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. OVERVIEWAmerican 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 theUnited 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. OnSeptember 1, 2021 , or the Closing Date, we completed the acquisition ofRasmussen 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. OnSeptember 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 endedDecember 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 endedDecember 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 ofRasmussen 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 throughDecember 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 inFebruary 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. 76 -------------------------------------------------------------------------------- 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 inAkron, Ohio inApril 2021 contributed to an increase in new student enrollment.
Our operations are organized into three reporting segments:
•American Public University System, or APUS Segment. This segment reflects the operational activities of APUS.
•Rasmussen University Segment, or RU Segment. This segment reflects the operational activities of RU.
•Hondros College of Nursing Segment, or HCN Segment. This segment reflects the operational activities of HCN.
Prior to the acquisition of RU, we had two reportable segments: theAmerican Public Education, Inc. Segment, or APEI Segment, and theHondros 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 EndedDecember 31, 2021 Compared to Year EndedDecember 31, 2020 ." For a discussion of the financial results of operations for the fiscal year endedDecember 31, 2020 compared to the fiscal year endedDecember 31, 2019 , refer to Part II, Item 7 of our 2020 Form 10-K filed with theSEC onMarch 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 endedDecember 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 ofDecember 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 theDoD'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 usingDepartment of Veterans Affairs , orVA , 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 endedDecember 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 endedDecember 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 77 --------------------------------------------------------------------------------
may be adversely impacted. For more information about the risks related to these challenges please refer to "Risk Factors - Risks Related to Attracting and Retaining Students."
Increased Costs and Expenses; Our Initiatives. Our costs and expenses have increased over time due in part to the acquisition of RU, the addition of new HCN campuses located inIndianapolis, Indiana , which opened inApril 2020 , andAkron, Ohio , which opened inApril 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. OnAugust 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 byAugust 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, onJanuary 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 withFinancial Accounting Standards Board , or FASB, Accounting Standards Codification, or ASC, Topic 420, Exit or Disposal Cost Obligations. There is no certainty that these cost reduction initiatives, or any other expense reduction initiative, will have the intended benefits of reducing costs and expenses over the long-term, or whether there will be adverse impacts, including as a result of the loss of valuable employees. Our revenue may decline, and our costs and expenses may increase, as our institutions adjust to changes in their student composition, undertake initiatives to improve the learning experience, and attract students who are more likely to persist in their programs. Additional initiatives that we implement that may increase costs and expenses or adversely affect our revenue may include the following: •altering our institutions' marketing programs to target the appropriate prospective students; •investments in technology related to our overall information technology transformation program; •changes to admissions standards and requirements; •updates to the admissions process and procedures; •implementing more stringent satisfactory academic progress standards; •changing tuition costs and payment options; •opening additional campuses to meet student needs; •changing fund disbursement methods; and •implementing alternative learning delivery methods. Information technology systems are an essential part of the student experience and our business operations. Pursuant to the shared services model discussed in "Business - Company Overview - Reporting Segments" above, through APEI we now provide information technology services to APUS, HCN, and to a lesser extent RU. We believe we will need to continue, and potentially increase, our investment of time and money in technology operations and enhancements to support our systems and mission, and evaluate when it is appropriate to make significant changes, modifications, or upgrades. We believe we will need to continue to make investments in information technology in response to competitive pressures in the marketplace, including increased demands for interactive solutions and access from multiple platforms, and to update older systems and to enhance functionality. We also expect operating and capital expenditures to increase in future periods as we accelerate the investment in and refreshment of our information technology systems.
Changes and upgrades to our information technology systems may result in us incurring significant costs, including in the short term, and carry risk to our operations and financial results. For example, in 2019, 2020, and 2021, we incurred
78 -------------------------------------------------------------------------------- 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 inJanuary 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 theU.S. For example, during 2021, we opened a new HCN campus inAkron, Ohio , and we are in the process of opening a RU campus in suburbanBrooklyn 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. InJuly 2021 , ED notified RU that in connection with RU'sMarch 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". OnSeptember 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 ofOctober 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 theMarch 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, theHigher Learning Commission , or HLC requires an additional site visit within six months after the Closing Date, and that visit occurred inFebruary 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. InAugust 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'sOhio Diploma in Practical Nursing, or PN, and Associate Degree in Nursing, or ADN, Programs are approved by theOhio Board of Nursing , and the PN Program is accredited by theIndiana State Board of Nursing theNational League for Nursing Commission for Nursing Education 79 --------------------------------------------------------------------------------
Accreditation, or NLN CNEA. For more information regarding our institutions' accreditation, please refer to "Regulatory Environment - Accreditation".
Competition from Armed Forces Institutions. InMarch 2020 , theNavy announced a new "Education Strategy for Seapower 2020" that is intended to be a new comprehensive education strategy. As part of this strategy, theNavy , in cooperation with theU.S. Marine Corps and theU.S. Coast Guard , inJanuary 2021 began piloting online courses for the newUnited 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 inJanuary 2022 .Navy -related registrations were 5% of total registrations in each of the years endedDecember 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 theDoD 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. InFebruary 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 onMarch 8, 2021 , but technical difficulties onMarch 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 onMarch 18, 2021 that TA-eligible soldiers could register for courses beginning on or afterMarch 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. OnJuly 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 endingJune 30, 2021 andSeptember 30, 2021 . As ofDecember 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," inSeptember 2016 ED began a program review of APUS's administration of the Title IV programs during the 2014-2015 and 2015-2016 award years. InJune 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 untilJune 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 onJanuary 27, 2021 with no findings, penalties, or further action required.
In
InAugust 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. InJanuary 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 byApril 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. 80 --------------------------------------------------------------------------------
Our Key Financial Results Metrics
Revenue
When reviewing our revenue, we evaluate the following components: net course registrations and enrollment, tuition rate, net tuition and other fees.
Net course registrations and enrollment. For financial reporting and analysis purposes, APUS measures its student population in terms of aggregate course enrollments, or net course registrations. Net course registrations, which include one-credit lab courses combined with their related three-credit courses, represent the aggregate number of courses in which students remain enrolled after the date by which they may drop the course without financial penalty. RU and HCN measure its student population in terms of student enrollments. Student enrollment represents the total number of students enrolled in a course immediately after the date by which students may drop a course without financial penalty. Because we recognize revenue over the length of a course, net course registrations and student enrollments in a financial reporting period do not correlate directly with revenue for that period because revenue recognized from courses is not necessarily recognized in the financial reporting period in which the course registrations or enrollments occur. For example, at APUS, revenue in a quarter reflects a portion of the revenue from courses that began in a prior quarter and continued into the quarter, all revenue from courses that began and ended in the quarter, and a portion of the revenue from courses that began but did not end in the quarter. At RU and HCN, generally programs begin and end in a calendar quarter.
The average number of courses per term at APUS varies by payor type. For example, ED's Title IV programs require participating students to take more courses per term than students participating in TA. As a result, should the number of APUS's students who utilize ED's Title IV programs decrease (or the number of students using TA increase), we anticipate that it may cause the average number of courses per student per term to decrease.
You should not rely on the results of any prior periods as an indication of future net course registrations at APUS, student enrollments at RU and HCN, or consolidated revenue. The composition of our students, changing market demands and competition, make forecasting very difficult, and we are unable to determine if we will continue to grow or what level of growth we will achieve, if any. Similarly, you should not rely on our operating margins in any prior periods as an indication of our future operating margins. Tuition rate. Providing affordable degree and certificate programs is an important element of our competitive strategy. We estimate that APUS's tuition is lower than the average in-state rates at public universities. APUS'sJanuary 2020 tuition increase was its first increase sinceJuly 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 theJanuary 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 inJanuary 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. 81 --------------------------------------------------------------------------------
Costs and Expenses
We categorize our costs and expenses in the following categories: instructional costs and services expenses; selling and promotional expenses; general and administrative expenses; loss on disposals of long-lived assets; impairment of goodwill; and depreciation and amortization. Instructional costs and services expenses. Instructional costs and services expenses are directly attributable to the educational services our institutions provide to their students. Instructional costs and services expenses include salaries and benefits for full-time faculty, administrators, and academic advisors, and costs associated with part-time faculty. Instructional costs and services expenses also include costs associated with curriculum development, academic records and graduation, as well as other services provided by our institutions, such as evaluating transcripts. Instructional costs and services expenses are generally affected by the cost of academic resources, the efficiency of delivering academic products and services to our students, salaries and benefits for our faculty and other academic and administration personnel, and the level of expenditures for new and existing academic programs. At RU and HCN, instructional costs and services expenses also includes operating expenses directly associated with campus operations, including rent. At APUS, instructional costs and services expenses include expenses related to course materials, learning resources, the library, the book grant program, and instructional pay for part-time faculty that are primarily dependent on the number of students taught. Selling and promotional expenses. Selling and promotional expenses include salaries and benefits of personnel engaged in student enrollment, advertising costs, and marketing material production costs, and include expenses from a third-party contract to provide marketing services to RU entered into prior to the Closing Date. Our selling and promotional expenses are generally affected by the cost of advertising media, the efficiency of our selling efforts, salaries and benefits for our selling and admissions personnel, the level of expenditures for advertising initiatives for new and existing academic programs, and costs incurred in connection with the third-party contract at RU. We believe the impact of competition, and the rising cost of internet search and other advertising media has caused our student acquisition costs to increase. This trend may continue, and our student acquisition costs may continue to increase. General and administrative expenses. General and administrative expenses include salaries and benefits of employees engaged in corporate management, finance, financial aid processing, information technology, including expenses from a third-party contract to provide IT services that RU entered into prior to the Closing Date, human resources, facilities, compliance and other corporate functions, the cost of renting and maintaining administrative facilities, technology expenses, and costs for professional services. General and administrative expenses also include bad debt expense. General and administrative expenses are generally affected by the costs of salaries and benefits for our general and administrative personnel, the efficiency of delivering back-office support including technology services, and the level of expenditures for supporting company initiatives. Loss on disposals of long-lived assets. Loss on disposals of long-lived assets is the difference between the long-lived assets' residual value and their book value at the time of the assets' disposition or abandonment.
Impairment of goodwill. Impairment of goodwill recognizes the difference between the carrying value of goodwill and the fair value of goodwill.
Depreciation and amortization. We incur depreciation and amortization expenses for costs related to the capitalization of property, equipment, software, and program development on a straight-line basis over the estimated useful lives of the assets. In addition, we incur amortization expense for the amortization of identified intangible assets with a definite life resulting from our acquisition of RU.
Interest Income (Expense). Interest income (expense) consists primarily of interest expense incurred on our long-term debt, net of any interest income earned on cash and cash equivalents, and, prior to 2021, interest income earned on cash and cash equivalents.
Equity Investment Loss. Equity investment loss consists of our proportional share of after-tax income or losses attributable to our equity investment as well as the loss from any other-than-temporary impairment charges, which represents the difference between the carrying value of and fair value of the investment. 82 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The discussion of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted inthe 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 onSeptember 1, 2021 , and recorded$216.9 million and$86.5 million ofGoodwill 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 theSeptember 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 theNovember 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. AtDecember 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 inSeptember 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) 83 -------------------------------------------------------------------------------- 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 endedDecember 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 endedDecember 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. OurOctober 31, 2021 annual assessment concluded that the fair value of HCN exceeded the carrying value by approximately$20.1 million , or 51.8%.
The 2019, 2020, and 2021 annual assessments concluded HCN's indefinite-lived assets were not impaired.
For additional details regarding goodwill and indefinite-lived intangible assets
please refer to "Note 6.
For additional information on our critical accounting policies, including information regarding estimates and assumptions, please refer to "Note 2. Significant Accounting Policies" included in our Consolidated Financial Statements.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standards Updates, or ASUs. Please refer to "Note 2 Significant Accounting Policies" included in our Consolidated Financial Statements for information relating to our discussion of the effects of recent accounting pronouncements. 84 --------------------------------------------------------------------------------
Results of Operations
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
Our results of operations for the years endedDecember 31, 2020 and 2021 reflect the operations of our APUS and HCN Segments, and results of our RU Segment from the Closing Date throughDecember 31, 2021 , and Corporate and Other which primarily includes unallocated corporate activity and eliminations. We did not consolidate the RU Segment prior to the Closing Date.
For a more detailed discussion of our results by reportable segment, please refer to "Analysis of Operating Results by Reportable Segment" below.
Revenue
Our consolidated revenue in 2021 was$418.8 million , an increase of$97.0 million or 30.1%, compared to$321.8 million in 2020. The increase in revenue was primarily due to the inclusion of RU Segment revenue from the Closing Date throughDecember 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 endedDecember 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 inFebruary 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 endedSeptember 30, 2021 as compared to the 2020 period. For the three months endedDecember 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. 85 -------------------------------------------------------------------------------- HCN student enrollment increased approximately 27.9% for the year endedDecember 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 inAkron, Ohio inApril 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 throughDecember 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 throughDecember 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 throughDecember 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 throughDecember 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 throughDecember 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. 86 -------------------------------------------------------------------------------- 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 throughDecember 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
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 throughDecember 31, 2021 of$8.0 million , partially offset by decreases in our APUS Segment depreciation and amortization expense due to lower capital expenditures and lower total investment in property and equipment net of depreciation. Stock-based compensation. Stock-based compensation expenses included in instructional costs and services, selling and promotional, and general and administrative expenses in 2021 were$7.7 million in the aggregate, representing an increase of$0.6 million , or 8.2%, compared to$7.1 million in 2020. Stock-based compensation costs include accelerated expense for retirement-eligible employees and performance stock unit incentive costs. The increase in stock-based compensation costs was due to additional performance unit incentive costs, and additional grants as a result of the Rasmussen Acquisition.
The table below reflects our stock-based compensation expense recorded in our Consolidated Statements of Income included in our Consolidated Financial Statements for the years ended 2020 and 2021 (in thousands):
Year EndedDecember 31, 2020
2021
Instructional costs and services$ 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.
Equity Investment Loss. Equity investment loss was
Net Income. Net income was
87 --------------------------------------------------------------------------------
Operating Results by Reportable Segment - Year Ended
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, throughDecember 31, 2021 . We did not consolidate the financial results of the RU Segment prior to the Closing Date.
Adjustments to reconcile segment results to the Consolidated Financial Statements are included in "Corporate and Other", which primarily includes unallocated corporate activity and eliminations, including charges for the value of courses taken by our non-APUS employees at APUS.
APUS Segment
Our APUS Segment revenue was$283.7 million in 2021, a decrease of$2.2 million , or 0.8%, compared to$285.9 million in 2020, which is primarily attributable to lower net course registrations, partially offset by higher revenue per net course registration. Net course registrations at APUS decreased 2.2% to approximately 345,300 in 2021 compared to the 2020 period. The decrease in net course registrations is due in part to the temporary suspension and disruption of the Army's TA program beginning inFebruary 2021 resulting from delays in the transition from its legacy system used by soldiers to request TA, GoArmyEd, to a new system, ArmyIgnitED, and a moderation in near-term demand for online education as the COVID-19 pandemic abated prior to the omicron variant. Income from operations before interest and income taxes was approximately$51.1 million in 2021, an increase of$7.6 million , or 17.5%, compared to the 2020 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.
RU Segment
Our RU Segment revenue was$89.5 million for the period from the Closing Date throughDecember 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 endedSeptember 30, 2021 as compared to the 2020 period. For the three months endedDecember 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 88 -------------------------------------------------------------------------------- was due in part to an increase in demand for nursing education, a change in the competitive environment due to COVID-19, an increase in marketing expenditures as compared to the prior year, the continued impact of new initiatives implemented in 2019 such as the Direct Entry ADN Program, and the implementation of the institutional affordability grant in the first quarter of 2020. Income from operations before interest and income taxes in the HCN Segment was approximately$1.8 million in 2021, an increase of$1.1 million , or 153.3%, compared to the 2020 period. The increase in income from operations before interest and income taxes is due to the changes in revenue and expenses discussed above.
Liquidity and Capital Resources
Cash, cash equivalents, and restricted cash were$227.7 million and$149.6 million atDecember 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 onMarch 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 theDoD and programs from theVA . 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 ofDecember 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 endedDecember 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 inJanuary 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 endedDecember 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. InFebruary 2021 , we filed a shelf registration statement in order to help facilitate potential public offerings of up to$300 million of our securities. OnMarch 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. 89 --------------------------------------------------------------------------------
Acquisition of
In connection with the completion of the Rasmussen Acquisition, on the Closing Date, we entered into a Credit Agreement withMacquarie Capital Funding LLC , as administrative agent and collateral agent,Macquarie Capital (USA) Inc. , andTruist Securities, Inc. as joint lead arrangers and bookrunners, and a syndicate of lenders, or the Lenders and, pursuant to the Credit Agreement, the Lenders provided us with (i) the$175.0 million Term Loan, and (ii) a senior secured revolving loan facility in an aggregate commitment amount of$20.0 million , or together with the Term Loan, the Facilities. We paid a portion of the consideration for the Rasmussen Acquisition with proceeds from the Term Loan. For more information on the Facilities and their terms, please refer to "Note 8. Long-Term Debt" included in the Consolidated Financial Statements in this Annual Report. Our future capital requirements will depend on a number of factors. There can be no guarantee that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, upon the occurrence of certain events, such as a change of control, we could be required to repay or refinance our indebtedness. There can be no assurance that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
Acquisition of
OnAugust 11, 2021 , we announced that we had entered into an agreement to acquire substantially all of the assets ofGraduate 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 onJanuary 1, 2022 .
Operating Activities
Net cash provided by operating activities was$44.8 million and$16.3 million in 2020 and 2021, respectively. The decrease in cash from operating activities is primarily due to the timing of the Rasmussen Acquisition. RU receives the majority of its cash receipts during the first month of each fiscal quarter while disbursements occur throughout the quarter. Pursuant to the terms of the Rasmussen Acquisition, the seller in the transaction retained substantially all of the cash held by RU on the Closing Date. Accordingly, from the Closing Date throughSeptember 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 endedDecember 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 ofDecember 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 throughDecember 31, 2021 of$6.0 million .
Financing Activities
Net cash used in financing activities was$15.7 million in 2020, compared to$242.3 million of net cash provided by financing activities in 2021. The increase in cash provided by financing activities in 2021 was due to our underwritten public offering of common stock for aggregate net proceeds of approximately$86.2 million and proceeds of$175.0 million from the Term Loan in connection with the Rasmussen Acquisition, partially offset by debt issuance costs of$13.6 million . For the year endedDecember 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 endedDecember 31, 2021 . 90 --------------------------------------------------------------------------------
Contractual Obligations
Long-term debt
We have long-term debt outstanding under the Credit Agreement of$172.8 million as ofDecember 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 ofDecember 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 ofDecember 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 onJanuary 1, 2022 , we have also assumed an operating lease obligation in the aggregate of$50.0 million over 15 years for GSUSA'sWashington, 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 ofDecember 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 expireSeptember 30, 2024 . The total minimum value of the service contracts over the remaining approximately three-year period is approximately$52.7 million .
Impact of Inflation
We do not believe that inflation had a material impact on our results of operations in 2020 or 2021. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.
© Edgar Online, source