Aspen Group, Inc.

Aspen Group, Inc.

$0.14
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NASDAQ Global Market
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Education & Training Services

Aspen Group, Inc. (ASPU) Q2 2015 Earnings Call Transcript

Published at 2014-12-01 17:00:00
Executives
Michael Mathews - Chairman and CEO Janet Gill - EVP and Interim CFO
Janet Gill
Good afternoon. My name is Janet Gill, and thank you for joining us today for Aspen Group's Fiscal Year 2015 Second Quarter Earnings Call. Please note that the company's remarks made during this call, including answer to questions include forward-looking statements which are subject to various risks and uncertainties. These includes statements regarding expectations from our nursing programs, increase in marketing spend, growth in revenue, and adjusted EBITDA. 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 our business is contained on our filings with the Securities and Exchange Commission, particularly the section titled "Risk Factors" in our Form 10-K for the fiscal year ended April 30, 2014. 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 the course of this conference call, we'll discuss adjusted EBITDA and adjusted gross profit, which are non-GAAP measures in talking about the company's performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the press release issued by the company today. There will be a transcript of this conference call available for one year at the company's Web site. I'd now like to turn the call over to the Chairman and CEO of Aspen Group, Mr. Michael Mathews.
Michael Mathews
Thank you, Janet. Joining me on the call today, as you've heard, it's Janet Gill, our Executive Vice President, and Interim Chief Financial Officer. I'll begin today by reviewing the highlights of our second quarter. Then I'll provide comments on our business strategy in the coming quarters. After my prepared remarks, we'll then turn to Q&A. To open, the company set new records this quarter for revenues, gross profit, average cost per new student enrollment, and lead to conversion rate. Quarterly revenues were $1,214,247, which represents an increase of 33% year-over-year. Aspen Group's gross profit for the second quarter totaled $680,409 or 56% of revenues, which represents an 84% increase year-over-year. Our adjusted gross profit, exclusive of amortization totaled $800,921 or 66% of revenues, which represents a 67% increase year-over-year. Aspen's marketing efficiency this quarter is clearly the highlight. The company decreased its marketing spend 37% year-over-year, while new student enrollments increased 14% over that same period. The reason Aspen was able to increase its enrollments while at the same time materially decreasing its marketing spend is a direct result of the implementation of our debtless education vision, which we announced back in March. As you're likely aware, back in March, Aspen announced the monthly payment plan for all students allowing graduate students to pay their program tuition at $325 per month for 36 months, and undergraduate students to pay $250 per month for 60 months, thereby giving all Aspen students the opportunity to earn a degree debt-free. Since that announcement, our lead to enrollment conversion rate has jumped from 8.2% to 10.6%. On a year-over-year basis, our conversion rate has jumped from 7.7% to 10.6%, which is an enviable conversion rate improvement of 38% year-over-year. More enviable is the fact that our average cost for new enrollment has dropped to a record low of $544. That's stunning when compared to other online for-profit universities that report average enrollment cost in the $4000-$6000 range. Our adjusted EBITDA consequently improved in the quarter to a loss of $228,819, which is an improvement of 68% year-over-year. Operating income also improved substantially year-over-year, improving 54% to a loss of $588,317. The company extinguished its institutional convertible debt in the quarter prepaying off the principle and interest totaling $2.31 million. Consequently, the company expensed a one-time loss on debt extinguishment of $452,503 in the quarter, which resulted in a net income loss of 1,131,361 or a loss per share of $0.01. From a balance sheet perspective, obviously the closing of $5.4 million private placement of equity in the quarter was the highlight. This not only allowed the company to early retire the aforementioned institutional debt, but it also improved our cash position of $3 million. It increased our current ratio to 2.1, and it improved our stockholder's equity to a positive $1,871,883. In short, the equity financing has now put the company in a position to begin scaling its debtless education solution. Let's now discuss our future business strategies. As most of you're aware, Aspen's growth in the past two years has been primarily in the School of Nursing. At the start of 2012, the School of Nursing accounted for only 5% of Aspen's full-time degree-seeking student body. Today, it has risen to 37% of our full-time degree-seeking Student body. Year-over-year, Aspen's nursing student body grew from 600 students to 1026, which represented 67% of Aspen's overall full-time degree-seeking Student body growth. As Aspen grew year-over-year, from 2171 to 2811 full-time degree-seeking students, my apologies, that's quarter-over-quarter, from 2171 to 2811, now in fact that's year-over-year, I apologize. Almost all our nursing students today are in one of Aspen's MSN or Master of Science in Nursing degree programs. Therefore, all this growth at Aspen in the past few years was focused on the graduate niche of nursing education. To give you an idea of why I call that a "Niche;" that's because approximately 13% of registered nurses today hold a Master's degree or higher. Approximately, another 42% hold a Bachelor's degree today, while the remaining 45% of RN's today do not yet hold a Bachelor's degree. This demographic, the approximate 45% of RNs that do not yet hold a Bachelor's degree is the next significant growth driver for Aspen University. Three weeks ago, Aspen announced it has been granted accreditation by the Commission on Collegiate Nursing Education or CCNE for its Bachelor of Science and Nursing program, what we call the RN to BSN program. Everyone should be aware that this is a seminal moment in Aspen's history. We've had tremendous success growing our graduate program in nursing, offering RN's the ability to pay $325 a month to obtain their Master degree without incurring debt. Now, we'll begin marketing to the mass market of RNs that are yet to earn their four-year Bachelor's degree, and we're offering these RNs the ability to pay only $250 per month over 39 months to pay for their 10 course RN to BSN completion program. We have tremendous confidence that this program will become extremely popular among the RN's in America, and we expect this program will be the primary growth driver for Aspen over the next two to three years, together of course with our MSN program. Today, as we announced earlier, we're growing on the top line at the rate of 33% year-over-year. To drive further growth, we doubled the number of enrollment advices in our enrollment center during October, and just began marketing our BSN program a few weeks ago. It's important to know that Aspen's lead to enrollment timeframe is on average approximately 90 days. Even students take their first course over that following 90-day period, revenue growth from the BSN program should begin to be reflected in our fourth [ph] fiscal quarter, in other words, two quarters from now. As a result of the growth of the BSN program, we're expecting our overall revenue growth rate to exceed 50% in fiscal year 2016, compared to our current fiscal year 2015 revenues. Over the next few quarters, we're planning to double our marketing spend rate, and as mentioned, we have doubled our enrollment center in tandem with this plan. And given that it takes two quarters to begin deriving revenues from that investment spending, you'll have to expect our adjusted EBITDA loss to increase over the next few quarters. We expect revenues to ramp rapidly thereafter, giving us a level of scale necessary to begin generating positive cash flow. Finally in terms of Aspen's Cap Table, as of October 31, 2014, we had 112.5 million shares of common stock outstanding, we had 44 million warrants outstanding at a weighted average exercise price of $0.25, and we had approximately 13.3 million stock options outstanding at a weighted average exercise price of $0.21. That ends our prepared comments for this afternoon. Now, we'd like to open the call to address questions. Q - Janet Gill: Okay. Our first question submitted this afternoon is, do you have plans to uplift in the near future, and will you need to implement an equity financing in the future and meet the requirements?
Michael Mathews
Thanks, Janet. Let me first say that we don't have any near fourth term plans to uplift. However, the company does aspire to uplift no later than fiscal year 2017. By the end of fiscal year 2017, we expect a substantial number of warrants to be converted, which will increase our stockholder's equity of course, and therefore that may allow us to meet the guidelines for an uplift without implementing an additional equity financing.
Janet Gill
Okay. Our second question submitted this afternoon is, how much larger is the market size for the undergraduate BSN programs versus the graduate MSN program?
Michael Mathews
Good question. Okay, there is approximately 2.8 million RNs in America today. Approximately 365,000 RNs today hold an MSN or higher degree, which compares to approximately 1.5 million RNs that today hold a BSN or higher. So, today the market size is approximately four times higher or larger. We expect that between now and 2020 the total RN population in America will grow by 19% to a total of 3.24 million RNs. And we believe demand for BSN degrees during this timeframe will be at least five times higher than graduate nursing degree. That's obviously why Aspen chaining its BSN accreditation this past month was so important to our plans to rapidly expand our nursing school. Okay, I guess that's it for questions. Thank you today for your questions. I appreciate it. I want to thank everyone for joining us this afternoon, and the team here at Aspen looks forward to talking with you guys again soon. Good afternoon.
Operator
Ladies and gentlemen, thank you for joining today's program. This concludes the program. You may all disconnect.