Aspen Group Inc

Good afternoon. Welcome to Aspen Group's fiscal year 2020 third 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 the growth of future student enrollments, bookings and ARPU, fiscal 2020 revenue growth, the expansion of the highest LTV programs, expected G and A, trends including fiscal 2020 adjusted EBITDA, gross margins, expected campus expansion, campus capital expenditures and campus operating metrics and generating cash from operations. 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 prospective supplement dated January 17, 2020. Its Form 10-K for the year ended April 30, 2019, and its third quarter 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, in 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, in 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. This has been another record revenue quarter for Aspen Group, and I'm extremely pleased with how my team is performing. I want to acknowledge their hard work and dedication to our mission to make college affordable again. That dedication is ultimately what produces strong financial results like we're reporting today. Thank you to all the Aspen University, United States University, and AGI employees. Okay, let's begin today with an overview of the solid results for this quarter and the factors which drove our growth. Then I will discuss our roadmap for future growth. Before we go over the quarterly results, I'd like to connect a few dots. First, I'd like to point out that since we began offering our monthly payment plan back in March of 2014, Aspen Group averaged over 50% annual growth in the five fiscal years thereafter. We achieved this by pursuing a plan to build a nursing education platform that could meet today's need for affordable nursing degrees. Subsequently, in 2017, we acquired United States University, featuring their master level family nurse practitioner degree program. And in 2018, we launched our hybrid three-year online, on-campus, pre-licensure bachelor of science in nursing program. These two strategic steps gave us a comprehensive offering of nursing degree programs, increased our addressable market, and added new programs that brought significantly higher lifetime value degrees into our portfolio. Most recently, our strategy has been to focus our marketing spend on increasing enrollment in our high LTV nursing programs. As demonstrated in the third quarter results, it's clear that our strategy of prioritizing marketing dollars to grow enrollment in high LTV nursing programs is working, as evidenced by another quarter of exceptional revenue growth and a 72% increase in bookings. I'm very pleased that we delivered this level of growth with only a 9% increase in our marketing spend year over year. Each marketing dollar spent in the third quarter returned a 15.1 times and a 16.2 times marketing efficiency ratio in the quarter for Aspen University and United States University, respectively. This is an extremely efficient business model. Keep in mind that each year our third quarter enrollment is sequentially lower in the second quarter, which is our strongest back-to-school seasonal enrollment quarter, and that this past Q2 was an extraordinarily strong record enrollment quarter. That said, I'm very pleased with our third quarter enrollment growth of 28% year-over-year to 1,746 new students. In the third quarter, Aspen University accounted for 1,371 new student enrollments, delivering overall growth of 23% year-over-year, primarily due to a full quarter of enrollments in our pre-licensure BSN programs at both of our Phoenix campuses. United States University, or USU, accounted for 375 new student enrollments, primarily due to FNP enrollment growth, for a 49% increase in overall enrollment year-over-year. As I mentioned earlier, our marketing efficiency ratios also remained very high this quarter. Every dollar we spent in marketing on Aspen University delivered over $15 in revenue. For USU, we received over $16 in revenue for every marketing dollar spent. These results reflect the value of our proprietary EdTech platform and the sophistication of our corporate marketing staff. In fiscal Q3 2020, bookings meaningfully increased from $15.5 million to $26.5 million, delivering an average revenue per enrollment, or ARPU, increase of 34%, from $11,352 to $15,199. The bookings increase coupled with low enrollment costs is the primary driver of the gross margin improvement of 700 basis points year over year to 57% in the third quarter. Internally, our units continue to focus on operational improvements that, combined with lower enrollment costs, resulted in another quarter of positive net income for all three of our business units, Aspen University Online, Aspen's pre-licensure BSN, and United States University. These results underscore the performance of our EdTech platform in lowering enrollment costs and contributing to the key competitive advantages of lower tuition rates, financial flexibility and better outcomes for our students, which in turn is powering our growth. I can't emphasize enough that our EdTech platform is driving value for all our stakeholders. Our students achieve better outcomes. They take down less debt. They enjoy financial flexibility and tuition payment options. Our business is driving material improvements to our financial performance as evidenced by our adjusted EBITDA margin improved by 15 margin points year over year. Our employees report high job satisfaction and increased opportunity for career growth, and our shareholders are seeing improving shareholder value based on our high performing differentiated business model. Longer term, our roadmap is to build out new capacity for our highest LTV degree programs. To fuel our future growth, We strengthened our balance sheet in January with a $16 million equity raise and restructured our debt to lower our interest expense and add the convert feature. Those transactions allowed us to end the quarter with a record $26 million of liquidity. For the past year, we have successfully demonstrated that we can grow these high LTV programs with an extremely effective marketing spend. The recent financing initiatives will allow us to continue investing in new BSN pre-licensure campuses, which is a potential $100 million revenue opportunity in the next five years. We recently announced the locations of our two new campuses for our pre-licensure BSN program in Florida and Texas, both of which will be enrolling students later this calendar year. We intend to have 12 campuses operational by 2024. We also intend to build out exam rooms in each metro location where we have a BSN prelicensure presence in order to allow for USU's MSNFNP weekend immersions in each metro, which will be a catalyst for future enrollment growth in its highly sought after degree. We continue to invest in our future to deliver long-term growth, creating profitability and improvement in cash flow from operations. Given the strong performance in the first nine months of fiscal year 2020, we now expect annual revenue growth to meet or exceed 42% for the full fiscal year based on anticipated year-over-year enrollment growth of approximately 30% Bookings is forecast to exceed 54% to over $102 million and we're forecasting ARPU to increase to at least 18% to a full year average over $13,440. Now I'll turn the call over to Frank to review our financial results for Q3 and to provide an update on our liquidity.

Thank you, Mike. Good afternoon, everyone. We're going to begin by reviewing our financial results for the 2020 fiscal third quarter and then provide some insight into this quarter's performance and some commentary regarding our expectations for the coming quarters. Total revenues for the third quarter were $12.5 million, up 48% versus the year-ago period. As Mike indicated, our strong revenue growth was driven by new student enrollments, which increased 28% to third quarter record of 1746. Of total new student enrollments, Aspen University was up 23%, and United States University was up 49%. Strong growth in our higher LTV programs drove bookings growth of 72% to $26.5 million. Aspen University had third quarter enrollments of 1,371, up from 1,112 in the year-ago period. Bookings for this business unit was $19.9 million versus $11 million in the year-ago period. AU was a significant contributor to our total bookings growth of 72% and is expected to drive continued growth in bookings in the coming years. USU had Q3 enrollments of 375 students versus 251 in the year-ago period. an increase of 49%. USU bookings were $6.7 million this quarter, up from $4.5 million in fiscal, or an increase of 49% for the third quarter of 2019. Aspen Group's gross margins for the third quarter improved to 57%, up from 50% in the prior year period. 700 basis point year-over-year improvement in gross margins was primarily driven by our marketing expenses only increasing 9% year-over-year. From a unit perspective, Aspen University's gross margin was 58% in the third quarter versus 45% in the prior year period. United States University's gross margin was 60% in the third quarter, up from 45% in the year-ago period. This gross margin increase reflects the effects of higher lifetime value programs growing as a percentage of our overall revenue led by the pre-licensure BSN and the FNB programs. We expect this trend to continue as we roll out our campus strategy in the coming years. Overall total instructional costs and services for the third quarter were 2.6 million or 21% of revenue versus 1.8 million or 21% as a percentage of revenue a year ago. Instructional costs for Aspen University represented 19% of AU's revenues versus 18% in the year-ago period. Instructional costs for USU in the current quarter represented 25% of USU revenue versus 30% in the year-ago period. Total marketing and promotional costs for the third quarter were $2.5 million or 20% of total revenue. and improvement over the prior year period which was 2.3 million and 27% of total revenue. Marketing and promotional expenses increased approximately 500,000 over the sequential quarter and approximately 200,000 over the same quarter a year ago. This was an affirmative decision to increase our investment in growing our student pipeline and our doctoral program and pre-licensure and FNP, our two highest LTV and fastest growing programs. Marketing and promotional costs for Aspen University represented 20% of Aspen University revenues, down from 25% in fiscal third quarter 2019. USU's marketing and promotional costs were 15% of USU's revenues, down from 25% in fiscal third quarter last year. This performance demonstrates the continued value creation of our EdTech program to enroll more students into higher LTV programs at a lower overall cost, thus increasing the efficiency of our marketing spend and contributing towards trajectory towards sustained profitability and cash flow generation. General administrative costs for the quarter were approximately $8.6 million compared to $6.3 million during the comparable prior year quarter, an increase of $2.3 million or 37%. The recurring general administrative costs for the quarter of $7.8 million increased 26% year over year, therefore tracking to our long-term goal that G&A will grow at approximately half the rate of revenue. Total non-recurring expense for the current third quarter is $1 million. The non-recurring costs are composed of $544,000 of CFO transition costs, $283,000 of other G&A, and $182,000 of accelerated amortization of financing costs from previous financing activities. This $1 million is compared to $83,000 for the year-over-quarter for other G&A cash items. Of the $1 million of non-recurring costs, $354,000 are cash and $656,000 are non-cash. From a total company bottom line perspective, the total loss for the third quarter is $2,281,000. compared to a loss of $2,356,000 in the prior year quarter. For this third quarter, excluding the non-recurring costs previously discussed, the recurring net loss for the third quarter would have been $1.3 million or $0.07 per basic share compared to $2.3 million or $0.12 per basic share in the prior year quarter. Excluding non-recurring costs, this is an improvement of $1 million or 5 cents per basic share versus a year ago quarter. From a unit perspective, Aspen University's net income for the quarter was $1.3 million versus $400,000 in the prior year quarter. USU's net income was $40,000 versus a net loss of $900,000 in the fiscal third quarter 2019. Both universities' improved performance reflects strong enrollment growth fueled by our EdTech platform and its ability to bring students into our higher LTV programs at an increasingly efficient marketing spend per student. For AGI, excluding non-recurring items discussed earlier, G&A expenses were $2 million in the quarter versus $1.5 million in the year-ago quarter. The year-over-year increase in corporate expenses is primarily due to corporate staff, increases in finance, accounting and marketing, as well as higher non-cash stock comp expense. With regard to our liquidity position, cash used in operations for the quarter was approximately $1.8 million versus $1.9 million in the year-ago period, and $300,000 in the prior quarter. Recall last quarter the company received approximately $500,000 of financial aid funds just days before the end of the quarter, which we didn't benefit from this quarter. Excluding non-recurring items in the current quarter, the cash used in operations this quarter was $1.45 million. Therefore, the average cash used in operations for the third quarter and the second quarter, our last two quarters, is $900,000. a 47% reduction from the $1.7 million used in the first quarter and approximately a $1 million reduction or a 53% reduction in cash used in operations from the third quarter a year ago. This performance reflects our continued improvement on our path towards positive cash from operations. Adjusted EBITDA for the quarter is a positive $222,000. This is approximately $450,000 less than originally planned. This reflects our decision to increase our marketing expenditures this quarter by over $500,000 to continue to invest in building our pipeline of students for our higher lifetime value programs, including doctoral, pre-licensure BSN, and family nurse practitioner. We expect to continue our strategy to increase our investment in these programs in the coming quarters. Aspen Group ended the quarter with approximately $21 million in cash. Together with our unused revolver of $5 million, we ended the quarter with approximately $26 million of liquidity resources. With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter is 19,420,987. versus $18,398,095 in the year-ago quarter. This increase does not yet reflect the full effect of the shares sold in the equity raise, which closed on January 22, 2020. The company issued 2,415,000 shares and currently has 21,710,408 outstanding shares at January 31, 2020. These shares will have a full effect on EPS in the coming fourth quarter. That concludes our prepared remarks. I'll now turn the call back to the operator for questions. Thank you very much.