Aspen : Conference Call Transcript FY 2020

Aspen Group, Inc. (NASDAQ:ASPU) Q4 2020 Earnings Conference Call

July 7, 2020 4:30 PM ET

Company Participants

Michael Mathews - Chairman & CEO

Frank Cotroneo - CFO

Conference Call Participants

Darren Aftahi - ROTH Capital Partners

Eric Martinuzzi - Lake Street Capital Markets

Jeremy Hamblin - Craig-Hallum

Austin Moldow - Canaccord Genuity

Lee Cooperman - Omega Family

Operator

Good afternoon. Welcome to Aspen Group's Fiscal Year 2020 Fourth Quarter Earnings Call. Please note that the Company's remarks made during this call, including answers to questions, include forward-looking statements, which are subject to various risks and uncertainties. These include statements relating to the expansion of the highest LTV programs, revenue growth estimates and G&A trends, timing of new campus openings and accounts receivable improvement expectations.

Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to Aspen's business is contained in the prospectus supplement and the 10-K filed with the Securities and Exchange Commission and in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements as a result of future developments.

Also, I'd like to remind you that during the course of this conference call, the company will discuss EBITDA, Adjusted EBITDA, which are non-GAAP financial measures in talking about the company's performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the press release issued by the company today.

There will be a transcript of this conference call available for one year at the company's website. Please note that earnings slides are available on Aspen Group's website, aspu.com in the Presentations page under Company Info.

Now, I'd like to turn the call over to Michael Mathews, Aspen Group's Chairman and Chief Executive Officer.

Michael Mathews

Good afternoon, everyone.

I will begin the call today by discussing how the company significantly improved its gross margin on a sequential and year-over-year basis while maintaining our strong growth rate of 38% in Q4 and 44% for the full year. Then I will recap our operating metrics from Q4 and provide an update on our business thus far in Q1 as I'm sure everyone is interested in an update given the COVID-19 crisis and the related uncertainty.

Finally, I will provide detailed regulatory and operational updates on our new planned campus openings later this year in Austin and Tampa as well as announce the tele-health partnership for USU's nurse practitioner program. Frank Cotroneo will then follow with a review of our financial results.

Starting with Slide 5 of our earnings slides, revenue for Q4 increased 12% sequentially by over $1.5 million to $14.1 million and on a year-over-year basis increased $3.9 million or 38%. During our annual year-end audit, we did record a one-time revenue adjustment of $480,000 in the quarter, which we will discuss in more detail later in the call. For the full fiscal year, revenue increased by $15 million to $49.1 million or 44%.

One of the major highlights of the quarter was the fact that our marketing spend only increased on a sequential basis by $200,000 which translated to our marketing spend as a percentage of revenue dropping from 20% to 19% in Q4 and then for the full year marketing spend as a percentage of revenue dropped from 27% in fiscal year 2019 all the way down to 19% in fiscal year 2020.

In addition, instructional cost as a percentage of revenue for the quarter dropped sequentially from 21% to 19% and for the full year remained at 20%. Consequently, not only have we seen improvement in our unit economic model as we've grown 44% year-over-year, in fact we were able to drop 77% of the revenue increase this year to the gross profit line, which translated to a year-over-year gross margin improvement of 800 basis points from 51% to 59%.

In his prepared remarks, Frank will walk you through how this gross profit improvement together with G&A spend decreasing as a percentage of revenue has led to impressive improvements to our bottom line. One major highlight I'd like to mention though is the fact that our EBITDA result for the year improved by $5.1 million on a revenue increase of $15 million, meaning that 34% of the revenue increase this year flowed to the EBITDA line.

There's two reasons for this outstanding gross margin improvement. One, we're focusing most of our marketing spend increases on our highest LTV degree programs which is of course our Aspen BSN pre-licensure program in Phoenix and our MSN-FNP program at USU. These two businesses have now grown to 46% of total AGI revenues.

Second, on Slide 7, we show that our cost of enrollment in Q4 at both universities compared to last year declined by double digits. Aspen dropped 10% from $1,420 to $1,284, and USU declined 12% from $1,619 to $1,423. Given our weighted average cost of enrollment in Q4 declined 10% year-over-year from $1,462 to $1,315, that translated to our year-over-year marketing efficiency ratio, or MER, improving 38% at Aspen University to 10.9x and a 14% improvement at USU to 12.5x.

Continuing with operating metrics for Q4 on Slide 8, note that new student enrollments in the quarter increased 14% year-over-year to 1,776. Quarterly bookings increased 36% to $26.6 million and our average revenue per enrollment or ARPU increased 19% to $14,973. For the full year, enrollments grew 32% year-over-year to 7,668 and our full year bookings increased 68% to $111.3 million. By driving fiscal year-over-year enrollment growth over 30% and bookings growth of nearly 70%, we anticipate this to translate into a top line growth rate of at least 30% or $63.8 million of revenue in this fiscal year 2021.

In terms of an update on the current quarter given the ongoing pandemic, we indicated in our update last month that we saw a moderate slowdown in our Aspen University post-licensure online nursing degree program enrollments between mid-March and end-April and that we saw a bounce back throughout the month of May.

We're pleased to report today that total enrollments were up year-over-year by over 40% in the months of May and June, so we're working on an impressive enrollment result for Q1.

That said, last July, you may recall, we announced the termination of the 72 month monthly payment plan for the MSN-FNP program at USU. Now we only offer a hybrid payment plan where the FNP student pays monthly for 24 months to satisfy the first-year liability of $9,000. So now the second year liability of $18,000 must be paid through conventional payment methods. When we announced that change last year and set an enrollment deadline of July 31, 2019 for the legacy payment plan, we saw a record flow of nearly 250 enrollments at USU in the month of July. So that of course makes for a challenging year-over-year comparative of 1,929 AGI enrollments last year in Q1. But given our results in May and June, we should safely deliver well over 2,000 enrollments for the company this quarter.

This impressive bounce back since April begs the question of whether the COVID-19 crisis has, in fact, provided a tailwind for our business and that does now appear to be the case for the following reasons.

If you're an RN that have been on the frontlines and has been asked to work 12-hour days for weeks on end, you might allow yourself the thought of how nice it would be to become a nurse practitioner and work in a private practice and be able to set your own hours. We've heard many prospective students for our USU MSN-FNP program tell us that this is the goal that they're now looking to achieve. So as a result, our enrollment growth at USU has been unaffected by COVID-19 and arguably helped by it.

Second, our BSN pre-licensure program targets primarily millennials, many of which live with their parents and work part time in the services industry. This demographic waseconomically hit hard by the pandemic as service industries like restaurants and hotels, for example, were forced to implement broad layoffs and/or furloughs.

Consequently, BSN pre-licensure enrollments have remained robust in the Phoenix metro as we've heard a number of these prospective students communicate that this is a good time to begin or continue their dream of becoming an RN as many are currently out of work.

So to recap, our two highest LTV programs that as of Q4 now represent 46% of total revenue, both have felt a tailwind during this difficult time, so we feel fortunate to be one of the minority of companies that is faring well during this health crisis.

Now for an update on our Phoenix pre-licensure business and upcoming campus openings in Austin and Tampa. In terms of Phoenix, we've received a number of questions from shareholders as to whether we've needed to slow down pre-licensure enrollments in our Phoenix metro given we now have over 1,500 active students in the program as of fiscal year-end.

The short answer is no. We have no plans to slow down enrollments given at fiscal year-end we had approximately 400 active students enrolled in our final two-year core nursing program across both campuses with the remaining 1,100+ active students in the first year prerequisite phase of the three-year program.

Remember that we offer six semester starts per year in both Phoenix campuses or 12 semester starts per year in the metro which still provides us the ability to grow the final two-year core program student body to approximately double the size of where it was as of fiscal year end. To date, we have not had to waitlist any students nor do we expect that to occur this fiscal year 2021.

Additionally, we have leased an additional suite on the ground floor at our main campus facility in Phoenix (by the airport) to further expand our clinical space in anticipation of future pre-licensure student body growth and to begin offering weekend immersions to our MSN-FNP students at USU. We expect this additional clinical facility in Phoenix to be open this coming September.

Moving to our planned openings in Austin and Tampa, as previously disclosed, the regulatory process to open a nursing campus in a new state requires approval from the State Boards of Education and the State Boards of Nursing. COVID-19 slowed the regulatory process slightly as we weren't able to obtain all approvals in each state by the end of May as we had planned.

In Texas, we have received approval from the Texas Higher Education Coordinating Board and the Texas Workforce Commission, but we're still awaiting approval with the Board of Nursing.

In Florida, we have approval from the Board of Nursing but we're still awaiting approval from the State of Florida Commission for Independent Education. We're confirmed to be on the agenda in late-July for both of these regulatory bodies, so we're hopeful our approval process in both states will be wrapped up in the next three and a half weeks.

Now we have some good news in Texas to convey. We've struck a deal with National American University (or NAU) to occupy approximately 7,200 square feet of their campus in the suburb of Georgetown, Texas which is approximately 10 miles north of Aspen's future Frontier Crossing campus in the suburb of Round Rock.

In exchange, Aspen as subtenant, at no additional costs, shall have the right to utilize all of the existing furniture, fixtures and equipment owned by NAU and will convey all such furniture, fixtures and equipment to Aspen via a bill of sale for $10.

As a result, Aspen University is now targeted to commence its first semester in September, 2020 rather than our original planned start date of November, and we plan to share the campus with NAU until January, 2021 when NAU will have completed the teach-out of their remaining 12 nursing students. Post January, 2021, we will move all of our Aspen campus operations and student body to our new facility in Round Rock.

So in terms of estimated start dates, Tampa is now scheduled to begin in November rather than our original plan of August. And as I said, Austin is now targeted to begin in September rather than our original plan of November.

Our internal revenue forecasts for Tampa and Austin for this fiscal year remain in the same range given one campus will open a few months earlier than planned and the other will open a few months later than planned. Again, these planned start dates are contingent on our obtaining final approval in both states which we're anticipating will be completed at the end of the month.

Finally, we issued a press release earlier today announcing our clinical affiliation partnership with American-Advanced Practice Network or A-APN, a national clinical network for advanced practice nurses that provides comprehensive healthcare and nursing services at outpatient centers and clinical facilities throughout the U.S.

The services are delivered through A-APN's CareSpan, an integrated digital care platform or 'clinic-in-the-cloud' as they call it to provide in-person and remote patient consultations. This is a critical tele-health partnership for the company because our USU MSN-FNP students can now complete their required in-person clinical hours with A-APN throughout this COVID-19 crisis and thereafter, and as a consequence we anticipate few if any delays in our students' planned graduation dates.

Now I'll turn the call over to Frank to review our financial results for Q4.

Frank Cotroneo

Thank you, Mike, and good afternoon, everyone. I'm going to begin by reviewing our financial results for the 2020 fourth fiscal quarter and then make some observations on our financial progress.

To begin, as Mike indicated, revenue in the fourth quarter increased sequentially by $1.5 million to $14.1 million. Q2 and Q4 continue to be our strongest seasonal quarters given those are Aspen's post-licensure nursing + other unit's strongest seasonal quarters. This unit now represents 54% of the company's revenue.