Aspen Group Inc

Good afternoon. Welcome to Aspen's Group Fiscal Year 2021 First 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 the expansion of the highest LTV programs, revenue growth estimates, G&A trends, enrollment growth, The impact of booking, our estimate concerns, LTV and ARPU, and future accounts receivables estimates. As for 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 Ashton's business is contained in its perspective, excuse me, Supplement and the 10-K filed with the Securities and Exchange Commission in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements 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 adjustment net income loss and adjusted EPS loss per share, 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 the earnings slides are available on Aspen's website at ASPU.com and the presentation page under company info. Now it's time to call over to Michael Mathews, Aspen Group Chairman and Chief Executive Officer. Please go ahead.

Good afternoon. We've made great progress this past quarter in terms of delivering record enrollments, improving operating metrics, strengthening the balance sheet, obtaining final regulatory approvals for our new pre-licensure BSN campuses, not to mention delivering top-line growth acceleration, so I'll get right to it. Okay, starting with slide three of our earnings presentation, Revenue in our historically seasonally softest quarter, Q1, increased to $15.2 million, up $1.1 million or 8% from the prior quarter, and $4.8 million or 46% over the prior year period. Because of this significant beat on the top line in Q1, we are now raising our full year revenue guidance to $66 million for 35% growth year over year. As announced previously on slide six, the company reported record quarterly enrollments of 2,351 new students despite the ongoing COVID-19 pandemic, and again during the company's historically seasonally weaker summer months. Aspen University generated 1,779 enrollments, up 26% year over year, with our doctoral and BSN pre-licensure units, both enjoying quarterly enrollment records. USU also delivered record enrollments in the first quarter with 572 new students, which is a 32% sequential increase. Continuing with the operating metrics, our cost of enrollment has remained stable through this growth cycle, as our weighted average increased 4% to $1,203 for the quarter versus $1,153 in the comparable year period. I'd like to remind everyone that USU terminated its 72-month payment plan for FNP students as of July 31, 2019, which caused a historic enrollment month for the university with nearly 250 enrollments in that month a year ago. In that context, we were very satisfied that we grew enrollments year over year at USU by 11% and by 32% sequentially, while keeping the overall company's cost of enrollment at only a 4% increase year over year. In the first quarter, our marketing efficiency ratio, or MER, representing revenue per enrollment over cost per enrollment, improved by 16% at Aspen University from 10.6 times to 12.3 times. USU's MER continued to impress at 14 times. In terms of bookings on slide 7, on a year-over-year basis, we increased 34% to $36.1 million. which translated into a 10% increase in average revenue per enrollment, or ARPU, from $13,919 to $15,344. On slide five, note that AGI's overall active student body continues to grow steadily each quarter. As in the first quarter, we grew 24% year over year from 9,752 to 12,128 students. Aspen University's total active degree-seeking student body grew 21% year-over-year from 8,261 to 9,975. USU's total active student body grew from 1,491 to 2,153 or 44%. Of the 12,128 active students across both universities, 86% or 10,422 students are degree-seeking nursing students. Moving to financial highlights on slide eight, the company enjoyed another quarter of improved marketing efficiency as a result of minimal increases in our sequential marketing spend rate. In the current quarter, we delivered a $1.1 million revenue increase over the prior quarter while increasing marketing spend by only $50,000. Folks, that's leverage of 22 times. Our marketing spend as a percentage of revenue dropped from 21% a year ago down to 18% this quarter. This leverage in our marketing spend is a benefit delivered by executing our business strategy of focusing the majority of our growth capital on our high SLTV degree programs, namely our USU MSN FNP program and Aspen's DSN pre-licensure program. In addition, instructional costs as a percentage of revenue for the quarter dropped from 21% to 20% year over year. This translated to our gross profit increasing 56% year-over-year to $9 million, or a 59% gross margin, versus a 56% gross margin in a comparable year period. In his prepared remarks, Frank will walk you through how this gross margin improvement, together with managing the increase of our operating G&A expenses at less than 50%, the rate of revenue growth has led to impressive improvements to our bottom line. Now on to regulatory updates in Texas and Florida. As we announced last month, Aspen University received the final required state regulatory approvals for their new pre-licensure Bachelor of Science in Nursing or BSN campuses in Austin, Texas and Tampa, Florida giving Aspen University the go-ahead to commence marketing and begin to enroll students immediately. As a reminder, Aspen admits students into one of two program components. The first component is a pre-professional nursing or PPN component that's offered fully online for students that have less than the required 41 prerequisite Gen Ed credits that's completed in year one, and second, the nursing core component for students that are ready to participate in the competitive evaluation process for entry into years two and three. Aspen began enrolling PPN students in Austin in the month of August, and we began enrolling PPN students in Tampa starting this month. The initial semester for core nursing students, which are students entering years two and three, in Austin is scheduled for September 29, 2020. And the initial semester for core nursing students years two and three in Tampa is scheduled for December 8, 2020. Now let's talk about the announcement we made today regarding our $10 million convertible notes. As many of you are aware, Mr. Leon Cooperman became a shareholder in the company by participating in our equity offering back in 2014. Shortly thereafter, Aspen announced its innovative monthly payment plan to working professionals designed to allow our students the ability to graduate debt-free. Mr. Cooperman, a year later in 2015, became a lender to the company by providing us a line of credit revolver and then subsequently in 2019, he was the lead investor in a $10 million term loan. About six months ago, he agreed to restructure the term loan into a convertible instrument that auto converts to the company's share price trade at or above $10.75 for 20 consecutive trading days. Today was the 20th consecutive trading day above $10.725. Therefore, the conversion took place this afternoon, and consequently the company is now debt-free. I have privately thanked Mr. Cooperman for his ongoing support through the years, but I'd like to publicly thank him today. As I've told him numerous times, this company wouldn't be in such a position of strength today without his consistent support on both the equity and the debt side. Please be aware that the company still holds a $5 million line of credit with Mr. Cooperman's foundation, but given we have nearly $15.9 million of cash on the balance sheet, we have no intent of drawing on this unused line. Now I'll turn the call over to Frank to review our financial results for Q1.

Thank you, Mike, and good afternoon, everyone. I'll begin by reviewing our financial results for the 2021 first fiscal quarter and providing input on our financial progress, followed by commentary on some key financial events which recently transpired. To begin, as Mike indicated, revenue in the first quarter was $15.2 million an increase of $1.1 million over the prior quarter and $4.8 million over a year ago period. The first quarter has typically been our seasonally weakest quarter. However, this year we have seen increasing momentum in enrollment, reflecting the secular trends in healthcare and the need to fill more than 1 million open nursing positions. This has been combined with the significant demand driven by the economic slowdown caused by COVID and existing nurses looking to move from the front lines of the pandemic to a more controlled and higher paying career opportunity as a family nurse practitioner. Aspen post-licensure plus other units accounted for 53% of revenue this quarter. The balance of revenue came from our USU subsidiary with the MSN Family Nurse Practitioner Program accounting for the vast majority of their revenue. and our Phoenix-based Aspen BSN pre-licensure program. Together, those two programs comprise 47% of total revenue. As a comparison, these two programs represented 40% for the full fiscal 2020 and 46% for the 2020 fourth quarter. This trend is expected to continue and as a result we anticipate these programs to represent over 50% of revenue in the second half of this fiscal year. With the expanding footprint of new pre-licensure BSN campuses into two new metros and our intention to embed FNP immersions in each new metro, these programs will remain drivers of our long-term growth for both revenue and eventually profitability. Notably, we have begun enrolling first-year prerequisite students at both new locations in Austin and Tampa. As I said earlier, we anticipate the pre-licensure BSN and MSN-FMP degree programs to deliver over 50% of revenue in the second half of this fiscal year, 2021. After the group's gross profit in the first quarter increased to $9 million to a 59% gross margin, which is up from 56% a year ago, an increase of 300 basis points. The strong performance of both universities was the primary reason for the increase. Aspen and USU's gross margin in the quarter were 59% and 64% respectively. Marketing spend, which only increased by $50,000 this quarter, continued to drive strong enrollment growth. demonstrating the leverage and efficiency of our marketing efforts. As a percentage of revenue, our marketing expense dropped to 18% from 21% in the year-ago quarter and 19% in the prior sequential quarter. Marketing efficiency continues to be a primary factor in delivering gross margin expansion. We saw a decrease in marketing costs as a percentage of revenue for Aspen and USU year over year. Aspen University's marketing costs were 18% of Aspen University's revenue for the quarter, down from 20%, while USU's marketing costs dropped down to only 14% from 17% of revenue for the current quarter. Total cost of revenue dropped from 42% to 39%, helped by the decrease in instructional costs falling to 20% of revenue from 21%. This is despite growing on a dollar basis by over $900,000 year over year. Aspen University's instructional costs and services represented 19% of Aspen University's revenue for the quarter, while USU's instructional costs and services equaled 22% of USU's revenue for the quarter. In the first quarter, general administrative expenses were $8.8 million, an increase of $2 million over the prior year, but fell to 58% of revenue from 66% in the prior year first quarter. The primary driver of the growth in G&A was what we are calling growth OPEX, which we are defining as primarily personnel and related costs to increase our enrollment center, our academic advisors, financial aid advisors, and additional academic operations personnel. These new hires were added early in the year to be trained and onboarded to handle the increasing enrollment activity across both universities. In our enrollment center specifically, we decided to grow our EA staff by 23% in Q1 from 96 EAs to 118 EAs, adding these advisors across every unit of the company. We are now fully staffed for the fiscal year to accomplish our enrollment goals for the remainder of the fiscal year. In the current quarter, recurring G&A expenses grew $2 million compared to revenue growth of $4.8 million. We continue to manage or target G&A expense growth to a level at or below 50% of revenue growth for the full fiscal year 2021. This will allow us to continue to deliver margin expansion while we invest in key infrastructure and growth op-ex to support our expansion strategy. This strategy has led to continued progress in reducing operating losses as we advance on the path towards sustainable profitability. Net loss was approximately $900,000 compared to $2.1 million a year ago. This was a reduction of the net loss by $1.2 million, an improvement of 55%. Aspen University generated approximately $2.3 million of net income for the quarter and USU delivered net income of a little more than $1 million. I'd like to point out that 67% of the year-over-year revenue increase of 4.8 million dropped to the gross profit line, and 25% of that increase dropped to the bottom line this quarter. Net loss per share reported for the quarter is minus 4 cents as compared to minus 11 cents per share for the comparable year-ago period, an improvement of 7 cents per share. For fiscal year 2021, we are introducing a new non-GAAP measure, adjusted net income loss and adjusted EPS. For fiscal 21, first quarter, adjusted net income was a profit of $87,000 compared to an adjusted net loss of 1.4 million in the prior year period. The adjusted earnings per share in fiscal 21 first quarter reflects zero or break-even cents compared to an EPS of negative 8 cents per share in the prior year quarter. The company reported break-even EBITDA for the first quarter up from a negative $1 million EBITDA in the quarter a year ago. Consolidated AGI adjusted EBITDA increased to $1.3 million for the quarter compared to a negative $100,000 in the year-ago quarter. This year-over-year improvement for the quarter of $1.4 million resulted in a 9% adjusted EBITDA margin. Aspen University delivered EBITDA of $2.8 million for a 26% margin and adjusted EBITDA of 3.2 million, highlighted by its pre-licensure unit in Phoenix, delivering $1 million for a 37% adjusted EBITDA margin. USU delivered EBITDA of $1 million for a 23% margin and 1.1 million of adjusted EBITDA margin in the quarter. Aspirin's pre-licensure BSN remains the highest margin degree program of our company. Switching to the balance sheet, Aspen Group ended the quarter with approximately $15.9 million in cash, up from $7.2 million a year ago, and $14.4 million at year-end fiscal 2020. Now that our cash used in operations of 600,000, note that our cash used in operations of 600,000 is $1.1 million less than the comparable period a year ago, an improvement of 64%. Regarding our accounts receivable and our allowance for doubtful accounts, we continue to evaluate our student accounts and our allowance for doubtful accounts in the context of our increase in revenue growth and our change in the mix of our business. This quarter, we added $400,000 to our allowance, $340,000 to Aspen, and $50,000 for USU. We will continue to add to our allowance in line with revenue growth, and expected improvements in student payment performance. Stepping back from the specific numbers for the first quarter, I'd like to discuss two events that have taken place in the last few weeks that will impact our second quarter results. First, the vesting of performance-based equity grants to senior executives, and second, the conversion of $10 million of convertible notes into common stock. starting first with the compensation expense related to restricted stock grants to the senior leadership team. AGI's Compensation Committee put in place a four-year performance-based bonus plan structured to align leadership's performance with the interests of shareholders, which is to drive sustainable shareholder value. The plan calls for the vesting of restricted shares at price target thresholds when Aspen's Common Stock trades at or above specific price thresholds for 20 consecutive trading days. The total grant was for 375,000 shares. Vesting takes place accordingly. 10% will vest at the $9 threshold, 25% at the $10 threshold and the remaining 65% vests when asking stock trades at or above $12 for 20 consecutive days. Compensation expense to the company is based on the stock price at the time of vesting. On August 31st, the 10% tranche vested at $12.78. and on September 2nd, the 25% tranche lasted at $12.99. The total non-cash compensation expense that will be reported in our second quarter is $1.6 million. The company has been rewarded by the market for continued growth in our two highest LTV degree programs, delivering continued margin expansion with focused expense control in the G&A line while investing for future growth, opening PLBSN campuses in two new metros this year, all while decreasing operating losses towards sustainable profitability. Aspen is delivering against our promises made, promises kept philosophy as reflected in the strong operating results. and Michael Mathews. Solid execution combined with the stock market rally since the March lows have lifted our share price to all-time highs. Finally, there is one remaining tranche that could vest over the next three years and will result in an additional non-cash compensation expense if Aspen stock price maintains 20 consecutive trading days at or above the final vesting threshold of $12. while it will be a material drag on our reported net loss or EBITDA numbers in the quarter the vesting takes place, it's important to remember this is a non-cash item and will not negatively impact our ongoing operating performance. The second event announced earlier today, which Mike discussed in his comments, is the automatic conversion of the convertible notes for a combined face value of $10 million. Today, Aspen stock achieved 20 consecutive trading days above the automatic conversion threshold of $10.72. As detailed in our press release distributed after today's market close, these notes converted into 1.4 million shares of Aspen common stock at the conversion price per share of $7.15. This conversion will increase the outstanding share count to 23.8 million shares for a 6.3% dilution. In addition, the remaining amortization of the original issuance discount of 1.4 million will be accelerated into Aspen's fiscal second quarter. We are pleased to eliminate this debt from our balance sheet and to save $700,000 in annual interest costs. Finally, today we are introducing two new performance metrics, adjusted net income or loss and adjusted earnings per share. Both of these new metrics are non-GAAP and will be shown with a reconciliation to their GAAP counterpart. Both of these new metrics will help the company communicate ongoing and recurring business performance without the effects of certain non-cash, stock compensation and non-recurring expenses that would otherwise cloud the visibility for the company performance. For example, as the company grew and evolved through its early life cycles, the company entered into funding arrangements that at the time were market-based and reflected the risk profile of an early stage company. As AGI's performance improved and the risk profile was reduced, the company was able to obtain lower cost financing structures. The swapping out of these older structures brings acceleration of issuance costs, which cause one-time charges to the P&L. These new metrics are intended to report company performance before and after the effect of these types of expenses. As the company continues to strengthen its balance sheet, these charges will be incurred. Over time, we expect these adjusted and unadjusted metrics to merge making the adjusted metrics redundant. We intend to use these new metrics as long as necessary to provide transparency to the company's performance. I conclude our prepared remarks. I'll now turn the call back to the operator for questions.