DEAR SHAREHOLDERS,

At American Public Education, Inc. (APEI), we are dedicated to inspiring future leaders and helping our students achieve their professional goals through higher education. In 2018, more than 11,000 students earned a degree from American Public University System (APUS) and Hondros College of Nursing (HCN). In addition, we welcomed many new college-ready students, most of whom are working adults, to our institutions of higher learning.

We further strengthened our institutions in 2018. At APUS, our top priority has been to stabilize enrollments by improving student persistence, streamlining enrollment management processes, and tailoring our outreach efforts to attract more college-ready students. We have made tremendous progress in these three critical areas over the past five years, which has culminated in improved student persistence and conversion rates, and which we believe has made APUS a stronger university that provides an even better learning experience. HCN, which continues to improve and expand its program offerings, achieved a series of milestones in 2018, including earning accreditation from the Accrediting Bureau for Health Education (ABHES). Most importantly, over the past year we positioned APEI and its subsidiaries to move forward with a sound strategy for the future in the face of increased competition and a rapidly changing market for higher education.

American Public University System 2018 Results

APUS today consists of American Public University (APU) and American Military University (AMU). Together, these brands offer more than 200 degree and certificate programs in diverse fields of study that include four competency-based programs, a dual-degree program, and two applied doctoral programs. Long recognized for offering quality higher education and for our commitment to helping our students succeed, APUS is distinguished by an outstanding faculty, a longstanding relationship with the military, and a selection of highly specialized course offerings that attract motivated students.

Since our IPO in 2007, the number of students graduating each year from APUS has increased more than six-fold overall.

APUS Graduates By yearBeginning in 2013, in the wake of tremendous growth, we further refined our focus on attracting students with academic intent and greater college-readiness. We made improvements to our courses and introduced new tools to raise the level of student engagement. These included predictive analytics to help us identify and assist at-risk students. Those important foundational steps had a measurable positive impact on student persistence and outcomes.

In 2017, we turned our attention to the student on-boarding process with the aim of creating a better, more engaging experience for incoming students. We took a number of steps to make the process smoother and more efficient by eliminating roadblocks and introducing a variety of innovations. For example, we made it easier to transfer credits, a tangible value to students; we developed a new, more seamless process for Title IV funding; and we personalized the entire process, so the online environment adapts to each student’s needs. We also expanded student service hours to provide additional assistance to students who need help outside of normal business hours.

Our degree programs are challenging, and we seek to enroll students who are prepared to work hard, learn, and succeed. Toward that end, we have fine-tuned our marketing efforts by taking a more targeted approach that capitalizes on the distinctive nature of our programs. APUS does not use high-pressure sales and lead aggregators. Instead, we increasingly focus on creating awareness through relationship marketing and advertising through lower-cost channels, such as social and digital media. In addition, we build on the valuable resource of our faculty’s expertise to create vibrant online communities that engage practitioners and others interested in those fields of expertise, personalizing content to provide information that engages and informs. This form of content marketing builds awareness of APUS as a thought leader in online education as well as in those respective fields and, ultimately, helps us better attract motivated students who are ready for the rigors of higher learning.

In short, we have made it easier for college-ready students to find us, easier for them to enroll, and easier for them to transfer credits. As a result of these efforts, over the past five years, our persistence rates have steadily improved. In 2018, the student persistence rate at APUS (as measured by the first course pass and completion rate of undergraduate students utilizing Federal Student Aid) improved 12% over prior year,1 indicating a more stable, college-ready student base.

1. For the twelve months ended November 30, 2018.

Having achieved our goal of stabilizing enrollments, we are now positioned to continue to build on our strengths, which are formidable and include:

• Leadership in delivering value. By definition, that means a combination of affordability and quality. Eighty-seven percent of APUS’s students are adults, many of whom are working in specialized fields and public service professions. APUS offers these students the genuine value they seek—the ability to earn a degree in a flexible, affordable, and high caliber academic setting. APUS undergraduate costs (tuition, books, and fees) are 28% below the average published tuition and fee price paid by full-time in-state students at public four-year institutions.2 In addition to highly competitive tuition rates, we provide course materials to our students through book grants. In fact, since 2001, APUS has provided approximately $134 million in textbooks and course materials to students at no charge.

2. The College Board’s Trends in College Pricing (2018).

• A unique curriculum that sets APUS apart. We have earned a strong reputation for our highly specialized programs in fields with increasing growth and demand such as Homeland Security, Cyber Security, Intelligence Studies, Emergency & Disaster Management, Transportation & Logistics, Fire Science, Public Health, and Space Studies. We also offer unique courses within these specialties, such as Explosive Ordinance Disposal and Asymmetric Warfare, to name a few. APUS is also a liberal arts degree granting institution that offers STEM programs.

• An exceptional faculty. The APUS faculty3 is made up of noteworthy scholars and practitioners, many of whom are still working in their respective fields, a value that cannot be understated that often differentiates us from on-ground institutions. In 2018, our faculty published approximately 500 articles, books, and papers; earned nearly 100 awards for their professional practice, research, and community service; and presented at more than 600 conferences and workshops.

3. Approximately 350 full-time and 1,440 part-time faculty members.

• Primacy in educating the military and veteran communities. From our earliest beginnings as American Military University, we have been the top provider of online higher education to the U.S. military. Today, we maintain that leadership position—as #1 among active duty U.S. military4 and #2 among U.S. veterans.5 Our military heritage and leadership position among active duty service members and affiliated communities remains one of our greatest strengths and source of pride.

4. Military Times: Fiscal 2017.

5. U.S. Department of Veterans Affairs.

6. APUS End of Program Survey 2017.7. APUS undergraduate students who completed an Associates or Bachelors degree in 2017 and returned for a second degree at any level.Looking ahead, we plan to focus our outreach efforts on three key areas: specific segments of the civilian market, the military and veteran communities, and corporate partnerships. Our plan is to target areas of the civilian market where student quality and advertising costs are compatible with APUS’s low-tuition model. These audiences include certain degree programs and professional fields. We are also working to better focus our advertising costs in regions where we have historically been successful in attracting and retaining students. In addition, we will continue to strengthen our reputation among our core student base. We build strong relationships with our students, as evidenced by the fact that many of them return to us for a second degree, and 51% of our new students are referred by APUS students or alumni.

Given our longstanding relationship with the military community, we continue to prioritize an ongoing military outreach program. We believe we can strengthen this relationship and leverage the AMU brand to serve even greater numbers of veterans. Notably, students who utilize Tuition Assistance and Veteran’s Administration benefits tend to have above average persistence and student success.

Finally, we are expanding our training and workforce development programs. Today, approximately 7% of APUS students come to us through our public and private-sector partners. The Transportation Security Administration (TSA) and American Public University (APU) are partners in education for the TSA Associates Program. The National Security Agency (NSA) and the Department of Homeland Security (DHS) have designated APUS as a National Center of Academic Excellence in Cyber Defense Education (CAE-CDE). We see this as a logical area for future growth that builds on our existing platform.

Hondros College of Nursing 2018 Results

2018 was another good year for Hondros College of Nursing. Average student enrollments were up 11% over the prior year and the new Toledo campus, which opened in 2017, continued to grow. We achieved accreditation from ABHES (Accrediting Bureau for Health Education Schools), a milestone for the college. This accreditation speaks to the high standard of quality of our education program, our commitment to improving student outcomes, the placement and employability of our students, and their record of completion.

HCN has competitive advantages that facilitate access to the nursing profession. Unlike many universities, where students must gain acceptance to the school before gaining acceptance to the nursing program, HCN is a direct-admit institution—offering a more direct path to a degree than the typical university. In addition, aspiring nurses may begin their studies with HCN’s diploma program in Practical Nursing, and move into the Associate Degree in Nursing. The ability to complete these two programs in sequence is often referred to as a “1+1” model. It also boasts relationships with 30 institutions and healthcare employers, opening the way for clinical experience and opportunities following graduation.

Currently, we are focused on improving the first time NCLEX (a national examination for the licensing of nurses) pass rates in our Associate Degree in Nursing (ADN) program. This process involves increased requirements for certain courses, as well as admissions and course retake policy changes, which may adversely impact enrollments in 2019. We are also moving forward with a series of growth initiatives. These include a new branding campaign and preparations for opening a new campus, slated for 2020.

This spring, we plan to continue with the rollout of HCN’s first non-nursing program—a new undergraduate degree program in medical laboratory technology (MLT) at our Columbus campus. The MLT program was originally launched at HCN’s Cincinnati campus in 2017. MLT is a growing field and one that is expected to experience a talent shortage by 2025.8 According to the Bureau of Labor Statistics, overall employment of medical laboratory technologists and technicians is projected to increase 13% from 2016 to 2026, faster than the average for all occupations.

8. Mercer HPA, Demand for Healthcare Workers Will Outpace Supply by 2025 (2018).

Making a Difference

Making a difference is central to who we are. Our institutions attract professionals who work in the military, healthcare, and public service professions among others. Many have dedicated their lives to service. They are making a difference in their communities and the world. By offering them access to flexible, affordable, quality degree programs, we are making a difference in their lives and the lives of their families. That is a key element of our mandate—to help our students advance and to provide a life-changing academic experience.

We are also deeply committed to making a difference in the communities in which we live and work, as well as in the global community by maintaining high ethical standards and working to improve the environment. We take our social and environmental responsibilities seriously.

Sustainability. Our model for higher education is inherently sustainable. As an online institution, APUS leaves a smaller carbon footprint than brick and mortar universities. Reducing commutes and remotely accessing our approximately 1,790 globally located instructors clearly puts us on a more sustainable path. In 2007, we codified our commitment to improving the environment when we became a charter signatory of the American College and University President’s Climate Commitment (ACUPCC). Since then, we have taken numerous steps to reduce our carbon footprint. Some involve major investments; we installed West Virginia’s largest solar array at our Charles Town headquarters and have two administrative buildings certified at the LEED Gold and Platinum level. Others involve integrating sustainable practices in our day-to-day operations, such as providing charging stations for electronic vehicles or promoting recycling and paperless practices.

Governance, ethics, and charitable giving. APEI has enjoyed a high governance score by Institutional Shareholder Services (ISS) since our IPO. Just as importantly, we strive to create a safe, secure, healthy environment for our staff, because we believe we can’t serve our students well unless we are dedicated to creating this kind of environment for our staff. We welcome diversity, promote wellness, and offer anti-corruption and anti-bullying training. We also practice the highest standards of ethical conduct in dealing with our students, our vendors, our employees, our partners, and other key stakeholders.

We support the communities we serve through a wide range of charitable organizations, and many of our employees contribute by serving on charitable boards and donating thousands of hours of time. This is something we don’t talk about often. It is simply part of who we are as a company and as institutions. I invite you to visit our website www.apei.com to find out more about the actions we are taking to make good on our promise to give back to the communities we serve.

Looking Forward

We have seen several waves of opportunity in the field of education. First, the 1990s witnessed the emergence of growing demand for education among working adults. That created an amazing new industry, of which we are part. The second great wave in higher education was the move toward online higher education; ours was one of the first fully online institutions of higher learning. Then, many people were skeptical about the efficacy of online education. Today, educators, employers, and students broadly recognize the power and effectiveness of this model. The third great wave of opportunity is in the realm of workforce training and optimization in an effort to bridge the skills gap.

This third wave is just getting under way. No one can argue with the fact that there is a growing skills gap in the American workforce. We are often contacted by corporations in need of higher education and training programs for their employees. Technological change has made re-education essential, and organizations that have trouble finding qualified applicants are finding it necessary to hire good people and train them. That is where we can come in. Workforce development is a natural extension of what we do. It is a logical area for future growth that builds on our existing platform—and a tremendous opportunity to leverage our existing strengths to address a growing need in the field of education.

The progress we made this year puts us in a strong position going forward. We enter the new year with three strategic priorities—strengthening and growing AMU and APU; expanding into education and training in the fields of nursing, healthcare, and wellness services; and seeking opportunities to expand in the area of workforce development and skills remediation.

We enter the new year excited about the opportunities that lie ahead.

Sincerely,

 

Dr. Wallace E. Boston

President and Chief Executive Officer