Aspen Group Inc

Good afternoon. Welcome to Aspen Group's fiscal year 2020 first quarter earnings call. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to future student enrollments and bookings, campus expansion plans, and capital expenditures, adjusted EBITDA forecasts, operating metrics, anticipated operating leverage, and gross margins. Revenue growth, including Q2, meeting three key targets, expectations from Aspen's monthly payment plan changes, expected G&A trends, expected cash flows, and our liquidity. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to Aspen's business is contained in its filings with its Securities and Exchange Commission, mentioned in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statement as a result of future development. Also, I'd like to remind you that during the course of this conference call, the company will discuss adjusted EBITDA and EBITDA, which are non-GAAP financial measures, and talking about the company's performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables and the press release issued by the company today. There will be a transcript of this conference call available for one year at the company's website. Please note that the earnings slides are available on Aspen Group's website, ASPU.com, and the presentations page under Company Info. Now I will turn the call over to Michael Mathews, Aspen Group's Chairman and Chief Executive Officer.

Good afternoon. I will begin the call today by discussing the positive trends that we're seeing in our operating metrics, and I will discuss our pre-licensure BSN campus expansion plan for calendar year 2020, which we released details of this morning. Then I will make a key strategic announcement related to our monthly payment plan at Aspen University. Joe Sevely will then follow with a review of our financial results. Okay, first let's review our enrollment results in the first quarter. This of course is our seasonally slowest quarter given it falls during the summer months, but this year enrollments in USU's FNP program and Aston's pre-licensure BSN campus business were so strong that on an aggregate basis, we didn't see the seasonal dip that we've seen in previous years. Aggregate enrollments for the company, in fact, rose 24% sequentially and 46% year over year to a quarterly record of 1,929 new student enrollments. As we announced last week, The company has now surpassed the 10,000 active student body milestone, as Aspen University now has over 8,500 active students, while USU now has over 1,500 active students. I'd like to express my gratitude to our faculty and employees at both universities for the care and commitment that they exhibit every day to ensure that our students are receiving a world-class academic experience. leading the way with enrollments was USU's FNP program. We achieved 514 enrollments in Q1, which was a 62% sequential increase. Enrollments were at about 150 per month in the quarter until we announced the monthly payment plan change and subsequent July 31st deadline to sign up for the now discontinued six-year payment program. that deadline generated approximately 10% more enrollments than we would have otherwise delivered for the quarter. Consequently, on a go-forward basis, we're forecasting the enrollment run rate to remain in the 150 per month range. We continue to implement every other month start dates for our FNP program and continue to target 150 new FNP students each start date. Because of the spike in enrollments in late July, I'm pleased to announce that we had 243 new students begin our FMP program on our September 3rd start date. Congratulations to everyone at United States University for the great work preparing for this very large start date that began last week. As I stated before, when we acquired USU, we saw the potential for student body growth and composition to mirror Aspen University. USU has grown from 684 to 1,491 students year over year, or 118%. And the student body composition is even more heavily weighted to nursing students as USU's student body is now composed of 94% degree-seeking nursing students, while Aspen University is at 80%. Our newest unit, the Aspen University Prelicensure BSN Campus Business, currently based in the Phoenix Metro, delivered record enrollments in the first quarter. We achieved 276 enrollments in Q1, which was a 48% sequential increase and an increase of 197% year over year. This quarter, we continue to enroll students in our second campus in Phoenix, the Honor Health Campus, which is set to begin its first semester on September 17th, which contributed to the increase in the enrollment growth in the quarter. Our traditional online Aspen nursing plus other units delivered an enrollment increase of 7% year-over-year, and our doctoral unit increased enrollment 68% year-over-year, so those businesses continue to grow as expected. The three key takeaways from this quarter's enrollment results are number one, how that translates to increases in our marketing efficiency ratio, or MER, and the related decrease in our cost of enrollment, or CAC. Number two, are rising average revenue per enrollment, or ARPU, and number three, the increase in total bookings. As a reminder, we define MER as revenue per enrollment, or LTV, divided by cost per enrollment, or CAC. In Q1, our cost of enrollment declined by 10% sequentially, and our traditional Aspen Nursing plus other units down to $1,231, delivering a 6.0 times MER. Our doctoral unit saw similar improvements as our cost of enrollment declined by 31% sequentially, down to $1,987, delivering a 6.3 times MER. Our cost of enrollment for our USUFNP program declined by 33% sequentially, down from $1,078, delivering a 16.5 times MER. Finally, the cost of enrollment for our pre-licensure BSN program remained under $500, $478 to be exact, which delivers a whopping 62.8 times MER. The second takeaway is that our strategy of investing our marketing spend to drive enrollment growth in our highest LTV units is working. This has delivered material improvements in our average revenue per user, or ARPU, and our overall bookings. Year over year, our ARPU has risen from $11,185 to $13,919, or 24%. Our total bookings resulting from weighting enrollment growth primarily to our highest LTV businesses increased 83% year over year from 14.7 million to 26.9 million. This strategy of driving enrollment growth in our highest LTV businesses positions the company for sustained, consistent, top line growth of over 30% for the current fiscal year and for next fiscal year. Specifically, we now anticipate fiscal year 2020 revenue growth to be at least 34%. Now I'd like to make two announcements. First, we announced this morning that we have signed clinical affiliation agreements with the largest healthcare organizations in the Austin, Texas and Tampa, Florida metros and plan to launch standalone Aspen pre-licensure campuses in those two metros next calendar year. We're targeting opening Tampa next summer and Austin next fall, so both will begin after the end of our current fiscal year. Our primary clinical partner in Austin will be Baylor Scott and White. who are in fact the largest not-for-profit healthcare system in Texas and one of the largest in the United States. Baylor Scott & White Health was born from the 2013 combination of Baylor Health Care System and Scott & White Healthcare. Today, Baylor Scott & White includes 48 hospitals, more than 800 patient care sites, more than 7,800 active physicians, and over 47,000 employees. Our primary clinical partner in Tampa will be Bayfront Health. They're a regional network of seven hospitals and over 1,900 medical professionals on staff serving the residents of Florida's Gulf Coast. Tampa, St. Petersburg and Austin are ideal metropolitan areas for our initial expansion outside of Phoenix. as both enjoy population centers of over 2 million people and are expected to be among the top 20 fastest growing metros over the next two decades. As we look to maximize return on our invested capital, we've targeted existing campuses that are already substantially built out to reduce the total expenditure for each new location. This will allow the CapEx for each new campus to be in the same range as the cost of Aspen's embedded campus at Honor Health, located in North Phoenix. Locations of each campus will be announced following the execution of long-term leases, which are expected to be completed over the next 60 to 90 days. Joe will provide an update on liquidity in a few minutes. As we've previously stated, these two new campuses are planned to be funded with our existing liquidity resources. On to our second announcement. If you recall, on the last earnings call, we announced a change to our monthly payment plan program for our USU FNP students. In order to improve our working capital in coming years, while still maintaining our mission of making college affordable and providing innovative payment plans, We are only offering monthly payment plans for the first academic year of an SMP student, which is a liability of about $9,000 payable at $375 per month over the duration of the two-year academic program. The second academic year, which is a liability of 18,000, will now need to be paid by students using conventional payment methods. This will allow the company to reduce their operating cash requirements by over $2 million next fiscal year and much more in future years. We are balancing the management of our cash resources with the strategy to grow the business in our highest LTV units. As a result, we are always looking for ways to accelerate the timing of the company achieving free cash flow results. Therefore, effective October 1st, all new students at Aspen University that enroll in a bachelor degree program will now pay $300 per month on a go-forward basis up from $250 per month. In addition, all new MPP students at Aspen University that enroll in a master degree program will now pay $350 per month on a go-forward basis up from $325 per month. Assuming we increase our enrollments in our traditional Aspen Online Nursing plus other program by 15%, that would equate to approximately 4,400 new student enrollments on an annualized basis that will now pay the company approximately $40 per month in addition on a weighted average basis. therefore 12 months out, we would expect to be received approximately $175,000 more cash per month as a result of this change, which on an annualized basis is a positive cash flow improvement of over $2.1 million. We've carefully researched this monthly payment increase both internally and externally and feel confident these changes will not have a detrimental effect on our conversion rates and our overall enrollment forecast. Now I'll turn the call over to our CFO, Joe Sevely, to review our financial results for Q4 and to provide an update on our liquidity.

Good afternoon. I will begin today by reviewing our financial results for fiscal 2020 first quarter. I will then make some observations on the key drivers of shareholder value and our expectations for coming quarters. First, quarterly revenue was approximately $10.4 million, a 43% increase from the comparable prior year quarter. Sequentially, revenue increased from $10.2 million. Given that the first quarter is our slowest seasonal quarter, with many students not taking classes during the summer months, we were pleased with the sequential increase. Revenue for Aspen's nursing plus other unit increased by approximately $1 million or 17% compared to last year's first quarter. This is an area with solid economics as we posted a 17% EBITDA margin in the first quarter and expect in the future over a 20% margin on average in this area. Despite those economics is the lowest expected margin business within our current mix and therefore we have limited its growth in favor of other higher expected margin businesses. USU's revenues more than doubled from a year ago and the pre-licensure BSN program's revenue continue to grow it at a rapid pace since the launch a year ago. Sequentially, these two programs' revenues grew 13% and 52% respectively. Together, they now account for 34% of our total revenue, up from 29% last quarter. Aspen Group's gross profit for the first quarter increased to approximately $5.8 million from $3.3 million last year, an increase of $2.5 million, or 7.4%. The gross margin was 56%, which is up from 46% last year, an improvement of 10 percentage points. We expect continued margin expansion as we continue to grow. Aspen University's gross profit represented 59% of Aspen University's revenue for the quarter, while USU's gross profit equals 55% of its revenue for the quarter. Total instructional costs and services for the quarter rose to approximately $2.1 million for 21% of revenue. For Aspen University, instructional costs and services represented 18% of revenue for the quarter while USU's instructional costs and services equal 28% of its revenue for the quarter. Marketing and promotional costs for the quarter were approximately $2.2 million, or 21% of revenue, declining from 23% as a percentage of revenue in the previous quarter. Aspen University's marketing and promotional costs were 20% of Aspen University's revenue for the quarter, down from 21% in the previous quarter. USU's marketing and promotional costs equaled 17% of USU's revenue for the quarter, down from 19% last quarter. General and administrative costs for the quarter were approximately $7 million compared to approximately $5.8 million during the comparable prior year quarter, an increase of $1.2 million, or 21%. This is in line with our expectations that G&A will grow at about half the growth rate of revenues, which were up 43% compared to the prior year quarter. Net loss applicable to shareholders was approximately $2.1 million or diluted net loss per share of 11 cents per quarter as compared to a net loss of 2.8 million or 15 cents per share for the comparable prior year quarter. During the first quarter, Aspen University generated approximately $0.9 million of net income. USU experienced a net loss of approximately $0.4 million, and AGI corporate incurred $2.6 million of expenses. AGI's expenses were up sequentially about $400,000, largely due to expenses that are not expected to recur, including, for example, for severance payments and recruiting costs for a new corporate controller. USU's operating loss declined by about $750,000 compared to the first quarter of fiscal year 2019. USU's revenue increased by about $1.4 million over that same one-year period. As a result, USU achieved operating leverage of about 53%. We expect strong continued operating leverage on average as USU continues to grow in future quarters. With regard to our liquidity position, cash used in operations for the quarter was approximately $1.7 million, 50% less than the amount used in the prior year quarter. Aspen Group ended the quarter with approximately $7.7 million in cash and restricted cash, Together with our unused revolver of $5 million, we ended the quarter with $12.7 million of liquidity resources, which we believe are adequate. Looking forward, we expect to deliver increased value to our shareholders by achieving three important financial targets. Continued strong revenue growth, rapidly improving profitability, and a path to substantial positive free cash flow. Let's talk about each of those factors. We have a very strong track record of aggressively growing revenue and as Mike Mathews said, we expect that to continue with 34% revenue growth or higher this fiscal year and at least 30% annual growth next fiscal year. With regard to profitability, We expect Aspen's Nursing plus other units to continue to have double-digit revenue growth and moderately improving margins. As noted earlier, this area already has solid profitability. USU is not yet profitable but has experienced strong operating leverage as revenues have increased significantly and expenses have grown at a much slower pace. We expect USU to reach positive net income within the next couple of quarters. We also expect its EBITDA margin to reach the mid-20s. Our pre-licensure program is the fastest growing program and has the highest long-term expected profitability level. As expected, this unit turned profitable in the first quarter of fiscal year 2020, just one year after launch. We expect similar timing for the new campuses and also expect each new campus to generate over 30% EBITDA margins once it reaches maturity, approximately two to three years after the launch of each campus. In aggregate for Aspen Group, we expect positive adjusted EBITDA for every quarter going forward. Within a few quarters, we expect EBITDA to turn positive and a few quarters later to achieve positive net income. So during our next fiscal year, we expect to hit an important milestone of reporting our first positive quarterly net income results. We also expect a strong positive trend with respect to cash flow. Obviously, the expected trends in earnings that I just discussed should contribute to improved cash from operations. In addition, we expect a favorable trend on average for working capital. Historically, our monthly payment plan has been a drag on our working capital as we help finance our students' education. Flip side of that is we have an increasing number of graduates who continue to make MPP payments. In addition, we announced last quarter that we were changing the structure of the MPP program for USU's FNP program. that has now been implemented and should contribute in the future to a much more favorable working capital position. The increase in monthly payments at Aspen that Mike just announced will also improve the working capital position. We plan to continue to grow our pre-licensure campus business and add two new campuses in calendar year 2020, as Mike also stated. However, as he indicated, We think we can limit the capex needed to launch those campuses. Relatively low initial capex, a quick path to profitability, and a high expected margin all contribute to expectations for positive cash flow. In addition, we do not offer a monthly payment plan for this program, so we won't need working capital funding as we have in our other programs. All told, This should lead to a strong cash flow position for Aspen Group. As I've stated in the past, I continue to expect the company to be generating significant positive EBITDA, cash from operations, and free cash flow by the fall of 2021, two years from now. And of course, we expect to hit some of those milestones sooner. That concludes our prepared remarks. I will now turn the call back to the operator for questions.