Aspen : Conference Call Transcript Q3 2021

Aspen Group, Inc. (NASDAQ:ASPU)Q3 Fiscal 2021 Earnings Conference Call

March 16, 2021 4:30 PM ET

Company Participants

Michael Mathews - Chairman & Chief Executive Officer

Robert Alessi - Interim Chief Financial Officer and Chief Accounting Officer

Conference Call Participants

Darren Aftahi - ROTH Capital Partners

Austin Moldow - Canaccord Genuity

Rajiv Sharma - B. Riley Securities

Michael Pochucha - Northland Capital Markets

Jacob Stephan - Lake Street Capital

Jeremy Hamblin - Craig-Hallum

Operator

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 gross 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 EPS loss in the fourth fiscal quarter, and our liquidity. Actual results

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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 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 prospectus supplement dated August 31, 2020, and in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statement 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 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, in the Presentations page under Company Info.

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

Michael Mathews

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 + 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 pre-requisite 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-PL program at the Main Campus, and another cohort entered the program at the HonorHealth 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 at an annual rate of approximately $20,000 in the final two-year core program, up 67% from the prior run rate for both students and revenue. This excludes revenues from over 1,500 first-year online pre-requisite students currently enrolled.

The double cohorts for the core BSN-PL 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, where as we did with both our Phoenix campuses, we experienced start-up 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 to first-year pre-requisite students earlier this month. We're targeting to begin our initial core program semester in Nashville in August 2021, in clinical partnership with NorthCrest 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 offered with both day and night/weekend program options, which differs from the traditional on-campus, five-day-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 'COVID Wave 2' which led to lower course starts than originally forecasted at both universities in the third 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 found that they fell into four categories:

First, they rescheduled upcoming course registrations to a later date,

• Second, they made requests for a temporary leave of absence,

• Third, they requested to delay their placement into their preferred clinical location timed with that facility accepting new in-person students again, and

Fourth, they made course or program withdrawal requests due to family emergencies, pressures at work or emotional distress and 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 + 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 30, and as a result, we are forecasting a decrease of approximately 4.5% for course starts than seasonally expected in our Aspen Nursing + Other unit and USU's MSN-FNP program. Consequently, we anticipate year-over-year revenue growth to be in the range of 31% - 33% or $18.4 - $18.7 million. 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.