Dear Shareholders,

At American Public Education Inc. (APEI), we are in the midst of a period of tremendous change. As technology continues to evolve and new fields emerge, the nature of work—and the workforce itself—is changing in ways we might never have imagined just a few years ago. The need for flexible, accessible education programs for adult learners and for workforce development partnerships has never been greater, as many employers experience a skills gap between their existing workforce and the new technologies required to remain competitive in a global economy. At APEI, we believe we are well positioned to help advance America’s workforce through education.

APEI TODAY

Our mission is to provide the evolving workforce with effective and engaging learning experiences that will help them to achieve their full potential. Through our ownership and stewardship of the American Public University System (APUS) and Hondros College of Nursing (HCN), APEI has established a strong platform to fulfill our mission and pursue our vision for the future.

Our mission: Providing the evolving workforce effective and engaging learning experiences that maximize the potential for a better life.APUS, comprised of American Public University (APU) and American Military University (AMU), is unique among institutions of higher learning. Originally founded to meet the educational needs of a mobile military, we have created a flexible platform to serve adult learners in an engaging and collaborative online learning environment. APUS offers more than 200 degree programs across a wide range of disciplines. Our diverse curriculum is built on rich content that is relevant in today’s world and includes highly specialized programs such as Intelligence Studies and Homeland Security—programs that are key differentiators for APUS.

APUS is an institution built on a strong foundation. With more than 75,000 graduates since inception, we have a tradition of supporting the opportunity for success of our students and establishing strong relationships in the communities where they work and live. One-third of our graduates return for a second degree; nine out of ten alumni surveyed would recommend AMU/APU to a friend or colleague;1 and nearly half our new students are referred to us by others.

1. APUS 2017 1-year Alumni Survey.

Our reputation for quality is based, in part, on an outstanding and engaging faculty. In 2017, the APUS faculty reported publishing more than 550 articles, books and papers, earning over 100 awards for their professional practice, research and community service, and presenting at more than 500 conferences, workshops and panels.2 They are experts in their fields—many are still actively engaged in their professions—who bring real-world experience to the curriculum and the classroom.

2. APUS 2018 Faculty Engagement Survey.

We began as American Military University in 1991 and we take great pride in our roots. Today, 60% of APUS enrollments consist of active duty military personnel. We have retained our leadership position as the top provider of higher education to active duty military and excel at serving veterans. AMU’s standing in Military Times’ Best for Vets: Colleges 2018 ranking for online and nontraditional schools rose to #7—up from #11 in 2017. We applaud the 2017 changes to the Harry W. Colmery Veterans Educational Assistance Act, known as the Forever GI Bill. The revised bill should increase access to education for veterans and provide more time and money for them to complete STEM programs. That’s good news for our veterans, our students and all Americans.

OUR 2017 RESULTS

For the near-term, our strategic focus is on stabilizing enrollments at APUS and on continuing to grow Hondros College of Nursing in ways that increase value for all stakeholders. Toward that end, we accomplished much in 2017.

At HCN, we are building on a strong healthcare platform. HCN now comprises 11% of our revenue stream and increased its percentage of our operating profits for the year. In 2017, HCN expanded, adding its fifth campus, in the Toledo suburbs of Maumee. The new campus exceeded our expectations in its first year. HCN enrollment remains strong overall. As of December 31, 2017, new student enrollment was up 29% from the prior year and overall enrollment increased 23% over 2016 levels. The college exits the year on a strong footing.

We are also pleased with results from APUS. In 2017, we saw significant improvements in student persistence—a crucial first step in stabilizing enrollments. For the fourth consecutive year, APUS achieved year-over-year improvements in persistence. The 2017 improvement was approximately 16% compared to the prior year and student persistence is the highest it has been since 2011. Improved persistence is also reflected in our graduation rates, high levels of student satisfaction, and strong alumni referrals.3

3. Student persistence is defined in this annual report as the first course pass and completion rate of undergraduate students using Federal Student Aid.

We believe these results are due in part to the numerous steps we’ve taken to improve student engagement, satisfaction and outcomes at APUS in recent years. Among them—investments in innovative technologies and programs such as our Learning Relationship Management (LRM) tool that promotes collaboration and engagement, and our predictive analytics tool that helps faculty and advisors identify and support at-risk students. We have also refined our enrollment processes and outreach efforts aimed at attracting more college-ready students. We believe all these initiatives have had a positive impact on persistence.

Within APUS, we will continue working to stabilize enrollments by building on our core strengths—the areas where we enjoy market leadership. These include:

• Affordability. Affordability has always been a key competitive advantage for APEI—and we remain highly competitive in that regard. The net price of APUS tuition is roughly 47% lower than the national average for private for-profit four-year institutions.4 We offer a student-centered approach, a diverse array of programs and advanced degrees, and when it comes to programs such as IT and business, price and accessibility are key differentiators.

4. U.S. Department of Education’s College Affordability and Transparency Center (2016).

• Flexibility. Our curriculum evolves with the changing environment. Our online programs are highly accessible with classes starting monthly. That flexibility enables us to serve the unique higher education needs of working adults, and helps position us to serve the workforce development needs of corporate and government partners.
• Reputation. We believe APUS enjoys reputational leadership within the military and public service communities—particularly in the fields of Cybersecurity, Emergency & Disaster Management, Homeland Security, Space Studies and Transportation & Logistics. These centers of excellence attract motivated students from highly specialized fields and distinguish APUS from its competitors. Going forward, we plan to build on our strengths in these key verticals. In addition, APEI will expand our presence in healthcare education through the Hondros College of Nursing.
• Mobility. Finally, as an online institution of higher learning, APUS has deep experience engaging, educating and supporting students in an online setting on any device. We want to be leaders in creating an advanced platform for an increasingly mobile learning environment.

We see opportunities to build on our strengths to advance the knowledge, skills and effectiveness of today’s workforce, and to expand in the growing field of healthcare education.

2018 AND BEYOND

We see opportunities to build on our strengths to advance the knowledge, skills and effectiveness of today’s workforce, and to expand in the growing field of healthcare education.Going forward, our strategic priorities are to expand our emphasis on workforce development and to increase our presence in  the growing field of healthcare education. This is where we see the greatest opportunities to make a difference.

With Hondros College of Nursing, we are building the foundation for a leading nursing and healthcare education franchise. In 2018 and beyond, that means developing, launching or acquiring new programs to support the growing demand for nursing and healthcare graduates. We also expect to open additional Hondros campuses in the years ahead.

Our strategy for APUS in 2018 and beyond includes the following priorities:

• Enrollment Stabilization at APUS. Enrollment at APUS has been challenged by many factors, including increasing competition for college-ready students and changes we have made to our marketing and student onboarding processes. Stabilizing student enrollment at APUS is a priority. APUS plans to continue developing and executing strategies and initiatives aimed at increasing enrollment of college-ready students and further improving student retention. This may include launching new marketing initiatives to become more efficient at reaching online audiences, as well as reengineering various enrollment management processes for more efficient student on-boarding and improved customer service.
• Enhancing the Student Experience. We are focused on creating a student-first, mobile-first environment that supports effective online learning (LMS)—and on enhancing the university experience. That means creating an environment that’s focused on the student and one that makes learning accessible anywhere, anytime on a mobile device or tablet. Our overriding goal is to engage and inspire today’s student.
• Building New Strategic Partnerships. Given the rebounding economy, growing skills gap and rapid evolution of technology, companies and organizations are looking for new approaches to training and educating their employees. We have been an online education partner of WalMart for eight years. This year, we entered into an agreement with the Transportation Security Administration (TSA) to provide their employees the opportunity to work towards a TSA Homeland Security Certificate of Achievement, an APUS Foundations of Homeland Security Certificate, an Associate’s Degree in Homeland Security or a certificate in a related field.

APUS is well qualified to provide customized programs that meet the specific needs of corporate, nonprofit and government partners. Research suggests the most productive way to address the skills gap involves training and development programs tailored to the needs of specific employers, and partnerships that facilitate that process. We have the capacity to develop customized websites, certifications and degrees to meet their evolving needs.

• Expanding on our Program Strengths. We will focus on strategic enrollment growth in differentiated channels such as Transportation & Logistics and Homeland Security where we have reputational leadership and expertise—our centers of excellence. That means expanding our offerings in these highly specialized fields, expanding our partnerships in these verticals, and adding more advanced degrees. I’m pleased to report that, in January 2018, APUS launched its first doctoral degrees. Both are in unique fields in which we excel—Global Security and Strategic Intelligence. We consider this a major milestone for our institution. It is a testament to the quality of our programs and the progress we have made during our 27-year history. We look forward to presenting additional doctoral degrees in the future.

IN CLOSING

In 2017, APUS and Hondros College of Nursing conferred degrees on more than 11,000 students. We take pride in their success—and in our ability to continue to serve them by working to help them reach their full potential. We are pleased with our progress in 2017 and excited about the future as we explore new ways to meet the needs of the changing workplace—and adult learners.

Sincerely,

​

Dr. Wallace E. Boston

President and Chief Executive Officer