Aspen Group Inc

Good afternoon. Welcome to Aspen Group's fiscal year 2020 second quarter earnings call. Please note that the company's remarks made during this call include 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, operating metrics, revenue growth, expected G&A trends, generating cash from operations, creating free cash flow and all liquidity. Actual results may differ materially from results predicted, and reported results should not be considered as an indication of future performance. A discussion of risk and uncertainties related to Aspen's business is contained in its Form 10-K and the first quarter of 10-Q filed with the Securities and Exchange Commission and in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statement as a result of future developments. Also, I'd like to remind you that during the course of this conference call, the company will discuss EBITDA and adjusted 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 in 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 earnings slides are available on Aspen Group's website, aspu.com, and the presentation page under company info. Now I will turn the call over to Michael Mathews, Aspen Group's Chairman and Chief Executive Officer.

Good afternoon. We had an outstanding second quarter, and before I begin to share those results, I'd like to recognize and thank all the employees of Aspen Group who made these results possible. From the academic operations of both Aspen University and United States University, to our enrollment centers, to our software development team, and all of our corporate staff. Without the efforts and dedication of these fine people, we would not be able to report these results. Again, to all the employees listening in to the call and who we'll be meeting with over the next few weeks, thank you. I will begin the call today by introducing our new CFO, Mr. Frank Petronio. I will then review the operating metrics that led to today's strong results, both on the top and bottom line. And I'll turn the call over to Frank to review our detailed financial results. First, for those of you that saw our announcement last week, you know that Frank and I have a longstanding relationship having served as a director of my last company, Interclick, and of course here at Aspen. Frank has held the role of Audit Committee Chair at both companies. And frankly, he is one of the most experienced finance professionals in this country, having previously served as CFO of MasterCard International, H&R Block, and Axiom, as well as having served as COO and CFO of NetSpend. Frank has extensive experience in financial process re-engineering and system implementations, strategic planning, M&A, Consumer Finance, Capital Markets, FP&A and Capital Allocation, all areas of which will be critical as we continue to execute on our long-term growth plans. Welcome, Frank. I'd also like to thank Joe Sevely for his service as CFO since September 2018. At that time, the company was midstream in rebuilding USU and had just launched the pre-licensure campus business. As a result, Joe's main mission as a company was to help it significantly improve financial performance while continuing to aggressively grow. It was originally thought it may take two or more years to achieve that. However, a little over a year later, due to high growth of the business, effective expense control, and a strong focus on cash flow, those goals have been largely achieved. Having accomplished what he set out to do, Joe has now decided to pursue other interests, including continuing to teach at Columbia and NYU, and focusing on financial services, where he spent most of his career. Finally, I'd like to welcome Robert Alisi to the senior management team, as we just promoted Rob to the role of chief accounting officer. Rob joined us several months ago, having recently served as the Vice President Financial Controller for Prometheus Global Media, a New York City-based media company where he managed the accounting and reporting functions. Rob has over 20 years of experience in financial accounting, SEC reporting, surveying Doxley compliance, and cash management. Congratulations on your new role, Rob. Okay, let's begin with an overview of the strong results this quarter and the factors which drove our operating improvement. Our revenue accelerated during the second quarter, increasing 49% year-over-year, while total operating expenses increased only 17% year-over-year due to an 11% year-over-year decrease in marketing spend, diligent expense management, and improved operating leverage. This resulted in a significant reduction in our net loss and generated positive EBITDA 4% and adjusted EBITDA of 11% in the quarter. Let's spend a minute on how we achieved those results. It starts with our proprietary EdTech platform that produces highly qualified leads. These leads are prioritized by an algorithm in our CRM directing our enrollment advisors outreach to prospective students with the highest probability of enrolling. In fact, this past quarter we experienced our highest conversion rate in history, 14%, in our traditional Aspen Online Nursing plus other units. We also have been prioritizing our marketing spend to drive enrollment in our degree programs with the highest lifetime value, or LTV. Specifically, Aspen University's doctoral program USU's MSN Family Nurse Practitioner or FNP program and Aspen University's pre-licensure BSN program. The second quarter is our strongest seasonal enrollment quarter and it did not disappoint. We set a quarterly record of 2,217 enrollments, a 42% increase year over year. Aspen University accounted for 1,823 new student enrollments which included 190 doctoral enrollments and 437 pre-licensure BSN Arizona campus enrollments, delivering overall enrollment growth at Aspen University of 41% year over year. Enrollment growth at Aspen University was highlighted by the doctoral unit which increased by 43% and the pre-licensure BSN unit which increased 58% on a sequential basis. The sequential acceleration of growth in the pre-licensure BSN unit is the result of a full quarter of enrollments across both campuses now open in the Phoenix, Arizona Metro. In addition, and similar to first quarter results, our Aspen Nursing plus other units experienced an increase in the number of enrollments per enrollment advisor and the cost per enrollment declined. As a result of this increased efficiency, Aspen Nursing plus other unit grew enrollments by 8% year over year. United States University, or USU, accounted for 394 new student enrollments, primarily FNP enrollments. There was a 45% increase in enrollments year over year. USU plans to continue to implement an academic calendar of bi-monthly start dates for the FNP students for six starts per annum. In the past two bi-monthly starts, August and October, a total of 488 new students entered the FNP program, which is equivalent to an annual enrollment run rate of over 1450, assuming that that pace continues. The previous bi-monthly run rate was forecasted at 150 new FNP students per start, or 900 per annum. Given the acceleration in new student FNP enrollments, the FNP program is currently growing 61% faster than our previous forecast. Our cost of enrollment, or COE, dropped in all four units sequentially, delivering a historically low weighted average COE of only $873, which was a sequential improvement of 25%. Our marketing efficiency ratios also hit historic highs. As for every dollar we spend in marketing in our traditional Aspen Nursing plus other unit delivers $7 in revenue, our doctoral unit now delivers $13 in revenue for every marketing dollar spent, and USU has risen to $21 in revenue for every marketing dollar spent. The headline, though, is our pre-licensure BSN campus business. Our COE dropped in Q2 to $336, which translates to the company earning $89 for every marketing dollar spent. From a bookings point of view, fiscal Q2 2020, bookings increased 92% year over year, from $16.3 million to $31.3 million. delivering an average revenue per enrollment, or ARPU, increase of 35%, from $10,434 to $14,125. This 92% bookings increase is a function of directing the majority of our enrollment growth to our highest LTV businesses, FNP and prelicensure, and when you couple that bookings increase with historically low COEs, that's primarily what drove a gross margin improvement of 1300 basis points year over year to a gross margin of 63%. We remain committed to our goals of sustainable long-term growth, improving profitability and improvement in cash flow from operations. Given the strong performance in the first half of fiscal year 2020, We now expect annual revenue growth to meet or exceed 41% for the full fiscal year based on anticipated year-over-year enrollment growth of approximately 30%. Hookings are now forecasted to grow 54% to approximately $102 million. And we're forecasting ARPU to increase 18% to a full year average of $13,440. Our improving financial performance will continue to support our pre-licensure BSN expansion strategy, an important long-term growth and profitability catalyst for the company. In November, we promoted Anne McNamara, PhD, RN, the Chief Nursing Officer of the company. Her tenure in nursing education and her extensive network of relationships with healthcare systems and organizations across the US makes her the ideal leader for Aspen Group Inc's nursing programs. And it's overseen the multi-city rollout of Aspen University's pre-licensure campuses, which is a critical foundation of our long-term growth strategy. As an update, we're in the final stages of lease negotiations with landlords in Tampa and Austin. So over the next several weeks, were expecting to announce the locations of these two new campuses that we're planning to open during calendar 2020. Frank will discuss the financial details in a few minutes, but I thought I'd quickly provide a few highlights. First, our revenue rose sequentially by 1.73 million, while our net loss dropped sequentially by 1.44 million meaning that on a sequential basis we achieved 83% leverage on the bottom line this quarter. Second, all three business units delivered positive net income in the quarter. In fact, our newest unit, the pre-licensure unit, delivered a 35% EBITDA margin, becoming the most profitable unit in the company after only starting that business five quarters ago. Third, as mentioned earlier, the company delivered EBITDA profitability of 0.5 million or 4% from an EBITDA loss last year of 1.9 million. Fourth, the company's cash use from operations was the best in its company's history. This quarter, the company's cash requirement was only 340,000 as compared to 1.7 million last quarter. Given our quarterly interest is $325,000 per quarter, that means we are nearly break-even this quarter in cash use operations, excluding interest. I do want to point out, though, that program start timings and the related federal financial aid drawdowns impact cash timing. For example, this quarter, the timing of the drawdown for our USU FNP program resulted in over $500,000 of cash just before quarter end. To be specific, USU's FNP academic calendar continues to be six starts per year, which means two quarters have one class start and the other two quarters will have two class starts, which of course affects cash flow. This past quarter, we obviously saw the benefit of two class starts, the second just before quarter end. Finally, allow me to provide an update on Aspen University's monthly payment plan. During fiscal Q2, we tested changing Aspen University's monthly payment amounts for a baccalaureate and a master level program from $250 to $300 per month and from $325 to $350 per month, respectively. The cost per lead rose materially during the two-week test period, So we reverted back to advertising the original payment amounts per month immediately thereafter, and as expected, lead costs returned to their original levels. As a result of that test, we expect to make no changes in the future to Aspen's original payment amounts per month, which we first introduced back in 2014. Now I'll turn the call over to Frank to review our financial results for Q2 and to provide an update on our liquidity.

Thank you, Mike, and good afternoon, everyone. It is a pleasure to be a part of the Aspen Group management team. Having served on the board for over a year, I've seen firsthand the tremendous opportunity of the company and am excited to have a more active role in contributing to its success. I'm going to begin by reviewing our financial results for the 2020 second fiscal quarter and then provide some insight into this quarter's performance and some commentary regarding our expectation for coming quarters. Total revenues for the second quarter were 12.1 million up 49% versus the year ago period. As Mike indicated, our strong revenue growth was driven by new student enrollments, which increased 42% in the second quarter to a record 2,217. Of total new student enrollments, Aspen University was up 41% and United States University was up 45%. Strong growth in our higher LTV programs drove bookings growth of 92% to 31.3 million. Aspen's BSN pre-licensure program, our highest LTV program of $30,000, had Q2 enrollments of 437 students, up from only 57 in the year-ago period and 276 in the prior quarter. Of course, a year ago, we only had one campus open. Bookings for this segment was 13.1 million versus 1.7 million in the year-ago period. This segment was a significant contributor to our total bookings growth of 92% and is expected to drive continued growth in bookings in the coming years. Our second highest LTV program is USU, which had Q2 enrollments of 394 versus 271 students in the year-ago period, an increase of 45%. USU bookings were $7 million in this quarter, up 4.8 million in fiscal Q2 2019. Our AU doctoral program had 190 new student enrollments this quarter, up 43% year over year with bookings of 2.4 million versus 1.7 million in fiscal Q2 2019. The AU online nursing and other unit had new enrollments of 1,196, an increase of 8% from the prior year period. Bookings for this segment was 8.8 million. Aspen Group's gross margins for the second quarter improved to 63%, up from 50% in the prior year period and 56% in the prior quarter. The 13 percentage point year-over-year improvement in gross margins was primarily driven by an 11% year-over-year decrease in marketing expenses. Instructional costs and services spending also contributed to the gross margin improvement by increasing at a slower rate than revenues, growing by 37% year-over-year. From a unit perspective, Aspen University's gross margin of 65% in the second quarter versus 55% in the prior year period. USU's gross margin was 67% in the second quarter, up from 44% in the year-ago period. Overall total instruction costs and services for the second quarter was $2.2 million, or 18% of revenue. Instructional costs for Aspen University represented 16% of Aspen University revenues versus 17% in the year-ago period. while instructional costs for USU represented only 23% of USU revenue versus 29% in the year-ago period. Total marketing and promotional costs for the second quarter were $2 million, or just 17% of total revenue, improvement over the prior year period, which was $2.2 million, or 28% of total revenue. Marketing and promotional costs for Aspen University represented 16% of Aspen University revenues, down from 25% in the fiscal Q2 quarter of 2019. USU's marketing and promotional costs were 11% of USU's revenue, down from 27% in fiscal Q2 2019. General administrative costs for the quarter were approximately $7.6 million compared to approximately $6.2 million during the comparable period year quarter, an increase of $1.4 million or 22%. It's, of course, significantly better than our long-term expectation that G&A will grow at about half the growth of the rate of revenues. This clearly was a key factor in the company turning EBITDA profitable this quarter. From a bottom line perspective, net loss applicable to shareholders was $638,000 or diluted net share, net loss per share of 3 cents for the quarter as compared to a net loss of $2.5 million or 13 cents per share for the comparable quarter, prior year quarter. From a unit perspective, Aspen University's net income for the quarter was $1.8 million versus 400,000 in the prior year period. USU's net income was approximately 150,000 versus a net loss of 1.1 million in fiscal Q2 2019. AGI corporate expenses were 2.6 million in the quarter versus 1.8 million in the prior year. The year-over-year increase in corporate expenses was primarily due to corporate staff increases in finance and marketing as well as higher non-cash stock compensation expenses. With regard to our liquidity position, cash used in operations for the quarter was approximately $340,000 versus 2.1 million in the year-ago period and 1.7 million in the prior quarter. Cash flow in the second quarter was positively impacted by the 75% reduction in net income lost year over year. And as Mike indicated, we received the benefit of about 500,000 in FA drawdown for USU's FNP program a few days prior to quarter end. As we've stated in the past, we continue to expect the company to be generating significant positive EBITDA, cash from operations, and Free Cash Flow by the fall of calendar 2021. Based on today's results, we anticipate potentially achieving those milestones sooner and we'll provide updates to that timing in subsequent quarters. Aspen Group ended the quarter with approximately 6.9 million in cash with approximately 400,000 of that being restricted cash. Together with our unused revolver of 5 million, We ended the quarter with $11.9 million of liquidity resources, which we believe are adequate to continue executing our growth strategy. This concludes our prepared remarks, and I'll now turn the call back to the operator for questions.