Q2 2022 Aspen Group Inc Earnings Call

December 14, 2021

Hello. Please stand by. Your Aspen group's fiscal year 2022 second quarter earnings call will begin momentarily. Thank you for your patience and please standby.

[music].

Hello. Thank you for standing by and welcome to Aspen group's fiscal year 2022 second-quarter earnings call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance. Please press star zero. I would now like to hand, the conference over to your speaker today Robert Alessi. Please go ahead.

Please be advised that today's conference is being recorded. If you require any further assistance. Please press star zero. I would now like to hand, the conference over to your speaker today Robert Alessi. Please go ahead.

Good afternoon welcome. Welcome to Aspen Group's fiscal year, 2022 second 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 statements include the continuing impact of COVID-19 on our operations and future growth. Anticipated future revenue from our pre-licensure campuses. The timing for opening our next tier one campuses. Net income from our five operating campuses. The timing for new campuses to achieve breakeven. Our campus growth by 2025. Our future growth and growth strategy. The percentage of revenue from our campuses and USU. Bookings in LTV. Projected fiscal 2022 advertising spend. Changes in our gross margins. Fiscal 2022 EBITDA. Our fiscal 2022 guidance and our liquidity.

Welcome to Aspen group's fiscal year, 2022 second 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 statements include the continuing impact of COVID-19 on our operations and future growth.

Anticipated future revenue from our pre-licensure campuses. The timing for opening our next tier one campuses. Net income from our five operating campuses. The timing for new campuses to achieve breakeven. Our campus growth by 2025.

Timing for opening our next tier one campuses net.

Net income from our five operating campuses the timing for new campuses to achieve breakeven.

Our campus growth by 2025.

Our future growth and growth strategy. The percentage of revenue from our campuses and USU. Bookings in LTV. Projected fiscal 2022 advertising spend. Changes in our gross margins. Fiscal 2022 EBITDA.

<unk> revenue from our campuses and usu.

Bookings in L. T V.

<unk> fiscal 2022 advertising spend.

Changes in our gross margins.

2022 EBITDA.

Our fiscal 2022 guidance and our liquidity.

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 the Securities and Exchange Commission. Including the Form 10-K for fiscal year ended April 30th, 2021. Form 10-Q for the quarter ended October 31st 2021. And in the earnings release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements as a result of future developments.

<unk> 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 include.

Including the Form 10-K for fiscal year ended April 32021.

Form 10-Q for the quarter ended October 31st 2021.

And in the earnings 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 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 earnings release issued by the company today.

Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the earnings release issued by the company today.

Please note that the earnings release is available on Aspen Group's website ASPI.com on the IR calendar page under news and events. There will be a transcript of this conference call available for one year on the company's website. Please note that the earnings slides are available on Aspen Group's website, ASPU.com, on the presentations page under company info. Now I will turn the call over to Michael Mathews, Aspen Group's chairman and Chief Executive Officer.

There will be a transcript of this conference call available for one year on the company's website.

Please note that the earnings slides are available on Aspen group's website a S. P dot com on the presentations page under company info.

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

Good afternoon, and thank you for joining our call today. In the second quarter, our Aspen [inaudible] strategy once again delivered growth on a year over year basis. In our high LTV degree programs. Which increased to 54% of total revenue due to the solid revenue growth from our BSN pre-licensure and MSN family nurse practitioner or FNP degree programs. Cost management and the intended impact of our Aspen [inaudible] strategy helped reduce cost and lower our net loss by 35% year over year. Our year over year revenue growth rate slowed to 12% this quarter as compared to the previous quarter's growth rate of 28%. The second quarter is typically a seasonally favorable quarter given it falls during the fall back to school months.

In the second quarter, our Aspen <unk> strategy once again delivered growth on a year over year basis.

Our high LTV degree programs.

Which increased to 54% of total revenue due to the solid revenue growth from our BSN pre licensure and MSN family nurse practitioner or F. N P degree programs.

Cost management and the intended impact of our Aspen <unk> strategy helped reduce cost and lower our net loss by 35% year over year.

Our year over year revenue growth rate slowed to 12% this quarter as compared to the previous quarter's growth rate of 28%.

The second quarter is typically a seasonally favorable quarter given it falls during the fall back to school months.

But this year in the second quarter, we felt a strong COVID-19 effect among our predominantly RN student body and the result was a decline of nearly a half a million dollars sequentially. As I mentioned on the first quarter earnings call, last summer's increase in COVID-19 hospitalizations caused a slowdown in class starts. Starting in the month of June, among our licensed registered nursing student body at Aspen University, working nurses where needed on the front lines for patient care, and frankly showed clear signs of fatigue.

As I mentioned on the first quarter earnings call.

Last summers, increasing COVID-19 hospitalizations caused a slowdown in class starts.

Starting in the month of June.

Our licensed registered nursing student body at Aspen University.

nurses where needed on the front lines for patient care, and frankly showed clear signs of fatigue.

This trend was seen across the entire nursing school sector. RNs represented 69% of our total active student body at the end of the second quarter of fiscal year 2022. And represent our student population, primarily impacted by the COVID-19 pandemic trends. The outcome similar to the rest of the nursing school industry was. Was the decline in Aspen University's post-licensure RN class starts that began in the first quarter of fiscal 2022 and continued throughout the second quarter.

<unk> represented 69% of our total active student body at the end of the second quarter of fiscal year 2022.

And represent our student population, primarily impacted by the COVID-19 pandemic trends.

The outcome similar to the rest of the nursing school industry was.

Was the decline in Aspen University's post licensure RN class starts that began in the first quarter of fiscal 2022 and continued throughout the second quarter.

In addition, FNP new student enrollments at USU, which is entirely comprised of our ends, saw a modest decline sequentially in the second quarter. That's a strong sequential enrollment growth in the first quarter. Despite these headwinds, we saw a sequential pick up in BSN pre-licensure enrollments in the second quarter. And have recently begun to see modest improvements in class starts from our ends starting in the month of November.

A modest decline sequentially in the second quarter after.

After strong sequential enrollment growth in the first quarter.

Despite these headwinds we saw sequential pick up in BSN pre licensure enrollments in the second quarter.

And have recently begun to see modest improvements in class starts from our ends starting in the month of November.

Diving into the specifics of our sequential enrollment growth in the second quarter. New student enrollments reflect the success of the Aspen <unk> strategy to align our AD spend with our highest efficiency businesses as defined by return on marketing dollar spent. Of particular note, eight years enrollment grew sequentially by 9%, primarily due to rising enrollments in our three new metros, Austin Nashville and Tampa. On a year over year basis, AU enrollments decreased 13% as expected. Primarily due to the intentional reduction in advertising spending year over year, and our lowest efficiency unit, which includes the Aspen University legacy nursing plus other online units, but excludes the high LTV doctoral program.

New student enrollments reflect the success of the Aspen <unk> strategy to align our AD spend with our highest efficiency businesses as defined by return on marketing dollar spent.

Of particular note.

Eight years enrollment grew sequentially by 9%, primarily due to rising enrollments in our three new metros, Austin Nashville and Tampa.

On a year over year basis enrollments.

Enrollments decreased 13% as expected.

Primarily due to the intentional reduction in advertising spending year over year, and our lowest efficiency unit, which includes the Aspen University legacy nursing plus other online units, but excludes the high LTV doctoral program.

In addition, recall that we announced last year that we'd reduced down to a maintenance advertising spend level in our Phoenix-based BSN pre-licensure campuses to manage our first-year prerequisite students pipeline, which is approaching full capacity. We remain committed to not putting students on a waitlist and have dialed back our spend rate in this metro as a result. As I mentioned earlier, USU new student enrollments decreased by 7% sequentially in the second quarter of fiscal year 2022.

We remain committed to not putting students on a waitlist and have dialed back our spend rate in this metro as a result.

As I mentioned earlier Usu, new student enrollments decreased by 7% sequentially in the second quarter of fiscal year 2022.

Following a strong first quarter. But year over year, new student enrollments at USU decreased by 3%. On a companywide basis, new student enrollments increased sequentially from 2276 to 2385, or 5%. Finally, on a year over year basis, new student enrollments for the company were down 10% due to the planned enrolment and debt reduction in the Phoenix pre-licensure metro. The decreased spend rate in the Aspen nursing plus other unit, and the COVID-19 impact on RN enrollments at USU. Two primary dynamics in the nursing sector favor the Aspen Group business model. First, the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre-licensure nursing program. Second, RN is interested in moving to private clinics and the growing awareness within health care organizations of the economic benefits of hiring FNPS will be drivers for continued growth in our FNP degree program.

But year over year, new student enrollments at Usu decreased by 3%.

On a companywide basis, new student enrollments increased sequentially from 2276% to 2385%.

Finally on a year over year basis, new student enrollments for the company were down 10% due to the planned enrolment and debt reduction in the Phoenix pre licensure metro the decreased spend rate in the Aspen nursing plus other unit.

And the COVID-19 impact on our in enrollments at Usu.

Two primary dynamics in the nursing sector favor the Aspen group business model.

First the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre licensure nursing program.

Second <unk> interested in moving to private clinics and the growing awareness within health care organizations of the economic benefits of hiring F. N. PS will be drivers for continued growth in our F. N P degree program.

We expect that as these temporary headwinds diminish, Aspen Group will be well-positioned for accelerated revenue growth. As the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre-licensure nursing program. As such, we continue to be on track to open our next pre-licensure campus in a tier-one metro in the spring of 2022.

As the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre licensure nursing program.

As such we continue to be on track to open our next pre licensure campus in a tier one metro in the spring of 2022.

While the COVID-19 pandemic may continue to impact post-licensure revenue growth, the company will carefully manage discretionary G&A spending in the coming months to minimize the impact of any revenue shortfalls. Over we will not eliminate spending critical to the execution of the company's long term strategy with $11 million in cash and cash equivalents. The company has a solid liquidity position for the remainder of the fiscal year.

Over we will not eliminate spending critical to the execution of the company's long term strategy with $11 million in cash and cash equivalents. The company has a solid liquidity position for the remainder of the fiscal year.

Before I hand over the call to Matt to review our second-quarter financial results and update our guidance for this year, I'd like to talk about what a critical asset we're building with our national pre-licensure footprint. Over the past two years, the two largest independent multi-city pre-licensure nursing schools have been acquired.

Over the past two years, the two largest independent multi city pre licensure nursing schools have been acquired.

First, scaling college of nursing was acquired in 2020 by the healthcare system HCA. Then Rasmussen University, a few months ago was acquired by American public education. Following those acquisitions, Aspen is now the only national pre-licensure nursing school that remains independent. As the nursing shortage continues to intensify in the coming quarters and years, this footprint will only grow in value. I will now hand the call over to Matt to cover the details of our second-quarter financial results. Please go ahead, Matt.

Then Rasmussen University, a few months ago was acquired by American public education.

Following those acquisitions.

Aspen is now the only national pre licensure nursing school that remains independent.

As the nursing shortage continues to intensify in the coming quarters and years this footprint will only grow in value.

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 31st 2021. All comparisons are to the prior year's second quarter ended October 31, 2020, unless otherwise stated. Total revenues were $18.9 million versus $17 million in the year-ago quarter. USU revenue for the quarter, which includes the high LTV MSN FNP program accounted for 33% or $6.2 million versus 29% or $4.9 million. AU revenue in the second quarter of fiscal year 2022, which includes the high LTV BSN pre-licensure program, accounted for 67% or $12.8 million versus 71% or $12.1 million.

All comparisons are to the prior year's second quarter ended October 31, 2020, unless otherwise stated.

Total revenues were $18 9 million versus 17 million in the year ago quarter.

U S U revenue for the quarter, which includes the high LTV M. S. N F. N P program accounted for 33% or $6 2 million versus 29% or $4 9 million.

<unk> revenue in the second quarter of fiscal year, 2022, which includes the high LTV BSN pre licensure program accounted for 67% or $12 8 million versus 71% were $12 1 million.

GAAP gross profit increased 4% to $9.7 million for fiscal Q2, 2022 compared to $9.3 million for fiscal Q2 2021. Gross margin was 51% for fiscal Q2, 2022 compared to 55% for fiscal Q2 2021. Gross margin in fiscal Q2, 2022 was impacted by higher instructional costs related to the opening of new campus locations in the pre-licensure program and fewer class starts and anticipated in the post-licensure program due to the effects of the COVID surge. AU gross margin was 50% of AU revenue for fiscal Q2, 2022 versus 56% and USU gross margin was 58% of USU revenue for fiscal Q2 2022 versus 56%.

Gross margin was 51% for fiscal Q2, 2022 compared to 55% for fiscal Q2 2021.

Gross margin in fiscal Q2, 2022 was impacted by higher instructional costs related to the opening of new campus locations in the pre licensure program and fewer class starts and anticipated in the post licensure program due to the effects of the Covid surge.

<unk> gross margin was 50% of revenue for fiscal Q2, 2022 versus 56% and Usu gross margin was 58% of usu revenue for fiscal Q2 2022 versus 56%.

As the student population continues to grow and our new high margin BSN pre-licensure unit locations. And combined with reduced advertising spend in our lower LTV business unit, we anticipate gross margin improvement by the fourth quarter of this fiscal year.

And combined with reduced advertising spend in our lower LTV business unit, we anticipate gross margin improvement by the fourth quarter of this fiscal year. Please.

Please keep in mind that we can't anticipate the impact of the ongoing COVID-19 headwind on our gross margin objectives. Although we believe this headwind to be temporary. Overall instructional costs for the quarter were $4.8 million for 26% of revenue up from $3.7 million or 22% of revenue.

Overall instructional costs for the quarter were $4 8 million for 26% of revenue up from $3 7 million or 22% of revenue.

The increase in instructional cost as a percentage of revenue was primarily due to the hiring of full-time faculty for the new pre-licensure program at the new campus locations in Nashville, Tennessee, Tampa, Florida, and Austin, Texas. And increased costs for educational materials across all programs. As our new campus enrollments increase the additional contribution to profitability will factor into lifting the gross margin by the end of the fiscal year 2022.

And increased costs for educational materials across all programs.

As our new campus enrollments increase the additional contribution to profitability will factor into lifting the gross margin by the end of the fiscal year 2022.

Total marketing and promotional costs for the second quarter were $4 million for 21% of total revenue up from $3.6 million or 21% of revenue and roughly in line with the prior quarter. The increase of marketing is from the planned increase in AD spend primarily directed to our three new pre-licensure metros and is flat as a percentage of revenue.

The increase of marketing is from the planned increase in AD spend primarily directed to our three new pre licensure metros and is flat as a percentage of revenue.

As we stated on earlier calls, we have shifted our marketing spend toward our highest LTV programs to improve the efficiency of our marketing spend. The quarter's general and administrative costs were $11.6 million or 61% of total revenue compared to $11.3 million or 66% of total revenue. G&A spend was almost flat as compared to the prior quarter and decreased as a percentage of revenue due to the continuation of cost controls implemented in conjunction with Aspen 2.0.

The quarter's general and administrative costs were $11 6 million or 61% of total revenue compared to $11 3 million or 66% of total revenue.

G&A spend was almost flat as compared to the prior quarter and decreased as a percentage of revenue due to the continuation of cost controls implemented in conjunction with Aspen to point out.

We are specifically focused on managing our headcount costs by reducing hiring and focusing on adding positions essential to our strategy of growing our highest LTV programs. Net loss and net loss per share were $2.9 million and 11 cents, respectively for fiscal Q2, 2022 compared to losses of $4.4 million and 19 cents.

Net loss and net loss per share were $2 9 million and 11 cents, respectively for fiscal Q2, 2022 compared to losses of $4 4 million in 19.

From a subsidiary perspective, Aspen University's net income for the quarter was $1.3 million down compared to $2.2 million. The decrease in AU's net income is attributable to the new campus openings in our pre-licensure program. USU's used net income was 877,000 versus 558,000.

The decrease in <unk> net income is attributable to the new campus openings in our pre licensure program.

U S used net income was 877000 versus 558000.

Finally, AGI incurred a net loss of $5.1 million for the quarter compared to a loss of $7.1 million. Consolidated EBITDA for the quarter was a loss of $1.9 million as compared to a loss of $2.3 million. Second-quarter EBITDA period over period for each of the three subsidiaries was as follows. Aspen University generated 2 million compared to $2.7 million. USU generated 976,000 versus 589,000. AGI had an EBITDA loss of $4.9 million compared to an EBITDA loss of $5.6 million.

Consolidated EBITDA for the quarter was a loss of $1 9 million as compared to a loss of $2 3 million.

Second quarter EBITDA period over period for each of the three subsidiaries was as follows ASP.

Aspen University generated 2 million compared to $2 7 million.

Usu generated 976000 versus 589000.

Agi had an EBITDA loss of $4 9 million compared to an EBITDA loss of $5 6 million.

Consolidated adjusted EBITDA was a loss of 715,000 compared to positive adjusted EBITDA of 185,000. The prior-year quarter included a $1.2 million adjustment from non-reoccurring stock-based compensation items. Adjusted EBITA for fiscal Q2, 2022 excludes a one-time positive impact of approximately 104,000, primarily related to non-reoccurring professional service fees and 350,000 related to bad debt expense.

The prior year quarter included a $1 $2 million adjustment from non reoccurring stock based compensation items.

Adjusted EBITA for fiscal Q2, 2022 excludes a one time positive impact of approximately 104000, primarily related to non reoccurring professional service fees and 350000 related to bad debt expense.

From a subsidiary perspective, Aspen University generated adjusted EBITDA of $2.3 million in the second quarter as compared to adjusted EBITDA of $3.4 million. USU generated adjusted EBITDA of $1.1 million compared to 710,000. Finally, AGI corporate incurred an adjusted EBITDA loss of $4.1 million in the quarter compared to an adjusted EBITDA loss of $3.9 million.

Usu generated adjusted EBITDA of $1 1 million compared to 710000, finally, agi corporate incurred an adjusted EBITDA loss of $4 1 million in the quarter compared to an adjusted EBITDA loss of $3 9 million.

Of note in this quarter is that once again, our operating subsidiaries delivered adjusted EBITDA margins in the high teens during a period of new campus investment. And despite the temporary COVID-19 related headwinds that impacted our enrollment.

And despite the temporary COVID-19 related headwinds that impacted our enrollment.

Aspen University's adjusted EBITA margin was 18% compared to 28%. USU used adjusted EBITDA margin was 18% as compared to 14%. Moving on to the balance sheet. At October 31, 2021, our unrestricted cash and cash equivalents were 11 million and restricted cash was $1.4 million. At April 30, 2021, our unrestricted cash and cash equivalents were $12.5 million and restricted cash was $1.2 million. On August 31st, 2021, the company drew down $5 million on the credit facility and extended the maturity by one year to November 4th 2022.

U S used adjusted EBITDA margin was 18% as compared to 14%.

Moving on to the balance sheet at October 31, 2021, our unrestricted cash and cash equivalents were 11 million and restricted cash was $1 4 million at.

At April 32021, our unrestricted cash and cash equivalents were $12 5 million and restricted cash was $1 2 million.

On August 31, 2021, the company drew down $5 million on the credit facility and extended the maturity by one year to November 4th 2022.

The purpose of these funds is to be used for general business purposes, including new campus rollout. As we execute the Aspen 2.0 business plan, we anticipate decrease in the need to borrow funds in the future. We are confident that despite COVID-19 headwinds, we have adequate liquidity to execute our business plan for the remainder of fiscal 2022 with no additional borrowings. With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter was 24,957,046 versus 22,791,503.

We are confident that despite COVID-19 headwinds, we have adequate liquidity to execute our business plan for the remainder of fiscal 2022 with no additional borrowings.

With respect to our share count.

<unk> average number of common basic shares outstanding at the end of the quarter was 24 million 957046 versus 22.791 million 503.

Today in the earnings release issued after the market close we introduced the revised guidance for the fiscal year 2022. This update reflects the COVID-19 impact on our second-quarter results and only assumes a modest recovery in the second half of the year. As we previously stated we believe the COVID impact is temporary but there is significant uncertainty as to when the impact of the most recent surge will abate.

This update reflects the COVID-19 impact on our second quarter results and only assumes a modest recovery in the second half of the year.

As we previously stated we believe the Covid impact is temporary but there is significant uncertainty as to when the impact of the most recent surge will abate.

We anticipate revenue in the range of 77 million to $80 million, representing an increase of $18.7 million or 16% year over year from the midpoint of the guidance range. And GAAP loss per share of 38 to 29, for an improvement of 10 cents for 24% year over year from the midpoint. EBITDA for the full year is anticipated to be in the range of 5 million to $3 million loss and increase of 2 million or 33% from the midpoint.

And GAAP loss per share of 38 to 29, four an improvement of 10 cents for 24% year over year from the midpoint.

EBITDA for the full year is anticipated to be in the range of 5 million to $3 million loss and increase of 2 million or 33% from the midpoint.

Lastly, we expect adjusted EBITDA in a range of 2 million loss to breakeven decreasing year over year by $2.3 million from the midpoint of the range. It is important to consider the impact of our pre-licensure expansion strategy on our guidance. The expansion of pre-licensure campus locations reduces both gross margin and EBITDA. During the 18 to 24 month period in which the student body ramps to breakeven operating levels.

It is important to consider the impact of our pre licensure expansion expansion strategy on our guidance.

The expansion of pre licensure campus locations reduces both gross margin and EBITDA. During the 18 to 24 month period in which the student body ramps to breakeven operating levels.

The reduced profitability has purposely been implemented by management in order to ensure successful growth of the company for years to come. It is also discretionary. As a matter of fact, we estimate our fiscal '22 high end low projected EBITDA guide without consideration of investments and ramping pre-licensure locations would increase by approximately $4.6 million. Meaning the company would be approximately breakeven EBITDA for this fiscal year. If not for the opening of the three pre-licensure campus locations over the past one and a half years. 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.

It is also discretionary.

As a matter of fact, we estimate our fiscal 'twenty two high end low projected EBITDA guide without consideration of investments and ramping pre licensure locations would increase by approximately $4 6 million.

Meaning the company would be approximately breakeven EBITDA for this fiscal year.

Not for the opening of the three pre licensure campus locations over the past, one and a half years.

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.

Okay.

Thank you. As a reminder to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key please stand by we compile the Q&A roster. Our first question comes from Darren [Aftahi] with Roth Capital Partners. You May proceed with your question.

Draw your question press the pound key please stand by we compile the Q&A roster.

Our first question comes from Darren <unk> with Roth Capital Partners. You May proceed with your question.

Hey, guys. Good afternoon. Thanks for taking my questions just two if I may. I know COVID-19, a little bit of a headwind for you guys just kind of could you caveat what you can control on the cost side and what you can't control? And then on marketing. I know you've kind of paired the enrollments in the Phoenix campus, but are you going to an aggregate pulled back on marketing spend just given what you're seeing? And if so where would you actually be putting marketing dollars that were remaining? Thanks.

I know COVID-19, a little bit of a headwind for you guys just kind of could you caveat what you can control on the cost side and what you can't control and then on marketing.

I know you've kind of paired the enrollments in the Phoenix campus, but are you going to an aggregate pulled back on marketing spend just given what youre seeing and if so where would you actually be putting marketing dollars. They were meeting thanks.

Okay, Yes. Darren, It's Mike Mathews, I'll answer the second question first. We've had a lot of debates internally about how we want to handle our marketing spend for the rest of the fiscal year. And we're going to maintain our existing Aspen <unk> business strategy. Which means that we're going to drive growth spending in our USU business as well as in our new pre-licensure locations.

Darrin, It's Mike Mathews I'll answer the second question first.

We've had a lot of debates internally about how we want to handle our marketing spend for the rest of the fiscal year and we're going to maintain our existing Aspen <unk> business strategy.

It means that we're going to drive growth spending in our usu business as well as in our pre lifestyle, our new pre licensure locations.

And we've already of course dropped spend in our Phoenix location, and we dropped spend in our Aspen nursing plus other unit. So we're not looking to make any changes at this time in our marketing plan and I'll turn it over to Matt on the cost side. Yes. So the question is. What's the controllable versus uncontrollable spend as we deal with COVID? So what we can control our corporate costs G&A specifically.

Yes so.

So the question is.

What's the controllable versus uncontrollable spend as we deal with Covid. So what we can control our corporate costs G&A specifically.

There is the Austin [2.0 plan]. Originally assumed that we're going to control G&A costs, corporate G&A costs and the idea was we can keep those costs flat for the remainder of this year and really into next year as well. And we were very confident that we can keep that spend flat without impacting our operations or our ability to grow or execute on our strategy. So that's what's in our control.

The Austin as you point out of plan.

Originally assumed that we're going to control G&A costs.

G&A costs any idea if we can keep those costs flat for the remainder of this year and really into next year as well and.

And we were very confident that we can we can keep that spend flat without impacting our operations or our ability to grow or execute on our strategy. So that's the that's what's in our control.

Additionally, there is some ramping of G&A associated with the pre-licensure new campus rollouts. That's discretionary to some point because we obviously can pull back on rolling out new campuses, but that's not within our strategy. So the plan is to let that G&A increase just specific to the new campus rollout.

That's discretionary to some point because we obviously can pull back on rolling out new campuses, but thats not within our strategy. So the plan is let that G&A increased just specific to the new campus rollout.

The other item that's not controllable would be the instructional cost piece of the equation. As we grow our student body, we obviously have to find their education and experience. So you will see instructional cost grow in proportion to the revenue growth. The one thing I'd say is in this current fiscal year '22, we had multiple campuses rolling out and we've had to invest in this instructional costs in advance of the student body ramping to full capacity or to our plan.

Not controllable would be the instructional cost piece of the equation as we grow our student body, we obviously have to find there.

Education and experience. So you you will see it.

<unk> cost grow in proportion to the revenue growth. The one the one thing I'd say is in.

In this current fiscal year 'twenty two.

Had we had multiple campuses rolling out and we've had to invest in this instructional costs in advance of the student body ramping to full capacity or to our plan we.

We will grow into that somewhat next year, and so I think you'll see the. You know as we go through time, the instructional cost as a percentage of revenue modestly dropping off as we accelerated our new campus rollouts. As we talked about before, we might have at least another tier one next year, but that's out into the future and the overall trend will be positive. So hopefully that answers your question.

You know as we go through time, the instructional cost as a percentage of revenue modestly dropping off as we accelerated our new campus Rollouts.

As we talked about before we might have at least another tier one next year, but but that's out into the future into the overall trend will be positive.

So hopefully that answers your question.

It does, thank you. Thank you. Our next question comes from Eric Martin Lucy with Lake Street. You may proceed with your question. It sounded like you were seeing some evidence in November of a correction in the negative trend that you had seen from the middle of June through October. With that November indication, because I know you guys have. You don't have the same number of class starts per month, but was that based on evidence from at least a couple of class start cycles?

Thank you. Our next question comes from Eric Martin Lucy with Lake Street, You May proceed with your question.

Yes. It sounded like you were seeing some evidence in November of a correction in the negative trend that you had seen from the middle of June through October.

With that November indication, because I know you guys have.

You don't have the same number of class starts per month, but was that based on evidence from at least a couple of class start cycles.

Yeah. Hi, Eric, It's Mike Mathews. So yes. So if you don't mind I wouldn't mind, just kind of going back and talking a little about histories that you guys can get more color on kind of what this COVID-19 effect has been. If you go back and look at our active student body at Aspen online. So of course I'm excluding pre-licensure in this conversation. Our year over year student body at Aspen online in fiscal year '21, so last fiscal, it grew by 7% year over year on average. Our class starts. Last fiscal year rose by 10%. It typically our class starts are 2%, 3%, 4% higher than the growth of the active student body. As you go as we went into fiscal year '22. From May through October, so the first five months of this fiscal year, our student body grew by an average 5%. So grew a little bit less at Aspen online than the year before and partly because we've dropped our spend rate purposely and the Aspen nursing plus other unit.

If you go back and you look at our active student body at Aspen online. So of course I'm, excluding pre licensure in this conversation.

Our year over year student body at Aspen online in fiscal year 'twenty, one so last fiscal it grew by 7% year over year on average our class starts.

Last fiscal year rose by 10%. It typically our class starts are 2%, 3%, 4% higher than the growth of the active student body. As you go as we went into fiscal year '22. From May through October, so the first five months of this fiscal year, our student body grew by an average 5%. So grew a little bit less at Aspen online than the year before and partly because we've dropped our spend rate

Three 4% higher than the growth of the active student body.

As you go as we went into fiscal year 'twenty two from.

From May through October so the first five months of this fiscal year, our student body grew by an average 5%. So grew a little bit less at Aspen online than the year before and partly because we've dropped our spend rate.

purposely and the Aspen nursing plus other unit.

So typically if you have an increase of 5% of your active student body over this five-month period, you would assume that the class starts for these primarily registered nurses would grow by 7, 8, 9% somewhere in that range. And it only increased by 3%. So hopefully that gives you guys an understanding of kind of what has occurred in these first five months of the fiscal and how registered nurses are showing fatigue, they're showing a little bit of exhaustion and they're just simply taking less courses during this handful of months timeframe.

And it only increased by 3%.

So hopefully that gives you guys an understanding of kind of what has occurred.

Its first five months of the fiscal and how.

Registered nurses are showing fatigue, they're showing a little bit of exhaustion and theyre just simply taking less courses. During this handful of months timeframe.

We absolutely believe this is a temporary effect. So I don't want anyone going away thinking that this is potentially a systemic issue. It is certainly not. So November yes, Eric, we saw some normalcy in November so we're pretty excited about that.

So I don't want anyone going away thinking that this is potentially a systemic issue is certainly not.

So November yes, Eric we we saw some normalcy in November so we're pretty excited about that.

And our first class start of December was also strong but remember last year November December were months, where we saw our original initial COVID-19 effects. So the year over year comp was not as difficult in November December but so far we're seeing an increase kind of on a normalized basis of what we would usually expect. So hopefully all of that color helps you guys with sort of what the situation has been.

We're seeing an increase.

On a normalized basis of what we would usually expect so hopefully all of that color helps you guys with <unk>.

Sort of what the situation has been.

Okay, and then just a follow up on the enrollment side there. What about the unit economics? I know you publish your Q, I haven't had a chance to dive into it that's usually where you talk about the unit economics, but have those been even though you're signing up fewer are you having to pay more to get the students are getting.

Yes, that's a really good question. So we actually, the results have been mixed. We announced today that our enrollments at USU were down 7% sequentially. And that was a bit of a surprise for us. We've never had a sequential decrease that I can recall at USU over a four year period.

We're down 7% sequentially.

And that was a bit of a surprise for us we've never had a sequential decrease that I can recall at usu over a four year period.

So there is no question and of course, our FNP program you have to be in RN with the baccalaureate degree to join that program. So there is no question that the enrollment slowdown at USU was kind of a COVID-19 effect and as a consequence of that obviously, our cost of enrollment would go up and that kind of a situation, because we didn't change the spend rate.

<unk>, because we didn't change the spend rate.

However, interestingly the good news is that in our Aspen nursing plus other and our doctor of groups. So in other words, our Aspen online programs. The cost of enrollment actually decreased. Part of that is because anytime we decreased our spend rate we do see some efficiency. We actually, our cost of enrollment in our Aspen nursing plus other unit dropped down below $1000, which we haven't been below a thousand I think in a couple of years. So yes, so it's been a bit of a mixed bag. The FNP program enrollments were a little bit challenging this quarter while our enrollments on the Aspen side did fine.

The cost of enrollment actually decreased.

Part of it part of that is because anytime we decreased our spend rate we do see some efficiency, we actually our cost of enrollment in our Aspen nursing <unk> other unit dropped down below $1000, which we haven't been below a thousand I think in a couple of years.

So.

So yes, so it's been a bit of a mixed bag.

The FNP program enrollments were a little bit challenging this quarter while our enrollments on the Aspen side did fine.

The <unk> program enrollments.

We're a little bit challenging this quarter while.

Our enrollments on the Aspen side.

Did did did did fine.

Thanks for taking my questions. Thank you. Our next question comes from Jeremy Hamblin with Craig Hallum Capital. You may proceed with your question. Thanks. So I wanted to follow up on the COVID-19 fatigue aspect of the story.

Thank you. Our next question comes from Jeremy Hamblin with Craig Hallum Capital You May proceed with your question.

Thanks, So I wanted to follow up on.

The COVID-19 fatigue aspect of the story and.

In terms of thinking about how this pandemic is evolving into an endemic situation. With a new variant that seems kind of pop up every five or six months. I think one of the concerns that we would have been looking at this is the requirements that some of our health care workers are facing with vaccination required for many healthcare systems. Which is seemingly turning off some subset of employees.

With a new variant that seems kind of pop up every five or six months.

I think one of the concerns that we would have been looking at this is.

The requirements that some of our health care workers.

Are facing with.

Vaccination with.

Required for many healthcare systems.

Which.

Seemingly turning off some subset of employees.

And in terms of facing those type of headwinds, do you think that's a factor in why you're not seeing more people, more enrollments for your program? Any comments would be helpful.

People are you know more enrollments for <unk>.

For your program.

Any comments would be helpful.

I mean. Jeremy, I just have to say that it's really too early for us to have a strong opinion either way. Our enrollments again this quarter, we had a challenge in terms of you know a little bit of a slowness relative to our FNP side. But in our traditional Aspen nursing plus other things went according to plan. So the short answer is we don't know yet it's really too early to tell.

Jeremy I just have to say that it's really too early for us to have a strong opinion either way.

Our enrollments again this quarter, we had a challenge in terms of you know a little bit of.

Slowness relative to our FMT.

Aside but in our traditional Aspen nursing plus other things went according to plan.

So.

The short answer is we don't know yet it's really too early to tell.

We feel incredibly strongly about the business model that we have which is focused intensely on the nursing sector. COVID is unquestionably a temporary situation. We all don't know exactly when that's going to abate in terms of the requirement of nurses to remain working long hours. But there's nothing that we're seeing that would suggest that again this would be a long term systemic issue.

Covid is unquestionably a temporary situation, we all don't know exactly when that's going to abate in terms of the requirement of nurses to remain working long hours.

But.

There's nothing that we're seeing that would suggest that again this would be a long term systemic issue.

Got it. And then I wanted to come back to your commentary around competitor acquisitions, you guys are now the largest independent nursing school. In terms of thinking about since those acquisitions have happened competitor response on the pricing front. My understanding is some of your competition has had slightly altered their pricing strategies in markets that you've entered. Can you comment at all on what you're seeing from competitors? In your for markets in particular, your newer markets, where it seems like they may be pushed back a little on pricing structure.

And then I wanted to come back to your commentary around the.

Competitor acquisitions, you guys are now the largest independent nursing.

School.

In terms of thinking about those.

Those acquisitions have happened competitor response.

My understanding is.

Some of your competition has had slightly altered their pricing strategies in markets that you've entered.

Can you comment at all on what you're seeing from from competitors.

In your for markets in particular, your newer markets, where it seems like they may be pushed back a little on pricing structure.

Your.

For markets in particular, your newer markets, where it seems like they may be pushed back a little on pricing structure.

Well I mean so. The two universities that had been acquired Galen College of nursing and Rasmussen. Yes, we certainly see them in our metro locations. Since Galen was acquired by HCA, they've been very aggressive at launching initially in Austin location inside of HCA. Hospital system.

The two the two universities that had been acquired Galen College of nursing and Rasmussen.

Yes, we certainly see them in our metro locations.

Since Galen was acquired by HCA, they've been very aggressive at launching initially in Austin location inside of HCA.

Hospital system.

And they've also announced they're going to move to Northern Virginia next. So they're moving relatively quickly to expand. We have not seen any pricing changes from a tuition point of view amongst our competitors. Just going into it, jumped subjects for a moment. We are seeing some significant increase in spend rates amongst some of our competitors. And when we do see spurts of spending that take place with some of our competitors in some of our programs. And therefore, we see a short term cost per click CPC rises, we don't chase that. We never will. We're not seeing any long term changes in terms of CPCs and our cost per lead. But we'll continue carefully watching the competitive set.

We have not seen any pricing changes from a tuition point of view amongst our competitors.

Just going into it just jumped subjects for a moment.

We are seeing some significant increase in spend rates amongst some of our competitors.

And when we do see spurts of spending that take place with some of our competitors in some of our programs. And therefore, we see a short term cost per click CPC rises, we don't chase that. We never will. We're not seeing any long term changes in terms of CPCs and our cost per lead.

When we do see.

Spurts of spending that take place with some of our competitors in some of our programs and therefore, we see a short term cost per click CPC.

Rises we don't chase that we never will.

No.

We're not seeing any long term changes in terms of cpc's and our cost per lead.

But we'll continue carefully watching the competitive set.

Great. Thanks. Last one for me. So in your largest market in the Phoenix Metro, as you started to have a series of [inaudible] exam scores that had been lower than desired. In terms of approaching that to approve test results. Can you provide us with an update on the expectation for changes that are being made in the curriculum training given to students that are prepping for those exams? And kind of an expectation around the timeline that you think to kind of cure and get those exam scores up above the levels that are that you're looking for? Thanks.

So in your your largest market in the Phoenix Metro.

<unk> started to have a series of and collect it.

Zahm scores that.

<unk> had been lower than desired.

In terms of approaching that to improve test results.

Can you provide us with an update on the expectation for changes that are being made in the curriculum training given to students that are.

Prepping for that.

For those exams and kind of an expectation around when.

The timeline that you think to kind of cure and get those exam scores up above the levels that are that you're looking for thanks.

Sure. Yeah, I mean, we recognize that NCLEX first time pass rates is a clear indication of academic quality. So we're intensely focused on increasing these scores. The scores this year have been hovering in that 60% range, which is just not good enough. So over the last 12 months, we've made 4 significant changes to our program in Phoenix to ensure that we do get improvements to our NCLEX scores in the short term. Each of the changes that I'm going to explain to you takes time to take full effect.

A clear indication of academic quality. So we're intensely focused on increasing these scores.

Scores this year have been hovering in that 60% range, which is just not good enough.

So over the last 12 months, we've made for significant changes to our program in Phoenix to ensure that we do get improvements to our <unk> scores in the short term.

Each of the changes that I'm going to explain to you takes time to take full effect.

But we're expecting next calendar year to see material improvements to our scores starting in the first quarter. So the first thing we did is we increased our minimum GPA requirement for our first-year students that are matriculating into our final two-year core program. We changed at GPA requirement from a minimum of 2.75 to 3.0. That change we made effective as of our November 2020 academic catalog.

So the first thing we did is.

We increased our minimum GPA requirement for our first year students that are matriculating into our final two year core program, we changed at GPA requirement from a minimum of $2 75 to three point O.

That change we made effective as of our November 2020 academic catalog.

The second move we made we've mentioned in our previous earnings call. We hired a full-time NCLEX coach for any students that are having difficulty passing some of the NCLEX prep exams during the curriculum. We hired that full-time NCLEX coach back in January so she has been she's been in the system for rent at roundabout eight-nine months now. The third thing we did is it. We implemented the Elsevier predictor exam system into our curriculum and that was inserted into the curriculum as of this past August so that's still relatively early days in terms of seen improvements.

Having difficulty passing some of the.

<unk> prep exams during the curriculum.

Higher debt that full time <unk> coach back in January so she has been she's been in the system for rent at round about eight nine months now.

The third the third thing we did is it.

We implemented the Elsevier predictor exam system into our curriculum and that was inserted into the curriculum as of this past August so that's still relatively early days in terms of.

Seen improvements.

The most recent change we made is maybe the most critical change which is we've now implemented Kaplan's NCLEX test prep product as a requirement for graduation as if our graduating class of November. So this past month. It's embedded into our final 16-week semester curriculum and the students must reflect that they're able to pass that prep exam in order to graduate and then take the NCLEX exam. So those four changes, we're very very comfortable that the fourth. Putting those four things together is going to allow for significant material improvements in the upcoming calendar year.

We've now implemented kaplan's and clicks test prep product as a requirement for graduation as if our graduating class of November. So this so this past month.

It's embedded into our final 16 week semester curriculum and the students must reflect that theyre able to pass that prep exam in order to graduate and then take the take the <unk> exam. So.

Those four changes, we're very very comfortable that.

The fourth.

Putting those four things together is going to allow for significant material improvements in the upcoming calendar year.

Thanks, that's super helpful. Best wishes. Thanks. Thank you. Our next question comes from Austin [Malga] with Canaccord. You may proceed with your question. Alright, thanks for taking my questions. Another COVID-19 one. Can you talk about what's different about the COVID-19 impacts now versus a year ago? Considering I don't think the impacts were as great a year ago, but sort of hospitalizations and other metrics were worse overall in the country. So can you just talk about what's different now?

Thanks.

Thank you. Our next question comes from Austin <unk> with Canaccord you May proceed with your question.

Alright, thanks for taking my questions. Another COVID-19 one.

Can you can you talk about what's different about the COVID-19 impacts now versus a year ago considering.

I don't think the impacts were as great a year ago, but sort of hospitalizations and other metrics were worse overall in the country. So can you just talk about what's different now?

Yeah, well basically we've been very transparent about any COVID-19 effects that we've seen since the pandemic began. We felt it was very important to do so because we, I believe we're the most heavily concentrated nursing higher education company in the United States. So I think the important thing to recognize is that we saw very short term effect in November December a year ago. That effect went away quite quickly. So I think what happened in that first phase of the pandemic. The students that were, sorry, [inaudible] that was their first opportunity to take a quick vacation and take a breather during the two holiday months of a year ago. We then saw a stronger than normal spring. If you guys remember last quarter Q1, we overperformed. We beat all of our guidance for the first quarter. That was a result of registered nurses having taken off November December and then they came flowing back during sort of February through April. And then all of a sudden as you guys know we start as soon as mid-June came, we have seen as the effects from mid-June all the way through the end of October and then it looks like November has turned back again. So the best that I can say to you is that the second wave is causing I think a certain amount of burnout, a certain amount of exhaustion, a certain amount of fatigue. And if you're a registered nurse right now, you're probably just going to take less courses short term.

Any COVID-19 effects that we've seen since the pandemic began we felt it was very important to do so because.

We.

I believe were the most heavily concentrated nursing higher education company in United States.

So I think I think the important thing to recognize is that we saw very short term effect in November December a year ago.

That effect went away.

Quite quickly so I think what happened in that first phase of the pandemic.

The students that was sorry.

[inaudible] that was their first opportunity to take a quick vacation and take a breather during the two holiday months of a year ago. We then saw a stronger than normal spring. If you guys remember last quarter Q1, we overperformed. We beat all of our guidance for the first quarter. That was a result of registered nurses having taken off November December and then they came flowing back during sort of February through April. And then all of a sudden as you guys know we start as soon as mid-June came, we have seen as the effects from mid-June all the way through the end of October and then it looks like November has

We then saw it.

A stronger than normal spring, if you guys remember last quarter Q1.

We over performed we beat all of our guidance for the first quarter.

That was a result of registered nurses.

Having taken off November December and then they came flowing back during sort of February through April and then all of a sudden as you guys know we start as soon as mid June came we seen as the effects from mid June all the way through the end of October and then it looks like November November.

turned back again. So the best that I can say to you is that the second wave

is causing I think a certain amount of burnout, a certain amount of exhaustion, a certain amount of fatigue. And if you're a registered nurse right now, you're probably just going to take less courses short term.

The second the second wave is causing I think a certain amount of burn out a certain amount of exhaustion, a certain amount of fatigue and if you're a registered nurse right now you're probably just going to take less courses short term.

While you are able to sort of overcome your daily life, and the expectations and all the sadness and such. So we will get through this. They will get through this. They will come back to normal. Hopefully, they already have starting November. So I can't say enough about our great demographic of registered nurses that makes up most of our school. Frankly looking back out in the last year and a half I'm amazed at how well they've hung in there and continue to do so.

Are you able to sort of overcome your daily life, and the expectations and all the sadness and such so so we will get through this they will get through this they will come back to normal hopefully they already have starting November so.

My.

I can't say enough about our great demographic of registered nurses that makes up most of our school.

Frankly looking back out in the last year and a half I'm amazed at how well they've hung in there and continue to do so.

Got you that's helpful. And then on GAAP net income so I understand that the guidance has come down but can you talk to the kind of exit exit velocity for this fiscal year and how that changes from your prior guidance for the end of the year.

And then on GAAP net income so I understand that the guidance has come down but can you talk to the kind of exit exit velocity for this fiscal year and how that changes from your prior guidance for the end of the year.

Yes, I'm glad you asked because we really wanted to touch on guidance for the rest of the fiscal and then talk about next year as well.

So I'm going to turn it over to Matt for that.

So I mean, we put the put the guidance out there for the rest of this fiscal so I really would like to focus on where do we go from here, what's the what does it look like going into into 'twenty three.

And so next year conservatively, we think that there is a 15%.

Growth rate next year, which would imply about a $12 million increase in revenue year over year.

Versus where our revised guide is today.

And with that.

And earlier you know we have this this this strategy of holding our corporate G&A flat and that will continue through next year. We are confident in our ability to control cost through through next year. So that means we're going to get some leverage.

The result would be an adjusted EBITDA improvement of about $6 million.

Also fueling that adjusted EBITDA improvement is the fact as I mentioned before that our gross margin will improve as we grow into our new our new campus locations that infrastructure it becomes more and more productive. So gross margin improves G&A flat adjusted EBITDA up about $6 million on a $12 million revenue increase.

<unk>.

And so that would that would translate into if you look at the midpoint of adjusted EBITDA. This year of about $5 million of adjusted EBITDA next year.

And if I could just add to what Matt just said.

We are intensely focused on becoming profitable as a company obviously, given the announcement a quarter ago of our Aspen <unk> business plan.

And our our forecast suggests that if we do in fact deliver a $6 million improvement and $6 million of leverage next year next fiscal year, we won't burn cash we will be basically cash neutral for the year.

So that's a big goal of our company is to be self sustaining.

And.

I'm pretty confident we'll get there.

Got it and last question I wanted to ask how.

Conversion rates and start rates are changing and for.

Conversion rates leads to enrollments and starts sort of enrollment to starts just curious if you could give any color there.

Well I kind of did it earlier, we saw in the last 90 days, we saw our conversion rate.

Decrease at Usu.

We're hopeful as as the month of January rolls around that that will turn around.

At Aspen online, which includes our nursing plus other unit and our doctoral unit.

Our our conversion rate is just as good if not slightly better over the last 90 days.

<unk>.

Hopefully that helps.

One other one other piece of color I would like to add as it relates to the guide and next year I think I think the obvious question comes up how are we thinking about COVID-19 as we put these revised numbers out.

And the answer is no.

Our forecast is conservative we're assuming that this COVID-19 effect persists.

And if the growth is really based on where we are today and kind of a nominal growth rate from there a lot of the growth.

You know Mike talked about you know we're growing our PL campus locations that is one area that has not been affected by Covid.

If you are in population and so that growth will will drive us forward, even in even in light of what's going on with the Delta variant.

Criteria and all of that so.

You can feel confident that the numbers that we're putting out there and not assuming some sort of a COVID-19 snapback in the second half or into next year.

Yeah.

Okay. Thanks very much.

Thank you. Our next question comes from Raj Sharma with B Riley you May proceed with your question.

Hi, good afternoon guys.

I just wanted to get back on the guidance.

And also related impact from Covid.

The guidance for fiscal 'twenty to revenues.

Seems to be a bigger drop than <unk>.

A snapback wood.

Would presume so.

Sort of the guidance was <unk> 86 for the year before and now it's <unk> 78, and a half so that's about $8 million drop in revenues that should happen in <unk>.

For Q.

And so you were saying last year when December Coe bid.

Intense overloads, where sort of reversed when you came back in.

In April quarter.

We're not expecting that.

That sort of snapback.

In the third quarter.

Yes.

Yes, so suraj if you go back one year.

Yeah.

Of course, everyone is aware that our January quarter.

Is a slow seasonal quarter, because you've got the holiday months of November December and our students have historically taken less courses during those holiday months.

Last year sequentially, our revenues went down from Q2 to Q3 by I believe about $350000.

Well this year.

Back of the envelope, we're looking at.

Maybe it only goes down by 100000, so so so thats what Q3 looks like and then you are correct. We're being very conservative on Q4, we don't know how things are going to are going to occur at this point, what whether theres going to be a material improvement or a snapback.

So we're just being conservative at this point.

Which gets us to the middle of that 78, and a half range.

Got it.

And then just.

On the pre licensure.

Phoenix enrolled is Phoenix enrollment is supposed to be back on in Q3.

No.

We reduced our spend rate.

As of Q3 last year.

And then so so in other words, so we've had essentially 12 months now of lower spending in Phoenix, and we've been doing 200 to 250 enrollments per quarter for the past year.

Whereas.

That year previous if you guys recall, we were doing 500, plus every quarter. So we had it was a big dropdown and we were planning to continue that kind of a run rate.

Doing the maintenance spend rate in Phoenix, and we've been doing that for again multiple quarters.

And our plan is to continue doing that going forward.

And when can you start enrolling back into the first year.

The first.

The first year of the program at Phoenix.

Well it really is.

The entire plan is based on.

US wanting to have approximately <unk> hundred 50 students that are in the first year program always having that number in the pipeline.

We're pretty close to that $16 50 number so the way that we're looking at this now as we studied carefully how many whats.

What's our attrition going to be in Phoenix, each year and the attrition has two pieces right you've got Greg expected graduations and you have withdrawal.

And so our analysis suggests that the attrition per annum is in the 800000 student level per annum and that's why we're enrolling that same number approximately per annum. Currently does that makes sense.

Right Okay.

Then how much starts sort of shaping up at the other new campuses.

How have those been impacted at all by the current environment are you seeing.

Good sort of enrollment has that filtered through the people still want to sign on.

Oh, yes, yes, a little bit more color on that.

Yeah, Yeah. So we mentioned in our earnings remarks that we had a sequential increase of.

Enrollments at Aspen University, this past quarter and it was almost entirely a result of pre licensure growth in our three new Metro markets.

So we're not seeing any headwinds from COVID-19.

High school graduates that are looking to become registered nurses to joining our pre licensure BSN program.

I think I've mentioned in the previous.

Earnings call that.

If you look at the three new markets.

Let's start off with Phoenix, If you look at Phoenix. The first 12 months in Phoenix, We had about 500, new student enrollments in that first year.

And Austin.

I believe we just passed the one year Mark and we had about 300. So so Austin has been a very good market for us we never expected Austin to meet Phoenix, because it's not a tier one size.

Nashville has not hit the one year, mark yet, but it's tracking pretty comfortably to about 200.

So, which and again national is a smaller market than Austin so.

It's kind of that's to be expected I think the only weakness that we've seen as Tampa has been slower than we expected.

We have been enrolling in Tampa I believe for about eight months now approximately and.

We're probably going to have round about 100 enrollments in Tampa in that first year. So Tampa has been a little bit weak and the other two new markets have been either as expected or a little bit stronger than planned.

Got it and then just lastly on the guidance for the following year 'twenty three so you're expecting about you talk about two numbers one was $12 million with the increase of the revenues from the from the revised guidance.

That'll put you closer to the 90 plus.

And then the $6 million is the adjusted EBITDA increase from the.

The negative to flat.

Are you expecting this year, yes, that's correct yes.

Yes, correct, what Matt said is that we're going to we're expecting an increase of about $12 million in revenue year over year.

And we expect to achieve adjusted EBITDA leverage of 50%. So we expect the improvement to be $6 million year over year and if we're in the <unk>.

<unk> 1 million of adjusted EBITDA. This year, that's the middle of the range that would imply a $5 million positive EBITDA for us.

Positive adjusted EBITDA for next fiscal year, we're able to achieve that leverage as I said before by whole net corporate G&A flat.

And as I mentioned here, we're going to get some improvement on the gross margin percentage and so when you factor that in.

We get enhanced EBITDA leverage and that's.

Not a stretch to get there.

Yes.

<unk>.

Completes my questions. Thank you.

Okay.

Thank you. Our next question comes from Mike Grondahl with Northland Securities. You May proceed with your question.

Hey, guys, just a little follow up on Austin, Tampa and Nashville.

When do you roughly see those getting to be break even.

What can you take from the learnings that those three and apply it to this new market you may be starting in the spring.

Yes, I mean so.

If you look at Tampa for example, we've had about 100 enrollments to date, we're approaching 100 enrollments to date and last quarter at Tampa operating loss was sort of in the vicinity of about $350000.

Our expectation is that.

We should be able to achieve a breakeven level.

In Tampa, probably I would say sometime late next fiscal year, but for Austin, We're getting close I mean, we are within a couple of quarters of breaking even in Austin and Nashville Nashville of course was our last opening.

So we're probably looking at about a year before that turns profitable.

Got it.

I mean the.

The way to look at this.

Is that in Phoenix, if you guys recall, we broke even after 12 months. It was a very rapid start to breakeven level.

These new markets are closer to kind of two years.

That's what it's looking like which is perfectly fine for us.

Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Michael Mathews for any closing remarks.

Thank you everyone for joining us on our second quarter earnings call today, we're looking forward to.

Talking to you again in our third quarter 90 days from now and have a good afternoon and thank you.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yeah.

Sure.

[music].

Q2 2022 Aspen Group Inc Earnings Call

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