AMERICAN PUBLIC EDUCATION INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

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

                                    OVERVIEW

  American Public Education, Inc., or APEI, is a provider of online and
campus-based postsecondary education to approximately 108,400 students through
three subsidiary institutions. Our subsidiary institutions offer programs
designed to prepare individuals for productive contributions to their
professions and society, and to offer opportunities designed to advance students
in their current professions or help them prepare for their next career. Our
subsidiary institutions are licensed or otherwise authorized by state
authorities to offer postsecondary education programs to the extent the
institutions believe such licenses or authorizations are required, and are
certified by the United States Department of Education, or ED, to participate in
student financial aid programs authorized under Title IV of the Higher Education
Act of 1965, as amended, or Title IV programs. Additional information regarding
our subsidiary institutions and their regulation is included in the "Business -
Company Overview" and "Business - Regulatory Environment" sections of this
Annual Report.

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

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

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

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

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

We believe the decrease in net course registrations at APUS was due, in part, to
the temporary suspension and disruption of the Army's TA program beginning in
February 2021, resulting from delays in the transition from its legacy system
used by soldiers to request TA, GoArmyEd, to a new system, ArmyIgnitED, and a
moderation in near-term demand for online education as the COVID-19 pandemic
abated prior to the omicron variant.
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We believe that the increase in new student enrollment at HCN was due in part to
an increase in demand for nursing education, a change in the competitive
environment due to COVID-19, an increase in marketing expenditures as compared
to the prior year, and the continued impact of new initiatives implemented in
2019 and 2020 such as the Direct Entry ADN Program and the institutional
affordability grant. Additionally, the opening of a new campus in Akron, Ohio in
April 2021 contributed to an increase in new student enrollment.

Our operations are organized into three reporting segments:

•American public university system, or APUS segment. This segment reflects the operational activities of APUS.

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

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


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

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

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

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

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

We believe that in order to continue to attract and retain qualified students
our institutions need to continuously update and expand the content of their
existing programs and develop new programs, specializations and modes of
teaching, faculty engagement initiatives, and co-curricular initiatives that may
require obtaining appropriate federal, state, and accrediting approvals; incur
marketing expenses; and make investments in management and capital expenditures,
including technology-related expenditures. Initiatives to attract and retain
qualified students and control the growth of expenditures require significant
time, energy, and resources, and if our efforts are not successful, our results
of operations, cash flows, and financial condition
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can be negatively impacted. For more information on the risks associated with these challenges, please refer to “Risk Factors – Risks Related to Student Attraction and Retention”.


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

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

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

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

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

•altering our institutions' marketing programs to target the appropriate
prospective students;
•investments in technology related to our overall information technology
transformation program;
•changes to admissions standards and requirements;
•updates to the admissions process and procedures;
•implementing more stringent satisfactory academic progress standards;
•changing tuition costs and payment options;
•opening additional campuses to meet student needs;
•changing fund disbursement methods; and
•implementing alternative learning delivery methods.

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

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

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

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

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

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

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

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

HCN Accreditation. HCN is institutionally accredited by ABHES. HCN's Ohio
Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN,
Programs are approved by the Ohio Board of Nursing, and the PN Program is
accredited by the Indiana State Board of Nursing the National League for Nursing
Commission for Nursing Education
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Accreditation, or NLN CNEA. For more information on the accreditation of our establishments, please refer to “Regulatory environment – Accreditation”.


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

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

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

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


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

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

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

Income

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


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

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

The average number of courses per term at APUS varies according to the type of payer. For example, ED Title IV programs require participating students to take more courses per term than TA participating students. Therefore, if the number of APUS students using ED’s Title IV programs decreases (or if the number of students using AT increases), we anticipate that this could lead to a decrease in the average number of courses per student and per term.


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

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

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

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

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

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Costs and expenses


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

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

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

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

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

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


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

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


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

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Significant Accounting Policies and Estimates


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

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

Goodwill and indefinite-lived intangible assets. Goodwill represents the excess
of the purchase price of an acquired business over the amount assigned to the
assets acquired and liabilities assumed. Goodwill is not amortized.

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

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

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

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

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

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

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

  We evaluated events and circumstances related to the valuation of goodwill of
HCN for the years ended December 31, 2020 and 2021 and determined there were no
indicators of impairment and concluded that HCN's fair value was more than the
carrying value; consequently, there was no impairment. This evaluation included
consideration of enrollment trends and financial performance, as well as
industry and market conditions, and the impact of the COVID-19 pandemic. Our
October 31, 2021 annual assessment concluded that the fair value of HCN exceeded
the carrying value by approximately $20.1 million, or 51.8%.

The 2019, 2020 and 2021 annual valuations concluded that HCN’s indefinite life assets were not impaired.

For further details regarding goodwill and indefinite life intangible assets, please refer to “Note 6. Good will and Intangible Assets” included in our consolidated financial statements.

For more information on our significant accounting policies, including information regarding estimates and assumptions, please refer to “Note 2. Significant accounting policies” included in our consolidated financial statements.

Recent accounting pronouncements


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

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Operating results


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

                                                                    2020         2021
     Revenue                                                       100.0  %     100.0  %
     Costs and expenses:
     Instructional costs and services                               38.0  %      41.2  %
     Selling and promotional                                        22.7  %      22.3  %
     General and administrative                                     27.3  %      24.7  %
     Loss on disposals of long-lived assets                          0.3  %       0.3  %
     Depreciation and amortization                                   4.0  %       4.3  %
     Total costs and expenses                                       92.3  %      92.8  %
     Income from operations before interest and income taxes         7.7  %       7.2  %
     Interest income (expense)                                       0.3  %      (1.0) %
     Income from operations before income taxes                      8.0  %       6.2  %
     Income tax expense                                              2.2  %       1.8  %
     Equity investment loss                                            -  %      (0.2) %
     Net income                                                      5.8  %       4.2  %


Year ended December 31, 2021 Compared to the year ended December 31, 2020


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

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

Income


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

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

RU student enrollment decreased approximately 0.6% to 16,300 for the three
months ended September 30, 2021 as compared to the 2020 period. For the three
months ended December 31, 2021, RU enrollment decreased approximately 3.4% to
17,100 as compared to the prior year period. We believe these declines in
enrollment may have been caused, in part, by a moderation in near-term demand
for RU's programs as the COVID-19 pandemic abated prior to the omicron variant.
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HCN student enrollment increased approximately 27.9% for the year ended
December 31, 2021 compared to the same period in 2020. The increase in student
enrollment was due in part to an increase in demand for nursing education, a
change in the competitive environment due to COVID-19, an increase in marketing
expenditures as compared to the prior year, the opening of a new campus in
Akron, Ohio in April 2021, and the continued impact of new initiatives
implemented in 2019 and 2020, such as the Direct Entry ADN Program and the
institutional affordability grant.

Costs and expenses


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

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

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

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

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

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

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

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


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

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

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


                                                  Year Ended December 31,
                                                     2020                

2021

Instructional costs and services            $      1,535               $ 1,480
Selling and promotional                            1,007                   771
General and administrative                         4,533                 5,403
Total stock-based compensation expense      $      7,075               $ 

7,654



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

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

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

Net revenue. The net income was $17.8 million in 2021, compared to a net result of
$18.8 million in 2020, a decrease of $1.0 million, or 5.3%. This decline is linked to the factors mentioned above.

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Reportable operating results by segment – Year ended December 31, 2021 Compared to the year ended December 31, 2020

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

                                                                     Year Ended December 31,
                                                2020               2021            $ Change             % Change
Revenue
APUS Segment                                $ 285,938          $ 283,700          $ (2,238)                   (0.8) %
RU Segment                                          -             89,483            89,483                         NM
HCN Segment                                    36,091             45,803             9,712                    26.9  %
Corporate and Other                              (244)              (183)               61                   (25.0) %
Total Revenue                               $ 321,785          $ 418,803          $ 97,018                    30.1  %
Income (loss) from operations before
interest and income taxes
APUS Segment                                $  43,438          $  51,050          $  7,612                    17.5  %
RU Segment                                          -              1,630             1,630                         NM
HCN Segment                                       722              1,829             1,107                   153.3  %
Corporate and Other                           (19,403)           (24,138)           (4,735)                   24.4  %
Total income from operations before
interest and income taxes                   $  24,757          $  30,371          $  5,614                    22.7  %



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

Adjustments to reconcile segment results to the consolidated financial statements are included in “Corporate and Other”, which primarily includes retained business activity and eliminations, including charges for the value of courses taken by our non-APUS employees at APUS.

APUS segment


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

UK Segment


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

HCN segment


   Our HCN Segment revenue was approximately $45.8 million in 2021, an increase
of $9.7 million, or 26.9% compared to $36.1 million in the 2020 period, which is
primarily attributable to an increase in student enrollment. HCN student
enrollment increased 27.9% in 2021 compared to the 2020 period. We believe that
the increase in HCN's enrollment in 2021
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was due in part to an increase in demand for nursing education, a change in the
competitive environment due to COVID-19, an increase in marketing expenditures
as compared to the prior year, the continued impact of new initiatives
implemented in 2019 such as the Direct Entry ADN Program, and the implementation
of the institutional affordability grant in the first quarter of 2020. Income
from operations before interest and income taxes in the HCN Segment was
approximately $1.8 million in 2021, an increase of $1.1 million, or 153.3%,
compared to the 2020 period. The increase in income from operations before
interest and income taxes is due to the changes in revenue and expenses
discussed above.

Cash and capital resources


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

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

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

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

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

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

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


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

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

The acquisition of Graduate school in the United States


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

Operational activities


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

Investing activities


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

Fundraising activities


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

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Contractual obligations

long-term debt


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

Operating lease obligations


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

Other purchase obligations


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

Impact of inflation

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

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