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ASPEN GROUP, INC. (ASPU)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 FY2023 revenue fell 10% YoY to $17.1M, but gross margin expanded 900 bps to 60% as restructuring reduced marketing to $0.8M; net loss narrowed to $(2.3)M ($0.09) and Adjusted EBITDA turned positive to $0.5M, with operating cash flow +$1.0M .
  • Mix: USU grew 9% to $6.73M on sustained MSN-FNP demand (and prior price increases), partially offsetting AU’s 19% decline to $10.34M amid BSN pre-licensure teach-out and lower marketing .
  • Regulatory and listing developments during the quarter: Aspen agreed to surrender approval for its Phoenix BSN program and to suspend new enrollments/teach out in FL/GA/TN/TX; Nasdaq notified the company of non-compliance with the $1 bid rule, starting a 180-day cure window .
  • Outlook tone: No formal guidance; management plans to close an AR facility and lift marketing to ~$7–9M/yr while targeting breakeven to slightly negative adjusted EBITDA; near term, Q3 revenue expected to decline modestly sequentially and adjusted EBITDA to dip slightly negative .

What Went Well and What Went Wrong

What Went Well

  • Margin and cash inflection: “Gross margin improved by 900 basis points… and we narrowed our net loss and delivered positive adjusted EBITDA. For the quarter, cash flow from operations was positive $1 million.” .
  • USU momentum: USU revenue +9% YoY on continued demand for the MSN-FNP program, with USU Adjusted EBITDA margin rising to 32% in Q2 (from 18% YoY) .
  • Cost actions gaining traction: Marketing cut to $825k (from $4.0M YoY and $4.5M in Q1) and ~70 G&A reductions delivered $4.5M spend reduction in Q2 and expected $4.9M in Q3, supporting cash generation .

What Went Wrong

  • Top-line contraction and enrollment pressure: Revenue -10% YoY and new enrollments -46% YoY to 1,290 as BSN pre-licensure enrollments halted and marketing spend was slashed; active student body fell 23% YoY to 10,957 .
  • AU headwinds: AU revenue -19% YoY, with pre-licensure teach-out plus lower post-licensure enrollments on reduced marketing; AU instructional costs rose with cohort mix, driving operating deleverage at AU .
  • Regulatory overhang: The Board agreement to surrender Phoenix BSN program approval and suspend new enrollments/teach out in other states, and Nasdaq bid-price deficiency notice, add uncertainty and potential equity market pressure .

Financial Results

MetricQ2 2022Q4 2022Q1 2023Q2 2023
Revenue ($USD Millions)$18.94 $19.40 $18.89 $17.07
Diluted EPS ($)$(0.11) $(0.08) $(0.15) $(0.09)
Gross Margin (%)51% 53% 43% 60%
Adjusted EBITDA ($USD Millions)$(0.72) $0.52 $(1.18) $0.54

Segment revenue (subsidiary):

Segment Revenue ($USD)Q2 2022Q4 2022Q1 2023Q2 2023
Aspen University (AU)$12.76 $12.8 $11.95 $10.34
United States University (USU)$6.18 $6.6 $6.95 $6.73
Total$18.94 $19.4 $18.89 $17.07

KPIs – Enrollments:

New Student EnrollmentsQ2 2022Q2 2023
AU1,750 784
USU630 506
Total2,380 1,290

KPIs – Student body mix:

Active StudentsQ1 2023Q2 2023
AU9,133 7,973
USU2,915 2,984
Total Active Student Body12,048 10,957
Nursing Students (Total)10,394 9,392

Additional highlights:

  • Operating cash flow: +$1.0M in Q2 vs $(1.0)M prior-year quarter; unrestricted cash $2.3M, restricted cash $6.4M; surety bond collateral partial release of $1.5M expected post-quarter .
  • Unit economics: USU Adjusted EBITDA margin 32% and AU 20% in Q2; consolidated Adjusted EBITDA margin 3% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ColorChange
Formal financial guidanceFY2023/Q3None (not providing) Not providing guidance; plan to update post AR facility Maintained
Revenue trajectoryQ3 FY2023N/AExpect modest sequential decline vs Q2 on seasonality and pre-licensure wind-down New color
Adjusted EBITDAQ3 FY2023N/AHover around breakeven; “probably dip slightly negative” in Q3 New color
Marketing spend2H FY2023 to FY2024N/AMaintenance spend sub-$0.5M in Q3; target ~$7–9M annualized post AR facility (beginning Q4 if closed) New color
CapexForwardN/AApprox. $300–400k per quarter going forward (ex pre-licensure build) New color
Pre-licensure revenueFY2023/FY2024N/A~$11M in FY2023; ~$3–4M in FY2024 New color

Earnings Call Themes & Trends

TopicQ4 2022 (prior-2)Q1 2023 (prior-1)Q2 2023 (current)Trend
Marketing spend & AR facilityCut spend by ~$1M in Q4 to collateralize AZ surety bond; intend to manage spend to profitability Restructuring to maintenance spend ($150k/quarter) pending AR financing; total spend reductions $4.4M in Q2, $4.9M thereafter Q3 marketing sub-$0.5M; plan to lift to ~$7–9M/yr after AR facility; breakeven-ish adjusted EBITDA target Stabilizing spend near term; contingent upside post-financing
Regulatory/NCLEX & program actionsAZ NCLEX pass-rate issues; Phoenix enrollment suspension; surety bond requirements Evaluating scenarios with AZ Board; no new cohorts; continued discussions Consent to voluntarily surrender Phoenix BSN approval; suspend new enrollments and teach-out in FL/GA/TN/TX More restrictive actions; execution on teach-out
USU MSN-FNP programFastest growing, profitable; accreditation reaffirmed; demand resilient USU revenue +12% YoY; steady 24% adj. EBITDA margin USU revenue +9% YoY; adj. EBITDA margin 32% Strengthening profitability, steady demand
Student behavior/attritionRN graduate programs showed higher pauses/withdrawals; macro nurse workload headwinds Active student body -13% YoY; enrollments softer on spend cuts Active student body -23% YoY; enrollments -46% YoY with halt and spend cuts Enrollment pressure persists under maintenance spend
Liquidity & cashConvertible notes + revolver secured; collateralized bond Cash used in ops $(3.6)M; equity ATM as liquidity option Op cash +$1.0M; $1.5M restricted cash expected back; AR facility outreach underway Improving near term cash flow; financing still pivotal
Leases/campus footprintExpansion in Atlanta; outline of Tier 1 vs Tier 2 dynamics Breakeven timelines for campuses (Austin, Nashville, Tampa, Atlanta) Plan to sublet 4 pre-licensure sites by ~Jan 2024; convert Phoenix facility to USU immersion center Rationalizing footprint into immersion hub

Management Commentary

  • “We are encouraged by our second quarter results… Gross margin improved by 900 basis points on lower revenue… we narrowed our net loss and delivered positive adjusted EBITDA. USU’s revenue grew 9%… which helped to offset the expected decline in AU revenue coming from the teach-out… and lower marketing spend.” – Michael Mathews, CEO .
  • “Marketing spend was reduced to $825,000 in the second quarter… compared to $4 million in the year ago quarter and $4.5 million in the sequential prior quarter.” – Matt LaVay, CFO .
  • “With the pending release of the $1.5 million from the insurance company and our expectation that we [will] close an AR facility during Q4… we intend to return to a marketing spend rate… to resume year-over-year enrollment growth by the second half of fiscal year 2024.” – CEO .
  • “From a revenue standpoint, you can expect to see our results decline modestly from Q2 into Q3… we will still hover around that breakeven adjusted EBITDA, but we will probably dip slightly negative for the next quarter.” – CFO .

Q&A Highlights

  • Marketing cadence: Q3 spend to remain maintenance “sub $0.5M”; plan to ramp to $2M/quarter ($7–8M/year) post AR facility closure (targeted around January) .
  • USU revenue vs student body: YoY growth at USU despite slight student body decline driven in part by pricing increases .
  • Near-term outlook: Expect modest sequential revenue decline in Q3 on seasonality and pre-licensure wind-down; adjusted EBITDA slightly negative .
  • Pre-licensure revenue runway: ~"$11M" in FY2023, dropping to ~$3–4M in FY2024 as teach-out completes .
  • Real estate actions: Intend to sublet 4 pre-licensure locations by ~Jan 2024; Phoenix to be converted into USU immersion site .
  • Convertible notes: No covenants; interest current; conversion price $1/share (unlikely to convert at current levels) .

Estimates Context

  • Wall Street consensus (S&P Global Capital IQ) for Q2 FY2023 could not be retrieved due to access limits during this session; therefore, beat/miss versus consensus is unavailable. We searched for “Primary EPS Consensus Mean” and “Revenue Consensus Mean” for Q2 FY2023 via S&P Global but were unable to pull data due to a daily request cap. As a result, this recap focuses on YoY and sequential comparisons from company materials .

Key Takeaways for Investors

  • Cost reset is working: 900 bps GM expansion to 60% and positive Adjusted EBITDA reflect rapid opex/marketing cuts and restructuring, with Q2 op cash +$1.0M despite revenue decline .
  • Growth engine intact at USU: MSN-FNP continues to scale profitably (USU adj. EBITDA margin 32%); price increases aided revenue even with modest student count compression .
  • Execution risk around financing: The plan to reaccelerate marketing and resume enrollment growth hinges on closing an AR facility; timeline and terms remain a key catalyst/overhang .
  • Regulatory headwinds reshaping mix: Phoenix BSN surrender and broader pre-licensure teach-outs shift focus to post-licensure programs, with a known revenue step-down in FY2024 (~$3–4M pre-licensure) .
  • Liquidity watch items: Unrestricted cash was $2.3M at quarter-end; partial release of $1.5M restricted cash improves flexibility; operating discipline remains critical .
  • Near-term print setup: Management flagged a modest sequential revenue decline and slightly negative adjusted EBITDA for Q3; narrative likely driven by financing progress and regulatory updates .
  • Listing risk: Nasdaq minimum bid-price deficiency notice adds equity market risk; any corporate actions or sustained bid improvements will matter for sentiment .

Other Relevant Q2 2023 Press Releases

  • Arizona BSN program: Consent agreement to voluntarily surrender Phoenix BSN approval; suspend new enrollments and complete teach-outs in other states (FL/GA/TN/TX) .
  • Nasdaq compliance: Notice of non-compliance with $1.00 minimum bid requirement, initiating grace period to regain compliance .

Appendix: Cross-References

  • Full Q2 FY2023 earnings press release and financials (8-K and Exhibit 99.1) .
  • Q2 FY2023 earnings call transcript –.
  • Q1 FY2023 press release and call (for sequential comps) –.
  • Q4 FY2022 press release and call (trend context) –.