Aspen Group Inc

Good afternoon. Welcome to Aspen Group's fiscal year 2020 fourth 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 expansion of the highest LTV programs, revenue growth estimates, and G&A trends. timing of new campus openings and accounts receivable improvement expectations. 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 business is contained in the prospectus supplement and the 10-K filed with the Securities Commission in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements 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, 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 presentation page under Company Info. Now I'd like to turn the call over to Michael Mathews, Aspen Group's Chairman and Chief Executive Officer.

Good afternoon, everyone. I will begin the call today by discussing how the company significantly improved its gross margin on a sequential and year-over-year basis while maintaining our strong growth rate of 38% in Q4 and 44% for the full year. Then I will recap our operating metrics from Q4 and provide an update on our business thus far in Q1, as I'm sure everyone is interested in an update given the COVID-19 crisis and the related uncertainty. Finally, I will provide detailed regulatory and operational updates on our new plan campus openings later this year in Austin and Tampa, as well as announce a telehealth partnership for USU's Nurse Practitioner Program. Frank Catronio will then follow with a review of our financial results. Okay, starting with slide five of our earnings slides, revenue for Q4 increased 12% sequentially by over 1.5 million to $14.1 million, and on a year-over-year basis increased $3.9 million, or 38%. During our annual year-end audit, we did record a one-time revenue adjustment of $480,000 in the quarter, which we will discuss in more detail later in the call. For the full fiscal year, revenue increased by $15 million to $49.1 million, or 44%. One of the major highlights of the quarter was the fact that our marketing spend only increased on a sequential basis by $200,000, which translated to our marketing spend as a percentage of revenue dropping from 20 to 19% in Q4. And then for the full year, marketing spend as a percentage of revenue dropped from 27% in fiscal year 2019 all the way down to 19% in fiscal year 20. In addition, instructional costs as a percentage of revenue for the quarter dropped sequentially from 21 to 19%, and for the full year remained at 20%. Consequently, not only have we seen improvement in our unit economic model as we've grown 44% year over year, in fact, we were able to drop 77% of the revenue increase this year to the gross profit line, which translated to a year-over-year gross margin improvement of 800 basis points from 51% to 59%. In his prepared remarks, Frank will walk you through how this gross profit improvement together with G&A spend decreasing as a percentage of revenue has led to impressive improvements to our bottom line. One major highlight I'd like to mention though is the fact that our EBITDA result for the year improved by $5.1 million on a revenue increase of $15 million, meaning that 34% of the revenue increase this year flowed to the EBITDA line. There's two reasons for this outstanding gross margin improvement. One, we're focusing most of our marketing spend increases on our highest LTV degree programs, which is of course our Aspen BSN pre-licensure program in Phoenix and our MSN FNP program at USU. These two businesses have now grown to 46% of total AGI revenues. Second, on slide seven, we show that our cost of enrollment in Q4 at both universities compared to last year declined by double digits. Aspen dropped 10% from 1420 to 1,284 and USU declined 12% from 1,619 to 1,423. Given our weighted average cost of enrollment in Q4 declined 10% year-over-year from 1,462 to 1,315, that translated to our year-over-year marketing efficiency ratio, or MER, improving 38% at Aspen University to 10.9 times and a 14% improvement at USU to 12.5 times. Continuing with operating metrics for Q4 on slide 8, note that new student enrollments in the quarter increased 14% year-over-year to 1,776. Quarterly bookings increased 36% 26.6 million, and our average revenue per enrollment, or ARPU, increased 19% to 14,973. For the full year, enrollments grew 32% year over year to 7,668, and our full year bookings increased 68% to 111.3 million. by driving fiscal year over year enrollment growth over 30% and bookings growth of nearly 70%, we anticipate this to translate into a top line growth rate of at least 30% or 63.8 million of revenue in this fiscal year 2021. In terms of an update on the current quarter given the ongoing pandemic, We indicated in our update last month that we saw a moderate slowdown in our Aspen University post-licensure online nursing degree program enrollments between mid-March and end-April, and that we saw a bounce back throughout the month of May. We're pleased to report today that total enrollments were up year over year by over 40% in the months of May and June. So we're working on an impressive enrollment result for Q1. That said, last July you may recall we announced the termination of the 72-month monthly payment plan for the MSN FNP program at USU. Now we only offer a hybrid payment plan where the FNP student pays monthly for 24 months to satisfy the first year liability of $9,000. So now the second year liability of $18,000 must be paid through conventional payment methods. When we announced that change last year and set an enrollment deadline of July 31, 2019 for the Legacy Payment Plan, we saw a record flow of nearly 250 enrollments at USU in the month of July. So that of course makes for a challenging year over year comparative of 1,929 AGI enrollments last year in Q1. But given our results in May and June, we should safely deliver well over 2,000 enrollments for the company this quarter. This impressive bounce back since April begs the question of whether the COVID-19 crisis has in fact provided a tailwind for our business. and that does now appear to be the case for the following reasons. If you're an RN that has been on the front lines that has been asked to work 12 hour days for weeks on end, you might allow yourself a thought of how nice it would be to become a nurse practitioner and work in a private practice and be able to set your own hours. We've heard many a prospective student for our USU MSN FNP program tell us that this is a goal that they're now looking to achieve. So as a result, our enrollment growth at USU has been unaffected by COVID-19 and arguably helped by it. Second, our BSN pre-licensure program targets primarily millennials, many of which live with their parents and work part-time in the services industry. This demographic was economically hit hard by the pandemic as service industries like restaurants and hotels, for example, were forced to implement broad layoffs and or furloughs. Consequently, BSN pre-licensure enrollments have remained robust in the Phoenix Metro as we've heard a number of these prospective students communicate that this is a good time to begin or continue their dream of becoming an RN as many are currently out of work. So to recap, our two highest LTV programs that as of Q4 now represent 46% of total revenue, both have felt a tailwind during this difficult time. So we feel fortunate to be one of the minority of companies that is faring well during this health crisis. Now for an update on our Phoenix pre-licensure business and upcoming campus openings in Austin and Tampa. In terms of Phoenix, We've received a number of questions from shareholders as to whether we've needed to slow down pre-licensure enrollments in our Phoenix Metro, given we now have over 1,500 active students in the program as of fiscal year end. The short answer is no. We have no plans to slow down enrollments, given at fiscal year end we had approximately 400 active students enrolled in our final two-year core nursing program across both campuses with the remaining 1,100 plus active students in the first year prerequisite phase of the three-year program. Remember that we offer six semester starts per year in both Phoenix campuses or 12 semester starts per year in the Metro, which still provides us with the ability to grow the final two-year core program student body to approximately double the size of where it was as of fiscal year end. To date, we have not had to waitlist any students, nor do we expect that to occur this fiscal year 2021. Additionally, we have leased an additional suite on the ground floor at our main campus facility in Phoenix by the airport to further expand our clinical space in anticipation of future pre-licensure student body growth and to begin offering weekend immersions to our MSN FNP students at USU. We expect this additional clinical facility in Phoenix to be open this coming September. Moving to our planned openings in Austin and Tampa, as previously disclosed, the regulatory process to open a nursing campus in a new state requires approval from the state boards of education and the state boards of nursing. COVID-19 slowed down the regulatory process slightly as we weren't able to obtain all approvals in each state by the end of May as we had planned. In Texas, we have received approval from the Texas Higher Education Coordinating Board and the Texas Workforce Commission, but we're still awaiting approval with the Board of Nursing. In Florida, We have approval from the Board of Nursing, but we're still awaiting approval from the State of Florida Commission for Independent Education. We're confirmed to be on the agenda in late July for both of these regulatory bodies, so we're hopeful our approval process in both states will be wrapped up in the next three and a half weeks. Now we have some good news in Texas to convey. We've struck a deal with National American University, or NAU, to occupy approximately 7,200 square feet of their campus in the suburb of Georgetown, Texas, which is approximately 10 miles north of Aspen's future frontier across the campus in the suburb of Round Rock. In exchange, Aspen is subtenant. At no additional cost, she'll have the right to utilize all of the existing furniture, fixtures, and equipment owned by NAU and we'll convey all such furniture, fixtures and equipment to Aspen via bill of sale for $10. As a result, Aspen University is now targeting to commence its first semester in September 2020 rather than our original planned start date of November. And we plan to share the campus with NAU until January 2021 when NAU will have completed the teach out of the remaining 12 nursing students. Post January 2021, we will move all of our Aspen campus operations and student body to our new facility in Round Rock. So in terms of estimated start dates, Tampa is now scheduled to begin in November rather than our original plan of August. And as I said, Austin is now targeted to begin in September rather than our original plan of November. Our internal revenue forecast for Tampa and Austin for this fiscal year remain in the same range, given one campus will open a few months earlier than planned and the other will open a few months later than planned. Again, these planned start dates are contingent on our obtaining final approval in both states, which we're anticipating will be completed at the end of the month. Finally, we issued a press release earlier today announcing our clinical affiliation partnership with American Advanced Practice Network, or AAPN. AAPN is a national clinical network in advanced practice nurses that provides comprehensive healthcare and nursing services at its outpatient centers and clinical facilities throughout the U.S. The services are delivered through AAPN's CareSpan integrated digital care platform, or clinic in the cloud, as they call it, to provide in-person and remote patient consultations. This is a critical telehealth partnership for the company because our USU MSN FNP students can now complete their required in-person clinical hours with AAPN throughout this COVID-19 crisis and thereafter and as a consequence we anticipate few, if any, delays in our students' planned graduation dates. Now I'll turn the call over to Frank to review our financial results for Q4.

Thank you, Mike, and good afternoon, everyone. I'm going to begin by reviewing our financial results for the 2020 fourth fiscal quarter and then make some observations on our financial progress. To begin, as Mike indicated, revenue in the fourth quarter increased sequentially by $1.5 million to $14.1 million. Q2 and Q4 continue to be our strongest seasonal quarters given those are Aspen's post-licensure nursing plus other units' strongest seasonal quarters. This unit now represents 54% of the company's revenue. The remaining 46% of revenues are from our USU subsidiary with the MSN FMP program accounting for the vast majority of their revenue and our Aspen BSN pre-licensure program today in Phoenix. These are our highest LTV businesses and to date have not shown any seasonality. These businesses delivered 1.2 million of the 1.5 million sequential growth this past quarter and without question are the main engines of our growth plans in future years. In fact, were forecasting these two businesses to account for over 50% of our revenue sometime in the second half of this fiscal year 2021. Please note that during the company's standard year-end revenue testing procedures, we determined that our earned revenue report at Aspen University inadvertently wasn't reporting credits issued to withdrawn students for certain de minimis technology fees. note that all invoices and credits issued to students were and are correct and their student ledgers were and are accurate. So this earned revenue reporting error has no effect on our student body. For fiscal 2020, this incorrect earned fee calculation amounted to $480,000. Consequently, revenue for the fourth fiscal quarter is 14.1 million rather than the pre-announced revenue estimate of $14.5 million. Aspen Group's gross profit in the fourth quarter increased to $8.35 million, or a 59% margin, which is up from 56% a year ago for an increase of 300 basis points. Both universities were responsible for this improvement, as Aspen and USU's gross margin in the quarter was 60% and 63%, respectively. As Mike indicated earlier, our gross profit for the year increased $11.5 million year over year, while revenue increased $15 million, meaning 77% of fiscal year revenue increased dropped to the gross profit line. As Mike said earlier, this also represents 34% of the revenue increase this year flowing to the EBITDA line. Marketing efficiency was the primary factor responsible for this impressive result. Our full year marketing expense increased $400,000 over the prior year, while our revenue increased $15 million. This is the best example I can give to demonstrate the efficiency of our marketing spend. As our business mix has changed, shifting more focus to higher LTV programs, the average cost to acquire a student to these higher LTV programs is in line with our historical average cost to acquire a student. This marketing efficiency is what primarily responsible for fiscal year gross margin expansion of 800 basis points. In the quarter, our total cost of revenue dropped from 42 percent to 39 percent of revenue. Marketing as a percent of revenue year over year declined from 27 percent to 19 percent. Aspen University's marketing costs represented 18% of Aspen University's revenue for the quarter, while USU's marketing costs dropped down to only 16% of USU's revenue for the quarter. Instructional costs and services as a percentage of revenue remained flat at 20%. Aspen University's instructional costs and services represented 18% of Aspen University's revenue for the quarter, while USU's instructional costs and services equaled 21%. of USU's revenue for the quarter. The primary driver of the year-over-year growth in G&A is headcount and related expenses of $4.1 million. Managing G&A expense growth continues to be a priority as we invest to support our revenue growth on our path to sustainable profitability. Recurring G&A costs, which are G&A less non-recurring items, for the quarter was approximately $7.6 million compared to approximately $6.3 million during a comparable period a year ago, an increase of $1.3 million, or 21%. Note that for the full year, recurring G&A increased by $4.5 million, or 30% year-over-year, while revenue increased $15 million, or 44%, meaning that recurring G&A growth continues to track the 50% of revenue growth. Moving forward, we expect the growth rate of recurring G&A expenses to stay at or below 50% of the rate of revenue growth, which will be a significant contributor to improving financial performance. Net loss applicable to shareholders was approximately $700,000 or diluted per share of 3 cents for the quarter as compared to a net loss of 1.6 million or 9 cents per share for the comparable period a year ago. a reduction in the loss of approximately $900,000 or 56%. Aspen University generated approximately $1.9 million of net income for the quarter and USU experienced net income of approximately $600,000 while AGI corporate incurred $3.2 million of expenses in the quarter. The company reported adjusted EBITDA of $1.4 million for the quarter. Aspen University delivered 3.1 million or 31% adjusted EBITDA margin, highlighted by its pre-licensure unit in Phoenix, delivering $800,000 or 36% adjusted EBITDA margin. USU delivered $700,000 or 17% adjusted EBITDA margin in the quarter. With regard to our liquidity position, Aspen Group ended the quarter with approximately $17.9 million in cash and restricted cash, up from $10 million a year ago. This was driven by net inflows from financing of $17 million, partially offset by cash dues from operations and investing activities of approximately $9 million. Stepping back to the specific numbers for the fourth quarter, I'd like to discuss our focus as a company on our accounts receivable and working capital. total accounts receivable net of allowance is $21 million. The increase in total AR reflects our strong revenue growth of 44% combined with certain students paying using the MPP program at both Aspen and USU. During the fourth quarter, we carefully evaluated our long-term MPP accounts receivable and made the decision to write off all pre-2018 MPP receivables for non-nursing students. Based on our review of accounts receivable, overall revenue growth trends, and changes in our mix of business, we evaluated our reserve methodology and increased our reserve for Aspen by $720,000 and by $60,000 for USU, also in the fourth quarter of 2020. Note that the bad debt allowance balance started the year at $1.25 million and ended the year at $1.75 million. On a going forward basis, as you know, our two highest lifetime value programs are Aspen's BSN Prelicensure and USU's MSN Family Nurse Practitioner programs. These programs are our fastest growing programs and now represent 46% of fourth quarter revenue and 40% of total revenue for the fiscal year. We expect the revenue from these programs to continue to grow as a percentage of our total revenue as we continue to expand our campus footprint from two to 10 plus campuses over the next three to four years. This change in our business mix will have a meaningful change in our accounts receivable and our allowance for doubtful accounts. The BSN Pre-Licensure Program and the second academic year of the MSN Family Nurse Practitioner Program require payment prior to the start of each term. This means that later this fiscal year, approximately 90% of all revenue from these two programs will be paid in advance, meaningfully reducing our accounts receivable and the allowance for doubtful accounts as a percentage of our total revenue. As revenue from these programs continue to grow as a percentage of overall revenue, we will see a corresponding increase in our cash flow from operations that will allow AGI to turn cash flow positive and generate positive free cash flow over time. In summary, we saw a reduction of our net income loss year over year of approximately 3.6 million and our cash used from operations improved year over year from 10.2 million in 2019 to 5.7 million in 2020 or an improvement of 4.5 million. We expect that our year over year pace of improvement to continue or potentially accelerate this fiscal year and look forward to providing our shareholders updates as this fiscal year unfolds. That concludes our prepared remarks. I'll now turn the call back to the operator for questions.