Business Overview and History
Aspen Group, Inc. (NASDAQ:ASPU) is an education technology holding company that operates two universities - Aspen University Inc. and United States University Inc. The company's mission is to make higher education affordable and accessible, especially in the high-growth nursing profession.
Aspen Group, Inc. (AGI) was formed in 2012 as an education technology holding company, headquartered in New York, New York. The company operates two wholly-owned university subsidiaries: Aspen University Inc. (Aspen University or AU) and United States University Inc. (United States University or USU).
Aspen University, founded in 1987, has been institutionally accredited by the Distance Education Accrediting Commission (DEAC) since 1993. United States University, founded in 2009, has been institutionally accredited by the WASC Senior College and University Commission (WSCUC) since its inception. Both universities are qualified to participate in federal student financial assistance programs authorized under Title IV of the Higher Education Act.
In December 2017, AGI expanded its educational offerings and footprint in the nursing education market by acquiring United States University. Following the acquisition, USU received full certification from the U.S. Department of Education to participate in Title IV programs.
From 1993 to 2017, Aspen University focused primarily on offering online degree programs, with a particular emphasis on nursing education. In 2017, the company launched its first campus-based Bachelor of Science in Nursing (BSN) pre-licensure program in Phoenix, Arizona. Over the next few years, Aspen University expanded this program to additional locations, including Austin, Texas; Tampa, Florida; Nashville, Tennessee; and Atlanta, Georgia.
Aspen Group's primary growth strategy has been to target the nursing industry, which is experiencing a significant shortage of qualified professionals. To that end, 84% of the company's 9,960 active students as of January 31, 2023, were enrolled in degree-seeking nursing programs. Of these, 7,740 students were registered nurses (RNs) pursuing advanced degrees, while the remaining 605 were enrolled in Aspen University's Bachelor of Science in Nursing (BSN) Pre-Licensure program.
The company's innovative monthly payment plan, introduced in 2014, has been a key driver of growth. This plan allows students to pay tuition and fees in fixed monthly installments, interest-free, over the duration of their program. As of January 31, 2023, 86% of the company's gross accounts receivable was related to the monthly payment plan.
Financial Performance and Liquidity
Aspen Group has faced challenges in recent years, including regulatory issues with its pre-licensure nursing program in Arizona and the COVID-19 pandemic's impact on enrollment. In the fiscal year ended April 30, 2022, the company reported revenue of $76.69 million, a net loss of $9.59 million, and negative operating cash flow of $11.28 million.
However, the company has taken steps to streamline its operations and improve its financial position. In the third quarter of fiscal 2023, Aspen Group implemented a restructuring plan that reduced marketing and general and administrative expenses, leading to improved EBITDA and positive operating cash flow in the second quarter of fiscal 2024.
As of October 31, 2023, Aspen Group had $1.9 million in unrestricted cash and $4.1 million in restricted cash. The company anticipates receiving a $3.9 million reimbursement from the U.S. Department of Education for student financial aid prior to the end of January 2024, which would increase its unrestricted cash balance to over $2 million.
The company's financial metrics for the most recent fiscal year (2022) show revenue of $76.69 million, net income of -$9.59 million, operating cash flow of -$11.28 million, and free cash flow of -$15.61 million. For the most recent quarter (Q3 FY2023), revenue was $12.06 million, net income was -$3.88 million, operating cash flow was -$1.34 million, and free cash flow was -$1.67 million. The year-over-year decrease in these metrics was primarily due to the enrollment stoppage and teach-out of the Aspen University BSN Pre-Licensure program, as well as a reduction in marketing spend.
As of the most recent reporting period, Aspen Group's debt-to-equity ratio was 0.79, with a cash balance of $6.53 million. The company's current ratio and quick ratio were both 1.35. A $20 million secured revolving credit facility expired on March 14, 2023, and was not renewed.
In terms of recent performance, Aspen Group achieved its fourth consecutive quarter of positive EBITDA in Q2 FY2024, generating $419,000 compared to an EBITDA loss of $603,000 in the prior year quarter. Cumulatively over the past four quarters, the company has generated approximately $2.7 million in positive EBITDA. Additionally, Aspen Group generated positive operating cash flow of $409,000 in Q2 FY2024, after using $4.6 million in cash from operations in Q1 FY2024 due to delays in receiving government financial aid payments.
Regulatory Environment and Accreditation
Aspen Group's universities are subject to extensive regulation by federal and state governmental agencies, as well as accrediting bodies. In February 2023, Aspen University received a Show Cause Directive from the DEAC, requiring the university to prove why its accreditation should not be withdrawn and undergo a special visit by DEAC evaluators. The areas of concern raised questions about Aspen University's organizational integrity, administrative capacity, and ability to serve students in compliance with DEAC standards.
To address this regulatory issue, Aspen University has been cooperating fully with the DEAC and providing requested documentation. The company expects to receive the DEAC's decision on the Show Cause Directive and reaccreditation within the next 60 days.
Additionally, in February 2023, the U.S. Department of Education placed Aspen University on Heightened Cash Management 2 (HCM2) status, which requires the university to seek reimbursement for federal student aid funds rather than receiving them upfront. This action was in response to the DEAC's Show Cause Directive. Aspen University has successfully received four reimbursements under HCM2 and anticipates the fifth reimbursement of $3.9 million by the end of January 2024.
In September 2022, Aspen University voluntarily surrendered its program approval for the BSN Pre-Licensure program in Arizona. The company also suspended new enrollments in the pre-licensure program in Florida, Georgia, Tennessee, and Texas.
Product Segments and Enrollment
Aspen Group's primary focus is on nursing education programs. Aspen University offers a Bachelor of Science in Nursing (BSN) Pre-Licensure program, which provides students with the opportunity to become a BSN-educated nurse and learn the essential skills needed to practice as a professional registered nurse (RN). The program includes skills lab, clinical simulation, seminars, and community-based clinical experiences. Upon completion, students are eligible to take the National Council Licensure Examination (NCLEX) in the state or territory in which they choose to practice. As of May 12, 2023, Aspen University has had 444 graduates licensed by their respective boards of nursing.
United States University (USU) offers several nursing degree programs, with its primary enrollment program being the Master of Science in Nursing-Family Nurse Practitioner (MSN-FNP) program. The MSN-FNP is an online-hybrid 48-credit degree program designed for BSN-prepared registered nurses seeking a Nurse Practitioner license. The program has 100% of the curriculum online, including 540 clinical and 32 lab hours.
For the three and nine months ended January 31, 2023, the pre-licensure nursing program accounted for 19% and 22% of Aspen Group's total consolidated revenue, respectively. This compares to 24% and 23% for the same periods in the prior year. The year-over-year decrease in the nursing student body resulted principally from the enrollment stoppage in all locations of the pre-licensure program and the reduction in marketing spend by $4.2 million.
As of January 31, 2023, Aspen Group's active degree-seeking student body, including AU and USU, declined 27% year-over-year to 9,960 students, down from 13,720 students at January 31, 2022. Of the 9,960 total active students, 8,350 or 84% were seeking nursing degrees, with 7,745 of those being RNs studying to earn an advanced degree.
Outlook and Risks
Aspen Group's efforts to streamline operations, improve financial discipline, and address regulatory challenges have begun to yield positive results. The company's post-licensure nursing programs continue to see strong demand, and the company expects to complete the teach-out of its pre-licensure program by mid-2024.
However, the company still faces significant risks, including the potential loss of accreditation, continued regulatory scrutiny, and the ability to maintain and grow enrollments in its active programs. The company's reliance on government funding through Title IV programs and the competitive landscape in online education also pose challenges.
The post-secondary education industry has seen relatively flat enrollment growth in recent years, with a compound annual growth rate of approximately 1-2%. However, the nursing education segment has shown stronger growth trends as the demand for nurses continues to increase.
Conclusion
Aspen Group is navigating a challenging environment as it works to improve its financial performance and address regulatory issues. The company's focus on affordable, accessible nursing education, combined with its innovative monthly payment plan, provides a unique value proposition. While risks remain, Aspen Group's efforts to streamline operations and strengthen its financial position suggest the potential for improved performance in the future. The company's recent achievements in generating positive EBITDA and operating cash flow are encouraging signs, but ongoing regulatory challenges and the competitive landscape in online education will require continued focus and adaptation.