AMERICAN PUBLIC EDUCATION INC (Form: 10-Q, Received: 11/09/2020 16:07:26)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
						SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
						SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-33810

AMERICAN PUBLIC EDUCATION, INC.

(Exact name of registrant as specified in its charter)


Delaware			01-0724376
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

111 West Congress Street, Charles Town, West Virginia			25414
(Address of principal executive offices)			(Zip Code)

(304) 724-3700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

APEI

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The total number of shares of common stock outstanding as of November 6, 2020 was 14,809,172.

AMERICAN PUBLIC EDUCATION, INC.

FORM 10-Q

INDEX



			Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures			32


PART II – OTHER INFORMATION


Item 1. Legal Proceedings			33
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			39
Item 4. Mine Safety Disclosures			39
Item 5. Other Information			39
Item 6. Exhibits			40

SIGNATURES			41

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Balance Sheets

(In thousands)


	As of September 30, 2020		As of December 31, 2019
ASSETS	(Unaudited)
Current assets:
Cash, cash equivalents, and restricted cash (Note 2)	$	228,009	$	202,740
Accounts receivable, net of allowance of $5,805 in 2020 and $6,174 in 2019	9,560		11,325
Prepaid expenses	7,563		7,087
Income tax receivable	2,500		1,757
Total current assets	247,632		222,909
Property and equipment, net	70,930		78,495
Operating lease assets, net	9,377		11,658
Investments	10,500		10,502
Goodwill	26,563		26,563
Other assets, net	5,197		4,770
Total assets	$	370,199	$	354,897

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,489	$	3,546
Accrued compensation and benefits	16,784		13,753
Accrued liabilities	10,555		8,270
Deferred revenue and student deposits	25,491		17,426

Operating lease liabilities, current	2,474		2,283
Total current liabilities	59,793		45,278
Operating lease liabilities, long-term	6,997		9,495
Deferred income taxes	5,365		3,391
Total liabilities	72,155		58,164

Commitments and contingencies (Note 7)

Stockholders’ equity:
Preferred stock, $.01 par value; Authorized shares - 10,000; no shares issued or outstanding	—		—
Common stock, $.01 par value; Authorized shares - 100,000; 14,809 issued and outstanding in 2020; 15,178 issued and outstanding in 2019	148		152
Additional paid-in capital	193,787		190,620
Retained earnings	104,109		105,961
Total stockholders’ equity	298,044		296,733
Total liabilities and stockholders’ equity	$	370,199	$	354,897

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

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Income

(In thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Revenue	$	79,133	$	67,888	$	235,876	$	211,889
Costs and expenses:
Instructional costs and services	31,084		27,268		91,058		83,908
Selling and promotional	18,523		15,873		53,765		45,007
General and administrative	22,574		22,021		65,314		59,209
Loss on disposals of long-lived assets	418		394		742		524
Impairment of goodwill	—		1,481		—		7,336
Depreciation and amortization	3,226		3,764		9,955		11,758
Total costs and expenses	75,825		70,801		220,834		207,742
Income (loss) from operations before interest income and income taxes	3,308		(2,913)		15,042		4,147
Interest income, net	121		1,019		1,002		3,207
Income (loss) before income taxes	3,429		(1,894)		16,044		7,354
Income tax expense (benefit)	785		(239)		4,291		1,596
Equity investment income (loss)	(2)		17		(2)		(1,464)
Net income (loss)	$	2,642	$	(1,638)	$	11,751	$	4,294

Net income (loss) per common share:
Basic	$	0.18	$	(0.10)	$	0.79	$	0.26
Diluted	$	0.18	$	(0.10)	$	0.78	$	0.26
Weighted average number of common shares:
Basic	14,797		15,967		14,870		16,335
Diluted	15,011		16,121		15,021		16,487

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

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)


				Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance as of December 31, 2018	16,425	$	164	$	187,172	$	133,930	$	321,266
Issuance of common stock under employee benefit plans	252	3		(3)		—		—
Deemed repurchased shares of common and restricted stock for tax withholding	(83)	(1)		(2,509)		—		(2,510)
Stock-based compensation	—	—		5,031		—		5,031
Repurchased and retired shares of common stock	(966)	(10)		—		(27,293)		(27,303)
Net income	—	—		—		4,294		4,294
Balance as of September 30, 2019	15,628	$	156	$	189,691	$	110,931	$	300,778


				Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity
	Common Stock
	Shares	Amount
Balance as of December 31, 2019	15,178	$	152	$	190,620	$	105,961	$	296,733
Issuance of common stock under employee benefit plans	258	2		(2)		—		—
Deemed repurchased shares of common and restricted stock for tax withholding	(79)	(1)		(2,096)		—		(2,097)
Stock-based compensation	—	—		5,265		—		5,265
Repurchased and retired shares of common stock	(548)	(5)		—		(13,603)		(13,608)
Net income	—	—		—		11,751		11,751
Balance as of September 30, 2020	14,809	$	148	$	193,787	$	104,109	$	298,044

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

AMERICAN PUBLIC EDUCATION, INC.

Consolidated Statements of Cash Flows

(In thousands)


	Nine Months Ended September 30,
	2020		2019
	(Unaudited)
Operating activities
Net income	$	11,751	$	4,294
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,955		11,758
Stock-based compensation	5,265		5,031
Equity investment loss	2		1,464
Deferred income taxes	1,974		599
Loss on disposals of long-lived assets	742		524
Impairment of goodwill	—		7,336
Other	24		83
Changes in operating assets and liabilities:
Accounts receivable, net of allowance for bad debt	1,765		6,117
Prepaid expenses	(807)		(832)
Income tax receivable/payable	(743)		(4,751)
Operating leases, net	(26)		361
Other assets	(427)		303
Accounts payable	943		(5,145)
Accrued compensation and benefits	3,031		(1,909)
Accrued liabilities	3,219		4,405
Deferred revenue and student deposits	8,065		2,298
Net cash provided by operating activities	44,733		31,936
Investing activities
Capital expenditures	(4,171)		(4,151)
Proceeds from the sale of real property	412		—
Net cash used in investing activities	(3,759)		(4,151)
Financing activities
Cash paid for repurchase of common stock	(15,705)		(29,813)
Net cash used in financing activities	(15,705)		(29,813)
Net increase (decrease) in cash, cash equivalents, and restricted cash	25,269		(2,028)
Cash, cash equivalents, and restricted cash at beginning of period	202,740		212,131
Cash, cash equivalents, and restricted cash at end of period	$	228,009	$	210,103

Supplemental disclosure of cash flow information
Income taxes paid	$	3,062	$	5,749

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

AMERICAN PUBLIC EDUCATION, INC.

Notes to Consolidated Financial Statements

Note 1. Nature of the Business

American Public Education, Inc., or APEI, which together with its subsidiaries is referred to as the “Company,” is a provider of online and campus-based postsecondary education to approximately 88,300 students through two subsidiary institutions:

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

•National Education Seminars, Inc., which is referred to herein as Hondros College of Nursing, or HCN, provides nursing education to students enrolled at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of the nursing and healthcare communities. HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES. In March 2020, in response to the novel coronavirus COVID-19 global pandemic, HCN, leveraging the expertise of APUS, shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. There can be no assurance that HCN will not need to again further limit campus interactions or close its campuses in response to the COVID-19 pandemic or as a result of location regulations.

The Company’s institutions are licensed or otherwise authorized, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs by state authorities to the extent the institutions believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

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

•American Public Education Segment, or APEI Segment. This segment reflects the operational activities at APUS, other corporate activities, and minority investments.

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Accounting

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

Principles of Consolidation

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

Unaudited Interim Financial Information

The unaudited interim Consolidated Financial Statements do not include all of the information and notes required by GAAP for audited annual financial statement presentations. In the opinion of management, these statements include all adjustments (consisting of normal recurring adjustments) considered necessary to present a fair statement of the Company’s financial position, results of operations, and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and accompanying notes in its audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, or the Annual Report.

Use of Estimates

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

Restricted Cash

Cash, cash equivalents, and restricted cash includes funds held for students for unbilled educational services that were received from Title IV programs. The Company is required to maintain and restrict these funds pursuant to the terms of the applicable institution’s program participation agreement with the U.S. Department of Education. Restricted cash on the Company’s Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 was $1.6 million and $1.3 million, respectively.

Investments

The Company periodically evaluates its equity method investment for indicators of an other-than-temporary impairment. Factors the Company considers when evaluating for an other-than-temporary impairment include the duration and severity of the impairment, the reasons for the decline in value, and the potential recovery period. For an investee with impairment indicators, the Company measures fair value on the basis of discounted cash flows or other appropriate valuation methods. If it is probable that the Company will not recover the carrying amount of the investment, the impairment is considered other-than-temporary and recorded in equity investment income (loss), and the equity investment balance is reduced to fair value.

Each reporting period the Company evaluates its cost method investments for observable price changes. Factors the Company may consider when evaluating an observable price may include significant changes in the regulatory, economic or technological environment, changes in the general market condition, bona fide offers to purchase or sell similar investments, and other criteria.

Management must exercise significant judgment in evaluating the potential impairment of its equity investments.

The Company evaluated its equity method and cost method investments for impairment as of September 30, 2020, including a review of any impacts related to the COVID-19 pandemic, and determined none of the investments were impaired.

Goodwill and Indefinite-lived Intangible Assets

The Company evaluated events and circumstances related to the valuation of goodwill through September 30, 2020 to determine if there were indicators of impairment. This evaluation included consideration of enrollment trends and financial performance, as well as industry and market conditions, and the impact of the COVID-19 pandemic. This evaluation concluded there were no indicators of impairment during the period, and consequently, there was no impairment during the three and nine months ended September 30, 2020.

During the three months ended March 31, 2019 and September 30, 2019, the Company completed an interim goodwill impairment test as a result of circumstances that included HCN’s underperformance against 2019 internal targets and overall 2019 financial performance. During the three months ended March 31, 2019, the implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $28.0 million, or $5.9 million less than its carrying value. During the three months ended September 30, 2019, the implied fair value of goodwill was calculated and compared to the recorded goodwill, and the Company determined the fair value of goodwill was $26.6 million, or $1.5 million less than its carrying value. As a result, the Company recorded pre-tax, non-cash impairments of $5.9 million and $1.5 million during the three months ended March 31, 2019 and September 30, 2019, respectively, to reduce the carrying value of its goodwill. There was no impairment of the intangible assets in either period.

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

Stock-based Compensation

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

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

On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. 2017 Omnibus Plan, or the 2017 Plan, to increase the number of shares available for issuance thereunder by 1,425,000 and to extend the term of the 2017 Plan to May 15, 2030, as well as to clarify limitations on repricing.

Stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Instructional costs and services	$	343	$	404	$	1,223	$	1,213
Selling and promotional	252		207		729		600
General and administrative	1,347		1,101		3,313		3,218
Stock-based compensation expense in operating income	$	1,942	$	1,712	$	5,265	$	5,031

Incentive-based Compensation

The Company provides incentive-based compensation opportunities to certain employees through cash incentive and equity awards. The expense associated with these awards is reflected within the Company’s operating expenses. For the years ending December 31, 2020 and 2019, the Management Development and Compensation Committee of the Company’s Board of Directors approved an annual incentive arrangement for senior management employees. The aggregate amount of any awards payable is dependent upon the achievement of certain Company financial and operational goals, as well as individual performance goals. Given that the awards are generally contingent upon achieving annual objectives, final determination of the current year incentive awards cannot be made until after the results for the year are finalized. The Company recognizes the estimated fair value of performance-based restricted stock units by assuming the satisfaction of any performance-based objectives at the “target” level, which is the most probable outcome determined for accounting purposes at the time of grant, and multiplying the corresponding number of shares earned based upon such achievement by the closing price of the Company’s stock on the date of grant. To the extent performance goals are not met, compensation cost is not ultimately recognized against the goals and, to the extent previously recognized, compensation cost is reversed. Amounts accrued are subject to change in future interim periods if actual future financial results or operational performance are better or worse than expected. The Company recognized an aggregate expense associated with the Company’s current year annual incentive-based compensation plans of approximately $2.1 million and $5.1 million during the three and nine month periods ended September 30, 2020, respectively, compared to an aggregate expense of $0.9 million and $2.2 million during the three and nine month periods ended September 30, 2019, respectively.

Other Employee Benefits

On May 15, 2020, the Company’s stockholders approved an amendment to the American Public Education, Inc. Employee Stock Purchase Plan, or ESPP, to increase the number of shares of the Company’s common stock available for issuance under the plan by 100,000 shares and extend the term of the ESPP to May 15, 2030. As of September 30, 2020, 102,073 shares remained available for purchase under the ESPP, including the 100,000 additional shares reserved under the plan following the stockholder approval.

Income Taxes

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

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-13, Financial Instruments - Credit Losses, which is included in Accounting Standards Codification, or ASC, Topic 326, Measurement of Credit Losses on Financial Instruments with certain amendments made to the standard in November 2018 through ASU No. 2018-9, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. The new guidance revises the accounting requirements related to the measurement of credit losses and requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions, and reasonable and supportable forecasts about collectability. Assets must be presented in the financial statements at the net amount expected to be collected. The guidance is effective for the fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The adoption of this standard was effective January 1, 2020 and did not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or software licenses. The accounting for the service element of a hosting arrangement that is a service contract is not affected by this amendment. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted. The Company adopted this standard effective January 1, 2020 using the prospective approach. The adoption of this standard did not have a material impact on the Company’s Consolidated Financial Statements.

The Company considers the applicability and impact of all ASUs issued by the FASB. All other ASUs issued subsequent to the filing of the Annual Report on March 10, 2020 were assessed and determined to be either inapplicable or not expected to have a material impact on the Company’s consolidated financial position and/or results of operations.

Note 3. Revenue

Disaggregation of Revenue

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


	Three Months Ended September 30, 2020
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	69,010	$	7,977	$	(18)	$	76,969
Graduation fees	400		—		—		400
Textbook and other course materials	—		1,411		—		1,411
Other fees	200		153		—		353
Total Revenue	$	69,610	$	9,541	$	(18)	$	79,133


	Three Months Ended September 30, 2019
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	60,668	$	5,722	$	(25)	$	66,365
Graduation fees	352		—		—		352
Textbook and other course materials	—		854		—		854
Other fees	197		120		—		317
Total Revenue	$	61,217	$	6,696	$	(25)	$	67,888


	Nine Months Ended September 30, 2020
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	208,648	$	21,636	$	(57)	$	230,227
Graduation fees	1,001		—		—		1,001
Textbook and other course materials	—		3,634		—		3,634
Other fees	602		412		—		1,014
Total Revenue	$	210,251	$	25,682	$	(57)	$	235,876


	Nine Months Ended September 30, 2019
	(Unaudited)
	APEI		HCN		Intersegment		Consolidated
Instructional services, net of grants and scholarships	$	188,839	$	18,735	$	(81)	$	207,493
Graduation fees	936		—		—		936
Textbook and other course materials	—		2,515		—		2,515
Other fees	611		334		—		945
Total Revenue	$	190,386	$	21,584	$	(81)	$	211,889

The APEI Segment charges the HCN Segment for the value of courses taken by HCN Segment employees at APUS. The intersegment elimination represents the elimination of this intersegment revenue in consolidation.

Contract Balances and Performance Obligations

The Company has no contract assets or deferred contract costs as of September 30, 2020 and December 31, 2019.

The Company recognizes a contract liability, or deferred revenue, when a student begins an online course or term, in the case of APUS, or starts a term, in the case of HCN. Deferred revenue at September 30, 2020 was $25.5 million and includes $17.0 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $8.5 million in consideration received in advance for future courses or terms, or student deposits. Deferred revenue at December 31, 2019 was $17.4 million and includes $9.6 million in future revenue that has not yet been earned for courses and terms that are in progress, as well as $7.8 million in student deposits. Deferred revenue represents the Company’s performance obligation to transfer future instructional services to students. The Company’s remaining performance obligations represent the transaction price allocated to future reporting periods.

The Company has elected, as a practical expedient, not to disclose additional information about unsatisfied performance obligations for contracts with customers that have an expected duration of one year or less.

When the Company begins performing its obligations, a contract receivable is created, resulting in accounts receivable on the Company’s Consolidated Balance Sheets. The Company accounts for receivables in accordance with FASB ASC 310, Receivables. The Company uses the portfolio approach, a practical expedient, to evaluate if a contract exists and to assess collectability at the time of contract inception based on historical experience. Contracts are subsequently reviewed for collectability if significant events or circumstances indicate a change.

The allowance for doubtful accounts is based on management’s evaluation of the status of existing accounts receivable. Among other factors, management considers the age of the receivable, the anticipated source of payment, and historical allowance considerations. Consideration is also given to any specific known risk areas among the existing accounts receivable balances. Recoveries of receivables previously written off are recorded when received. APUS does not charge interest on past due accounts receivable. HCN charges interest on payment plans when a student leaves upon graduation or exit of the program. Interest income earned on open receivables during the three and nine months ended September 30, 2020 was approximately $4,900 and $13,520, respectively, compared to interest income of approximately $3,200 and $11,400 earned during the three and nine months ended September 30, 2019, respectively.

For the three and nine months ended September 30, 2020, there were no material adverse impacts to revenue, deferred revenue, or accounts receivable due to the COVID-19 pandemic.

Note 4. Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The APEI Segment leases corporate and administrative office space in Maryland and Virginia under operating leases that expire through May 2022. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses, located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo, Ohio, and, beginning in April 2020, Indianapolis, Indiana, under operating leases that expire through June 2029.

Operating lease assets are right of use, or ROU, assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the Operating lease assets, net, and Operating lease liabilities, current and long-term, on the Consolidated Balance Sheets. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three and nine month periods ended September 30, 2020 was $0.7 million and $2.2 million, respectively, compared to $0.6 million and $1.9 million for the three and nine month periods ended September 30, 2019, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2020 was $0.7 million and $2.2 million, respectively, and is included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities during the three and nine month periods ended September 30, 2019 was $0.6 million and $1.8 million, respectively, and is included in operating cash flows.

The following tables present information about the amount and timing of cash flows arising from the Company’s operating leases as of September 30, 2020 (dollars in thousands):


Maturity of Lease Liabilities (Unaudited)	Lease Payments
2020 (remaining)	$	741
2021	2,791
2022	2,465
2023	1,709
2024	928
2025	498
2026 and beyond	1,742
Total future minimum lease payments	10,874
Less imputed interest	(1,403)
Present value of operating lease liabilities	$	9,471


Balance Sheet Classification (Unaudited)
Operating lease liabilities, current	$	2,474
Operating lease liabilities, long-term	6,997
Total operating lease liabilities	$	9,471


Other Information (Unaudited)
Weighted average remaining lease term (in years)	5.03
Weighted average discount rate	5.1	%

Note 5. Net Income Per Common Share

Basic net income per common share is based on the weighted average number of shares of common stock outstanding during the period. Diluted net income per common share increases the shares used in the per share calculation by the dilutive effects of restricted stock awards. The table below reflects the calculation of the weighted average number of common shares outstanding, on an as if converted basis, used in computing basic and diluted net income per common share (in thousands).


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(Unaudited)		(Unaudited)
Basic weighted average shares outstanding	14,797	15,967	14,870	16,335
Effect of dilutive restricted stock	214	154	151	152
Diluted weighted average shares outstanding	15,011	16,121	15,021	16,487

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


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
	(Unaudited)		(Unaudited)
Antidilutive securities:
Stock Options	60,504	—	60,504	—
Restricted Shares	15,733	12,774	48,434	37,738
Total antidilutive securities	76,237	12,774	108,938	37,738

Note 6. Segment Information

The Company has two operating segments that are managed in the following reportable segments:

•American Public Education Segment, or APEI Segment; and

•Hondros College of Nursing Segment, or HCN Segment.

In accordance with FASB ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Company’s Chief Executive Officer. The Company’s Chief Executive Officer reviews operating results to make decisions about allocating resources and assessing performance for the APEI and HCN Segments.

A summary of financial information by reportable segment is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Revenue:
American Public Education Segment	$	69,610	$	61,217	$	210,251	$	190,386
Hondros College of Nursing Segment	9,541		6,696		25,682		21,584
Intersegment elimination	(18)		(25)		(57)		(81)
Total Revenue	$	79,133	$	67,888	235,876		$	211,889
Depreciation and amortization:
American Public Education Segment	$	3,067	$	3,525	$	9,482	$	10,995
Hondros College of Nursing Segment	159		239		473		763
Total Depreciation and amortization	$	3,226	$	3,764	9,955		$	11,758
Income (loss) from operations before interest income and income taxes:
American Public Education Segment	$	2,840	$	247	$	15,495	$	14,358
Hondros College of Nursing Segment	466		(3,158)		(455)		(10,214)
Intersegment elimination	2		(2)		2		3
Total income from operations before interest income and income taxes	$	3,308	$	(2,913)	15,042		$	4,147
Interest income, net:
American Public Education Segment	$	119	$	1,006	986		$	3,176
Hondros College of Nursing Segment	2		13		16		31
Total Interest income, net	$	121	$	1,019	1,002		$	3,207
Income tax expense (benefit):
American Public Education Segment	$	655	$	1,368	4,407		$	5,166
Hondros College of Nursing Segment	130		(1,607)		(116)		(3,570)
Total Income tax expense (benefit)	$	785	$	(239)	4,291		$	1,596
Capital expenditures:
American Public Education Segment	$	1,271	$	1,034	$	4,015	$	3,608
Hondros College of Nursing Segment	7		160		156		543
Total Capital expenditures	$	1,278	$	1,194	4,171		$	4,151

A summary of the Company’s consolidated assets by reportable segment is as follows (in thousands):


	As of September 30, 2020		As of December 31, 2019
	(Unaudited)
Assets:
American Public Education Segment	$	320,446	$	305,896
Hondros College of Nursing Segment	49,753		49,001
Total Assets	$	370,199	$	354,897

Note 7. Commitments and Contingencies

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

From time to time the Company may be involved in legal matters in the normal course of its business.

Note 8. Concentration

APUS students utilize various payment sources and programs to finance their educational expenses, including funds from: Department of Defense, or DoD, tuition assistance programs; education benefit programs administered by the U.S. Department of Veterans Affairs, or VA; and federal student aid from Title IV programs; as well as cash and other sources. Reductions in or changes to DoD tuition assistance, VA education benefits, Title IV programs, and other payment sources could have a significant impact on the Company’s operations. As of September 30, 2020, approximately 60% of APUS students self-reported that they served in the military on active duty at the time of initial enrollment. Active duty military students generally take fewer courses per year on average than non-military students.

A summary of APEI Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2020 and 2019 is included in the table below (unaudited):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
DoD tuition assistance programs	41%	35%	42%	38%
VA education benefits	22%	24%	22%	23%
Title IV programs	22%	26%	22%	25%
Cash and other sources	15%	15%	14%	14%

A summary of HCN Segment revenue derived from students by primary funding source for the three and nine month periods ended September 30, 2020 and 2019 is included in the table below (unaudited):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Title IV programs	81%	83%	82%	81%
Cash and other sources	17%	14%	16%	17%
VA education benefits	2%	3%	2%	2%

Note 9. Subsequent Events

On October 28, 2020, the Company entered into a definitive agreement to acquire Rasmussen University, a nursing- and health sciences-focused institution serving over 18,000 students at its 24 campuses across six states and online. Pursuant to the terms of a Membership Interest Purchase Agreement (the “Rasmussen Agreement”) with FAH Education, LLC (“Seller”), Rasmussen, LLC (“Rasmussen”) and Rasmussen College, LLC (together with Rasmussen, the “Acquired Companies”), a wholly owned subsidiary of Rasmussen, the Company agreed to purchase from Seller all of the units of membership interests in Rasmussen (the “Rasmussen Acquisition”) for $300 million in cash consideration and $29 million in shares of a new series of non-voting preferred stock of the Company to be issued at the closing of the Rasmussen Acquisition (the “Closing”) (or, at the Company’s election, up to an additional $29 million in cash in lieu thereof), subject to customary adjustments, including for net working capital, cash and debt of the Acquired Companies prior to the Closing. The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions that include, among others, regulatory review by the U.S. Department of Education, approval by the Higher Learning Commission, and approval by or notices to other regulatory and accrediting bodies.

In connection with entering into the Rasmussen Agreement, on October 28, 2020, the Company entered into a senior secured credit facilities commitment letter (the “Commitment Letter”) with Macquarie Capital (USA) Inc. (“Macquarie Capital”) and Macquarie Capital Funding LLC (“Macquarie Lender”), pursuant to which Macquarie Lender committed to provide (i) a senior secured term loan facility in the aggregate principal amount of $175 million (the “Term Facility”) and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million (together with the Term Facility, the “Facilities”). Macquarie Capital will act as lead arranger and bookrunner with respect to the Facilities. The Company currently expects to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In this Quarterly Report on Form 10-Q, or Quarterly Report, “we,” “our,” “us,” “the Company” and similar terms refer to American Public Education, Inc., or “APEI,” and its subsidiary institutions collectively unless the context indicates otherwise. The following discussion of our historical results of operations and our liquidity and capital resources should be read in conjunction with the Consolidated Financial Statements and related notes that appear elsewhere in this Quarterly Report and the audited financial information and related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, or our Annual Report.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements intended to be covered by the safe harbor provisions for forward-looking statements in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events, conditions, circumstances, or outcomes to identify these forward-looking statements. Forward-looking statements in this Quarterly Report include, without limitation, statements regarding:

•our proposed acquisition of Rasmussen University;

•changes to and expectations regarding our student enrollments, net course registrations, and the composition of our student body;

•our ability to maintain, develop, and grow our technology infrastructure to support our student body;

•our conversion of prospective students to enrolled students and our retention of active students;

•our ability to update and expand the content of existing programs and develop new programs to meet emerging student needs and marketplace demands, and our ability to do so in a cost-effective manner or on a timely basis;

•our plans for, marketing of, and initiatives at, our institutions;

•our ability to leverage our investments in support of our initiatives, students, and institutions;

•our maintenance and expansion of our relationships and partnerships and the development of new relationships and partnerships;

•actions by the Department of Defense or branches of the United States Armed Forces;

•federal appropriations and other budgetary matters, including government shutdowns;

•changes in and our ability to comply with the extensive regulatory framework applicable to our industry, as well as state law and regulations and accrediting agency requirements;

•our ability to undertake initiatives to improve the learning experience and attract students who are likely to persist;

•the competitive environment in which we operate;

•our cash needs and expectations regarding cash flow from operations;

•our ability to manage and influence our bad debt expense;

•our ability to manage, grow, and diversify our business and execute our business initiatives and strategy;

•our expectations regarding the effects of and our response to the COVID-19 pandemic, including our ability to successfully shift to blended in person and online learning at HCN, impacts on business operations and our financial results, and our ability to take advantage of emergency relief and to comply with related regulations; and

•our financial performance generally.

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 factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. Risks and uncertainties involved in forward-looking statements include, among others:

•the effects, duration and severity of the ongoing COVID-19 pandemic and the actions we have taken or may take in response, particularly at HCN and as a result of working remotely;

•our dependence on the effectiveness of our ability to attract students who persist in our institutions’ programs;

•our inability to effectively market our programs;

•adverse effects of changes our institutions make to improve the student experience and enhance their ability to identify and enroll students who are likely to succeed;

•our inability to maintain strong relationships with the military and maintain enrollments from military students;

•our failure to comply with regulatory and accrediting agency requirements or to maintain institutional accreditation;

•our loss of eligibility to participate in Title IV programs or ability to process Title IV financial aid;

•our need to successfully adjust to future market demands by updating existing programs and developing new programs;

•our dependence on and need to continue to invest in our technology infrastructure; and

•risks related to the acquisition of Rasmussen University, including:

◦satisfaction of closing conditions, including the failure to obtain or delay in obtaining required regulatory and accreditor approvals;

◦our reliance on a debt commitment letter, or alternative financing, to fund a portion of the purchase price for the acquisition;

◦the significant transaction and integration costs we have incurred and expect to incur in connection with the acquisition;

◦risks related to the integration of Rasmussen’s business and our ability to realize the expected benefits of the acquisition; and

◦that Rasmussen may have liabilities that are not known to us.

Forward-looking statements should be considered in light of these factors and the factors described elsewhere in this Quarterly Report, including in the “Risk Factors” section, in the “Risk Factors” section of our Annual Report, and in our various filings with the Securities and Exchange Commission, or the SEC. It is important that you read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report. If any of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. You should also read the more detailed description of our business in our Annual Report when considering forward-looking statements. We caution readers not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to publicly update any forward-looking statements except as required by law.

Overview

Background

We are a provider of online and on-campus postsecondary education to approximately 88,300 students through two subsidiary institutions. Our subsidiary institutions offer programs designed to prepare individuals for productive contributions to their professions and society, and to offer opportunities that may advance students in their current professions or help them prepare for their next career. Our subsidiary institutions are licensed or otherwise authorized by state authorities, or are in the process of obtaining such licenses or authorizations, to offer postsecondary education programs to the extent the institutions

believe such licenses or authorizations are required, and are certified by the United States Department of Education, or ED, to participate in student financial aid programs authorized under Title IV of the Higher Education Act of 1965, as amended, or Title IV programs.

On March 11, 2020, the World Health Organization declared the novel coronavirus COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The pandemic did not materially impact our results of operations during the nine month period ended September 30, 2020. However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain. For example, in March 2020, we implemented our business continuity plans and employees transitioned to a remote workforce, and HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. In October 2020, HCN began temporarily expanding certain campuses through short-term leases of additional space to be used as lab space in order to accommodate student demand in compliance with COVID-related public health measures that effectively limit the number of students in each lab class. Ongoing and future impacts of the COVID-19 pandemic may cause additional disruption of educational services provided to our students, cause a disruption in revenue, lead to increased absenteeism in our workforce, increase costs for HCN to continue to deliver courses in person and online, be considered a triggering event to evaluate the value of HCN goodwill, lead to an impairment of APEI investments, impact the recoverability of receivables, and lead to an increase in bad debt expense and cohort default rates, among other impacts. For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly Report.

Our wholly-owned operating subsidiary institutions include the following:

•American Public University System, Inc., or APUS, which provides online postsecondary education to approximately 86,300 adult learners. APUS is an accredited university system with a history of serving the academic needs of the military, military-affiliated, public service and service-minded communities through two brands: American Military University, or AMU, and American Public University, or APU.

APUS offers 129 degree programs and 112 certificate programs in diverse fields of study, with a particular focus on those relevant to today’s job market and emerging fields. Fields of study include traditional academics, such as business administration, health science, technology, criminal justice, education and liberal arts, as well as public service-focused fields of study such as national security, military studies, intelligence, and homeland security. APUS has institutional accreditation from the Higher Learning Commission, or HLC, and several of its academic programs have specialized accreditation granted by industry governing organizations.

On June 30, 2020, we entered into an Amendment to Amended and Restated Employment Agreement, or the Amendment, with Dr. Wallace E. Boston, the President of APUS. The Amendment amended Dr. Boston’s Amended and Restated Employment Agreement, which had contemplated that Dr. Boston would retire as APUS President on June 30, 2020. Pursuant to the Amendment, Dr. Boston retired as APUS President on August 12, 2020. Dr. Wade Dyke assumed the role of APUS President on the same day.

In June 2020, APUS timely applied for recertification to participate in Title IV programs. On September 9, 2020, ED notified APUS that it had completed its review of APUS’s application and had granted APUS provisional certification until June 30, 2023. ED issued APUS a provisional program participation agreement, or PPPA, outlining the terms of provisional certification. As described in the PPPA, the reason ED granted approval on a provisional basis is because APUS is subject to an open program review. Specifically, the program review ED began in September 2016 of APUS’s administration of Title IV programs during the 2014-2015 and 2015-2016 award years remains open and ongoing. At this time, we cannot predict the outcome of the program review, when it will be completed, or whether ED will place any liability or other limitations on APUS as a result of the review. During a period of provisional certification, an institution must comply with any additional conditions imposed by ED. In addition, ED may more closely review a provisionally-certified institution if it applies for approval to open a new location, add an educational program, acquire another school, or make any other significant change. If ED determines that a provisionally certified institution is unable to meet its responsibilities, it may seek to revoke the institution’s certification to participate in Title IV programs with fewer due process protections than if it were fully-certified.

For more information on the potential risks associated with the above APUS initiatives, APUS more generally, and applicable accreditation matters, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

•National Education Seminars, Inc., which we refer to as Hondros College of Nursing, or HCN, provides nursing education to approximately 2,000 students at five campuses in Ohio, and, beginning in April 2020, to students enrolled at a campus in Indianapolis, Indiana, to serve the needs of local nursing and healthcare communities that addresses the persistent supply-demand gap of nurses that is evident nation-wide. The Ohio campuses are located in the suburban areas of Cincinnati, Cleveland, Columbus, Dayton, and Toledo. In March 2020, in response to the COVID-19 global pandemic, HCN, leveraging the expertise of APUS, shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning.

HCN is institutionally accredited by the Accrediting Bureau for Health Education Schools, or ABHES, and HCN’s Ohio locations and programs are approved by the Ohio State Board of Career Colleges and Schools, or the Ohio State Board. HCN’s Ohio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by the Ohio Board of Nursing, or OBN, and the PN Program is accredited by the National League for Nursing Commission for Nursing Education Accreditation, or NLN CNEA.

In April 2020, HCN began classes for the first cohort of students enrolled in the PN Program at HCN’s new campus in Indianapolis, Indiana. Classes began online as a result of the COVID-19 pandemic but have since shifted to a blended learning model. HCN is authorized to offer instruction in Indiana by the Indiana Board for Proprietary Education/Indiana Commission for Higher Education. The Indiana State Board of Nursing has voted to grant initial accreditation and authorized the admission of the first cohort of students. HCN has also notified NLN CNEA of the opening of the Indianapolis campus. While NLN CNEA approval is not required to begin classes, NLN CNEA may accept the notification or take other actions, such as requesting follow-up information or imposing conditions. HCN has not received any additional requests or follow up communication.

Beginning January 1, 2020, HCN began offering an institutional grant to students demonstrating financial need to cover the difference between the total cost of tuition and fees and 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 awarded approximately $43,100 and $112,800 of institutional grants during the three and nine month periods ended September 30, 2020, respectively.

ABHES annually reviews student achievement indicators, including retention rate, placement rate, and licensing and credentialing examination pass rates. 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, or a 70% 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 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 other good cause. In February 2020, ABHES notified HCN that it had taken additional actions with respect to certain HCN programs at certain locations related to those programs’ performance in relation to ABHES student achievement indicators. Specifically, ABHES: (i) placed the PN programs at the Dayton and Toledo campuses on program specific warning status because the programs have failed to meet the 70% retention rate threshold since HCN’s 2017-2018 annual report and informed HCN that those programs must meet the retention rate threshold by May 1, 2020; (ii) removed the ADN programs at the Cleveland and Toledo campuses from outcomes reporting status after placement rates for those programs at those locations met the 70% compliance threshold; (iii) continued outcomes reporting status for the PN program at the Columbus campus because it has not met the retention rate compliance threshold and reconfirmed that it has until May 1, 2021 to do so; and (iv) directed HCN to provide evidence to ABHES that the ADN programs at each of the Columbus, Cleveland, Cincinnati, Dayton, and Toledo campuses and the PN programs at the Cleveland and Cincinnati campuses met the retention rate compliance threshold for the period from July 1, 2019 through March 31, 2020 and informed HCN that those programs must meet the compliance threshold by May 1, 2021. On April 22, 2020, HCN notified ABHES that, as of March 31, 2020, HCN met the 70% retention rate threshold at each campus location. For the reporting year July 1, 2019 through June 30, 2020, HCN’s programs satisfied ABHES’s threshold requirements for retention rate, placement rate, and mandatory licensure and credentialing examination pass rates. There can be no assurance that HCN will be able to continue to demonstrate compliance in all cases.

On August 12, 2020, ABHES requested that HCN provide ABHES with a financial improvement plan that details HCN’s financial objectives, outlines HCN’s financial improvement plans, including a specific timeline, and addresses the net loss for the fiscal year ending December 31, 2019. The plan was timely submitted to ABHES.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program approved by the OBN. The OBN requires that nursing education programs have a pass rate on the relevant National Council Licensure Examination, or NCLEX, that is at least 95% of the national average for first-time candidates in a calendar year. If a program does not attain this pass rate, the program may face various consequences. In March 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program had not met the pass rate standard for four consecutive years. The OBN will consider restoring a program to Full Approval status if the program meets the pass rate standard for at least two consecutive years. If a program on provisional approval fails to meet OBN requirements at the end of the time period established for provisional approval, the OBN may propose to continue provisional approval for a set time period or may propose to withdraw approval. In March 2020, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year. HCN has been implementing changes, including curriculum, admissions, and academic achievement and course retake policy changes that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be successful or will not have negative effects on HCN’s enrollment.

In June 2020, HCN filed a letter of intent with the Ohio Board of Nursing to expand its nursing programs to a new location in Akron, Ohio. In July 2020, the Ohio Board of Nursing approved HCN’s request.

From August through October 2020, ABHES conducted virtual site visits to HCN campuses to assess compliance with ABHES accreditation standards. The visits resulted in a finding that student satisfaction with the ADN and PN Programs at HCN’s Toledo campus, and the PN Program at HCN’s Cincinnati, Columbus, and Dayton campuses was below expected levels, which ABHES attributed to the transition to online courses as a result of the COVID-19 pandemic, and a finding at the Indianapolis and Columbus campuses related to the composition of an advisory board.

For more information on the potential risks associated with these HCN initiatives and HCN more generally, please refer to our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

To remain eligible to participate in Title IV programs, an educational institution’s student loan cohort default rates must remain below certain levels. Pursuant to requirements of the Higher Education Act, as amended, if the cohort default rate for any year exceeds 40%, an institution loses eligibility to participate in Title IV programs, and if the institution’s cohort default rate exceeds 30% for three consecutive years, the institution loses eligibility to participate in Title IV programs. If an institution’s cohort default rate is equal to or greater than 30% in any year, it must establish a default prevention task force. In September 2020, ED released final official cohort default rates for institutions for federal fiscal year 2017, with ED reporting a 15.2% cohort default rate for APUS and a 12.1% cohort default rate for HCN. Additional information regarding student loan default rates, prior year default rates, and potential risks associated with them is available in our Annual Report.

Proposed Acquisition of Rasmussen University

On October 28, 2020, we entered into a definitive agreement to acquire Rasmussen University, a nursing- and health sciences-focused institution serving over 18,000 students at its 24 campuses across six states and online. Pursuant to the terms of a Membership Interest Purchase Agreement, or the Rasmussen Agreement, with FAH Education, LLC, or Seller, Rasmussen, LLC, or Rasmussen, and Rasmussen College, LLC, or together with Rasmussen, the Acquired Companies, a wholly owned subsidiary of Rasmussen, we agreed to purchase from Seller all of the units of membership interests in Rasmussen, or the Rasmussen Acquisition, for $300 million in cash consideration and $29 million in shares of a new series of non-voting preferred stock be issued at the closing of the Rasmussen Acquisition, or the Rasmussen Closing (or, at our election, up to an additional $29 million in cash in lieu thereof), subject to customary adjustments, including for net working capital, cash and debt of the Acquired Companies prior to the Rasmussen Closing. The Rasmussen Acquisition is expected to close in the third quarter of 2021, subject to the satisfaction or waiver of closing conditions that include, among others, regulatory review by the U.S. Department of Education, approval by the Higher Learning Commission, and approval by or notices to other regulatory and accrediting bodies.

Regulatory and Legislative Activity

In October 2018, ED announced that a negotiated rulemaking committee broadly focused on accreditation and innovation, or the Accreditation and Innovation Committee, would prepare proposed regulations related to, among other things, courses offered through distance education. ED published a notice of proposed rulemaking on April 2, 2020 based on consensus language agreed to by the Accreditation and Innovation Committee and accepted public comments on the proposal until May 4, 2020. On August 24, 2020, ED released the final rule, which goes into effect on July 1, 2021. The rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs. For example, the rulemaking clarifies and simplifies requirements related to direct assessment programs, including with respect to eligibility requirements and subscription-based programs. The rulemaking also provides new definitions for “academic engagement,” “distance education,” and “regular and substantive interaction” in order to provide further clarity regarding the instructional requirements for distance education programs.

The COVID-19 pandemic has resulted in widespread disruptions in higher education, particularly with respect to institutions that engage in on-ground delivery of education, and a number of related regulatory developments. The pandemic led to the shifting of HCN’s courses to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. In addition, ED has issued numerous statements that provide guidance on how institutions are permitted to handle certain federal student financial aid requirements under certain circumstances related to responses to the COVID-19 pandemic.

In March 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, in response to COVID-19 and its related effects. Due to the COVID-19 pandemic, many higher education institutions shifted to distance learning as campuses shut down as a result of the public health emergency. The CARES Act includes provisions designed to provide relief to higher education institutions in connection with the COVID-19 pandemic. The CARES Act created the Higher Education Emergency Relief Fund, or HEERF, that includes $12.6 billion in funding for higher education institutions. The CARES Act authorizes ED to allocate funding based on a statutory formula that accounts for the relative share of full-time students who are Pell Grant recipients. Students who were enrolled exclusively in distance education courses prior to the COVID-19 emergency are excluded from this calculation. Wholly online institutions were not eligible to receive an allocation of funding under the HEERF given the allocation formula’s exclusion of students enrolled exclusively in distance education courses prior to the onset of the COVID-19 emergency. ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation. No allocation of HEERF funds was made to APUS by ED.

The CARES Act requires recipient institutions to use at least 50% of their HEERF funds to provide emergency grants to students for expenses related to the disruption of campus operations due to COVID-19. The CARES Act also permits institutions to use up to 50% of their HEERF funds to cover any costs associated with significant changes to the delivery of instruction due to COVID-19, so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. Although HCN incurred costs to shift its operations and delivery of instruction in light of COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students. As of June 30, 2020, HCN had distributed its entire allocation of $3.1 million in HEERF funds to eligible students.

The CARES Act also includes waivers of certain Higher Education Act provisions related to the federal student financial aid programs in order to provide regulatory flexibility to institutions in connection with COVID-19-related disruptions. The CARES Act modifies processes related to the return of unearned Title IV funds in connection with student withdrawals during the COVID-19 pandemic, extends time limits for Pell Grants and Direct Loans as a result of withdrawals during this period, allows for flexibility in measuring the satisfactory academic progress of students, and permits institutions to continue making federal work study payments to students who can no longer meet work study obligations during the period. Additionally, the CARES Act suspended payments for Federal Family Education Loans and Direct Loans until September 30, 2020, and an executive order extended this suspension until December 31, 2020. During this period, these loans will not accrue interest and ED will suspend involuntary collection practices. However, borrowers may choose to make payments towards principal on these loans voluntarily.

On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the NCLEX. Graduates of OBN-approved nursing education programs, such as HCN’s programs, may apply for a temporary license that would be valid until the earlier of March 1, 2021 and 90 days after the period of emergency ends.

The postsecondary education regulatory environment may change in the future as a result of the U.S. federal election in November 2020 and any related run-off elections. A change in the Presidential Administration or Congress may result in

changes to, or elimination of, currently effective ED regulations, or to implement new ED regulations. For example, a new Congress could seek to act under the Congressional Review Act, which establishes legislative procedures through which Congress may adopt a joint resolution of disapproval to nullify certain agency final regulations within a certain time period after the regulations are finalized by the agency. ED, under new leadership, could also initiate new rulemaking processes to alter existing regulations and could act to change existing ED policies and practices with respect to matters related to postsecondary education institutions. We cannot predict the extent to which a new Presidential Administration or Congress will act to change or eliminate or to implement new ED regulations, policies, and practices, nor can we predict the form that new regulations, policies, or practices may take.

We cannot predict the extent to which the aforementioned regulatory activity or any other potential regulatory or legislative activity, including as a result of COVID-19 or the U.S. federal election, may impact us or our institutions, nor can we predict the possible associated burdens and costs. Additional information regarding the regulatory and legislative environment and potential risks associated with it is available in our Annual Report and the section entitled “Risk Factors” in this Quarterly Report.

Rasmussen Acquisition Regulatory Review

The Rasmussen Acquisition will be required to be reported to, and in some cases approved by, various education regulatory bodies. An institution must obtain ED approval for a change in ownership and control in order to continue to participate in Title IV programs under the new ownership. ED does not provide pre-closing approval, but at the request of the parties, ED will conduct a “pre-acquisition review” of a proposed change. In this case, the parties will request that ED conduct an “abbreviated pre-acquisition review.” Upon completion of an abbreviated pre-acquisition review, ED informs the institution whether the institution will be required to post a letter of credit in connection with its continued participation in Title IV programs after closing. As required, we intend to timely notify ED about the occurrence of the change in ownership of Rasmussen and submit an application for approval to participate in Title IV programs after the closing of the transaction.

We will also notify state agencies, accreditors, boards of nursing, and other relevant regulators of this change in ownership as required. In some instances, these bodies will require prior approval before the change in ownership can be completed. For example, HLC requires approval before the closing of a transaction in order for an institution to maintain accredited status after closing. The parties will submit an application to HLC for pre-closing approval of the change in ownership. Additionally, some regulators will require approval after the change in ownership in order to continue proper licensure, accreditation, approval, or authorization.

Reportable Segments

Our operations are organized into two reportable segments:

•American Public Education Segment, or APEI Segment. This segment reflects the operational activities of APUS, other corporate activities, and minority investments; and

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

Summary of Results

For the three months ended September 30, 2020, our consolidated revenue increased to $79.1 million from $67.9 million, or by 16.6%, compared to the prior year period. Our operating margins increased to 4.2% from negative 4.3% for the three months ended September 30, 2020, compared to the prior year period. For the nine months ended September 30, 2020, our consolidated revenue increased to $235.9 million from $211.9 million, or by 11.3%, compared to the prior year period. Our operating margins increased to 6.4% from 2.0% for the nine months ended September 30, 2020, compared to the prior year period. Net income increased to $2.6 million from a net loss of $1.6 million, an increase of $4.2 million compared to the prior year period.

For the three months ended September 30, 2020, APEI Segment revenue increased to $69.6 million from $61.2 million, or by 13.7%, compared to the prior year period. Net course registrations at APUS for the three months ended September 30, 2020 increased to approximately 90,300 from approximately 76,700, or approximately 17.7%, compared to the prior year period. APEI Segment operating margins increased to 4.1% from 0.4% for the three months ended September 30, 2020, compared to the prior year period.

For the nine months ended September 30, 2020, APEI segment revenue increased to $210.3 million from $190.4 million, or by 10.4% compared to the prior year period. Net course registrations at APUS for the nine months ended September 30, 2020 increased to approximately 264,700 from approximately 236,900, or approximately 11.7%, compared to the prior year period. APEI Segment operating margins decreased to 7.4% from 7.5% for the nine months ended September 30, 2020, compared to the prior year period.

The increase in net course registrations was primarily due to an increase in military-related registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources. 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 three months ended September 30, 2020, HCN Segment revenue increased to $9.5 million from $6.7 million, or by 42.5%, compared to the prior year period. Total enrollment at HCN for the three months ended September 30, 2020 increased to approximately 2,000 from approximately 1,400, or approximately 38.6%, as compared to the prior year period. New student enrollment at HCN for the three months ended September 30, 2020 increased to 649 from 345, or approximately 88.1%, as compared to the prior year period. HCN Segment operating margins increased to 4.9% from negative 47.2% for the three months ended September 30, 2020, compared to the prior year period.

For the nine months ended September 30, 2020, HCN Segment revenue increased to $25.7 million from $21.6 million, or by 19.0%, compared to the prior year period. HCN Segment operating margins increased to negative 1.8% from negative 47.3% for the nine months ended September 30, 2020, compared to the prior year period.

We believe that the increase in new student enrollment at HCN was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. HCN total student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty.

We believe the changes in revenue and operating margins are primarily due to the factors discussed below in the “Results of Operations” section of this Management’s Discussion and Analysis.

Critical Accounting Policies and Use of Estimates

For information regarding our Critical Accounting Policies and Use of Estimates, see the “Critical Accounting Policies and Use of Estimates” section of “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report.

Results of Operations

Below we have included a discussion of our operating results and material changes in our operating results during the three and nine months ended September 30, 2020 compared to the three and nine months ended September 30, 2019. Our revenue and operating results normally fluctuate as a result of seasonal or other variations in our enrollments and the level of expenses in our APEI and HCN Segments. Our student population 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 in operating results to continue as a result of various enrollment patterns and changes in expenses.

COVID-19 did not materially adversely impact our results of operations during the three and nine months ended September 30, 2020. However, the duration and intensity of the outbreak, and therefore any future impact, is uncertain. For example, in March 2020, in response to the pandemic, HCN shifted to a blended model with online delivery of its courses and on campus delivery of certain labs. HCN has since fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. In addition, in October 2020, HCN began temporarily expanding certain campuses through short-term leases of additional space to be used as lab space in order to accommodate student demand in compliance with COVID-related public health measures that effectively limit the number of students in each lab class. While not yet material, ongoing and future impacts may cause additional disruption of educational services provided to students, and increase costs for HCN to continue to deliver courses in person and online, and could be considered a triggering event to evaluate the value of HCN goodwill, impairment of investments, and recoverability of receivables. For more information on the potential risks related to COVID-19, please refer to the section entitled “Risk Factors” in this Quarterly Report. In addition, during the three and nine months ended September 30, 2020, and thereafter, we have experienced a significant decrease in interest rates, including in connection with

the COVID-19 pandemic, as compared to 2019, and we expect to continue to earn reduced interest income on our invested funds.

We believe that the increase in enrollment at HCN for the three months ended September 30, 2020 as compared to the prior year period is due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. We cannot predict whether our initiatives and efforts will continue to be successful over the long term and cannot guarantee continued enrollment and revenue growth in our HCN Segment. The success of these efforts could also be adversely affected by future impacts of the COVID-19 pandemic.

For more information on the initiatives discussed above, our operations, and related risk factors, please refer to the “Overview” section of this Management’s Discussion and Analysis and our Annual Report.

Our consolidated results for the three and nine months ended September 30, 2020 and 2019 reflect the operations of our APEI and HCN Segments. For a more detailed discussion of our results by reportable segment, refer to our Analysis of Operating Results by Reportable Segment.

Analysis of Consolidated Statements of Income

For the Consolidated Statements of Income, refer to our Financial Statements: Consolidated Statements of Income. The following table sets forth statements of income data as a percentage of revenue for each of the periods indicated:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)

Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Instructional costs and services	39.3		40.2		38.6		39.6
Selling and promotional	23.4		23.4		22.8		21.3
General and administrative	28.5		32.4		27.7		27.9
Loss on disposals of long-lived assets	0.5		0.6		0.3		0.2
Impairment of goodwill	—		2.2		—		3.5
Depreciation and amortization	4.1		5.5		4.2		5.5
Total costs and expenses	95.8		104.3		93.6		98.0

Income (loss) from operations before interest income and income taxes	4.2		(4.3)		6.4		2.0
Interest income, net	0.2		1.5		0.4		1.5

Income (loss) from operations before income taxes	4.4		(2.8)		6.8		3.5
Income tax expense (benefit)	1.0		(0.4)		1.8		0.8
Equity investment loss	—		—		—		(0.7)
Net income (loss)	3.4	%	(2.4)	%	5.0	%	2.0	%

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Revenue. Our consolidated revenue for the three months ended September 30, 2020 was $79.1 million, an increase of $11.2 million, or 16.6%, compared to $67.9 million for the three months ended September 30, 2019. The increase in revenue was due to a $8.4 million, or 13.7%, increase in revenue in our APEI Segment and a $2.8 million, or 42.5%, increase in revenue in our HCN Segment. In our APEI Segment, net course registrations by new students and total net course registrations increased 25.0% and 17.7%, respectively, during the three months ended September 30, 2020, as compared to the prior year period. The HCN Segment revenue increase was primarily due to an 88.1% increase in new student enrollment and a 38.6% increase in total enrollment.

Costs and expenses. Costs and expenses for the three months ended September 30, 2020 were $75.8 million, an increase of $5.0 million, or 7.1%, compared to $70.8 million for the three months ended September 30, 2019. The increase in costs and expenses for the three months ended September 30, 2020 as compared to the prior year period was primarily due to increases in employee compensation costs, advertising costs, professional fees, and information technology costs in our APEI Segment and increases in instructional materials costs and employee compensation costs in our HCN Segment partially offset by a decrease in advertising costs in our HCN Segment and bad debt expense in our APEI Segment. Results for the three months ended September 30, 2020 include the following costs on a pre-tax basis: a $2.1 million increase in advertising costs compared to the prior year period, $1.9 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $1.5 million in information technology costs related to the replacements and upgrades to our information technology systems, including the replacements of our learning management and customer relationship management systems. Results for the three months ended September 30, 2019 include the following on a pre-tax basis: $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement in our APEI Segment and a non-cash goodwill impairment of $1.5 million in our HCN Segment. Costs and expenses as a percentage of revenue decreased to 95.8% for the three months ended September 30, 2020, from 104.3% for the three months ended September 30, 2019. The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Instructional costs and services expenses. Our instructional costs and services expenses for the three months ended September 30, 2020 were $31.1 million, an increase of $3.8 million, or 14.0%, from $27.3 million for the three months ended September 30, 2019. The increase in instructional costs and services expenses was primarily due to an increase in employee compensation costs in our APEI Segment and increases in instructional materials costs and employee compensation costs in our HCN Segment. Instructional costs and services expenses as a percentage of revenue decreased to 39.3% for the three months ended September 30, 2020, from 40.2% for the three months ended September 30, 2019. The decrease in instructional costs and services expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in instructional costs and services expenses.

Selling and promotional expenses. Our selling and promotional expenses for the three months ended September 30, 2020 were $18.5 million, an increase of $2.6 million, or 16.7%, from $15.9 million for the three months ended September 30, 2019. The increase in selling and promotional expenses was primarily due to increases in advertising costs and employee compensation costs in our APEI Segment partially offset by a decrease in advertising costs in our HCN Segment. APEI Segment advertising costs increased $2.3 million compared to the prior year period. Selling and promotional expenses as a percentage of revenue was 23.4% for both the three months ended September 30, 2020 and 2019.

General and administrative expenses. Our general and administrative expenses for the three months ended September 30, 2020 were $22.6 million, an increase of $0.6 million, or 2.5%, from $22.0 million for the three months ended September 30, 2019. The increase in general and administrative expenses for the three months ended September 30, 2020 as compared to the prior year period was primarily the result of increases in professional fees and information technology costs in our APEI Segment partially offset by decreases in employee compensation costs and bad debt expense in our APEI Segment. For the three months ended September 30, 2020, APEI Segment general and administrative expenses include the following on a pre-tax basis: approximately $1.9 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $1.5 million of information technology costs related to replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship management systems. For the three months ended September 30, 2019, APEI Segment general and administrative expenses include $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement. Consolidated bad debt expense for the three months ended September 30, 2020 was $0.9 million, or 1.1% of revenue, compared to $1.0 million, or 1.5% of revenue in the prior year period. General and administrative expenses as a percentage of revenue decreased to 28.5% for the three months ended September 30, 2020, from 32.4% for the three months ended September 30, 2019. The decrease in general and administrative expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in general and administrative expenses. As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect to incur additional costs and that our general and administrative expenses related to professional fees will vary from time to time, and may increase in the fourth quarter of 2020.

Loss on disposals of long-lived assets. The loss on disposals of long-lived assets was $0.4 million for both the three months ended September 30, 2020 and 2019, respectively.

Impairment of goodwill. There was no impairment of goodwill for the three months ended September 30, 2020. The $1.5 million pretax, non-cash impairment of goodwill for the three months ended September 30, 2019 resulted from the reduction of the carrying value of goodwill in our HCN Segment.

Depreciation and amortization expenses. Depreciation and amortization expenses were $3.2 million and $3.8 million for the three months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expenses as a percentage of revenue decreased to 4.1% for the three months ended September 30, 2020, from 5.5% for the three months ended September 30, 2019. The decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to a decrease in depreciation and amortization expenses during a period when consolidated revenue increased.

Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses were $1.9 million and $1.7 million for the three months ended September 30, 2020 and 2019, respectively. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income. Interest income was $0.1 million and $1.0 million for the three months ended September 30, 2020 and 2019, respectively. The decrease was due to a decrease in interest rates when compared to the prior year period.

Income tax expense (benefit). We recognized income tax expense of $0.8 million and an income tax benefit of $0.2 million for the three months ended September 30, 2020 and 2019, respectively, or effective tax rates of 22.9% and (12.7)%, respectively. The increase in the effective tax rate for the three months ended September 30, 2020 compared to the tax benefit for the three months ended September 30, 2019 is due to the pre-tax loss in the prior year period. There was no material impact to our effective tax rate for the three months ended September 30, 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment income (loss). Equity investment income was $0.0 million and $0.02 million for the three months ended September 30, 2020 and 2019, respectively.

Net income (loss). Our net income was $2.6 million for the three months ended September 30, 2020, compared to a net loss of $1.6 million for the three months ended September 30, 2019, an increase of $4.2 million. This increase was related to the factors discussed above.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Revenue. Our consolidated revenue for the nine months ended September 30, 2020 was $235.9 million, an increase of $24.0 million, or 11.3%, compared to $211.9 million for the nine months ended September 30, 2019. The increase in revenue was due to a $19.9 million, or 10.4% increase in our APEI Segment and a $4.1 million, or 19.0%, increase in revenue in our HCN Segment. In our APEI Segment, net course registrations by new students and total net course registrations increased 18.2% and

11.7%, respectively, during the nine months ended September 30, 2020, as compared to the prior year period. The HCN Segment revenue increase was primarily due to a 58.8% increase in new student enrollment and a 12.7% increase in total enrollment.

Costs and expenses. Costs and expenses for the nine months ended September 30, 2020 were $220.8 million, an increase of $13.1 million, or 6.3%, compared to $207.7 million for the nine months ended September 30, 2019. The increase in costs and expenses was primarily due to increases in employee compensation costs, advertising and marketing support costs, professional fees, and information technology costs in our APEI Segment and increases in instructional materials costs, employee compensation costs, facilities costs, advertising costs, and bad debt expense in our HCN Segment partially offset by decreases in commencement and travel costs and bad debt expense in our APEI Segment. The nine months ended September 30, 2020 includes the following costs on a pre-tax basis: a $6.6 million increase in advertising costs compared to the prior year period, $3.8 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, and $3.4 million in information technology costs related to the replacements and upgrades to our information technology systems, including the replacements of our learning management and customer relationship management systems. Costs and expenses for the nine months ended September 30, 2019 includes the following on a pre-tax basis: a non-cash goodwill impairment of $7.3 million in our HCN Segment and $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement in our APEI Segment. Costs and expenses as a percentage of revenue decreased to 93.6% for the nine months ended September 30, 2020, from 98.0% for the nine months ended September 30, 2019. The decrease in costs and expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in costs and expenses.

Instructional costs and services expenses. Our instructional costs and services expenses for the nine months ended September 30, 2020 were $91.1 million, an increase of $7.2 million, or 8.5%, from $83.9 million for the nine months ended September 30, 2019. The increase in instructional costs and services expenses was primarily due to increases in employee compensation costs and instructional materials costs in our APEI Segment and increases in employee compensation costs, instructional materials costs, and facilities costs in our HCN Segment partially offset by a decrease in commencement and travel costs in our APEI Segment. Instructional costs and services expenses as a percentage of revenue decreased to 38.6% for the nine months ended September 30, 2020, from 39.6% for the nine months ended September 30, 2019. The decrease in instructional costs and services expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase in instructional costs and services expenses.

Selling and promotional expenses. Our selling and promotional expenses for the nine months ended September 30, 2020 were $53.8 million, an increase of $8.8 million, or 19.5%, from $45.0 million for the nine months ended September 30, 2019. The increase in selling and promotional expenses was primarily due to increases in advertising and marketing support costs and employee compensation costs in our APEI Segment and an increase in advertising costs in our HCN Segment. Advertising costs increased $6.4 million and marketing support costs increased $0.5 million in our APEI Segment and advertising costs increased $0.2 million in our HCN Segment as compared to the prior year period. Selling and promotional expenses as a percentage of revenue increased to 22.8% for the nine months ended September 30, 2020, from 21.3% for the nine months ended September 30, 2019. The increase in selling and promotional expenses as a percentage of revenue was primarily due to selling and promotional expenses increasing at a rate greater than the increase in our consolidated revenue.

General and administrative expenses. Our general and administrative expenses for the nine months ended September 30, 2020 were $65.3 million, an increase of $6.1 million, or 10.3%, from $59.2 million for the nine months ended September 30, 2019. The increase in general and administrative expenses was primarily related to increases in professional fees, employee compensation costs, and information technology costs in our APEI Segment and an increase in bad debt expense in our HCN Segment partially offset by a decrease in bad debt expense in our APEI Segment and a decrease in employee compensation costs in our HCN Segment. For the nine months ended September 30, 2020, APEI Segment general and administrative expenses includes the following costs on a pre-tax basis: $3.8 million in professional fees associated with strategic growth opportunities including the Rasmussen Acquisition, $3.4 million of information technology costs related to replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship management systems. For the nine months ended September 30, 2019, APEI Segment general and administrative expenses includes the following costs on a pre-tax basis: $2.8 million in employee compensation costs for post-employment benefits related to the former APUS President’s retirement; $1.4 million of professional fees associated with strategic growth opportunities including the Rasmussen Acquisition; and $1.1 million related to the evaluation of replacements or upgrades to our information technology and learning management systems. Consolidated bad debt expense for the nine months ended September 30, 2020 was $2.8 million, or 1.2% of revenue, compared to $2.9 million, or 1.4% of revenue in the prior year period. General and administrative expenses as a percentage of revenue decreased to 27.7% for the nine months ended September 30, 2020, from 27.9% for the nine months ended September 30, 2019. The decrease in general and administrative expenses as a percentage of revenue was primarily due to our consolidated revenue increasing at a rate greater than the increase

in general and administrative expenses. As we continue to evaluate strategic growth opportunities and enhancements to our business capabilities, we expect our general and administrative expenses related to professional fees will vary from time to time, and may increase in the fourth quarter of 2020.

Loss on disposals of long-lived assets. The loss on disposals of long-lived assets was $0.7 million and $0.5 million for the nine months ended September 30, 2020 and 2019, respectively.

Impairment of goodwill. There was no impairment of goodwill for the nine months ended September 30, 2020. The $7.3 million pretax, non-cash impairment of goodwill for the nine months ended September 30, 2019 resulted from the reduction of the carrying value of goodwill in our HCN Segment.

Depreciation and amortization expenses. Depreciation and amortization expenses were $10.0 million and $11.8 million for the nine months ended September 30, 2020 and 2019, respectively. Depreciation and amortization expenses as a percentage of revenue decreased to 4.2% for the nine months ended September 30, 2020, from 5.5% for the nine months ended September 30, 2019. The decrease in depreciation and amortization expenses as a percentage of revenue was primarily due to a decrease in depreciation and amortization expenses during a period when consolidated revenue increased.

Stock-based compensation expenses. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses was approximately $5.3 million and $5.0 million for the nine months ended September 30, 2020 and 2019. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs.

Interest income. Interest income was $1.0 million and $3.2 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease was due to a decrease in interest rates when compared to the prior year period.

Income tax expense. We recognized income tax expense of $4.3 million and $1.6 million for the nine months ended September 30, 2020 and 2019, respectively, or effective tax rates of 26.7% and 27.1%, respectively. The decrease in the effective tax rate for the nine months ended September 30, 2020 is primarily due to lower amount of non-deductible expenses in proportion to pre-tax income as compared to the prior period. The effective tax rate for the nine months ended September 30, 2020 includes income tax expense of $0.1 million related to ASU No. 2016-09 Compensation - Stock Compensation (Topic 718), compared to an income tax expense benefit of $0.5 million for the nine months ended September 30, 2019. There was no material impact to our effective tax rate for the nine months ended September 30, 2020 as a result of the effects of the COVID-19 pandemic.

Equity investment loss. Equity investment loss was $0.0 million for the nine months ended September 30, 2020 compared to a loss of $1.5 million for the nine months ended September 30, 2019.

Net income. Our net income was $11.8 million for the nine months ended September 30, 2020, compared to net income of $4.3 million for the nine months ended September 30, 2019, an increase of $7.5 million. This increase was related to the factors discussed above.

Analysis of Operating Results by Reportable Segment

The following table provides details on our operating results by reportable segment for the respective periods (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Unaudited)				(Unaudited)
Revenue:
American Public Education Segment	$	69,610	$	61,217	$	210,251	$	190,386
Hondros College of Nursing Segment	9,541		6,696		25,682		21,584
Intersegment elimination	(18)		(25)		(57)		(81)
Total Revenue	$	79,133	$	67,888	235,876		$	211,889
Income (loss) from operations before interest income and income taxes:
American Public Education Segment	$	2,840	$	247	$	15,495	$	14,358
Hondros College of Nursing Segment	466		(3,158)		(455)		(10,214)
Intersegment elimination	2		(2)		2		3
Total income (loss) from operations before interest income and income taxes	$	3,308	$	(2,913)	$	15,042	$	4,147

APEI Segment

For the three months ended September 30, 2020, the $8.4 million, or 13.7%, increase to approximately $69.6 million in revenue in our APEI Segment was attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources. Net course registrations at APUS increased 17.7% to approximately 90,300 from approximately 76,700 during the three months ended September 30, 2020 compared to the same period in 2019. Income from operations before interest income and income taxes increased to $2.8 million during the three months ended September 30, 2020, from $0.2 million, an increase of $2.6 million compared to the prior year as a result of an increase in revenue due to increases in registrations discussed above.

For the nine months ended September 30, 2020, the $19.9 million, or 10.4%, increase to approximately $210.3 million in revenue in our APEI Segment was primarily attributable to higher net course registrations primarily as a result of additional military registrations from students utilizing DoD tuition assistance which is at a lower revenue per net course registration than other funding sources. Net course registrations at APUS increased 11.7% to approximately 264,700 from approximately 236,900 during the nine months ended September 30, 2020 compared to the same period in 2019. Income from operations before interest income and income taxes was $15.5 million during the nine months ended September 30, 2020, an increase of 7.9% compared to the same period in 2019, as a result of an increase in revenue due to increases in registrations discussed above.

HCN Segment

For the three months ended September 30, 2020, the $2.8 million, or 42.5%, increase to approximately $9.5 million in revenue in our HCN Segment was attributable to an increase in total student enrollment. HCN new student enrollment for the three month period ended September 30, 2020 increased to 649 from 345, or approximately 88.1%, as compared to the comparable prior year period. HCN total student enrollment increased 38.6% to approximately 2,000 from approximately 1,400 students during the three months ended September 30, 2020 compared to the same period in 2019. We believe that the increase in HCN’s total student enrollment for the three months ended September 30, 2020 was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. Income from operations before interest income and income taxes in our HCN Segment was $0.5 million during the three months ended September 30, 2020, compared to a loss of $3.2 million in the same period in 2019, an increase of $3.7 million, primarily as a result of the increase in revenue due to higher enrollment discussed above and the $1.5

million pretax, non-cash impairment of goodwill in 2019.

For the nine months ended September 30, 2020, the $4.1 million, or 19.0%, increase to approximately $25.7 million in revenue in our HCN Segment was primarily attributable to an increase in student enrollment. HCN new student enrollment increased 58.8% and total student enrollment increased 12.7% during the nine months ended September 30, 2020 compared to the same period in 2019. We believe that the increase in HCN’s enrollment for the nine months ended September 30, 2020 was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures, the continued impact of new initiatives implemented in 2019 such as the direct entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. The loss from operations before interest income and income taxes in our HCN Segment was $0.5 million during the nine months ended September 30, 2020, compared to a loss of $10.2 million in the same period in 2019, a decrease of $9.7 million, primarily as a result of the increase in revenue due to higher enrollment discussed above and the $7.3 million pretax, non-cash impairment of goodwill in 2019.

Liquidity and Capital Resources

Liquidity

We financed operating activities and capital expenditures during the nine months ended September 30, 2020 and 2019 with cash provided by operating activities. Cash and cash equivalents were $228.0 million and $202.7 million at September 30, 2020 and December 31, 2019, respectively, representing an increase of $25.3 million, or 12.5%. Cash and cash equivalents at September 30, 2020 increased by $17.9 million from $210.1 million, or 8.5%, as compared to September 30, 2019.

We derive a significant portion of our revenue from tuition assistance programs from the Department of Defense, or DoD. Generally, these funds are received within 60 days of the start of the courses to which they relate. We also participate in programs from the U.S. Department of Veterans Affairs, or VA. Generally, these funds are received within 60 days of the start of the courses to which they relate. Another significant source of revenue is derived 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.

We expect to continue to fund our costs and expenses through cash generated from operations. Based on our current level of operations, we believe that our cash flow from operations and our existing cash and cash equivalents will provide adequate funds for ongoing operations and planned capital expenditures for the foreseeable future. We expect operating expenditures to increase in future periods as we accelerate the investment in and modernization of our information technology systems and increase marketing and other expenditures. For the year ended December 31, 2019, we incurred approximately $2.1 million to evaluate and invest in replacements and upgrades to our information technology systems, including replacements of our learning management and customer relationship systems, and to inform the scope and duration of the larger overall information technology transformation program. For the nine months ended September 30, 2020, we incurred approximately $3.7 million, including $0.4 million of capital costs, of the anticipated 2020 spending of between approximately $6.0 million and $8.0 million on our information technology transformation program, focusing on specific information technology projects, including replacements of our learning management and customer relationship management systems. APUS signed a contract for a replacement customer relationship management system in the first quarter of 2020 and began its first cohort of students in a new learning management system in March 2020. We will continue to evaluate our Partnership At a Distance™, or PAD, customized student information and services system for possible changes and upgrades and anticipate that we will eventually make significant changes to that system, as well. Capital expenditures could be higher in the future as a result of, among other things, additional expenditures for technology or other business capabilities, the opening of new campuses at HCN, the acquisition or lease of existing structures or potential new construction projects, and necessary tenant improvements that arise as a result of our ongoing evaluation of our space needs and opportunities for physical growth. Professional fees may increase as we evaluate investments in strategic growth opportunities and enhancements to our business capabilities. We 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. We will need additional capital to finance the Rasmussen Acquisition, and we may also need additional capital in the future, including to finance other business acquisitions and investments in technology or to achieve growth or fund other business initiatives.

Acquisition of Rasmussen University

In connection with entering into the Rasmussen Agreement, on October 28, 2020, we entered into a senior secured credit facilities commitment letter, or the Commitment Letter, with Macquarie Capital (USA) Inc., or Macquarie Capital, and Macquarie Capital Funding LLC, or Macquarie Lender, pursuant to which Macquarie committed to provide (i) a senior secured

term loan facility in the aggregate principal amount of $175 million, or the Term Facility, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million, or together with the Term Facility, the Facilities. Macquarie Capital will act as lead arranger and bookrunner with respect to the Facilities. The commitments under the Commitment Letter to provide the Facilities are subject to customary conditions, including the absence of a Material Adverse Effect (as defined in the Rasmussen Agreement) on the Acquired Companies having occurred, the execution of satisfactory documentation, and other customary closing conditions. We currently expect to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities, and the Rasmussen Agreement requires us to use commercially reasonable efforts to obtain debt financing for the Rasmussen Acquisition.

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

Share Repurchase Program

On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of our common stock, and on December 5, 2019, the Board approved an additional authorization of up to $25.0 million of shares. We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. We have no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time. The authorization under this program is in addition to our repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

The Company did not repurchase shares during the three months ended September 30, 2020. During the nine months ended September 30, 2020, the Company repurchased 547,563 shares of common stock. At September 30, 2020, there remains $8.4 million available under our share repurchase authorization.

For additional information on our repurchases of our common stock, please refer to “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” of Part II of our Annual Report and “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Repurchases” of Part II of this Quarterly Report.

Operating Activities

Net cash provided by operating activities was $44.7 million and $31.9 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in cash from operating activities is primarily due to an increase in net income, changes in working capital due to the timing of receipts and payments, and lower estimated tax payments in 2020. Accounts receivable at September 30, 2020, was approximately $1.8 million lower than December 31, 2019 due to the timing of payment processing by customers. Accounts payable, accrued compensation and benefits, and accrued liabilities at September 30, 2020 were approximately $7.2 million higher than December 31, 2019 primarily due to additional incentive compensation accruals and the timing of expenditures and the processing of payments.

Investing Activities

Net cash used in investing activities was $3.8 million and $4.2 million for the nine months ended September 30, 2020 and 2019, respectively. This decrease was primarily related to proceeds received for the sale of real property in our APEI Segment during the nine months ended September 30, 2020.

Financing Activities

Net cash used in financing activities was $15.7 million and $29.8 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in cash used in financing activities for the nine months ended September 30, 2020 was due to a decrease in cash used to repurchase our common stock partially offset by an increase in cash used for the deemed repurchase of our common stock to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. For the nine months ended September 30, 2020 and 2019, we used $13.6 million and $27.3 million, respectively, to repurchase shares of our common stock in accordance with our share repurchase program.

Off-Balance Sheet Arrangements

We do not have off-balance sheet financing arrangements, including any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

Contractual Commitments

We have various contractual obligations consisting of operating leases and purchase obligations. Purchase obligations include agreements with consultants, contracts with third-party service providers, and other future contracts or agreements.

In February 2020, APUS entered into a 48 month agreement with a customer relationship management platform provider. The total value of the contract over that 48 month period is approximately $3.5 million. Other than this agreement, there were no material changes to our contractual commitments outside of the ordinary course of our business during the nine months ended September 30, 2020.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market Risk

We had no material derivative financial instruments or derivative commodity instruments as of September 30, 2020. 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 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 market value of our portfolio.

Interest Rate Risk

We are subject to risk from changes in interest rates primarily relating to our investment of funds in short-term U.S. treasury bills issued at a discount to their par value. Our future investment income will vary due to changes in interest rates. For example, during the period ended September 30, 2020 and thereafter, we have experienced a significant decrease in interest rates, including in connection with the COVID-19 pandemic, and we expect to continue to reduce interest income earned on our invested funds. However, the decrease in interest income did not have a material impact on our earnings. At September 30, 2020, a 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash flows.

Notwithstanding the impacts of COVID-19, there has been no material change to our market risk or interest rate risk during the nine months ended September 30, 2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of September 30, 2020. Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2020.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Beginning in March 2020, in response to the COVID-19 pandemic, we implemented our business continuity plan and transitioned to a remote workforce. Although the impacts of the COVID-19 pandemic have not resulted in any changes in our internal control that have materially affected or are reasonably likely to materially affect our internal control over financial reporting, we are continually monitoring and assessing the COVID-19 pandemic and the impact it may have on our operations, including our internal control.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we have been and may be involved in various legal proceedings. We currently have no material legal proceedings pending.

Item 1A. Risk Factors

An investment in our stock involves a high degree of risk. You should carefully consider the risks set forth in the Risk Factors section of our Annual Report and the other information set forth in this Quarterly Report on Form 10-Q, our Annual Report, and the additional information in the other reports we file with the SEC. If any of the risks contained in those reports actually occur, our business, results of operation, financial condition, and liquidity could be harmed, the value of our securities could decline and you could lose all or part of your investment. With the exception of the following, there have been no material changes in the risk factors set forth in the Risk Factors section of our Annual Report.

The Rasmussen Acquisition may not be completed on the anticipated timeline, or at all, and the failure to complete the Rasmussen Acquisition could adversely impact our business, results of operations, financial condition, and the market price of our common stock.

The closing of the Rasmussen Acquisition is subject to a number of conditions as set forth in the Rasmussen Agreement that must be satisfied or waived, including among others, (i) regulatory review by the U.S. Department of Education, approval by the Higher Learning Commission, and approval of or notices to other regulatory and accrediting bodies, (ii) filings with and consents required to be made or obtained under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and the expiration of any related waiting period, (iii) enrollment in Rasmussen’s nursing programs, in the term prior to closing, not having declined by more than five percent from enrollment as of the start of the same academic term in the prior academic year, and (iv) approval by the U.S. Department of Education of Rasmussen’s March 2019 change in ownership. There can be no assurance that all required approvals will be obtained or that all other closing conditions will otherwise be satisfied or waived, and, if all required approvals are obtained and all closing conditions are satisfied or waived, we can provide no assurance as to the terms, conditions and timing of such approvals or that the Rasmussen Acquisition will be completed in a timely manner or at all. Certain of the conditions to completion of the Rasmussen Acquisition are not within either our or Rasmussen’s control, and we cannot predict when or if these conditions will be satisfied or waived. Even if regulatory approval is obtained, it is possible conditions will be imposed that could result in a material delay in, or the abandonment of, the Rasmussen Acquisition or otherwise have an adverse effect on us. The Closing is also dependent on the accuracy of representations and warranties made by the parties to the Rasmussen Agreement (subject to customary materiality qualifiers and other customary exceptions) and the performance in all material respects by the parties of obligations imposed under the Rasmussen Agreement.

If the Rasmussen Acquisition is not completed within the expected timeframe or at all, we may be subject to a number of material risks. The price of our common stock may decline to the extent that current market prices reflect a market assumption that the Rasmussen Acquisition will be completed. In addition, some costs related to the Rasmussen Acquisition must be paid whether or not the Rasmussen Acquisition is completed, and we have incurred, and will continue to incur, significant costs, expenses and fees for professional services and other transaction costs in connection with the proposed transaction, as well as the diversion of management and resources towards the Rasmussen Acquisition, for which we will have received little or no benefit if completion of the Rasmussen Acquisition does not occur. We may also experience negative reactions from our investors, students, and employees and faculty.

We are relying on the availability of financing under a commitment letter for debt financing to fund a portion of the purchase price for the Rasmussen Acquisition.

We plan to finance a portion of the aggregate purchase price for the Rasmussen Acquisition. In connection with the Rasmussen Acquisition, we entered into a commitment letter for (i) a senior secured term loan facility in the aggregate principal amount of $175 million, or the Term Facility, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of $20 million, or together with the Term Facility, the Facilities, the terms of which are expected to be finalized on or prior to the Closing. The obligations of the lenders under the commitment letter are subject to conditions, which may not be met. We currently expect to pay up to $175 million of the cash consideration for the Rasmussen Acquisition with proceeds from the Facilities. There can be no guarantee that we will be able to close the Facilities or any alternative financing arrangements on commercially reasonable terms or at all. If the Facilities are not available, and alternative financing cannot be secured, we may not be able to pay the cash consideration for the Rasmussen Acquisition, in which case the Rasmussen Acquisition would not be completed.

We have incurred, and will continue to incur, significant transaction costs and integration costs in connection with the Rasmussen Acquisition.

We have incurred, and will continue to incur, significant costs, expenses and fees, including fees for professional services and other transaction costs, in connection with the Rasmussen Acquisition, including costs that we may not currently expect. We must pay many of these costs and expenses whether or not the transaction is completed. In addition, we expect to incur significant integration costs after the Closing. There are a number of factors beyond our control that could affect the total amount or the timing of these costs and expenses.

Integrating our business with Rasmussen’s business may be more difficult, costly or time-consuming than expected, and we may not realize the expected benefits of the Rasmussen Acquisition, which may adversely affect our business results.

If we experience greater than anticipated costs to integrate or are not able to successfully integrate Rasmussen into our existing operations, we may not be able to achieve the anticipated benefits of the Rasmussen Acquisition, including cost savings and other synergies and growth opportunities. Even if the integration of Rasmussen’s business is successful, we may not realize all of the anticipated benefits of the Rasmussen Acquisition during the anticipated time frame, or at all. For example, events outside our control, such as changes in regulation and laws, as well as economic trends, including as a result of the COVID-19 pandemic, could adversely affect our ability to realize the expected benefits from this acquisition. In addition, Rasmussen is a privately held company and has not been required to maintain an internal control infrastructure that would meet the standards of a public company, including the requirements of the Sarbanes-Oxley Act of 2002. The costs that we may incur to implement such controls and procedures may be substantial and we could encounter unexpected delays and challenges in this implementation. In addition, we may discover significant deficiencies or material weaknesses in the quality of Rasmussen’s financial and disclosure controls and procedures

An inability to realize the full extent of the anticipated benefits of the Rasmussen Acquisition, as well as any delays encountered in the integration process, could have an adverse effect upon our revenues, level of expenses and operating results, which may adversely affect the value of our common stock after the completion of the Rasmussen Acquisition. In addition, it is possible that the integration process could result in the loss of key employees, errors or delays in the implementation of shared services, the disruption of our ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with students, faculty and other employees or to achieve the anticipated benefits of the Rasmussen Acquisition. Integration efforts also may divert management attention and resources.

Rasmussen may have liabilities that are not known to us.

Rasmussen may have liabilities that we failed, or were unable, to discover in the course of performing our due diligence investigations. Following the completion of the Rasmussen Acquisition, we may learn additional information about Rasmussen that materially adversely affects us, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

We expect to incur substantial indebtedness under the Facilities, 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 Facilities or any alternative debt financing arrangements 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 expect to incur in connection with the Rasmussen Acquisition will require us to dedicate a substantial 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 or to fund our other liquidity needs. 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 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.

The COVID-19 pandemic has caused us to have to adjust our operations, which could adversely affect the student experience, particularly at HCN, and could have additional adverse effects on our business, financial condition, or results of operations.

The ongoing COVID-19 pandemic required us to shift from campus-based to a blended model at HCN with online delivery of its courses and limited in person interactions, have nearly all of our employees work remotely, and implement business continuity processes. Ongoing impacts could also cause a disruption of educational services provided to students and increase costs for HCN to continue to deliver courses in person and online. HCN has fully reopened its campuses, using smaller in person classes with screening, social distancing and masking requirements while continuing to offer courses in a virtual setting for those that prefer remote course learning. There can be no assurance that these and other protective measures we have implemented or may put in place will be successful in preventing cases of COVID-19 among our employees and students, or that HCN will not need to again further limit campus interactions or close its campuses. Furthermore, we have limited experience delivering HCN’s curriculum online, and to the extent HCN utilizes online learning, HCN’s students may not experience the same level of success in coursework or with NCLEX scores as they would in a traditional campus environment. If HCN is unable to continue to deliver instruction on campus or to effectively create and manage online or blended versions, or otherwise arrange for delivery of all of the required elements of HCN’s academic programs, HCN’s students may not be able to complete their studies with HCN, impacting their ability to graduate and obtain licensure, employment or their other desired outcomes. This would likely have a material adverse effect on our business, financial condition or results of operations. Furthermore, the need to practice social distancing increases the need for space in HCN’s facilities and therefore HCN has temporarily obtained and may need to obtain further additional facilities. For example, in October 2020, HCN began temporarily expanding certain campuses through short-term leases of additional space to be used as lab space in order to accommodate student demand in compliance with COVID-related public health measures that effectively limit the number of students in each lab class. HCN may also need to place restrictions on program size, which may adversely impact our results of operations.

While we have not experienced significant changes in interactions with students other than by temporarily shifting to online and then blended in person and online learning at HCN, we may experience such impacts in the future if the COVID-19 pandemic and its effects are prolonged or increase in scope. For example, APUS faculty, substantially all of whom work remotely in ordinary circumstances, and our student support services teams, many of whom routinely work in our offices, may experience increasing difficulty in continuing to provide quality instruction and support to our students if current social distancing and future “stay-at-home” orders impact the communities in which they live, causing disruption in their lives that could impact their ability to provide a quality product, lead to increase absenteeism, or impact their ability to continue working. Almost all of the remainder of our workforce is working remotely, and we have implemented business continuity processes, which may lead to decreased operational efficiency and other challenges inherent in doing things in a manner different than our ordinary course operations. If faculty, student support services staff, administrators, or other skilled personnel cease working or are unable to work as efficiently or effectively due to the effects of the COVID-19 pandemic, we could lose capacity and expertise critical to our operations and the delivery of instruction and services to students. Over time, any reduction in operating efficiencies or other business challenges could compound or worsen, adversely impacting our operations and our ability to provide services to our students. For example, the economic downturn, restrictions on business activities, and other effects of the COVID-19 pandemic could result in the inability of our third-party vendors to serve us, which could disrupt integral business processes. Remote working and the implementation of business continuity processes also generally create operational challenges around information technology matters, including, for example, an enhanced risk of cyber events and more difficulty in responding to them. It is not practical to estimate or identify all potential risks that could arise from having substantially all of our workforce working remotely or other impacts of the COVID-19 pandemic and there may be risks that are not reasonably

foreseeable. There could be significant adverse effects on our business, financial condition, and results of operations that we have not identified or that we do not currently expect will be material.

The ongoing COVID-19 pandemic and resulting changes to our teaching methodology at HCN could have an adverse impact on the ability of HCN’s graduates to obtain professional licensure, employment, or other outcomes, which could reduce our enrollments and revenue, limit our ability to offer educational programs, and potentially lead to litigation that could be costly to us.

To apply for licensure to practice nursing in Ohio, an applicant must have successfully completed a nursing education program that is approved by the OBN. The OBN requires that nursing education programs such as HCN’s PN and ADN Programs have a pass rate on the relevant NCLEX that is at least 95% of the national average for first-time candidates in a calendar year. As discussed more fully in “Regulatory Environment - State Authorization/Licensure of Our Institutions” in Part I, Item 1 of our Annual Report, failure to satisfy that requirement can result in the OBN taking certain adverse actions, including placement of a program on provisional status or withdrawal of approval pursuant to an adjudication proceeding. In March 2017, the OBN placed HCN’s ADN Program on provisional approval because the ADN Program has not met the OBN pass rate standard for four consecutive years. In March 2020, the OBN found that HCN’s ADN Program did not meet the OBN pass rate standard in 2019 for a seventh consecutive year. HCN has been implementing changes, including curriculum, admissions, and academic achievement and course retake policy changes that are designed to improve NCLEX scores over time, but there is no assurance that these changes will be successful or will not have negative effects on HCN’s enrollment. In addition, we cannot be certain that factors beyond our control, such as the ongoing COVID-19 pandemic, which previously led to the temporary shifting of HCN’s courses to online delivery and then to a blended model of in person and online, will not have a negative impact on the student experience, student outcomes and NCLEX scores. If HCN is unable to improve NCLEX scores over time, this situation could have an adverse impact on our ability to enroll students and eventually our ability to continue HCN’s ADN Program, any of which would have an adverse effect on our results of operations, cash flows, and financial condition.

On March 27, 2020, Ohio enacted a COVID-19 emergency relief law that allows individuals who have successfully completed a nursing education program approved by OBN to receive a temporary license to practice as an RN or LPN before taking the NCLEX. Graduates of OBN-approved nursing education programs, such as HCN’s programs, may apply for a temporary license that would be valid until of the earlier of March 1, 2021 and 90 days after the period of emergency ends. However, the length of the emergency period remains unclear, and we cannot predict the effect Ohio’s emergency relief law will have on our NCLEX scores, if any.

If HCN’s graduates fail to obtain professional licensure or employment or experience other negative outcomes in their chosen fields of study, including as a result of the COVID-19 pandemic and the resulting changes to our academic program, 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. Adverse impacts on HCN resulting from the COVID-19 pandemic could also lead to an impairment of goodwill.

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

A variety of factors impact our ability to attract new, qualified students in a cost-effective manner, and these students must remain active in our institutions’ programs. In 2020, we launched a new marketing campaign focusing on affordability and return on investment for learners. Our marketing efforts, including our new campaign, may be less successful than we anticipate in attracting qualified students. It may also be difficult to assess the value of our efforts if we are unable to ascertain whether and to what extent these efforts are impacted by extrinsic events, including the ongoing COVID-19 pandemic and the related economic downturn. More generally, we are unable to estimate the level of disruption that the ongoing COVID-19 pandemic and the related economic downturn will have on our business, including our ability to attract new, qualified students and the ability of our existing students to continue to persist in our programs. For example, the pandemic could have an adverse effect on student enrollment if current or prospective students are unable to pay for tuition or related costs of postsecondary education, or otherwise decide not to pursue postsecondary education in light of the COVID-19 pandemic and related economic, health, family, or other hardships they are facing.

If we are unable to successfully pursue HCN’s program initiatives and expansions, including opening new HCN campuses, our future growth may be impaired.

We experienced decreases in enrollment at HCN in 2019, which resulted in a significant decline in revenue in our HCN Segment. The success of HCN will depend on our ability to maintain and increase student enrollments in HCN’s programs and grow HCN’s on-campus offerings. As part of our strategy, we intend to open new campuses for HCN, such as the new campus in suburban Toledo, Ohio that began operations in early 2017, our new campus in Indianapolis, Indiana that began courses in April 2020, and our planned additional campus in Akron, Ohio. Such actions require us to obtain appropriate federal, state, and accrediting agency approvals and to comply with any requirements from those agencies related to a new location. Adding new locations may also require significant financial investments, human resource capabilities, and new clinical placement relationships. In addition, regulatory authorities may place limitations or restrictions on new programs or campuses, including by only provisionally accrediting programs or limiting the number of initial enrollees. For example, in November 2019, the Indiana State Board of Nursing voted to grant initial accreditation for a PN Program at HCN’s Indianapolis campus, but growth beyond an initial cohort of up to 30 students for the first year is subject to HCN’s ability to petition to increase the number of admissions after a site visit that will occur upon graduation of the first cohort. The Indiana State Board of Nursing will not grant the Indianapolis campus full accreditation status until the first cohort graduates, and may not grant full accreditation at that time if the program has a pass rate lower than one standard deviation below the average national pass rate. The increase of student enrollments and growth of HCN’s on-campus offerings, including through opening of new campuses and full accreditation of those campuses, may be adversely affected by events beyond our control.

If we are unable to, or suffer any delay in our ability to, obtain appropriate approvals, open, accredit and attract additional students to new campus locations, offer programs at new campuses in a cost-effective manner, identify appropriate clinical placements, or otherwise manage effectively 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, including as a result of constraints on our operations due to COVID-19, pursue new program initiatives, and add new campuses would harm our ability to grow our business and could have an adverse impact on our financial condition.

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

Our business has been in the past and may in the future be adversely affected by a general economic slowdown or recession in the U.S. or abroad, such as the economic downturn associated with the COVID-19 pandemic. Adverse economic developments could 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, require increased time, attention, and resources to manage these defaults, adversely affect the recoverability of receivables, and increase our bad debt expense, among other impacts. Higher default rates may also adversely impact our eligibility to participate in some Title IV programs, which could adversely impact our operations and financial condition. The CARES Act provided temporary relief for federal student loan borrowers by suspending payments on federal student loans until September 30, 2020, and an executive order extended this relief until December 31, 2020. During this period, interest will not accrue and involuntary collection procedures will be suspended. However, this relief is not permanent and we cannot predict whether additional relief will be granted or what the impact of the end of this temporary relief will be.

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 payment. Normally, if a student withdraws, our institutions must return any unearned Title IV funds, which may include a portion of the credit balance payment, and must seek to collect from the student any resulting amounts owed to the institution. The CARES Act provides that institutions are not required to return Title IV funds to ED in connection with a student who withdraws from the institution during the payment period or period of enrollment as a result of a government-declared COVID-19-related emergency. However, a protracted economic slowdown could negatively impact such students’ ability 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.

The CARES Act and COVID-19-related regulatory guidance may contain provisions that could benefit some institutions more than others, their provisions may be ambiguous or subject to change, we may have difficulty adjusting our systems to comply, and failure to comply could subject us to penalties.

As more fully described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview - Regulatory and Legislative Activity,” in March 2020, Congress passed the CARES Act in response to COVID-19 and its related effects. Wholly online institutions are effectively ineligible for any of the $12.6 billion in funding from ED

available to higher education institutions under the Higher Education Emergency Relief Fund, or HEERF, established by the CARES Act. ED allocated $3.1 million for HCN and in May 2020, HCN received its HEERF allocation. No allocation of HEERF funds was made to APUS by ED. As part of the process to receive its allocation, HCN signed a funding certification and agreement setting forth terms and conditions, including compliance with relevant CARES Act provisions and applicable law.

The CARES Act requires recipient institutions to use at least 50% of their HEERF funds to provide emergency grants to students for expenses related to the disruption of campus operations due to COVID-19. The CARES Act also permits institutions to use up to 50% of their HEERF funds to cover any costs associated with significant changes to the delivery of instruction due to COVID-19, so long as such costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. Although HCN incurred costs to shift its delivery of instructions and operations due to COVID-19, it chose to distribute its entire HEERF allocation directly to eligible students.

Our institutions’ failure to comply with applicable CARES Act provisions, including provisions related to funding and waivers of Title IV requirements, or with ED guidance related to the COVID-19 pandemic, both of which contain ambiguities, could result in administrative sanctions including fines, restrictions on our ability to participate in Title IV programs, debarment and suspension, and liabilities under applicable law, such as the False Claims Act. The CARES Act and related ED guidance waive certain federal student financial aid requirements in connection with COVID-19 developments and, to the extent such waivers apply to our institutions, we may have difficulty adjusting our systems to comply with those waivers and our institutions’ failure to comply with those waivers. In addition, ED guidance related to the COVID-19 pandemic may change as the pandemic continues. We cannot predict what additional regulatory actions may be taken or legislation put in place in connection with the COVID-19 pandemic or what impact such regulations or legislation may have on us or our institutions, if any.

Our institutions’ failure to comply with ED’s regulations related to distance education could result in actions that would have a material adverse effect on our enrollments, revenue, and results of operations.

In October 2018, ED announced the Accreditation and Innovation Committee would prepare proposed regulations related to, among other things, courses offered through distance education. ED published a notice of proposed rulemaking in April 2020 based on consensus language agreed to by the Accreditation and Innovation Committee. On August 24, 2020, ED released the final rule, which goes into effect on July 1, 2021. The rulemaking on distance education provides institutions additional flexibility in offering distance education and competency-based education programs. New definitions related to “academic engagement,” “distance education,” and “regular and substantive interaction” provide further clarity regarding the instructional requirements that distance education programs must abide by in order to remain eligible for Title IV disbursements. Failure to comply with these standards could lead to adverse actions by ED.

The postsecondary education regulatory environment may change in the future as a result of the U.S. federal election in November 2020 and any related run-off elections.

A change in the Presidential Administration or Congress may result in changes to, or elimination of, currently effective ED regulations, or the implementation of new ED regulations. For example, a new Congress could seek to act under the Congressional Review Act, which establishes legislative procedures through which Congress may adopt a joint resolution of disapproval to nullify certain agency final regulations within a certain time period after the regulations are finalized by the agency. ED, under new leadership, could also initiate new rulemaking processes to alter existing regulations and could act to change existing ED policies and practices with respect to matters related to postsecondary education institutions. We cannot predict the extent to which a new Presidential Administration or Congress will act to change or eliminate or to implement new ED regulations, policies, and practices, nor can we predict the form that new regulations, policies, or practices may take. We also cannot predict the extent any other potential regulatory or legislative activity as a result of the U.S. federal elections may impact us or our institutions, nor can we predict the possible associated burdens and costs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Repurchases

During the three months ended September 30, 2020, we did not repurchase any shares of our common stock. The table and footnotes below provide details regarding our repurchase programs (unaudited):


	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)(3)
July 1, 2020	—	$	—	—	312,816	$	8,396,734
July 1, 2020 - July 31, 2020	—	—		—	317,924	8,396,734
August 1, 2020 - August 31, 2020	—	—		—	331,841	8,396,734
September 1, 2020 - September 30, 2020	—	—		—	331,841	8,396,734
Total	—	$	—	—	331,841	$	8,396,734

(1)On December 9, 2011, our Board of Directors approved a stock repurchase program for our common stock, under which we could annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans. Repurchases may be made from time to time in the open market at prevailing market prices or in privately negotiated transactions based on business and market conditions. The stock repurchase program does not obligate us to repurchase any shares, may be suspended or discontinued at any time, and is funded using our available cash.

(2)On May 2, 2019, our Board of Directors authorized the repurchase of up to $35.0 million of our common stock, and on December 5, 2019, our Board approved an additional authorization of up to $25.0 million of shares. We may purchase shares at management’s discretion in the open market, in privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. We may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of shares under this authorization. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow, stock price and general business and market conditions. We have no obligation to repurchase shares and may modify, suspend or discontinue the repurchase program at any time. The authorization under this program is in addition to our repurchase program under which we may annually purchase up to the cumulative number of shares issued or deemed issued in that year under our equity incentive and stock purchase plans.

(3)During the three month period ended September 30, 2020, we were deemed to have repurchased 5,395 shares of common stock forfeited by employees to satisfy minimum tax-withholding requirements in connection with the vesting of restricted stock grants. These repurchases were not part of the stock repurchase program authorized by our Board of Directors as described in footnotes 1 and 2 of this table.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits


Exhibit No.			Exhibit Description

2.1			Membership Interest Purchase Agreement, dated October 28, 2020, by and among American Public Education, Inc., FAH Education, LLC, Rasmussen, LLC, and Rasmussen College, LLC. (1)
10.1+			Amendment to Executive Employment Agreement dated September 23, 2020, by and between American Public Education, Inc. and Angela Selden
10.2+			Executive Employment Agreement dated June 29, 2020 by and among American Public University System, Inc., American P ublic Education , Inc. and Wade T. Dyke
10.3			Commitment Letter, dated October 28, 2020, by and among American Public Education, Inc., Macquarie Capital (USA) Inc. and Macquarie Capital Funding LLC. (1)
31.1			Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-101.INS			XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
EX-101.SCH			Inline XBRL Taxonomy Extension Schema Document
EX-101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
EX-101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
EX-101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
EX-101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


+			Management contract or compensatory plan or arrangement.

(1)			Incorporated by reference to exhibit filed with the registrant’s Current Report on Form 8-K (File No. 001-33810) filed with the Commission on October 28, 2020.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						AMERICAN PUBLIC EDUCATION, INC.
			/s/ Angela Selden			November 9, 2020
			Angela Selden
			President and Chief Executive Officer
			(Principal Executive Officer)


			/s/ Richard W. Sunderland, Jr.			November 9, 2020
			Richard W. Sunderland, Jr.
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

Exhibit 10.1

Amendment to

American Public Education, Inc.

Executive Employment Agreement

THIS AMENDMENT TO THE EXECUTIVE EMPLOYMENT AGREEMENT (the “Amendment”) is made and entered into effective as of September 23, 2020 (the “Amendment Effective Date”), by and between American Public Education, Inc., a Delaware corporation (the “Company”) and Angela Selden (the “Executive”).

WHEREAS, the Company and Executive entered into that certain Executive Employment Agreement (the “Agreement”) dated as of August 21, 2019, to be effective as of September 23, 2019, and

WHEREAS, the Company and the Executive desire to amend Section 7 of the Agreement in the manner reflected herein,

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows, effective as of the Amendment Effective Date:

1. Relocation. Section 7 of the Agreement is hereby deleted and replaced in its entirety with the following (with all capitalized terms having the meaning originally ascribed thereto in the Agreement):

“7. Relocation Expenses/Initial Hire. In calendar year 2021, the Company shall reimburse the Executive up to $75,000 in incurred expenses for Executive’s relocation to the vicinity of the Company’s headquarters, which expenses are limited to eligible expenses set forth in the Company’s relocation policy (which includes reasonable and customary meals during house hunting trips), subject to such exceptions as may be approved by the Compensation Committee, and are otherwise subject to the terms and conditions of such policy. In addition, all such reimbursed expenses must be repaid by the Executive to the Company on demand if within two (2) years of the Effective Date, the Executive’s employment terminates unless such termination was by the Company without Cause, by Executive for Good Reason or on account of death or Disability. In addition, for a period of not longer than two (2) years after the Effective Date, (i) to facilitate Executive’s presence and duties at Company locations, the Company shall reimburse the Executive for temporary lodging expenses in connection with the Executive’s work at Company locations, which amount may not exceed $8,000 per month, and (ii) the Company will reimburse the Executive the costs for round trip travel in economy class one time per week from the work location that the Executive was working in that week to the Executive’s current residence in Florida. The Executive acknowledges that the foregoing reimbursements will constitute taxable income.”

2. Counterparts. This Amendment may be executed in one or more facsimile, electronic or original counterparts, each of which shall be deemed an original and both of which together shall constitute the same instrument.

3. Ratification. All terms and provisions of the Agreement not amended hereby, either expressly or by necessary implication, shall remain in full force and effect. From and after the date of this Amendment, all references to the term “Agreement” in this Amendment or the original Agreement shall include the terms contained in this Amendment.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment to the Executive Employment Agreement effective as of the Amendment Effective Date.

[Signature page follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first hereinabove written.


			AMERICAN PUBLIC UNIVERSITY SYSTEM, INC.


			By:			/s/ Richard W. Sunderland, Jr.
			Name:			Richard W. Sunderland, Jr.
			Title:			Chief Financial Officer


			AMERICAN PUBLIC EDUCATION, INC.


			By:			/s/ Richard W. Sunderland, Jr.
			Name:			Richard W. Sunderland, Jr.
			Title:			Chief Financial Officer


			THE EXECUTIVE


			By:			/s/ Angela Selden
			Name:			Angela Selden
			Title:			Chief Executive Officer

Exhibit 10.2

AMERICAN PUBLIC UNIVERSITY SYSTEM, INC.

AMERICAN PUBLIC EDUCATION, INC. EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”), entered into as of this 29TH day of June, 2020 is to be effective as of the 12TH day of August, 2020, or on such earlier date on which the parties mutually agree (the “Effective Date”), by and among American Public University System, Inc., a West Virginia corporation (the “University”), American Public Education, Inc., a Delaware corporation (the “Parent”) and Wade T. Dyke (the “Executive”).

WHEREAS, the University is a wholly owned subsidiary of Parent; and

WHEREAS, effective as of the Effective Date, the University desires to employ the Executive as the President of the University, and the Executive desires to be employed by the University in that capacity, on the terms and conditions set forth herein.

1.Employment. On the terms and conditions set forth in this Agreement, the University agrees to employ the Executive, and the Executive agrees to be employed by the University, for the term set forth in Section 2 hereof and in the position and with the duties set forth in Section 3 hereof.

2.Term. The employment of the Executive by the University as President as provided in Section 1 hereof shall be deemed to have commenced on the Effective Date. Unless sooner terminated as hereinafter set forth, the term of this Agreement shall end on March 31, 2024; provided, however, that this Agreement will automatically renew for additional one (1)-year periods (each a “Renewal Term”) on each anniversary thereafter unless the University and Parent deliver to the Executive written notice of intent not to renew at least one hundred eighty (180) days prior to the expiration of the term or any Renewal Term. If this Agreement is renewed for one (1) or more Renewal Terms, such Renewal Term shall be on the basis stated herein. For the avoidance of doubt, the parties hereby acknowledge and agree that the Executive’s employment will not automatically terminate or end solely as a result of the expiration of the Agreement at the end of the term or any Renewal Term.

3.Position and Duties. Effective as of the Effective Date, the Executive shall serve as the President of the University, or in another position of equal or greater title, authority and responsibility, as assigned by the Board of Trustees of the University (the “Board”), with duties and responsibilities commensurate with the Executive’s position and additional duties as the Board may from time to time, in its sole discretion, determine and assign to the Executive. The Executive shall devote the Executive’s best efforts and full business time to the performance of the Executive’s duties and the advancement of the business and affairs of the University. The Executive shall not become a director or trustee of any entity without first obtaining the approval of the Board, which shall not be unreasonably withheld, and shall not engage in such activities that would conflict or interfere with the Executive’s performance of the Executive’s duties hereunder, including, but not limited to, the obligations set forth in Section 9 and Section 10 of this Agreement.

4.Place of Performance. In connection with the Executive’s employment by the University, the Executive shall be based at the principal executive offices of the University, which the University retains the right to change in its sole discretion, or such other place as the University and the Executive mutually agree.

5.Compensation.

a.Base Salary. The University shall pay to the Executive an annual base salary (the “Base Salary”) at the rate of $450,000 per year. The Base Salary shall be reviewed no less frequently than annually and may be increased at the discretion of the Board and the

Management Development and Compensation Committee (the “MDC Committee”) of the Board of Directors of Parent. If the Executive’s Base Salary is increased, the increased amount shall be the Base Salary for the remainder of the employment term hereunder. The Base Salary shall be payable biweekly or in such other installments as shall be consistent with the University’s payroll procedures.

b.Annual Bonus. The Executive shall be eligible to receive a bonus of up to fifty-five percent (55%) of the Executive’s Base Salary for each year as determined by the MDC Committee in its sole discretion (the “Annual Bonus”), based upon the achievement of certain performance goals established by the MDC Committee for each year. The Executive will also be eligible to receive an additional percentage of up to thirty percent (30%) of the Executive’s Base Salary for each year as determined by the MDC Committee in its sole discretion, based upon the achievement of certain “stretch” performance goals established by the MDC Committee for each year. Any such bonus shall be paid by March 15 of the year following the year of performance and shall be paid in accordance with and subject to any policy of the University on the payment of bonuses. Notwithstanding the foregoing, the Annual Bonus for calendar year 2020 shall be prorated for the portion of the calendar year in which Executive is employed, provided that the Annual Bonus for calendar year 2020 shall not be less than $100,000.

c.Long Term Incentives. The Executive shall be eligible to participate in such long term incentive programs applicable to members of the Senior Executive Group.

d.Signing Bonus. The University shall pay, or cause to be paid, to the Executive, on each of the first regular payroll date after the Effective Date and the first regular payroll after the three month anniversary of the Effective Date, a lump sum cash bonus payment of $37,500 on each such date, provided, that if the Executive’s employment terminates within twelve (12) months of the date of payment of either of such bonus installments, either by the Company with Cause or by the Executive without Good Reason, each as defined below, the Executive shall return any such bonus paid in the prior twelve (12) months to the Company within five (5) business days of the termination of the Executive’s employment.

e.Equity Award. The MDC Committee shall authorize (i) a time-based restricted stock unit grant of shares of the common stock of Parent granted on the Effective Date, with the number of shares to be determined by dividing $420,000 by the average closing price of the Parent common stock for the 60 days ending on the Effective Date, with vesting to occur in three equal installments on each of the first three anniversaries of the Effective Date, subject to Executive’s continued employment through each applicable vesting date; and (ii) a time-based stock option grant of shares of the common stock of the Parent granted on the Effective Date, with an aggregate grant date fair value of $180,000 (based upon a Black-Scholes valuation calculation determined by Parent) and an exercise price equal to the Fair Market Value, as defined in the Parent’s 2017 Omnibus Incentive Plan, on the Effective Date, with vesting to occur in three equal installments on each of the first through third anniversaries of the Effective Date, subject to Executive’s continued employment through each applicable vesting date (each of (i) and (ii), the “Initial Equity Grants”). The Initial Equity Grants shall be issued pursuant to Parent’s standard form of award agreements for the grants.

f.Other Benefits. The Executive shall be entitled to receive such other benefits approved by the MDC Committee and made available to senior executives of the University. The Executive also shall be entitled to participate in such plans and to receive such other and additional bonuses, incentive compensation and fringe benefits as may be granted or established by the University from time to time. Nothing contained in this Agreement shall prevent the University from changing carriers or from effecting modifications in insurance coverage for the Executive.

g.Vacation; Holidays. The Executive shall be entitled to all public holidays observed by the University and vacation days in accordance with the applicable vacation policies applicable to senior executives of the University, which shall be taken at a reasonable time or times. For purposes of calculating the Executive’s eligibility under applicable vacation policies of the University, he will be credited with an additional three (3) years of service.

h.Withholding Taxes and Other Deductions. To the extent required by law, the University shall withhold from any payments due Executive under this Agreement any applicable federal, state or local taxes and such other deductions as are prescribed by law or University policy.

6. Expenses. The University shall reimburse the Executive for all reasonable expenses incurred by the Executive (in accordance with the policies and procedures in effect for senior executives of the University) in connection with the Executive’s services under this Agreement. The Executive shall account to the University for expenses in accordance with policies and procedures established by the University.

7. Relocation Expenses/Initial Hire. For a period through August 31, 2021 (the “Relocation Date”), to facilitate Executive’s presence and duties at the principal executive offices of the University, the University shall provide the Executive with (a) lodging in University housing, (b) reimbursement for a rental car in a class consistent with University policy when the Executive is commuting from his current residence to the University’s principal executive offices, and (c) reimbursement of the costs for round trip travel in economy class one time per week between the University’s principal executives offices and the Executive’s current residence. Additionally, during the period of time from the Effective Date through December 31, 2021, the University shall reimburse the Executive up to $60,000 in incurred expenses for Executive’s relocation to the vicinity of the University’s principal executive offices, which expenses are limited to eligible expenses set forth in the University’s relocation policy and otherwise subject to the terms and conditions of such policy, provided that any such reimbursed relocation expenses must be repaid by the Executive to the University within five (5) business days of the termination of the Executive’s employment if within twelve (12) months of the Relocation Date, the Executive’s employment terminates unless such termination was by the University without Cause, by Executive for Good Reason or on account of death or Disability. The Executive acknowledges that the foregoing reimbursements will constitute taxable income.

8. Relocation Expenses/Place of Performance. The University will pay or reimburse, or cause to be paid or reimbursed to, the Executive for the customary and reasonable moving expenses incurred by the Executive in connection with any subsequent relocation of Executive’s place of performance pursuant to Section 4 of this Agreement.

9. Confidential Information.

a.Obligation of Confidentiality. The Executive covenants and agrees that the Executive will not ever, without the prior written consent of the Board or a person authorized by the Board or except as may be ordered by a court of competent jurisdiction, publish or disclose to any unaffiliated third party (other than in the Executive’s good faith conduct of his position and duties with the University and/or Parent and on behalf of the University, Parent or their affiliates) or use for the Executive’s personal benefit or advantage any confidential information with respect to the University’s, Parent’s or their affiliates’ past, present, or planned business, including but not limited to all information and materials related to any University, Parent or their affiliates’ business, business plan, product, service, procedure, method, technique, technology, research, strategy, plan, customer or supplier information, customer or supplier list, financial data, technical data, computer files, and computer software, including any of the foregoing that is in any stage of research, development, or planning, and any other information which the Executive obtained while employed by, or otherwise serving or acting on behalf of, the University, Parent or their affiliates or which the Executive may possess or have under his control,

that is not generally known (except for unauthorized disclosures) to the public or within the industries in which the University, Parent or their affiliates, respectively, do business.

b.Reasonable Restrictions. The Executive acknowledges that the Executive will occupy a position of trust and confidence with respect to the University’s and Parent’s business affairs. The Executive further acknowledges that the restrictions contained in Section 9(a) hereof are reasonable and necessary, in view of the nature of the University’s or Parent’s business, in order to protect the legitimate interests of the University or Parent, and that any violation thereof would result in irreparable injury to the University or Parent. Therefore, the Executive agrees that in the event of a breach or threatened breach by the Executive of the provisions of Section 9(a) hereof, the University or Parent shall be entitled to obtain from any court of competent jurisdiction consistent with the standards for equitable relief from such court, preliminary or permanent injunctive relief restraining the Executive from disclosing or using any confidential information. Nothing herein shall be construed as prohibiting the University or Parent from pursuing any other remedies available to it for breach or threatened breach, including, without limitation, recovery of damages from the Executive.

c.Return of Materials. The Executive shall deliver promptly to the University or Parent on termination of employment, or at any other time the University or Parent may so request, all confidential materials, memoranda, notes, records, reports and other documents and materials (and all copies thereof), in whatever form or medium, that contain any of the foregoing, including but not limited to computer data, files, software, and hardware, relating to the University’s, Parent’s or their respective affiliates’ respective businesses that the Executive obtained while employed by, or otherwise serving or acting on behalf of, the University or Parent or which the Executive may then possess or have under his control.

d.Rights Not Subject to Limitation. Notwithstanding anything in this Agreement, the Executive may (i) disclose confidential information that the Executive is specifically required by court order, subpoena, or law to disclose, but agrees to disclose only that portion of confidential information that is legally required to be disclosed; (ii) report possible violations of law to a government agency or entity or self-regulatory organization or cooperate with such agency or entity or organization; or (iii) make whistleblower or other disclosures that are protected under whistleblower provisions of federal or state law (including, without limitation, receiving any whistleblower award provided for under such laws or regulations).

The Executive understands that the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (x) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (y) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal to the extent permitted by the court. Additionally, an individual suing an employer for retaliation based on the reporting of a suspected violation of law may disclose a trade secret to his or his attorney and use the trade secret information in the court proceeding, so long as any document containing the trade secret is filed under seal to the extent permitted by the court and the individual does not otherwise disclose the trade secret except pursuant to court order.

10. Non-Competition.

a.Non-Competition. The Executive covenants and agrees that, during the Executive’s employment with the University and/or the Parent and for a period of eighteen (18) months thereafter, regardless of the reason for such termination of employment, the Executive will not, directly or indirectly, at any time, in the United States or any other

jurisdiction in which the University, the Parent or their respective corporate controlled affiliates is engaged or has reasonably firm plans to engage in business, whether as a principal, investor, employee, consultant, independent contractor, officer, director, board member, manager, partner, agent, or otherwise, alone or in association with any other person, firm, corporation, or business organization, work for, become employed by, engage in, carry on, provide services to, or assist in any manner (whether or not for compensation or gain) a person or entity that engages in any business in which the University, the Parent, or any of their corporate controlled affiliates is engaged (a “Competing Business”), where Executive’s position or service for such Competing Business relates to Executive’s positions with or the types of services performed by the Executive for the University, the Parent, or any of their corporate controlled affiliates; provided, however, that the foregoing will not prohibit the Executive from serving on a board of directors (or comparable bodies) of other entities where the Parent has given prior permission; and provided, further, that the foregoing covenants and agreements in this Section 10(a) will not be in effect at any time when the University is in material breach of its obligations under Section 12(d) below. Notwithstanding the foregoing, the ownership by the Executive of less than one percent (1%) of the outstanding stock of any corporation listed on a national securities exchange shall not be deemed a violation of this Section 10(a).

b.Injunctive Relief. The University and Parent shall be entitled to injunctive relief to protect its rights under this Section 10 without the necessity of posting a bond. In the event the restrictions contained in Section 10(a) or Section 10(c) hereof shall be determined by any court or arbitrator of competent jurisdiction to be unenforceable by reason of their extending for too great a period of time or over too great a geographical area or by reason of their being too extensive in any other respect, Section 10(a) or Section 10(c) hereof shall be interpreted to extend only over the maximum period of time for which it may be enforceable and over the maximum geographical area as to which it may be enforceable and to the maximum extent in all other respects as to which it may be enforceable, all as determined by the court or arbitrator in the action.

c.Non-Solicitation. The Executive covenants and agrees that the Executive will not, directly or indirectly, during the Executive’s employment with the University and/or the Parent and for a period of eighteen (18) months thereafter, regardless of the reason for such termination of employment, solicit, induce, entice, or encourage or attempt to solicit, induce, entice, or encourage any employee of the University or Parent or any of the University, the Parent, or any of their corporate controlled affiliates to render services for any other person, firm, entity, or corporation or to terminate his employment with the University, the Parent, or any of their corporate controlled affiliates.

11. Termination of Employment.

a.Death. The Executive’s employment hereunder shall terminate upon the Executive’s death.

b.By the University. The University may terminate the Executive’s employment hereunder under the following circumstances:

i.The University may terminate the Executive’s employment hereunder for “Disability”, subject to compliance with applicable law. For purposes of this Agreement, “Disability” shall mean the Executive shall have been unable to perform all of the Executive’s duties hereunder by reason of illness, physical or mental disability or other similar incapacity, which inability shall continue for more than three (3) consecutive months.

ii.The University may terminate the Executive’s employment hereunder for “Cause.” For purposes of this Agreement, “Cause” shall mean (A) refusal by the Executive to follow a lawful written order of the Chair of the Board or the Board, (B) the Executive’s engagement in conduct materially injurious to the University or Parent or their respective reputations, which includes, without limitation, conduct that violates the University’s harassment, discrimination, or equal employment opportunity policies, (C) dishonesty of a material nature that relates to the performance of the Executive’s duties under this Agreement, (D) the Executive’s commission of any act or omission that results in, or that may reasonably be expected to result in, conviction for (x) any crime involving moral turpitude or (y) any felony, (E) the Executive’s continued failure to perform his duties reasonably assigned to his under this Agreement (except due to the Executive’s incapacity as a result of physical or mental illness) to the satisfaction of the Board for a period of at least thirty (30) consecutive days after written notice is delivered to the Executive specifically identifying the manner in which the Executive has failed to perform his duties.

iii.The University, in the sole discretion of the Board, may terminate the Executive’s employment hereunder at any time other than for Disability or Cause, for any reason or for no reason at all.

c. By the Executive. The Executive may terminate the Executive’s employment hereunder for “Good Reason.” For purposes of this Agreement, “Good Reason” shall mean:

i.the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position as contemplated by Section 3 of this Agreement, which constitute a material diminution in the Executive’s authorities, duties, or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action which is remedied by the University promptly after receipt of notice thereof given by the Executive to the University and the Parent;

ii.any material failure by the University to comply with any of the provisions of this Agreement, other than an isolated, insubstantial and inadvertent failure which is remedied by the University or Parent promptly after receipt of notice thereof given by the Executive to the University and the Parent, provided, that in no event will a failure to pay an earned Annual Bonus by March 15 of the year following the performance year be considered a material failure by the University or Parent to comply with this Agreement;

iii.after a Change of Control (as defined in Section 13), the Executive does not continue as the President of American Public University System (or the most senior resulting entity succeeding to the business of the University); or

iv.any material failure by the University or Parent to comply with and satisfy Section 17(c) of this Agreement.

In order to constitute Good Reason, the Executive must provide notice to the University and Parent of the existence of the condition within ninety (90) days of the initial existence. None of the foregoing events shall constitute Good Reason if the Executive consents in writing to such event. The Executive further understands and agrees that none of the foregoing events shall constitute Good Reason unless the University or Parent fails to cure such asserted grounds for Good Reason within thirty (30) days of its receipt of notice from the Executive. In order to terminate his employment, if at all, for Good Reason, Executive must

terminate employment within thirty (30) days of the end of the cure period if the breach has not been cured.

d. Notice of Termination. Any termination of the Executive’s employment by the University or the Executive (other than pursuant to Section 11(a) hereof) shall be communicated by written “Notice of Termination” to the other party hereto in accordance with Section 14 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

e. Date of Termination. For purposes of this Agreement, the “Date of Termination” shall mean (i) if the Executive’s employment is terminated by the Executive’s death, the date of the Executive’s death; (ii) if the Executive’s employment is terminated pursuant to Section 11(b)(i) hereof, thirty (30) days after the date of the Notice of Termination, provided, that the Executive shall not have returned to the performance of the Executive’s duties on a full-time basis during this thirty (30)-day period; (iii) if the Executive’s employment is terminated pursuant to Section 11(b)(ii) or 11(b)(iii) hereof, the date specified in the Notice of Termination; (iv) if the Executive terminates the Executive’s employment for Good Reason pursuant to Section 11(c) hereof, the date specified in the Notice of Termination, provided, however, that such date must occur after the cure period provided in Section 11(c); and (v) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination. Notwithstanding the foregoing, the Executive will be deemed to have a Date of Termination for purposes of determining the timing of any payments or benefits hereunder that are classified as deferred compensation only upon a “separation from service” within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations thereunder (the “Code”).

12. Compensation Upon Termination.

a.If the Executive’s employment is terminated by the Executive’s death, the University shall pay to the Executive’s estate, or as may be directed by the legal representatives of the estate, (i) the Executive’s full Base Salary through the Date of Termination to the extent not theretofore paid, (ii) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), provided that any such deferred compensation shall be paid in accordance with the terms and conditions of any applicable deferred compensation plan, and any accrued vacation pay, in each case, to the extent not theretofore paid, and (iii) all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any incentive compensation plan or program of the University pursuant to Section 5(b) “Annual Bonus,” Section 5(d) “Signing Bonus,” Section 5(f) “Other Benefits,” and Section 7 “Relocation Expenses” hereof (the sum of the amounts described in clauses (i), (ii) and (iii) shall be hereinafter referred to as the “Base Amounts”), at the time these payments are due and the University and Parent shall have no further obligations to the Executive under this Agreement.

b.If the University terminates the Executive’s employment for Disability as provided in Section 11(b)(i) hereof, the University shall pay to the Executive the following amounts and the University and the Parent shall have no further obligations to the Executive, provided, that in the case of payments to be made pursuant to section (i)(B), (ii) and (iii) below, on or before the sixtieth (60th) day following the Date of Termination, the Executive executes a release of claims substantially in the form attached hereto as Appendix A and all revocation periods applicable to such release have expired without the release being revoked:

i.an amount equal to the sum of (A) the Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (B) the product of (x) the Annual Bonus (to the extent University and Executive performance were satisfying the performance targets, adjusted for the short period through the Date of Termination, for an Annual Bonus) and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, and (C) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon), provided that any such deferred compensation shall be paid in accordance with the terms and conditions of any applicable deferred compensation plan, and any accrued vacation pay, in each case, to the extent not theretofore paid, (the sum of the amounts described in clauses (A), (B), and (C) shall be hereinafter referred to as the “Accrued Obligations”) in a lump sum in cash within thirty (30) days of the Date of Termination; and

ii.an amount equal to 1.5 times the Executive’s Base Salary paid in substantially equal proportionate installments in accordance with the University’s normal payroll practices for a period of eighteen (18) months, commencing within sixty (60) days following Executive’s Date of Termination, provided, that if Executive’s Date of Termination occurs within sixty (60) days prior to the end of a calendar year, payments will commence in the year after the Date of Termination, and in all cases, the first payment shall include all payments Executive would have received if payments had been continuous after the Date of Termination; provided, that payments made to the Executive under this section and section (iii) below shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any payment under disability benefit plans of the University and which amounts were not previously applied to reduce any payment, provided, further, that any such reduction shall be done in a manner that complies with Section 409A of the Code (the “Salary Continuation Payments”); and

iii.an amount equal to 1.5 times the Annual Bonus (to the extent University and Executive performance were satisfying the performance targets, adjusted for the short period, after the Date of Termination to the end of the calendar year for an Annual Bonus and as to the remainder of the eighteen (18)-month period following the Date of Termination, only if net income has increased from the same period in the prior year and the performance targets established for the successor President of the University (or, to the extent there is no successor President of the University, the most comparable executive selected by the MDC Committee in its sole discretion) were being satisfied for that period), which amounts will be paid (A) as to the portion of the Annual Bonus attributable to the short period after the Date of Termination to the end of the calendar year in which the Date of Termination occurs, within sixty (60) days of the end of such calendar year, and (B) as to the portion of the Annual Bonus attributable to the remainder of the eighteen (18)-month period following the Date of Termination, within sixty (60) days of the end of such eighteen (18)-month period (the “Bonus Continuation Payments”).

c. If the University terminates the Executive’s employment for Cause as provided in Section 11(b)(ii) hereof or if the Executive terminates the Executive’s employment other than for Good Reason, the University shall pay the Executive the Base Amounts, and the University shall have no further obligations to the Executive under this Agreement.

d. Except where payments are required to be made under Section 12(e), if the University terminates the Executive’s employment other than for Cause or Disability or the

Executive terminates the Executive’s employment for Good Reason as provided in Section 11(c) hereof, the University shall pay the Executive the following amounts and the University and the Parent shall have no further obligations to the Executive, provided, that, in the case of (ii) through (v), on or before the sixtieth (60th) day following the Date of Termination, the Executive executes a release of claims substantially in the form attached hereto as Appendix A and all revocation periods applicable to such release have expired without the release being revoked:

i.the Accrued Obligations in a lump sum in cash within thirty (30) days of the Date of Termination;

ii.the Salary Continuation Payments;

iii.the Bonus Continuation Payments;

iv.for twelve (12) months after the Date of Termination, or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the University shall cause benefits to continue to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the welfare benefit plans, practices, policies and programs provided by the University and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer employees of the University and its affiliated companies, as if the Executive’s employment had not been terminated; provided, however, that the University may elect, with respect to some or all of such benefits, that in lieu of the continuation of such benefits, the University may pay the Executive a lump sum payment, less applicable withholdings for federal, state, and local taxes, equal to twelve (12) months’ premiums (at the rate and level of coverage applicable at the time of the Executive’s termination) under the University’s welfare benefit plans, practices, policies and programs (at the rate and level of coverage applicable at the time of the Executive’s termination) for the benefits for which this election is made; provided, further, that if such a lump sum payment is not permissible without incurring taxes under Section 409A of the Code, the University may elect to make twelve (12) monthly payments to the Executive to aggregate to the amounts that would otherwise have been paid a lump sum; and provided, further, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under the other plan during the applicable period of eligibility; and

v.to the extent not theretofore paid or provided, for twelve (12) months after the Date of Termination, the University shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the University and its affiliated companies (these other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

e. If within the twelve (12)-month period after a Change of Control (as defined in Section 13), the University terminates the Executive’s employment other than for Cause or Disability or the Executive terminates the Executive’s employment for Good Reason as provided in Section 10(c) hereof, the University shall pay the Executive the following amounts and the University and the Parent shall have no further obligations to the Executive, provided, that, in the case of (i)(B), and (ii) through (v), on or before the sixtieth (60th) day following the Date of Termination, the Executive executes a release of claims substantially in the form attached hereto as Appendix A and all revocation periods applicable to such release have expired without the release being revoked:

i.an amount equal to the sum of (A) the Executive’s Base Salary through the Date of Termination to the extent not theretofore paid, (B) the product of (x) the Annual Bonus (to the extent University and Executive performance were satisfying the performance targets, adjusted for the short period through the Date of Termination, for an Annual Bonus) multiplied by (y) a fraction, the numerator of which is the number of days in the current fiscal year through the effective date of termination of the Executive’s employment (the “Change of Control Date of Termination”), and the denominator of which is 365, and (C) any compensation previously deferred by the Executive (together with any accrued interest or earnings thereon) provided that any such deferred compensation shall be paid in accordance with the terms and conditions of any applicable deferred compensation plan, and any accrued vacation pay, in each case, to the extent not theretofore paid, in a lump sum in cash within thirty (30) days of the Change of Control Date of Termination;

ii.an amount equal to the sum of (A) two (2) times the Executive’s Base Salary and (B) two (2) times the Annual Bonus (to the extent the University and Executive performance were satisfying the performance targets, adjusted for the short period), in a lump sum in cash within sixty (60) days of the Change of Control Date of Termination, provided, that if Executive’s Change of Control Date of Termination occurs within sixty (60) days prior to the end of a calendar year, payments will be paid on the first payroll date in the year after the Change of Control Date of Termination;

iii.for twelve (12) months after the Date of Termination, or any longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the University shall cause benefits to continue to the Executive and/or the Executive’s family at least equal to those which would have been provided to them in accordance with the welfare benefit plans, practices, policies and programs provided by the University and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer employees of the University and its affiliated companies, as if the Executive’s employment had not been terminated; provided, however, that the University may elect, with respect to some or all of such benefits, that in lieu of the continuation of such benefits, the University may pay to the Executive a lump sum payment, less applicable withholdings for federal, state, and local taxes, equal to twelve (12) months’ premiums (at the rate and level of coverage applicable at the time of the Executive’s termination) under the University’s welfare benefit plans, practices, policies and programs (at the rate and level of coverage applicable at the time of the Executive’s termination) for the benefits for which this election is made; provided, further, that if such a lump sum payment is not permissible without incurring taxes under Section 409A of the Code, the University may elect to make twelve (12) monthly payments to the Executive to aggregate to the amounts that would otherwise have been paid a lump sum; and provided, further, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under the other plan during the applicable period of eligibility; and

iv.to the extent not theretofore paid or provided, for twelve (12) months after the Date of Termination, the University shall timely pay or provide to the Executive Other Benefits.

v.in the event that it is determined that any payment, benefit, or distribution described in this Section 12(e) or in Section 13 made by the University, by any of its affiliates, by any person who acquires ownership or effective control or ownership of a substantial portion of the University’s assets (within the meaning of Section 280G of the Code) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to

the terms of this Section 12(e), Section 13 or otherwise (the “Total Payments”), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the “Excise Tax”), then the payments due under this Agreement shall be reduced so that the Total Payments will not result in the imposition of such Excise Tax. The payment reduction contemplated by the preceding sentence shall be implemented by determining the “Parachute Payment Ratio” (as defined below) for each “parachute payment” within the meaning of Section 280G of the Code, and then reducing the “parachute payments” in order beginning with the “parachute payment” with the highest Parachute Payment Ratio. For “parachute payments” with the same Parachute Payment Ratio, such “parachute payments” shall be reduced based on the time of payment of such “parachute payments” with amounts having later payment dates being reduced first. For “parachute payments” with the same Parachute Payment Ratio and the same time of payment, such “parachute payments” shall be reduced on a pro rata basis (but not below zero) prior to reducing “parachute payments” with a lower Parachute Payment Ratio. For purposes hereof, the term “Parachute Payment Ratio” shall mean a fraction the numerator of which is the value of the applicable “parachute payment” for purposes of Section 280G of the Code and the denominator of which is the intrinsic value of such “parachute payment.” For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) the entire amount of the Total Payments shall be treated as “parachute payments” within the meaning of Code Section 280G(b)(2) and as subject to the Excise Tax, unless and to the extent, in the written opinion of the University’s independent accountants and reasonably acceptable to Executive, such payments (in whole or in part) are not subject to the Excise Tax; and (B) the value of any noncash benefits or any deferred payment or benefit (constituting a part of the Total Payments) shall be determined by the University’s independent auditors in accordance with the principles of Code Sections 280G(d)(3) and (4). Notwithstanding the foregoing, if (Y) the Total Payments exceed three (3) times the Executive’s “base amount” as defined within Section 280G and (Z) the Executive would receive at least $50,000 more on a net after-tax basis if the Total Payments were not reduced pursuant to this section (after payment of the Excise Tax), then the University will not reduce the Total Payments and Executive shall be responsible for the Excise Tax related thereto. For purposes of determining the net after-tax benefit, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of the federal income taxation applicable to individuals (without taking into account surtaxes or loss or reduction of deductions) for the calendar year in which the Date of Termination occurs and state and local income taxes at the highest marginal rates of taxation in the state and locality of the Executive’s residence on the Date of Termination.

f. No Duty to Mitigate. The Executive shall not be required to mitigate amounts payable pursuant to Section 12 hereof by seeking other employment.

g. No Additional Payments. Notwithstanding anything to the contrary in this Agreement, the Executive acknowledges and agrees that in the event of the termination of his employment, even if in breach of this Agreement, the Executive will be entitled only to those payments specified herein for the circumstances of the Executive’s termination, and not to any other payments by way of damages or claims of any nature, whether under this Agreement or under any other agreements between the Executive and the University.

13. Acceleration of Equity Awards. All equity awards granted to the Executive under any equity incentive plan maintained for University or Parent employees that are outstanding immediately prior to the following events shall be vested and fully exercisable as follows: (a) upon termination of the Executive’s employment by the Executive’s death as provided in Section 11(a) hereof, (b) upon termination of the Executive’s employment by the University for Disability as provided in Section 11(b)(i) hereof, or (c) upon termination of the Executive’s employment by the University as provided in Section 11(b)(iii) in the twelve (12) -month period following a Change of Control or by the Executive for Good Reason as

provided in Section 11(c) in the twelve (12)-month period following a Change of Control; provided, that for purposes of clauses (a) and (b) any equity awards that are subject to performance conditions for a performance period not yet completed will be deemed to be vested and exercisable in a pro-rated amount equivalent to the portion of the performance period that has passed and assuming achievement of the performance conditions for that period at the “target” level, and for purposes of clause (c) any equity awards that are subject to performance conditions for a performance period not yet completed will be deemed to be vested and exercisable in full at the “target” level. This Agreement is intended to amend all equity awards previously awarded to the Executive to modify vesting as described above to the extent vesting would not otherwise accelerate under the terms of such equity award grants. For purposes of this Agreement, “Change of Control” means (i) the dissolution or liquidation of the Parent or a merger, consolidation, or reorganization of the Parent with one (1) or more other entities in which the Parent is not the surviving entity, (ii) a sale of substantially all of the assets of the Parent to another person or entity, or (iii) any transaction (including without limitation a merger or reorganization in which the Parent is the surviving entity) which results in any person or entity owning fifty percent (50%) or more of the combined voting power of all classes of stock of the Parent, provided, that if an event is a “Change of Control” as defined in this Agreement but is not a “change in control event” as defined in Section 409A of the Code, any payments which are the same as the payments the Executive would have received under Section 12(d) if there had not been a “Change of Control” will be paid at the time and in the manner specified in Section 12(d).

14. Notices. All notices, demands, requests or other communications required or permitted to be given or made hereunder shall be in writing and shall be personally delivered, telecopied, emailed or mailed by first class registered or certified mail, postage prepaid, addressed as follows:

a.If to the University:

American Public University System, Inc.

111 West Congress Street

Charles Town, WV 25414

Telecopy: (304) 724-3801

Attention: Chair of the Board of Trustees

Email: the email address of the President of the University

If to the Parent:

American Public Education, Inc.

111 West Congress Street

Charles Town, WV 25414 Telecopy: (304) 724-3801

Attention: Chief Executive Officer

Email: the email address of the Chief Executive Officer of the University

b. If to the Executive, to the Executive’s address set forth on the signature page to this Agreement, or to the home address of the Executive in the official records of the University; or, in the case of the University or Parent, to such other address as the University or Parent may designate in a notice to the other. Each notice, demand, request or other communication that shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes upon delivery to the addressee (with the return receipt, the delivery receipt, email verification, the answer back or the affidavit of messenger being deemed conclusive evidence of delivery) or at such time as delivery is refused by the addressee upon presentation.

15. Severability. The invalidity or unenforceability of any one (1) or more provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect.

16. Survival. It is the express intention and agreement of the parties hereto that the provisions of Sections 9 and 10 hereof shall survive the termination of employment of the Executive and the

expiration of this Agreement. In addition, all obligations of the University to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth herein.

17. Successors and Assigns.

a.This Agreement is personal to the Executive and without the prior written consent of the University and Parent shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

b.This Agreement shall inure to the benefit of and be binding upon the University and the Parent and their successors and assigns.

c.The University and the Parent will require any successor or any party that acquires control of the University and the Parent (whether direct or indirect, by purchase, merger, consolidation or otherwise) or all or substantially all of the business and/or assets of the University or the Parent to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the University and the Parent would be required to perform it if no succession had taken place. As used in this Agreement, “University” and “Parent” shall mean the University or Parent, respectively, as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

18. Binding Effect. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties and their respective heirs, devisees, executors, administrators, legal representatives, successors and assigns.

19. Amendment; Waiver. This Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by the parties hereto. Neither the waiver by either of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure of either of the parties, on one (1) or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any provisions, rights or privileges hereunder.

20. Headings. Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof.

21. Governing Law. This Agreement, the rights and obligations of the parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of West Virginia (but not including the choice of law rules thereof).

22. Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof, and it supersedes all prior oral or written agreements, commitments or understandings with respect to the matters provided for herein.

23. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be an original and all of which shall be deemed to constitute one and the same instrument.

24. Limitations Under Code Section 409A. Anything in this Agreement to the contrary notwithstanding, if (a) on the date of termination of Executive’s employment with the University or a subsidiary, any of the University’s stock is publicly traded on an established securities market or otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Code), (b) if Executive is determined to be a “specified employee” within the meaning of Section 409A(a)(2)(B) of the Code, (c) the payments exceed the amounts permitted to be paid pursuant to Treasury Regulations section 1.409A-1(b)(9)(iii) and (d) such delay is required to avoid the imposition of the tax set forth in Section 409A(a)(1) of the Code as a result of

such termination, the Executive would receive any payment that, absent the application of this Section 24, would be subject to interest and additional tax imposed pursuant to Section 409A (a) of the Code as a result of the application of Section 409A(2)(B)(i) of the Code, then no such payment shall be payable prior to the date that is the earliest of (x) six (6) months after the Executive’s termination date, (y) the Executive’s death or (z) such other date as will cause such payment not to be subject to such interest and additional tax (with a catch-up payment equal to the sum of all amounts that have been delayed to be made as of the date of the initial payment).

It is the intention of the parties that payments or benefits payable under this Agreement not be subject to the additional tax imposed pursuant to Section 409A of the Code. To the extent such potential payments or benefits could become subject to such Section, the parties shall cooperate to amend this Agreement with the goal of giving the Executive the economic benefits described herein in a manner that does not result in such tax being imposed.

For purposes of Section 409A, the Executive’s right to receive installment payments pursuant to this Agreement including, without limitation, each severance payment and COBRA continuation reimbursement shall be treated as a right to receive a series of separate and distinct payments.

Any amount that the Executive is entitled to be reimbursed under this Agreement will be reimbursed to the Executive as promptly as practical and in any event not later than the last day of the calendar year after the calendar year in which the expenses are incurred. Any right to reimbursement or in kind benefits will not be subject to liquidation or exchange for another benefit. The amount of the expenses eligible for reimbursement during any taxable year will not affect the amount of expenses eligible for reimbursement in any other taxable year.

Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of termination”), the actual date of payment within the specified period shall be within the sole discretion of the University.

[Signatures Appear on Following Page]

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first hereinabove written.


			AMERICAN PUBLIC UNIVERSITY SYSTEM, INC.


			By:			/s/ Richard W. Sunderland, Jr.
			Name:			Richard W. Sunderland, Jr.
			Title:			Executive Vice President, Chief Financial Officer


			AMERICAN PUBLIC EDUCATION, INC.


			By:			/s/ Angela Selden
			Name:			Angela Selden
			Title:			President and Chief Executive Officer


			THE EXECUTIVE


			By:			/s/ Wade T. Dyke
			Name:			Wade T. Dyke

[Attached]

THIS RELEASE (“Release”) is entered into this [ ] day of [ ], 20[ ], by and among American Public University System, Inc., a West Virginia corporation (the “University”), American Public Education, Inc., a Delaware corporation (the “Parent”) and _________ (the “Executive”).

WHEREAS, the University, the Parent and the Executive are parties to that certain Executive Employment Agreement, dated as of [ ], 2020 (the “Employment Agreement”), which provides that certain severance payments and other benefits be made and provided by the University to the Executive following termination of the Executive’s employment under certain circumstances; and

WHEREAS, as a condition of receiving such severance payments and in accordance with the terms of the Employment Agreement, the Executive has agreed to enter into this Release;

1.Separation and Payment. The Executive performed his duties in accordance with the Employment Agreement through [ ]. The Executive’s Date of Termination (as such term is defined in Section 11(e) of the Employment Agreement) is [ ]. The Executive shall be entitled to the compensation and benefits set forth in Section 12 of the Employment Agreement, subject to compliance with the terms of the Employment Agreement and this Release. Other than the payments referred to in Section 12 of the Employment Agreement, the Executive has been paid all compensation due and owing to his under the Employment Agreement, and under any employment or other contract the Executive has or may have had with the University (including but not limited to the Employment Agreement) or from any other source of entitlement, including all wages, salary, bonuses, incentive payments, profit-sharing payments, leave, severance pay or other benefits.

2.Release. On behalf of himself and his agents, heirs, executors, administrators, successors and assigns, the Executive hereby releases and forever discharges the University, the Parent, and any and all of the affiliates (excluding members), officers, directors, employees, agents, counsel, and successors and assigns of the University and the Parent, from any and all complaints, claims, demands, damages, lawsuits, actions, and causes of action, whether known, unknown or unforeseen, arising out of or in connection with any event, transaction or matter occurring or existing prior to or at the time of his execution of this Release, which he has or may have against any of them for any reason whatsoever in law or in equity, under federal, state, local, or other law, whether the same be upon statutory claim, contract, tort or other basis, including without limitation any and all claims arising from or relating to his employment or the termination of his employment and any and all claims relating to any employment contract (including but not limited to his Employment Agreement), any employment statute or regulation, or any employment discrimination law, including without limitation the Age Discrimination in Employment Act of 1967 (“ADEA”), the Older Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Civil Rights Act of 1866 and the Equal Pay Act of 1963, all as amended, all state and local laws (including without limitation the West Virginia Human Rights Act), regulations and ordinances prohibiting discrimination in employment, and other laws and regulations relating to employment, including but not limited to the Family and Medical Leave Act and the Fair Labor Standards Act, all as amended. The Executive agrees, without limiting the generality of the above release, not to file any claim or lawsuit seeking damages or other relief and asserting any claims that are lawfully released in this paragraph. The Executive further hereby irrevocably and unconditionally waives any and all rights to recover any relief and damages concerning the claims that are lawfully released in this paragraph. The Executive represents and warrants that he has not previously filed or joined in any such claims against the University or any of its affiliates, and that he has not given or sold any portion of any claims released herein to anyone else, and that he will indemnify and hold harmless the persons and entities released herein from all liabilities, claims, demands, costs, expenses and/or attorneys’ fees incurred as a result of any such assignment or transfer. THE EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES THAT THIS RELEASE IS A GENERAL RELEASE (EXCEPT AS PROVIDED HEREIN) AND THAT BY SIGNING THIS RELEASE, THE EXECUTIVE IS SIGNING AND AGREEING TO THIS

RELEASE. Notwithstanding any term or provision of this Release or the Employment Agreement to the contrary, and specifically notwithstanding the foregoing releases, this Release does not relate to, and the Executive does not release, any rights the Executive may have with respect to any of the following: (a) any claim of the Executive for the payments and benefits due to his under this Release; (b) any contribution, indemnity, or other claim the Executive may have under the Charter or Bylaws of the University (or any successor or similar provision), under any applicable policy of insurance, or under applicable law as a result of any action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that the Executive is or was a director, officer, executive or agent of the University or serves or served any other enterprise at the request of the University; (c) any claim relating solely to the validity of this Release under the ADEA, as amended; (d) any non-waivable right to file a change with the U.S. Equal Employment Opportunity Commission, the National Labor Relations Board, the Securities and Exchange Commission, or any other federal or state government agency, provided, however, that by signing this Release, the Executive agrees to waive and release any right to recover monetary relief with respect to any such charge; (e) the right to report possible violations of law or regulation to a governmental agency, entity, or self-regulatory organization, cooperating with such agency, entity, or organization, or receiving any whistleblower or similar award, or (f) any rights that may not be waived as a matter of law.

3.No Admission. The Parties agree that nothing contained in this Release shall constitute or be treated as an admission of liability or wrongdoing by either of them.

4.No Obligation to Hire. The Executive agrees that neither the University nor the Parent nor any of their subsidiaries or affiliates have any obligation to hire, reemploy or reinstate the Executive in the future. The Executive agrees that he will not apply for employment with the University, the Parent or any of their respective subsidiaries or affiliates.

5.Cooperation and Non-Disparagement. The Executive agrees to cooperate with the University and the Parent to the extent reasonably requested by the University or the Parent for the purpose of transitioning his duties and responsibilities. Such cooperation shall include, but is not limited to, at the University’s or the Parent’s request during the six (6) months following his Date of Termination, the Executive making himself available by telephone to answer questions regarding any matter or project in which he was involved while employed by the University or the Parent. The Executive further agrees that, other than as may be required by law or as part of a governmental investigation or proceeding, he shall make no statements disparaging the University, the Parent or any of their subsidiaries, affiliates, officers, directors, employees, or any of their business practices. By accepting this Release, the University agrees that it will direct its then-current officers and directors not to make statements disparaging the Executive.

6.Modification; Severability. The Parties agree that if a court of competent jurisdiction finds that any term of this Release is for any reason excessively broad in scope, duration, or otherwise, such term shall be construed or modified in a manner to enable it to be enforced to the maximum extent possible. Further, the covenants in this Release shall be deemed to be a series of separate covenants and agreements. If, in any judicial proceeding, a court of competent jurisdiction shall refuse to enforce any of the separate covenants deemed included herein, then at the option of the University, wholly unenforceable covenants shall be deemed eliminated from this Release for the purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding.

7.Certain Representations. The Parties represent and acknowledge that in executing this Release such Party does not rely and has not relied upon any representation or statement made by the other Party or the other Party’s agents, representatives or attorneys with regard to the subject matter, basis or effect of this Release or otherwise.

8.Entire Agreement. This Release, together with the Employment Agreement, contains the entire agreement between the Parties relating to the subject matter of this Release, and may not be altered or amended except by an instrument in writing signed by both Parties hereto. Notwithstanding the foregoing, the Executive reaffirms the Executive’s surviving duties under Sections 9 and 10 of the Employment Agreement, as well as any other agreement with the University or the Parent and the Executive to abide by

restrictive covenants, such as non-competition, non-solicitation, intellectual property assignment, or confidentiality provisions.

9.Assignment. This Release and the rights and obligations of the Parties hereunder may not be assigned by either Party without the prior written consent of the other Party.

10.Binding Agreement. This Release shall be binding upon and inure to the benefit of the Parties and their respective representatives, successors and permitted assigns.

11.Waiver. Neither the waiver by either Party of a breach of or default under any of the provisions of this Release, nor the failure of such Party, on one (1) or more occasions, to enforce any of the provisions of this Release or to exercise any right or privilege hereunder shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any provisions, rights or privileges hereunder.

12.Further Assurances. The Parties agree to take or cause to be taken such further actions as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms, and conditions of this Release.

13.Governing Law. This Release, for all purposes, shall be construed in accordance with the laws of the State of West Virginia without regard to conflicts of law principles. Subject to paragraph 14 below, any action or proceeding by either of the Parties to enforce this Release shall be brought only in a state or federal court located in the State of West Virginia, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.

14.Arbitration. Any controversy, dispute or claim arising out of or relating to this Release, including the obligations to make payments pursuant to the Employment Agreement, any modification or extension hereof, or any breach hereof (including the question whether any particular matter is arbitrable hereunder) shall be settled exclusively by arbitration, in the District of Columbia in accordance with the rules of the American Arbitration Association then in force (the “Rules”). Such arbitration shall be effected by arbitrator(s) appointed by the American Arbitration Association (“AAA”) in accordance with the Rules. The Parties hereto agree to abide by all awards and decisions rendered in an arbitration proceeding in accordance with the foregoing, and all such awards and decisions may be filed by the prevailing Party with any court having jurisdiction over the person or property of the other Party as a basis for judgment and the issuance of execution thereon. The fees of the arbitrator(s) and related expenses of arbitration shall be apportioned among the Parties as determined by the arbitrator(s). Unless otherwise agreed by the Parties to the arbitration, all hearings shall be held, and all submissions shall be made by the Parties, within thirty (30) days of the date of completion of Discovery, in which the Parties shall engage in good faith and pursuant to the Discovery provision of the AAA Employment Arbitration Rules, and the decisions of the arbitrator(s) shall be made within thirty (30) days of the later of the date of the closing of the hearings or the date of final submissions by the Parties. The Parties consent to the jurisdiction of the Courts of the District of Columbia and of the United States District Court for the District of Columbia, for all purposes in connection with the arbitration. The Parties consent that any process or notice of motion or other application to either of said courts, and any paper in connection with arbitration, may be served by certified mail, return receipt requested, or by personal service, or in such other manner as may be permissible under the rules of the applicable court or arbitration tribunal, provided that a reasonable time for appearance is allowed.

15.Acknowledgment. With respect to the Release is paragraph 2 above, Executive agrees and understands that he is specifically releasing all claims under the Age Discrimination in Employment Act (29 U.S.C. § 621 et seq.), as amended, and the West Virginia Human Rights Act. The Executive acknowledges that he has read and understands this Release and executes it voluntarily and without coercion. The Executive further acknowledges that he has had full opportunity to consult with an attorney prior to executing this Release, and that he has been advised in writing herein to do so. The Executive has also been advised that if the Executive needs to obtain an attorney the Executive can contact the West Virginia Bar Association at 800.944.9822. In addition, the Executive has been given twenty-one (21) day,

to consider, execute, and deliver this Release to the Chairman of the Board of Directors of the Parent at the Parent’s principal business address, unless the Executive voluntarily chooses to execute this Release before the end of the twenty-one (21)-day period. The Executive understands that he has seven (7) days following his execution of this Release to revoke it in writing, and that this Release is not effective or enforceable until after this seven (7)-day period. For such revocation to be effective, notice must be delivered to the Parent at the Parent’s principal business address, addressed to the attention of the Chairman of the Board of Directors, no later than the end of the seventh calendar day after the date by which the Executive signed this Release. The Executive expressly agrees that, in the event he revokes this Release, this Release shall be null and void and have no legal or binding effect whatsoever. The Parties recognize that he may elect to sign this Release prior to the expiration of the twenty-one (21)-day consideration period specified herein, and the Executive agrees that if he elects to do so, such election is knowing and voluntary and comes after full opportunity to consult with an attorney.

[Signature page follows]

IN WITNESS WHEREOF, the undersigned have duly executed this Release, or have caused this Release to be duly executed on their behalf, as of the day and year first hereinabove written.


						EXECUTIVE


			Date:

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Angela Selden, certify that:

1.I have reviewed this quarterly report on Form 10-Q of American Public Education, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2020


By:			/s/ Angela Selden
			Name: Angela Selden
			Title: President and Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a)/15d-14(a)

I, Richard W. Sunderland, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q of American Public Education, Inc.;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 9, 2020


By:			/s/ Richard W. Sunderland, Jr.
			Name: Richard W. Sunderland, Jr.
			Title: Executive Vice President and Chief Financial Officer

EXHIBIT 32.1

Written Statement of

Chief Executive Officer and Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

The undersigned, the Chief Executive Officer and the Chief Financial Officer of American Public Education, Inc. (the “Company”), each hereby certifies that, to the officer's knowledge on the date hereof:

(a) the Form 10-Q of the Company for the period ended September 30, 2020 filed on the date hereof with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.




By:			/s/ Angela Selden
			Name: Angela Selden
			Title: President and Chief Executive Officer
			November 9, 2020




By:			/s/ Richard W. Sunderland, Jr.
			Name: Richard W. Sunderland, Jr.
			Title: Executive Vice President and Chief Financial Officer
			November 9, 2020

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to American Public Education, Inc. and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.