among other things, the law clarifies that reporting associated with the 85/15 Requirement generally does not apply to institutions at which 35% or fewer students receive GI bill benefits, computed separately for the main campus and any branch or extension of the institution. The law also exempts programs for which fewer than 10 students have any portion of their tuition, fees, or other charges paid to or for them by the institution or by the VA. An institution that meets the requirements for an exemption must submit verifying information to the VA on a biennial basis.

In addition to the Title IV, DoD, and VA programs described above, eligible students may participate in other financial aid programs or receive support from other governmental and private sources. Some of our students finance their own education or receive full or partial employer tuition reimbursement. Our institutions enter into agreements with various employers through which our institutions agree to a variety of terms, including terms related to the provision of tuition grants to eligible employees. Our institutions may offer interest free payment plans of less than 12 months to students to assist them with the financing of educational expenses. In certain circumstances, our students may access alternative loan programs from a number of private lenders, which are intended to cover the difference between what the student receives from all financial aid sources and the student’s total cost of attendance. As a condition to an institution’s participation in the Title IV programs, the institution must adopt a code of conduct pertaining to student loans, including alternative loans.

HCN offers its students an extended payment plan option. The extended payment plan is designed to assist students with educational costs including tuition and fees. The extended payment plan is subject to various federal and state laws and regulations, such as the Truth in Lending Act as implemented in Regulation Z, the Equal Credit Opportunity Act as implemented in Regulation B and the Unfair, Deceptive or Abusive Acts or Practices provisions of Title X of the Dodd-Frank Act.

Beginning January 1, 2020, HCN began offering an institutional affordability grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees less the amount of all eligible financial aid resources. The grant is designed to limit a student’s monthly payment to $200 through an award of up to $200 per month, or $600 per term after consideration of financial aid, employer tuition reimbursement, and other financial resources.

Consumer Protection

Consumer Financial Protection Bureau

Federal Trade Commission

In October 2021, in what it termed a broad-based initiative to deter for-profit college fraud, the FTC issued informational notices to 70 for-profit higher education institutions, including APUS and RU, informing them of certain marketing practices the FTC had previously determined to be deceptive or unfair and therefore unlawful under the FTC Act. The FTC indicated that an institution’s receipt of the notice was not an indication that the institution has engaged in deceptive or unfair conduct. The informational notices were sent in furtherance of an FTC Act provision permitting penalties against those engaging in unfair or deceptive acts or practices with actual knowledge of their unfair or deceptive nature. The informational notices informed the institutions that engaging in such practices could subject a company to civil penalties under that provision. By providing the informational notices, the FTC is able to document that the institutions have knowledge that the FTC has found these marketing practices to be unfair or deceptive. The FTC also announced that it would be enhancing its enforcement cooperation with other agencies with oversight of educational institutions, including ED’s Office of Federal Student Aid and the VA. We do not know what enforcement actions the FTC may pursue in light of its recent informational notices and whether such actions, if any, will have an adverse effect on our business or results of operations.

Other Issues Related to Consumer Protection and Complaints

Our institutions are subject to compliance reviews and audits by various external agencies, including ED, ED OIG, state licensing agencies, DoD, VA, and accrediting agencies. The HEA and ED regulations also require institutions to submit annually a compliance audit conducted by an independent certified public accountant in accordance with Government Auditing Standards and applicable ED OIG audit standards. In addition, to enable ED to make a determination of financial responsibility, institutions must annually submit audited financial statements prepared in accordance with ED regulations.

In July 2022, HCN received from ED the final program review determination from a review that had been pending since June 2017, and in September 2022 ED notified HCN that it had closed the program review, and no further action was required. The review included findings of a 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 was required to do a full file review in connection with the return of Title IV funds finding, to have the review tested by an independent auditor, and to prepare policies and procedures and take other actions in connection with the findings. The total liability for this finding was $11,714.10, consisting of $11,538.00 principal owed to ED and $176.10 for the cost of funds associated with the unreturned funds.

In order to participate in TA, institutions must agree to participate in DoD’s Voluntary Education Institutional Compliance Program, or ICP. An institution that, through the ICP, is found noncompliant with DoD requirements and demonstrates an unwillingness to resolve a finding may be subject to a range of penalties from a written warning to termination of the institution’s participation in TA. APUS and RS have previously been subject to ICP reviews. For example, in February 2020, DoD informed APUS that it was one of 250 institutions selected for ICP review in 2020. Upon request, in May 2020, APUS submitted a self-assessment in connection with the ICP. On November 30, 2020, DoD issued a report finding that APUS did not clearly articulate certain policies or clearly make certain disclosures. As required, APUS submitted its corrective action plan and related evidentiary support and in April 2021, APUS was informed that the review had been completed and no further actions are required.

Potential Effect of Regulatory Violations

If our institutions fail to comply with the regulatory standards governing Title IV programs, ED could impose one or more sanctions, including transferring our institutions to the reimbursement or cash monitoring system of payment, seeking to require repayment of certain Title IV program funds, requiring the posting of an irrevocable letter of credit in favor of ED as a condition for continued Title IV certification, taking emergency action against our institutions, referring the matter for criminal prosecution, or initiating proceedings to impose a fine or to limit, condition, suspend, or terminate participation in Title IV programs. If our institution’s approval to participate in Title IV programs is terminated, it will also lose its ability to participate in TA pursuant to its DoD MOU, as well as in education benefits administered by the VA.

Regulatory Actions and Restrictions on Operations

Many actions that we may wish to take in connection with our operations are subject to regulation from a variety of agencies. For example, ED’s regulations, state regulatory requirements, and accrediting agency standards may, in certain instances, limit our ability to acquire or sell institutions, and to establish additional locations and programs. For example, as described in “Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures”, RU is currently subject to 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 that can be enrolled. Many states require approval before institutions can add new programs, campuses, or teaching locations. Generally, these agencies require institutions to notify them, and sometimes require institutions to obtain their approval, in advance of opening a new location or implementing new programs. APUS is regulated by its institutional accreditor, the HLC, as well as a state agency in West Virginia. RU’s is regulated by its institutional accreditor, the HLC, as well as the six state agencies where RU physical campuses are located, which include Florida, Illinois, Kansas, Minnesota, North Dakota, and Wisconsin. HCN is regulated by ABHES, and the state agencies in Ohio, Indiana, and Michigan. GSUSA is regulated by the Accrediting Council for Continuing Education & Training, as well as a district agency in the District of Columbia.

Change in Ownership Resulting in a Change of Control

For example, the Rasmussen Acquisition was required to be reported to, and in some cases approved by, various education regulatory bodies. RU also pursued post-closing notices and consents related to the change in ownership. State agencies, accreditors, boards of nursing, and other relevant regulators also required further action with respect to the Rasmussen Acquisition. For example, HLC required an additional site visit within six months of the closing date of the Rasmussen Acquisition, and the visit occurred in February 2022. Additionally, some regulators required approval after the change in ownership in order to continue proper licensure, accreditation, approval, or authorization.

In addition, on January 1, 2022, APEI acquired substantially all of the assets of GSUSA for approximately $1.0 million, subject to working capital adjustments. GSUSA is licensed by the D.C. Higher Education Licensure Commission, or DCHELC, and accredited by ACCET. DCHELC and ACCET approved the transaction.

An institution that undergoes a change in ownership resulting in a change of control loses its eligibility to participate in Title IV programs and must apply to ED in order to reestablish such eligibility. ED regulations define what constitutes a change in ownership and control of various types of legal entities. For example, ED regulations provide that a change of control of a publicly traded company occurs in one of two ways: (i) there is an event that would obligate the corporation to file a Current Report on Form 8-K with the Securities and Exchange Commission disclosing a change of control; or (ii) the corporation has a stockholder that owns at least 25% of the total outstanding voting stock of the corporation and is the largest stockholder of the corporation, and that stockholder ceases to own at least 25% of such stock, or ceases to be the largest stockholder. As a result, a significant purchase or disposition of our voting stock, including an acquisition resulting in a stockholder owning at least 25% of our outstanding stock, could be determined by ED to be a change in ownership and control.

When a change in ownership and control occurs, ED applies certain financial tests to determine the financial responsibility of the institution under the new ownership. The institution generally is required to submit a same-day audited balance sheet reflecting the financial condition of the institution immediately following the change in ownership and control, and the same-day balance sheet must satisfy certain requirements. In addition, when a change in ownership and control occurs and there is a new owner, the institution must submit to ED the new owner’s audited financial statements for its two most recently completed fiscal years. If those audits do not satisfy ED requirements, ED may impose conditions on continued Title IV participation, such as a letter of credit, certain growth restrictions including with respect to adding locations and programs, and additional monitoring requirements. ED’s financial responsibility standards are described more fully above in “Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility”.

In October 2022, ED announced final regulations relating to change in ownership and change in control rules and procedures, effective July 1, 2023. The ownership interest threshold for publicly traded corporations remains at 25%, as described above. For entities that are not closely held or publicly traded corporations, including limited liability companies, limited liability partnerships, limited partnerships, and similar types of legal entities, the final regulations increase the ownership interest threshold from 25% to 50% for a change in ownership that results in a change in control automatically triggering ED’s approval process, and also provide that ED’s approval process may apply when a change in control occurs despite not meeting the 50 percent threshold. The final regulations also require institutions to notify ED and students of a planned change in ownership that results in a change in control at least 90 days in advance. In addition, the final regulations impose reporting obligations on institutions for changes in ownership that do not result in a change in control, lowering the threshold for reporting such changes from 25 percent to 5 percent ownership interest for all entity types. The final regulations also: require additional financial protection (i.e., letters of credit) when a new owner is lacking financial statements or as ED determines necessary; and eliminate the existing requirement that ED continue an institution’s participation with the same terms and conditions in their Title IV agreement as prior to the transaction. In addition, the final regulations define “main campus” and modify the definitions of “additional location” and “branch campus” to clarify that a location must be within the same “ownership structure” of the institution.

Many states require institutions of higher education to report or obtain approval of certain changes in ownership or other aspects of institutional status. The types of and triggers for such reporting or approval vary, but many states include the sale of a controlling interest of common stock in the definition of a change of control requiring approval. A change of control may require us to obtain approval of the change in ownership and control in order to maintain our state approval. In certain circumstances, state approving agencies responsible for oversight of veterans education benefits also may require an institution to obtain approval for a change in ownership and control.

Many accrediting agencies, including HLC, require institutions of higher education to report or obtain approval for certain changes in legal status, ownership, form of control, or other aspects of institutional status, but the types of and triggers for such reporting or approval vary. Many accrediting agencies also require on-site evaluations to confirm the appropriateness of any approval. Some accrediting agencies’ oversight may also extend to defined changes that occur in an institution’s parent or controlling entity, and not necessarily the institution itself. Such oversight could trigger additional reviews of the institution and possible change in accreditation status.

ED may, as a condition of participation in Title IV programs, require prior approval of new locations, programs, or otherwise restrict the number of programs an institution may add. ED’s regulations require institutions to report and, in certain cases (such as when an institution is provisionally certified such as APUS and RU), to seek approval for a new additional campus location at which at least 50% of a program will be offered if the institution wants to disburse Title IV program funds to students enrolled at that location. Institutions are responsible for knowing whether they need approval, and institutions that add locations and programs and disburse Title IV program funds in connection with those locations and programs without having obtained any necessary approval may be subject to administrative repayments and other sanctions.

The HEA requires for-profit institutions to be in full operation for two years before qualifying to participate in Title IV programs. However, ED regulations in many circumstances permit an institution that is already qualified to participate in Title IV programs to establish additional campus locations that are exempt from the two-year rule. The new campus location must satisfy all other applicable requirements for institutional eligibility, including approval by the relevant state authorizing agency and the institution’s accrediting agency.

Provisionally certified institutions of higher education such as APUS and RU, and institutions on HCM1 like RU, must seek prior approval from ED to offer new academic programs eligible for Title IV program funds and to open new locations at which Title IV program funds will be disbursed. A fully certified degree-granting institution generally is not obligated to obtain ED’s prior approval for a new location, an additional program leading to a degree at the same level previously approved by ED, or a new program that both prepares students for gainful employment in the same or related recognized occupation as an education program that has previously been designated as an eligible program at that institution and meets certain minimum-length requirements. However, ED could nevertheless require a fully certified institution to obtain prior approval for new programs and locations for purposes of Title IV program participation.

GSUSA’s contracts are governed by the Federal Acquisition Regulation, or FAR, a regulatory framework. The FAR affects how GSUSA interacts and does business with its federal government clients, including by providing government agencies with rights not typically found in commercial contracts. Our government contracts may provide for termination by the government at any time, without cause. In addition, we may be subject to audits and investigations relating to these contracts, and any violations could result in civil and criminal penalties and administrative sanctions, including termination of contract, refund or suspension of payments, forfeiture of profits, payment of fines, and suspension or debarment from future government business. Our GSA Schedule contract is set to expire on March 4, 2024, and GSUSA is preparing its application for a new GSA Schedule contract. If a new contract is not entered into, GSUSA’s government business would be materially adversely impacted. Information about risks associated with GSUSA’s contracts being governed by the FAR is provided in the “Risk Factors” section of this Annual Report.

Other Recent Legislative and Regulatory Activity

Many of our students rely on federally funded programs, including Title IV programs, TA and education benefits administered by the VA that may be affected by changes in the federal budget. Due to the substantial amount of federal funds disbursed to schools through Title IV programs, TA and education benefits administered by the VA, the large number of students and institutions participating in these programs, and significant political interest in the cost of education, Congress continues to show interest in regulation and oversight of institutions of higher education, especially those that are for-profit.

In addition, ED announced its intent to hold negotiated rulemaking sessions in 2024 to address other topics for which proposed or final regulations have not yet been issued, including the recognition of accrediting agencies, institutional eligibility, return of Title IV funds, cash management, and third-party servicers.

Risks Related to Attracting and Retaining Students

Our success and financial performance depend on the effectiveness of our ability to attract students who persist in our institutions’ programs.

Building awareness and reputation among potential students of our institutions and the programs they offer is critical to our institutions’ ability to attract new students. In order to maintain and increase our revenue, profits, and cash flows, our institutions must continue to enroll new, qualified students in a cost-effective manner, and these students must remain active and be successful in our institutions’ programs. In addition, because our institutions experience declines in their student populations as a result of graduation, transfers to other academic institutions, withdrawals, military deployments, and other reasons, in order to grow, we need to first attract sufficient students to replace those who have left. In addition to broader challenges with attracting qualified students, any negative effects resulting from the occurrence of risks set forth in this “Risk Factors” section, from action or inaction by us, regulators or accrediting agencies, or events beyond our control could prevent us from successfully advertising and marketing our institutions’ programs and from successfully enrolling and retaining qualified students in those programs. If we are unable to continue to develop awareness and a positive reputation of our institutions and the programs we offer, and to recruit and enroll students that persist in our programs over time, our enrollments will suffer and there could be a material adverse effect on our financial condition and results of operations.

If we are unable to effectively market our programs or expand into new markets, our results of operations would be negatively affected.

Our marketing strategy for APUS traditionally focused on building long-term, mutually beneficial relationships with businesses, other organizations, and individuals in military, military-affiliated, and public service communities. We must continue to develop and expand marketing channels that attract college-ready students unaffiliated with the military who may perform well at APUS, including given limitations on access to military students, as discussed further below under the Risk Factor that begins “If APUS does not have strong relationships with, and access to, various military installations...”, and a continued focus on efforts to attract students outside of the military, including in order to maintain compliance with the 90/10 Rule. However, we have experienced challenges attracting such students, and there is no assurance that we will be able to do so on a cost-effective basis or to prevent a further decline in non-military enrollments at APUS.

Furthermore, because APUS’s tuition is generally lower than that of most of its competitors, it has fewer dollars to spend per student on marketing and advertising than its competitors. Our pricing structure and margin profile may limit the availability of financial resources to be used for marketing and enrollment in general. Nevertheless, we have tried to, and may in the future try to, implement new marketing tactics and channels, including those with which we have no experience, and there is no guarantee that our marketing and branding efforts will achieve the desired results. If we are unable to develop and optimize marketing and advertising programs that are effective in developing awareness of our institutions and the programs we offer and their value propositions and are unable to enroll and retain qualified students in military and non-military markets, our enrollments would suffer, and there could be a material adverse effect on our financial condition and results of operations.

The success of RU and HCN depends, in part, on our ability to maintain and increase student enrollments in those institutions’ programs. As part of our strategy to continue to build a national nursing platform, we intend to open new campuses and other operating locations; however, as a result of disciplinary actions, RU is currently and may continue to be limited in its ability to expand into new geographical markets. Accordingly, there is no assurance that we will be able to effectuate this expansion strategy at RU and HCN or if such strategy will achieve desired results. For more on the limitations on our ability to expand our nursing programs into new geographical markets, see also the Risk Factors that begin with the captions “If our institutions are unable to successfully adjust…,” “If we or our institutions fail to comply with the extensive regulatory…,” “Failure to improve certain of our programs’ NCLEX pass rates...,” “RU’s planned closure of its Bloomington…,” and “RU is

Opening new campuses and locations requires us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any related requirements from those agencies. In addition, with the opening of new campuses, we have been and will be marketing in geographic areas in which our institutions did not previously have a campus, and these marketing efforts may not be successful. If in the future we are unable to effectively market RU’s and HCN’s programs, we may not be able to successfully maintain and increase those institutions’ enrollments, which would negatively affect our results of operations.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals and accreditations, open, and attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise effectively manage the operations of newly established campuses, our results of operations and financial condition could be adversely affected. In addition, the inability to expand existing programs efficiently, or successfully, pursue new program initiatives, and add new campuses, including as a result of marketing failures, would harm our ability to grow our business and could have an adverse impact on our financial condition.

If APUS does not have strong relationships with, and access to, various military installations and installation education centers, our ability to maintain enrollments from military students and our future growth may be impaired.

We are highly dependent on our relationship with the military and its members, and our ability to attract and retain military service members as students. Because APUS relies on referrals and personal relationships for recruiting, impediments to access can have an adverse effect on maintaining and generating registrations from military students.

DoD requires us to meet certain criteria, including generally having at least 20 students on base, and to request access in writing, in order to access installations solely to provide counseling, and generally prohibits us from holding regular or recurring office hours on installations solely to provide counseling. This adversely affects our efforts to support existing students and serve new students. Furthermore, DoD MOUs, which specify terms and conditions of participation in TA and are discussed in more depth in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Defense”, and the related increased focus by DoD on relationships with and oversight of educational providers, or additional DoD restrictions, could lead to adverse changes in the nature of our relationships with military installations and their education centers and our access to military service members.

Enrollments and course registrations by active-duty service members may be adversely affected by a variety of factors not directly related to education programs, including changes in military activity, budgets and government shutdowns.

Events not directly related to education programs could lead to a reduction in registrations from students on active duty. For example, after experiencing an increase in net course registrations in 2020, which we believe may have been due in part to the impact of the COVID-19 pandemic, registration and enrollments thereafter moderated, including as a result of broader education sector enrollment headwinds and, in certain periods, disruption resulting from the transition to ArmyIgnitED discussed elsewhere in this Annual Report. Large-scale personnel reductions or other significant drawdowns of U.S. active-duty military forces would also likely have a negative effect on enrollment and course registrations. Increased operations and overseas deployments, increased demands on active-duty service members, and limited internet access associated with some deployments could also negatively impact the ability of certain active-duty military students to pursue higher education.

Congressional inaction on budgetary matters has led to lapses in funding, resulting in government shutdowns, and subsequent policy changes that have affected federal student aid programs at DoD. A future government shutdown, particularly one that impacts DoD or includes suspension or resulting modification of TA programs, 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. In addition, 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.

We will remain subject to the risk of events that occur within and with respect to the military, even where they do not directly relate to the use of TA. Because of APUS’s dependence on active-duty military students, changes that occur within and with respect to the military could have a material adverse effect on our results of operations.

Continued declines in enrollments at RU could materially adversely affect RU’s and our profitability, financial condition, results of operations, and cash flows.

RU has experienced continued declines in enrollments since the first quarter of 2022. We believe that unexpected leadership departures at RU during 2022 had a negative impact on the first half of 2023 and overall 2023 results of operations, including enrollments. Enrollments were further impacted by adverse findings by accrediting agencies and state regulatory bodies as a result of failures to meet applicable NCLEX benchmarks, self-imposed enrollment caps, the pause on new enrollments, and the closure of the program, with respect to the Bloomington, Minnesota ADN program, as discussed in greater detail in “Risks Related to the Regulation of Our Industry”. If enrollments continue to decline, RU’s and our reputation, profitability, financial condition, results of operations, and cash flows could be materially adversely affected. While we have identified, and continue to work to identify, new marketing strategies and other initiatives that we believe will attract and enroll quality students, there can be no assurance that these efforts will be successful.

Changes our institutions may make to their operations to improve the student experience and enhance our institutions’ ability to identify and enroll students who are likely to succeed may adversely affect our institutions’ enrollment, profitability, financial condition, results of operations, and cash flows.

We have identified, and continue to work to identify, potential changes and initiatives that we believe will more effectively attract and lead to the enrollment of students who are ready for and who are likely to persist in our institutions’ programs, support those students, and help improve their educational outcomes, including through changes to admissions, initiatives to increase the level of engagement and collaboration in the classroom and strengthen the bond with students, the establishment of a Council for Nursing Excellence at RU, and changes to curriculum and course retake policies at RU and HCN.

Additional initiatives have included and may in the future include the following:

These initiatives require significant time, energy, and resources, and may adversely impact our institutions’ business, financial condition, results of operations, and cash flows, particularly in the near term. We may not succeed in achieving our objectives due to organizational, operational, regulatory, resource, or other constraints. If our efforts are not successful, we may experience reduced enrollment, increased expense, or other impacts on our business that materially and adversely impact our results of operations, cash flows, and financial condition. Even if these initiatives successfully lead to the identification and enrollment of students who are likely to succeed and to improvements in student experience, they could result in adverse impacts on enrollments. Due to the many factors that can impact enrollments, we may not appropriately identify the cause of any adverse impacts, and therefore may not be able to appropriately modify our initiatives to address such impacts.

If our institutions are unable to successfully adjust to future market demands by updating and expanding the content of existing programs and developing new programs, specializations, and modes of teaching on a timely basis and in a cost-effective manner, our performance may be impaired.

We believe that our institutions need to continuously update and expand the content of their existing programs and develop new programs, specializations, and modes of teaching in order to continue to attract and retain qualified students and remain competitive in the postsecondary education market. However, the updates and expansions of our institutions’ existing programs and the development of new programs and specializations may not be accepted by accreditors, state and federal regulators such as ED, existing or prospective students, or employers. If we cannot respond to changes in market requirements, our business may be adversely affected. Even if our institutions are able to develop acceptable new programs, they may not be able to introduce these new programs as quickly as students require or as quickly as competitors introduce competing programs. To offer a new academic program, our institutions may be required to obtain appropriate federal, state, and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans. In addition, growth restrictions may be imposed on our institutions in connection with changes in ownership or otherwise that adversely impact our ability to adjust to future market demands. For example, including due to the change in control from APEI’s acquisition of RU,

Establishing new academic programs, specializations, and modes of teaching or modifying or eliminating existing programs requires our institutions to make investments in management, academic resources including faculty, and capital expenditures, incur marketing expenses, and reallocate other resources. Our institutions may have limited experience providing courses in new fields of study or new modes of teaching (including non-degree credentials) and may need to modify systems and strategies or enter into arrangements with other institutions and organizations to provide new programs effectively and profitably. If our institutions are unable to establish new academic programs, increase the number of students enrolling in new academic programs, offer programs in a cost-effective manner, hire faculty to administer new programs or deliver specialized instruction, or otherwise manage effectively the operations of those programs, our results of operations and financial condition could be adversely affected.

Continued strong competition in the postsecondary education market could decrease our institutions’ market share and increase our cost of acquiring students.

Within the postsecondary education market, our institutions compete primarily with not-for-profit public and private two-year and four-year colleges, as well as other for-profit schools. Public institutions receive substantial government subsidies, and public and private not-for-profit institutions have access to government and foundation grants, tax-deductible contributions, and other financial resources generally not available to for-profit schools. These institutions may have instructional and support resources, or course delivery tools, that are superior to those of our institutions and other for-profit schools. Many of these competitors, whether for-profit, not-for-profit, or public, may also be able to leverage their greater scale, size, name recognition, and financial and other resources to compete for potential students, or to provide instructional and support resources that may be superior to those of our institutions and other for-profit schools. In addition, as indicated in the Risk Factor that begins “Strong competition in the military market...” below, the Armed Forces have established, and may in the future establish, their own postsecondary education programs. Within the nursing education market, we compete with other schools offering similar programs, including for-profit and not-for-profit public and private colleges, that may have greater resources or a greater market presence or reputation in the local areas we serve. In addition, because of the relatively local focus of RU’s and HCN’s nursing programs, our competitive environment is impacted by various factors that are specific to the particular areas where our campuses are located, including local supply and demand dynamics for our programs, nurses, and nursing schools. RU’s and HCN’s results are therefore more susceptible to the actions of single competitors than the results of an institution that draws from a broader geographical area. For example, a particularly effective or ineffective marketing approach by another school, or the opening or closing of another school, could have unanticipated detriments or benefits to RU’s and HCN’s competitive position.

We expect to continue to face greater competition from non-traditional offerings, provided by both educational institutions and non-traditional providers.

Competing institutions and others provide non-traditional education programs without charge or at low costs, including CBE programs, coding bootcamps, micro-credentialing, massive open online courses, and other flexible and individualized

Strong competition in the military market could decrease our institutions’ market share and increase our cost of acquiring students.

We anticipate that APUS will continue to see strong competition within the military market, which continues to be a primary market for APUS. There are a number of for-profit schools and not-for-profit institutions that focus on the military market because of the size of the market and the availability of funding, and some for-profit schools seek to attract students eligible for TA, VA education benefits, or both. Some of these institutions may develop relationships with the military and education service officers that are stronger than APUS’s, which could have an adverse effect on APUS’s ability to attract and retain qualified students, and ultimately, on our financial condition.

Tuition and fee increases at RU, APUS, and HCN have had, and could have an adverse impact on enrollment, our financial condition and our results of operations.

RU implemented tuition increases, effective January 2023, for select programs, APUS implemented tuition and fee increases for its non-military and veteran students in the second and third quarters of 2023, and HCN implemented a 5% increase in tuition and fees effective in the second quarter of 2023 across all programs. These increases were implemented to help offset the increased cost of delivering a quality, competitive education. However, higher tuition and fees could cause potential students to be unwilling, or unable, to enroll at our institutions and/or in affected programs, and existing students may be unwilling, or unable, to remained enrolled, which would result in lower enrollments at our institutions and adverse impacts on our financial condition and results of operations.

Risks Related to the Regulation of Our Industry

If we or our institutions fail to comply with the extensive regulatory requirements for the operation of postsecondary education institutions, we and our institutions could face penalties and significant restrictions on operations, including loss of federal student loans and grants and access to DoD TA programs.

Findings of noncompliance with these laws, regulations, standards, and policies could result in any of the respective regulatory agencies taking certain actions, including: imposing monetary fines, penalties, or injunctions; limiting operations, including restricting our institutions’ ability to offer new programs of study or to open new locations, or imposing limits on our growth; limiting or terminating our ability to grant degrees; restricting or revoking our institutions’ accreditation, licensure, or

If one of our institutions were to lose its eligibility to participate in Title IV, TA, or VA education benefit programs, or if the amount of available funds under these programs were reduced, we could seek to arrange or provide alternative sources of revenue or financial aid for students. Although we believe that one or more private organizations would be willing to provide financial assistance to students attending our institutions, there is no assurance that this would be the case, and the terms of such financial aid might not be as favorable as those for funds under the Title IV, TA, or VA education benefit programs. We may be required to guarantee all or part of such alternative assistance or might incur other additional costs in connection with securing alternative sources of financial aid. Accordingly, the loss of our eligibility to participate in these programs, or a reduction in the amount of available federal student financial aid, would be expected to have a material adverse effect on our financial condition and results of operations, even if we could arrange or provide alternative sources of revenue or student financial aid.

The regulations, standards, and policies of ED, state regulatory bodies, and our institutions’ accrediting agencies change frequently and are subject to interpretive ambiguities. Recent and pending changes in, or new interpretations of, applicable laws, regulations, standards, or policies, or our noncompliance with any applicable laws, regulations, standards, or policies, could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, receipt of funds under TA, ability to participate in Title IV programs, ability to participate in VA education benefit programs, or costs of doing business. We cannot predict with certainty how these regulatory requirements will be applied or whether we will be able to comply, or will be deemed by others to have complied, with all of the requirements.

In addition, in some circumstances of noncompliance or alleged noncompliance, we may be subject to lawsuits under the federal False Claims Act, similar state false claim statutes, or various “whistleblower” statutes. These lawsuits in some cases can be prosecuted by a private plaintiff in respect of some action taken by us, even if ED or another regulatory body does not agree with the plaintiff’s theory of liability, or the government can intervene and become a party to the lawsuit. These lawsuits have the potential to generate significant financial liability linked to our receipt of government funds, including Title IV funds and TA funds. Noncompliance or alleged noncompliance may also result in derivative litigation or litigation involving other stakeholders. Any such litigation could result in substantial costs and a diversion of our management’s attention and resources.

If our institutions fail to maintain their institutional accreditation, they would lose the ability to participate in Title IV and DoD TA programs and our student enrollments would decline.

If one or more of our institutions does not comply with the 90/10 Rule for two consecutive years, it or they will lose eligibility to participate in federal student financial aid programs.

The HEA requires all for-profit education institutions to comply with what is commonly referred to as the 90/10 Rule, which imposes sanctions on institutions that derive more than 90% of their total revenue on a cash accounting basis from Title IV programs and other federal educational assistance funds, as calculated under ED’s regulations. As more fully described in “Regulatory Environment–Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – The ‘90/10 Rule,’” 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...” below, cash payments from the Army to APUS that were expected in 2021 and 2022 were received in 2023, which together with recent modifications 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. 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 to increase. Moreover, the delayed invoicing discussed below 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 to offset the effect of the receipt of the delayed payments from the Army due to ArmyIgnitED system issues. 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. 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 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. 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. Billed accounts receivable are considered past due if the invoice has been outstanding for more than 30 days.

The change in billing practice also added to our accounts receivable as of December 31, 2023 and resulted in an increase to our leverage ratios 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. See the discussion below under “Our Series A Senior Preferred Stock provides rights, preferences, and privileges that are not held by our common stockholders, and is senior to our common stock, which could adversely affect our cash flows, liquidity, and financial condition” for a discussion of the impact on our leverage ratio. While we do not anticipate

While each of our institutions was in compliance with the 90/10 Rule for 2023, we expect continued challenges with compliance with the 90/10 Rule, particularly at APUS. Enrollments at APUS from students who use TA funds have been trending upward, while enrollments from students who use non-federal educational assistance funds continued to decline. This is making it more difficult to satisfy the 90/10 Rule at APUS. In order to try and address the challenges with respect to 90/10 at APUS, we may pursue strategic transactions, including business combinations and acquisitions. Those transactions may not be successful or could cause disruption to our operations. For examples of some of the challenges that some types of strategic transactions could have, see the Risk Factor that starts with “Business combinations and acquisitions may be difficult to integrate …” below.

If any of our institutions fails to satisfy the 90/10 Rule and loses eligibility to participate in Title IV programs, it would also lose the ability to participate in TA because DoD requires institutions to participate in Title IV programs in order to participate in TA, and ineligibility of either or both of our institutions to participate in Title IV programs and TA would have a material adverse effect on our enrollments, revenue, results of operations, and cash flows. Similarly, failure of one of our institutions to meet the 90/10 Rule for any fiscal year would require the institution to notify ED and students of this failure, would result in the institution being on provisional status for two fiscal years, could subject the institution to heightened regulatory scrutiny and possible adverse regulatory action, and could damage the institution’s reputation, which would have a material adverse impact on our results of operation, cash flow, and financial condition. Failure of an institution to meet the 90/10 Rule for two consecutive fiscal years results in the institution becoming ineligible to participate in Title IV programs for at least two fiscal years, which would have a material adverse impact on our results of operation, cash flow, and financial condition.

DoD’s MOUs impose extensive regulatory requirements on our institutions with respect to participation in DoD TA programs, and our revenue and number of students would decrease if our institutions were no longer able to receive funds under DoD TA programs or if TA is reduced, eliminated, or suspended.

As described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Defense” and “Regulatory Environment – Compliance with Regulatory Standards and the Effect of Regulatory Violations – Compliance Reviews”, each institution participating in TA is party to an MOU in a similar form outlining certain commitments and agreements in connection with accepting funds from TA. For example, the MOUs include an agreement to participate in the ICP in order to participate in TA. An institution that is found noncompliant with DoD requirements through the ICP and demonstrates an unwillingness to resolve a finding may be subject to a range of penalties from a written warning to termination of the institution’s participation in TA.

The DoD MOUs also provide that an institution may only participate in TA if it is accredited by an accrediting agency recognized by ED, approved for VA funding, and a participant in Title IV programs. Failure to comply with an MOU could result in an institution losing its ability to participate in TA. We also believe that in certain circumstances DoD may impose sanctions for a failure to comply instead of denying an institution the ability to participate in TA, including restricting student enrollment in TA programs, suspending an institution from enrolling new students, limiting access to military installations, subjecting the institution to heightened compliance oversight, or otherwise limiting an institution’s ability to participate in TA. If an institution fails to comply with the requirements of an MOU, it could result in sanctions, up to losing the ability to participate in TA, that could have a significant adverse effect on our results of operations and financial condition.

Students participating in TA constituted approximately 48% of APUS’s adjusted net course registrations for 2023. We do not know the scale or nature of future actions that may be taken with respect to TA, which could include eliminating those programs, reducing the funds, benefits, or level of reimbursement available thereunder, changing the eligibility criteria for beneficiaries, enacting new restrictions on institutional participation, or imposing other eligibility criteria on institutions, all of which could impact enrollments from service members. Other administrative changes to DoD programs could also have negative effects on our enrollments.

There have been previous changes to eligibility requirements under TA that have impacted us, and additional changes that impact us could occur in the future. Additional changes to TA could occur due to Congressional action or DoD policy and funding changes. For example, the failure of Congress to pass appropriations legislation has limited the release of funds at times in the past and could do so in the future as well, including as a result of budget disputes related to the federal debt ceiling. Annual TA funding is limited and could be exhausted in any given year due to budget constraints or changes in demand or policy. We are unable to predict whether and to what extent the Armed Forces will impose limitations on TA approvals in the future as a result of limited funding. Furthermore, we expect each military branch and the DoD to continually evaluate their approaches to education, including by launching or expanding their own institutions, as discussed in further detail in the Risk Factor that begins “Strong competition in the military market...” below, and such actions could have an impact on the funds available to service members to pursue their education at our institutions. Changes in funding allocations could have a material adverse effect on APUS’s enrollments.

If we are no longer able to receive funds from TA, or if those programs are modified, reduced, eliminated, or temporarily suspended, our enrollments, revenue, and cash flow could be significantly reduced, which would result in a material adverse effect on our results of operations and financial condition. See also the Risk Factor captioned “Our student registrations, revenue, and cash flows have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition to new systems for soldiers to request TA” below.

HLC has scheduled a comprehensive site visit for APUS for its mid-cycle review in year four of its ten-year accreditation cycle instead of a panel review.

HLC will conduct a focused visit at APUS in March 2024 after HLC raised potential concerns regarding APUS’s compliance with standards related to program development oversight and program assessment processes as a result of certain courses not being available for students in one program. Pursuant to HLC policy, APUS has transitioned from the Open Pathway to the Standard Pathway because of the decision to conduct a focused visit. As a result of this transition, APUS will be subject to a comprehensive site-visit for the year four mid-cycle review under the Standard Pathway, currently scheduled in the spring of 2025. The reaffirmation of accreditation site visit date remains unchanged and will take place 2030-2031.

HLC’s focused visit will result in a written report addressing the topics of concern identified in the letter calling for the focused visit. The focused visit team report will include a recommendation to accept the report or may call for additional monitoring, sanction, show-cause order, or withdrawal of accreditation. Although APUS would have the opportunity to respond prior to any HLC action on the report, we cannot be sure that the HLC team will not identify deficiencies at APUS during the focused visit or call for negative accreditation-related action against APUS as a result.

ED’s recently finalized new gainful employment requirements could materially and adversely affect our business after they take effect.

Pursuant to new gainful employment, or GE, regulations, that will take effect July 1, 2024, ED will determine the Title IV eligibility of GE programs based in part on satisfaction of specified performance levels of two measures defined by the GE regulations: the debt-to-earnings rates (which include two rates, the discretionary debt-to-earnings rate and the annual debt-to-earnings rate) and the earnings premium measure. ED previously released a data set, referred to as the program performance data, or the PPD, that includes calculations of the two metrics for certain programs. The methodology ED used to produce the PPD differs from the methodology that will be used under the final GE regulations, primarily due to data limitations. However,

Programs that fail to satisfy the specified performance levels of the GE measures in two of any three successive years for which the debt-to-earnings rates or the earnings premium measure are calculated would lose access to Title IV funding. Under the GE regulations, the failure of any of our institutions’ programs to satisfy the required specified performance levels could adversely impact those institutions and programs. We expect that the earliest a program could lose eligibility is July 1, 2026. In addition, programs that fail any of the metrics in a year will be required to warn enrolled and prospective students that the program risks losing access to Title IV funding. At this time, it is difficult to predict whether our institutions’ programs will satisfy performance levels of future GE metrics, including whether the programs identified as failing in the PPD will in fact fail or whether other programs will fail or pass.

Failure to improve certain of our programs’ NCLEX pass rates and to more generally satisfy NCLEX requirements could reduce our enrollments, revenue, and cash flow, lead to adverse actions taken by state boards of nursing, and limit our ability to offer educational programs.

Although variability in regulator and accreditor approach to and use of discretion in enforcement of NCLEX pass rate standards makes it difficult to predict consequences, failure to abide by the terms of any restrictive status placed on these programs, take appropriate corrective action, or reach applicable threshold rates within a required timeframe could subject impacted programs to additional adverse action, including withdrawal of approval, and we could take voluntary action to curtail or terminate affected programs, any of which would have an adverse effect on our results of operations, cash flows, and financial condition. Even if the affected programs have long-term success in complying with NCLEX pass rate standards, the actions we take to comply could result in increased costs or decreased enrollments, and impairment of RU or HCN goodwill.

Recently introduced Florida legislation, if enacted, could have a material adverse impact on RU’s Florida ADN and PN programs.

In January 2024, legislation was introduced in the Florida senate that would significantly overhaul the regulation of Florida nursing programs. If enacted, this legislation could materially adversely impact RU’s Florida ADN and PN programs. At this time, it is uncertain whether the legislation will be attached to another bill, enacted as drafted, or enacted at all.

RU’s planned closure of the Bloomington, Minnesota ADN program effective June 2024 may adversely impact RU and us.

RU’s Bloomington, Minnesota ADN program has been subject to adverse action and heightened scrutiny from regulators as a result of a continued failure to meet applicable regulatory and accreditor requirements. In September 2021, ACEN placed conditions on the Bloomington, Minnesota ADN program’s continued accreditation, requiring it to demonstrate compliance with all applicable accreditation criteria within two years. In June 2023, ACEN’s site visit team recommended denial of continuing accreditation for the program based on the team’s findings that the program did not demonstrate compliance with certain accreditation criteria related to student outcomes despite RU’s belief that good cause existed not to deny continuing accreditation. ACEN notified RU in October 2023 that the ACEN board had granted continuing accreditation for good cause until September 2024. ACEN also requested a follow-up report for good cause be submitted in advance of a follow-up visit in spring 2024 related to student outcomes criteria. In addition with the planned spring 2024 follow-up visit, the ACEN board notified RU that it plans to conduct a focused visit due to a complaint received by ACEN related to student clinical preparation and graduate clinical performance. In August 2023, RU decided to voluntarily pause new enrollments beginning in November 2023. On December 29, 2023, RU informed the MBN that it intends to voluntarily close the Bloomington, Minnesota ADN program, effective June 15, 2024. The MBN approved the voluntary closure of the Bloomington, Minnesota ADN program at its February 1, 2024 meeting. For all students enrolled in the Bloomington, Minnesota ADN program graduating after June 2024, their enrollment record will be transferred to RU’s St. Cloud, Minnesota ADN. However, there can be no assurance that any or all remaining students in the program will find the St. Cloud transfer suitable. Due to previous self-imposed enrollment caps and the pause on new enrollments, enrollment in this program currently represents less than 2% of RU’s current total enrollment. As RU evaluates its other campuses and programs, it could make similar closure decisions about other programs or campuses. The closure of the Bloomington, Minnesota ADN program, or any closure of other programs or campuses, may have an adverse impact on RU’s enrollments and reputation, which could further impact RU’s enrollments operations, cash flows, and financial condition.

RU’s Illinois ADN program has been adversely impacted by regulatory action, including as a result of the failure to meet applicable NCLEX pass rates, and further action by regulators and accreditors could result in additional adverse impacts.

RU’s Illinois ADN program has not met state-established first-time NCLEX benchmarks for three consecutive years. In February 2022, RU’s Illinois ADN program was placed on probationary status by the Illinois Department of Financial and Professional Regulation, or IDFPR, 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.

In August 2023, the State of Illinois enacted legislation, which took effect January 1, 2024, that provides programs with additional time to improve NCLEX pass rates. The legislation changed the Illinois NCLEX pass rate requirements from a one-year measurement based on first attempts only to a three-year average that includes all test attempts and removed all nursing programs, including RU’s Illinois ADN program, from probationary status for a period of three years. However, there can be no assurance that they will not seek to impose different or additional requirements in connection with this change in legislation. Furthermore, there can be no assurance that any resulting removal from probationary status of RU’s Illinois ADN program will be viewed favorably by ACEN or another nursing program accreditor or would result in RU’s Illinois ADN program obtaining ACEN accreditation following the February 2024 site visit.

An Illinois statute also requires nursing programs in the state to have achieved accreditation by the end of 2022 in order to meet state approval requirements. RU’s Illinois ADN program has been in candidacy status for initial accreditation with

The inability of our institutions’ graduates to obtain professional licensure, employment or other outcomes in their chosen fields of study, particularly in nursing, could reduce our enrollments and revenue, limit our ability to offer educational programs, and potentially lead to litigation that could be costly to us.

Further, requirements for employment vary from employer to employer and from field to field. To the extent our graduates fail to satisfy requirements for employment by particular employers or in a particular profession based on characteristics of our programs, the ability to maintain enrollments, as well as the potential for growth of our institutions’ programs would be negatively impacted, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. In addition, if our institutions’ graduates fail to obtain professional licensure, employment, or other outcomes in their chosen fields of study, we and our institutions could be exposed to litigation, including class-action litigation, claiming that we are at fault for such failure, which would force us to incur legal and other expenses that could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

A failure of HCN to satisfy ABHES accreditation standards, including specific student achievement indicators, could have a material adverse impact on HCN’s student enrollment, revenue, results of operations, and cash flows.

ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rate. Under ABHES policy, ABHES may withdraw accreditation at any time if it determines that an institution fails to demonstrate at least a 70% retention rate for each program, a 70% placement rate for each program, and a 70% first-time pass rate on mandatory licensing and credentialing examinations or fails to meet the state-mandated results for credentialing or licensure. Alternatively, ABHES may in its discretion provide an opportunity for a program to come into compliance within a period of time specified by ABHES, and ABHES may extend the period for achieving compliance if a program demonstrates improvement over time or for other good cause. In prior years, several HCN programs at certain HCN campuses have failed to satisfy ABHES’ student achievement measures, and as a result, ABHES has placed certain locations and programs on program-specific warning or outcomes reporting status and required action plans.

As a result of retention rates being below the 70% benchmark for the 2021-2022 reporting year, which was the second consecutive full reporting year, ABHES placed the PN programs at the Cincinnati, Cleveland, Columbus, and Dayton campuses on program-specific warning status in January 2023. Toledo PN and Akron ADN program retention rates fell below the 70% benchmark for the 2021-2022 reporting year, which was the first full reporting year. As a result of failing to meet the threshold benchmark, ABHES required HCN to submit reports for each of these programs demonstrating their retention rate through the first three quarters of the 2022-2023 reporting year by May 2023.

The reports submitted in response to this requirement demonstrated that the PN programs at the Cincinnati, Cleveland, Columbus, and Dayton campuses and the ADN program at the Akron campus were above the 70% retention benchmark through the first three quarters of the 2022-2023 reporting year. As a result, the Cincinnati, Cleveland, Columbus, and Dayton PN programs were removed from program-specific warning status, and ABHES informed HCN that no additional information was required for the ADN program at the Akron campus. However, HCN reported that the retention rate for the PN program at the Toledo campus was below the 70% benchmark through the first three quarters of the 2022-2023 reporting year. Consequently, the Toledo PN program was placed on outcomes reporting status, and required to provide an additional report and action plan in October 2023, which HCN submitted.

For the reporting year ended June 30, 2023, the PN program at the Cleveland, Columbus, Dayton, and Toledo campuses, as well as the ADN program at the Akron and Dayton campuses, were below the 70% benchmark for retention. As a result, ABHES continued the Toledo PN program on outcomes reporting status, due to its retention rate falling below the 70% benchmark. ABHES is also requiring additional reporting for the Cleveland PN, Columbus PN, Dayton PN, and Akron ADN programs. In conjunction with these actions, ABHES is requiring HCN to submit reports for each of these programs demonstrating their retention rate through the first three quarters of the 2023-2024 reporting year by May 2024. If the Cleveland PN, Columbus PN, Dayton PN, Dayton ADN, and Akron ADN programs do not meet the 70% retention benchmark by the third quarter of the 2023-2024 reporting year, ABHES will likely place these programs on outcomes reporting status. If the Toledo PN program does not meet the 70% retention benchmark by the third quarter of the 2023-2024 reporting year, ABHES will likely place the program on program-specific warning status.

If ABHES places any HCN program on program-specific warning status, and ABHES determines that HCN’s response to the program-specific warning status is insufficient, it could take action that could have an adverse impact on our results of operations, cash flow, and financial condition, including limiting program enrollment, suspending program enrollment and new starts until HCN meets terms and conditions established by ABHES, or withdraw approval for one or more programs. HCN is also required to disclose the program-specific warnings to current and prospective students, which could adversely affect HCN’s reputation and enrollments.

If any HCN campus or program fails to satisfy ABHES achievement measures, enrollment in such HCN campus or program could decline, or we could be forced to cease enrollments at that campus or in that program, which could have a material adverse impact on HCN’s student enrollment and our and HCN’s revenue, results of operations, and cash flows. The actions HCN takes to comply with ABHES requirements may not be successful in resolving existing issues and, if those actions are targeted at specific campuses or programs, they may fail to prevent additional issues arising with respect to those or other campuses or programs. Similarly, even if HCN is successful in the long term in complying with these standards, the actions HCN takes to comply could result in increased costs or decreased enrollments, and impairment of HCN goodwill.

More generally, any institutional or programmatic accreditor may have policies or standards related to specific student achievement indicators that, if not met, may result in our institutions experiencing adverse actions, up to and including withdrawal of accreditation for certain programs. Such outcomes could have an adverse impact on our ability to enroll students and eventually our ability to continue certain programs, any of which would have an adverse effect on our results of operations, cash flow, and financial condition.

If our institutions fail to maintain state authorization in the states where they are physically located, the institutions would lose their ability to grant degrees and other credentials in that state and to participate in Title IV programs and DoD TA programs.

As discussed in “Regulatory Environment – State Licensure/Authorization”, to participate in Title IV programs and TA, an institution must be legally authorized by the relevant education agency of the state in which its main campus is physically located. Loss of state authorization by one of our institutions in the state in which its main campus is physically located would render that institution ineligible to participate in Title IV programs, and therefore also TA and VA, to be unable to operate in the state and grant credentials, and to lose institutional accreditation. If one of our institutions were to lose state authorization as to a non-main campus location, it would be unable to award Title IV aid to students at that location, and it would be unable to operate at that location.

Our institutions’ failure to comply with the requirements of SARA or regulations of ED or various states related to state authorization could result in actions that would have a material adverse effect on our enrollments, revenue, and results of operations.

As more fully described in “Regulatory Environment – State Licensure/Authorization”, our institutions are subject to regulations that, among other things, clarify the required methodology for determining the state in which a student is located for purposes of satisfying state authorization requirements for distance education courses and require an institution to disclose certain information related to whether programs leading to professional licensure meet applicable state requirements, regardless of program modality. Failure to make the disclosures required by these regulations could put us at risk of administrative enforcement action or related litigation, including claims from students related to misrepresentation and other matters. In addition, we cannot predict whether, or to what extent, such disclosure requirements will have an effect on our enrollment processes and results.

Our institutions must periodically seek recertification to participate in Title IV programs, and may, in certain circumstances, be subject to review by ED prior to seeking recertification, and our future success may be adversely affected if our institutions are unable to successfully maintain certification or obtain recertification.

As more fully described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures”, APUS, RU and HCN must periodically seek recertification from ED, and ED may review our institutions’ eligibility and certification to participate in Title IV programs, or the scope thereof.

If our institutions are unable to successfully maintain certification or obtain recertification to participate in ED’s Title IV programs, they will not be able to participate in TA because each DoD MOU requires an institution to be certified to participate in Title IV programs in order to participate in TA. Similarly, an institution is required to be certified to participate in the Title IV programs in order to be eligible to participate in the VA education benefits programs. Loss of participation in Title IV programs, TA, and the VA education benefits programs would have a material adverse effect on our enrollments, revenue, results of operations, and financial condition.

In addition, also as more fully described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures”, ED must in some cases provisionally certify an institution, which imposes additional conditions on the institution’s receipt of Title IV funds. For example, APUS and RU are currently provisionally certified with ED. As more fully described in the Risk Factor that begins “RU is currently on provisional certification with ED...” below, the PPPA, entered into by RU and ED in connection with the Rasmussen Acquisition continues restrictions that ED imposed as a result of RU’s March 2019 change in ownership, including an enrollment cap on students who participate in Title IV.

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 because APUS was subject to an open program review at the time of renewal. That program review was closed in January 2021 with no findings, penalties, or further action required. APUS applied for recertification on March 23, 2023. APUS’s recertification application is still pending and APUS remains on provisional certification. In June 2021, HCN timely applied for certification to participate in Title IV programs. ED subsequently notified HCN that it had been granted provisional certification

Our institutions’ failure to meet financial responsibility standards may result in additional regulatory requirements that may negatively impact cash flow or the loss of eligibility by one of our institutions to participate in Title IV programs.

To participate in Title IV programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by ED or post a letter of credit in favor of ED, and possibly accept other conditions, such as provisional certification, additional reporting requirements, or regulatory oversight of its participation in Title IV programs. As described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Financial Responsibility”, ED’s annual evaluations for compliance with financial responsibility standards include a composite score calculation based on line items from an institution’s audited financial statements. Generally, an institution’s composite score must be at 1.5 or above for the institution to be deemed financially responsible. Under certain circumstances, institutions with a composite score less than 1.5 may be able to establish financial responsibility on an alternative basis by complying with various conditions. A composite score between 1.0 and 1.4 is considered by ED to be in the “zone”, and the “zone alternative” permits institutions to demonstrate financial responsibility by meeting specific monitoring requirements. For purposes of evaluating the financial responsibility of our institutions, including the composite score calculation, we supply consolidated financial statements to ED because ED does not review each of our institution’s financial statements separately. Failure to meet ED’s financial responsibility standards or being subject to zone alternative requirements could adversely affect our results of operations and our 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 comply with 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. A determination that we are in the zone could also result in additional adverse regulatory and accreditor requirements and actions, including with respect to SARA eligibility. If the respective SARA portal agency for APUS, RU, or HCN were not to renew the institution’s approval due to a low composite score, we would need to obtain approval or exemptions in states in which the affected institution offers distance education programs or discontinue the affected institution’s offerings to students in such states. In addition, some states have adopted financial standards that are similar to ED’s composite score, which means an affected institution may be unable to obtain licensure in that state if it were to lose SARA participation. And, because composite scores are viewed as a measure of financial responsibility, other regulators or accreditors could more generally consider a composite score that is in “zone” negatively, which could have an impact on their interactions with us and what they permit us to do.

ED rules related to BDTR claims may create significant liability that could have an adverse effect on our business and results of operations.

In December 2023, RU received from ED 338 BDTR claims, all of which were dated between June 23, 2022 and November 15, 2022, for students attending RU between 2000 and 2022, seeking in the aggregate a discharge of approximately $6.1 million in loans. In December 2023, HCN received from ED 77 BDTR claims, all of which were dated between June 23, 2022 and November 15, 2022, for students attending HCN between 2007 and 2022, seeking in the aggregate a discharge of approximately $1.4 million in loans. RU and HCN dispute the validity of these claims and have filed responses to them with ED. We are unable to predict whether ED will grant BDTR relief for the claims, or if so, whether it will seek recoupment from RU and/or HCN. However, if in the future our institutions are subject to ED recoupment actions, our business, reputation, enrollments, and financial condition may be adversely impacted. While we have not received any claims with respect to APUS at this time, we believe is it reasonably likely that we will receive claims in the future. BDTR regulations, among other issues, are more fully described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Borrower Defenses”.

The postsecondary education regulatory environment has changed and may change in the future as a result of U.S. federal elections.

A failure by our institutions to comply with ED’s incentive payment rule could result in sanctions and liability under the False Claims Act.

Our institutions may lose eligibility to participate in Title IV programs if their student loan default rates are too high, and our future growth could be impaired as a result.

As described more fully under “Regulatory Environment – Student Financing Sources and Related Regulations/ Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Student Loan Defaults” and “ –

Cohort Default Rate”, if the cohort default rate for any year exceeds 40% in any single year, or exceeds 30% for three consecutive years, an institution loses eligibility to participate in Title IV programs. If an institution’s cohort default rate equals or exceeds 30% for any given year, it must establish a default prevention task force and develop a default prevention plan with measurable objectives for improving the cohort default rate.

Government policies to minimize the adverse economic impact of the COVID-19 pandemic have artificially lowered our institutions’ cohort default rates, which nevertheless may be higher than otherwise expected as a result of the pandemic. Congress and ED implemented a temporary freeze on student loan payments and interest accruals, which means borrowers are less likely to default on their loans and our institutions’ cohort default rates are lower not because borrowers are making timely repayments but because the government is allowing them not to make payments. In June 2023, the Fiscal Responsibility Act was enacted, ending the freeze on payments and interest accruals. Accordingly, interest accrual on federal student loans resumed on September 1, 2023 and payments became due beginning October 1, 2023, which may lead to an increase in defaults and therefore an increase in our institutions’ cohort default rates.

ED has announced a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period will not be considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies. ED has also announced other actions intended to provide debt relief and support for student loan borrowers, such as instituting a new income-driven repayment plan. However, there can be no assurance that our institutions’ cohort default rates will benefit from these efforts, and the eventual end of the “on-ramp” period may also lead to an increase in defaults.

If one of our institutions loses its eligibility to participate in Title IV programs because of high student loan default rates, students would no longer be eligible to use Title IV program funds at that institution, which would significantly reduce that institution’s enrollments and revenue and cash flows and have a material adverse effect on our results of operations. In addition, if Congress or ED restricts permitted types of default prevention assistance, the default rates of our former students may be negatively impacted. Congress could also increase the measuring period, which could also negatively impact student default rates.

We rely on third parties to administer elements of APUS’ and HCN’s participation in Title IV programs and their failure to perform services as agreed or to comply with applicable regulations could cause us to lose our eligibility to participate in Title IV programs.

As discussed in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education”, ED recently issued and subsequently retracted guidance that would have significantly expanded the types of activities and functions that constitute third-party servicer activities for Title IV purposes and stated ED’s position that an institution may not contract with a third-party servicer for Title IV purposes if the servicer (or its subcontractors) is located outside the U.S. or is owned or operated by an individual who is not a U.S. citizen or national or a lawful U.S. permanent resident. In a November 2023 press release, ED indicated that it intends to issue updated guidance in early 2024. with an effective date at least six months after its publication. Once final guidance is published, our institutions must assess their arrangements with third parties to determine whether a vendor must now be treated as a third-party servicer based on the guidance, and such assessment may lead to a need to modify or end existing contracts and establish new contracts. Any transition by our institutions to or from a third-party servicer for any services as a result of the new guidance could be costly and present other risks related to the transition, which could have a material adverse effect on our financial condition and results of operations.

Our institutions will be subject to sanctions that could be material to our results and damage our reputation if ED determines that our institutions failed to correctly calculate and timely return Title IV program funds for students who withdraw before completing their educational program.

As more fully described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Regulation of Title IV Financial Aid Programs – Title IV Return of Funds”, an institution participating in Title IV programs must calculate unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion and must timely return those funds. Under ED regulations, late returns of Title IV program funds for 5% or more of students sampled in connection with the institution’s annual Title IV compliance audit constitute material noncompliance for which an institution generally must submit an irrevocable letter of credit.

Our institutions’ failure to comply with ED’s substantial misrepresentation rules could result in material sanctions.

As more fully described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Regulation of Title IV Financial Aid Programs – Substantial Misrepresentation”, ED may fine, suspend or terminate the participation in Title IV programs by an institution that engages in substantial misrepresentation regarding the nature of its education program, its financial charges, or the employability of its graduates. If administrative actions or litigation claiming substantial misrepresentation were brought against our institutions, we could incur legal costs related to their investigation and defense, which could materially and adversely impact our financial condition.

Enforcement of laws related to the accessibility of technology continues to evolve, which could result in increased information technology development costs and compliance risks.

Government and regulatory agencies and third parties may conduct compliance reviews, bring claims, or initiate enforcement actions or litigation against us, any of which could disrupt our institutions’ operations and adversely affect their performance.

Our institutions are subject to audits, compliance reviews, inquiries, complaints, investigations, claims of noncompliance, enforcement proceedings, and lawsuits by government agencies, regulatory agencies, students, employees, and third parties, including claims brought by third parties on behalf of the federal government. For example, ED regularly conducts program reviews of educational institutions that are participating in Title IV programs and ED OIG regularly conducts audits and investigations of such institutions. ED finalized a Title IV program review of RU in July 2023 and APUS is currently subject to an ongoing Title IV program review.

In July 2023, ED began a program review of APUS’s administration of Title IV programs during the 2021-2022 and 2022-2023 award years that includes a review of compliance with the 90/10 Rule. At this time, we cannot predict the outcome of the APUS program review, when it will be completed, whether there will be any adverse findings in the resulting program review report, what findings there may be related to 90/10 Rule compliance, if any, or whether ED will place any liability or other limitations on APUS as a result of the review.

In September 2022, RU received a program review report from ED with respect to the previously disclosed open program review for the 2015-2016 and 2016-2017 award years. ED asserted 14 findings of noncompliance with Title IV rules, including rules related to Title IV administration, policies, and consumer information and reporting requirements, and the federal work study, Pell Grant, and Federal Supplemental Educational Opportunity Grant programs. The program review report required RU to do a review in connection with the federal work study finding, prepare policies and procedures, return small amounts of funds to two students, provide training, and take other actions in connection with the findings, and to provide a response, which RU timely provided. In July 2023, RU received a final program review report from ED in which ED found that all the findings of noncompliance with Title IV rules had been resolved with a total liability of approximately $4,200 including a de minimis amount of interest associated with the liability.

In July 2022, HCN received from ED the final program review determination from a review that had been pending since June 2017, and in September 2022 ED notified HCN that it had closed the program review, and no further action was required. The review included findings of a 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 was required to do a full file review in connection with the return of Title IV funds finding, to have the review tested by an independent auditor, and to prepare policies and procedures and take other actions in connection with the findings. Total liabilities were approximately $12,000. HCN notified all students and/or borrowers in writing regarding payments made on their behalf. HCN timely submitted the total payment to ED and in accordance with instructions provided.

If the results of compliance reviews or other proceedings are unfavorable to our institutions, or if they are unable to defend successfully against lawsuits or claims, our institutions may be required to pay monetary damages or be subject to fines, limitations, loss of Title IV funding, injunctions, or other penalties, including the requirement to make refunds. Even if our institutions adequately address issues raised by a compliance review or successfully defend a lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or to defend against those lawsuits or claims. Claims and lawsuits brought against us or one of our institutions may result in reputational damage, even if such claims and lawsuits are without merit, which could materially adversely affect our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our institutions, which may materially adversely affect our ability to operate.

Investigations by state Attorneys General, Congress, and governmental agencies may result in increased regulatory burdens and costs.

We and other for-profit postsecondary education providers have been subject to increased regulatory scrutiny and litigation in recent years. State attorneys general have increasingly focused on allegations of improper recruiting, compensation, and deceptive marketing practices, among other issues. States may also have consumer disclosure laws, including laws specifically applicable to for-profit institutions, and a state attorney general may take the position that any such laws apply to institutions that offer wholly online education to students in the state. In recent years, a number of state attorneys general launched investigations into for-profit postsecondary education institutions. State attorneys general may also initiate inquiries into us or our institutions. Actions by state attorneys general and other governmental agencies, such as the recently restored Office of Enforcement within ED’s Office of Federal Student Aid, whether or not involving us or our institutions, could damage our reputation and the reputation of our institutions and limit the ability to recruit and enroll students, which could reduce student demand for our institutions’ programs and adversely impact our revenue and cash flow from operations.

Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions.

If we undergo a change in ownership or control, ED will place our institutions on provisional certification if they are not already on provisional status, and the terms of that provisional certification could limit our institutions’ potential for growth and adversely affect our institutions’ enrollment, our revenue, and results of operations.

As described more fully under “Regulatory Environment – Regulatory Actions and Restrictions on Operations”, an institution whose parent undergoes a change in ownership resulting in a change of control loses its eligibility to participate in Title IV programs and must apply to ED in order to reestablish such eligibility. Future transactions could constitute a change in ownership or control under ED’s regulations and could cause ED to leave provisional certification in place for our institutions as required by the HEA. The conditions of provisional certification or heightened scrutiny by ED could impact, among other things, our institutions’ ability to add educational programs, or additional locations, our ability to acquire other institutions, or our ability to make other significant changes. For example, as described in “Regulatory Environment – Student Financing Sources and Related Regulations/Requirements – Department of Education – Regulation of Title IV Financial Aid Programs – Eligibility and Certification Procedures”, ED imposed growth restrictions on RU in connection with RU’s 2019 change in ownership and continued those restrictions after the Rasmussen Acquisition as part of RU’s temporary provisional certification. In addition, if ED were to determine that our institutions were unable to meet their responsibilities while they were provisionally certified, as

RU is currently on provisional certification with ED, and the terms of that provisional certification could limit its potential for growth.

In July 2021, ED notified RU that in connection with its March 2019 change in ownership that preceded our acquisition of RU, ED imposed certain temporary growth restrictions on RU, including limitations on new programs and locations and a cap on enrollments by students that participate in Title IV programs. Additionally, ED required RU to submit periodic financial and enrollment reports, a requirement that it had imposed on RU in connection with a financial responsibility letter of credit previously imposed on RU. 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 and, effective October 2021, ED and RU entered into a TPPPA that allowed RU to continue disbursing Title IV funds while ED reviewed the change in ownership application. The TPPPA continued the growth restrictions imposed as a result of the previous change in ownership, with certain qualifications more fully described in “Regulatory Environment – Regulatory Actions and Restrictions on Operations” and “Student Financing Sources and Related Regulations/Requirements”.

In August 2023, ED notified RU that it had approved RU’s continued participation in the Title IV programs under APEI ownership. In the PPPA that RU executed in connection with the approval, ED 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 also continues to require RU to submit periodic financial and Title IV enrollment reports. The PPPA also imposes new reporting requirements related to accrediting agency actions, government actions, class actions and 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 APEI’s ownership, RU may seek removal of the enrollment cap and approval for new programs that replace current programs. The PPPA 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 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, 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.

These growth restrictions could limit or adversely affect RU’s growth opportunities, including restricting its ability to serve additional students, particularly additional nursing students.

If regulators do not approve or delay their approval of transactions involving a change of control of our Company or of institutions that we own or acquire, our and our institutions’ ability to operate could be impaired.

If we or one of our institutions experiences a change of ownership or control under the standards of applicable state regulatory bodies, accrediting agencies, ED, or other regulators, we or the institution governed by such agencies must notify or seek the approval of each relevant regulatory agency. Transactions or events that constitute a change of control include significant acquisitions or dispositions of an institution’s common stock, significant changes in the composition of an institution’s Board of Directors, internal restructurings, acquisitions of institutions including the Rasmussen Acquisition, or certain other transactions. Some of these transactions or events may be beyond our control. Our or our institutions’ failure to obtain, or a delay in receiving, approval of any change of control from the relevant regulatory agencies following a transaction involving a change of ownership or control could result in a suspension of operating authority, loss of accreditation, or suspension, loss of ability to participate in Title IV programs or certain growth restrictions including with respect to adding locations and programs, which could have a material adverse effect on our institutions and our financial condition. Our failure to obtain, or a delay in receiving, any approval of any change of control from other states in which we are currently licensed or authorized could require our institutions to suspend activities in that state or otherwise impair our institutions’ operations. The potential adverse effects of a change of control could influence, among other things, future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance, or redemption of our stock. In addition, the regulatory burdens and risks associated with a change of control also could have an adverse effect on the market price of our common stock. Growth restrictions that ED could impose as a result of change in ownership are more fully described in “Regulatory Environment – Regulatory Actions and Restrictions on Operations” and “-Student Financing Sources and Related Regulations/Requirements”.

Congress has in the past changed, and may in the future change, eligibility standards and funding levels for federal student financial aid programs, DoD TA, and other programs. Other governmental or regulatory bodies may also change similar laws or regulations relating to such programs, which could adversely affect our student population, revenue, and financial condition.

Title IV programs are made available pursuant to the provisions of the HEA. The HEA must be periodically reauthorized by Congress and each Title IV program must be funded through appropriations acts on an annual basis. The most recent comprehensive reauthorization occurred in 2008 when Congress reauthorized most HEA programs through the 2014 federal fiscal year. The reauthorization has been temporarily extended in the years that have followed. Congress previously considered comprehensive legislation to reauthorize the HEA, including proposals from Republicans and Democrats, referred to as the Student Aid Improvement Act and the College Affordability Act, respectively, and Congress could consider such legislation again in the future We cannot predict whether, in what form, or when, HEA reauthorization legislation will be enacted. Modifications to the HEA could occur as part of reauthorization, which could require us to modify our business practices and increase administrative costs, thereby negatively impacting our results of operations.

Future Congressional action, including in reauthorizations or appropriations acts, may result in legislative changes that could adversely affect the ability of our institutions to participate in Title IV programs, TA, and the availability of such funding sources for our students. Members of Congress may propose legislation to alter or modify the terms under which our institutions participate in the federal student financial aid programs. Any action by Congress that significantly reduces funding for Title IV programs or the ability of our institutions or students to participate in these programs could materially harm our institutions’ business. A reduction in government funding levels could lead to lower enrollments at our institutions and require our institutions to arrange for alternative sources of financial aid for their students. Lower student enrollments at our institutions or their students’ inability to arrange alternative sources of funding could adversely affect our financial condition. Congressional action may also require our institutions to modify their practices in ways that could result in increased administrative and regulatory expenses.

We are not in a position to predict the extent to which, or whether, Congress may focus on for-profit education institutions or whether any particular legislation that could adversely affect the for-profit education sector will be passed by Congress or signed into law in the future, but Democrats, who tend to support more regulation of and restrictions on for-profit institutions, currently control the executive branch of the U.S. government. The reallocation of funding among Title IV programs, material changes in the requirements for participation in such programs, or the substitution of materially different Title IV programs could reduce the ability of certain students to finance their education at our institutions and adversely affect our revenue and results of operations.

Failure to comply with the various federal and state laws and regulations governing HCN’s extended payment plan option could subject us to fines, penalties, obligations to discharge loans and other injunctive requirements.

Risks Related to Our Business

Our student registrations, revenue, and cash flow have been adversely impacted and we could continue to experience adverse impacts as a result of the Army’s transition to new systems for soldiers to request TA.

APUS relies on the ability of the Army, and the other branches 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 those programs. For example, 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 with delays and disruptions to the Army’s TA

Economic and market conditions in the U.S. and abroad and changes in interest rates could affect our enrollments, success with placement and persistence and cohort default rates.

Our business has been and may in the future be adversely affected by a general economic slowdown, recession, or other adverse economic developments in the U.S. or abroad, including rising interest rates and inflation. Our institutions derive a significant portion of their revenue from Title IV programs, which include student loans with interest rates subsidized by the federal government. Additionally, some students finance their education through private loans that are not government subsidized. Historically low interest rates have created a favorable borrowing environment for students. However, our students may have to pay higher interest rates on their Title IV program loans and private loans as a result of recent interest rate increases. Any increases in applicable interest rates could result in a corresponding increase in educational costs to our existing and prospective students, which could result in a reduction in our enrollment. Higher interest rates could also contribute to higher default rates with respect to our students’ repayment of their education loans. Higher default rates may in turn adversely impact our eligibility to participate in some Title IV programs, which could adversely impact our operations and financial condition. In addition, inflation has resulted and, in the future, could result in increased costs of labor and materials, which could adversely impact our operations and financial condition.

Adverse economic developments, such as those that resulted from the COVID-19 pandemic, that affect the U.S. could also result in a reduction in the number of jobs available to our graduates and lower salaries being offered in connection with available employment, which, in turn, could result in declines in our success with placements and persistence. In addition, adverse economic developments could adversely affect the ability or willingness of our former students to repay student loans, which could increase our institutions’ student loan cohort default rates and require increased time, attention, and resources to manage these defaults. Our institutions’ students are able to borrow Title IV loans in excess of their tuition and fees. The excess is received by such students as a credit balance refund. However, if a student withdraws, our institutions must return any unearned Title IV funds (which may include a portion of the credit balance refund) and must seek to collect from the student any resulting amounts owed to the institution. A protracted economic slowdown could negatively impact such students’ abilities to satisfy debts to the institution, including debts that result from returns of unearned Title IV amounts. As a result, the amount of Title IV funds we would have to return without repayment from our institutions’ students could increase, and our financial results could suffer.

Our business could be harmed if our institutions experience a disruption in their ability to process Title IV financial aid.

We collected a substantial portion of our fiscal year 2023 consolidated revenue from receipt of Title IV financial aid program funds. Any processing disruptions by ED, by our institutions, or by third-party service providers may impact the ability of our institutions’ students to obtain Title IV financial aid on a timely basis. If our institutions experience a disruption in their ability to process Title IV financial aid, either because of administrative challenges on their part or the part of their vendors, or the inability of ED to process Title IV funds on a timely basis, it could have a material adverse effect on our institutions’ business and on our financial condition, results of operations, and cash flows. If our institutions experience a disruption in their ability to process Title IV financial aid because of administrative challenges on their part or the part of their vendors, ED could require that our institutions become subject to payment methods for Title IV programs that are not the advance payment system, which could have a material adverse effect on our institutions’ cash flows.

Business combinations and acquisitions may be difficult to integrate, disrupt our business, dilute stockholder value, or divert management attention, and we may not realize the expected benefits of any consummated business combinations or acquisitions.

From time to time, we explore or enter into business combinations and acquisitions, such as our recent Rasmussen Acquisition and GSUSA Acquisition, which are typically accompanied by a number of risks, including:

Any inability to integrate completed acquisitions in an efficient and timely manner could have an adverse impact on our results of operations. Further, many acquisitions result in the acquirer recording goodwill. If any acquisitions for which we record goodwill are not successful or experience challenges, that goodwill may become impaired and have an adverse impact on our results of operations. For example, we recorded a non-cash charges of $146.9 million and $64.0 million, and to reflect the corresponding tax impact of $36.0 million and $15.8 million, during the fiscal years ended December 31, 2022 and 2023, respectively, to reduce the carrying value of RU goodwill and intangible assets as a result of determining that the fair value of RU was less than its carrying value.

In June 2023, we completed a qualitative assessment of RU and HCN Segment goodwill to determine if an interim goodwill impairment testing was necessary. We concluded it was more likely than not the fair value of the RU Segment was less than its carrying amount resulting from RU’s underperformance when compared to 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. As a result, we completed a quantitative impairment test related to the valuation of its RU Segment goodwill during the second quarter of 2023. Given the current competitive and regulatory environment and the uncertainties regarding the related impact on the business, there can be no assurance that the estimates and assumptions made for purposes of our goodwill impairment tests will prove to be accurate predictions of the future.

The Rasmussen Acquisition was, and our acquisition of any other educational institution would also likely be, considered a change in ownership and control of the acquired institution under applicable regulatory standards. For the Rasmussen Acquisition, we needed, and for any such acquisition, we would need approval from ED, and we would need to notify or obtain approval from applicable state agencies and accrediting agencies, and possibly other regulatory bodies, to the

We have not yet been able to fully achieve the anticipated benefits of the Rasmussen Acquisition, as evidenced by the reduction in carrying value of goodwill and intangible assets discussed above and may not be able to achieve the anticipated benefits of any future acquisition, including cost savings and other synergies and growth opportunities, during the anticipated time frame, or at all. For example, events outside our control, such as changes in regulation and laws and economic trends, could adversely affect our ability to realize the expected benefits. A continued inability to realize the full extent of the anticipated benefits of the Rasmussen Acquisition or an inability to realize in full anticipated benefits of any future acquisition could have an adverse effect on our revenue, results of operations, and level of expenses, which may adversely affect the value of our common stock.

Efforts to diversify our business outside of the traditional areas served by our institutions may provide strategic and operational challenges that we are not prepared or able to address.

We intend 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. As we seek opportunities to expand our business and serve markets beyond those traditionally served by our institutions, such as the federal government training market through the acquisition of GSUSA, we may encounter strategic and operational challenges different from those within our existing institutions. We or our institutions may have limited experience operating in new businesses and markets or new modes of teaching and may need to modify systems and strategies or enter into arrangements with other institutions and organizations. In addition, our systems and infrastructure may not be able to respond quickly enough to support new business opportunities, or we may not otherwise be able to address the strategic or operational differences of or compliance challenges associated with these new opportunities. If we are unable to successfully capitalize on new opportunities, the value of our common stock may decline over time, including because of the challenges of growing our core business under our current model.

We have implemented a shared services model for services to our institutions, and challenges encountered due to the ongoing operation and expansion of this model could cause strategic or operational challenges and adversely impact us.

Over the last several years, we have invested capital and human resources in the transition and implementation of a shared services model pursuant to which APEI provides services to our institutions that were previously handled directly within those institutions. However, APEI’s provision of shared services may not provide the level of service or respond quickly enough to meet the business needs of our institutions. We may not achieve the expected or desired synergies or other benefits of implementing shared services. In addition, the operation and continued expansion of the shared services model could lead to strategic and operational challenges, inefficiencies, or increased costs, any of which could cause our institutions to become dissatisfied with the shared services model, and adversely affect our business, financial condition, results of operations, and cash flows.

We rely on third-party vendors whose service may be of lower quality than ours, whose responsiveness may be less timely than ours, and whose compliance practices may increase our operational and compliance risk.

We rely on third-party vendors to provide certain services to our institutions and their students primarily related to information technology services, our learning management system, and financial aid processing, and expect to rely more heavily on such vendors, particularly through cloud computing services, in the future. For example, in December 2023, we entered into an agreement to outsource certain of our information technology operations to a managed service provider, including service desk, end user support, network support, and other information technology managed service operations. While we monitor and assess vendor service, it is possible that the quality of service and the timeliness of vendor responses may be less than the service and responsiveness that we or our institutions would provide. Using third-party vendors increases compliance risk that the vendors may not adequately protect personal information, or that they may not comply with applicable federal or state regulations.

Further, transitioning from vendors or from in-house processes to new providers or from third-party providers to in-house processes or vice versa, such as the transition of RU marketing from Collegis to our in-house centralized marketing team

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 fund our other liquidity needs.

We have incurred substantial indebtedness under our credit agreement, the cost of servicing that debt could adversely affect our business and financial results, and we may not be able in the future to service that debt.

Our ability to make scheduled payments on or to refinance our obligations under the credit agreement will depend on our financial and operating performance, which will be affected by economic, financial, competitive, business, and other factors, some of which are beyond our control. The indebtedness we incurred in connection with the Rasmussen Acquisition requires us to dedicate a portion of our cash flow to servicing this debt, thereby reducing the availability of cash to fund other business initiatives. There can be no assurance that our business will generate sufficient cash flow from operations to service our indebtedness. If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our indebtedness on or before maturity or sell certain of our assets. There can be no assurance that we will be able to restructure or refinance any of our indebtedness on terms favorable to us or commercially reasonable terms, if at all, which could cause us to default on our debt obligations and impair our liquidity. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we are unable to generate or borrow sufficient cash to make payments on our indebtedness, our business and financial condition would be materially harmed. For more information, see the Risk Factor that begins with the caption “If one or more of our institutions does not comply...”

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. Our ability to pay dividends will depend upon our financial condition, cash flows, and operating performance, which are subject to economic and competitive conditions and to factors beyond our control. Our failure to pay dividends when due would result in an immediate increase in the dividend rate by 6.0% per annum until there is no longer any default in existence and continuing, and (if the failure occurs prior to June 29, 2027) will trigger an immediate requirement to make a payment to the holders of the Series A Senior Preferred Stock equal to a make-whole amount plus a significant additional premium. We refer to this payment as the Early Premium Amount. 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 addition, 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 for the Series A Senior Preferred Stock) 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. Such consent rights may limit our financial and operational flexibility, which could have a material adverse effect on our business or liquidity.

Finally, our common stock ranks junior to our Series A Senior Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs. In the event of our liquidation, dissolution or winding-up of our affairs, no distribution or payment may be made to holders of our common stock until we have paid to holders of the Series A Senior Preferred Stock a liquidation preference equal to $100,000 per share of Series A Senior Preferred Stock plus accrued and unpaid dividends plus the Early Premium Amount.

We may need additional capital in the future, but there is no assurance that funds will be available on acceptable terms.

We may need additional capital in the future for various reasons, including to finance business acquisitions, as we did with the Rasmussen Acquisition or to assist APUS in addressing 90/10 Rule compliance, or investments in technology or to achieve growth or fund other business initiatives. There is no assurance that capital will be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders. Additionally, any securities issued to raise capital may have rights, preferences, or privileges senior to those of existing stockholders, such as our Series A Senior Preferred Stock stockholders have compared to the rights of our common stockholders. If adequate capital is not available or is not available on acceptable terms, our and our institutions’ ability to expand, develop or enhance services or products, or respond to competitive pressures, will be limited.

Our access to capital markets and sourcing for additional funding to expand or operate our business is subject to market conditions. Credit concerns regarding the for-profit postsecondary education industry as a whole also may impede our access to capital markets. If we are unable to obtain needed capital on terms acceptable to us, we may have to limit strategic initiatives or take other actions that materially adversely affect our business, financial condition, results of operations, and cash flows.

We may not be able to successfully manage and limit our exposure to bad debt.

In recent years, we have experienced increases in bad debt in each of our reportable segments. There is no assurance that we will be able to limit our exposure to bad debt or that steps we take to limit bad debt will be effective. Bad debt increases at our institutions could have a material adverse effect on our financial condition, cash flows, and results of operations.

If our institutions fail to maintain adequate systems and processes to detect and prevent fraudulent activity in student enrollment and financial aid, our institutions may lose the ability to participate in Title IV programs or DoD TA programs or have participation in these programs conditioned or limited.

Our institutions must maintain systems and processes to identify and prevent fraudulent applications for enrollment and financial aid. We cannot be certain that our institutions’ systems and processes will continue to be adequate in the face of increasingly sophisticated fraud schemes, or that we will be able to expand such systems and processes at a pace consistent with the changing nature of these fraud schemes. Our institutions, in particular APUS, have been the target of fraudulent and abusive activity, including related to Title IV program funds. We believe the risk of outside parties attempting to perpetrate fraud in connection with the award and disbursement of Title IV program funds at APUS, including as a result of identity theft, is heightened due to its being an exclusively online education provider and its relatively low tuition.

ED requires institutions that participate in Title IV programs to refer to ED OIG credible information about fraud or other illegal conduct involving Title IV programs, and in the past our institutions have referred to the OIG information with respect to potential fraud by applicants and students. If the systems and processes that our institutions have established to detect and prevent fraud are inadequate, ED may find that our institutions do not satisfy ED’s administrative capability requirements, which could have the adverse effects described in the Risk Factor captioned “A failure to demonstrate “administrative capability” may result in the loss of eligibility to participate in Title IV programs”. In addition, our institutions’ ability to participate in Title IV programs and TA is conditioned on maintaining accreditation by an accrediting agency that is recognized by ED. Any significant failure to adequately detect fraudulent activity related to student enrollment and financial aid could cause our institutions to fail to meet their accreditors’ standards. Furthermore, accrediting agencies that evaluate institutions offering

If we are unable to attract, retain, and develop skilled personnel and management, our business and growth prospects could be severely harmed, and changes in management could cause disruption and uncertainty.

We must attract, retain, and develop diverse and highly qualified faculty, management, administrators, and other skilled personnel to our institutions. We need to ensure effective succession for key executive and employee roles in order to meet the growth, development, and profitability goals of our business. Hiring competition is intense, especially for faculty in specialized areas and qualified executives, and in areas such as information technology and finance. We also believe that current job market dynamics, including low unemployment, have further increased the challenge of hiring and employee retention.

There continues to be a shortage in access to nursing faculty, which may impact our ability to recruit and retain qualified nursing faculty at both RU and HCN. If we are unable to keep faculty to student ratios at satisfactory levels, we may implement certain initiatives, including, without limitation, increasing admissions standards and capping the number of students that can be accepted to the programs, in order to concentrate on student satisfaction and success and focus on improving NCLEX scores. These measures could have an adverse impact on enrollment.

We strive to retain our talent and closely track retention among our employees, both staff and faculty. In 2023, we had full-time employee turnover of approximately 19%, of which 73% was voluntary and 27% was involuntary. In 2022 we had full-time employee turnover of 28%, of which, 70% was voluntary and 30% was involuntary.

Any failure to develop and maintain a positive culture and strong employee morale or to continue fostering the growth and development of our personnel, including through the use of staff performance evaluation systems and processes, could have a material adverse effect on our business and results of operations. In addition, to the extent our leaders behave in a manner that is not consistent with our values, such as leading with integrity, we could experience significant impact to our brand and reputation, as well as to our culture. Hiring and retention may also depend on our ability to build and maintain a diverse and inclusive workplace culture that enables our employees to thrive. We are investing resources into supporting the development of our leaders and our network of inclusion and equity focused councils and committees.

We must manage leadership development and succession planning throughout our business. We have had a number of other executive officers retire or otherwise depart our Company over the last several years and we continually evaluate our leadership structure. While we have employment agreements with our Chief Executive Officer and our Chief Financial Officer, we do not have employment agreements with other executives or personnel, and the employment agreements that we do have do not prevent our executives from voluntarily ceasing to work for us. To the extent that we lose experienced personnel, it is critical that we develop other employees, hire new qualified personnel, and successfully manage the transfer of critical knowledge. Management turnover and vacancies may negatively impact operations, morale, and our ability to execute. While we have processes in place for management transition and the transfer of knowledge, the loss of key personnel, coupled with an inability to adequately train other personnel, hire new personnel, or transfer knowledge, could significantly impact our business and results of operations. For example, during 2022, we had unexpected leadership departures at RU that we believe contributed to declines in enrollment at RU in 2022 and that had a negative impact on the first half of 2023 and overall fiscal 2023 results of operations.

While we continue to work to strengthen our management team and to attract and retain high-caliber talent, including through various human resources programs and what we believe are competitive market compensation and benefits practices, our efforts may not be successful. If we fail to attract new faculty, management, administrators, or skilled personnel or fail to retain, develop, and motivate our existing faculty, management, administrators, and skilled personnel, our institutions and our ability to serve our students, acquire new students, expand our programs, open new locations, make investments or acquisitions, and update or enhance our technology could be severely harmed, and changes in management could disrupt our business and cause uncertainty.

We may not achieve the anticipated benefits of our cost savings efforts, including reductions in force, and any savings may be offset by increased costs in other areas.

In the third quarter of 2023 we completed a reduction in force that resulted in the termination of 74 employees and the elimination of 57 open positions across a variety of roles and departments. The reduction in force is expected to result in pre-tax labor and benefit savings of approximately $15.5 million on an annualized basis. The headcount reductions reflect our ongoing

Furthermore, some of the anticipated savings may be offset by increases to wages and salaries and benefits necessary to remain competitive, or by additional hiring if we determine it is necessary. Reductions in force may also result in increased costs, as opposed to cost savings, including due to associated legal risks, and could distract management and employees. Headcount reductions, including together with previous headcount reductions, could also adversely affect employee morale and make it more difficult to hire and retain qualified personnel.

We have limited experience in making investments in other entities, and any such investments may not result in strategic benefits for our business or could expose us to other risks.

From time to time we may pursue strategic investments in or partnerships or joint ventures with other schools, service providers, education technology-related companies, and other types of entities. These types of investments involve significant challenges and risks, including that the investment does not advance our business strategy, that we do not realize a satisfactory return on our investment, that we acquire unknown liabilities, or that management’s attention is diverted from our core business, and expose us to the operating and financial risks of the entities in which we invest. We may not have the ability to control the policies, management, or affairs of entities in which we do not have sole control, which could negatively affect our ability to realize the strategic benefits of those investments. We may not realize strategic benefits from investments and as a result may be required to, and in the past have been required to, reduce the carrying value of investments. If we wish to dispose of an investment due to failure to realize benefits, underperformance, or otherwise, we may not be able to do so in a timely fashion or may have to sell at less than our carrying value, as we did in 2021 with our interest in an investment, initially invested in 2014, and in 2023 with our interest in an investment, initially invested in 2012, where the investee entered into an agreement to be sold which will result in no sales proceeds. Any of these events could harm our operating results or financial condition.

Our limited ability to obtain exclusive proprietary rights and protect our intellectual property, as well as disputes we may encounter from time to time with third parties regarding our use of their intellectual property, could harm our operations and prospects.

In the ordinary course of business, our institutions develop intellectual property of many kinds that is or will be the subject of patents, copyrights, trademarks, service marks, domain names, agreements, and other registrations. Our institutions rely on agreements under which we obtain rights to use course content developed by faculty members and other third-party content experts.

We cannot ensure that any measures we and our institutions take to protect our intellectual property or obtain rights to the intellectual property of others will be adequate, or that we have secured, or will be able to secure, appropriate protections for all of our institutions’ proprietary rights in the U.S. or foreign jurisdictions, or that third parties will not infringe upon or violate the proprietary rights of our institutions. Despite our efforts to protect these rights, third parties may attempt to develop competing programs or copy aspects of our institutions’ curriculum, online resource material, quality management, and other proprietary content. Any such attempt, if successful, could adversely affect our institutions’ business. Protecting these types of intellectual property rights can be difficult, particularly as it relates to the development by our institutions’ competitors of competing courses and programs.

Our institutions may encounter disputes from time to time over rights and obligations concerning intellectual property and may not prevail in these disputes. Third parties may raise a claim against our institutions alleging an infringement or violation of their intellectual property. Some third-party intellectual property rights may be extremely broad, and it may not be possible for our institutions to conduct operations in such a way as to avoid disputes regarding those intellectual property rights. Any such dispute could subject our institutions to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether that dispute has merit. Our insurance may not cover potential claims of this type adequately or at all, and our institutions may be required to alter the content of their courses or pay monetary damages, which may be significant.

We may incur liability for the unauthorized duplication or distribution of course materials posted online for course discussions.

In some instances, our institutions’ faculty members or students may post various articles or other third-party content online in course discussion boards or in other venues. The laws governing the fair use of these third-party materials are imprecise and adjudicated on a case-by-case basis, which makes it challenging to adopt and implement appropriately balanced institutional

We rely on dividends, distributions and other payments, advances, and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments.

We rely on dividends, distributions and other payments, advances, and transfers of funds from our operating subsidiaries to meet our obligations and to fund acquisitions and certain investments and generate all of our operating income through our subsidiaries. As a result, we rely on dividends and other payments or distributions from our operating subsidiaries to meet our obligations, including payments of principal and interest on our debt and dividends on our Series A Senior Preferred Stock, and to fund acquisitions and investments. The ability of our operating subsidiaries to pay dividends or to make distributions or other payments to us depends on their respective operating results and may be restricted by, among other things, the laws of their respective jurisdictions of organization, regulatory requirements such as obligations to maintain certain restricted cash or post letters of credit, financial performance, accreditation requirements, agreements entered into by those operating subsidiaries, and the covenants of any future obligations that we or our subsidiaries may incur. For example, due to financial performance, RU and HCN did not pay a dividend and GSUSA did not make a distribution to APEI in 2023. If our operating subsidiaries are unable to pay dividends or make other payments or distributions, and we are instead required to fund their operations, then our business, financial condition, and results of operations could be materially adversely impacted.

Legal proceedings, particularly class action lawsuits, may require human and financial resources, distract our management, and negatively affect our reputation and results of operations.

From time to time, we and our institutions have been and may be involved in various legal proceedings. In recent years, we have observed litigation brought against for-profit schools, including class actions brought by students and prospective students based on alleged misrepresentations about a school’s programs, “qui tam” lawsuits, and investigations by state attorneys general into for-profit postsecondary education institutions, which are described above under the heading “Risks Related to the Regulation of Our Industry”. Such matters can be time-consuming, require significant human and financial resources to investigate and respond to claims brought in any future litigation, and may divert management’s attention from operating our business. Furthermore, such matters are unpredictable and could lead to larger payments or liabilities, including adverse regulatory action, and, as a result, negatively affect our results of operations.

Risks Related to Our Technology Infrastructure

Our ongoing transition away from Collegis for outsourced RU marketing and information technology functions to a new provider may not be timely, efficient, or cost-effective, or may pose other operational challenges.

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 the contracts to expire by their terms on September 30, 2024. The marketing services contract was thereafter mutually terminated effective January 31, 2023. We have transitioned the marketing services and are in the midst of transitioning the information technology services currently outsourced to Collegis back to our operations or to one or more other third-party vendors by September 30, 2024. We expect to conduct the majority of information technology transition and incur most of the associated expenses in 2024. The transition has caused and will in the future cause us to incur additional expense related to transferring assets and services. The complexity and breadth of this insourcing creates inherent risks, including the risk of inefficiencies and significant disruption of typical information technology and business processes as new operations are coming online, a decrease in quality or speed of service as compared to the third-party provider, and unexpected additional expenses.

We need to continue to expend time, money, and resources into our and our institutions’ information technology, which may place a strain on our capacity that could adversely affect our systems, controls, and operating efficiency, and those of our institutions.

We need to invest capital, time, and resources to update our information technology, including our hardware and student-facing systems, in response to competitive pressures in the marketplace and student expectations, including data analytics, artificial intelligence, interactive and immersive user and learning experience technologies such as those that leverage virtual and augmented reality, multi-channel customer engagement, and robotic process automation, to update or replace older systems and infrastructure, and to enhance functionality. We have made investments to integrate the technology systems of RU and GSUSA and will likely have to make similar investments for any other business we may acquire in the future. The nature and age of our current information technology may limit our business opportunities, and our efforts to maintain and improve our information technology systems may not be successful, may cost more than expected, may increase our level of spending, not all of which can be capitalized, may take longer than expected or require us to devote more of our information technology resources than expected, or may otherwise adversely affect our financial condition. As a result, replacing outdated technology, software, or other technology related assets, we have in the past had and may in the future have assets that become impaired. We continually evaluate APUS’s customized student information and services system, PAD, for possible changes and upgrades and anticipate that we will eventually make significant changes to or replace that system, as well. In addition, failure to address poor data quality and integrity as well as a lack of consistency and standardization in defining, collecting, managing, using, and storing data may adversely affect our business and results of operations.

If we are unable to increase the capacity of our institutions’ technology resources or update their resources appropriately, their ability to handle future growth, to attract or retain students, and our financial condition and results of operations could be adversely affected. Similarly, even if we are able to increase the capacity of our institutions’ resources and update their resources appropriately, our financial condition and results of operations could be adversely affected by an increased level of spending.

Significant system disruptions to our online computer networks, technology infrastructure, or online classroom infrastructure, or to the networks, infrastructure, and systems of third parties, could negatively impact our ability to generate revenue and could damage our reputation, limiting our ability to attract and retain students.

The performance and reliability of our and our institutions’ networks and technology infrastructure, including those of third parties’ systems we use or rely on, is critical to our operations and our institutions’ reputation and ability to attract and retain students. Any system error or failure, including as a result of outages and other difficulties that may result from having or relying on outdated systems or infrastructure, or a sudden and significant increase in bandwidth usage, could interrupt our or our institutions’ ability to operate and could result in the unavailability of our online classrooms, preventing students from accessing their courses and adversely affecting our results of operations. In addition, our institutions’ technology infrastructure, and the technology infrastructure of our third-party vendors, could be vulnerable to interruption or malfunction due to events beyond our control, including natural disasters, cyber-attacks, terrorist activities, and telecommunications failures, as well as our own failure to fully develop or test our business continuity and disaster recovery plans.

At APUS, PAD has been predominantly developed in-house, with limited support from outside vendors. To the extent that we have utilized third-party vendors to provide certain software products for our systems, we have generally needed to integrate those products into, and ensure that they function with, PAD. We continuously work on upgrades to modernize the architecture of PAD, and our employees devote substantial time to its development and to the successful integration of third-party products into PAD. To the extent that we face system disruptions, malfunctions or vulnerabilities with PAD or the failure of PAD to meet internal or industry standards, or lose employees with experience on our systems, we may not have the capacity to address such disruptions, malfunctions, vulnerabilities, or failures or to continue to administer or make adequate modifications to PAD with our internal resources, and we may not be able to identify outside contractors with expertise relevant to our custom system.

We rely on third parties for certain information technology capabilities. We use third-party services such as cloud computing and software-as-a-service for certain aspects of our operations and are reliant on the capabilities of vendors for such functions. Vendors may take actions beyond our control that could adversely affect our access to the providers’ services, including discontinuing or limiting our access to their platforms or modifying or interpreting their terms of service or other policies in a manner that impacts our ability to run our business and operations. In addition, there is no assurance that we will be able to renew contracts with vendors that are subject to expiration or that such renewals will be on the same or substantially similar terms or on conditions that are commercially reasonable to us. Any transition of third-party services, whether to another vendor or directly to us or our institutions, could be difficult to implement and cause us to incur significant time and expense. Any significant downtime or other interruption or disruption of these services, whether due to cyber-attacks, other cybersecurity incidents, or other causes, could adversely impact our operations and our business.

Any significant interruption in the operation of our or our vendors’ data centers or server rooms could cause a loss of data. Even with redundancy, a significant interruption in the operation of these facilities or the loss of institutional and

We use external vendors to perform security assessments on a periodic basis to review and assess our information security. We utilize this information to audit ourselves, monitor the security of our technology infrastructure, and assess whether and how to prioritize the allocation of resources to protect data and systems. However, we cannot ensure that these security assessments and audits will identify or appropriately categorize all relevant risks or result in sufficient protection of our computer networks against cyber-attacks and security incidents. Similarly, although we require our third-party vendors contractually to maintain a level of security that is acceptable to us and work closely with vendors to address potential and actual security concerns and attacks, we cannot ensure that they will protect confidential, proprietary, personal, or otherwise sensitive information on their systems. Incidents at third-party vendors may also affect our network systems. System disruptions and security incidents affecting our online computer networks, technology infrastructure, or online classroom infrastructure, or to the networks, infrastructures and systems of third parties could have an adverse effect on our financial condition. While we may be entitled to damages if our third-party service providers fail to satisfy their security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award.

We face an ever-increasing number of threats to our computer networks systems, including unauthorized activity and access, malicious penetration, system viruses, ransomware, phishing, other malicious code and vulnerabilities in software and software code and cyber-attacks, including individual or organized cyber-attacks. Any of these threats could impact our security and disrupt our systems. These risks increase when we make changes to our network systems or implement new ones. Our size makes us a prominent target for hacking and other cyber-attacks within the education industry. From time to time we experience security events and incidents, and these reflect an increasing level of sophistication, organization, and innovation. We have

Failure to comply with privacy laws or regulations could have an adverse effect on our business.

Various federal, state, and international laws and regulations govern the collection, use, retention, sharing, and security of student and consumer data. These laws could be applied in a manner that results in costs, the imposition of fines and operational conditions on our business. For example, if an institution fails to comply with FERPA, ED may require corrective actions by the institution or may terminate an institution’s eligibility to participate in Title IV programs. Failure to comply with the applicable GLBA requirements may result in FTC enforcement, which could include the imposition of conditions, penalties, monitoring, and oversight. In addition, this area of the law and interpretations of applicable laws and regulations differ and are evolving. State and federal legislatures in the U.S. and countries globally have been enacting and considering new legislation. These evolving laws and interpretations are difficult to predict and could adversely impact our business, including by increasing compliance costs, by for example, restricting use or sharing of consumer data, including for marketing or advertising. The CCPA and related regulations is an example of a U.S. state law that imposes disclosure obligations on businesses for individuals’ personal information and affords those individuals rights relating to their personal information that may affect our ability to use personal information. The CCPA provides for penalties and includes a private right to action for certain data breaches. The CPRA expands the CCPA’s requirements and provides certain rights to consumers to correct personal information and limit its disclosure. Other comprehensive state privacy laws that our institutions may be subject to with varying requirements also came into effect in 2023. In addition, our institutions may be subject to the GDPR, which has extensive requirements relevant to businesses handling personal information about individuals in the EU. These laws’ applicability to us could result in substantial compliance costs or liabilities. Non-compliance with the GDPR could result in a fine for certain activities of up to 20 million Euros or 4% of an organization’s global annual revenue, whichever is higher, per violation. Claims of failure to comply with our institutions’ privacy policies or applicable laws or regulations could form the basis of governmental or private-party actions against us. Such claims and actions may cause damage to our institutions’ reputation and could have an adverse effect on our financial condition. The enactment of additional privacy and data security laws or amendments to existing laws could result in significant costs and require us to change some of our business practices.

Risks Related to Owning our Common Stock

The price of our common stock may be volatile, and as a result returns on an investment in our common stock may be volatile.

Trading in our common stock has historically been limited and, at times, volatile. An active trading market for our common stock may not be sustained, and the trading price of our common stock may fluctuate substantially. The price of our common stock may fluctuate as a result of some or all of the following:

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and monetary damages and could divert management’s attention and resources from our business, and our insurance may not be available or adequate to cover these claims.

Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock.

Our quarterly results fluctuate and, therefore, the results in any quarter may not represent the results we may achieve in any subsequent quarter or full year. Our revenue and results of operations normally fluctuate as a result of seasonal or other variations in our institutions’ enrollments and associated expenses. The student population at our institutions varies as a result of new enrollments, graduations, student attrition, increased military operations and deployments, the success of our marketing programs, and other reasons that we cannot always anticipate. We expect quarterly fluctuations in results of operations to continue as a result of seasonal enrollment patterns at our institutions and related fluctuations in expenses. These fluctuations may result in volatility in our results of operations, have an adverse effect on the market price of our common stock, or both.

We may face risks associated with stockholder activism.

Publicly traded companies are subject to campaigns by stockholders advocating corporate actions related to matters such as corporate governance, operational practices, and strategic direction. We have previously been subject to stockholder activity and demands and may be subject to further activity and demands in the future. Such activities could interfere with our ability to execute our business plans, be costly and time-consuming, disrupt our operations, and divert the attention of management, any of which could have an adverse effect on our business or the price of our common stock.

Cybersecurity Risk, Management, and Strategy

The performance, reliability, and security of the networks and technology infrastructure we use or rely on is critical to our operations, our institutions’ reputation, and our ability to attract and retain students. We have developed what we believe to be a robust cybersecurity program that incorporates a process of identifying and managing cybersecurity risks across the enterprise. As part of our cybersecurity risk management process, we identify risk by reviewing the elements within our technology stack and processes, including a full scan and identification process of all APEI’s digital and physical assets within the organization, covering hardware, software, data, and personnel. Assets are documented and assessed for their value, factoring in their significance and potential cost if compromised. We conduct a threat assessment for both internal (e.g., employees, contractors, etc.) and external (e.g., hackers, malware, etc.) cybersecurity threats, and we have established plans and actions to detect unauthorized activities. We engage third-party consultants to perform assessments, including annual penetration testing, and we maintain a risk register. The risk register includes documentation of identified risks, the potential impact and likelihood of occurrence, mitigation efforts and the required enterprise level response. Each of the identified risks is given a risk classification from low to high depending on the probability of occurrence and the severity of impact.

We also have an internal information technology audit team that routinely scans the environment and documents our compliance efforts with regulations and standards that govern our business, such as the Sarbanes-Oxley Act, the Payment Card Industry Data Security Standard (PCI-DSS), the Health Insurance Portability and Accountability Act, FERPA, and the Gramm-Leach-Bliley Act Safeguards Rule.

We strive to make sure that the entire company is up to date with their responsibility and understand the importance of their contributions to staying cyber secure through a robust training and education program. Employees and contractors are responsible for taking mandated cyber training on an annual basis. We also run phishing exercises on a routine basis to help ensure employees can recognize and report in appropriate activity and social engineering attempts.

We have a process of continuous improvement by incorporating lessons learned from attempted attacks and feedback from phishing exercises, among other learnings. We also have a third-party risk management process pursuant to which new and existing vendors undergo a structured review of their controls and systems, as well as a periodic review from our security team to help ensure vendors protect our data and systems. We seek to require our third-party vendors contractually to maintain a level of security that is acceptable to us.

We have not experienced any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or that we believe are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. We maintain specific insurance coverage to mitigate losses associated with certain cybersecurity incidents that impact our or our third parties’ information technology and information systems, but there can be no assurance that coverage would be adequate in relation to any incurred losses.

Our cybersecurity risk management process is a standalone process, but it is integrated with and informs our overall enterprise risk management program.

Cybersecurity Governance

Our cybersecurity program is overseen by the Chief Information Officer and Chief Information Security Officer. Both the Chief Information Officer and Chief Information Security Officer have extensive experience in running and managing a cybersecurity program both in civilian and government agencies.

We have established structured processes and mechanisms, including incident reporting and escalation, a comprehensive incident response plan, and communication plans, in the event a vulnerability is exploited or an attack is successful. These communication plans consist of internal reporting and communication, including to the Chief Information Officer and the Chief Information Security Officer, as well as external reporting, including notifying the proper agencies, management, and the Board of Directors. The Chief Information Officer and the Chief Information Security Officer report the risks from cybersecurity threats, the level of risk, and any material cybersecurity incidents to the Board of Directors, as well as annually review with the Board of Directors the budget, utilization of systems, processes, and controls in place to address cybersecurity risks and management. The Chief Information Officer and/or the Chief Information Security Officer update the Board of Directors no less than quarterly on material developments in these areas.

For more information on our information technology investments and their effects on our results of operations, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview,” and for more information regarding risks related to our information technology, refer to “Risk Factors – Risks Related to Our Technology Infrastructure.”

American Public Education, Inc., or APEI, and American Public University System, Inc. together operate administrative facilities in Charles Town, West Virginia, which also serve as our corporate headquarters. In Charles Town, we have six owned facilities totaling approximately 211,000 square feet. APEI’s administrative offices also include approximately 3,000 square feet of leased space in Baltimore, Maryland under a lease that expires in May 2024 and, beginning in February 2023, approximately 3,100 square feet of leased space in Fort Lauderdale, Florida under a lease that expires in January 2026.

Rasmussen University leases administrative office space in suburban Chicago, Illinois, Minneapolis, Minnesota, and Orlando, Florida, and leases 22 campuses located in six states. These administrative offices and campuses include a total of approximately 644,000 square feet combined. Lease terms and extension options vary by facility with expiration dates ranging from 2024 to 2033.

Hondros College of Nursing leases an administrative office located in suburban Columbus, Ohio, and leases eight campuses located in three states. This administrative office and campuses include approximately 206,000 square feet combined. Lease terms and extension options vary by facility with expiration dates ranging 2024 to 2032.

Graduate School USA leases classroom and administrative office space in Washington, D.C. and Honolulu, Hawaii with approximately 62,000 square feet combined, under operating leases that expire through 2036.

Not applicable.

We have not historically paid dividends on our common stock, and our credit agreement contains limitations on the payment of future dividends. The payment of any dividends on our common stock in the future will be at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, earnings, capital requirements, contractual restrictions, outstanding indebtedness, and other factors deemed relevant by our Board.

Performance Graph

The graph below compares the cumulative five-year total return of holders of American Public Education, Inc.’s common stock with the cumulative total returns of the S&P 500 index, the Nasdaq Composite index, a customized peer group of six companies that includes Adtalem Global Education Inc., Grand Canyon Education Inc., Perdoceo Education Corp (formerly known as Career Education Corporation), Strategic Education Inc., Lincoln Educational Services Corporation, and Universal Technical Institute, Inc. The graph assumes that the value of the investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 31, 2018, and tracks the value of those investments, respectively, through December 31, 2023.

    

The stock price performance included in the graph and table above is not necessarily indicative of future stock price performance.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of shares of our common stock, and on December 5, 2019, our Board approved an additional authorization to repurchase up to $25.0 million of shares of our common stock. On March 16, 2023, our Board of Directors confirmed the availability under the 2019 share repurchase program to repurchase up to approximately $8.0 million of shares of our common stock. We fully expended this $8.0 million as of April 30, 2023, and repurchased a total of 1,335,357 shares of our common stock. On November 27, 2023, the Board of Directors authorized a new program to repurchase up to an additional $10.0 million of shares of our common stock. In the fourth quarter, we repurchased 180,409 shares of our common stock under this authorization for an aggregate purchase amount of $1.6 million. In the aggregate, in 2023 we repurchased 1,515,766 shares of our common stock for $9.7 million. In January 2024, we repurchased 251,146 shares of our common stock for an aggregate purchase amount of $2.8 million.

Subject to market conditions, applicable legal requirements, and other factors, repurchases may be made from time to time in the open market or in privately negotiated transactions. The authorization does not obligate us to acquire any shares, and purchases may be commenced or suspended at any time based on market conditions and other factors as we deem appropriate.

As of December 31, 2023, approximately $8.8 million remained available under the current purchase authorization. Our credit agreement includes restrictions on our ability to repurchase our common stock, and the terms of our Series A Senior Preferred Stock require the consent of the holders of at least 60% of the then outstanding shares of our Series A Senior Preferred Stock in order for us to repurchase more than $30.0 million of our common stock in the aggregate. Effective February 1, 2024, we ceased purchases under this purchase authorization.

The following table presents our share repurchases during the three months ended December 31, 2023. For additional information regarding our share repurchases please refer to “Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 12. Stockholders’ Equity – Repurchase”.

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.

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.

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”.

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.

    

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.

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”.

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

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.

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

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.

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.

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.

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

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

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.

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.

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.

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

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, 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.

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.

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

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

Market Risk

We had no material derivative financial instruments or derivative commodity instruments as of December 31, 2023. We maintain our cash and cash equivalents in bank deposit accounts, money market funds, and short-term U.S. Treasury bills. The bank deposits exceed federally insured limits. We have historically not experienced any losses in such accounts. We believe we are not exposed to any significant credit risk on cash and cash equivalents. Due to the short-term duration of our investment portfolio, the low yield on the portfolio, and the low risk profile of our investments, a 10% increase or decrease in interest rates would not have a material impact on the fair value of our portfolio.

Interest Rate Risk

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Basis for Opinion

Critical Audit Matter

Goodwill and Intangible Assets — Rasmussen University Reporting Unit — Refer to Notes 2 and 7 to the financial statements.

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Balance Sheets