Q2 2024 Aspen Group Inc Earnings Call
Greetings and welcome to the Aspen Group, Inc. Second quarter fiscal year, 'twenty 'twenty four earnings call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce Rosanna showman corporate controller. Thank you.
Rosanna Showman: <unk> you may begin.
Rosanna Showman: Please note that the company's remarks made during this call including answers to questions includes forward looking statements, which are subject to various risks and uncertainties. These statements include anticipated future enrollment and revenue trend revenue growth, our proposed marketing and other spending.
Rosanna Showman: <unk>.
Rosanna Showman: Our future growth and growth strategy, the timing concerning completion of the pre licensure teach out the timing of receipt of funding from the D O and generation of positive operating cash flow actual results may differ materially from the results predicted and reported results should not be considered.
As an indication of future performance.
A discussion of risks and uncertainties related to Aspen group's business is contained in its filings with over the counter market, including the quarterly report for the six months ended October 31st 2023 and in the press release issued this afternoon. Other risks include our reliance.
Rosanna Showman: On third parties, who may have different priorities government spending on health care, which partially creek the demand for nurses and our ability to establish real estate relief.
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 table in the press release issued by the company. Today. Please note that the press release is available on Aspen group's website, a S. P U dotcom and the IR calendar page under news is that.
Rosanna Showman: It also will be available at OTC market dotcom forward Slash OTC QB.
Speaker Change: A transcript of this conference call will be available for one year on the company's website now I will turn the call over to Mr. Matthews.
Matthews: Good afternoon, and thank you for joining our earnings conference call for the second quarter of fiscal year 2024.
Speaker Change: I'm looking forward to sharing some exciting updates and achievements from Aspen group in terms of our income statement performance balance sheet improvements and operating results.
Speaker Change: Let's start with our financial performance.
Speaker Change: In Q2 fiscal year 'twenty four we made significant progress in several key areas.
Narrowed our net loss year over year by an impressive 30% helped.
Speaker Change: Helped by our financial discipline amid the wind down of the Aspen University's pre licensure program.
Speaker Change: I'm delighted to announce that we achieved our fourth consecutive quarter of positive EBITDA.
Speaker Change: Additionally, we generated cash from operations during the second fiscal quarter.
Speaker Change: Enrollments at Aspen University, and United States University had been on the rise over the past two quarters, even given our minimal internet advertising spend.
We attribute this to the robust demand we continue to see in the health care industry, especially for post graduate nursing degrees for registered nurses.
Speaker Change: Our online post graduate degrees at Aspen, and the highly coveted M. S. N F. N P program at United States University provides students with flexible program and payment options, especially for working our ends to attain advanced degrees and improve their career options.
Speaker Change: The enrollment growth not only reflects the value of our programs and our attractive monthly payment plans.
Speaker Change: But it also reflects the strength of our University brand.
Speaker Change: We instituted tuition increases effective September one 2023, and the sequential bump in Q2 enrollment certainly reflects the pull forward in advance of that increase.
Speaker Change: I'd like to switch now to our academic program achievements.
Speaker Change: We are proud to report that we are currently graduating our largest cohorts from the Aspen University BSN pre licensure program in Arizona.
Speaker Change: Notably the Yang <unk> first time pass rate in Arizona in the fourth calendar quarter ending December 31, 2023 has increased to an impressive 89%.
Speaker Change: To be specific in the fourth calendar quarter 93 of 105 first time, Inc. Like takers in Arizona passed the exam.
Speaker Change: Additionally, in Texas eight of nine first time, Inc. Lex takers passed in the fourth calendar quarter, reflecting an 89% first time pass rate.
Speaker Change: Finally in Tennessee, we had our first graduates take the Yanke, let's examine the final week of the fourth quarter and past that in the first time.
Speaker Change: Our success in elevating the first time pass rates for anchors like sports and Arizona and other states.
Speaker Change: Underscores our steadfast dedication to enhancing program rigor and refining student test preparation alongside various other enhancements that positively impact the outcomes of all pre licensure students at Aspen University.
Speaker Change: Finally, we expect the teach out of our pre licensure program to be completed in Arizona. This mall and then all remaining states by mid 2024.
Speaker Change: Turning to our financial transparency, we want to assure you that the parent company Agi has remained current with their required OTC markets quarterly financial filings.
Speaker Change: You can find these filings done our quote page on the OTC markets web site under the disclosures tab.
Speaker Change: We have fulfilled our stated commitment to deliver positive EBITDA and have achieved this goal for the fourth consecutive quarter.
Speaker Change: From a liquidity perspective, we have positive news as well.
Speaker Change: We generated over $400000 of cash from operations in the quarter, which is attributed to a reduction of G&A spend and the receipt of two financial aid payments from the department of education at Aspen University.
Speaker Change: Prior to the end of January 2024, we are projecting an unrestricted cash balance exceeding $2 million.
Speaker Change: There are two factors contributing to the increase in projected unrestricted cash balance.
Speaker Change: First the reduction of our surety bond in Arizona.
Speaker Change: From $5 5 million to $2 5 million reduced our restricted cash balance by $1 million.
Speaker Change: We are currently seeking an alternative bond provider to further reduce the amount of cash that is restricted with it two and a half million dollars bond, which could add an additional $1 million to our unrestricted cash balance.
Speaker Change: Second we anticipate we will receive a substantial financial aid payment with the department of education of approximately $3 $9 million prior to the end of January 2024.
Speaker Change: Lastly, I want to address two closely related subjects.
Speaker Change: First the distance Education Accrediting Commission or D Act.
Speaker Change: Cause directive that was issued by Aspen University. This past February.
Speaker Change: We underwent a special visit by a team of <unk> evaluated in October which was implemented as part of the show cause directive as well as our 2023 re accreditation requirement.
Speaker Change: We anticipate receiving the commissions show cause and re accreditation decision in approximately the next 60 days.
Speaker Change: Regarding Aspen university's heightened cash management to or H C M two status.
Speaker Change: We call that the U S Department of Education place the University on this federal financial aid status in February immediately following the D Act show cause directive.
Speaker Change: Under H C. M. Two we successfully received for reimbursement thus far and as previously noted we anticipate receiving the fifth HCN to reimbursement of $3 9 million by the end of January 2024.
Speaker Change: In conclusion, the second quarter of fiscal year 2024 has been marked by financial stability improved academic performance with regards to our Aspen University and flex first time pass rates.
Speaker Change: And progress with our Dx show cause and re accreditation process and the department of education ACM to reimbursement.
Speaker Change: There is one final legal item to note regarding the class action complaint and Arizona regarding the pre licensure program.
Speaker Change: On January nine 2020 for a final settlement was approved by the Superior Court Judge in Arizona, whereby asked me University agreed to pay $550000 in exchange for a release of all claims of the settlement class inclusive of attorneys fees and costs.
Speaker Change: 500000 of the payment is covered by Aspen, you know insurance policy and the remaining 50000 will be paid by Aspen University.
Speaker Change: Thank you for your continued support and confidence in Aspen Group I will now hand, the call over to Matt to cover the details of our second quarter financial results.
Matt: Please go ahead Matt.
Matt: Thank you Mike and good afternoon, everyone in my comments on the quarterly results I will refer to the second quarter that ended on October 31 2023.
Matt: Unless otherwise stated all comparisons are to the prior year's second quarter ended October 31 2022.
Matt: As Mike mentioned in his remarks, we had a strong financial quarter highlighted by two key factors first although our marketing spend was reduced to maintenance levels late in fiscal Q1 2023 enrollments at both universities increased this quarter total enrollments for Agi increased.
Matt: 5% from Q2 fiscal 'twenty, three and 34% sequentially excluding.
Matt: Excluding the impact of the reduction of pre licensure revenue from the teach out year over year revenue is down only 7% due to the high demand for post graduate nursing degrees.
Matt: Second we continued to benefit from cost controls implemented with the two restructurings in fiscal Q2, 2023, and physical Q4 2023.
Matt: Our year over year G&A expense is down 23%.
Matt: And we generated positive operating cash flow in the quarter.
Matt: Financial highlights for the quarter are as follows.
Matt: Total revenue was $13 8 million versus $17 1 million or a decrease of 19% to <unk> 3 million of the decrease is attributed to the teach out at the pre licensure program and.
Matt: And the remainder of the decrease resulted from lower post licensure enrollments from Q3 fiscal 2023 through to Q1 fiscal 2024 due to the effect of decreased marketing spend.
Matt: Gross profit and gross margin were $8 7 million and 63%, respectively versus $10 2 million and 60% respectively.
Matt: The year over year gross margin improvement is primarily a function of lower marketing spend and lower instructional costs and services associated with the enrollment stoppage in the pre licensure program.
Matt: Instructional costs for the quarter were $4 2 million or 31% of revenue down from $5 5 million or 32% of revenue.
Matt: The decrease in instructional cost as a percentage of revenue was primarily due to the decrease in students in the pre licensure core curriculum as a result of the teach out.
Matt: The core curriculum the pre licensure program requires an increase in the ratio of instructors to students.
Matt: Your students in the program disproportionately decrease overall instructional costs.
Matt: Total marketing and promotional costs for the second quarter were 348000 or less than 3% of total revenue as compared to 824000 or about 5% of revenue.
Matt: The decrease in marketing as a percentage of revenue resulted from decreased advertising spend across all programs to maintenance levels.
Matt: We plan to resume marketing spend late in fiscal year 2024 to a quarterly targeted spend rate of 500000.
Matt: This level of spend is expected to provide the enrollments needed to resume growth of the student body in fiscal 2025, while allowing for the generation of positive operating cash flow.
Matt: The quarters general and administrative costs were $8 4 million or 61% of total revenue compared to $10 9 million or 64% of total revenue in the.
Matt: The year over year decrease in G&A spend is due to both the impact of the two restructuring initiated in fiscal 2023.
Matt: And cost controls designed to reduce G&A spend across all functions, mainly corporate hei.
Matt: Total net loss was $1 6 million or a loss of six cents per basic and diluted share compared to a net loss of $2 3 million or a loss of nine cents per basic and diluted share.
Matt: From a unit perspective, Aspen University's net income for the quarter was 582000 compared with $1 1 million.
Matt: U S used net income was $1 6 million versus $1 8 million.
Matt: Finally, a G I incurred a net loss of $3 8 million compared to a net loss of $5 2 million.
Matt: Included in the Hei loss is interest expense of $1 million compared to 710000.
Matt: After the repayment of the $1 5 million of principal on our senior secured loan our quarterly cash interest payments will be approximately 750000.
Turning to non-GAAP financial measures. Please see the reconciliation to GAAP contained in our press release issued today.
Matt: Consolidated EBITDA for the quarter was positive 419000 as compared to an EBITDA loss of 603000.
Matt: Again strong post licensure revenue reduced marketing spend and G&A cost control measures drove the improvement in EBITA as.
Speaker Change: As Mike mentioned, we achieved our fourth consecutive quarter of positive EBITDA and cumulative positive EBITDA over the past four quarters is approximately $2 7 million.
Speaker Change: Second quarter EBITDA compared to the prior year quarter for each of the three units was as follows.
Speaker Change: Aspen University generated $1 3 million compared to $1 9 million U S. You generated $1 8 million compared to $1 9 million.
Speaker Change: A G I had an EBITDA loss of $2 7 million compared to an EBITDA loss of $4 4 million.
Speaker Change: Consolidated adjusted EBITDA was $1 1 million compared to 537000.
Speaker Change: From a unit perspective, Aspen University generated adjusted EBITDA of $1 6 million compared to adjusted EBITDA of $2 1 million.
And adjusted EBITDA margin was 22% as compared to 20%.
Speaker Change: <unk> generated adjusted EBITDA of $2 million compared to adjusted EBITDA of $2 1 million and adjusted EBITDA margin of 30% as compared to 32%.
Speaker Change: Finally, agi corporate incurred an adjusted EBITDA loss of $2 5 million compared to an adjusted EBITDA loss of $3 7 million.
Speaker Change: Moving to the balance sheet as of October 31, 2023.
Speaker Change: Unrestricted cash and cash equivalents were $1 9 million.
Speaker Change: Unrestricted cash was $4 1 million compared to a balance of $1 4 million and $4 $4 million respectively. At April 32023.
Speaker Change: Included in the unrestricted cash balance is the release of $1 5 million associated with the second amendment to the 15% debentures.
Speaker Change: 18% debentures originally required the company to maintain $2 million of restricted cash and the second amendment decrease the requirement of 500000.
Speaker Change: We plan to repay the $1 5 million as a reduction of principle prior to the end of January 2024.
Speaker Change: And we issued <unk> penny warrants equal to 4% of the outstanding stock of Hei.
Speaker Change: Subsequent to the closing of the quarter, we received $1 million from the reduction of the surety bond required by the state of Arizona.
Speaker Change: Additionally, as Mike mentioned, we anticipate the receipt of a $3 9 million reimbursement from department of education for student financial aid prior to the end of January 2024.
Speaker Change: After the receipt of the department of education payment the Companys unrestricted cash balance is projected to exceed $2 million.
Speaker Change: Cash used in operations for the first six months of fiscal 2024 was $4 $2 million importantly, the cash generated from operations for the second quarter was positive $409000.
Speaker Change: In the first quarter, we used $4 $6 million of cash in operations due to delays in receiving government student financial aid payments after our payment after our placement on the HCM two payment methods.
Speaker Change: And due to increased student a R. As strong enrollments increased use of the monthly payment plan.
Speaker Change: In the second quarter, we generated $409000 of cash from operations due to the processing of two H C. M. Two payments totaling $4 $8 million and the impact of ongoing cost savings, which were offset by an increase in student accounts receivable do you do your continued strong enrollments.
Speaker Change: We had capex spend during the first six months of 600000, primarily related to capitalized software.
Speaker Change: Cash generated from financing activities for six months was $5 2 million due to cash provided by the 15% debentures offset by the repayment of outstanding borrowings under the $5 million credit facility.
Speaker Change: The payment of a portion of the outstanding 15% debentures.
And expenses associated with the Devonshire offering.
Speaker Change: With respect to our share count the weighted average number of common basic shares outstanding at the end of the quarter was $25 million 548046 versus 25 million 305363.
Speaker Change: In the year ago quarter, we are not providing guidance at this time.
Speaker Change: That concludes our prepared remarks, I will now turn the call back to the operator for questions.
Greater please open the call for Q&A.
Speaker Change: Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question you May press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the Q.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment, while we poll for questions.
Speaker Change: There are no questions in the queue at this time I'd like to hand, it back to management for closing remarks.
Speaker Change: Thank you everyone for joining our second quarter fiscal 'twenty four earnings call look forward to speaking with you again.
Speaker Change: And our Q3 earnings call in March.
Speaker Change: Have a good day. Thank you.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect your lines at this time.
Speaker Change: And have a wonderful day.