Aspen Group Inc

Good afternoon. Welcome to Aspen Group's fiscal year 2021 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 anticipated impact on the pre-licensure unit following the implementation of double cohorts in the main Phoenix campus and of the expansion of the pre-licensure program in new metros, including future revenue growth and operational scale, the expected launch date of the initial core program semester in Nashville, the expected timing and geography of further campus expansion, course starts, and revenue growth forecast for the fourth fiscal quarter of 2021. Our expectations regarding future course start behavior, expected operating losses of new campuses and the expected time they will achieve profitability, expected increase in growth margins in future quarters, revenue estimates and trends, G&A trends, our estimates concerning bookings, LTV, MER and ARPU, our estimates concerning and experience with our accounts receivable, our expectations regarding EPS loss and adjusted EBITDA loss in the fourth fiscal quarter, 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. Discussion of risks and uncertainties related to Aspen Group's business is contained in its filings with the Securities and Exchange Commission, including the Form 10-K for the fiscal year ended April 30, 2020, and the prospective supplement dated August 31, 2020, and in the press release issued this afternoon. Aspen Group has claimed 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 adjusted net income loss and adjusted EPS loss per share, 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 and the form 10-Q filed 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 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. Today, we delivered a revenue increase of 33% year over year. in line with our guidance previously shared on our last earnings call. Quarterly bookings increased 24% year over year. We ended the quarter with nursing students making up 87% of our total active student body, up from 84% in the prior year period. While we delivered strong enrollment growth in every unit of the company, the primary growth driver in the quarter was Aspen University's nursing plus other unit, led by our doctoral programs. United States University, or USU, also saw outstanding enrollment growth in the quarter with a 43% increase year over year, primarily from MSN, Family Nurse Practitioner, or FNP enrollments. Aspen's pre-licensure BSN unit, our highest LTV nursing licensure degree program, continues to benefit from several favorable macro trends as these students are primarily millennials looking to enter the rapidly growing nursing profession. Demand in Phoenix has exceeded our expectations. Because we do not want to have a large waiting list, we made a conscious decision to temper enrollment growth for first year prerequisite students at our Phoenix pre-licensure campuses, which have a full pipeline of first year students. This moderated the unit's enrollment growth in the quarter to 15%. Looking into the second half of the calendar year, there are two factors that will have a positive impact on the pre-licensure unit. One is the implementation of double cohorts at our main Phoenix campus to meet demand for our pre-licensure program. As of the February 2021 semester start, Aspen University implemented its first double cohort enrollment. Given two cohorts entered the core BSN pre-licensure program at the main campus and another cohort entered the program at the Honor Health Campus, that equates to an increase of over 70% from the prior year period for the Phoenix Metro core program. Let me provide further detail on the impact of double cohorts. Aspen University has six semester start dates per annum at both campuses in Arizona. With the introduction of double cohorts at its main campus in Phoenix, the university is now on track to annually start over 500 students and an annual rate of approximately $20,000 in the final two-year core program, which is up 67% from the prior run rate for both students and revenue. This excludes revenues from over 1,500 first-year online prerequisite students that are currently enrolled. The double cohorts for the core BSN pre-licensure program in the Phoenix Metro and the subsequent impact on our revenue stream for this profitable high LTV degree program demonstrates the potential scale of our model. The second factor is the expansion of the pre-licensure program in new metros. In the second half of 2020, we launched new pre-licensure programs in Austin and Tampa. Whereas we did with both of our Phoenix campuses, we experienced startup operating losses as the campuses opened. As enrollment in these two programs grows, we will see the double benefit of higher revenue growth and operational scale. The most recent expansion in our pre-licensure program is the launch in Nashville, Tennessee. where we began marketing the first year prerequisite students earlier this month. We're targeting to begin our initial core program semester in Nashville in August 2021 in clinical partnership with North Crest Medical Center, Trust Point Hospital, and Nashville General Hospital. Following the Nashville opening, we will have successfully launched five locations in four states since mid-2018. Aspen Group's strategic roadmap targets having 12 operational BSN pre-licensure locations throughout the Western and Southern United States by 2025. The majority of Aspen University's pre-licensure students are part-time or full-time working adults, and we strive to cater to their needs. We offer the majority of our BSN pre-licensure program curriculum online, together with an on-campus applied learning component that's offered with both day and night weekend program options, which differs from traditional on-campus, five days a week, day program format. In addition to affordable tuition and flexible payment options, the ability to work while attaining a life-changing degree makes our program very popular. As I mentioned earlier, a factor in our growth this quarter was strong enrollment at USU, primarily from FNP students, all of whom are registered nurses or RNs. The FNP enrollment growth is especially notable given the dramatic increase in nurses' workloads due to the acceleration of COVID-19 infection rates throughout the quarter. That said, with RNs currently representing 69% of the company's total student body, we did see the headwinds these students faced late in 2020 and the first few months of 2021 due to what we call COVID Wave 2, which led to lower course starts than originally forecasted at both universities in the quarter. Our BSN pre-licensure students, of course, are not yet nurses, and this program was unaffected. As stated in our last earnings call, we anticipated this effect would have an impact on class starts within our student body of predominantly working nurses. We expect that to continue through the balance of this fiscal year. Given that our predominantly RN student body has been especially overwhelmed over the past several months, We wanted to understand the reasons for their decisions to reduce their pace of class starts, and we found that it fell into four categories. First, these students rescheduled upcoming course registrations to a later date. Two, they made requests for a temporary leave of absence. Three, they requested to delay their placement into their preferred clinical location. timed with that facility accepting new in-person students again. And four, they made course or program withdrawal requests due to family emergencies, pressures at work, or emotional distress or lack of time. As a result, in addition to typical seasonality in the third quarter, which includes the November and December holiday months, Aspen University saw approximately 4% less course registrations than expected in our Aspen Nursing Plus Other unit. This equates to approximately $110,000 of reduced revenue per month relative to the company's historical performance. USU's MSN FNP program also saw a similar course start decline of approximately 4% in the quarter relative to the company's historical performance, which equates to approximately $60,000 of reduced revenue per month. COVID wave two has continued into the current fourth fiscal quarter ending April 30th. And as a result, we're forecasting a decrease of approximately 4.5% for course starts than seasonally expected in our Aspen nursing plus other units and USU's MSN FNP program. Consequently, we anticipate year-over-year revenue growth to be in the range of 31 to 33% or 18.4 to 18.7 million dollars. This is compared to the company's previous forecast of 36% growth or 19.1 million. We welcome the news that vaccines should be available to all adults by the end of May. assuming the vaccine rollout goes as scheduled. By the end of our fourth fiscal quarter, we anticipate the course start behavior of our predominantly RN student body to return to historical levels, which would be during our first fiscal quarter ending July 31. Outside of the lower course start activity due to COVID, our enrollments and operating metrics continue to outperform the industry. Our proprietary EdTech platform consistently yields industry-leading marketing metrics. Our technology is a key differentiator in the for-profit education sector and is the cornerstone of our model that enables our low customer acquisition cost, which we refer to as cost per enrollment, or CAC. Our proprietary enrollment CRM is perhaps the most advanced system in the higher education industry. using a real-time algorithm, the system prioritizes leads in real-time for our enrollment advisors and notifies them where that individual is in the enrollment process and recommends the next step. Our enrollment advisors therefore always have a prioritized database to maximize lead to enrollment conversion rates. This is one of the key reasons why our CAC remains the lowest in the industry. As I previously stated, our overall pre-licensure enrollment growth was restrained to 15% due to our decision to flatten first-year enrollments in Phoenix. This in turn moderated our year-over-year increase in bookings and average revenue per enrollment, or ARPU. As a result, bookings rose 24% to $33 million, while ARPU increased 2% to $15,000 $513. The company's weighted average CAC increased 19% on a sequential basis to $1,365 as expected given we launched marketing in two new metros and materially increased marketing spending the past two quarters and there has historically been a one to two quarter lag effect in increased marketing investment to revenue. That said, The marketing efficiency ratio, or MER, representing revenue per enrollment over cost per enrollment for both of our universities remained above 11 times. I'll complete my remarks today by discussing our BSN pre-licensure expansion and the short-term effect that it had on our EBITDA margin in the quarter. As we've previously stated, our strategic plan is to open two new locations per year. one in the spring, one in the fall. Last spring, we encountered a delay in the regulatory approval process in Florida related to COVID restrictions. This delay meant that we launched marketing and began staffing in both the Tampa and Austin metros within about one month of each other. Consequently, this was our first full quarter of marketing in both locations with minimal startup revenues, so it caused an aggregate operating loss in those two metros of just over $800,000. As we previously disclosed, each new location experiences operating losses of approximately $750,000 to a million dollars in the first calendar year of operation. So we do anticipate that these new campuses will begin generating profit in year two based on the precedent that was set in Phoenix. The good news, as Rob will discuss momentarily, is the fact that our two more mature pre-licensure campuses in Phoenix, which have now been open for just over two and a half and one and a half years, respectively, delivered net income and EBITDA of $1.8 million, or a 52% margin in the quarter. Despite the operating losses in Austin and Tampa, the overall pre-licensure business still delivered a 28% EBITDA margin in the quarter. This again demonstrates the leverage of our pre-licensure business and why we prioritize these strategic investments. Before I complete my remarks, I'd like to thank our former CFO, Frank Petronio, for his hard work and contribution to Aspen Group over the last 15 months. The company has greatly benefited from Frank building an outstanding finance and accounting team and helping to upgrade the company's financial processes and infrastructure. The company is fortunate to have Rob Alisi as our chief accounting officer. Rob is the interim head of our finance team and brings a broad base of experience including big four public accounting, internal auditing, and public company controllership. Rob, with my oversight, is performing the Chief Financial Officer duties while we conduct a CFO search. We have interviewed several excellent candidates thus far and hope to finalize our decision by the end of our fiscal year. Now I'll turn the call over to Rob to review our financial results for Q3. Please go ahead, Rob.

Thank you, Mike, and good afternoon, everyone. I will begin with a review of our financial results for the 2021 fiscal third quarter followed by our expectations for the upcoming fourth quarter. Total revenues for the third quarter were $16.6 million, up 33% versus a year ago period. Our highest LTV businesses, Aspen University's pre-licensure BSN and USU, primarily FNP program, now account for 51% of our consolidated revenue. Aspen University's traditional post-licensure online nursing plus other unit, which includes our growing doctoral programs, contributed the remaining 49% of total company revenues in the quarter. As Mike indicated, our revenue growth continues to be driven by new student enrollments in our highest LTV programs, which increased overall by 22% to 2,129. Aston University generated 1,593 new student enrollments of 16% year over year, attributable to strength in its doctoral and nursing plus other degree programs. United States University delivered 536 new student enrollments, a 43% increase year-over-year, primarily from MSN family nurse practitioner or FNP enrollments. The FNP enrollment growth is especially notable given the demand on nursing professionals on the front lines of the pandemic. As Mike explained earlier, Aspen University intentionally slowed year-over-year enrollment growth at its Phoenix pre-licensure campuses. These campuses currently have a full pipeline of first-year online prerequisite students, so this decision moderated pre-licensure enrollment growth in the quarter to 15%. Gross profit and gross margin were $8.7 million and 52% respectively, versus $7.1 million and 57% respectively in the year-ago period. Overall instructional costs were $3.9 million with 24% of revenue, up from 2.6 million, or 21% of revenue in the year-ago period. The increase in instructional costs as a percent of revenue was primarily due to the hiring of full-time faculty to the pre-licensure program at the main Phoenix campus to support double cohorts that began in February, as well as faculty hiring at the new campuses in Tampa, Florida and Austin, Texas. Total marketing and promotional costs for the third quarter were $3.6 million, or 22% of total revenue. up from 2.5 million or 20% of revenues in the year-ago period. The increase of marketing as a percentage of revenues is a result of the planned increase in ad spend in fiscal year 2021, targeted primarily to our highest LTV programs, combined with growth spending in our two new pre-licensure metros. General and administrative costs for the quarter were $10.6 million, compared to $8.6 million during the comparable prior-year quarter. an increase of $2 million, or 23%. Given revenues increased year over year by $4.1 million, the G&A increase of $2 million continues to track against our long-term goal that G&A will grow at approximately half the rate of revenues. From a company bottom line perspective, the total net loss for the third quarter is $2,815,266, or net loss per basic and diluted share of 11 cents. compared to a loss of $2,281,052 or net loss per share of 12 cents in the prior year quarter. Adjusted net loss for the third quarter is $2,114,096 or adjusted net loss per share of 9 cents compared to a loss of $923,719 or adjusted net loss per share of 5 cents in the prior year quarter. From a unit perspective, Aspen University's net income for the quarter was $1.4 million versus $1.3 million in the prior year period. USU's net income was $0.3 million versus net income of less than $0.1 million in the prior year quarter. Finally, AGI incurred a net loss of $4.5 million for the third quarter compared to a loss of $3.6 million in the prior year quarter. Our net loss of $2.8 million, our adjusted EBITDA, including approximately $800,000 in growth capital expense related to ramping up the Austin and Tampa campuses, was a loss of $0.9 million or negative 5% margin in the third quarter as compared to a net loss of $2.3 million and adjusted EBITDA of $0.2 million or 2% margin in the prior year quarter. From a unit perspective, Aspen University generated net income of $1.4 million and adjusted EBITDA of $2.5 million in the third quarter. Aspen's pre-licensure BSN program generated net income of $1 million and an adjusted EBITDA margin of 28%, as the unit delivered $1 million of the $2.5 million adjusted EBITDA generated at Aspen University. Pre-licensure program in Phoenix generated net income and adjusted EBITDA of $1.8 million, or 52% margin. of the two new metros, Austin and Tampa, incurred a net loss and adjusted EBITDA loss of $0.8 million for the quarter. USU generated net income of $0.3 million and adjusted EBITDA of $0.5 million in the third quarter. Finally, AGI Corporate incurred a loss of $4.5 million and an adjusted EBITDA loss of $3.8 million in the quarter. Shifting to our fourth quarter forecast, as Mike indicated, We anticipate year-over-year revenue growth to be in the range of 31% to 33%, or $18.4 million to $18.7 million. This is compared to the company's previous forecast of 36% growth, or $19.1 million. From a bottom-line perspective, we expect our net loss per share to be in the range of 11 cents to 13 cents, and adjusted EPS loss in the fourth quarter to sequentially improve from 9 cents to 4 to 6 cents. Note that the EPS loss we're estimating in Q4 includes approximately 4 cents for the severance and stock compensation expense related to Frank Cotroneo's separation agreement. Now I'd like to provide an update on our accounts receivable and bad debt reserve. As our shareholders are aware, the increase of the company's accounts receivable over the last several years has predominantly been the result of our groundbreaking multi-payment plan, or MPP. which we introduced in 2014 at Aspen University and subsequently in 2018 at United States University. In history, we've issued approximately $70 million of credit to Aspen University MPP students and to date, we've written off $631,000 or approximately 1% of that accounts receivable. Our bad debt reserve for this AR is currently $2.5 million, which we believe is conservative because our current collection history and analysis suggests that we will not ultimately need to write off more than about 2.5% of that $70 million, or a total of $1.8 million, which includes the $631,000 written off to date. Okay, now let's discuss USU's MPP accounts receivable. because as you likely recall, we offered nurse practitioner students a six-year MPP plan over a two-year period, from 2018 to 2019. The majority of the company's increase of accounts receivable this fiscal year is related to that MPP plan. To be specific, the company's long-term AR during the first five months of this fiscal increased from $6.7 million to $9.9 million, with USU accounting for 83% of that increase. The company's short-term accounts receivable during the nine-month period of this fiscal year increased from $16.1 million to $18.8 million, with USU accounting for 70% of that increase. Here's the important fact to be aware of. As I just stated, while the majority of the accounts receivable increase for the company in the past year plus has been through issuing credit to nurse practitioner students at USU, Collection history of these FNP students is tracking maturely better than our collection history of Aspen University MPP students. Let me explain. From 2018 to 2019, we issued approximately $17 million of credit to USU FNP students on the six-year payment plan. We've collected to date 8.3 million of that $17 million, so the remaining accounts receivable is approximately $8.7 million. The total student count that makes up the $8.7 million of MPP-FNP student accounts receivable is approximately 800 students. 44% of those 800 students have graduated, while 50% remain active students today in the university, and the remaining 6% are no longer enrolled. Of those 800 students, we only have 43 students that have not made a recent monthly payment, which accounts for total accounts receivable of $205,000 or 1.2% of the total credit issued to date. In other words, we're estimating the six year MPP accounts receivable to perform materially better than Aspen's history, which as I just indicated, has performed well to date. As we look back on that six year payment plan we offered to nurse practitioner students at USU, It shouldn't come as a surprise that the quality of that credit we issued is so strong, as becoming a nurse practitioner is a life-changing event for these students. Their income averages over six figures once they are employed as a nurse practitioner, which can be up to double the average income of registered nurses in the US. Moving to our liquidity position, cash used in operations for the quarter was approximately $3.2 million versus $1.8 million in the year-ago period. For the nine-month period, our cash used in operations is $5.3 million, or an average of $1.8 million per quarter. As you know, our cash used from operations in a given quarter can be materially affected based on the timing and size of our semester starts. Aspen Group ended the quarter with approximately $10 million in unrestricted cash. Together with our unused revolver of $5 million, at the end of the quarter with approximately $15 million of liquidity resources. Additionally, we have $1.3 million of other current assets on the balance sheet, which represents our tenant improvement allowance that will be reimbursed upon the completion of the campus build-out. We expect the $1.3 million to be reimbursed either by the end of this fiscal quarter or next, which will increase our liquidity by about $1.3 million. With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter is 24,544,334 versus 19,420,987 in the year-ago quarter. That concludes our prepared remarks. I will now turn the call back to the operator for questions.