1. “How does APEI compare to the University of Phoenix?”
The companion case in the book is on The Apollo Group – University of Phoenix. They
provide an interesting two case set to discuss. UOP is the big player in this working
The information provided on the next page is available to you but has not been provided
2006
2007
2008
2009
2010
REVENUE in millions
APEI Revenue in millions
$40
$69
$107
$149
$198
Growth Rate
73%
55%
39%
33%
UOP Revenue in millions
$2,478
$2,724
$3,133
$3,954
$4,926
Growth Rate
10%
15%
26%
25%
UOP vs. APEI in Revenue
$2,438
$2,655
$3,026
$3,805
$4,728
[UOP Rev is $ ___ more than APEI’s]
UOP ÷ APEI on size of Rev.
62Xs
39Xs
29Xs
27Xs
25Xs
[UOP Rev is ___ Xs APEI Rev]
COSTS AS % OF REVENUE:
Instructional cost as % rev.
APEI
44.8%
42.6%
40.7%
39.2%
38.0%
UOP
44.8%
45.4%
43.1%
39.7%
43.1%
Selling and Promotional
APEI
12.2%
9.8%
11.5%
13.7%
17.3%
UOP
22.0%
24.2%
25.6%
24.1%
22.6%
General and
Admin
APEI
22.8%
22.2%
19.9%
16.8%
16.2%
UOP
6.2%
7.4%
7.2%
6.8%
7.2%
Litigation, writeoffs, fines
APEI
7.9%
0.0%
0.0%
0.0%
0.0%
UOP
0.0%
2.0%
3.6%
Operating Income
APEI
7.3%
25.4%
24.0%
26.8%
25.2%
UOP
26.2%
23.0%
24.5%
27.0%
20.5%
Net Income [after tax]
APEI
4.5%
25.4%
15.1%
16.2%
15.1%
UOP
16.7%
15.0%
15.1%
15.2%
11.2%
APEI has higher revenue growth, as would be expected with a much smaller base. The
Instructional costs are similar, although APEI’s are steadily dropping % of Rev wise,
while the UOP is seeing a significant increase, probably due to efforts to keep classes
General and Admin is interesting. UOP is doing much better than APEI here. Part is the
large revenue base over which UOP can allocate admin responsibilities. APEI’s is
Operating income is rather similar for both – mid twenties as a percent of revenue.
recruitment; advisement; class-based oversight; etc.
UOP is much closer to dangerous regulatory thresholds like the 90/10 rule than APEI,
which in turn means the UOP has to focus on adjusting its student composition, raise its
tuition, increase its admission standards, and discourage student borrowing in order to
regard.
A third, interesting question in this regard, given The Apollo Group’s use of acquisition
for expansion from time to time, is the possibility of them looking to acquire APEI as an
Related to this third notion, the opposite interesting question might be, “Is APEI
positioning itself to be bought by UOP [The Apollo Group] at some future date?”
The key, attractive thing for APEI, relative not only to UOP but to all the other public
for many players in the industry, or in complementary industries. It’s 2010AR made
this observation regarding the impetus for all the U.S. DOE’s Title IV and recruiting
investigations, making particular note in the comment of the fact that APEI was NOT
chosen for investigation:
congressional investigation into for-profit institutions. In 2010, both the U.S. Senate and the
U.S. House of Representatives held separate hearings related to for-profit postsecondary
education institutions. In addition, the Government Accountability Office released a report in
2010 based on a three-month undercover investigation of recruiting practices at forprofit
Nonetheless, as is pointed out in the case, APEI is also feeling [and concerned about] the
attention other competitors are placing on “its” military market; and apparently starting to
feel that attention may be the reason behind a slowing of APEI’s growth rate in new
course registrations among its military customer target market. They had this to say in
their 2010AR:
(except for certain institutional loans) for any fiscal year, more than 90% of its revenues (as
computed for 90/10 Rule purposes). We believe that for-profit schools are increasingly
seeking to attract military students in order to comply with the 90/10 Rule, as currently DoD
tuition assistance and veterans education benefits do not count towards the 90% limit.”
2. Greater discussion of the 90/10 rule; the gainful employment rule; student default
and the cohort default rate; and recruitment/enrollment practice regulation could be
Rather than repeating some of the analytical guidance on the issues we have provided
APEI because the majority of its students work fulltime in the military or civilian
public sector jobs].
It is important to note, however, that APEI’s continued effort to grow in the civilian
“Since the founding of American Military University, we have gradually transitioned from a
military focus to a more broad-based focus on the military and public services communities.
We expect the percentage of our students that are not eligible for tuition assistance programs
of the Department of Defense or DoD to continue to increase, particularly as a result of our
student body.”
3. Where you have members of the military in your class, it is an excellent added
our most dedicated, talented students in our strategy classes. Let them know in the
4. While as noted above expansion into public service communities will introduce some
change in its military intensive focus, it is still unlikely that such a focus will
dramatically change for some time to come. APEI’s 2010AR offers some interesting
commentary that you might find useful to read here as a preparation reference before
“There are more than 2.2 million active and reserve military professionals in the United States
Armed Forces. Each year, approximately 300,000 new service members are enlisted or
commissioned to replace retiring and separating members. We believe that the unpredictable
and demanding work schedules of military personnel and their geographic distribution make
level eligibility requirements for assignments, promotions, and service schools, and entering
remarks on performance appraisals.
Active duty and reserve component military personnel are eligible for tuition assistance
costs above the DoD limits through the GI Bill’s Top-Up feature. Most military veterans are
also eligible to use their GI Bill entitlements in continuing their education after retirement or
separation. We believe that national security, homeland security, and public safety
professionals also represent a large and growing market for online education. As with their
traditional universities”.
5. And, APEI remains unquestionably committed to an online only focus. In their
“Within the postsecondary education market, we believe that there is significant opportunity
adult, to distance learning.”
6. Finally, the financials provided in the case and analyzed for you above in item # 1c
are reproduced on the next few pages for your convenience:
Percent of Sales Analysis
2006
2007
2008
2009
2010
REVENUES
100.0%
100.0%
100.0%
100.0%
100.0%
Costs and Expenses
Instructional Costs & Services
44.8%
42.6%
40.7%
39.2%
38.0%
Selling and Promotional
12.2%
9.8%
11.5%
13.7%
17.3%
General and administrative
22.8%
22.2%
19.9%
16.8%
16.2%
Write off software
developmt
7.9%
Depreciation and Amortiz.
4.9%
3.9%
3.5%
3.3%
Total Costs and Expenses
92.6%
74.6%
76.0%
73.2%
74.8%
Income from oprns before II &
Txs
7.3%
25.4%
24.0%
26.8%
25.2%
Interest Income, net
0.7%
0.6%
0.1%
0.1%
Income from perations bef.
Taxes
8.1%
25.4%
24.6%
26.9%
25.3%
Income Tax Expense
1.9%
9.5%
10.7%
10.2%
Income from continuing
operations
6.1%
25.4%
15.1%
16.2%
15.1%
Loss from discontinued
operations
–1.6%
NET INCOME
4.5%
25.4%
15.1%
16.2%
15.1%
APEI CONSOLIDATED BALANCE SHEET [in thousands]
2006
2007
2008
2009
2010
ASSETS
Current Assets
Cash and cash equivalents
$ 11,678
$ 26,951
$ 47,714
$ 74,866
$ 81,352
Accounts receivable, net
$ 5,448
$ 4,896
$ 6,188
$ 8,664
10,269
Prepaid Expenses
$ 856
$ 1,596
$ 2,156
$ 2,990
$ 4,233
Income tax receivable
$ 679
$ 1,089
$ 1,306
$ 863
$ 780
Deferred income taxes
$ 299
$ 309
$ 640
$ 999
$ 1,369
Total current assets
$ 18,960
$ 34,841
$ 58,004
$ 88,382
$ 98,003
Property and Equipment, net
$ 9,363
$ 13,364
$ 19,662
$ 25,294
$ 42,415
Other assets
$ 427
$ 775
$ 1,187
$ 2,077
$ 1,421
Total assets
$ 28,750
$ 48,980
$ 78,853
$ 115,753
$ 141,839
LIABILITIES &
STOCKHOLDER EQTY
Current Liabilities
Accounts payable
$ 1,502
$ 2,471
$ 4,946
$ 6,756
$ 9,422
Accrued liabilities
$ 3,165
$ 2,770
$ 5,250
$ 8,003
$ 9,349
Accrued bonuses
$ 1,553
$ 1,825
Deferred rev. & student deposits
$ 3,852
$ 6,614
$ 9,626
$ 14,204
$ 18,815
Current portion of L-term debt
$ 29
Total current liabilities
$ 8,548
$ 13,408
$ 21,647
$ 28,963
$ 37,586
Deferred Taxes
$ 1,437
$ 2,065
$ 3,691
$ 4,772
$ 6,953
Long-term debt
$ 1,944
Total Liabilities
$ 11,929
$ 15,473
$ 25,338
$ 33,735
$ 44,539
Commitments & Contingencies
Stockholder equity
$ 118
$ 177
$ 180
$ 183
$ 186
Additional paid-in capital
$ 26,378
$ 128,005
$ 132,078
$ 136,380
$ 141,757
Less share repurchase
$ (295)
$ (19,966)
Accumulated deficit
$ (9,675)
$ (94,675)
$ (78,488)
$ (54,545)
$ (24,677)
Total stockholders’ equity
$ 16,821
$ 33,507
$ 53,475
$ 82,018
$ 97,300
Total Liabilities & Stockhldrs’
equity
$ 28,750
$ 48,980
$ 78,813
$ 115,753
$ 141,839