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ASPEN GROUP, INC. (ASPU)·Q3 2022 Earnings Summary

Executive Summary

  • Revenue grew 14% year-over-year to $18.9 million; gross margin compressed to 49% and net loss widened to ($3.7) million ($0.15 EPS), driven by higher instructional and marketing costs from new BSN pre-licensure campus expansions and COVID-related RN workload impacts .
  • FY2022 guidance was lowered: revenue to $75.5–$77.5 million, GAAP EPS loss to ($0.46)–($0.42), EBITDA loss to ($7.5)–($6.5), and adjusted EBITDA loss to ($3.5)–($2.5), reflecting the voluntary suspension of Phoenix BSN pre-licensure enrollments and continued COVID headwinds .
  • Liquidity bolstered via $10 million convertible note and $20 million revolver (undrawn), plus extension of $5 million revolver to November 4, 2023; cash and equivalents were $6.0 million at quarter-end with restricted cash of $1.4 million .
  • Management highlighted persistent long-term nursing shortages as a structural demand tailwind; near-term catalysts include resolution of the Arizona Board of Nursing matter and the ramp of new pre-licensure metros (Austin, Tampa, Nashville, Atlanta) .

What Went Well and What Went Wrong

What Went Well

  • 14% revenue growth to $18.9 million despite Omicron’s impact on RN students’ class starts; CEO: “Aspen Group delivered a 14% revenue increase year-over-year, despite the spike in Covid-19 infection rates…” .
  • High-LTV programs remained the revenue engine: AU BSN pre-licensure and USU MSN-FNP together constituted the majority of revenue mix (AU 69%/$13.0M; USU 31%/$5.9M) .
  • Liquidity improved with $30 million of available facilities; CFO expects this financing to bridge to cash flow positive in FY2024 .

What Went Wrong

  • Gross margin fell to 49% (from 52% YoY); consolidated adjusted EBITDA margin fell to (7)% vs (5)% YoY, reflecting higher instructional and marketing spend tied to campus expansion and seasonality .
  • Company-wide new student enrollments declined 16% YoY (to 1,782) amid Omicron and reduced Phoenix pre-licensure advertising; AU enrollments down 18% and USU down 10% YoY .
  • Regulatory risk: AZ Board of Nursing engagement after NCLEX pass rates dropped to 58% in 2021; AU voluntarily suspended Phoenix pre-licensure enrollments/cohorts effective February 2022 (Q3 subsequent event), pending a consent agreement .

Financial Results

Consolidated Summary Metrics (USD Millions, except margins and EPS)

MetricQ3 2021Q1 2022Q2 2022Q3 2022
Revenue ($)$16.625 $19.431 $18.940 $18.945
Gross Profit ($)$8.7 $10.4 $9.7 $9.2
Gross Margin (%)52% 54% 51% 49%
Net Income (Loss) ($)($2.815) ($0.871) ($2.852) ($3.734)
Diluted EPS ($)($0.11) ($0.03) ($0.11) ($0.15)
EBITDA ($)($2.236) $0.092 ($1.891) ($2.438)
Adjusted EBITDA ($)($0.865) $0.506 ($0.715) ($1.338)

YoY Comparison and Estimates (Q3 2022 vs Q3 2021)

MetricQ3 2021Q3 2022 ActualConsensus (S&P Global)Beat/Miss
Revenue ($)$16.625 $18.945 Unavailable (S&P Global)N/A
Diluted EPS ($)($0.11) ($0.15) Unavailable (S&P Global)N/A
Gross Margin (%)52% 49% Unavailable (S&P Global)N/A

Note: Wall Street consensus estimates from S&P Global were unavailable at time of analysis.

Segment Breakdown

SegmentQ2 2022 Revenue ($)Q2 2022 Mix (%)Q3 2022 Revenue ($)Q3 2022 Mix (%)
Aspen University (AU)$12.8 67% $13.0 69%
United States University (USU)$6.2 33% $5.9 31%

KPIs: Enrollments, Bookings, ARPU

KPIQ3 2021Q4 2021Q1 2022Q2 2022Q3 2022
AU New Enrollments (count)1,593 1,593 1,601 1,750 1,301
USU New Enrollments (count)536 589 675 630 481
Total New Enrollments (count)2,129 2,182 2,276 2,380 1,782
KPI (YoY)Q3 2021Q3 2022
AU Bookings ($)$23.5 $17.8
USU Bookings ($)$9.6 $8.6
Total Bookings ($)$33.0 $26.3
ARPU ($)$15,513 $14,785

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($)FY 2022$77.0–$80.0 $75.5–$77.5 Lowered
GAAP Net Income (Loss) ($)FY 2022($9.0)–($7.0) ($11.5)–($10.5) Lowered
GAAP EPS ($)FY 2022($0.38)–($0.29) ($0.46)–($0.42) Lowered
EBITDA ($)FY 2022($5.0)–($3.0) ($7.5)–($6.5) Lowered
Adjusted EBITDA ($)FY 2022($2.0)–$0.0 ($3.5)–($2.5) Lowered

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY2022)Current Period (Q3 FY2022)Trend
COVID impact on RN enrollments/class startsDelta surge slowing RN class starts; guidance revised lower due to post-licensure headwinds Omicron spike drove staffing shortages and burnout; intra-quarter class starts showed “no material change” yet Worsened near-term
Arizona Board of Nursing / NCLEXNot highlighted in Q1/Q2 releases; AU pre-licensure Phoenix enrollments already being reduced AU voluntarily suspended Phoenix enrollments/cohorts; 2021 NCLEX first-time pass rate 58%; Q1’22 trending at 85% as of 2/10/22; consent agreement pending Heightened regulatory focus
Liquidity/FinancingDrew $5M credit facility in Q2; extended maturity Added $10M convertible, $20M revolver (undrawn), extended $5M revolver to Nov 2023; plan to bridge to cash flow positive FY2024 Improved liquidity
Marketing mix toward high-LTV programsAspen 2.0: prioritize BSN pre-licensure & MSN-FNP; reduce legacy spend Phoenix advertising reduced; overall marketing seasonally higher; ongoing shift to high-LTV programs Continued execution
Cost controls (G&A)Emphasis on prudently managing discretionary G&A Maintain corporate G&A line; redeploy Phoenix staff; evaluate further cuts post-BoN resolution Tightening
New campus performanceQ1/Q2: expansion into Austin/Tampa/Nashville Early year campus revenue cadence: Phoenix $1–$1.5M; Austin ~$0.75M; Tampa/Nashville ~$0.5M; Atlanta marketing launched with strong inquiry flow Growing footprint

Management Commentary

  • CEO on the quarter and demand backdrop: “Aspen Group delivered a 14% revenue increase year-over-year… as the Omicron variant subsides, there are clear and prevailing longer-term trends in nursing that underpin robust demand for our offerings…” .
  • CFO on guidance and path to cash flow: “We’ve revised our outlook for fiscal year 2022… Based on this outlook, we believe this financing will sufficiently bridge our liquidity needs until our business is cash flow positive… in fiscal year 2024” .
  • CEO on Phoenix and curriculum review: “We voluntarily suspended BSN pre-licensure enrollments… [and] are hiring an independent consultant… to look at our curriculum… we’ll be open to any potential improvements” .
  • CEO on Atlanta launch: “We launched marketing in Atlanta… it’s been outstanding… behaving a lot like the early days of Phoenix” .

Q&A Highlights

  • COVID intra-quarter: No material change observed in February/March RN class starts post Omicron surge .
  • Arizona Board of Nursing/NCLEX: AU refrained from further public intra-quarter NCLEX disclosures pending consent agreement; reiterated 85% first-quarter trend as of 2/10/22 in prior 8-K .
  • Financing structure: Three debt facilities now—$5M line (14% rate, extended to Nov 2023), $10M convertible note, $20M revolver (no expectation to draw currently) .
  • Cost structure: Expect reductions in Phoenix marketing and redeployment of certain G&A; maintain corporate G&A and evaluate further cuts depending on Board outcome .
  • ARPU decline drivers: Fewer Phoenix pre-licensure enrollments (each ~$30k LTV) and lower USU enrollments weighed on ARPU .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q3 FY2022 EPS and revenue were unavailable at time of analysis; as such, beat/miss versus estimates cannot be determined.

Key Takeaways for Investors

  • Near-term headwinds from Omicron and Phoenix enrollment suspension pressured margins and adjusted EBITDA; focus on cost control and redeployment mitigations is active .
  • Liquidity is materially improved ($10M convertible funded; $20M revolver available; $5M line extended), providing runway to pursue campus ramp and bridge to expected FY2024 cash flow breakeven .
  • Structural demand tailwinds (nursing shortages, RN migration to FNP/education roles) support medium-term growth; watch Atlanta and other metro ramps for offset to Phoenix .
  • Regulatory resolution with AZ Board of Nursing is the key binary catalyst; successful consent agreement and improving NCLEX pass rates could restore Phoenix growth and sentiment .
  • Enrollments and bookings trajectory remain critical KPIs; sequential recovery from Q3 lows would signal normalization as COVID pressures ease .
  • Mix management toward high-LTV programs should underpin margin improvement over time once expansion cohorts reach breakeven and marketing efficiency gains accrue .
  • Guidance reset lowers expectations, potentially de-risking the near-term bar; monitor Q4 seasonality and management’s FY2024 cash flow positivity target .