ASPEN GROUP, INC.
You should read the following discussion in conjunction with our consolidated
financial statements, which are included elsewhere in this Annual Report on Form
10-K. Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements that reflect our plans, estimates,
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to these
differences include those discussed in the Risk Factors contained herein.
Key Terms
In connection with the management of our businesses, we identify, measure and
assess a variety of operating metrics. The principal metrics we use in managing
our businesses are set forth below:
Operating Metrics
•Lifetime Value ("LTV") - Lifetime Value as the weighted average total amount of
tuition and fees paid by every new student that enrolls in the Company's
universities, after giving effect to attrition.
•Bookings - defined by multiplying LTV by new student enrollments for each
operating unit.
•Average Revenue per Enrollment ("ARPU") - defined by dividing total bookings by
total enrollments for each operating unit.
•Marketing Efficiency Ratio ("MER") - is defined as revenue per enrollment
divided by cost per enrollment.
Operating costs and expenses
•Cost of revenues - consists of instructional costs and services and marketing
and promotional costs.
•Instructional costs - consist primarily of costs related to the administration
and delivery of the Company's educational programs. This expense category
includes compensation costs associated with online faculty,
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technology license costs and costs associated with other support groups that
provide services directly to the students and are included in cost of revenues.
•Marketing and promotional costs - include costs associated with producing
marketing materials and advertising, and outside sales costs. Such costs are
generally affected by the cost of advertising media, the efficiency of the
Company's marketing and recruiting efforts, and expenditures on advertising
initiatives for new and existing academic programs. Non-direct response
advertising activities are expensed as incurred, or the first time the
advertising takes place, depending on the type of advertising activity.
•General and administrative expense - consists primarily of compensation expense
(including stock-based compensation expense) and other employee-related costs
for personnel engaged in executive and academic management and operations,
finance, legal, tax and human resources, fees for professional services,
corporate taxes and facilities costs.
Non-GAAP financial measures:
•Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") - is
a non-GAAP financial measure. See "Non-GAAP - Financial Measures" for a
reconciliation of Net loss allocable to common shareholders to EBITDA for the
fiscal years 2020 and 2019.
•Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") - is a non-GAAP financial measure. See "Non-GAAP - Financial
Measures" for a reconciliation of Net loss allocable to common shareholders to
Adjusted EBITDA for the fiscal years 2020 and 2019.
Company Overview
AGI is an educational technology holding company. It operates two universities,
Aspen University ("Aspen University " or "AUI" or "Aspen") and United States
University ("United States University " or "USU").
All references to the "Company", "AGI", "Aspen Group ", "we", "our" and "us"
refer to Aspen Group, Inc. , unless the context otherwise indicates.
AGI leverages its education technology infrastructure and expertise to allow its
two universities, Aspen University and United States University , to deliver on
the vision of making college affordable again. Because we believe higher
education should be a catalyst to our students' long-term economic success, we
exert financial prudence by offering affordable tuition that is one of the
greatest values in higher education. AGI's primary focus relative to future
growth is to target the high growth nursing profession. As of April 30, 2020 ,
9,710 of 11,444 or 85% of all students across both universities are
degree-seeking nursing students.
In March 2014 , Aspen University unveiled a monthly payment plan available to all
students across every online degree program offered by the university. The
monthly payment plan is designed so that students will make one payment per
month, and that monthly payment is applied towards the total cost of attendance
(tuition and fees, excluding textbooks). The monthly payment plan offers online
associate and most bachelor students the opportunity to pay their tuition and
fees at $250 /month, online master students $325 /month, and online doctoral
students $375 /month, interest free, thereby giving students a monthly payment
option versus taking out a federal financial aid loan.
USU began offering monthly payment plans in the summer of 2017. Today, monthly
payment plans are available for the online RN to BSN program ($250 /month),
online MBA/MAEd/MSN programs ($325 /month), online hybrid Bachelor of Arts in
Liberal Studies, Teacher Credentialing tracks approved by the California
Commission on Teacher Credentialing ($350 /month), and the online hybrid Masters
of Nursing-Family Nurse Practitioner ("FNP") program ($375 /month). Effective
August 2019 , new student enrollments for USU's FNP monthly payment plan will be
offered a $9,000 two-year payment plan ($375 /month x 24 months) designed to pay
for the first year's pre-clinical courses only (approximate cost of $9,000 ). The
second academic year of the two-year FNP program in which students complete
their clinical courses (approximate cost of $18,000 ) is required to be funded
through conventional payment methods (either cash, private loans, corporate
tuition reimbursement or federal financial aid).
Since 1993, Aspen University has been nationally accredited by the DEAC, a
national accrediting agency recognized by the DOE and CHEA. On February 25,
2019 , the DEAC informed Aspen University that it had renewed its accreditation
for five years to January 2024 .
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Since 2009, USU has been regionally accredited by WSCUC.
Both universities are qualified to participate under the Higher Education Act
and the Federal student financial assistance programs (Title IV, HEA programs).
AGI Student Population Overview*
AGI's overall active student body (includes both Aspen University and USU) grew
28% year-over-year from 8,932 to 11,444 as of April 30, 2020 and students
seeking nursing degrees were 9,710 or 85% of total students at both
universities. Active student body is comprised of active degree-seeking students
enrolled in a course at the end of the fiscal year or are registered for an
upcoming course.
Aspen University's total active degree-seeking student body grew 22%
year-over-year from 7,784 to 9,487. USU's total active degree-seeking student
body grew year-over-year from 1,148 to 1,957 or 70%.
[[Image Removed: aspu-20200430_g1.jpg]]AGI New Student Enrollments
For the fourth quarter of fiscal year 2020,Aspen University accounted for 1,344 new student enrollments delivering overall enrollment growth atAspen University of 8% year-over-year. Enrollment growth atAspen University was driven primarily by the Pre-Licensure BSN program as a result of a full quarter of enrollments at bothPhoenix, AZ campuses, as compared to the prior year with only one campus open.
USU accounted for 432 new student enrollments in the quarter driven primarily by FNP enrollments, a 36% enrollment increase year-over-year.
For fiscal year 2020,Aspen University year-over-year enrollment grew 26% to 5,953 new student enrollments, and USU year-over-year enrollment grew 62% to 1,715 new student enrollments. Below is a table reflecting new student enrollments for the past five quarters: New Student Enrollments by Quarter Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Aspen University 1,243 1,415 1,823 1,371 1,344 USU 317 514 394 375 432 Total 1,560 1,929 2,217 1,746 1,776
Marketing Efficiency Ratio (MER) Analysis
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Table of Contents AGI has developed a marketing efficiency ratio to continually monitor the performance of its business model.
Revenue per Enrollment (RPE)
Marketing Efficiency Ratio (MER) = -------------
Cost per Enrollment (CPE)
Cost per Enrollment (CPE)
The Cost per Enrollment measures the advertising investment spent in a given
nine month period, divided by the number of new student enrollments achieved in
that given nine month period, in order to obtain an average CPE (or CAC outside
of the education sector) for the period measured.
Revenue per Enrollment (RPE)
The Revenue per Enrollment takes each quarterly cohort of new degree-seeking
student enrollments, and measures the amount of earned revenue including tuition
and fees to determine the average RPE for the cohort measured. For the later
periods of a cohort, we have used reasonable projections based off of historical
results to determine the amount of revenue we will earn in later periods of the
cohort.
In the fourth quarter of fiscal year 2020 the Marketing Efficiency Ratio (MER)
for our universities, representing revenue-per-enrollment (LTV) over
cost-per-enrollment (CPE), improved 38% for Aspen University and 14% for USU, as
shown in the below table:
Fourth Quarter Marketing Efficiency Ratio
Enrollments CAC1 LTV2 Q4 '20 MER Q4 '19 MER MER % Change
Aspen University 1,344 $ 1,284 $14,058 3 10.9X 7.9X 38 %
USU 432 $ 1,423 $17,820 4 12.5X 11.0X 14 %
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1Based on 6-month rolling weighted average CAC for each university's enrollments
2Lifetime Value (LTV) of a new student enrollment
3Weighted average LTV for all Aspen University enrollments in the quarter
4LTV for USU's MSN-FNP Program
The improved year-over-year MER results were driven by the decline in cost of
enrollment. Compared to the previous year, AGI's weighted average cost of
enrollment declined 10%, from
Fourth Quarter Weighted Average Cost of Enrollment
Q4 '19
Enrollments Q4 '19 CAC1 Q4 '20 Enrollments Q4 '20 CAC1 CAC % Change
Aspen University 1,243 $ 1,420 1,344 $ 1,284 (10) %
USU 317 $ 1,619 432 $ 1,423 (12) %
Weighted Average $ 1,462 $ 1,315 (10) %
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1Based on 6-month rolling average
Bookings Analysis
On a year-over-year basis, fiscal fourth quarter 2020 bookings increased 36% to
$26.6 million , delivering a company-wide average revenue per enrollment (APRU)
increase of 19% to $14,973 . For the full year fiscal 2020, bookings increased
68% to $111.3 million , delivering a company-wide average revenue per enrollment
(APRU) increase of 27% to $14,514 .
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Fourth Quarter Bookings1 and Average Revenue Per Enrollment (ARPU)
Q4 '19 % Change Total
Enrollments Q4 '19 Bookings Q4 '20 Enrollments Q4 '20 Bookings Bookings & ARPU
Aspen University 1,243 $ 13,942,200 1,344 $ 18,893,550
USU 317 $ 5,648,940 432 $ 7,698,240
Total 1,560 $ 19,591,140 1,776 $ 26,591,790 36 %
ARPU $ 12,558 $ 14,973 19 %
1 "Bookings" are defined by multiplying Lifetime Value (LTV) per enrollment by
new student enrollments for each operating unit. "Average Revenue Per User"
(ARPU) is defined by dividing total bookings by total enrollment
ASPEN UNIVERSITY'S PRE-LICENSURE BSN HYBRID (ONLINE/ON-CAMPUS) DEGREE PROGRAM
In July 2018 , Aspen University through ANI began its Pre-Licensure Bachelor of
Science in Nursing degree program at its initial campus in Phoenix, Arizona . As
a result of overwhelming demand in the Phoenix metropolitan area, in January
2019 Aspen University began offering both day (July, November, March semesters)
and evening/weekend (January, May, September semesters) programs, equaling six
semester starts per year. Moreover, in September 2018 , AGI entered into a
memorandum of understanding to open a second campus in the Phoenix metropolitan
area in partnership with HonorHealth. The initial semester at HonorHealth began
in September 2019 .
Aspen University's innovative hybrid (online/on-campus) program allows most of
the credits to be completed online (83 of 120 credits or 69%), with pricing
offered at current low tuition rates of $150 /credit hour for online general
education courses and $325 /credit hour for online core nursing courses. For
students with no prior college credits, the total cost of attendance is less
than $50,000 .
Aspen University's Pre-Licensure BSN program is offered as a full-time,
three-year (nine semester) program that is specifically designed for students
who do not currently hold a state nursing license and have no prior nursing
experience. Aspen is admitting students into one of two program components: (1)
a pre-professional nursing component for students that have less than the
required 41 general education credits completed (Year 1), and (2) the nursing
core component for students that are ready to participate in the competitive
evaluation process for entry (Years 2-3).
Pre-Licensure BSN Program - Future Campus Expansion Plans
Aspen University announced in February 2020 the signing of definitive lease
agreements for two new Aspen University Pre-Licensure BSN campus locations in
Tampa, Florida and Austin, Texas .
Aspen University has executed a definitive lease agreement for ten years to occupy approximately 30,000 square feet (Suites 150 and 450) of the Tampa Oaks I property located at12802 Tampa Oaks Boulevard . The building is visible from the intersection ofInterstate 75 andEast Fletcher Avenue , near theUniversity of South Florida , providing visibility to approximately 126,500 cars per day.Aspen is targeting to begin its first semester at Tampa Oaks I inAugust 2020 in campus space formerly occupied by theUniversity of Phoenix .Aspen University has executed an agreement withBayfront Health , a regional network of seven hospitals and over 1,900 medical professionals on staff serving the residents ofFlorida's Gulf Coast to provide required clinical placements forAspen's nursing students. In addition, clinical affiliation agreements have been signed in theTampa metropolitan area withJohn Hopkins All Children's Hospital, Inc. , Care Connections at Home,Global Nurse Network, LLC andThe American National Red Cross . Prior to commencing its campus operations,Aspen is required to obtain approval by theFlorida Board of Nursing and theFlorida Commission on Independent Education (FLCIE). To date,Aspen has obtained approval from theFlorida Board of Nursing and has received confirmation that we are on the agenda for final approval during the month ofJuly 2020 with the FLCIE. Assuming approval is granted inJuly 2020 , we expect to commence our first semester inTampa inNovember 2020 .
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Aspen University has executed a definitive lease agreement for eight years to occupy approximately 22,000 square feet in a portion of the first floor of theFrontera Crossing office building located at101 W. Louis Henna Boulevard in theAustin suburb ofRound Rock . The building is situated at the junction ofInterstate 35 andState Highway 45 , one of the most heavily trafficked freeway exchanges in the metropolitan area with visibility to approximately 143,362 cars per day.Aspen is targeting to begin its first semester atFrontera Crossing inNovember 2020 in campus space formerly occupied byThe Art Institute .Aspen has executed a clinical affiliation agreement withBaylor Scott & White Health - Central division, the largest not-for-profit healthcare system inTexas and one of the largest inthe United States .Baylor Scott & White includes 48 hospitals, more than 800 patient care sites, more than 7,800 active physicians, over 47,000 employees and theScott & White Health Plan .Aspen is working with theTexas Board of Nursing , the Texas Higher Education Coordinating Board, and theTexas Workforce Commission to complete their respective regulatory approval processes and is required to obtain approval from all agencies prior to commencing its campus operations. To date,Aspen has obtained approval from the Texas Higher Education Coordinating Board and theTexas Workforce Commission , and has received confirmation that we are on the agenda for final approval during the month of July, 2020 with theTexas Board of Nursing . In addition to theRound Rock campus, effectiveAugust 1, 2020 ,Aspen University has executed a sublease to take over the remaining 20-month lease held by sublandlord National American University (NAU) to occupy approximately 7,200 square feet of their campus in the suburb ofGeorgetown, Texas , which is approximately 10 miles north ofAspen's futureFrontera Crossing campus in the suburb ofRound Rock . In exchange,Aspen as subtenant, at no additional cost, shall have the right to utilize all the existing furniture, fixtures and equipment owned by sublandlord and will convey all such furniture, fixtures and equipment to subtenant via a bill of sale for$10.00 . Subject to regulatory approval,Aspen University is targeting to commence its first semester inSeptember 2020 and will share the campus with NAU untilJanuary 2021 when NAU will have completed the teach-out of their remaining 12 nursing students.
AGI's Plan for
While lab hours to date have been done at USU'sSan Diego facility, the rapid growth of the MSN-FNP program has caused AGI to plan to expand the lab immersions in multiple locations acrossthe United States . For example, the Company has leased an additional suite on the ground floor of our main campus facility inPhoenix (by the airport) to begin offering weekend immersions for MSN-FNP students in bothSan Diego andPhoenix . We expect this additional clinical facility inPhoenix to be open this coming September. Moreover, AGI's future plans call for the build-out of, on average, 10 exam rooms that will occupy approximately 3,000 square feet in each of its pre-licensure metropolitan areas for USU to implement immersions for its MSN-FNP program. As a result, following regulatory approvals, by the end of calendar year 2020, lab immersions are planned to be conducted in four metropolitan areas for USU MSN-FNP students:San Diego ,Phoenix ,Austin andTampa .
On
A-APN offers independent nurse practitioners (NPs) a unique, multi-state network or "group practice without walls" with best-in-class technology and business support. A-APN was created for and by NPs. Rural and remote members of the network have nationwide, trusted peer cross-coverage for patients. A-APN members deliver clinical care using CareSpan's Digital Care Delivery platform, facilitating care delivery in-person, or at a distance. The platform includes diagnostics, EMR, e-prescribing, remote monitoring, and dynamic documentation. Through this affiliation, A-APN will appoint an Educational Coordinator to work withUSU's Office of Field Experience to place USU MSN-FNP students with qualified, experienced NP preceptors. We expect that this telehealth partnership will enable MSN-FNP students to complete their required direct care clinical hours with A-APN throughout the COVID-19 crisis and thereafter. As a benefit, the Company doesn't anticipate any delays to their projected graduation dates. ACCOUNTS RECEIVABLES AND MONTHLY PAYMENT PLAN 45 -------------------------------------------------------------------------------- Table of Contents Since the inception of the monthly payment plan in the spring of 2014, the accounts receivable balance, both short-term and long-term, has grown from a net number of$649,890 atApril 30, 2014 to a net number of$21,027,927 atApril 30, 2020 . This growth could be portrayed as the engine of the monthly payment plan. The attractive aspect of being able to pay for a degree over a fixed period of time has fueled the growth of this plan and, as a result, the increase of the accounts receivable balance. Each student's receivable account is different depending on how many classes a student takes each period. If a student takes two classes each eight-week period while paying$250 ,$325 or$375 a month, that student's account receivable balance will rise accordingly. The common thread is the actual monthly payment, which functions as a retail installment contract with no interest that each student commits to pay over a fixed number of months.Aspen University students paying tuition and fees through a monthly payment method grew by 9% year-over-year, from 5,404 to 5,888. Those 5,888 students paying through a monthly payment method represent 62% ofAspen University's total active student body. USU students paying tuition and fees through a monthly payment method grew from 758 to 1,273 students sequentially. Those 1,273 students paying through a monthly payment method represent 65% of USU's total active student body.
Change in Business Mix and Relationship to Accounts Receivable
During fiscal year 2020 revenue from students using the Monthly Payment Plan increased by 34% year over year, but declined as a percentage of total revenue for the second year in a row down from 61.5% in 2019 to 57.2% in 2020, while total revenue increased 44% year over year. Our two highest lifetime value programs areAspen University's Pre-Licensure BSN Program and USU's MSN-Family Nurse Practitioner Program. These programs are our fastest growing programs and now represent 40% of total annual revenue. 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 2 to 10+ campuses over the next 3-4 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-FNP program require payment prior to the start of each term. This means that 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 expect that we will see a corresponding increase in our cashflow from operations that in turn will allow AGI to turn cashflow positive and generate positive free cashflow over time.
In addition to this change in our business mix, we have built upon the existing analysis of our accounts receivable and expanded our analysis to include evaluation of all payment types, student status, and aging within programs. Previously our evaluation was focused primarily on students using the Monthly Payment Plan. As we upgrade our financial systems we expect to gain greater ability to track discrete data faster and easier to support more proactive student engagement that we believe will improve the performance of our student receivable portfolio. As we identify program and student status specific trends, we will strive to create ways to isolate program specific revenue and accounts receivable activity to gather, analyze and report program specific data and trends. Over time we will use this knowledge to enhance our allowance reserving policies going forward.
By improving visibility into trends earlier we expect to see improvement in overall student performance and a reduction of account delinquencies.
Reserving for Allowance for Doubtful Accounts and Charges to the Allowance
During the fourth quarter we built upon the existing analysis of our accounts
receivable and evaluated several segments of our older dated student files.
During this analysis we made the determination that receivables for
approximately 656 students, amounting to
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uncollectible based on the payment detail and student status. These amounts were
charged against the allowance for doubtful accounts in the fourth quarter of
fiscal year 2020.
As part of the account receivable analysis discussed earlier, we evaluated our
long-term MPP student receivables. The analysis evaluated students in two
categories: nursing and non-nursing. Based on our analysis of the payment
details and student performance, in the fourth quarter, we elected to charge
$152,000 of MPP receivables against the reserve for doubtful accounts. The MPP
receivables will be evaluated in conjunction with our updated recovery and
collection process and we expect results to be positive.
Our accounts receivable remaining for former students are from 2018 or more
recent with the exception of certain alumni from our nursing programs. We
believe our analysis is appropriate and reasonable. We further believe that we
are positioned to focus our enhanced recovery and collections efforts on
delinquencies and past due amounts from recent graduates and current enrolled
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 by $720,000 for Aspen University and by $60,005 for USU
also in the fourth quarter of fiscal year 2020. Note that the AGI's bad debt
allowance started the year at $1.25 million and ended the year at $1.75 million .
As part of the process of evaluating our reserving methodology we also evaluated
our processes in student accounts, our accounts receivable recovery and
collections processes. We have designed an enhanced recovery and collections
process that is expected to begin recovery of student late payments earlier and
manage these students more proactively during their course of study and
post-graduation for MPP students
We will continue to reserve against our receivables based on revenue growth
trends, mix of business and specific trends we identify on a program by program
basis. We feel we currently have sufficient reserves against our current student
portfolio but we intend to stay vigilant to become aware of external changes
that could affect our students ability to meet their obligations such as the
continuation of the COVID-19 economic slowdown or other exogenous events and
circumstances that could give us reason to make a material change to our current
methodology and reserve policy.
Overtime we expect the change in our mix of business together with process improvements and collection enhancements to result in a better managed portfolio of student receivables and improving cash flow from operations.
Relationship Between Accounts Receivable and Revenue
The gross accounts receivable balance for any period is the net effect of the
following three factors:
1. Revenue;
2. Cash receipts, and;
3. The net change in deferred revenue.
All three factors equally determine the gross accounts receivable. If one
quarter experiences particularly high cash receipts, the gross accounts
receivable will go down. The same effect if cash receipts are lower or if there
are significant changes in either of the other factors.
Simply looking at the change in revenue does not translate into an equally
similar change in gross accounts receivable. The relative change in cash and the
deferral must also be considered. For net accounts receivable, the changes in
the reserve must also be considered. Any additional reserve or write-offs will
influence the balance.
As it is a straight mathematical formula for both gross accounts receivable and
net accounts receivable, and most of the information is public, one can
reasonably calculate the two non-public pieces of information, namely the cash
receipts in gross accounts receivable and the write-offs in net accounts
receivable.
For revenue, the quarterly change is primarily billings and the net impact of
deferred revenue. The deferral from the prior quarter or year is added to the
billings and the deferral at the end of the period is subtracted from the amount
billed. The total deferred revenue at the end of every period is reflected in
the liability section of the balance sheet. Deferred revenue can vary for many
reasons, but seasonality and the timing of the class starts in relation to the
end of the quarter will cause changes in the balance.
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As mentioned in the accounts receivable section, the change in revenue cannot be
compared to the change in accounts receivable. Revenue does not have the impact
of cash received whereas accounts receivable does. Depending on the month and
the amount of cash received, it is likely that revenue or accounts receivable
will increase at a rate different from the other. The impact of cash is easy to
substantiate as it agrees to deposits in our bank accounts.
At April 30, 2020 , the allowance for doubtful accounts was $1,758,920 which
represents 7.7% of the gross accounts receivable balance of $22,786,847 , the sum
of both short-term and long-term receivables.
The Introduction of Long-Term Accounts Receivable
When a student signs up for the monthly payment plan, there is a contractual
amount that the Company can expect to earn over the life of the student's
program. This contractual amount cannot be recorded as an account receivable as
the student does have the option to stop attending. As a student takes a class,
revenue is earned over that eight-week class. Some students accelerate their
program, taking two classes every eight-week period, and as we discussed, that
increases the student's accounts receivable balance. If any portion of that
balance will be paid in a period greater than 12 months, that portion is
reflected as long-term accounts receivable.
As a result of the growing acceptance of our monthly payment plans, our
long-term accounts receivable balance has grown from $3,085,243 at April 30,
2019 to $6,701,136 at April 30, 2020 . The primary component consists of MPP
students who make monthly payments over 36, 39 and 72 months. The average
student completes their academic program in 30 months, therefore most of the
Company's accounts receivable are short-term. However, when students graduate
earlier than the 30 month average completion duration, and as students enter
academic year two of USU's MSN-FNP legacy 72 month payment plan, they transition
to long-term accounts receivable when their liability increases to over $4,500 .
Those are the two primary factors that have driven an increase in long-term
accounts receivable.
Here is a graphic of both short-term and long-term receivables, as well as
contractual value:
A B C
Classes Taken Payments for classes Expected classes
less monthly taken that are greater to be taken over
payments received than 12 months balance of program.
Short-Term Long-term Not recorded in
Accounts Receivable Accounts Receivable financial statements
The Sum of A, B and C will equal the total cost of the program.
2020 Developments
On January 22, 2020 , the Company closed on an underwritten public offering of
common stock for net proceeds of approximately $16 million . On January 22, 2020 ,
the Company refinanced its then existing $10 million term loan held by two
investors issuing the investors each a $5 million Convertible Note. The key
terms of the Convertible Notes are as follows:
•After six months from the issuance date, the lenders have the right to convert
the principal into our shares of the Company's common stock at a conversion
price of $7.15 per share;
•The Convertible Notes automatically convert into shares of the Company's common
stock if the average closing price of our common stock is at least $10.725 over
a 20 consecutive trading day period;
•The Convertible Notes are due January 22, 2023 or approximately three years
from the closing;
•The interest rate of the Convertible Notes is 7% per annum (payable monthly in
arrears) compared to 12% under the Term Loans; and
•The Convertible Notes are secured in the same manner as the Term Loans.
On March 1, 2020 , the statute of limitations expired to enforce payment on a
$50,000 convertible note which matured on March 1, 2014 . Therefore, the Company
is not liable to pay this loan and treated this as a debt extinguishment in the
fourth quarter of fiscal year 2020.
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In June 24, 2019 , the Company's common stock, which had previously been listed
on the Nasdaq Capital Market, was listed on the Nasdaq Global Market.
2020 Consolidated Results
Revenues for the fiscal year 2020 increased to$49,061,080 from$34,025,418 for the fiscal year 2019, an increase of$15,035,662 or 44%. The Company's focus on its two newest business units that generate the Company's highest LTV's,United States University'sMSN-Family Nurse Practitioner (MSN-FNP) and Aspen University's Pre-Licensure BSN (PL-BSN) programs, now represent 40% of total revenue. New student enrollments for fiscal year 2020 increased 32% to 7,668 students, and total Bookings rose 68% to$111.3 million , delivering a company-wide APRU increase of 27% to$14,514 . The enrollment increases in ourAspen University Doctor of Nursing Practice (DNP) and PL-BSN, andUnited States University's (USU) MSN-FNP programs drove total bookings growth and increased ARPU. The improvement in our MER which remained over 10X at both universities was the result of the consistent year-over-year decline in the cost of enrollment. AGI's overall active student body (includes bothAspen University and USU) grew 28% year-over-year from 8,932 to 11,444.Aspen University's total active degree-seeking student body grew 22% year-over-year from 7,784 to 9,487. On a year-over-year basis, USU's total active student body grew from 1,148 to 1,957 or 70%. COVID-19 Update The COVID-19 crisis did not have a material impact on the Company's financial results for the fourth quarter of fiscal year 2020, as evidenced by our record revenues of$14.1 million . Course starts and persistence amongst our active student body remained at pre-COVID-19 levels throughout the fourth quarter of fiscal year 2020 and during May and June, 2020. Enrollments in our highest LTV programs remained at pre-COVID-19 levels throughout the fourth quarter of fiscal year 2020, however the Company did experience a moderate slowdown inAspen University post-licensure online nursing degree enrollments for approximately a six week period between mid-March andend-April 2020 . Subsequently, enrollments across all units in the Company returned to pre-COVID-19 levels throughout May and June, 2020. COVID-19 has focused a spotlight on the shortage of nurses in theU.S. and, in particular, the need for nurses with four-year and advanced degrees such asUSU's MSN-FNP and Aspen University's DNP programs. We believe we will be operating in a tailwind environment for many years relative to the planned expansion of our Pre-Licensure BSN hybrid campus business. Results of Operations For the Three Months EndedApril 30, 2020 Compared to the Three Months EndedApril 30, 2019 and Fiscal Year EndedApril 30, 2020 Compared to Fiscal Year EndedApril 30, 2019 Revenue For the three months endedApril 30, 2020 ("4Q 2020") compared to the three months endedApril 30, 2019 Three Months Ended April 30, 2020 $ Change % Change 2019 Revenue$ 14,079,193 $ 3,865,051 38%$ 10,214,142 Revenue from operations for the fiscal year 2020 increased to$14,079,193 from$10,214,142 for the fiscal year 2019, an increase of$3,865,051 or 38%.Aspen University's revenues contributed 71% of total revenue and increased$2,157,982 to$9,988,306 from$7,830,324 . AU's Pre-Licensure BSN program accounted for 17% of overall Company revenues. USU revenues increased$1,707,067 or 72% from$2,383,819 to$4,090,886 and accounted for 29% of overall Company revenues. -------------------------------------------------------------------------------- Table of Contents During the Company's standard year end revenue testing procedures we determined that our earned revenue report atAspen University inadvertently wasn't reporting credits issued to withdrawn students for certain de minimus technology fees. Note that all invoices and credits issued to students were and are correct and their student ledger were and accounts are accurate, so this earned revenue reporting error has no effect on our student body. For fiscal year 2020, this incorrect earned fee calculation amounted to$480,303 . Consequently, revenue for the fourth fiscal quarter is$14,079,193 rather than the pre-announced revenue estimate of$14.5 million . For fiscal year 2019, this incorrect earned fee calculation amounted to$296,471 . This amount was deemed immaterial to our fiscal 2019 revenue and the Company will be recording this adjustment to other expense in our Q1 Fiscal 2021 10-Q.
For the years ended
Fiscal Year Ended April 30,
2020 $ Change % Change 2019
Revenue $ 49,061,080 $ 15,035,662 44% $ 34,025,418
Revenue from operations for the fiscal year 2020 increased to $49,061,080 from
$34,025,418 for the fiscal year 2019, an increase of $15,035,662 or 44%.
Aspen University's revenues contributed 73% to total revenue and increased
$8,572,316 to $35,648,490 from $27,076,174 . AU's Pre-Licensure BSN program
accounted for 13% of overall full year Company revenues. USU revenues increased
$6,463,344 or 93% from $6,949,245 to $13,412,589 and accounted for 27% of
overall Company revenues.
Cost of Revenues (exclusive of depreciation and amortization shown separately
below)
For the three months ended April 30, 2020 compared to the three months ended
April 30, 2019
Three Months Ended April 30,
2020 $ Change % Change 2019
Cost of Revenues (exclusive of
depreciation and amortization shown
separately below) $ 5,431,182 $ 1,118,851 26% $ 4,312,331
As a percentage of revenue 39% 42%
Instructional Costs and Services
Instructional costs and services for the three months ended April 30, 2020
increased to $2,691,185 or 19% of revenues from $1,974,846 or 19% of revenues
for the three months ended April 30,2019 , an increase of $716,339 or 36%. The
increase was primarily due to the increase in the number of class starts
year-over-year and the hiring of additional full-time faculty in our nursing
licensure programs; AU's BSN Pre-Licensure and USU's MSN-FNP program.
Aspen University instructional costs and services represented 18% of Aspen
University revenues for three months ended April 30, 2020 , while USU
instructional costs and services equaled 21% of USU revenues over the same
period.
Marketing and Promotional
Marketing and promotional costs for the three months ended April 30, 2020 were
$2,739,997 or 19% of revenues compared to $2,337,486 or 23% of revenues for the
three months ended April 30, 2019 , an increase of $402,511 or 17%.
Aspen University marketing and promotional costs represented 18% of Aspen
University revenues for the three months ended April 30, 2020 , while USU
marketing and promotional costs equaled 16% of USU revenues for the same period.
AGI corporate marketing expenses equaled $265,375 for the three months ended
April 30, 2020 compared to $201,190 for the three months ended April 30, 2019 ,
an increase of $64,185 or 32%.
Gross profit rose to 59% of revenues or $8,351,112 for the three months ended
April 30, 2020 , from $5,683,536 or 56% for the three months ended April 30,
2019 , an increase of 47% year over year.
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Aspen University gross profit represented 60% of Aspen University revenues for
the three months ended April 30, 2020 , and USU gross profit equaled 63% of USU
revenues during the same period.
For the years ended April 30, 2020 (Fiscal Year 2020) compared to April 30, 2019
(Fiscal Year 2019)
Fiscal Year Ended
2020 $ Change % Change 2019
Cost of Revenues (exclusive of
depreciation and amortization shown
separately below) $ 19,135,302 $ 3,158,084 20% $ 15,977,218
As a percentage of revenue 39 % 47 %
Instructional Costs and Services
Instructional costs and services for the fiscal year 2020 increased to
$9,639,323 or 20% of revenues from $6,880,668 or 20% of revenues for the fiscal
year 2019, an increase of $2,758,655 or 40%. The increase was primarily due to
the increase in the number of class starts year-over-year and the hiring of
additional full-time faculty in our nursing licensure programs; AU's BSN
Pre-Licensure and USU's MSN-FNP program..
Aspen University instructional costs and services represented 18% of Aspen
University revenues for the fiscal year 2020, while USU instructional costs and
services equaled 21% of USU revenues over the same period.
Marketing and Promotional
Marketing and promotional costs for the fiscal year 2020 were $9,495,980 or 19%
of revenues compared to $9,096,551 or 27% of revenues for the fiscal year 2019,
an increase of $399,429 or 4%.
Aspen University marketing and promotional costs represented 18% of Aspen
University revenues for the fiscal year 2020, while USU marketing and
promotional costs equaled 16% of USU revenues for the same period.
AGI corporate marketing expenses equaled $994,113 for the fiscal year 2020
compared to $852,904 for the fiscal year 2019, an increase of $141,209 or 17%.
Gross profit rose to 59% of revenues or $28,848,786 for the fiscal year 2020,
from $17,299,195 for the fiscal year 2019, an increase of 67% year over year.
Aspen University gross profit represented 61% of Aspen University revenues for
the fiscal year 2020, and USU gross profit equaled 62% of USU revenues during
the same period.
Given gross profit for the year increased over $11.5 million year-over-year
while revenue increased $15 million , 77% of the fiscal year revenue increase
therefore dropped to the gross profit line.
Costs and Expenses
General and Administrative
For the three months ended April 30, 2020 compared to the three months ended
April 30, 2019
Three Months Ended April 30,
2020 $ Change % Change 2019
General and Administrative $ 7,716,277 $ 1,420,452 23% $ 6,295,825
As a percentage of revenue 53% 62%
General and administrative costs for the fiscal year 2020 were $7,716,277 or 53%
of revenues compared to $6,295,825 or 62% of revenues during the fiscal year
2019, an increase of $1,420,452 , or 23%. The increase in expense is consistent
with our long term expectations that general and administrative costs will grow
at approximately half the rate of revenues. There is a portion of these costs
that are variable which increased as our revenues increased; but there also is a
fixed cost component that tends to grow at a slower rate.
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Note that AGI recorded $77,000 of one-time G&A expense items in the quarter,
primarily related to recruiting fees. Excluding those one-time items, G&A would
have increased year-over-year by only $1.3 million , meaning that G&A would have
grown at 21% year-over-year.
Aspen University general and administrative costs which are included in the
above amount represented 33% of Aspen University revenues for the three months
ended April 30, 2020 , while USU general and administrative costs equaled 46% of
USU revenues for the same period.
AGI's general and administrative costs for the three months ended April 30, 2020
and 2019 are included in the above amounts equaled $2,492,208 and $1,727,814 ,
respectively, include corporate employees in the New York corporate office, IT,
rent, non-cash AGI stock based compensation, and professional fees (legal,
accounting, and Investor Relations), as well as one-time expense items in the
quarter related to recruiting fees.
For the years ended April 30, 2020 (Fiscal Year 2020) compared to April 30, 2019
(Fiscal Year 2019)
Fiscal Year Ended April 30,
2020 $ Change % Change 2019
General and Administrative $ 30,329,520 $ 6,195,700 26% $ 24,133,820
As a percentage of revenue 62% 71%
General and administrative costs for the fiscal year 2020 were $30,329,520 or
62% of revenues compared to $24,133,820 or 71% of revenues during the fiscal
year 2019, an increase of $6,195,700 , or 26%. In fiscal year 2020, general and
administrative expenses, excluding non-recurring items, grew 21% over the prior
year. Going forward, the Company expects recurring general and administrative
expenses to grow at approximately half the rate of revenue. There is a portion
of these costs that are variable which increased as our revenues increased; but
there also is a fixed cost component that tends to grow at a slower rate.
Aspen University general and administrative costs which are included in the
above amount represented 39% of Aspen University revenues for the fiscal year
2020, while USU general and administrative costs equaled 53% of USU revenues for
the same period.
AGI's general and administrative costs for the fiscal years 2020 and 2019 are
included in the above amounts equaled $9,157,729 and $6,136,918 , respectively,
include corporate employees in the New York corporate office, IT, rent, non-cash
AGI stock based compensation, and professional fees (legal, accounting, and
Investor Relations), as well as one-time expense items as stated above.
Bad Debt Expense
For the three months ended April 30, 2020 compared to the three months ended
April 30, 2019
Three Months Ended April 30,
2020 $ Change % Change 2019
Bad debt expense $ 780,005 $ 406,057 109% $ 373,948
As a percentage of revenue 5% 4%
Bad debt expense for the three months ended April 30, 2020 increased to $780,005
from $373,948 for the three months ended April 30, 2019 , an increase of
$406,057 , or 109%. Based on revenue growth trends and review of accounts
receivable, the Company evaluated its reserve methodology and increased reserves
for Aspen and USU accordingly.
For the years ended April 30, 2020 (Fiscal Year 2020) compared to April 30, 2019
(Fiscal Year 2019)
Fiscal Year Ended April 30,
2020 $ Change % Change 2019
Bad debt expense $ 1,431,210 $ 577,202 68% $ 854,008
As a percentage of revenue 3% 3%
52-------------------------------------------------------------------------------- Table of Contents Bad debt expense for the fiscal year 2020 increased to$1,431,210 from$854,008 for the fiscal year 2019, an increase of$577,202 , or 68%. Based on revenue growth trends and review of accounts receivable, the Company evaluated its reserve methodology and increased reserves forAspen and USU accordingly. Depreciation and Amortization For the three months endedApril 30, 2020 compared to the three months endedApril 30, 2019 Three Months Ended April 30, 2020 $ Change % Change 2019 Depreciation and amortization$ 493,268 $ (99,366) (17)%$ 592,634 As a percentage of revenue 4% 6% Depreciation and amortization costs for the three months endedApril 30, 2020 decreased to$493,268 from$592,634 for the three months endedApril 30, 2019 , an decrease of$99,366 , or 17%. The decrease in depreciation expense is primarily due to a decrease in amortization expense at USU relating to intangibles from the AGI acquisition in late 2017. For the years endedApril 30, 2020 (Fiscal Year 2020) compared toApril 30, 2019 (Fiscal Year 2019) Fiscal Year Ended April 30, 2020 $ Change % Change 2019 Depreciation and amortization$ 2,203,461 $ 33,363 2%$ 2,170,098 As a percentage of revenue 4% 6% Depreciation and amortization costs for the fiscal year 2020 increased to$2,203,461 from$2,170,098 for the fiscal year 2019, an increase of$33,363 , or 2%. The increase in depreciation expense is mainly due to additional investment in company developed software, partially offset by a decrease in amortization expense at USU from the AGI acquisition in late 2017. Moreover, AGI has made capital investments in thePhoenix campuses and expects to invest in other campus locations that will cause depreciation expense to continue to increase in the near future. Other Expense, net For the three months endedApril 30, 2020 compared to the three months endedApril 30, 2019 Three Months Ended April 30, 2020 $ Change % Change 2019
Other expense, net
Other expense, net for the three months endedApril 30, 2020 primarily includes interest expense related to the Company's line of credit and secured loan payable of approximately$400,000 offset by a write off of a$50,000 promissory note. For the years endedApril 30, 2020 (Fiscal Year 2020) compared toApril 30, 2019 (Fiscal Year 2019) Fiscal Year Ended April 30, 2020 $ Change % Change 2019 Other expense, net$ (1,568,832) $ (1,400,341) 831%$ (168,491) Other expense, net for the fiscal year 2020 includes interest expense related to the Company's line of credit, secured loan payable and former convertible notes of approximately$1.8 million offset by recovery of approximately$120,000 of previously written off USU accounts receivable and the write off of a$50,000 promissory note. Income Tax Expense 53
-------------------------------------------------------------------------------- Table of Contents For the three months endedApril 30, 2020 compared to the three months endedApril 30, 2019 Three Months Ended April 30, 2020 $ Change % Change 2019 Income tax expense$ 10,688 $ 10,688 NM $ - ________________ NM - Not meaningful Income taxes expense for the three months endedApril 30, 2020 was$10,688 compared to$0 in for the fiscal year 2019.Aspen Group experienced operating losses in both periods. As management made a full valuation allowance against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in either period. For the years endedApril 30, 2020 (Fiscal Year 2020) compared toApril 30, 2019 (Fiscal Year 2019) Fiscal Year Ended April 30, 2020 $ Change % Change 2019 Income tax expense$ 51,820 $ 51,820 NM $ - Income taxes expense for the fiscal year 2020 was$51,820 compared to$0 in for the fiscal year 2019.Aspen Group experienced operating losses in both periods. As management made a full valuation allowance against the deferred tax assets stemming from these losses, there was no tax benefit recorded in the statement of operations in either period. Net Loss For the three months endedApril 30, 2020 compared to the three months endedApril 30, 2019 Three Months Ended April 30, 2020 $ Change % Change 2019 Net loss$ (664,563) $ 945,360 59%$ (1,609,923) Net loss allocable to stockholders was$664,563 or net loss per basic share of$0.03 for the three months endedApril 30, 2020 as compared to$1,609,923 , or net loss per basic share of$0.09 for the three months endedApril 30, 2019 , a decrease in loss of$945,360 , or 59% improvement. For the years endedApril 30, 2020 (Fiscal Year 2020) compared toApril 30, 2019 (Fiscal Year 2019) Fiscal Year Ended April 30, 2020 $ Change % Change 2019 Net loss$ (5,659,065) $ 3,619,152 39%$ (9,278,217) Net loss allocable to stockholders was$5,659,065 or net loss per basic share of$0.29 for the fiscal year 2020 as compared to$9,278,217, or net loss per basic share of$0.50 for the fiscal year 2019, a decrease in loss of$3,619,152 , or 39% improvement. Non-GAAP - Financial Measures The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to net income, operating income, and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of AGI nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. 54 -------------------------------------------------------------------------------- Table of Contents Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods. Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the excluded items described below.Aspen Group defines Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below including non-recurring charges - stock based compensation of$474,324 and non-recurring charges - other of$745,748 in 2020 and non-recurring charges - other of$497,300 in 2019. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items that affect comparability. We have included a reconciliation of our non-GAAP financial measures to the most comparable financial measures calculated in accordance with GAAP. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between AGI and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measure and the corresponding GAAP measure provided by each company under applicableSEC rules. The following table presents a reconciliation of Net Loss allocable to common shareholders to Adjusted EBITDA, a GAAP requirement: Three Months Ended April 30, Years Ended April 30, 2020 2019 2020 2019 Net loss$ (664,563) $ (1,609,923) $ (5,659,065) $ (9,278,217) Interest expense 393,471 285,437 1,818,078 441,961 Taxes (10,688) - 51,820 9,276 Depreciation & amortization 493,268 592,634 2,203,461 2,170,098 EBITDA 211,488 (731,852) (1,585,706) (6,656,882) Bad debt expense 780,005 373,942 1,431,210 854,008 Stock-based compensation 300,740 324,256 1,641,984 1,190,385 Non recurring charges - Stock-based compensation - - 474,324 - Non-recurring charges - other 77,000 106,589 745,748 497,300 Adjusted EBITDA$ 1,369,233 $ 72,935 $ 2,707,560 $ (4,115,189) Aspen University generated$9.1 million of Adjusted EBITDA for fiscal 2020 and$3.1 million of Adjusted EBITDA for fiscal Q4 2020. USU generated Adjusted EBITDA of$1.4 million during fiscal 2020 and Adjusted EBITDA of$689 thousand for fiscal Q4 2020.Aspen Group corporate generated Adjusted EBITDA of$(7.8) million for fiscal 2020 and Adjusted EBITDA of$(2.4) million for Q4 2020. Liquidity and Capital Resources A summary of our cash flows is as follows: For the Years Ended April 30, 2020 2019 Net cash used in operating activities$ (5,748,633) $ (10,216,014) Net cash used in investing activities (3,290,361) (2,623,043) Net cash provided by financing activities 16,978,007 8,003,744 Net increase in cash$ 7,939,013 $ (4,835,313) 55
-------------------------------------------------------------------------------- Table of ContentsNet Cash Used in Operating Activities Net cash used in operating activities during the 2020 Period totaled$(5.7) million and resulted primarily from the net loss of$(5.7) million , offset by$8.1 million in non-cash items and a$8.2 million decrease in operating assets and liabilities. The most significant item change in operating assets and liabilities was an increase in accounts receivable of$(8.7) million which is primarily attributed to the growth in revenues from students paying through the monthly payment plan. The most significant non-cash items were depreciation and amortization expense of$2.2 million and stock-based compensation expense of$2.1 million . Net cash used in operating activities during the 2019 Period totaled$(10.2) million and resulted primarily from the net loss of$(9.3) million , offset by$4.4 million in non-cash items and a$5.3 million decrease in operating assets and liabilities. The most significant item change in operating assets and liabilities was an increase in accounts receivable of$6.5 million which is primarily attributed to the growth in revenues from students paying through the monthly payment plan. The most significant non-cash items were depreciation and amortization expense of$2.2 million and stock-based compensation expense of$1.2 million .Net Cash Used in Investing Activities Net cash used in investing activities during the 2020 Period totaled$(3.3) million mostly attributed to investments in the purchase of property and equipment as we build up our campuses. Net cash used in investing activities during the 2019 Period totaled($2.6) million , mostly attributed to investments in the purchase of property and equipment as we built up our campuses inArizona . Net Cash Provided By Financing Activities Net cash provided by financing activities during the 2020 Period totaled$17.0 million which primarily reflects proceeds from the Company's equity offering in the fiscal third quarter. Net cash provided by financing activities during the 2019 Period totaled$8.0 million which reflects the early repayment of the remaining outstanding principal of the Convertible Note, issued in connection with the USU acquisition, offset by the proceeds from the senior secured term loans. Liquidity The Company had cash and cash equivalents of approximately$15.2 million onJuly 2, 2020 , and approximately$3.7 million of restricted cash. In addition to its cash, the Company also had access to the$5 million Revolving Credit Facility, which is undrawn atApril 30, 2020 and currently remains undrawn. The Company has sufficient cash resources to meet its working capital needs for at least the next 12 months. Included in cash and cash equivalents are proceeds of$1.1 million from theJune 5, 2020 exercise of stock purchase warrants and$847,000 from current and former employee option exercises. Employee funds received for payroll taxes to be remitted from these option exercises were approximately$546,000 , and are included in restricted cash AtApril 30, 2020 , the Company has$17.56 million remaining available under its shelf registration statement on Form S-3 (File No. 333-224230), which is set to expire inApril 2021 . For each new campus, the Company expects to spend$750,000 to$1.0 million of capital. Approximately$350,000 to$500,000 will be in the form of letters of credit to facilitate the leases. These letters of credit wind down over three to four years in accordance with the lease agreements. Approximately$500,000 will be spent on property build out, furniture and fixtures and other equipment for labs and clinical classrooms. Our cash balances are kept liquid to support our growing infrastructure needs. The majority of our cash is concentrated in large financial institutions. The Company has analyzed its liquidity position and believes its current resources are adequate to meet anticipated liquidity needs for the next 12 months. 56 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies and Estimates In response to financial reporting release FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, from theSEC , we have selected our more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and the possible effects on our financial condition. There were no material changes to our principal accounting estimates during the period covered by this report. Revenue Recognition and Deferred Revenue Revenue consisting primarily of tuition and fees derived from courses taught byAspen online as well as from related educational resources thatAspen provides to its students, such as access to our online materials and learning management system. Tuition revenue is recognized pro-rata over the applicable period of instruction.Aspen maintains an institutional tuition refund policy, which provides for all or a portion of tuition to be refunded if a student withdraws during stated refund periods. Certain states in which students reside impose separate, mandatory refund policies, which overrideAspen's policy to the extent in conflict. If a student withdraws at a time when a portion or none of the tuition is refundable, then in accordance with its revenue recognition policy,Aspen recognizes as revenue the tuition that was not refunded. SinceAspen recognizes revenue pro-rata over the term of the course and because, under its institutional refund policy, the amount subject to refund is never greater than the amount of the revenue that has been deferred, underAspen's accounting policies revenue is not recognized with respect to amounts that could potentially be refunded.Aspen's educational programs have starting and ending dates that differ from its fiscal quarters. Therefore, at the end of each fiscal quarter, a portion of revenue from these programs is not yet earned and is therefore deferred.Aspen also charges students annual fees for library, technology and other services, which are recognized over the related service period. Deferred revenue represents the amount of tuition, fees, and other student payments received in excess of the portion recognized as revenue and it is included in current liabilities in the accompanying consolidated balance sheets. Other revenue may be recognized as sales occur or services are performed. Accounts Receivable and Allowance for Doubtful Accounts Receivable All students are required to select both a primary and secondary payment option with respect to amounts due toAspen for tuition, fees and other expenses. The most common payment option forAspen's students is personal funds or payment made on their behalf by an employer. In instances where a student selects financial aid as the primary payment option, he or she often selects personal cash as the secondary option. If a student who has selected financial aid as his or her primary payment option withdraws prior to the end of a course but after the date thatAspen's institutional refund period has expired, the student will have incurred the obligation to pay the full cost of the course. If the withdrawal occurs before the date at which the student has earned 100% of his or her financial aid,Aspen will have to return all or a portion of the Title IV funds to theDOE and the student will oweAspen all amounts incurred that are in excess of the amount of financial aid that the student earned and thatAspen is entitled to retain. In this case,Aspen must collect the receivable using the student's second payment option. For accounts receivable from students,Aspen records an allowance for doubtful accounts for estimated losses resulting from the inability, failure or refusal of its students to make required payments, which includes the recovery of financial aid funds advanced to a student for amounts in excess of the student's cost of tuition and related fees.Aspen determines the adequacy of its allowance for doubtful accounts using a general reserve method based on an analysis of its historical bad debt experience, current economic trends, and the aging of the accounts receivable and student status. AGI establishes reserves to its receivables based upon an estimate of the risk presented by the program within the university, student status, payment type and age of receivables.Aspen writes off accounts receivable balances at the time the balances are deemed uncollectible.Aspen continues to reflect accounts receivable with an offsetting allowance as long as management believes there is a reasonable possibility of collection. For accounts receivable from primary payors other than students,Aspen estimates its allowance for doubtful accounts by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations, such as bankruptcy proceedings and receivable amounts outstanding for an extended period beyond contractual terms. In these cases,Aspen uses assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance.Aspen may also record a general allowance as necessary. Direct write-offs are taken in the period whenAspen has exhausted its efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate thatAspen should abandon such efforts. 57 -------------------------------------------------------------------------------- Table of Contents Business Combinations We include the results of operations of businesses we acquire from the date of the respective acquisition. We allocate the purchase price of acquisitions to the assets acquired and liabilities assumed at fair value. The excess of the purchase price of an acquired business over the amount assigned to the assets acquired and liabilities assumed is recorded as goodwill. We expense transaction costs associated with business combinations as incurred.Goodwill and IntangiblesGoodwill represents the excess of purchase price over the fair market value of assets acquired and liabilities assumed fromEducacion Significativa, LLC .Goodwill has an indefinite life and is not amortized.Goodwill is tested annually for impairment. Intangible assets represent both indefinite lived and definite lived assets. Accreditation and regulatory approvals and Trade name and trademarks are deemed to have indefinite useful lives and accordingly are not amortized but are tested annually for impairment. Student relationships and curriculums are deemed to have definite lives and are amortized accordingly. Related Party Transactions The Company did not have any related party transactions in fiscal year 2020. Off Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements as ofApril 30, 2020 . New Accounting Pronouncements See Note 2 to our consolidated financial statements included herein for discussion of recent accounting pronouncements. Cautionary Note Regarding Forward Looking Statements This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the expected launch ofAspen University's Florida andTexas campuses and the expected rate of subsequent campus openings, the expected effect of telehealth partnership with A-APN, our planned USU lab immersion expansions, the impact of bookings, our estimates concerning Lifetime Value, the expected launch of phase two of our in-house CRM and the anticipated effects of such launch on persistence rates and Lifetime Value, future expansion of our operating margins, the anticipated increase in competition, including as the result of the COVID-19 pandemic, our expected ability to cost-effectively drive prospective student leads internally, our future ability to provide lower costs per enrollment, the expected growth in our future revenues from theAspen University's Pre-Licensure BSN Program and USU's MSN-FNP Program, the expected changes to our accounts receivable and allowance for doubtful accounts, our anticipated increase in cash flow from operations, the expected increase in the future general and administrative costs, the near-term continued increase in the depreciation expense, the expected capital expenditures related to new campus openings, and future liquidity. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, liquidity, business strategy and plans and objectives of management for future operations, are forward-looking statements. The words "believe," "may," "estimate," "continue," "anticipate," "intend," "should," "plan," "could," "target," "potential," "is likely," "will," "expect" and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The results anticipated by any or all of these forward-looking statements might not occur. Important factors, uncertainties and risks that may cause actual results to differ materially from these forward-looking statements include our ability to obtain the necessary regulatory approvals to launch our future campuses in a timely fashion or at all, unanticipated issues with, and delays in, launching phase two of our in-house CRM and the continued ability of the CRM to perform as expected, continued high demand for nurses, the continued effectiveness of our marketing efforts, the effectiveness of our collection efforts and process improvements, national and local economic factors including the substantial impact of the COVID-19 pandemic on the economy, the competitive impact from the trend of major non-profit universities using online education, unfavorable regulatory changes, and our failure to continue obtaining enrollments at low acquisition costs and keeping teaching costs down. Further information on the risks and uncertainties affecting our business is contained Part I. Item 1A. - Risk Factors. We undertake no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events 58
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Table of Contents or otherwise. For more information regarding some of the ongoing risks and uncertainties of our business, see the Risk Factors and our other filings with theSEC .
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