Aspen Group Inc
NASDAQ:ASPU
Earnings Call Analysis
Q2-2024 Analysis
Aspen Group Inc
Aspen Group has traversed through the second fiscal quarter of 2024, paving a path of financial improvement with a significant reduction in net loss by 30% year-over-year. The company has remained frugal, exhibiting financial discipline while winding down the Aspen University pre-licensure program. Aspen's commitment to financial health is further evidenced by its fourth straight quarter of positive EBITDA and generating cash from operations. The enrollment uptick at Aspen University and United States University, particularly in healthcare courses, is palpable despite a minimized advertising expenditure, underscoring the robust demand in the healthcare sector. Moreover, Aspen eyes further financial transparency and liquidity, with over $400,000 of cash originating from operations and a forecasted unrestricted cash balance topping $2 million, thanks to reduced surety bond requirements and anticipated financial aid payments.
The enrollment at AGI's institutions saw a 5% growth year-over-year and a 34% sequential increase. This uptick is attributed to a high demand for postgraduate nursing degrees, despite a 19% decrease in total revenue to $13.8 million from the previous year's $17.1 million. The revenue drop partly stems from the pre-licensure program phasing out, with a decreased demand for post-licensure enrollment also playing a role due to reduced marketing spend. Nevertheless, a strict handle on marketing expenditure and ongoing cost control measures have contributed to a reduced year-over-year G&A expense by 23%.
Aspen Group's restructured operations have led to a gross profit of $8.7 million with a raised gross margin of 63%, edging from last year's 60%. The cost-efficiency initiatives are not just in G&A areas but also in instructional costs and marketing, with the former seeing a reduction as a result of the pre-licensure program's drawdown. Future marketing strategies aim to strike a balance between growth and positive operating cash flow, intending to reinstate marketing spend to a quarterly amount of $500,000 by the end of fiscal 2024.
A snapshot of Aspen Group's unit performance presents a mixed bag. Aspen University's net income slightly declined, while USU remained stable. Integration of stringent cost control and a decrease in marketing expenses led AGI to shrink its net loss. The organization also managed to lower its debt-related costs, with intentions to further reduce quarterly cash interest payments after repaying a portion of the principal on their senior secured loan. These steps reflect a strategy focused on maintaining a robust balance sheet and operational efficiency.
Aspen Group projects a cash-positive horizon with expected improvements in unrestricted cash well over $2 million. This optimism is supported by the unlocking of cash linked to debentures and the reduction in bond cash requirements in Arizona. The positive cash flow generated in the second quarter contrasts with the first quarter's burn, illustrating an operational turnaround. Aspen's capital expenditure in software development and decisions on financing activities indicate a deliberate approach towards investing in growth and servicing debt obligations conscientiously.
While Aspen Group abstains from providing earnings guidance, the consistent share count reflects management's preference for a stable equity structure over dilutive financing practices. The continual effort to keep shareholders informed and engage in transparent communication is evidenced by the earnings call's detailed financial breakdown and subsequent open Q&A session, despite no queries being raised. This further demonstrates the company's commitment to maintaining investor confidence and clarity on its fiscal trajectory.
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Greetings, and welcome to the Aspen Group, Inc. Second Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Rozanna Shulman, Corporate Controller. Thank you. You may begin.
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 statements include anticipated future enrollment and revenue trends, revenue growth, our proposed marketing and other spending trends, our future growth and growth strategy, the timing concerning completion of the pre-licensure teach-out, the timing of receipt of funding from the DoE and generation of positive operating cash flow.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 Group's business is contained in its filings with over-the-counter market, including the quarterly report for the 6 months ended October 31, 2023, and in the press release issued this afternoon. Other risks include our reliance on third parties who may have different priorities, government spending on healthcare, which partially creates the demand for nurses and our ability to sublease real estate release. 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 this conference call, the company will discuss 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 by the company today. Please note that the press release is available on Aspen Group's website, aspu.com, on the IR calendar page under News Events. It also will be available at otcmarkets.com/otcqb. A transcript of this conference call will be available for 1 year on the company's website.Now I will turn the call over to Mr. Mathews.
Good afternoon and thank you for joining our earnings conference call for the second quarter of fiscal year 2024. I'm looking forward to sharing some exciting updates and achievements from Aspen Group in terms of our income statement performance, balance sheet improvements and operating results. Let's start with our financial performance. In Q2 fiscal year '24, we made significant progress in several key areas. We narrowed our net loss year-over-year by an impressive 30%, helped by our financial discipline amid the wind down of the Aspen University pre-licensure program.I'm delighted to announce that we achieved our fourth consecutive quarter of positive EBITDA. Additionally, we generated cash from operations during the second fiscal quarter. Enrollments at Aspen University and United States University have been on the rise over the past two quarters even given our minimal Internet advertising spend. We attribute this to the robust demand we continue to see in the healthcare industry, especially for postgraduate nursing degrees for registered nurses.Our online post-graduate degrees at Aspen and the highly coveted MSN-FNP program at United States University provides students with flexible program and payment options, especially for working RNs to attain advanced degrees and improve their career options. The enrollment growth not only reflects the value of our programs and our attractive monthly payment plans, but it also reflects the strength of our University brands. We instituted tuition increases effective September 1, 2023, and the sequential bump in Q2 enrollment certainly reflects the pull forward in advance of that increase.I'd like to switch now to our academic program achievements. We are proud to report that we are currently graduating our largest cohorts from the Aspen University BSN pre-licensure program in Arizona. Notably, the NCLEX first-time pass rate in Arizona in the fourth calendar quarter ending December 31, 2023, has increased to an impressive 89%. To be specific in the fourth calendar quarter, 93 of 105 first-time NCLEX takers in Arizona passed the exam. Additionally, in Texas, 8 of 9 first-time NCLEX takers passed in the fourth calendar quarter, reflecting an 89% first-time pass rate.Finally, in Tennessee, we had our first graduate take the NCLEX exam in the final week of the fourth quarter and passed on the first time. Our success in elevating the first-time pass rates for NCLEX scores in Arizona and other states underscores our steadfast dedication to enhancing program rigor and refining student test preparation alongside various other enhancements that positively impact the outcomes of all pre-licensure students at Aspen University. Finally, we expect the teach-out of our pre-licensure program to be completed in Arizona this month and in all remaining states by mid-2024.Turning to our financial transparency; we want to assure you that the parent company, AGI has remained current with the required OTC market's quarterly financial filings. You can find these filings on our quote page on the OTC Markets website under the Disclosures tab. We have fulfilled our stated commitment to deliver positive EBITDA and have achieved this goal for the fourth consecutive quarter. From a liquidity perspective, we have positive news as well. We generated over $400,000 of cash from operations in the quarter, which is attributed to our reduction of G&A spend and the receipt of two financial aid payments from the Department of Education at Aspen University.Prior to the end of January 2024, we are projecting an unrestricted cash balance exceeding $2 million. There are two factors contributing to the increase in projected unrestricted cash balance. First, the reduction of our surety bond in Arizona from $5.5 million to $2.5 million reduced our restricted cash balance by $1 million. We are currently seeking an alternative bond provider to further reduce the amount of cash that is restricted with the $2.5 million bond, which could add an additional $1 million to our unrestricted cash balance.Second, we anticipate we will receive a substantial financial aid payment with the Department of Education of approximately $3.9 million prior to the end of January 2024. Lastly, I want to address two closely related subjects. First, the Distance Education Accrediting Commission or DEAC show cause directive that was issued by -- to Aspen University this past February. We underwent a special visit by a team of DEAC evaluators in October, which was implemented as part of the show cause directive as well as our 2023 reaccreditation requirement.We anticipate receiving the Commission's show cause and reaccreditation decision in approximately the next 60 days. Regarding Aspen University's Heightened Cash Management 2 or HCM2 status, recall that the U.S. Department of Education placed the University on this federal financial aid status in February immediately following the DEAC show cause directive. Under HCM2, we successfully received four reimbursements thus far. And as previously noted we anticipate receiving the fifth HCM2 reimbursement of $3.9 million by the end of January 2024.In conclusion, the second quarter of fiscal year 2024 has been marked by financial stability, improved academic performance with regards to our Aspen University NCLEX first-time pass rate and progress with our DEAC show cause and reaccreditation process and the Department of Education HCM2 reimbursement. There is one final legal item to note regarding the class action complaint in Arizona regarding the pre-licensure program.On January 9, 2024, a final settlement was approved by the Superior Court Judge in Arizona, whereby Aspen University agreed to pay $550,000 in exchange for release of all claims of the settlement class inclusive of attorneys' fees and costs. $500,000 of the payment is covered by Aspen's E&O insurance policy and the remaining $50,000 will be paid by Aspen University. Thank you for your continued support and confidence in Aspen Group.I will now hand the call over to Matt to cover the details of our second quarter financial results. Please go ahead, Matt.
Thank you, Mike, and good afternoon, everyone. In my comments on the quarterly results, I will refer to the second quarter that ended on October 31, 2023. Unless otherwise stated, all comparisons are to the prior year second quarter ended October 31, 2022. As Mike mentioned in his remarks, we had a strong financial quarter highlighted by two key factors. First, although our marketing spend was reduced to maintenance levels late in fiscal Q1 2023, enrollments at both universities increased this quarter.Total enrollments for AGI increased 5% from Q2 fiscal '23 and 34% sequentially. Excluding the impact of the reduction of pre-licensure revenue from the teach-out year-over-year revenue is down only 7% due to the high demand for postgraduate nursing degrees. Second, we continue to benefit from cost control implemented with the two restructurings in fiscal Q2 2023 and fiscal Q4 2023. Our year-over-year G&A expense is down 23%, and we generated positive operating cash flow in the quarter. Financial highlights for the quarter are as follows: Total revenue was $13.8 million versus $17.1 million or a decrease of 19%.$2.3 million of the decrease is attributed to the teach-out of the pre-licensure program, and the remainder of the decrease resulted from lower post-licensure enrollment from Q3 fiscal 2023 through Q1 fiscal 2024 due to the effect of the decreased marketing spend. Gross profit and gross margin were $8.7 million and 63%, respectively, versus $10.2 million and 60%, respectively. The year-over-year gross margin improvement is primarily a function of lower marketing spend and lower instructional costs and services associated with the enrollment stoppage in the pre-licensure program.Instructional costs for the quarter were $4.2 million or 31% of revenue, down from $5.5 million or 32% of revenue. The decrease in instructional costs as a percentage of revenue was primarily due to the decrease in students in the pre-licensure core curriculum as a result of the teach-out. The core curriculum of the pre-licensure program requires an increase in the ratio of instructors to students. Fewer students in the program disproportionately decrease overall instructional costs. Total marketing and promotional costs for the second quarter were $348,000 or less than 3% of total revenue as compared to $824,000 or about 5% of revenue.The decrease in marketing as a percentage of revenue resulted from decreased advertising spend across all programs to maintenance levels. We plan to resume marketing spend late in fiscal year 2024 to a quarterly targeted spend rate of $500,000. This level of spend is expected to provide the enrollments needed to resume growth of the student body in fiscal 2025, while allowing for the generation of positive operating cash flow. The quarter's general and administrative costs were $8.4 million or 61% of total revenue compared to $10.9 million or 64% of total revenue. The year-over-year decrease in G&A spend is due to both the impact of the two restructurings initiated in fiscal 2023 and cost controls designed to reduce G&A spend across all functions, mainly corporate AGI.Total net loss was $1.6 million or a loss of $0.06 per basic and diluted share compared to a net loss of $2.3 million or a loss of $0.09 per basic and diluted share. From a unit perspective, Aspen University's net income for the quarter was $582,000 compared with $1.1 million. USU's net income was $1.6 million versus $1.8 million Finally AGI incurred a net loss of $3.8 million compared to a net loss of $5.2 million. Included in the AGI loss is interest expense of $1 million compared to $710,000. After the repayment of the $1.5 million of principal on our senior secured loan, our quarterly cash interest payments will be approximately $750,000.Turning to non-GAAP financial measures; please see the reconciliation to GAAP contained in our press release issued today. Consolidated EBITDA for the quarter was positive $419,000 as compared to an EBITDA loss of $603,000. Again, strong post-licensure revenue, reduced marketing spend and G&A cost control measures drove the improvement in EBITDA. As Mike mentioned, we achieved our fourth consecutive quarter of positive EBITDA and cumulative positive EBITDA over the past four quarters is approximately $2.7 million.Second quarter EBITDA compared to the prior year quarter for each of the three units was as follows: Aspen University generated $1.3 million compared to $1.9 million. USU generated $1.8 million compared to $1.9 million. AGI had an EBITDA loss of $2.7 million compared to an EBITDA loss of $4.4 million. Consolidated adjusted EBITDA was $1.1 million compared to $537,000 million. From a unit perspective, Aspen University generated adjusted EBITDA of $1.6 million compared to adjusted EBITDA of $2.1 million and adjusted EBITDA margin was 22% as compared to 20%. USU generated adjusted EBITDA of $2 million compared to adjusted EBITDA of $2.1 million and adjusted EBITDA margin of 30% as compared to 32%.Finally, AGI corporate incurred an adjusted EBITDA loss of $2.5 million compared to an adjusted EBITDA loss of $3.7 million. Moving to the balance sheet; as of October 31, 2023, our unrestricted cash and cash equivalents were $1.9 million and restricted cash was $4.1 million compared to a balance of $1.4 million and $4.4 million, respectively, at April 30, 2023. Included in the unrestricted cash balance is the release of $1.5 million associated with the second amendment to the 15% Debentures. The 15% Debentures originally required the company to maintain $2 million of restricted cash and the second amendment decreased the requirement to $500,000.We plan to repay the $1.5 million as a reduction of principal prior to the end of January 2024, and we issued JGB penny warrants equal to 4% of the outstanding stock of AGI. Subsequent to the closing of the quarter, we received $1 million from the reduction of the surety bond required by the State of Arizona. Additionally, as Mike mentioned, we anticipate the receipt of a $3.9 million reimbursement from the Department of Education for Student Financial Aid prior to the end of January 2024. After the receipt of the Department of Education payment, the company's unrestricted cash balance is projected to exceed $2 million.Cash used in operations for the first 6 months of fiscal 2024 was $4.2 million. Importantly, though, cash generated from operations for the second quarter was positive $409,000. In the first quarter, we used $4.6 million of cash in operations due to delays in receiving government student financial aid payments after our placement on the HCM2 payment method and due to increased student AR as strong enrollments increased use of the monthly payment plan. In the second quarter, we generated $409,000 of cash from operations due to the processing of two HCM2 payments totaling $4.8 million and the impact of ongoing cost savings, which were offset by an increase in student accounts receivable due to continued strong enrollments. We had CapEx spend during the first 6 months of $600,000, primarily related to capitalized software.Cash generated from financing activities for the 6 months was $5.2 million due to cash provided by the 15% Debentures, offset by the repayment of outstanding borrowings under the $5 million credit facility, repayment of a portion of the outstanding 15% Debentures and expenses associated with the Debenture offering. With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter was 25,548,046 versus 25,305,363 in the year ago quarter. We are not providing guidance at this time.That concludes our prepared remarks. I will now turn the call back to the operator for questions. Operator, please open the call for Q&A.
[Operator Instructions] There are no questions in the queue at this time. I'd like to hand it back to management for closing remarks.
Thank you, everyone, for joining our second quarter fiscal '24 earnings call. Look forward to speaking with you again in our Q3 earnings call in March. Have a good day. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.