Q2 2021 Aspen Group Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue the standby. Thank you for your patience.
[music].
Good afternoon, welcome to Aspen Group the school year 2021 second quarter earnings call.
Please note that the company for remarks made during this call, including the answers the questions and quick forward looking statements, which are subject to various risks and uncertainties.
These include statements relating to the expansion of the highest LTV programs.
Revenue estimates and trends future earnings and cash flow G and H trends, including our main Phoenix campus and the other campuses and the initial operating losses, and our new campuses enrollment growth the impact on bookings for our estimates because from the LPV and ARPU the impact of the COVID-19 vaccine rollout on future class starts and the fourth key.
For the future accounts receivable estimates.
Actual results may differ materially from the results predicted reported results and should not be considered as an indication of the future performance.
A discussion of risks and uncertainties related to Aspen groups business is contained and its prospectus supplement the 10-K filed with the Securities and Exchange Commission and the press release issued this afternoon.
Aspen group disclaims any obligation to update any forward looking statements as a result for future developments.
Also I'd like to remind you that during the course of this conference call. The company will discuss the adjusted net income and losses and adjusted EPS loss per share EBITDA, and adjusted EBITDA, which are non-GAAP financial measures and talking about the company's performance.
Reconciliation for the most directly comparable GAAP financial measures of provided in the tables and the press release issued and the 10-Q filed by the company today.
It will be a transcript of this conference call available for one year of the company's web site.
Please note that the earnings slides are available on after the group's website, the U.S.P.U. dot com and the presentations page and your company and for all.
Now I will turn the call over to Michael Matthews, Aspen group's chairman and Chief Executive Officer.
Good afternoon.
Today, we delivered record revenue for the second quarter of $17 million.
This record performance beat the top line consensus revenue estimates of 15.6 million.
By 1.4 million or 9% and was an increase of 4.9 million year over year for 40% topline growth.
Achieving the $17 million revenue quarter, and Q2 was a function of three key factors.
First as we reported last month.
We achieved record quarterly enrollments at both the universities.
We had over 2000 quarterly enrollments for the first time at Aspen University.
Additionally, U.S. you delivered 649 in Rome, and which was an increase of 65% year over year.
Last year, we kept marketing spending relatively flat throughout the 2020 fiscal year.
Well this year, we plan and of executed significant increases and advertising spending and our highest L.P. the units.
And your argue issue primarily F and P. business.
Our ASP and B S and pre licensure unit.
And our Aspen doctoral unit.
So driving record enrollment growth and these three high LTV you and it.
Was one key factor and the revenue beat.
The second key factor is the revenue growth of our two highest LTV businesses U.S. Yoo primarily S&P.
And Aspen, B.S. and P. licensure business.
Achieved the key milestone for those two businesses now delivered 50 per cent of the company's revenue in the quarter.
The third key factor of the revenue beat was favorable seasonality.
Our second quarter has historically been a strong seasonal quarter for both the enrollment and revenue growth.
Even students have a back to school mentality in the months of August through October.
Of course starts and the second quarter were stronger than expected across every unit of the company.
Which we estimate delivered over $300000 of incremental revenue for the quarter versus our internal forecast.
The result of the $17 million per quarter combined with the stronger than planned first quarter performance of 15.2 million now implies the full year revenue total of 67.7 million or 38% growth.
Given that consensus revenues and the second half of the fiscal year is currently 35.6 million specifically Q3 consensus is 16.6 million and Q4 as 19 million.
Well the company only provides full year revenue guide and.
We believe it is important to highlight income from the typical seasonal effects, we will see and the third quarter net.
Other reflected in the third quarter analyst consensus revenue forecasts.
Accordingly, we.
We are confirming the existing consensus revenue estimate of 16.6 million for Q3, given the usual seasonal effects, we see and Q3 as it falls during the holiday month.
But in addition of the usual seasonal slowdown in Q3 were also seeing slightly lower course, registrations and seasonally expected and our ASP and nursing plus other unit and we believe Cove and what we call wave two is partly a factor given that all the states and the country are now affected not just the.
Some of the major metros.
There's no question and our predominant student demographic of our and it's been a specialty overwhelm them for the past few months so.
So this isn't unexpected.
You may recall, we saw a similar effect in March and April two for during cold and wave one.
Where for a six week period, we saw a slowing of enrollment only.
The only to have enrollments bounce back in May and June Q1.
With the rollout of vaccines and as we move through the winter season, we are anticipating the same enrollment and course registration trend and recovery in our fourth quarter.
So in summary, we saw more favorable seasonal enrollments and revenue and Q2 the unexpected.
And we're seeing expected seasonality in Q3 with some additional slowness in course registrations due to short term cobot effects, which net net will deliver total revenues for the two quarters in line with our expectations.
Coming back to the advertising spending discussion this quarter with the step up and spending we have been planning Rick.
Recall that in Q1, we grew our enrollment advisor staff by 23%.
From 90, 68 days to 118, he A's and.
Adding he is the cross every unit of the company completed in anticipation of this spending increase.
We grew our advertising spend this quarter by approximately $700000 sequentially from.
From 2.5 million to 3.2 million with.
With the majority of the increases and spending directly to our three highest LTV units.
Which is the U.S. Yoo primarily S&P and.
And asked and universities, the S. and pre licensure and doctoral units.
Three important comments to make about this growth spending first given our business plan and to maintain the company's compound annual growth rate or CAGR over 30 per cent for the coming years, we cannot continue and essentially flat advertising spend rate as we accomplished last fiscal year.
Second as you know there is the lead lag relationship between marketing spend and revenue growth.
While we do not plan and seen the benefit in the form of revenue and the current quarter. This increased investment will set up the company for strong enrollments and revenue growth and our upcoming Q4 and fiscal 2022.
Third note that approximately 25% of the $700000 sequential advertise the increase was directed to our two new pre licensure, Metro's Austin and Tampa and.
As the result, we're making strong progress and generating leads and first year prerequisite student enrollment in both mattress.
In summary, even given the $700000 sequential advertise and spend increase total.
Total marketing at the percentage of revenues only increased the 21%.
As compared to our last fiscal year average of 19%.
Jumping to our operating metrics for the quarter.
The companys bookings increased 34% year over year to 42.1 million.
Which delivered a companywide average revenue per enrollment for ARPU of.
15825, an increase of 12% year over year.
The company's weighted average cost for enrollment or cash flow.
Declined 5% on a sequential basis.
From 1200, and $3 to 1100 and 43.
Therefore, the marketing efficiency ratio or murder, representing revenue per enrollment over cost per enrollment for.
For both of our universities remained above 13 times.
Finally, the company's overall active student body grew 24% year over year from 10718 to 13000 to 38.
Our and with our nursing active student body growing sequentially by just over a thousand students to 11000 for for two or 86% of the Companys Total act the student body.
I'll complete my remarks today by giving an update on our V S and pre licensure business.
As everyone is aware, our Phoenix and metro campuses.
Have grown very rapidly over the past three years.
As of the ended the second quarter.
We had nearly 500 students and our final two year core program, which drives revenues of approximately $20000 per year per student in those final two years compared to 7000 per year per student in year, one of the program.
In addition, we currently have enrolled approximately 1800 first year prerequisite students and the Phoenix Metro.
In order to ensure the students have very short wait times to begin in their core program.
We will be moving to double cohorts and our main Phoenix campus by the airport starting this coming February.
So rather than starting 30 students into the core program each semester as the reminder, we of six semester starts per annum, we will increase that capacity by approximately 50% to a total of approximately 45 students each semester start.
This will increase our annual revenue run rate and our main Phoenix campus by approximately 1.8 million starting in our fiscal fourth quarter.
As a reminder, and Q1, our EBITDA margin for our Phoenix pre licensure of business was 37%.
And as Frank will walk you through momentarily and the second quarter of that EBITDA margin increase into the Fortys percentile.
So this incremental revenue is projected to cause that margin to increase further in the coming quarters. In fact, it's no longer out of the realm of possibility that our Phoenix pre licensure of business could ultimately reach of 50% EBITDA margin.
Another way we look at this.
With this incremental 1.8 million of annualized revenues and our Phoenix pre licensure and metro at a margin and the Fortys the.
That incremental margin and will nearly overcome the projected aggregate first year operating losses of our two new Metro as we recently launched in Austin and Tampa.
Finally, I've been receiving the number of inquiries and our pre licensure expansion plan for calendar year 2021.
We're planning to announce our next pre licensure of metro toward the end of the fiscal year. Once the received all regulatory approvals.
We're very far along with this next metro and decided for competitive reasons to hold back and announcing until we're about to begin marketing in the spring.
On the corporate from Frank has been heading up the build out of a corporate service center and our new Tampa location.
The service center of brings together many of the functions and support the internal operations of the company.
Namely accounting and accounts payable human resources payroll and treasury functions and allows for improved operational synergies and cost savings.
Over the last year, we have moved the number of these positions from New York, the Tampa and an effort to take advantage of the lower cost and have recruited very successfully and the Tampa area.
Frank will be relocating the Tampa to work day to day with this group and to continue its progress.
Finally, you may see some small stock sales in the coming weeks by Frank and needs will be to facilitate has moved to Tampa.
That completes my remarks, now I'll turn the call over to Frank to review our financial results for Q2.
Thank you, Mike and good afternoon, everyone.
I'll begin by reviewing our financial results for.
Of the 2021 fiscal second quarter, providing input on our financial progress, including some commentary on the unique non cash financial events, what's transpired during the quarter.
So the yen as Mike indicated revenue in the second quarter increased 4.9 million for 40 per se over the prior year to a record $17 billion.
Revenue increased 1.8 million for 12% over the prior quarter.
The second quarter is typically a seasonally strong quarter for Aspen group and this was no exception.
Year to date, we have seen consistent momentum and our enrollment.
One of the major drivers of this the man's is the tailwind caused by the 1 million nurse shortage and our economy combined with a deficit of available seats and nursing school programs across the country.
We've seen no evidence that this need for nurses will abate.
Additionally, in Q1 and Q2 of this fiscal year.
We felt the enrollment tailwinds the have been augmented by the impact of cold.
In particular.
The population groups first young adults, who have lost jobs and the service industry and are now looking at a new career and nursing and come to asking for a pre licensure BS and B. Riley.
Second for nurses working on the front lines of the pandemic, an increasing number of these nurses are now looking to attain our family nurse practitioner degree and work and more controlled and higher paying private clinics.
I was the result, these two degree programs continue to be true of our fastest growing programs.
There also are too high of LTV programs.
As Mike mentioned combined revenues from US here, which is primarily our family nurse practitioner program and our Aspen University, BS and pre licensure program accounted for 50% of total company revenue in the quarter.
Aspens nursing plus other endorsements accounted for the remaining 50% of revenue for the quarter.
Given the strong demand backdrop, our effective marketing campaigns and increasing enrollment from our two new campuses. We expect revenue from these two businesses to increase the over 50% of total company revenue and the second half of this fiscal year. Thank.
And continue to grow as a percentage of total company revenue and the coming years.
This growth strategy of focusing investment of resources and to these two businesses, while maintaining a steady flow of students and to the other core Aspen programs will overtime deliver stronger growth in revenue and provide gross margin expansion.
With our stated goal of opening two new pre licensure vs and campuses every year.
Over the next five years and the intention to embed FMT Immersions and select Metro's. These programs are the principal drivers of our long term growth.
The success of these two programs well placed aspen on a trajectory to achieve higher revenue.
Earnings and sustainable free cash flow and the future.
Absolutely group's gross profit in Q2 increased to 9.3 million from $7.6 million a year ago.
The gross margin reduction from 63 per se to 55% with the strategic decision to invest and marketing and build and even stronger pipeline of students across our highest LTV programs and to begin marketing spending to support our true new campuses and the Austin and Tampa markets.
Marketing spend which increased year over year by 1.6 million. This quarter was 21% of revenue up from 17% and the year ago quarter, and 18% and the prior sequential quarter.
As Mike mentioned that increase was predominantly due to the sequential advertising spend the increase of $700000.
The efficiency of our advertising spend is and will continue to be a primary factor and delivery and gross margin expansion over the long run.
The should be highlighted the advertising spending represents approximately 95% of total marketing spend.
We continue to be able to source students and our highest LTV programs the low the cost to acquire a student and our traditional and that Aspen nursing and other business.
This creates significant leverage has these higher LTV programs grow as the percentage of total revenue.
Especially when you consider the lifetime value of a family nurse practitioner student is 2.6 times higher.
And the LTV of our pre licensure student is 4.3 times higher than that of a traditional aspen online nursing and other student with an LTV of $7350 per student.
As I stated earlier, we expect our two highest LTV businesses, you EPS, you, which was primarily the family nurse practitioner business and.
And pre licensure to increase beyond the 50 per cent level of total company revenue and the coming quarters.
As a result, we anticipate achieving gross margin levels above historical levels as our new campuses mature and revenue and profitability from these programs continue to grow.
Aspen University marketing costs was 20% of Aspen University revenues for the second quarter 2021 for us.
The 16% for Q2 last year.
While us your marketing cost equaled, 18% of us and as revenues for second quarter 2021.
First is 11% and Q2 last year.
Total cost of revenue.
Excluding depreciation and amortization increased from 35% to 43%.
Due to the increased marketing spend which I just spoke about.
And structural cost increased from $2.2 million for 18% of revenue true.
3.7 million for 22% for revenue.
The increase and instructional costs is due to the hiring of new full time and adjunct faculty to support enrollment increases across both universities.
And faculty and campus leadership for our new pre licensure campuses and Austin and Tampa.
Aspen universities and structural costs represented 20% of Aspen universities revenue for the quarter was U.S. use and structural costs and services equaled 26% of U.S. years revenue for the quarter.
For consolidated ask the group's second quarter DNA was 11.3 million an increase of 4.1 million over the prior year for.
For the quarter. This represented 66% of revenue compared to 60% and the prior year second quarter.
The first the primary reason for this increase was 1.2 million of accelerated stock based compensation from the vesting of two traunches of performance based equity grants in the second quarter.
On our first quarter earnings conference call I provided detail on AG guys for year performance based bonus program.
The plan is structured to a why and leaderships performance with the interest of shareholders, which is the drive sustainable shareholder about.
The plan calls for the best thing of restricted shares of price target thresholds when AG eyes common stock trades at or above specific price thresholds for 20 consecutive trading days.
As a reminder, the total grant was 375000 shares.
The best thing is set for accordingly.
10% of $9, 25% of $10 and the remaining 65% best when the stock trades at or above $12 for 20 consecutive trading days.
Two of these busting thresholds were achieved and the second quarter.
On August 31st the non dollar or 10% traunch vested at $12.78 and on September 2nd the 10 dollar or 25% Raj.
Adjusted at $12, a 99 cents the total non cash stock based compensation expense reported in the second quarter again is 1.2 million.
The second element of GE and April was what we call growth Opex.
Growth Opex represents our investment and key infrastructure projects to support our expansion strategy.
And this quarter, our growth Opex investment of approximately a quarter million dollars and specifically defined as personnel and related costs to extend our enrollment center.
Academic and financial estate advisors and clinical operations personnel.
And our enrollment center, specifically, we decided to grow our EA staff from 96, the days to 118 days.
Heading enrollment advisors across every unit of the company.
We are now fully staffed for the fiscal year to accomplish our enrollment goals for the remainder of the fiscal year.
This growth spending typically happens and the first half of the fiscal year and has done in conjunction with our increased marketing spend to drive and support the increasing enrollment activity across both the universe.
This investment and marketing enrollment staff and other supporting roles will strengthen us through the pipeline for enrollments, which will lead to higher course registrations and revenue at the back end of this year and into our next fiscal year.
Lastly, the third reason for the increase in GNS.
We began investing and our new campuses and Austin, Texas and temper for.
This new campus Opex investment of approximately of quarter million dollars came in the form of faculty and campus leadership positions and operations personnel to launch and support these new markets.
And the second quarter after moving the accelerated stock based compensation expense and these growth investments are recurring DNA for the consolidated company was $9.6 million the.
This represents an increase of $2.4 million versus the revenue growth of $4.9 million and the year over year quarter.
Which is in line with our target to grow recurring DNA expense for.
The below 50% of revenue.
This quarter's interest expense for flex the acceleration of the original issuance discount on the $10 million of convertible notes.
This $1.4 million charge for is a non cash expense.
On September 14, 2020, we announced the $10 million of secured convertible notes issued by the company on January 22nd 2020 had achieved the conversion stock price threshold of $10.73 per share and converted into 1.4 million share.
Shares of common stock.
As a result, Aspen group for move the debt and associated annual interest expense of 700000 from the piano.
Following this debt conversion Aspen group is now Jeff free.
Net loss applicable to shareholders was approximately 4.4 million compared to a negative 600000 per year ago. The.
This increase and net loss of 3.8 million includes $2.6 million of unique non cash items previously discussed net.
And we the 1.2 million non cash charge related to the RSU vesting and the 1.4 million charge related to the conversion of $10 million of convertible notes.
Without these two items and net loss increase would have been approximately 1.2 million.
This 1.2 million increase and net loss year over year as the result of the investments and marketing about 800000, including 300000 from the campuses growth Opex for about 240000.
And new campus DNA costs about 200000 discussed earlier.
From a university the perspective, Aspen University generated 2.2 million of net income for Q2 2021.
And you EPS you generated.
Point 6 million of net income and Q2 2021.
Hey, Josh corporate incurred a net loss of 7.1 million of which 36% or 2.6 million was the two non cash expense items previously discussed.
The net loss per share of reported for the current quarter is 19 cents EPS.
Compared to a net loss of three cents per share for the comparable year ago period.
And our previous earnings fall, we introduced two new non-GAAP measures adjusted net income loss and adjusted earnings per share.
Adjusted net loss for the second quarter was 1.2 million as compared to <unk> point 1 million and the prior year period.
Adjusted loss per share for the second quarter was five cents compared to adjusted loss per share of one cents from the prior year period.
These increased losses reflect our growth investments previously discussed.
EBITDA was a negative 2.3 million.
Or negative 13% margin as compared to EBITDA of the positive point 5 billion for positive of 4% margin in Q2 2012.
Adjusted EBITDA was positive for point 2 million for a 1% margin as compared to an adjusted EBITDA of one point positive 1.4 million for positive 11% margin and Q2 2020.
Hey, G.I. corporate generated an EBITDA of of minus 5.6 million and adjusted EBITDA of of minus 3.9 million and the second quarter of fiscal year 2021.
As for University generated EBITDA of $2.7 million or 23% margin and adjusted EBITDA of 3.4 million or 28% margin for Q2 2021.
No the aspens consolidated pre licensure BSN business accounted for 1.1 million of the $2.7 million EBITDA, including the new startup campuses.
That business Consequently operated on an EBITDA margin of 31%.
Which remains the highest margin.
Unit of the company, even given the free revenue operating expenses of the new campuses.
As Mike mentioned earlier, if you exclude the new campus expenses, the Phoenix pre licensure operation well have an EBITDA margin and the Fortys.
And that operation has potential for the margin to rise further next fiscal year. Once we begin double cohorts in February as discussed earlier.
You asked for you generated EBITDA of $2.6 million or 12% margin.
And point 7 million of adjusted EBITDA for 14% margin for the second quarter 2021.
Before I switched of the balance sheet I'd like to discuss the introduction of the new metric same store sales we've.
We feel the this metric will allow us to demonstrate the performance of the steady state business with and without the effect of the new campuses.
The ball from startup to breakeven to Standalone economic units and the investments necessary to get them there.
We will use this metric and future quarters as we execute our long term growth strategy to open 10, new campuses throughout the southern United States and the next five years.
Using the same store sales concept and the second quarter the startup campuses represented.
Loss of two cents.
Without these investments consolidated EPS would have been 17 cents loss instead of the 19 cents loss reported.
And three cents loss of adjusted EPS instead of five cents loss reported.
Turning to the balance sheet.
Aspen group ended the quarter with approximately $12.2 million of cash and cash equivalents and $4.6 million and restricted cash.
Included in this restricted cash and is $3 million of unearned revenue that will be earned in the coming two months.
This is compared to $14.4 million and cash and cash equivalents.
And 3.6 million unrestricted cash of which 2.1 million was unearned revenue at year end fiscal 2020.
The company used cash of $1.4 million and operations and the second quarter of fiscal year 2021.
As compared to using <unk> point Threemillion.
And the same period last year.
Regarding the accounts receivable and our allowance for doubtful accounts, we continue to evaluate our student accounts and our allowance for doubtful accounts in the context of our increase in revenue growth and.
And our change and the mix of our business.
This quarter, we added 632002, our allowance, which included 232000 of allowance from replacement for write offs of the receivable balance we will continue to adjust our allowances in line with revenue growth and expected improvements from student payment performance.
Regarding our share count started the quarter with 22.361 million basic shares outstanding.
As a result of the conversion of the $10 million convertible notes into 1.4 million shares as well as employee exercises of stock options. We ended the quarter with 24.416 million basic shares outstanding.
Finally.
I want to remind shareholders. If there is one remaining tranche of the RSU performance grant that could best over the next three years.
If and when asked for and stock price maintains 20 consecutive trading days at or above the final best the threshold of $12. The company will record the remainder of any unamortized stock based compensation remaining at the vesting date has a non cash expense in the quarter.
As seen in this quarter. This expense while it has a material impact on our reported net earnings loss and the EBITDA numbers and the quarter. It is a non cash items and will not negatively impact our ongoing operating performance.
This concludes my prepared remarks, I will now turn the call back to the operator for questions.
Thank you all for joining us today, the safe and happy all of it.
Thank you, ladies and gentlemen to ask the question you want me to press Star one and your telephone to withdraw your question press the pound King. Please standby of why we can have the Q and a roster.
Our first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead.
Hey, guys congratulations on the quarter hope you're doing well just a couple of and May.
This with the potential of the double cohort.
I'm just kind of curious I know its early with both Tampa and costs and but is there any reason you know those schools over time wouldn't mirror the the.
The piano of the of your Phoenix campus and then if that's the case is there any thought about accelerating the growth and the and the BSN program going for.
Yes, good afternoon, Darren its Mike Matthews area.
And Mike good.
You broke up a little bit in the early part of your question and but I think I have the.
And understanding of what you're asking so.
One thing to be aware of is that the Phoenix Metro.
Is it kind of a perfect world scenario for us for a number of reasons. One we have two campuses rather than one in the Metro and second we have this amazing relationship with with on her health, where not only are the long wait lists and the Phoenix Metro and the public institutions the.
Nursing schools are full.
But also honor health sent us a number of their employees that enrolled very early on.
So I don't expect our new metro's to be home runs, which is what I would describe the Phoenix operation.
But what I would say to you is that there is no reason why our Austin operation for example.
Once we move to the six semesters per year at this point for the the board of nursing and guides us to force and Masters per year currently.
But once those campuses, both in Austin, as well as and Tampa.
Reach maturity I don't see any reason why worst case, if the the margin would be and the mid to upper Thirtys and perhaps one of the fortys.
Great. That's helpful. And then just you know.
As we look at the tack on both of your.
[noise] businesses.
Where do you feel like steady state of.
Aspen and tell US you cap kind of shakes out at this point or is it still too early.
No I think we have enough years of of.
Of experience now that we're pretty confident the U.S.U. is going to remain and kind of the third.
$1300 range give or take a $100 each way and also the range is probably 1200, the 1400 dollarss and we feel like that will be a pretty consistent range.
And asked and University of course as you know, it's it's now a weighted average of each of our three units. So you've got asked and nursing plus other which is our original the traditional business and and you've got our Aspen doctoral business and then of course, our pre licensure campus business.
So when you when you put together you know each of those weighted average for US has been under $1200 and I don't see any reason why we can't compete.
Continue in that same range.
Great. Thanks, guys Congrats again.
Thank you for our next question will come from Mike Grondahl with Northland Securities. Please go ahead.
Yes, Thanks, Mike and Frank.
The incremental marketing in cash.
Tampa and Austin sort.
Sort of what medians, where are you using for the marketing and and how do you think it was the fish interest successful how are you kind of measuring that early on.
Good afternoon, Mike Hi, This is Mike Matthews.
We are using the same exact advertising and marketing methodology in Austin and Tampa as we use in Phoenix. So there's really it's a compilation of of three different marketing strategies and actually I would say for we have a corporate sales force. So we have a a sale and outside.
The sales person, that's and each of our major metro's a the calls on perspective.
The community colleges high schools as well as of the clinical partners.
So that's the first the second is traditional internet advertising that we've done in all of our original programs.
The third is social media that works really well for US and then as I've said publicly before we augment that those three channels with radio traditional radio.
So that's our marketing strategy and its and its going quite successfully Austin and Tampa and well, it's not as successful as Phoenix was in its first couple of months, it's not far behind we're seeing good demand and both locations.
Got it.
And then.
When you talked about sort of the newer locations and we might find out about them in the spring where are you implying there might only be one location or can we still kind of think about that as being two different southern cities.
Yeah, and what we were just talking about the next campus, which is designed to start Mark we were planning to start marketing and the spring we still have an intent to do two campuses per annum to new metro's per annum, and we'll we'll announce that second campus.
The next calendar year so.
Sometime in the summer or fall.
So it's two per year no change.
Yeah, that's what I thought I just wanted to be sure. Okay. Thank you.
Thanks, Mike.
Thank you. Our next question will come from Eric Martinuzzi with Lake Street. Please go ahead.
Yes, just wanted to clarify the topline outlook for Q3 and Q4. Two ahead of this correct. The Q3 would be the same.
$16.6 million in Q4 was 19.0 totaling out to a full year on slide 21 of 67.7.
Good afternoon, and Eric It's Mike, Yes, Yeah were just reiterating that the current consensus estimates for revenue and the second half of the year, we're going to maintain that number at this point, yes, Okay, and obviously you know we amped up the spend here and the marketing on the enrollment advisors and on the marketing.
You talked and I know, it's not guidance, but you talked about hey, how do we keep the thing going and 30% CAGR Weve got to invest and marketing was already investing in enrollment advisors.
In broad strokes, if we are able to drive an incremental $20 million on the top line and the assumption then that that would bring along and incremental.
The 50% EBITDA for conversion, so that we could see incremental 20 million of relative sequels, and incremental 10 million of adjusted EBITDA.
Yes, Eric what I would say is that the you know again at the company, we don't provide guidance as the company and so I prefer not to get specific about exactly what the leverage would be.
But you know.
And in in future.
And future fiscal years, we do expect and our EBITDA margin.
To grow into the double digits, and so I will say that because right now of course, you know EBITDA, it's been hovering.
In the positive range. This quarter of course, the went negative but yeah, we expect things to it and the second half of the year to to improve particularly in Q4.
Well congratulations on the second quarter that the that 40% of revenue growth of terrific.
Thank you Eric.
Thank you. Our next question will come from Austin involved now with Canaccord. Please go ahead.
Hi, Thanks for taking my questions.
Given the change of the administration can you give us your thoughts on how you expect the regulatory landscape to change and and sort of secondarily can you share where you are currently on that 90, 10 roll, particularly as you expand your BS and business.
Yeah, Good afternoon, Austin, its Mike Matthews.
Yes, so I'll take the first question first and.
In terms of where we stand on the 90 10 rule, we filed our fiscal year 2020 government audit at the end of October and both the universities were in the low thirtys percentile in terms of the percentage of revenue.
Over the total revenue.
So we're very much of far cry for.
From our for profit browser, and who sit and the 80% plus range.
And our monthly payment plan, because it's such a predominant payment methods at both schools, we always expect to be.
And that sort of 50% or less range now from a from a you know.
From a a governmental perspective, you know once once fight and takes office and we have every expectation that the department of education will behave similarly, a EPS.
As the Obama administration did and they put in.
And from my point of view some some very good regulations you know the the gainful employment regulations. For example, I always felt that it was a good regulation and it makes sense HM.
The us and the for profit sector, though felt like the gainful employment should apply the every college and University and not just for profit.
So and from my from our perspective, because 86% of our students are registered nurses and essentially just about and every nook and cranny of our credit country. If you would like to be gainfully employed and the nursing profession, you may do so because of the shortage. So you know we will we would never.
Have any concerns about passing the gainful employment regulations should they be.
Reinstituted.
Got it thank you for that and and lastly can you just give us a quick update on I think as you put it phase two of your CRM the build out.
Yeah, I mean, I'm not really prepared to talk a lot about that right. Now you know we are working on the on the system.
Well Thats, just and for those of you that haven't been tracking the company carefully phase two of our CRM system is designed to of.
It's actually play off fence with our student body, which would be the first we'd be the first universities and history to do so and the whole concept of that is it's the retention tool the retention system that basically looks for a potential negative events that could happen in the students career and if we see one of those events occur.
Her and our academic advisors will will contact the student proactively or or playing offense is I call. It in order to ensure that student you know is able to overcome whatever that issue might be.
So that system should be ready over the next year to year and a half and once that system is in place.
I would humbly tell you that it will be far and away. The most sophisticated CRM system and this industry's history.
Okay. Thanks, very much for taking my questions.
Thank you Austin.
Thank you. Our next question will come from Jeremy Hamblin with Craig Hallum Capital. Please go ahead.
Thanks for taking the question I wanted to ask about the of the investment.
And marketing instructional cost me.
Here in the second half of your fiscal year obviously.
Obviously are appropriate to to make the investments you have and.
Opening the new campuses, you're going to have a additional campus open in the first half of the calendar 21 I believe.
I wanted to just get a sense of what we can expect.
On your marketing or what are your targets on marketing and promotional spend.
Here in the back half of the year, you know if you're kind of of 21%.
Two.
And I imagine that your instructional costs will probably stay in that 20% range, but just looking for some confirmation on that.
Good afternoon, Jeremy its Mike Matthews, that's a great question I'm really glad you asked.
So let me let me just say that.
Over the last several years other than last year, we kept our spending our marketing spending flat essentially for the year.
Every year, we typically select a certain quarter or and it's usually early in the fiscal year, where we grow our enrollment center and then prepare for a growth spurt from a marketing spending perspective, and as I guided everyone last quarter, we pretty much.
Completed the the increase of enrollment center during Q1, and then we had a few more people trickle in during Q2 so.
So this was the quarter that we know the we have that sort of big spending jump.
What we've done in past years, and what we plan to do this year. It's the now sort of flatten out the spend rate for the second half of the year, we're not going to grow the spend rate and the Q3 and Q4 of anymore than like say, 10% from where we are and.
And the beauty of doing that is the that we can basically allow the revenues the catch up to that that growth spend that would that we that we invest and so by the time, we get the Q4 as we've done in previous fiscal years. You know, we should you know I said to Mr. kuperman a quarter ago that I'm very hopeful that we will be answered.
Of that breakeven range as the.
The company and Q4 and I just want to say that the you know we remain hopeful debt.
And our result in Q4 will be similar to Q1, which is on an adjusted EPS basis is approximately breakeven. So so you'll see a you know see significant improvement.
And all of our operating metrics and our bottom line metrics as we deliver our fourth quarter result.
Great that's helpful color.
I wanted to also just come back to the question I think around ARPU.
And as we think about.
What you can achieve a kind of total company in the Aspen University side of your business.
Yes.
Now gotten off into the.
15 16000 dollar.
Range is that fair to assume that that even could drift up a little bit further here is your pre licensure.
Portion of your business.
Becomes a greater portion.
Yes, you didn't know I, you're absolutely thinking about that the right way the vast majority of our spending increase as I mentioned during the earnings remarks is and our three high LTV units you have got you issue, which is the primarily FMC business.
You've got the pre licensure business at Aspen and of course, you have the doctoral business and Aspen, which is growing very nicely as well all of those businesses are the 234 times higher LTV than our traditional Aspen nursing plus other unit.
So you will as the result of the the majority of our enrollments continue to flow into the Sthree highest LTV businesses. Yeah. You you mathematically yes, no question, our ARPU will continue to trickle up yes.
Okay, and then out of separate note you had a.
A fairly large competitor of private company.
And announce the that they've been acquired by a public company and it looks to me like they've they've made some changes in their pricing model almost right away.
In terms of potentially maybe even the response to your entry into the Florida marketplace.
Were they have several campuses, but wanted to just get a sense for what you're seeing and the competitive set there of how that compares to Phoenix for.
For Austin is it.
Looks to be maybe a little bit.
For crowded the.
The color that you could provide on that.
Yeah, I mean, what I would say to you is that every market that we answer is going to have a a completely different sort of the.
Competitive environment right. So in Phoenix that Metro is arguably the most competitive metro in the United States for nursing schools.
And I think we proved pretty a pretty.
Pretty clearly that our business model will work in an incredibly competitive environment.
Austin, Texas is a very different kind of the metro there are almost no private competitors you have the public's there as well, but one of the reasons why Baylor Scott and White recommended we launch in Austin and when we came into the state of Texas is because there just isn't.
Much competition. There. So we have a really nice advantage and Austin of of of it and not being terribly competitive.
In the <unk> as you described in the Tampa market and in a number of the major metros and Florida. There is much more competition private competition then Austin for example, but I don't I don't consider camp and to be more competitive and Phoenix, It's just not and and yes. The the school the you mentioned.
Rasmussen College of they're there and they're a good school of good nursing school and they're a good competitor of ours and I wish them up.
Great. Thanks for taking the questions the best of luck.
Thank you.
Thank you. Our next question will come from Rafi Savitz with our way as advisor. Please go ahead.
Hey, Mike Congrats and other great corner can you remind us and you launch these new pre licensure campuses. What is one of your affiliation with the local hospitals and then maybe dive a little bit deeper on the overall cost to launch new cabinet and and how you think about the time to pay that back.
Yeah, Good afternoon Rafi, yes so.
You know just from a financial point of view I'll answer. The your last question first we expect a new metro to basically take at least the year neat and perhaps a year and a half for at the breakeven on an operating basis and in Phoenix, We broke.
Even after 12 months and we only burned about a half a million dollars on an operating basis, that's probably best case scenario. So I would say that these new markets, you know and call. It 500 to 750 and that range in terms of the loss and its probably between 12 to 18 months.
And would be my best guess and.
And sorry, what was your first question again I apologize Rafi.
Yeah just.
I guess.
Just the affiliation with the hospital, how that will work.
Work and and is that a model that you intend to take into it and to all of your future markets.
Yeah, sorry for the Okay. Yes. So you know every market's a little different we're not going to enter the market unless we have a very.
Strong and tight relationship with whomever is kind of the.
The the most of the largest most sophisticated healthcare institution in that market.
And we've been able to accomplish that and each of the three metrics that we've that we've gone into to date.
And.
There are some states that have consortium's that we work with as well.
Where some of the health care institutions kind of band together to determine what the number of placements that they're able to.
Accommodate on a per quarter or per year basis, and so so those are the those of the two.
The aspects of what we manage in order to ensure that we have proper placements as we move and teaching the metro.
And when you when you say placement is that is that a job afterwards or is that no training and during the during yeah. Yeah. I know that's the training that's the those of the clinical rotations that our students take during their final two year core program.
And the field.
Got it Okay, and then you know.
I guess going to the U.S. Yoo business, what is the capacity of there and you and you and and more broadly, what's and what's the opportunity and the nurse practitioner market.
Well the the capacity for us.
It's not really it's really unlimited for us because.
You know, there's there's enough internet advertising.
You know impressions for us to be able to generate leads from so we're not concerned about that from a from a web publisher perspective.
But but you know what I would say to you is that you know the whenever you get into a clinical program, whether it's the pre licensure program and Aspen or of the S&P program at U.S. Yoo.
It requires a tremendous amount of of operating.
And planning and sophistication and so for us to continue to grow that business. We have to we have to do a number of things quite well, we obviously have the higher the the faculty necessary. We have to have the clinical space available for weekend, Immersions, which we're moving from multiple campuses in order to accomplish that.
And and yeah, and and we have to have an office the field experience that basically fines clinical rotation.
Rotation locations for each of our students so that sort of running the clinical program.
Is the very sophisticated effort and so far we're doing quite well, but but that would be you know that would sort of be a little bit of of limitation in terms of how quickly. We can grow is just making sure that we manage the growth from an operating perspective.
Got it and the fact that just one more when you started talking about the.
The new CRM you are building you had referenced you know really the goal was to improve retention rates and in your business can you talk a little bit about that and that is that a challenge that you are currently facing and the business.
Oh, Rafi I would say that every college in this country.
And now has some type of and online representation to their student body.
And so the.
The challenge the you have whenever you have us a student debt is a fully online student.
Is is is real time data and how that students doing and.
And when they are on line you don't see them, you're not and person you know there's no guidance counselor to good to go into right.
So there's enough and there's a number of factors that makes us success or failure of and online student.
For the you know the there's there's academic progress the relationship the they have with faculty members.
There is a time management issues theres potentially job related issues that a person might have there's so many things that go into the success in a college situation. If it's fully online and if you have.
And Ed Tech infrastructure, that's designed to pull in all these different types of data and.
And be able to then have an algorithm that that in real time and you know tells an advisor hey, this is going on contact this person and work with him or her.
It could increase our retention rate of vary materially.
So yeah, I mean, it's you know and Matt and imagine if you're a big for of profit school today, we're pretty larger and the 13000 range, but imagine a.
Imagine the school has 80000 students online or imagine all of these opium comes online program managers that are managing online programs across all of the non profits.
A and this and this system would be interesting to any of these institutions or companies across the sector.
Absolutely it sounds like you're bringing kind of best of breed.
E com tools to to the education market.
Yes, Rafi, what I would say to you is that we're the first.
Higher education company and history to essentially build a vertically integrated.
Ed Tech infrastructure, it's just the it hasn't existed and that was our debt was our vision from the beginning and it's coming to fruition and I'm. So proud of all the people and our company that of helped Shepherd us to where we are and we're excited to ultimately finish that system and it's not far off.
Very impressive congrats guys.
Thanks, Rob do you have a good afternoon.
Thank you. Our next question will come from Rohit Sharma with B. Riley security.
Hi, good afternoon, the Michael Frank.
Congratulations for the Great results I I wanted to ask you on.
And the Phoenix double cohorts could you explain that a little bit how wide do this now and hobby.
Do you expect to impact so you have for certain laid out guidance for the second half of the year.
How does that impact that guidance and can you just explain the economics and we will again.
Yeah, good afternoon rush.
So the way the way our Phoenix.
Operations works, which of course the of two campuses, we have our our our first inaugural campus by the airport and Phoenix and then we have our honor health campus on the north side of Scottsdale, both of these locations.
We implement six semester starts per annum, there's three day semester starts and there's three evening week weekend eating semester starts.
So for the first three years of our operation and our inaugural campus by the airport or what we call our Elwood campus.
We have had approximately 30 students that starts in the final two year core program now everyone needs to understand the nursing schools, all nursing schools essentially it's a two phase effort. Okay. So the phase one is your first year, we have to complete all of the prerequisite.
Of course is first.
And for US, It's 41 credits and it's all online and it's about $7000 to complete those credits once the student completes that first year. The 41 prerequisite credits.
They then have to pass the has the to.
Entrance exam in order to of matriculate into our final two year core program.
So what we've been doing is we've been basically and rolling around 30 students into our final two year core program every semester six the masters per annum, both at Elwood as well as her on her health campus, what we just announced that last hour.
Is that we're planning to have a double cohort in our inaugural campus. Our Elwood campus. So rather than 40 students that start each semester, we're going to have 40 for sorry read and 30, we're going to have 45 students to start each semester. So we're going to grow the number of students that start the core in our.
Elwood facility by 50%.
And then the math on that basically is about $1.8 million of annualized revenue run rate by doing so.
Does that answer the question.
Oh, yes. So does that also I know the Youve said that doesn't start the impact obviously until the new cohorts start to graduate and finish up right.
But does that you talked about the the cabins doing you know.
12 million and revenues with the close to 40, 50% EBITDA margins does that change that.
Profile.
No actually yeah. Good question, so no so whenever weve basically provided.
The topline guidance and our pretax pre licensure business, we've always assumed that in order to hit a 15 million dollar revenue run rate that we would move to a double cohort.
To get there. So this is exactly you know we're we're implementing this exactly how we had originally planned it we just wanted to everyone and the public to know that we're moving into our final stage of maturation in our first campus by moving to double cohorts the.
Get to that $15 million number in the coming couple of years.
Got it got of and then my my of my other question was around.
The cost of acquisition and the Capex are they are you seeing any different tack.
Costs in Austin, and Tampa than you saw in Phoenix.
It's a little early to say right now you know the CAC is is the is pretty similar and Austin that it was in Phoenix and Tampa, So far as a little bit higher but we just started Tampa Tampa was last out of the out of the the two new.
Launches and so it's the little early to say, but.
It looks to me like Phoenix will be the lowest CAC, followed by Austin, followed by Tampa Thus.
Thus far.
Right and.
And then my last question Michael is the again on on sort of the bigger.
Philosophical question is the growth versus.
Profitability.
Has that changed at all and the last few quarters.
Could you kind of touched upon that you're getting excellent growth and.
And look to have profitability by the.
For the end of the the fiscal year is that still how do you how you're viewing that.
Yeah, and they said earlier, we're hopeful to be in that sort of breakeven range plus or minus the couple of cents in Q4, and an adjusted EPS basis.
And you know from from our point of view.
We want to keep a CAGR for that in the Thirtys perfect World. It the 35 to 40 like it is now.
And we feel like that the the the gross margins of these high LTV businesses.
Our good a drive for going to naturally drive us to profitability and positive cash flow and as you can see even though we did this huge marketing and jump in spend rate.
700000 sequentially, we still only had a cash burn of like 1.4 million on an operating basis. So right. So we're trying we're just we're trying to manage the high growth and try and keep that cash burn as quiet as we can as we go.
Yeah, Yeah, I'm, just trying to get a sense of you know and and.
That in the door handle on the growth of course, we loved the growth and we also understand the given the way uses the structure.
Yes, it seems to be on the path to profitability, so I'm not necessarily worried about that but.
But do you have a lot more control on that down.
You just seems to have a lot more control on the ability to show the growth.
And also on the profitable business model.
Yeah. Yeah. You know we are we do we have we have our we've proven for I think a number of years debt, where we're we're pretty intelligent about when we make us a big spending increase and then we try to flatten out over the subsequent couple of quarters in order to let the revenue cash.
Shop, and net so far is the allowed us to maintain the growth rate that we're looking for and.
Move down the path of naturally becoming cash flow positive, which is you know in our and our view is an inevitability.
Got it perfect. Thank you so much again, congratulations great quarter.
Thanks Raj.
I'm showing no further questions and the queue at this time I would now like to turn the call back over to the management for any closing remarks.
Thanks, everyone for joining us today, we're looking forward to.
Chatting with you and our next earnings call in mid March good afternoon.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
[music].