a5681036.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
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For
the quarterly period ended March 31, 2008
or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from
to
Commission
File Number: - 001-33810
AMERICAN
PUBLIC EDUCATION, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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01-0724376
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(State
or other jurisdiction of
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(I.R.S.
Employer
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Incorporation
or organization)
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Identification
No.)
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111
West Congress Street
Charles
Town, West Virginia 25414
(Address,
including zip code, of principal executive offices)
(304) 724-3700
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes þ No o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes o No þ
The total number of shares of common stock outstanding as of May 1,
2008 was 17,795,538.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See the definition of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer o
Accelerated
filer o
Non-accelerated
filer þ Smaller
reporting company o
(Do not
check if a smaller reporting company)
AMERICAN
PUBLIC EDUCATION, INC.
FORM
10-Q
INDEX
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Page
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PART I – FINANCIAL
INFORMATION
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3
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10
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14
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14
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PART II – OTHER
INFORMATION
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15
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15
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15
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15
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15
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15
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15
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15
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16
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PART
I – FINANCIAL INFORMATION
Item 1.
Financial Statements
AMERICAN
PUBLIC EDUCATION, INC.
Consolidated
Balance Sheets
(In thousands, except
per share data)
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As
of March 31,
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As
of December 31,
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2008
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2007
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(Unaudited)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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31,752
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$
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26,951
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Accounts
receivable, net of allowance of $592 in 2008 and $385 in
2007
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4,467
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4,896
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Income
tax receivable
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-
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1,089
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Prepaid
expenses
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1,735
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1,596
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Deferred
income taxes
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572
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309
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Total
current assets
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38,526
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34,841
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Property
and equipment, net
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14,659
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13,364
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Other
assets
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1,511
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775
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Total
assets
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$
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54,696
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$
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48,980
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$
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1,878
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$
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2,471
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Accrued
liabilities
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3,656
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4,323
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Deferred
revenue and student deposits
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8,027
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6,614
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Income
tax payable
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910
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-
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Total
current liabilities
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14,471
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13,408
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Deferred
income taxes
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2,185
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2,065
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Total
liabilities
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16,656
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15,473
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Commitments
and contingencies (Note 2)
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Stockholders’
equity:
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Common
stock, $.01 par value;
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Authorized
shares - 100,000; 17,781 issued and
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outstanding
in 2008 and 17,688 in 2007
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178
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177
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Additional
paid-in capital
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129,132
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128,005
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Accumulated
deficit
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(91,270)
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(94,675)
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Total
stockholders’ equity:
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38,040
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33,507
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Total
liabilities and stockholders' equity
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$
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54,696
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$
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48,980
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The
accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN
PUBLIC EDUCATION, INC.
Consolidated
Statements of Income
(In
thousands, except share and per share data)
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Three
Months Ended
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March
31,
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2008
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2007
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(Unaudited)
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Revenues
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$ |
23,241 |
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$ |
14,089 |
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Costs
and expenses:
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Instructional
costs and services
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9,912 |
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6,105 |
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Selling
and promotional
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2,177 |
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1,439 |
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General
and administrative
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4,803 |
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3,236 |
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Depreciation
and amortization
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898 |
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618 |
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Total
costs and expenses
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17,790 |
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11,398 |
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Income
from operations before
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interest
income and income taxes
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5,451 |
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2,691 |
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Interest
income, net
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242 |
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144 |
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Income
from operations
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before
income taxes
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5,693 |
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2,835 |
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Income
tax expense
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2,288 |
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1,301 |
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Net
income
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$ |
3,405 |
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$ |
1,534 |
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Net
Income per common share:
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Basic
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$ |
0.19 |
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$ |
0.13 |
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Diluted
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$ |
0.18 |
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$ |
0.13 |
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Weighted
average number of common
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shares:
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Basic
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17,735,908 |
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11,863,268 |
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Diluted
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18,767,995 |
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11,914,613 |
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The
accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN
PUBLIC EDUCATION, INC.
Consolidated
Statements of Cash Flows
(In
thousands)
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Three
Months Ended March 31,
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2008
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2007
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(Unaudited)
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Operating
activities
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Net
income
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$ |
3,405 |
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$ |
1,534 |
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Adjustments
to reconcile net income to net cash provided by operating
activities
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Provision
for bad debt
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207 |
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135 |
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Depreciation
and amortization
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898 |
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618 |
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Stock-based
compensation
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377 |
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502 |
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Deferred
income taxes
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(143 |
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(152 |
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Changes
in operating assets and liabilities:
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Accounts
receivable
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222 |
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459 |
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Prepaid
expenses and other assets
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(139 |
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(145 |
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Income
tax receivable
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1,089 |
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679 |
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Accounts
payable and accrued liabilities
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(1,260 |
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(1,472 |
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Income
tax payable
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910 |
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711 |
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Deferred
revenue and student deposits
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1,413 |
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1,665 |
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Net
cash provided by operating activities
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6,979 |
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4,534 |
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Investing
activities
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Capital
expenditures
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(2,193 |
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(838 |
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Capitalized
program development costs and other assets
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(736 |
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- |
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Net
cash used in investing activities
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(2,929 |
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(838 |
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Financing
activities
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Payments
on long-term debt
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- |
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(8 |
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Cash
received from issuance of common stock, net of issuance
costs
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322 |
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480 |
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Excess
tax benefit from stock based compensation
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429 |
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- |
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Net
cash provided by financing activities
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751 |
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472 |
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Net
increase in cash and cash equivalents
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4,801 |
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4,168 |
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Cash
and cash equivalents at beginning of period
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26,951 |
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11,678 |
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Cash
and cash equivalents at end of period
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$ |
31,752 |
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$ |
15,846 |
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Supplemental
disclosure of cash flow information
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Interest
paid
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$ |
- |
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$ |
36 |
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Income
taxes paid
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$ |
3 |
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$ |
64 |
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The
accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN
PUBLIC EDUCATION, INC.
Notes
to Consolidated Financial Statements
(In
thousands, except per share and share data)
1.
Nature of the Business
American
Public Education, Inc. (“APEI”) together with its subsidiaries (the “Company”)
is a provider of exclusively online postsecondary education directed at the
needs of the military and public service communities that operates in one
reportable segment. APEI has five subsidiaries, including the American Public
University System, Inc. (the “University System”), a West Virginia corporation,
which operates through two universities, American Military University and
American Public University.
The
University System achieved regional accreditation in May 2006 with the Higher
Learning Commission of the North Central Association of Colleges and Schools and
became eligible for federal student aid programs under Title IV for classes
beginning in November 2006.
On
August 7, 2007, APEI filed a Registration Statement on Form S-1
(Registration No. 333-145185) for its initial public offering, which was
completed on November 14, 2007.
On January
25, 2008, APEI filed a Registration Statement on Form S-1 (Registration No.
333-148851) for a public offering, which was completed on February 19, 2008. In
the offering 3,744,500 shares were sold, consisting of 25,000 shares sold by the
Company and 3,719,500 shares sold by certain stockholders of the
Company. Total net proceeds to the Company were $839, after deducting
underwriting discounts and commissions, and before estimated offering
expenses. Certain selling stockholders granted the underwriters a
30-day option to purchase up to an additional 500,175 shares at the public
offering price to cover over-allotments. On February 27, 2008, the
underwriters exercised their over-allotment option in full. The
closing of the exercise of the over-allotment option occurred on March 3,
2008. The Company did not receive any of the proceeds from the sale
of common stock held by the selling stockholders in the offering or pursuant to
the over-allotment option.
2.
Basis of Presentation
The
accompanying unaudited interim consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States (“GAAP”). All intercompany transactions have
been eliminated in consolidation. They do not include all of
the information and footnotes required by GAAP for complete financial statement
presentations. In the opinion of management, these statements include all
adjustments (consisting of normal recurring adjustments) considered necessary to
present a fair statement of our consolidated results of operations, financial
position and cash flows. Operating results for any interim period are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008. This Quarterly Report on Form 10-Q should be read in
conjunction with the Company’s consolidated financial statements and footnotes
in its audited financial statements for the year ended December 31, 2007
included in its Annual Report, on Form 10-K, for the year ended December 31,
2007.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Contingencies
The
Company accrues for costs associated with contingencies including, but not
limited to, regulatory compliance and legal matters when such costs are probable
and can be reasonably estimated. Liabilities established to provide for
contingencies are adjusted as further information develops, circumstances
change, or contingencies are resolved. The Company bases these accruals on
management’s estimate of such costs, which may vary from the ultimate cost and
expenses, associated with any such contingency.
From time
to time the Company may be involved in litigation in the normal course of its
business. In the opinion of management, the Company is not aware of
any pending or threatened litigation matters that will have a material adverse
effect on the Company’s business, operations, financial condition or cash
flows.
Concentration
Approximately
66% and 67% of the Company’s revenues for the three months ended March 31, 2008
and 2007, respectively, were derived from students who receive tuition
assistance from tuition assistance programs sponsored by the United States
Department of Defense. A reduction in this assistance could have a significant
impact on the Company’s operations.
3.
Net Income Per Common Share
Basic net
income per common share is based on the weighted average number of shares of
common stock outstanding during the period. Diluted net income per common
share also increases the shares used in the per share calculation by the
dilutive effects of options, warrants, and restricted stock. Stock options
and warrants are not included in the computation of diluted earnings per share
when their effect is anti-dilutive. There were no anti-dilutive stock
options or warrants excluded from the calculation for the three months
ended March 31, 2007. There were no warrants outstanding during
the three months ended March 31, 2008 and there were no anti-dilutive stock
options or restricted stock excluded from the calculation for the three months
ended March 31, 2008.
4. Income
Taxes
In June
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48 - Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement
No. 109 (FIN 48). This interpretation applies to all tax
positions accounted for in accordance with SFAS No. 109 by defining the criteria
that an individual tax position must meet in order for the position to be
recognized within the financial statements and provides guidance on measurement,
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition of tax positions. This
interpretation is effective for fiscal years beginning after December 15, 2006,
with earlier adoption permitted. The Company adopted FIN 48 effective
January 1, 2007. The impact of adopting FIN 48 was not material as of the
date of adoption. Interest and penalties associated with uncertain
income tax positions are classified as income tax expense. The Company has not
recorded any material interest or penalties during any of the years
presented.
The
Company is subject to U.S.Federal income taxes as well as income tax of multiple
state jurisdictions. For Federal tax purposes, tax years 2003-2007
remain open to examination. For state tax purposes, the statute of limitations
remains open for tax years 2003-2007. Currently, no examinations are open in any
jurisdiction.
The
Company anticipates that its effective combined Federal and state statutory tax
rate for 2008 will be approximately 41%. The actual combined
effective tax rate for the three months ended March 31, 2008 was
40.2%. The difference of .8% between the expected tax rate for 2008
and the actual rate for the three months ended March 31, 2008 was due to the
effects of a change in state income tax rates and the tax effect of stock based
compensation during the period.
The
Company does not anticipate any significant increases or decreases in
unrecognized tax benefits within the next twelve months.
5.
Stock Based Compensation
On
January 1, 2006, the Company adopted the provisions of FASB Statement No. 123R –
Share Based Payment, a
revision of FASB Statement No. 123 – Accounting for Stock Based Compensation,
or SFAS 123R. This standard requires companies to recognize
the expense related to the fair value of their stock-based compensation
awards. The Company elected to use the modified prospective approach
to transition to SFAS 123R, as allowed under the statement; therefore, the
Company has not restated financial results for prior periods. We
calculate the expected term of stock option awards using the “simplified method”
as defined in Staff Accounting Bulletin No. 107 because we lack historical data
and are unable to make reasonable expectations regarding the
future. We also estimate forfeitures of share-based awards at the
time of grant and revise such estimates in subsequent periods if actual
forfeitures differ from original projections. We make assumptions
with respect to the expected stock price’s volatility based on the average
historical volatility of peers with similar attributes. In addition,
we determine the risk free interest rate by selecting the U.S. Treasury
five-year constant maturity, quoted on an investment basis in effect at the time
of grant for that business day. Estimates of fair value are
subjective and are not intended to predict actual future events, and subsequent
events are not indicative of the reasonableness of the original estimates of
fair value made under SFAS 123R.
In
February 2002, the Company adopted the 2002 Stock Incentive Plan (“the 2002
Stock Plan”). The 2002 Stock Plan initially allowed the Company to grant up to
990,000 shares of stock options and restricted stock at fair value to
employees, officers, directors, and service providers of the Company and its
affiliates, at the discretion of the Board of Directors. Options granted to date
and currently outstanding vest ratably over periods of three to five years and
expire in 10 years from the date of grant. The options are granted to
employees at a purchase price that approximates the fair value of the Company’s
stock. In August 2002, the 2002 Stock Plan was amended to increase the shares of
common stock reserved for grant under the plan to 1,815,000. In August 2005, the
2002 Stock Plan was amended to increase the shares of common stock reserved for
grant under the plan to 2,200,000.
On
August 3, 2007, the Board of Directors adopted the American Public
Education, Inc. 2007 Omnibus Incentive Plan (the “new equity plan”), and its
stockholders approved the new equity plan on November 6, 2007. The new
equity plan was effective as of August 3, 2007. Upon adoption of the new
equity plan, APEI ceased making awards under the 2002 Stock Plan. The new equity
plan allows APEI to grant up to 1,100,000 shares plus any shares of common
stock remaining available for issuance under the 2002 Stock Plan as of the
effective date of the new equity plan and any shares of APEI common stock that
are subject to outstanding awards under the 2002 Stock Plan that expire or are
forfeited, canceled or settled for cash without delivery of shares of APEI
common stock after the effective date of the new equity plan. As of
December 31, 2007, there were 3,751 shares available for issuance from
the 2002 Stock Plan which were added to the 1,100,000 shares available for
issuance under the 2007 new equity plan. Awards under the new equity plan may be
stock options, which may be either incentive stock options or nonqualified stock
options; stock appreciation rights; restricted stock; restricted stock units;
dividend equivalent rights; performance shares; performance units; cash-based
awards; other stock-based awards, including unrestricted shares; or any
combination of the foregoing.
Stock-based
compensation expense related to restricted stock grants is expensed over the
vesting period using the straight-line method for Company employees and the
graded-vesting method for members of the Board of Directors and is measured
using the Company’s stock price on the date of grant.. The fair value of each
option award is estimated at the date of grant using a Black-Scholes
option-pricing model that uses the assumptions noted in the following table.
Expected volatilities are based on the best estimate of the historical
volatility of the Company’s stock. The Company uses historical data to estimate
option exercise and employee and director terminations within the model, as well
as the expected term of options granted, which represents the period of time
that options granted are expected to be outstanding. The risk-free rate for
periods within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of
grant.
|
|
|
Mar-08
|
|
|
Mar-07
|
Expected
volatility
|
|
|
26.23%
|
|
|
27.75%
|
Expected
dividends
|
|
|
0.00%
|
|
|
0.00%
|
Expected
term, in years
|
|
|
4.5
|
|
|
6.5
|
Risk-free
interest rate
|
|
|
2.59%
|
|
|
4.58-4.76%
|
|
|
|
|
|
|
|
Weighted
average fair value of options
|
|
|
|
granted
during the year
|
|
$ |
8.26
|
|
$ |
3.37
|
Options
granted through March 31, 2008, vest ratably over periods of three to five years
and expire in seven to ten years from the date of grant. Option
activity is summarized as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted-Average
|
|
|
Intrinsic
|
|
|
|
Number
|
|
|
Average
|
|
|
Contractual
|
|
|
Value
|
|
|
|
of
Options
|
|
|
Exercise
Price
|
|
|
Life
(Yrs)
|
|
|
(In
thousands)
|
|
Outstanding,
December 31, 2007
|
|
|
1,537,835 |
|
|
$ |
6.13 |
|
|
|
|
|
|
|
Options
granted
|
|
|
945 |
|
|
$ |
31.00 |
|
|
|
|
|
|
|
Awards
exercised
|
|
|
(66,532 |
) |
|
$ |
1.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
March 31, 2008
|
|
|
1,472,248 |
|
|
$ |
6.35 |
|
|
|
7.44 |
|
|
$ |
35,364 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
March 31, 2008
|
|
|
456,824 |
|
|
$ |
3.09 |
|
|
|
7.34 |
|
|
$ |
12,462 |
|
The
following table summarizes information regarding stock option
exercises:
|
|
Mar-08
|
|
|
Mar-07
|
|
|
(In
thousands)
|
Proceeds
from stock options exercised
|
|
$ |
106 |
|
|
$ |
480 |
|
Intrinsic
value of stock options exercised
|
|
$ |
2,394 |
|
|
$ |
453 |
|
Tax
benefit from exercises
|
|
$ |
432 |
|
|
$ |
- |
|
Stock based compensation expense
related to restricted stock grants is expensed over the vesting period using the
straight-line method for Company employees and the graded-vesting method for
members of the Board of Directors. The table below sets for the
restricted stock activity for the three months ended March 31,
2008:
|
|
|
|
|
Weighted-Average
|
|
|
|
Number
|
|
|
Grant
Price
|
|
|
|
of
Shares
|
|
|
and
Fair Value
|
|
Non
vested, December 31, 2007
|
|
|
72,573 |
|
|
$ |
20.00 |
|
Shares
granted
|
|
|
240 |
|
|
$ |
31.00 |
|
Non
vested, March 31, 2008
|
|
|
72,813 |
|
|
$ |
20.04 |
|
Stock based compensation cost charged
against income during the three months ended March 31, 2008 and March 31, 2007
is as follows:
|
Three
Months Ended
|
|
|
March
31,
|
|
|
|
|
2008
|
|
2007
|
|
|
(Unaudited)
|
|
Instructional
costs and services
|
|
$ |
56 |
|
|
$ |
54 |
|
General
and administrative
|
|
|
304 |
|
|
|
475 |
|
Stock-based
compensation expense in operating income
|
|
|
377 |
|
|
|
502 |
|
Tax
benefit
|
|
|
(128 |
) |
|
|
(135 |
) |
Stock-based
compensation expense, net of tax
|
|
$ |
249 |
|
|
$ |
367 |
|
As
of March 31, 2008, total compensation cost related to non-vested service-based
stock options not yet recognized was $3.5 million, which is expected to be
recognized over the next 48 months on a weighted-average
basis.
Item 2.
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of our
historical results of operations and our liquidity and capital resources should
be read in conjunction with the consolidated financial statements and related
notes that appear elsewhere in this report.
Forward-Looking
Statements
Some of
the statements contained in this Form 10-Q that are not historical facts are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”). We intend such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange
Act. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date this Form 10-Q
is filed with the Securities and Exchange Commission (“SEC”). We may, in
some cases, use words such as “project,” “believe,” “anticipate,” “plan,”
“expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,”
“will,” or “may,” or other words that convey uncertainty of future events or
outcomes to identify these forward-looking statements. The forward-looking
statements are based on our beliefs, assumptions and expectations of our future
performance, taking into account information currently available to
us. These beliefs, assumptions and expectations can change as a
result of many possible events or factors, not all of which are known to us or
are within our control. If a change occurs, our business, financial
condition and results of operations may vary materially from those expressed in
our forward-looking statements. There are a number of important
factors that could cause actual results to differ materially from the results
anticipated by these forward-looking statements. These important
factors include those that we discuss in this section of our Form 10-Q and in
the “Risk Factors” section of our annual report on Form 10-K for the fiscal year
ended December 31, 2007 (the “Annual Report”) and our various filings with the
Securities and Exchange Commission. You should read these factors and
the other cautionary statements made in this Form 10-Q in combination with the
more detailed description of our business in our Annual Report as being
applicable to all related forward-looking statements wherever they appear in
this quarterly report. If one or more of these factors materialize,
or if any underlying assumptions prove incorrect, our actual results,
performance or achievements may vary materially from any future results,
performance or achievements expressed or implied by these forward-looking
statements. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information, future
events or otherwise, except as required by law.
Overview
Background
American
Public Education, Inc. is a provider of online postsecondary education directed
at the needs of the military and public service communities. We operate through
two universities, American Military University, or AMU, and American Public
University, or APU, which together constitute the American Public University
System.
We were
founded as American Military University, Inc. in 1991 and began offering
graduate courses in January 1993. Following initial national accreditation by
the Accrediting Commission of the Distance Education and Training Council, or
DETC, in 1995, American Military University began offering undergraduate
programs primarily directed to members of the armed forces. Over time, American
Military University diversified its educational offerings in response to demand
by military students for post-military career preparation. With its expanded
program offerings, American Military University extended its outreach to the
greater public service community, primarily police, fire, emergency management
personnel and national security professionals. In 2002, we reorganized into a
holding company structure, with American Public Education, Inc. serving as the
holding company of American Public University System, Inc., which operates our
two universities, AMU and APU. Our university system achieved regional
accreditation in May 2006 with the Higher Learning Commission of the North
Central Association of Colleges and Schools and became eligible for federal
student aid programs under Title IV for classes beginning in November 2006.
In September 2007, we received approval from the Higher Learning Commission to
offer seven new degree programs in Education and Information
Technology.
The
university system offers terms beginning on the first Monday of each month in
either eight- or sixteen-week formats. Semesters and academic years
are established to manage Title IV students and assist them in meeting
eligibility requirements.
In August 2007 we filed a Registration
Statement on Form S-1 (Registration No. 333-145185) for our initial public
offering, which we completed on November 14, 2007. In the
initial public offering, we sold 5,390,625 shares of our common stock at a price
to the public of $20.00 per share, before underwriting discounts and
commissions. The sale of the shares included the exercise in full of
the underwriters’ option to purchase up to an additional 703,125 shares at the
initial public offering price to cover over-allotments. Net proceeds to us were
approximately $100.3 million, after deducting underwriting discounts and
commissions and before offering expenses. In connection with the
closing of the initial public offering, all of our Class A Common Stock was
converted into shares of common stock.
As a
public company, we expect that we will incur significant additional costs and
expenses such as increased legal and audit fees, professional fees, directors’
and officers’ insurance costs and expenses related to compliance with
Sarbanes-Oxley Act regulations and other annual costs of doing business as a
public company including hiring additional personnel and expanding our
administrative functions. We expect these additional expenses to range from $1.5
million to $2.0 million per year and anticipate funding costs relating
to being a public company with cash provided by operating activities and cash on
hand.
On January
25, 2008 we filed a Registration Statement on Form S-1 (Registration
No. 333-148851) for a public offering, which was completed on February 19,
2008. In the public offering, 3,744,500 shares were sold,
consisting of 25,000 shares sold by the Company and 3,719,500 shares sold by
certain stockholders of the Company, at a price to the public of $35.50 per
share, before underwriting discounts and commissions. Total net
proceeds to the Company were $839,000 after deducting underwriting discounts and
commissions, and before estimated offering expenses. The Company did
not receive any of the proceeds from the sale of common stock sold by the
selling stockholders. Certain selling stockholders granted the
underwriters a 30-day option to purchase up to an additional 500,175 shares at
the public offering price to cover over-allotments. On February 27,
2008, the underwriters of the Company’s public offering exercised their
over-allotment option in full. The closing of the exercise of the
over-allotment option occurred on March 3, 2008. The Company did not
receive any of the proceeds from the sale of common stock held by the selling
stockholders in the over-allotment option exercise.
Summary
In recent
years, we have experienced substantial growth. Our course enrollments, or net
course registrations, representing the aggregate number of classes in which
students remain enrolled after the date by which they may drop the course
without financial penalty, increased at a compound annual growth rate (CAGR) of
39% from 2003 to 2007. Over that same time, total revenue increased at a CAGR of
40%, from $17.8 million in 2003 to $69.1 million in
2007. We believe achieving regional accreditation in May 2006 and
gaining access to Title IV programs beginning with classes that started in
November 2006 have been additional factors driving our recent acceleration in
growth. Net course registrations increased 73% in 2007 over 2006. Our
revenue increased from $40.0 million to $69.1 million, or by 73%, over
the same time period and operating margins increased to 21.3% from 7.2% over the
same time period. Net course registrations increased 59% for the
three-month period ended March 31, 2008 over the three-month period ended March
31, 2007. Our revenue increased from $14.1 million to $23.2 million,
or by 65%, over the same time period and operating margins increased to 23.5%
from 19.1% over the same time period. While we have experienced
substantial growth in recent periods, you should not rely on the results of any
prior periods as an indication of our future growth in net course registrations
or revenue as our historical growth rates may not be sustainable. Similarly, you
should not rely on the improvement in our operating margins in any prior periods
as an indication of our future operating margins. Our difficulty in forecasting
future growth rates and operating margins is in part due to our inability to
fully estimate the actual impact of gaining access to Title IV programs.
Following our implementation of Title IV for the year ended
December 31, 2007, 10.6% of our net course registrations were from students
using financial aid under Title IV programs. For the three-month period
ended March 31, 2008, 12.1%, or approximately 4000, of our net course
registrations were from students using financial aid under the Title IV programs
compared to 7.3%, or approximately 1500, for the three-month period ended March
31, 2007. Because of our limited history with Title IV programs
and because we cannot estimate the growth of new students that may result from
our participation in Title IV programs, we cannot estimate the costs and
expenses associated with administering Title IV programs and complying with
the associated regulations.
Critical
Accounting Policies
Critical
accounting policies are disclosed in our consolidated financial statements and
footnotes in the audited financial statements for the fiscal year ended December
31, 2007 included in our Annual Report on Form 10-K, for the fiscal year ended
December 31, 2007. There have been no significant changes in our
critical accounting policies from those disclosed in the Form 10-K.
Results
of Operations
The
following table sets forth statements of operations data as a percentage of
revenues for each of the periods indicated:
|
Three
Months
|
|
|
Ended
March 31
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
100.0
|
% |
|
|
100.0
|
% |
Costs
and expenses:
|
|
|
|
|
|
|
|
|
Instructional
costs and services
|
|
|
42.6 |
|
|
|
43.3 |
|
Selling
and promotional
|
|
|
9.3 |
|
|
|
10.2 |
|
General
and administrative
|
|
|
20.7 |
|
|
|
23.0 |
|
Depreciation
and amortization
|
|
|
3.9 |
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
76.5 |
|
|
|
80.9 |
|
|
|
|
|
|
|
|
|
|
Income
from operations before
|
|
|
|
|
|
|
|
|
interest
income and income taxes
|
|
|
23.5 |
|
|
|
19.1 |
|
Interest
income, net
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
|
|
|
|
|
|
before
income taxes
|
|
|
24.5 |
|
|
|
20.1 |
|
Income
tax expense
|
|
|
9.8 |
|
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
14.7
|
% |
|
|
10.9
|
% |
Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31
2007
Revenues.
Our revenues for the three months ended March 31, 2008 were $23.2 million, an
increase of $9.1 millions, or 65.0%, compared to $14.1 million for the three
months ended March 31, 2007. The increase was a primarily a result of an
increase in the number of net course registrations.
Costs and
Expenses. Costs and expenses were $17.8 million for the three
months ended March 31, 2008; an increase of $6.4 million, or 56.1%, compared to
$11.4 million for the three months ended March 31, 2007. Costs and
expenses as a percentage of revenues decreased to 76.5% for the three months
ended March 31, 2008 from 80.9% for the three months ended March 31,
2007. This decrease resulted from the factors described
below.
Instructional
costs and services expenses. Our instructional costs and services
expenses for the three months ended March 31, 2008 were $9.9 million,
representing an increase of 62.4% from $6.1 million for the three months ended
March 31, 2007. This increase was directly related to an increase in
the number of classes offered due to the increase in net course
registrations. Instructional costs and services expenses as a
percentage of revenues were 42.6% for the three months ended March 31, 2008,
compared to 43.3% for the three months ended March 31,
2007. The slight decrease was primarily due to efficiencies
realized through a higher volume of students and the number of staff and
expenses increasing at a slower rate than revenue.
Selling
and
promotional expenses. Our selling and promotional expenses for the three
months ended March 31, 2008 were $2.2 million, representing an increase of 51.3%
from $1.4 million for the three months ended March 31, 2007. This
increase was primarily due to an increase in online advertising
expenses. Selling and promotional expenses as a percentage of
revenues decreased to 9.3% for the three months ended March 31, 2008 from 10.2%
for the three months ended March 31, 2007. This decrease was
primarily due to our ability to realize advertising efficiencies as a result of
strong lead generations from personal referrals.
General and
administrative expenses. Our general and administrative expenses for the
three months ended March 31, 2008 were $4.8 million representing an increase of
48.4% from $3.2 million for the three months ended March 31,
2007. The increase in expense was a result of additional technology,
and financial staff positions, and an increase in expenditures for recruiting,
professional services, management and the administrative facilities required to
support a larger student body as well as increased expenses associated with
being a public company. General and administrative expenses as a percentage of
revenues decreased to 20.7% for the three months ended March 31, 2008 from 23.0%
for the three months ended March 31, 20007. The decrease was
primarily due to efficiencies realized through a higher volume of students and
the number of staff and related expenses increasing at a slower rate than
revenue.
Depreciation and
amortization. Depreciation and amortization expenses were $0.9 million
for the three months ending March 31, 2008, compared with $0.6 million for the
three months ended March 31, 2007. This represents an increase of
45.3%. This increase resulted from greater capital expenditures and
higher depreciation and amortization on a larger fixed asset base.
Stock-based
compensation. Stock-based compensation included in instructional costs
and services, selling and promotional, and general and administrative expense
for the three months ended March 31, 2008 was $377,000 in the aggregate,
representing an decrease of 24.9% from $502,000 for the three months ended
March 31, 2007. The decrease in stock-based compensation for the
three months ended March 31, 2008 is primarily attributable to options
granted for the three months ended March 31, 2007 with accelerated service
periods.
Interest income,
net. Our interest income, net increased by $98,000 for the three months
ended March 31, 2008 to $242,000 from $144,000 for the three months ended March
31, 2007, representing an increase of 68.1%. This increase is
attributable to increased cash on hand.
Income tax
expense. We recognized income tax expense for the three months ended
March 31, 2008 and 2007 of $2.3 million and $1.3 million,
respectively, or effective tax rates of 40.2% and 45.9%,
respectively. The decrease in the effective tax rate was directly
attributable to a reduction in incentive stock option expense and the effects of
a change in state income tax rates.
Net income.
Our net income was $3.4 million for the three months ended March 31,
2008, compared to net income of $1.5 million for the three months ended March
31, 2007, an increase of $1.9 million. This increase was related to
the factors discussed above.
Liquidity
and Capital Resources
Liquidity
The
Company financed operating activities and capital expenditures during the three
months ended March 31, 2008 and 2007 primarily through cash provided by
operating activities and proceeds received from the exercise of stock
options. The net offering proceeds, after offering expenses, from the
public offering that closed on February 19, 2008 were approximately $167,000,
which we intend to use for working capital and other general corporate
purposes. Cash and cash equivalents were $31.8 million and
$27.0 million at March 31, 2008 and December 31, 2007,
respectively.
We derive a significant portion of our
revenues from tuition assistance programs from the Department of Defense
(DoD). Generally, these funds are received within 60 days of the
start of the classes to which they relate. A growing source of
revenue is derived from our participation in Title IV programs, for which
disbursements are governed by federal regulations. However, we have
typically received disbursements under this program within 30 days of the start
of the applicable class.
These
factors, together with the number of classes starting each month, affect our
operational cash flow. Our costs and expenses will increase now that
we are a public company, and we expect to fund these expenses through cash from
operations.
We have
available to us a line of credit with a maximum borrowing amount of up to $5.0
million. The line bears interest at LIBOR plus 200 basis
points. The line is secured by substantially all of our
assets. We have never borrowed under this line of credit
facility. After the completion of our initial public offering, and on
a regular basis, we intend to review the terms of our credit
facilities.
Based
on our current level of operations and anticipated growth, we believe that our
cash flow from operations and other sources of liquidity, including cash and
cash equivalents, will provide adequate funds for ongoing operations and planned
capital expenditures for the foreseeable future.
Operating Activities
Net
cash provided by operating activities was $7.0 million and $4.5 million for
the three months ended March 31, 2008 and 2007,
respectively. As revenue and profits have grown, cash has
increased. Cash and cash equivalents were $31.8 million and
$27.0 million at March 31, 2008 and December 31, 2007,
respectively.
Investing
Activities
Net
cash used in investing activities was $2.9 million and $.8 million for the three
months ended March 31, 2008 and 2007, respectively. The $2.1 million
increase related to leasehold improvements on property leased and acquired in
2007, increased software development and IT infrastructure costs and a perpetual
software license.
Financing
Activities
Net
cash provided by financing activities for the three months ended March 31, 2008
was $0.8 million from cash received from the issuance of common stock including
the net proceeds to us from the public offering, and the excess tax benefit from
stock based compensation.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
We
are subject to the impact of interest rate changes and may be subject to changes
in the market values of future investments. We invest excess cash in
bank overnight deposits. We have no derivative financial instruments
or derivative commodity instruments as of March 31,
2008.
Future
investment income may fall short of expectations due to changes in interest
rates. At March 31, 2008, a 10% increase or decrease in
interest rates would not have a material impact on our future earnings or cash
flows related to investments in cash equivalents.
Item 4.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as of March 31, 2008 as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Based upon the evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that the Company’s
disclosure controls and procedures were effective as of March 31,
2008.
Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in reports we
file or submit under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commissions rules and forms, and that such
information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Changes in
Internal Control over Financial Reporting
There
was no change in our internal control over financial reporting identified in
connection with the evaluation required by Rule 13a-15(f) and 15d-15(f) of
the Exchange Act that occurred during the period covered by this report that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
We
currently have no material legal proceedings pending.
An investment in our stock involves
a high degree of risk. You should carefully consider the risks set forth in the
Risk Factors section of our Prospectus that forms a part of our
annual report on Form10-K for the fiscal year ended
December 31,
2007.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior
Securities
None.
Item 4.
Submission of Matters to a Vote of Security Holders
None.
Item 5. Other
Information
None.
Item 6.
Exhibits
Exhibit No.
|
Exhibit Description
|
31.01
|
Certification
of Chief Executive officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
31.02
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) under the
Securities Exchange Act of 1934 as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
|
32.01
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
AMERICAN
PUBLIC EDUCATION, INC.
|
/s/ Wallace E.
Boston
|
May
8, 2008
|
Wallace
E. Boston
|
|
President
and Chief Executive Officer
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
/s/ Harry
T. Wilkins
|
May
8, 2008
|
Harry
T. Wilkins
|
|
Executive
Vice President and Chief Financial Officer
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(Principal
Financial and Principal Accounting Officer)
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16