Aspen Group, Inc. (ASPU) on Q3 2021 Results - Earnings Call Transcript

Operator: Good afternoon. Welcome to Aspen Group's Fiscal Year 2021 Third 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 the anticipated impact on the pre-licensure unit, following the implementation of double cohorts in the main Phoenix campus and of the expansion of the pre-licensure program in new metros, including future revenue growth and operational scale, the expected launch date of the initial core program semester in Nashville, the expected timing and geography of further campus expansion, course starts and revenue growth forecast for the fourth fiscal quarter of 2021, our expectations regarding future course start behavior, expected operating losses of new campuses and the expected time they will achieve profitability, expected increase in gross margins in future quarters, revenue estimates and trends, G&A trends our estimates concerning bookings, LTV, Merck and ARPU, our estimates concerning and experience with our accounts receivable, our expectations regarding EPS loss and adjusted EBITDA loss in the fourth fiscal quarter and our liquidity. Michael Mathews: Good afternoon. Today, we delivered a revenue increase of 33% year-over-year, in line with our guidance previously shared on our last earnings call. Quarterly bookings increased 24% year-over-year. We ended the quarter with nursing students making up 87% of our total active student body, up from 84% in the prior year period. While we delivered strong enrollment growth in every unit of the company, the primary growth driver in the quarter was Aspen University's Aspen Nursing + Other Unit, led by our doctoral programs. United States University or USU, also saw outstanding enrollment growth in the quarter, with a 43% increase year-over-year, primarily from MSN Family Nurse Practitioner, or FNP and enrollments. Aspen's pre-licensure BSN unit, our highest LTV nursing licensure degree program continues to benefit from several favorable macro trends as these students are primarily millennials, looking to enter the rapidly growing nursing profession. Demand in Phoenix has exceeded our expectations. Because we do not want to have a large waiting list, we made a conscious decision to temper enrollment growth for first year prerequisite students at our Phoenix pre-licensure campuses, which have a full pipeline of first year students. This moderated the unit's enrollment growth in the quarter to 15%. Robert Alessi: Thank you, Mike, and good afternoon, everyone. I will begin with a review of our financial results for the 2021 fiscal third quarter, followed by our expectations for the upcoming fourth quarter. Total revenues for the third quarter were $16.6 million, up 33% versus the year ago period. Our highest LTV businesses, Aspen University's pre-licensure BSN and USU, primarily FNP program, now account for 51% of our consolidated revenue. Aspen University's traditional post-licensure online nursing plus other unit which includes our growing doctoral programs contributed the remaining 49% of total company revenues in the quarter. As Mike indicated, our revenue growth continues to be driven by new student enrollments in our highest LTV programs, which increased overall by 22% to 2,129. Aspen University generated 1,593 new student enrollments, up 16% year-over-year, attributable to strength in the doctoral and Nursing + Other degree programs. United States University delivered 536 new student enrollments, a 43% increase year-over-year, primarily from MSN family nurse practitioner, or FNP enrollments. The FNP enrollment growth is especially notable given the demand on nursing professionals on the front lines of the pandemic. Operator: . Our first question comes from the line of Darren Aftahi with ROTH Capital Partners. Darren Aftahi: A couple, if I may. First, Mike, your comments about core starts sort of normalizing beyond April. I'm just sort of curious what gives you confidence that's going to be the case? Michael Mathews: Darren, so we have seen an improvement so far in the month of February and in the first half of March. So assuming that improvement continues, we expect that our fourth quarter -- sorry, our first fiscal quarter will come back to a level of normalcy for registered nurses. As everyone knows, the -- it looks like most adults have the ability to be vaccinated by the end of May. And so that's kind of right during the beginning of our first quarter. Darren Aftahi: Got it. Fair enough. Your pre-licensor EBITDA margins, 52%, exceptionally strong. I'm curious as we think about, one, that's obviously not including double cohort. So with double cohorts, like where is the theoretical ceiling there? And then as we think about other geographies, we probably shouldn't be thinking about the business with that higher margins? Or am I mistaken in thinking that? Michael Mathews: No. I think you're right, Darren. We're at 52% margin, but we have the advantage, of course, of having 2 campuses open in Phoenix, currently. Now we, of course, are coming into a double cohort for this first -- this quarter that we're in now. It's certainly possible that the margin could end up in the mid- to upper 50s, it's possible. I don't expect that margin to be the same in our new markets. We think that the margin will -- should be able to be definitely in the high 30s, if not in the 40s in our other markets. Darren Aftahi: Got it. And then last 1 for me. The service center in Tampa, is that still on track even with Frank's departure? Michael Mathews: Yes, it is. In fact, Rob Alessi, our Chief Accounting Officer and interim CFO, is currently in the process of relocating to Tampa, and we've made 2 recent hires in Tampa as well. So we are moving full bore with having our corporate center-based in Tampa. Operator: Our next question comes from the line of Austin Moldow with Canaccord. Austin Moldow: Can you talk about the cost per enrollment you're seeing at the new metros? And can you also speak to the competitive landscape you're seeing these days? Michael Mathews: Sure. So I mean, one thing to be aware of is that when we launched Phoenix 2.5 years ago, we delivered approximately 500 enrollments in that first year in Phoenix, which was probably double or approximately double our internal forecast. The second year in Phoenix really exploded as we delivered over 1,500 enrollments in our second year of operations in the Phoenix metro, which, of course, was across 2 campuses at that point. Austin, which we began about a month before Tampa, is tracking at this point to do approximately 250 enrollments in year 1, which is right on our internal forecast, given Austin's, =we consider to be a Tier 2 sized market versus Phoenix as a Tier 1. We have every expectation that Tampa will perform similar to Austin in its first year of operations as well. By the way, we just launched, marketed in Nashville a few weeks ago, and surprisingly, drove 80 leads in our first few days, and we have nearly 200 leads in our first 10 days. So Nashville is off to a phenomenal start. So our cost for enrollment in our pre-licensure program, historically, in Phoenix, as a consequence of the explanation of enrollments I just gave you, has been in that sub-$500 range. In our other markets, I would probably guesstimate that we'll be more closer to more of $1,000 in our other markets. I don't think we'll be as successful as we were in Phoenix, which is in that $500 range. Austin Moldow: Got it. Would you be able to give an update on your enrollment advisor count and your expectations for investment there? Michael Mathews: Yes. I mean our -- we increased our enrollment center at USU and in our traditional Aspen Nursing + Other Unit at the beginning of the fiscal year. And those groups have remained flat for the last 6 to 9 months. The only increase in enrollment advisers has been in our pre-licensure side where we've, of course, allocated new enrollment advisers to our 3 new metro markets. So the increase has been modest, no more than 10% over the course of the year. Austin Moldow: Got it. And last question here is, can you give a little update on your new weekend immersion locations for USU? Michael Mathews: Yes. So we have a plan by the spring to summer that we're going to have our students have the ability to conduct their immersions in 3 locations. So one, of course, is our San Diego base, which is where all immersions have been done in history, we have completed the build-out and our Phoenix, New Phoenix location for weekend Immersions is now open, and we'll be conducting our first weekend immersions in the coming weeks. And then finally, we are very, very close to having our immersion set up in Tampa. We're getting close to that location being finished. And in fact, Rob just explained that, that build-out is almost done. And as it's done, we're actually going to get the $1.3 million back again for the tenant improvement. Operator: Our next question comes from the line of Raj Sharma with B. Riley. Rajiv Sharma: So I just wanted to -- wanted some clarification on the start-up costs, you said for this quarter were about $800,000 for the 2 new campuses. And you expect around the same for the next quarter. And I think you also, Mike and Rob, you alluded that they are in line -- start-up costs are in line with what you earlier estimated of $0.75 million to $1 million in the first year. So can you clarify that, there is $800 million this quarter and then $800 million in the coming quarter? And is that it on the start-up costs for the two campuses? Michael Mathews: Well, okay. So first of all, Raj, we've said many times that it takes the full 12 months for a new location to breakeven, okay? And the operating losses for our brand-new campus are very heavily weighted toward the first 6 months, and then the losses declined quite quickly from there on out. So understand that this quarter, we had -- our cost basis of $800,000, was only Austin and Tampa. We're now going to start spending. We have started spending a few weeks ago in Nashville. So now we have 3 locations that are in that first 6-month start-up mode. So that's why we believe we'll lose about another $800,000 this quarter because, again, we have 3 campuses that are all sort of in that immature start-up phase. But we will start earning some material revenues in our first 2 markets, which will offset the cost of the third campus opening in Nashville. Rajiv Sharma: In the next quarter, you'll start earning on Austin and Tampa? Michael Mathews: Yes. So we're earning revenues in Austin and Tampa in this current quarter. We've begun enrollments and first year students have already become in both locations. Rajiv Sharma: Got it. Got it. And then on the double cohorts in Phoenix, can you clarify the sequential quarter-on-quarter improvement in revenues from doing now -- having double cohorts to Phoenix? Michael Mathews: Yes. So there's a three -- it's a three semester system for any given student. And the students, the cost of attendance for a given student over a period of a year is $20,000 per annum over the 2-year period. So you basically would take $20,000, divide it by three for each semester. We were in that first cohort, as we've announced, it was approximately an additional 30 students in that second cohort. So that would be the math. Rajiv Sharma: Right. 30,000 -- 30x the $20,000 divided by 3 for each semester? Michael Mathews: Correct. Operator: Our next question comes from the line of Mike Grondahl with Northland Securities. Michael Pochucha: This is Michael on for Mike. Maybe first off, just on the Phoenix campuses. You continue to see the strong demand there with the first year students. Is there any plans like further out to expand capacity there, so you can have more coming through the funnel? Michael Mathews: Well, I mean, we currently have approximately 1,500 first year prerequisite students. And we -- based on a completion rate of somewhere in the vicinity of 2/3 of those students will finish all 41 credits, go ahead and pass the HESI A2 entrance exam. So our math tells us that we currently have close to 2 years' worth of potential core students at this point in the university. So that's why about 3, 4 months ago, we started to slow down our marketing dollars in the Phoenix metro in order to slow down those first year enrollments. We would have to open a third location in Phoenix in order for it to be -- in order for that pipeline to get even wider. And it's something we potentially could do in the future, but it's not on our short-term plan at this point. Michael Pochucha: Got it. And then just on Nashville. Any differences to call out in that market? Sort of size, competition, sort of student economics? Michael Mathews: Yes. I mean, Nashville is a lot like Austin. Neither location, neither metro has any significant competition from a for-profit point of view. So those are 2 markets that, thus far, off to a very, very strong start. Tampa is a little more competitive. So we're spending more dollars there to achieve the same number of leads. But again, every market is a little different. And Nashville, the first couple of weeks of Nashville is extremely promising. Operator: Our next question comes from the line of Jacob Stephan with Lake Street Capital Markets. Unidentified Analyst: So on the Nashville campus. You guys are working with more than just 1 partner, 1 clinical partner. Can you explain a little bit more around is it going to be a bigger campus? Or do you just need more capacity? Michael Mathews: All of our campuses are pretty much similar size. We look for a location that has somewhere between 15,000 and 18,000 thousand square feet. And that gives us the ability to build a core program that's in that kind of 500 student range. Now again, in terms of our main Phoenix campus, we have a larger location than that. So that's why we're able to go to double cohorts. So I would say Nashville and Tampa and Austin, they're all going to be similar-sized markets and similar-sized programs. Unidentified Analyst: Okay. And then as far as the -- will you guys have room to expand the USU and FNP program in Nashville? Michael Mathews: At this point, because we're going to have four locations open in the coming months, San Diego, Phoenix, Tampa and Austin, we don't have any weekend immersion plans at this point for our FNP program at USU. We could allocate some space to that if we'd like to in the future, but we felt like we're covering each part of the country at this point, pretty successfully. Unidentified Analyst: Okay. So just back to the CapEx a little bit, $800,000 in this coming quarter. So just in terms of the national campus, is that more of $1 million -- $750,000 to $1 million annualized run rate? Michael Mathews: Right. And again, so that's not -- that wouldn't be CapEx. So that would be -- those are operating expenses that we're expecting to -- the losses that we're expecting to have with each of these new markets collectively, all opening and in an immature status at this point. Operator: Our next question comes from the line of Jeremy Hamblin with Craig-Hallum Capital. Jeremy Hamblin: I wanted to just follow-up a little bit on the question around investments in new campuses, obviously looking to drive your revenue base here. But in terms of thinking about the plan to expand a couple of campuses a year for the next several years and thinking ahead to fiscal '22. Given that you're going to open those 2 campuses per year and the upstart costs associated with that, it seems like maybe our expectations around adjusted EBITDA growth should probably be curved simply because of that upfront investment cost that you're going to incur, which is going to impact both your instructional costs as well as your marketing promotional line items. Is that a fair assumption? Michael Mathews: Well, I mean, what I would say is that look at the results of the pre-licensure units in totality for the quarter. The Phoenix operations delivered net income of $1.8 million or the 52% margin we were talking about. So we were able to overcome the $800,000 of operating expenses in 2 new markets and still deliver a net-net income of $1 million, which is a pretty respectable 28% EBITDA margin. So I think the only reason why there is the losses were a little bit heavier than our original plan is simply because Florida was slightly delayed in terms of the regulatory approval this past year. And as a result, those 2 campuses are kind of layered on top of each other, which is not what we plan to do in future years. So this is kind of a short-term blip that I think we have a good plan. We're going to try to open a new location every spring, every fall. And that's a good approach for us to be able to not suffer significant operating losses as this great business is growing. Jeremy Hamblin: Right. But I guess on a company-wide basis, if I look at adjusted EBITDA in the quarter at $865,000 loss or $900,000 rounded loss in adjusted EBITDA. I guess my point or my question is that our assumption, I guess, shouldn't be -- you've made pretty significant expansion on EBITDA, let's say, in Q4 of fiscal '20 and Q1 of this current fiscal year you're in. But obviously, we've kind of backed up as you've opened these campuses, but you're going to continue opening campuses. So I guess what I'm just getting at, I think it's probably a fair assumption that the EBITDA growth is not going to leverage in the way that it might, as you get down the road and your total number of campuses, which has really gone from 2 to 4 and then 5 just starting up here pretty quickly, as you get closer to 9 or 10, then you'd probably start to see that leverage really flow through. But in the near term, I guess, my expectations would be that you're going to continue to have more investment costs as you're in year 1 and 2 of these programs. Is that fair? Michael Mathews: Yes. I mean, what I would say to you, Jeremy, is that this is a bit of a blip from an adjusted EBITDA point of view to go negative. We've been positive in previous quarters. And I would say to you that we're going to be back to the breakeven level in this current fourth quarter. So I would not expect us -- as you're forecasting the company's results in future quarters, I would not forecast negative adjusted EBITDA, no. Jeremy Hamblin: Okay. Yes, I wasn't saying negative. It just means that there was not going to be significant growth. Okay. And then I did want to come back to your two newer markets, Florida and Texas. And you noted that Florida, in particular, is a more competitive market. I wanted to just get some color on whether or not you've seen competitors adjust their pricing models as you've moved into the market, clearly is a leader on price. And whether or not you've seen them react to your entry into those markets? Michael Mathews: Yes. No. No, what I would say is that, again, it's really important that each market is kind of analyzed on its own because there's a whole bunch of variables involved. There's the size of the market. There's the clinical partners and our relationship with them. Who the traditional public universities are as well as, of course, the for profits. And Florida is kind of a unique marketplace in that if you look at the NCLEX scores and where the NCLEX exams are taken, they're primarily taken by associate level students. So there's many more 2-year associate level programs, ADN programs that students in Florida are graduating from and then taking the NCLEX to become an RN. That's a -- it's a kind of an unusual market in that way. So we've entered the market with, of course, a BSN and our -- the cost of BSN for us is similar to what a student would pay for a 2-year associate degree. So our challenge as we're marketing into this unique market is to say to someone, don't go to that traditional 2-year program that you're planning to go to, come to Aspen and you'll get your bachelors rather than associates, which, of course, will allow you to make higher income when you become an RN. So Florida, again, is a bit of a unique market because there are so many students that have historically entered nursing programs that are only 2-year programs. Operator: There are no further questions. I will now turn the call back to Chairman and CEO, Mike Matthews, for closing remarks. Michael Mathews: Thank you, everyone, for attending Aspen Group's third quarter earnings call today. We look forward to speaking to you very soon. Have a good afternoon. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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Aspen Aerogels, Inc. (NYSE:ASPU), a company specializing in the production of thermal barriers, has recently made headlines with its impressive financial performance. The company, known for its PyroThin product, has seen a significant surge in its stock price following the announcement of its quarterly results. This surge is attributed to the company's revenue more than doubling for the quarter, a testament to its strong operational performance and the increasing demand for its products.

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