Q1 2023 Aspen Group Inc Earnings Call
The next available conference specialist will be with you momentarily.
S Place No. 3
Conference Center, may I have your name, please?
Hi, this is Rachel Smith.
and the company you're with?
I'm with ERA, that's A-I-E-R-A.
Alright, I'll put you through to the claw. Have a good rest of the day.
Thank you.
and various risks and uncertainties.
These statements include anticipated future declines in instructional costs in the second half of fiscal 2023, future tapering of gross margin pressures in late fiscal 2023 and in fiscal 2024, reductions in cash use and operations to position the company to generate positive operating cash flow in the second half of fiscal 2023, our future financing efforts, including closing an accounts receivable facility, and other financial services.
future savings from reduced marketing, restructuring savings, and our liquidity.
Actual results may differ materially than results predicted, and reported results should not be considered as an indication of future performance.
A discussion of risks and uncertainties related to asthma groups business is contained in its filings with the Securities and Exchange Commission, including the Form 10K, the fiscal year ended April 30, 2022.
Form 10Q, we are filing for the quarter ended July 31, 2022, and then the earnings release issued this afternoon.
Aspen Group disclaims any obligation to update any forward-looking statement as a result of future developments. Social X organs result in hedge- illuminate
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.
Please note that the earnings release is available on Aspen Group's website, aspu.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 Matthews, Aspen's Chairman and Chief Executive Officer.
Good afternoon, and thank you for joining our call today. Revenue for the fiscal year 2023 first quarter, which is typically our seasonally slowest quarter, was $18.9 million, a modest year-over-year decrease of 3%, which reflects the enrollment stoppage at our BSN prelicensure campuses in Arizona and the effect of the $1 million sequential reduction of marketing spend in the prior quarter.
AU's revenue decreased by $1.3 million, or 10%, in Q1 fiscal 2023 compared to Q1 fiscal 2022, with the Phoenix pre-licensure program accounting for $800,000 of the decrease.
USU's revenue growth of 12%, primarily due to demand for the MSN FNP program, helped to offset the AU decrease.
The MSNFNP program remains the strongest program for Aspen Group from a revenue growth perspective.
As we discussed in our last earnings call in the fourth quarter of 2022, we temporarily decreased our market spend sequentially by $1 million primarily to ensure sufficient collateral for a surety bond.
This quarter's gross margin reflects revenue and marketing spend consistent with third-quarter 2022 levels.
Another factor affecting the first quarter gross margin was higher instructional costs, which increased by a half a million dollars from the prior quarter and 1.2 million year over year.
Matt will provide more detail on the costs in his comments.
Still, as a reminder, on our third quarter 2022 conference call, we discussed that instructional costs were increasing due to additional instructors needed to support the ramp of our new pre-licensure campuses and the increase in clinical immersion at additional campuses for the USU MSN FNP
We expect instructional costs to begin tailing off in the second half of fiscal 23 and gross margin pressure to taper as new campus locations mature and the core nursing populations in the Phoenix locations decrease as we exit fiscal year 23 and over the course of fiscal year 2024.
To offset these cost increases and manage our cash, we recently initiated a restructuring that reduces marketing spend and AGI's total staff by approximately 15%.
The staff reductions are focused on G&A areas throughout the company. The restructuring effects are expected to reduce cashews in operations, with the effect of these G&A reductions to be reflected in upcoming quarters.
With these changes, we believe that we have positioned the company to generate positive operating cash flow in the second half of fiscal 2023.
Switching to the first quarter operating metrics, new student enrollments at AU decreased 46% year over year and at USU by 34% year over year.
New student enrollments at AU were primarily impacted by the enrollment stoppage at our Phoenix pre-licensure campuses and the overall company reduction in marketing spend by a million dollars in Q4 2022 over the prior quarter.
AGI's active degree-seeking student body, including AU and USU, declined 13% year-over-year from 12,048 students.
from 13,879 students.
AU's total active student body decreased by 16% year over year to 9,133 from 10,911.
On a year-over-year basis, USU's total active student body decreased by 2% to 2915 from 2968.
Students seeking nursing degrees were 10,394 or 86% of total active students at both universities.
Of the students seeking nursing degrees, 8910 are RNs studying to earn an advanced degree, including 6202 at Aspen University and 2708 at USU.
In contrast, the remaining 1484 nursing students are enrolled in Aspen University's BSN pre-licensure program in the Phoenix, Austin, Tampa, Nashville, and Atlanta metros.
The majority of the year-over-year Aspen University nursing student body decrease is a result of the enrollment stoppage in the Phoenix prelicensure program.
In conclusion, I want our shareholders to understand that Matt and I are managing Aspen Group's operations with the goal of navigating through this period of declining enrollments due to the Phoenix pre-licensure enrollment stoppage and the related revenue reduction.
We have prioritized continued control of our expenses, supporting the success of our high LTV business units, in particular our MSN FNP program and our new pre-licensure campuses.
As stated on our last earnings call, the company is currently considering various growth and financing alternatives. On August 18, 2022, we entered into an equity distribution agreement that enables us to issue and sell shares of Aspen Group common stock for aggregate gross proceeds of up to $3 million. As stated on our last earnings call, the company is considering various growth and financing alternatives. On August 18, 2022, we entered into an equity distribution agreement that enables us to issue and sell shares of Aspen Group common stock for aggregate gross proceeds of up to
The facility's primary purpose is to provide additional short-term liquidity while the expected impact of our restructuring program takes effect.
In parallel, we have engaged Lampert Capital Advisors to assist with securing an Accounts Receivable financing agreement.
Until we close in ARFIS financing, the company plans to maintain its current marketing maintenance spending plan.
I will now hand the call over to Matt to cover the details of our first 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 first quarter that ended on July 31, 2022.
All comparisons are to the prior year's first quarter into July 31, 2021, unless otherwise stated.
I will begin with the review of our financial results for the 2023 fiscal first quarter, including some detailed commentary on P&L items and additional commentary on the restructuring program initiated late in Q1.
I'll then conclude with comments on our balance sheet.
Financial highlights for the quarter are as follows.
First, as expected, we saw a sequential decrease in our active student body, which is consistent with the marketing spend reduction in fiscal Q4 2022.
This resulted in a modest quarterly sequential decrease in revenue, primarily in our Aspen University online programs.
our active student body decreased from 13,334 in Q4 2022 to 12,048 in Q1 2023.
Second, we temporarily resumed marketing spend at a level consistent with fiscal Q3 2022, which impacted our gross margin and adjusted EBITDA.
This $1 million sequential marketing increase accounts for a significant portion of the adjusted EBITDA loss in the first quarter.
Third, continued cost controls further reduce GNA costs versus prior years, first quarter, and the sequential prior quarter.
Now, on to the details.
Total revenue was $18.9 million versus $19.4 million in the year-ago quarter, or a decrease of 3%.
This decrease is attributed to the fiscal Q4 2022 sequential decrease in marketing spend and the stop of enrollments in our Phoenix prelicensure locations.
Gross profit and gross margin were 8.2 million and 43 percent respectively versus 10.4 million and 54 percent respectively for the year-ago quarter.
The year-over-year gross margin decline is a function of lower revenue and increased instructional costs and services.
Instructional costs for the first quarter were $5.7 million, or 30% of revenue, up from $4.5 million, or 23% of revenue, in the year-ago quarter.
The increase in instructional costs as a percentage of revenue was primarily due to the inflationary impact on faculty compensation and the need for more instructors in our pre-licensure program which is the result of more students entering the core curriculum.
The core curriculum requires an increase in the ratio of instructors to students, especially as students enter the clinical portion of the program.
The core student population is growing in our Phoenix locations as a result of the progression of double cohorts and in our other new locations as students move into the core portion of the program for the first time.
Additionally, higher USU immersion-related instructional costs were incurred in the quarter due to the growth in the MSN FNP program.
Total marketing and promotional costs for the first quarter were $4.5 million, or 24% of total revenue, up from $4.1 million, or 21% of revenue.
The increase of marketing as a percentage of revenue results from the planned increase in marketing spend across all programs to levels consistent with fiscal Q3 2022.
The quarter's general and administrative costs were $10.5 million or 56% of total revenue compared to $10.9 million or 56% of total revenue.
The quarterly decrease in GNA spend is due to cost controls designed to reduce GNA spend across all functions, particularly corporate AGI.
Total net loss was $3.7 million or $0.15 per basic and deleted share compared to a net loss of $871,000 or $0.03 per basic and deleted share in the prior year quarter.
From a unit perspective, Aspen University's net loss for the quarter was $209,000 compared with net income of $2.3 million.
US used net income was $1.4 million versus $1.3 million.
Finally, AGI incurred a net loss of $4.9 million compared to a loss of $4.5 million.
The increase in the AGI net loss is due to a full quarter of interest expense.
Consolidated EBITDA for the quarter was a loss of $2.2 million as compared to positive EBITDA of $92,000 in the prior year period.
First quarter EBITDA, period over period, for each of the three units was as follows.
Aspen University generated 549,000 compared to 3.1 million.
USU generated 1.5 million compared to 1.3 million.
AGI had an EBITDA loss of 4.2 million compared to an EBITDA loss of 4.4 million.
The decline in AU EBITDA is attributed to lower revenue associated with the decreased fiscal Q4 2022 marketing spend and the stop of enrollments in our Phoenix prelicensure locations.
and increase instructional costs associated with our pre-licensure program.
Consolidated adjusted EBITDA was a loss of 1.2 million compared to positive adjusted EBITDA of $506,000 in the prior year quarter.
From a unit perspective, Aspen University generated adjusted EBITDA of 826,000 compared to adjusted EBITDA of 3 million.
Aspen University's adjusted EBITDA margin was 7% as compared to 22%.
USU generated adjusted EBITDA of 1.7 million compared to 1.5 million.
USU's adjusted EBITDA margin was steady at 24% for both the current and prior year quarter.
Finally, AGI corporate incurred an adjusted EBITDA loss of $3.7 million compared to an adjusted EBITDA loss of $3.9 million.
As Mike mentioned, we implemented a restructuring plan late in the first quarter of fiscal 2023, which will result in significant cash benefits for the company starting in the second quarter of fiscal 2023 and continuing for the remainder of the fiscal year.
There are two key components of the plan.
First, in the second quarter, we scaled that marketing ad spend to maintenance spend levels of $150,000 per quarter, which will result in savings of $3.6 million in Q2 and $3.8 million in each of Q3 and Q4.
The savings estimates are based on a normalized marketing ad spend run rate of $4.2 million per quarter.
Second, the plan resulted in the elimination of approximately 70 positions, mostly within our GNA functions at Aspen University and AGI.
As a result, additional restructuring savings of $750,000 in Q2 and $1.1 million in each of Q3 and Q4 are expected.
Total spend reductions will be $4.4 million in Q2 and $4.9 million in each of Q3 and Q4.
In summary, these are significant spend reductions which we believe will position the company to generate positive operating cash flows in the second half of fiscal 2023.
Moving on to the balance sheet, as of July 31, 2022, our unrestricted cash and cash equivalents were $2.4 million and restricted cash was $6.4 million.
As of April 30, 2022, our unrestricted cash and cash equivalents were $6.5 million and unrestricted cash was $6.4 million.
Cached use and operations for the quarter was $3.6 million. $2.2 million of the cached use and operations is attributed to our EBITDA loss.
The remaining use of operating cash is primarily attributed to an increase in short-term and long-term accounts receivable related to our monthly payment plans.
We also had CapEx spend during the quarter of $500,000.
As Mike mentioned, the company entered into an equity distribution agreement that enables us to issue and sell Aspen Group common stock shares.
for aggregate gross proceeds of up to $3 million. The agreement's primary purpose is to provide additional short-term liquidity, as needed, ahead of the realization of the benefits we expect from our restructuring program.
Finally, we engaged Lambert Capital Advisors to assist with securing an AR financing agreement, although we are at an early stage and cannot predict if we will achieve our goal of securing financing.
With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter was 25,202,278 versus 25,070,072 in the year ago quarter.
At this time, we are not providing guidance.
If we close and execute an AR financing agreement, we will update our business plan for the remainder of Fiscal 2023.
In the meantime, we will manage our expenses with an eye on generating positive operating cash flows in the second half of Fiscal 2023.
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.
Thank you. And at this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
A confirmation tone will indicate a line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please while we poll for questions.
And our first question comes from the line of Eric Martinuzzi with Lake Street. Please proceed with your questions.
Yeah, I want to get into the cost reductions, but first I wanted to step back and look at the scenarios for the prelicensure BSN in Arizona, you know, in 2023. I understand the scores have been improving there in Arizona, but still not at a level that would get you a green light for 2023. So how are you thinking about the prelicensure BSN program for 2023?
Yeah, good afternoon, Eric. This is Mike. I'll take the second question and I'll give Matt the first question about the restructuring detail.
So, you know, we're in conversations with the Arizona Board of Nursing and, you know, clearly the Board of Nursing has various options that range from lifting the stay and initiating the revocation to electing to continue the stay for an additional period of time until achievement of the required 80% pass rate is achieved. So at this point we don't have a final determination but we're in discussions and, you know, as we get to our next quarter we'll probably have more.
information to provide in that area. Okay, and then the restructuring obviously you've got G&A as well as reduction in the spend. Take me back to the the number of heads that were eliminated and then the compare the prior normalized marketing spend rate with the current.
Yes, so the number of heads that were eliminated was approximately 70. Those heads are in the G&A organization throughout the company. Specifically there is a concentration in the AU portion of the business and then on the IT side as well. So the idea was, okay, if we are taking marketing spend down a significant amount we can gain efficiencies.
with you know related to that decrease in marketing spend and then the IT side the idea is let's you know Let's save as much cash as we can while preserving our ability to you know grow in the future. So that's those are the thoughts
All right, and then the question regarding what was normalized marketing spend, you know, if... Yeah. Go ahead. Yeah, so normalized marketing spend was about 4.2 million. That's what we're basing the decreases from. So, just to repeat, the savings are 3.6 million in Q2 and 3.8 million in each of Q3 and Q4.
So, what's left is that maintenance level needed to kind of keep our marketing engine primed as well as keep some basic infrastructure in place.
Alright, and then I know you're not giving guidance, but given that lower level of...
as you put it, a maintenance level spend rate.
I assume we're looking at a revenue decline.
Do you have any sense of the sequential step down that we can anticipate?
Is this going to impact both colleges, both universities, both USU and Aspen U? Is it just Aspen U?
It's, the marketing spend is spread throughout the organization with the cut that deep, you know, you're going to impact both USU and AU. You know, like we said, we're not giving guidance, but I mean, we've given you kind of the high level way to think about it. So naturally, when there's a decrease in marketing spend, there's a decrease in enrollments, which has an impact in revenue. You saw that this quarter. But the other side of this is we're doing all of this to generate a healthy bottom line with
Thank you for taking my questions.
Thanks, Eric.
And our next question comes from the line of Raj Sharma with B Riley. Please proceed with your question.
I think you've taken the questions. I want to follow on with the last speaker. What is the high level of thinking in terms of the impact on revenue? So every dollar you reduce in marketing spend.
How should we think about?
Every dollar reduced in marketing spend reduces revenues by...
Yes, you know, you're reducing the cash flow, but that's also are you pulling from the future, of course.
and
Can you give us some color on that or understanding of how to actually...
understand the impact on revenues.
Sure, and obviously you guys are aware of the material decrease in revenues in our Phoenix pre-licensure location, so that will continue to show itself as this next year continues. I guess probably the best way to thinking about it is, back in the envelope we are currently projecting approximately a 5% reduction in our aggregate student body quarterly.
So the marketing spend reduces by 3.6 million, Q2, 3.8, 3.8, and Q4. The GNA savings of 4.4, 4.9, 4.9, those are in addition.
Right, so the GNA savings are $750,000 in Q2, and then in each of Q3 and Q4 it's $1.1 million. So that's based on those headcount reductions that we just talked about.
Right, so 750 and this together combined the impact is 4.4, 4.9, 4.9. Is that right?
You're you're crap
Okay, thank you. And then the enrollment.
The enrollment could you get some color on enrollment? and how do we sort of see that in the next few quarters a USU was down because of pre-licensure was down largely because of Phoenix and Did enrollment increase in the other?
And can you talk about the enrollment, the other ones, and then what happened with USU? USU enrollment decreased significantly and that is your big driver.
growth.
Yeah, so I understand.
Yeah, so again, the reason why we had a decrease in enrollments in each of our units is primarily the result of us spending a million dollars less.
you know, from in Q4, right, versus the previous Q3. So this is kind of an expected result for us, given the significant decrease of spending Q4. I think, you know, again, if you're modeling the result in coming quarters, I would expect us to have a modest decrease in enrollments sequentially versus the quarter that just ended.
Is that mid-single digits? Is that double digits?
What do you mean? Sequentially or are you over here? Yeah, sequentially. Sequentially, what sort of...
level of a decrease in enrollment is that.
Yeah, it's going to probably be similar to the revenue, which would be mid-single digits.
got it mid single it is got it and then
The last question I have is on AR financing.
Do we know, can you talk about where we are? What is, um,
you know, what is this sort of process and when do you think we should be able to get this and the impact that you would have?
And that's when you lift the maintenance plan on marketing, and you come back to sort of the 4.2 level of marketing spend.
Well, so.
So to answer your question,
Yes, when and if we are able to secure an AR facility, we would then increase our marketing spend. We have yet to develop that plan. It will be based on the level of the financing we are able to secure. But yeah, the idea is we would get out of the maintenance mode and get back into more of a growth mode from there. As far as the process, it's a multi-step process. So I'd say we are still kind of at the beginning stages, there is a marketing stage.
Okay, thank you. I'll take my questions offline.
Thanks, Raj.
Thank you.
Our next question comes from the line of Jeremy Hamblin with Craig Hallam Capital Group. Please proceed with your question.
Hi, thanks for taking our questions. This is Jack Cole on for Jeremy. I wanted to touch on the increase in instructional costs. You guys noted seeing the effects of wage inflation and having to hire more instructors. Are you guys having difficulty hiring and retaining instructors at these higher wages? And kind of related, how do you think about the overall effects on enrollment as nurses are probably...
going to be able to earn higher wages with their current education levels.
Yeah, hi, this is Mike Matthews. I'll answer the second question first. So, you know, we've not seen a decrease in demand thus far in terms of nurses looking to achieve advanced degrees and we certainly haven't seen any trouble as it relates to pre-licensure.
Do you want to go ahead and repeat the first question again? I apologize.
Yeah, just if you wanted to expand a little bit more on the instructional increase, the increase in instructional costs.
Yeah, yeah, there's a couple different factors that are going on, which we've kind of talked about previously. The first is, in our Phoenix operation, about a year ago, we began implementing double cohorts.
And when you have these double cohorts, of course, you have essentially double the instructional cost per cohort. So that's the one major reason why. The other reason, of course, is the increase of the number of people who are in the cohort
student body over the past year at USU, particularly with our FNP program and the weekend immersion that requires of course faculty for that. So those are the two major factors for the increase and to answer your other part of your question, no we haven't had any difficulty with hiring faculty necessary to handle our business. Thank you.
Awesome, thank you. And then a follow-up question a little different. How is your Atlanta campus tracking so far? Like what could we see what kind of the ramp rate is so far and if the enrollment is tracking more in line with say the Nashville campus or the Tampa campus?
Yeah, no, I mean Atlanta is tracking sort of between, you know, the highest level that we've ever seen, which was Phoenix metro, versus the Austin metro. So those are the top two metros in history, enrollment-wise. And Atlanta is tracking similar to, I'd say, Austin at this point. So it's going quite well.
Okay, thanks for the call. That's all I have....
Thank you.
Our next question comes from the line of Mike Grendel with Northland Securities. Please proceed with your question.
Yeah, two questions, guys.
Michael, any thoughts?
When, um...
Austin, Tampa, Nashville, and Atlanta can reach breakeven on a cash flow basis. Any kind of updated projections there.
Yeah, I mean, I think we've often said publicly that we need to have revenues.
on a run rate of approximately 1.5 million in order to break even. And Austin's tracking to that soon. The other locations, you know, you're looking at fiscal 24 and 25 respectively, depending on the maturity of the location.
Got it. And I mean,
Put it this way, are you committed to all of those locations or as you went through this restructuring, I don't know, were any of those locations kind of on the map or are they still part of the plan? We're going to hear more about the survey coming 140 days in the next few weeks, as
Yeah, we haven't made any business decisions to remove ourselves from a given market or what's called a teach-out at this point. As we've often said, Tampa has been our most difficult market to date.
And so thus far what we've done is just chosen to shift the marketing spend to higher levels in our three best markets, or sorry, two best markets, which is Austin and Atlanta, and we've decreased spend somewhat in Nashville and significantly in Tampa.
Got it. And then you had kind of said earlier, demand from nurses remains.
Robust.
I'm trying to reconcile that robust demand. It seems like you're losing a little bit of market share. Do you think the overall market and enrollments have softened a little bit? Or are you guys just losing a little bit of share?
Well, yeah, I don't, I wouldn't necessarily conclude that we're losing market share. I think, you know, we've now, you know, in our.
Fiscal Q4, we dropped our spend rate by a million dollars, right? And then we did bring it up again in Q1 and now we're back down to a maintenance spend again. So we've been kind of lumpy in terms of our spend rate as well as the leads that we're driving and therefore enrollment. So I think it's more a function of us, you know, deciding that for the short term we needed to shift our business plan and focus on generating cash. Thank you.
You know, we've been a business now for over 10 years, and we've burned cash throughout through this wonderful growth model. And I think we're making a clear statement to all of our shareholders today that we made the moves necessary to restructure the company and to ensure that we don't burn cash on a go-forward basis. And frankly, I've heard from all of our major shareholders that said, Mike, this is the time to do it. And so we made the moves, and this is our plan.
Got it. Good. Well, hey, I think sort of, you know, the restructuring, the reset, it makes a lot of sense and good luck in the back half of the year.
Got it. Good. Well, hey, I think sort of, you know, the restructuring, the reset, it makes a lot of sense and good luck in the back half of the year. Thanks, Mike.
And we have reached the end of the question and answer session. I will now turn the call back over to Michael Matthews for closing remarks.
Thank you again for participating in today's call everyone. We look forward to speaking with you again on our next earnings call in December . Thank you.
And this concludes today's conference and you may disconnect your line at this time. Thank you for your participation.