Business Overview and History
Aspen Group, Inc. (OTCQB: ASPU) is an education technology holding company that operates two accredited universities - Aspen University and United States University. The company has established itself as an innovator in the higher education landscape, offering affordable and accessible degree programs, particularly in the high-demand nursing field.
Aspen Group, Inc. (AGI) has a rich history dating back to 1987 when Aspen University was originally established. In 1993, Aspen University achieved a significant milestone by becoming institutionally accredited by the Distance Education Accrediting Council (DEAC), an accrediting agency recognized by the United States Department of Education (DOE). This accreditation allowed Aspen University to participate in federal student financial assistance programs, marking a crucial step in its growth.
The company expanded its portfolio in 2009 when United States University (USU) was institutionally accredited by the WASC Senior College and University Commission (WSCUC), another DOE-recognized accrediting agency. This accreditation enabled USU to also participate in Title IV federal student aid programs, further strengthening AGI's position in the higher education market.
Throughout its history, AGI has faced various regulatory challenges related to accreditation status and participation in Title IV programs. In 2017, the DOE informed Aspen University that it had qualified to participate in Title IV programs, setting a subsequent program participation agreement reapplication date of March 2021. USU experienced a similar process when its provisional certification for Title IV participation expired in 2020, requiring the institution to reapply and receive full certification in 2022.
The company has focused on expanding its nursing degree offerings, recognizing the significant growth potential in this field. As of January 31, 2023, 84% of the company's 9,960 active degree-seeking students were enrolled in nursing programs, with the majority pursuing advanced degrees such as the Master of Science in Nursing - Family Nurse Practitioner (MSN-FNP) at United States University.
Aspen Group's flagship initiative, the Bachelor of Science in Nursing (BSN) Pre-Licensure program at Aspen University, aimed to address the nationwide shortage of registered nurses. However, the program faced regulatory challenges, leading the company to suspend new enrollments in 2022 and focus on teaching out the remaining students. In 2022, Aspen University entered into a Consent Agreement with the Arizona State Board of Nursing due to declining NCLEX pass rates, which resulted in the voluntary suspension of new enrollments in the pre-licensure program. This decision led the company to also suspend new enrollments in the pre-licensure program in several other states.
Financial Performance and Liquidity
For the fiscal year ended April 30, 2022, Aspen Group reported total revenue of $76.69 million, a 13% increase from the prior year. However, the company's net loss widened to $9.59 million, compared to a net loss of $10.45 million in the previous fiscal year. This was primarily due to increased operating expenses, including higher instructional costs and marketing expenditures. The company's annual operating cash flow for the fiscal year was negative $11.28 million, while the annual free cash flow stood at negative $15.61 million.
In the most recent quarter, AGI reported revenue of $15.57 million, representing an 18% decrease year-over-year. This decline was primarily driven by lower enrollments and revenue at Aspen University, particularly in the BSN Pre-Licensure program, due to the suspension of new enrollments. The company's net loss for the quarter was $1.56 million.
As of January 31, 2023, Aspen Group had $6.53 million in cash and cash equivalents, as well as $4.92 million in restricted cash. The company's total debt stood at $15.00 million, including $10.00 million in convertible notes issued in March 2022 and a $5.00 million credit facility.
In May 2023, Aspen Group completed a private offering of $12.40 million in 15% Senior Secured Debentures due 2026, with $11.00 million of the proceeds used to repay the outstanding credit facility. The company also secured $2.00 million in restricted cash and $3.40 million in unrestricted cash from the transaction.
The company's debt-to-equity ratio stands at 1.27, indicating a moderate level of leverage. Both the current ratio and quick ratio are 2.34, suggesting that AGI has sufficient short-term liquidity to meet its immediate obligations.
It's worth noting that AGI had a $20 million secured revolving credit facility that expired on March 14, 2023, and was not renewed. Additionally, the company had a $5 million revolving credit facility due November 4, 2023, which was repaid in May 2023 with proceeds from the $12.4 million senior secured debentures.
Regulatory Challenges and Responses
Aspen Group's operations have been significantly impacted by regulatory challenges, particularly related to its BSN Pre-Licensure program at Aspen University. In 2022, the Arizona State Board of Nursing raised concerns about the program's NCLEX-RN first-time pass rates, leading Aspen University to voluntarily surrender its program approval and suspend new enrollments.
The company also faced challenges with its state authorization reciprocity agreement (SARA) status, which temporarily affected its ability to enroll students in certain states. Aspen University has since secured individual state authorizations for the majority of its student population and continues to work towards obtaining SARA approval through its new primary location in Arizona.
More recently, in February 2023, Aspen University received a Show Cause Directive from the Distance Education Accrediting Commission (DEAC), requiring the university to demonstrate its ongoing compliance with accreditation standards. Aspen University has been cooperating with DEAC and providing the requested information, with a site visit scheduled for June 2023.
Additionally, in February 2023, the U.S. Department of Education placed Aspen University on Heightened Cash Monitoring 2 (HCM2) status, requiring the university to disburse financial aid from its own funds and seek reimbursement. This development adds further complexity to the company's regulatory landscape and financial operations.
Product Segments and Degree Programs
Aspen Group operates through two wholly-owned subsidiaries: Aspen University Inc. (AU) and United States University Inc. (USU). Both universities are institutionally accredited and qualified to participate in federal student financial assistance programs under Title IV of the Higher Education Act.
Aspen University's primary focus is on the nursing profession, with the majority of its active student body enrolled in nursing degree programs. The university offers a Bachelor of Science in Nursing (BSN) Pre-Licensure program, which provides students the opportunity to become a BSN-educated nurse and learn the essential skills needed to practice as a professional registered nurse (RN). 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 2023, Aspen University has had 444 graduates licensed by the Arizona State Board of Nursing, with additional graduates licensed in other states.
Due to regulatory issues with the Arizona State Board of Nursing related to NCLEX pass rates, Aspen University has suspended new enrollments in its BSN Pre-Licensure program in Arizona, Florida, Georgia, Tennessee, and Texas. The university is currently in a teach-out phase for the remaining students in these programs, which is expected to be completed by September 2024.
In addition to the BSN Pre-Licensure program, Aspen University offers several online post-licensure nursing degree programs, including the RN to BSN, Master of Science in Nursing (MSN), and Doctor of Nursing Practice (DNP) programs. These programs are designed for registered nurses seeking to advance their education and careers.
United States University (USU) offers a variety of nursing, health sciences, business, technology, and education degree programs, both online and in a hybrid format. Its primary enrollment program is the online-hybrid Master of Science in Nursing-Family Nurse Practitioner (MSN-FNP) program, which is designed for BSN-prepared registered nurses seeking a Nurse Practitioner license. The MSN-FNP program includes 100% online coursework and 540 clinical and 32 lab hours, with the lab hours completed at USU's facilities in San Diego and Phoenix.
Outlook and Growth Strategies
Despite the regulatory hurdles, Aspen Group remains focused on executing its growth strategies. The company has implemented a restructuring plan, which includes scaling back marketing spend and reducing its workforce, to preserve cash and position the business for sustainable profitability.
Aspen Group's primary growth focus continues to be the nursing profession, particularly the post-licensure degree programs, which have demonstrated strong demand. The company is also exploring opportunities to diversify its program offerings and expand its geographic reach.
Furthermore, Aspen Group is committed to resolving the outstanding regulatory matters and maintaining the accreditation of its universities. The successful completion of the BSN Pre-Licensure program teach-out and the company's cooperation with DEAC are expected to be crucial in navigating these challenges.
The company's Adjusted EBITDA, a non-GAAP financial measure, was $960,670 in the third quarter of fiscal year 2023, compared to $1.34 million in the prior-year period. The improvement in Adjusted EBITDA was primarily due to the savings from the company's restructuring initiatives, which included reducing marketing spend and implementing cost controls and headcount reductions, partially offset by the lower revenue at Aspen University.
Risks and Uncertainties
Aspen Group's business model is subject to various risks and uncertainties, including:
1. Regulatory Compliance: The company's universities must maintain compliance with accreditation standards and state-level regulations, which can significantly impact their operations and financial performance.
2. Competition: Aspen Group faces intense competition from both traditional and online universities, as well as emerging education technology providers.
3. Enrollment and Retention: The company's ability to attract and retain students, particularly in its nursing programs, is crucial to its long-term success.
4. Liquidity and Financing: Aspen Group's ability to access capital and manage its debt obligations will be essential for financing its growth initiatives and weathering any unexpected challenges.
5. Integration and Execution: The successful integration of Aspen University and United States University, as well as the execution of the company's strategic plans, will be critical to its future performance.
Conclusion
Aspen Group, Inc. is a unique education technology company that has established a strong foothold in the nursing education market. While the company has faced significant regulatory challenges, it has demonstrated resilience and a commitment to resolving these issues. With a focus on its post-licensure nursing programs, a restructured cost base, and ongoing efforts to maintain accreditation, Aspen Group appears poised to navigate the current landscape and position itself for long-term growth and profitability. However, the company must successfully address its regulatory challenges, improve its financial performance, and adapt to the evolving higher education market to achieve sustainable success.