Aspen Group, Inc. (ASPU) Q2 2016 Earnings Call Transcript
Published at 2015-12-02 17:00:00
Janet Gill - CFO Michael Mathews - CEO
David Garrity - GVA Research Brett Reiss - Janney Montgomery Scott
Good day ladies and gentlemen and welcome to the Aspen Group Incorporated’s Fiscal 2016 Second Quarter Earnings Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder today's conference is being recorded. I would now like to introduce your host for today’s conference, Miss Janet Gill, Chief Financial Officer. Ma’am, please begin.
Okay. Thank you, very much Liz. Good afternoon. Thank you for joining us today for Aspen Group's fiscal year 2016 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 include statements relating to expectations from our nursing programs, new student enrolments, increase in marketing spend, and forecasts including growth in revenue, gross margins 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 in our filings with the Securities and Exchange Commission, particularly the section entitled “Risk Factors” in our Form 10-K which was filed on July 28, 2015. Aspen Group disclaims any obligation to update any forward-looking statement as a result of future developments. Also, I'd like to remind you that during the course of this conference call, we will discuss adjusted EBITDA and adjusted gross profit, which are non-GAAP measures when 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 website. I will begin today by reviewing our financial results for our fiscal second quarter, then we’ll turn the call over to the Chairman and CEO of Aspen Group, Mr. Michael Mathews. He will provide a business update focusing on our record new student enrolment and revenue growth. To open, quarterly revenues were $1,913,161, a 58% increase from the comparable prior year period which is an acceleration from 46% year-over-year growth in the previous quarter. Note that the 58% revenue growth increase be our previous 54% revenue growth pre earnings guidance, largely based on the fact that we delivered over 200 new student enrolments in the month of October which was our highest new student enrolment month in our history. Aspen group’s gross profit for the first quarter increased 40% from the comparable prior year period to $909,19 or 48% margin. Our adjusted gross profit exclusive of depreciation and amortization increased 35% from the comparable prior year period to $1,45,360 or 55% margin. On a sequential basis, our gross margins increased modestly by 1 percentage points from 47% to 48%, which was expected as we increased our marketing spend rate by 23% sequentially. To be more specific, beginning in August the first month of our quarter, we increased our average monthly marketing spend rate by $30,000 per month from $120,000 per month to $150,000 per month. Given it takes on average 60 to 90 days to generate a new student enrolment once a new lead hits our enrolment centre. The fact that our margins sequentially increase slightly in the quarter rather than declining is a result of the rapid rise and revenues we are currently experiencing. Given we plan to maintain our marketing spend rate at $150,000 per month for the remaining six months of our fiscal year, we expect to see gross margins improve materially in the coming two quarters. Finally, our adjusted EBITDA resulted in a loss of $279,352 a sequential improvement of 7%. Our net loss applicable to shareholders was $744,420 or a loss per share of $0.01. That’s a sequential decline of 4%. From a balance sheet perspective, Aspen ended the quarter with a cash balance of approximately $2.1 million, which includes $1,122,485 of restricted cash. Finally, our total stockholders' equity ended at a positive $1,316,961. Now I’ll turn the call over to Michael Matthews to discuss our business progress, specifically the rapid growth in new student enrolments and revenues.
Thank you, Janet. This past quarter we delivered 557 new student enrolments as compared to 265 a year ago, that’s an improvement of 110%. As mentioned earlier, enrolments accelerated in the last month of the quarter as we enrolled over 200 new students in October which is a monthly record for the University. As you would expect, Aspen school of nursing is responsible for the lions share of the new student enrolment growth. Specifically Aspen school of nursing is now on pace to grow on an annualized basis by approximately 1500 nursing students net or 125 per month on average. Aspen’s Bachelor Science and Nursing or BSN Program is accounting for 72% of that growth as that program is on pace to increase on an annualized basis by 1080 students net or 90 per month on average. Based on this accelerated growth in our BSN program, we now expect our total degree seeking student body to grow from 4015 students at quarter end to approximately 5000 students by the end of our fiscal year to April 30, 2016. That means we are now on pace to increase our degree seeking student body by 2000 students net on an annualized basis versus the previous pace of 1,200 students net on an annualized basis earlier this fiscal year. I’m sure you are interested as to why our BSN new student enrolments accelerated in the past quarter. While there are several reasons, first as we mentioned earlier beginning in August the first month of the quarter we increased our average monthly marketing spend rate by $30,000 from $120,000 per month to $150,000 per month. Prior to the start of the quarter, we grew our Phoenix based enrolment center to 21 enrolment advisors all of whom are operating in a very high productivity level. Normally when the university increases their marketing spend in a given quarter, enrolment increases can be expected one or two quarters later, not with Aspen University. We increased our marketing spend by 23% sequentially but delivered 36% more enrolment sequentially. Bottom line, over the past year we’ve now more than doubled our marketing spend rate and more than doubled the size of our enrolment center and we are not seeing degradation in our average cost of enrolment. It’s a very enviable position to be in. Not to be too repetitive for this enviable position we’re in today, is because of last year’s announcement of our debt list education solution. We believe that by advertising to the nursing sector a debt free solution through monthly payment plans we would become the University of Choice for our ends. Now that we’ve become one of the fastest growing universities in America if not the fastest, it’s clear that we’ve begun the process of ending the long held assumption that nursing students have historically made that they much incur overwhelming debt to obtain a college degree, well that’s not just the case anymore. I’ll complete my prepared remarks today with some revenue and adjusted EBITDA projections for the remainder of the fiscal year. First, as mentioned earlier we plan to keep our marketing spend rate at approximately $150,000 per month for the remaining six months of our fiscal year which will allow the company to continue its rapid pace of growth while simultaneously reaching the adjusted EBITDA break even range by the end of our current fiscal year. We currently projecting revenue growth to accelerate again this quarter to over $2.1 million or over 63% growth year-over-year. Therefore our adjusted EBITDA loss this coming quarter is forecasted to decline into the single digits. The following quarter which is our fourth fiscal quarter ending April 30, is the quarter that the company is expecting to be in a breakeven adjusted EBITDA range. That ends our prepared remarks for this afternoon. Now we’d like to open the call to address any questions.
[Operator Instructions] Our first question comes from the line of David Garrity with GVA Research. Your line is now open.
Hey Mike congratulations on a very strong quarter and congratulations as well in terms of the fact that you are accelerating further.
Welcome, it’s good to see things are paying off. I was curious, are we seeing anything in the market place where people are starting to perhaps copy the Aspen models as it applies towards the nursing vertical and to what extent do you think that you’ll be able to or not, to what extent do you think that you’ll be able to maintain sort of this competitive advantage in terms of the business model?
Yes a great question. Well, to date we haven’t seen any competitors that I’m aware of that are targeting the nursing sector with a debt less education monthly payment plan approach. Someday certainly that’s possible, however as I have described in previous conference calls the unit economics would be difficult for a large competitor to follow up given that our cost of enrolment is well below $1000, in fact it was below $800 this quarter. So you have to have the ability to achieve enrolment cost on average well less than $1000 in order to offer monthly payments plans [ph] where we are charging BSN students for example $250 a month. So until someone is able to have that kind of expertise, I don’t see it happening in the near term.
Our next question comes from the line of Brett Reiss with Janney Montgomery Scott. Your line is now open.
Thank you, also congratulations on a fantastic quarter for you and the whole team.
Yes, now really something here. Is there anything that keeps you up at night that could derail the recipe of growth that obviously have been enjoying?
I have to be honest. I really don’t have one particular thing that keeps me up at night. When you build a great company, there’s a number of variables involved. The first thing is you have to have a differentiated business model which clearly we do and David of course just asked a question about that if anyone could follow. We also have an amazing team of course started with Janet Gill as my CFO, Troy [Indiscernible] as my Chief Operating Officer, and of course our Chief Academic Officer, Dr. Cheri St. Arnauld. So when you have a great team, good results typically follow. So, at this point there isn’t really anything specific that concerns me and we just need to continue executing as a company and as I announced earlier we see that our accelerated growth is going to continue in the quarter that we are currently in.
Right, right. Now for company your size, you have a pretty sophisticated shareholder base and sophisticated board -- are they basically giving you the ball and letting you run with it or have they given you any kind of input on where the company might be a year to 18 months from now?
Well let me just say, any public company that the Chairman in my case the Chairman and CEO it’s my job to put together a great board and it’s my job to find extremely sophisticated investors and I think we’ve accomplished both. So there is no question that I am constantly asking for his thoughts and feedback and ideas from those intelligent folks. From a long term strategic perspective the company did in fact put together a special committee of the board of directors in the last month and a half. And we are looking at some strategic initiatives which has the potential to take our growth to yet another level in this coming year. And we are not ready and prepared to talk about these things at this point but we are looking at some very interesting initiatives.
Right, right. And maybe one last one, this is probably for Miss Gill. The bad debt expense seem to have more than doubled, what caused that?
Well we basically take all of our receivables and put them into buckets based on the source of the revenue. And we use -- we use a set percentage for anyone over, any debt over 90 days. So we are not so concerned with -- we’re just concerned with I should say this way, we are concerned with keeping a certain level based on the over 90 receivables.
When you look at the amount that our revenues are growing year-over-year we have an increase in our bad debt of about $35,000 over a period of sequential quarter is I don’t think significant.
Okay, great. All right, I’m going to drop back and once again keep up the good work.
Thank you, have a good day.
Our next question comes from the line of [Indiscernible]. Your line is now open.
Good afternoon. Rather new to the story I’m wondering if you could maybe take a couple of minutes and talk about the background of the company and how you developed this debt we program and where that basically places you for future growth?
Yes, sure. So for those of who that haven’t installed my background. I’m a former CEO of interCLICK, ICLK and the NASDAQ and interCLICK was acquired by Yahoo in December of 2011 four years ago now. And so I have myself and my team as a very special set of expertise in terms of internet advertising. And so I took over Aspen University back in the middle of the year in 2011 and proceeded to build a very sophisticated marketing platform which has allowed our university to drive enrolments well below $1000 which in my understanding has never been done in history at volume. Most universities in the public company is online for profit have announced over the many years that their average cost enrolment is $4000 to $5000 not less than $1000. So back in May of last year I published a book entitled lets change higher education forever and announced at that time that we were going to take the efficiency of our cost of enrolment which is less than half thousand dollars at volume and we were going to transfer that efficiency in the form of monthly payment plans to our students, thereby allowing any college student across this country the ability to get a college education by simply paying month to month literally as if similar to your Verizon bill, you just pay month to month if you ever make a decision to stop the program and of course your Verizon service stops. And this is the same idea, this is the pay as you go system where a student doesn’t take the financial risk of tens of thousands of debt, they just simply pay us months to months, they continue their education if they ever decided to stop, we let them stop and they can then continue on as we lead down the road if they are ready again. And they pay that monthly payment plan until they are done with their education and they get their degree at that point with no debt. So this is -- we decided to focus on the nursing sector as our primary sector initially, because it’s one of their fastest growing occupations in America and there’s a significant desire by the healthcare profession to ensure that registered nurses have the essence. So when we obtained our BSN accreditation with the CCNE back in November last year that was one of the sentimental moments in our ability to really significantly grow on the topline. We planned in the coming years at Aspen University to branch out, outside of nursing and someday don’t be surprised if we are announcing to the country monthly payment plans literally in every degree program that you can think of, that’s our ultimate aspiration is to offer any college worthy adult the ability to achieve the American dream which is a college degree.
And your advertising programs, is it constantly being tweaked and change define I guess the right potential student?
Yes I didn’t hear the end of what you said. Is it currently being tweaked for what?
To find the right student for your university program and nursing program.
Well yes. So we have -- we implement very sophisticated data targeting techniques so that we don’t waste impressions on the internet in order to obtain a lead from in this case a registered nurse. So that’s part of the sophistication of our marketing platform, it allows us to achieve very high quality leads at a relatively low cost.
Okay, great. Thanks a lot. Thank you.
[Operator Instructions] Our next question comes from the line of Imran Badani [ph] your line is now open.
Hey, Michael how are you doing today?
Hey I’ve got a quick question for you. Regional accreditation is pretty important for nurses especially with when it comes to their degrees. When does Aspen expect to achieve getting regional accreditation?
Well I’m not really prepared to answer that question in public yet. We absolutely aspire to become a regionally accredited institution. There’s a number of strategies and ways to get there and we are moving down the path on one of those strategies which of course at the point where we are ready will be announcing exactly what our strategy is. But we don’t understand the importance of ultimately becoming regionally accredited and quite frankly we really are having no problems whatsoever being nationally accredited in the nursing sector. There are very, very few healthcare organizations that require regionally accredited degree on top of CCNE accredited nursing degree.
And just the other thing I was going to ask you was in terms of bringing attention in eyes to the Aspen group, are there any plans or directives that you plan on taking to help bring more winners?
Yes, we are talking to a number of analysts in the market place about launching coverage; a couple of them are on the call as we speak. And at that point I think that’s probably the best method for us in addition to the existing non deal roadshows that we do with our investor relations activity.
I’m showing no further questions in the queue at this time. I’d like to turn the call back to Michael Matthews for closing remarks.
Thank you everyone for your questions today. I want to thank everyone for joining us this afternoon and the team here looks forward to talking with you again in the coming quarter. Have a good day.
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program and you may all disconnect. Everyone have a great day.