Aspen Group Inc (ASPU) 2019 Q2 法說會逐字稿

Good afternoon. Welcome to Aspen Group Fiscal Year 2019 Second 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 future growth, including from USU's FNP program and the Aspen University hybrid pre-licensure BSN campus model, the company's gaining market share and the nurses student market, student enrollment and our liquidity plans. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties related to the Aspen's business is contained in its filings with the Securities and Exchange Commission mentioned in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements as a result of future developments. Also, I'd like to remind you that during the course of the conference call, the company will discuss adjusted EBITDA and EBITDA, which are non-GAAP financial measures in talking about the company's performance. Reconciliation to the most directly comparable GAAP financial measures are provided in the tables in the press release issued by the company today. There will be a transcript of this conference call available for 1 year at the company's website. Now I will turn the call over to Joseph Sevely, Aspen Group Chief Financial Officer.

Good afternoon. I will begin today by reviewing our financial results for our fiscal 2019 second quarter, then will turn the call over to our Chairman and CEO of Aspen Group, Michael Mathews. To open, quarterly revenue was approximately $8.1 million, a 67% increase from the comparable prior year period and a sequential increase of $0.9 million or 12%. USU revenues contributed approximately 19% of the quarterly revenues of the company, while Aspen's new BSN pre-licensure campus unit contributed approximately 3% of the overall quarterly revenues. Aspen Group's gross profit for the second quarter increased to approximately $4.1 million or a 50% margin. This represents a 43% increase in gross profit compared to last year's second quarter. On a sequential basis, gross profit increased 23% and gross margin increased by over 4.5 percentage points. Aspen University's gross profit represented 55% of Aspen University's revenue for the quarter, while USU's gross profit equaled 44% of USU's revenue for the quarter. Both of these units saw 4 percentage point improvement sequentially. Total instructional costs and services for the quarter rose to approximately $1.6 million or 20% of revenue. Aspen University's instructional costs and services represented 17% of Aspen University revenue for the quarter, down from 19% in the first quarter. USU's instructional costs and services equaled 29% of USU's revenue for the quarter, which was lower than the 33% incurred in the first quarter. We expect USU's instructional costs as a percentage of revenue to continue to decline moderately as revenues grow. Marketing and promotional costs for the quarter were approximately $2.2 million or 28% of revenue, declining from 30% as a percentage of revenue in the first quarter. Aspen University's marketing and promotional costs were 25% of Aspen University's revenue for the quarter, down from 27% in the first quarter. USU's marketing and promotional costs equaled 27% of USU's revenue for the quarter, up about 0.5 percentage point from the first quarter.

G&A costs for the quarter were approximately $6.2 million compared to approximately $3.2 million during the comparable prior year period, an increase of $3 million or 96% and a sequential increase of approximately $0.4 million or 7%. The 7% G&A -- 7% sequential G&A increased primarily due to increased staff costs at AGI, including my coming on board as CFO and an expanded finance department, bringing HR in-house, an increase in academic support staff at AU, call center staff to support the increased USU enrollment and a $49,000 increase in our formulaic bad debt expense. Net loss applicable to shareholders was approximately $2.5 million or diluted net loss per share of $0.13 for the quarter as compared to a net loss of $0.5 million or $0.04 for the comparable prior year period, an increase in the loss of approximately $2 million.

Aspen University generated approximately $0.4 million of net income for the quarter, USU experienced a net loss of approximately $1.1 million during the quarter and AGI corporate incurred $1.8 million of expenses in the quarter.

Aspen University showed good operating leverage as operating increase -- operating income increased by over $200,000 in the prior quarter on a revenue increase of approximately $650,000. Therefore, approximately 1/3 of the sequential increase in revenues dropped to Aspen University's bottom line. With regard to our liquidity position, Aspen Group ended the quarter with approximately $7.7 million in unrestricted cash, down $2.7 million from the level at the end of the first quarter. The rate at which we are consuming cash is slowing as total cash outflow declined from $4.2 million in the first quarter.

Operating cash flow this quarter was a use of $2.1 million as compared to $3.4 million last quarter. Therefore, the company decreased its operating cash outflow by 38% sequentially. We used $0.6 million for working capital in the second quarter. Our gross accounts receivable increased significantly in the quarter by $2.4 million. However, much of that increase was due to timing as we had a large class start on October 30, right before the end of the quarter. With that start invoiced but with limited collection by quarter-end, accounts receivables spiked temporarily. That's a typical pattern for us right after a class start and not indicative of a trend toward significantly higher accounts receivable.

In addition to our cash resources, we also put into place a new 3-year revolving credit facility in November, right after the end of the second quarter.

Last week, the company made a scheduled payment of $1.16 million under the 8% convertible note issued in connection with the USU acquisition. The remaining $1 million of principal under the note will mature 1 year from now on December 1, 2019. The company used its existing cash resources to make the payment and we don't expect to draw on our credit facility this fiscal year. It's our expectation that we have adequate liquidity resources for the near future. Now I'll turn the call over to Michael Mathews.

Thanks, Joe. We all certainly welcome you to the executive team and look forward to work with you for the coming years. Good afternoon, everyone. Today, I'll begin with our enrollment results, followed by a discussion of our growth plans for our new -- 2 newest units, USU and our pre-licensure BSN program. Then I'll end with some thoughts about why we are a compelling investment today and provide an update on our recent accreditation reviews.

Fiscal Q2, of course, is our seasonal high point for new student enrollments given this past quarter falls during the back-to-school months of August through October. We certainly didn't disappoint as the company delivered a record 1,565 new student enrollments, which is a 50% increase year-over-year and a 19% sequential increase. Of the 1,565 enrollments this past quarter, 1,294 were at Aspen University, including 1,104 in the Aspen nursing core unit, 133 in the Doctoral unit and 57 in the pre-licensure BSN unit. Additionally, USU accounted for 271 enrollments with the majority, again, being Family Nurse Practitioner enrollments. Note that last year in Q3, our enrollments dipped sequentially in our nursing Aspen core unit by 7% given the seasonal strength of Q2, and we expect that same trend to play out this fiscal year.

Let's talk a little more about seasonality. In Q2, our revenues increased by about $874,000 sequentially and gross profit increased by about $774,000 sequentially. Our strongest quarters are typically Q4 and Q2, in that order. Our softest quarter is Q1 due to the seasonal slowdown in the summer. Q3 falls in between, so we expect some moderation in enrollments, revenue growth and operating leverage in Q3, and then we expect Q4 to be our strongest quarter and expect very solid improvements in all those areas, again, in Q4 of this fiscal year.

As we discussed last quarter, our active student body growth normalized as expected following our Q1 summer seasonal quarter as Aspen's active student body grew from 6,590 to 7,107 or 8% sequentially. USU also continued its consistent student body growth by increasing 23% sequentially from 684 to 843 students. The FNP program is accounting for the lion's share of USU's growth as that program now accounts for approximately 80% of USU's overall student body.

In terms of our marketing strategy in Q2, we are increasing efficiency and achieved strong enrollment growth, while only adding 2 enrollment advisers to our call center this past quarter. Also, after sequentially increasing our internet advertising spend rate at Aspen University in the first quarter by approximately $0.25 million, in Q2 we flattened that spend rate by only spending an additional $20,000 per month. For USU, on the other hand, we increased our internet advertising spending by about 20% sequentially as we continue to invest in the student body growth of the promising FNP program. As you will note, that additional growth spend was rewarded as USU enrollments rose by 23% sequentially. Note that our 6 months rolling average cost of enrollment declined by 15% sequentially at USU from $1,783 to $1,517. So as we're starting to scale our spend at USU, our efficiency is improving similar to the history at Aspen. Given our projected LTV for the USU FNP program at $17,820, that translates to a marketing efficiency ratio of 11.7x. This means that the FNP program is projected to deliver just over double the efficiency of our core Aspen nursing unit.

That completes my remarks on the marketing results of the past quarter. So now I'll shift to future growth plans for USU and our pre-licensure BSN program. First, as I've discussed on previous calls, when we acquired USU 1 year ago, we originally planned to grow our FNP enrollments at a rate of 150 every other month. Our accreditation review with the California Board of Registered Nursing started shortly after our acquisition, so we internally decided to only enroll 75 every other month. Due to that decision, our revenue ramp at USU has been slower than we originally projected. However, we've begun enrolling to a target of 150 FNP students every other month, which was our original expectation a year ago. The reason we've increased our FNP enrollments target up to 150 every other month is the fact that our FNP programmatic accreditation review with the California BRN is substantially complete, and we've been methodically building an operational staff capable of supporting a larger FNP student body over recent months. Please be advised that we did indeed begin enrolling to our target of 150 FNP students every other month, starting with our recent end-of-October start about 6 weeks ago, which, of course, has doubled the previous rate of 75 every other month. That is the key reason that we delivered a 23% enrollment increase at USU this past quarter.

The support group we've hired at USU to prepare for the additional growth of the FNP program included employees in our department of field experience, whose job it is to place these licensure students into their clinical experiences, as well as 2 enrollment advisers and full-time faculty. Therefore, we didn't achieve as much leverage at USU this quarter as we did at Aspen. However, we're set up for strong, consistent growth and expect to see better leverage particularly next fiscal year.

Jumping to our pre-licensure BSN campus business plan. As we previously announced, we're about to begin our first evening weekend semester in January. Today, we have 138 active students in our day program, given that we started our second semester for our day program this past month in November. We're expecting to add approximately 85 enrollments into our first evening weekend semester in January. So at the end of the current quarter, we should have approximately 223 total active students in our pre-licensure BSN program.

Starting with our March semester for our day program and for all semesters in the future, we will be targeting to enroll at least 40 students per semester into our final 2-year core nursing program. Previously, our target was 30 students into our final 2-year core nursing program per semester, but we want to account for a small amount of attrition and feel confident we can handle a larger cohort every semester if we end up with more than 30 students on a net basis. And after our first class graduates in mid-calendar year 2020 and then we obtain NCLEX scores, we will look to enroll at least 60 students per semester on a net basis. Given the revenue of our final 2-year core nursing student averages $20,000 per annum, that means that when each campus hits its size limit over a 4-year period, which will be a total of approximately 720 core nursing students, that would derive over $40 million of revenue per annum per campus.

In terms of an update on our HonorHealth campus planned to be located on the north side of the Phoenix Metro, we expect to be signing the final agreement with HonorHealth by year-end and construction plans call for a build-out time frame of approximately 6 months. So we're currently targeting our first semester to begin in July next year. We're expecting our half of the costs of the construction and TI to be about $600,000, which we are planning to expand over the third and fourth fiscal quarters.

We're planning for the HonorHealth campus to be a mirror of our current campus, in terms of having both a day and an evening weekend program, which will give us 6 semesters per year. We also plan to enroll over 30 students net into the final 2-year core program per semester at our new HonorHealth campus. Because it takes us about 1 year to begin generating a profit for each campus, our plan at this point is to launch one new campus every year for the next few years. This allows us to balance the company's near-term goal of achieving adjusted EBITDA profitability with this new business that promises to provide very high returns on invested capital. Once we begin to generate cash flow, expect us to accelerate this campus expansion plan.

This year, of course, is our first campus near the airport in Phoenix. Next year will be the HonorHealth campus on the north side of Phoenix. And in 2020, we expect to launch a third campus outside of Arizona, and we'll announce details of these plans sometime next calendar year.

Based on these methodical growth plans, we expect to finance our growth internally and through debt financing. As a result, we do not plan to access the equity market in the foreseeable future.

I would like to now discuss why the management team feel -- continues to feel that we're a compelling investment. First, please be aware that we uploaded our new investor presentation today on our IR site, aspu.com. Several slides in that presentation provide support for my remarks. So please feel free to download this presentation to follow along. I'll begin by stating that our long-term goal is to leverage our EdTech infrastructure and expertise to become the largest nursing school in the United States. We decided several years ago to target the nursing profession because demand for nurses is being fueled by the aging baby boomer population and the growing complexity of the health care industry is driving demand for highly educated nurses. And most importantly, pursuing higher levels of education has a high ROI for nurses, which we as a company cared deeply about.

What makes Aspen unique is that we are capable of offering our nursing degree programs to students at a 25% to 40% discount to pretty much any other school in the U.S. without compromising the quality of the education we provide our students. We can validate this by comparing Aspen student outcomes versus the industry. Please see Slide 25 for reference.

We would like to focus on our largest program at Aspen University, our RN to BSN program, which accounts for nearly half of our student body, and tell you that our graduation rate for this program last calendar year was 76% as reported to our accreditor. In addition to offering among the industry's most cost-effective pricing for accredited nursing degree programs, the company has created disruptive and compelling payment plan for its students. Unlike the traditional model of paying upfront for each semester, Aspen allows its students to enter into a monthly payment program, whereby students pay a lower, more affordable and predictable payment amount each month. As a result, more students are able to pursue their education goals, and when they are achieved, they are not encumbered with long-term debt with interest that they must pay off.

In terms of ROI for our students, on Slide 14, we show that the payback period is often 1 year or less when comparing the cost of tuition at Aspen relative to the salary uplift these degrees often provide.

Now that we have described why Aspen provides a compelling value proposition for students, let's make the case for why it's a compelling investment for shareholders. Firstly, nursing education is a multibillion-dollar market and there currently is a significant need for more nurses in the U.S. As our Slide 17 indicates, we currently estimate our TAM to be over $4 billion now that we've entered the FNP and pre-licensure BSN segments. Secondly, nurses love their jobs. The average nurse stays in their career for over 20 years. As a result, nurses have a lot of ambition and there's a lot of opportunity within nursing to advance. Much of the advancement in nursing is tied to advanced degrees, and there's a strong correlation between advanced degrees and higher pay in nursing as outlined on Slide 12. Furthermore, the nursing education industry is well established and growing mid-single digits organically. Aspen has arguably created the best set of unit economics in history within this sector.

To explore this further, on Slide 31, you'll see that Aspen pays $1,300 to $2,100 to acquire a student depending on the degree program, while competitors typically have acquisition costs that are 2 to 3x higher. Aspen converts well over 10% of the students that have interests in enrolling on average because it is highly selective in its student selection process, whereas the traditional competitors have a conversion rate in the mid-single digits. Given that Aspen's cost of enrollment is significantly lower, the company is able to reduce tuition costs for the students and offer a monthly payment plan in which 70% of our students today participate as outlined on Slide 22. As a result, Aspen just reported 50% enrollment growth in our most recent quarter, while the industry's largest nursing school with over 30,000 students, Chamberlain, reported mid-single digit enrollment in revenue growth. As we move forward, note that Slide 20 shows that we are focused on increasing our ARPU, which is why we've increased -- or it's why we've launched into the FNP and pre-licensure BSN businesses, which will translate to gross margin increases in shorter breakeven per student time frames as outlined on Slide 32.

In sum, Aspen has created a highly innovative monthly payment program that allows its students to pay a no interest, low monthly amount instead of having to make the traditional upfront full semester payment to attend school. As a result, only 21% of Aspen University's students last year took out federal loans versus other schools that are as high as 85% to 90%. Therefore, Aspen's online students were able to pay as they go through school and graduate without being encumbered with long-term debt.

In addition, Aspen's tuition is 25% to 45% lower than the industry average for nursing degree programs, making it arguably the most affordable nursing school in the country, while maintaining well above industry average degree completion rates. We believe Aspen has created a sustainable competitive advantage that the industry cannot replicate because they do not have the ability to aggressively lower tuition given that it would slow their already low single-digit revenue growth further. These traditional schools also are not run by technology executives. They've not been able to adjust to the new model that Aspen has created and there's nothing to suggest that they'll effectively make the switch.

Aspen is in the early stages of disrupting the market and capturing significant market share over time, supported by Aspen's enrollment growth versus the industry. As Aspen continues to innovate and incorporate more technology into its technology stack and curriculum, Aspen's differentiation and market share should continue to increase.

Lastly, Slide 37 shows that Aspen is trading just over 4x trailing 12 months' revenues based on a 59% growth rate. Other core profit education firms are trading above our multiple with negative to 12% growth at best. In comparing Aspen to EdTech companies such as 2U or Chegg, they are trading at about twice our multiple relative to trailing 12-month revenues.

Those are our remarks on why we continue to believe we are well positioned and remain a compelling investment today. Before I complete my remarks today, I would be remiss to not talk about the heroic efforts of our employees over the past 60 days. For those of you that aren't aware, Aspen University's every 5-year reaccreditation review was conducted by our accreditor, the DEAC, during the month of October. Because AGI acquired USU a year ago, their reaccreditation review was pushed back from its scheduled review late last year to this past month of November. So unbelievably we underwent reaccreditation reviews with Aspen and USU in back-to-back months. I'd just like to publicly thank every employee of AGI and Aspen University and United States University for their tremendous effort and dedication the past 2 months. As the saying goes, there is no I in team. And I have to say, I've never been more proud to be leading such an intelligent, cohesive group of people committed to a common goal of making college affordable again. Again, thank you to all of you at Aspen from the bottom of my heart. You guys are what makes us so special and you clearly proved that the past few months. That ends our prepared remarks for this afternoon. Now we'd like to open the call to address any questions.

(Operator Instructions) Our first question comes from the line of Darren Aftahi with Roth Capital Partners.

Just a couple of questions, if I may. So it looks like the trend line on your USU cost of enrollment went down. I'm kind of curious if you could indulge us what that actual metric was for the 3-month period?

You're talking about the cost of enrollment for USU for the last -- it's a rolling 6 months analysis. And we indicated it went down into the $1,500 range from $1,700. It improved by -- improved approximately 10% sequentially.

So what's driving -- I mean, obviously you're ramping students, but is it more a mathematics kind of exercise here? Or I know in your core Aspen business, you've seen organic benefit. Is that starting to kick in? Or is it still too early in the lifecycle of the business?

Yes. Great question. No, I don't think we're seeing much organic value yet, it takes a number of quarters for that to kick in. So as I mentioned earlier, we -- and I've said this from the beginning of acquiring USU, there is tremendous demand for FNP students across the United States. And we have done a self-limit of 75 students every other month up until our October 30 start. And so from here on out, we're going to now be enrolling 150 students every other month. There's no question the demand is there. We're able to generate the leads at a very effective cost per lead and our enrollment conversion rate is very similar to our traditional Aspen business. So that's -- the primary reason you saw a drop in our cost of enrollment was because we opened up the cap and, of course, came close to enrolling 150 students in October, and that's what generated that extra 50-or-so enrollments sequentially.

Great. I guess that kind of segues into my next question, so I think USU adjusted EBITDA was flat at minus $800,000 roughly sequentially. Given you enrolled a fair amount of students towards the end of the quarter, did timing play an issue? And why -- looking at that metric, can it improve a little bit more?

Yes. I mean, we still -- we would have only had that one start over the 90-day period in which we opened up the cap. So yes, that's why you didn't see a more significant improvement than that. Depending on the quarter, we'll either have 1 or 2 enrollment starts within the given 90-day period. So it just sort of depends how the calendar falls. But on overall basis, again, you can expect us to be enrolling a minimum of 150 every other month on behalf of USU.

Got it. And just 2 more, if I may. Just the delta between MPP for core Aspen and then USU, I think it's 71% and 61%, respectively. Any reason why USU can't reach Aspen levels? And then my last question, I think, on the last call -- conference -- quarterly conference call, you talked about kind of trend lines in the current quarter for enrollment at the, call it, the Aspen. I'm just curious if you can indulge us with any kind of trend you're seeing in this current quarter.

Sure. So if you guys look at the history of Aspen, we launched the monthly payment plan in the spring of 2014, so it's been about approximately 4.5 years. And it took us about 4 years to hit that 70% mark. And so to be honest, when USU almost, right out of the box, within a of couple quarters was north of 60%, to be honest, I almost fell off my chair. So we've proven twice with 2 different universities and different types of programs that if the working professional has the opportunity to use financial prudence and put the cost of the education into their monthly budget, they're going to do it 70% of the time. And I think it's inevitable that USU will be 70% or higher based on history. In terms of enrollment trend lines for Aspen, there is seasonality involved as we kind of mentioned in our remarks. Q2 and Q4 for us are very, very strong seasonal quarters, whereas Q1, of course, is a bit weaker and Q3 sort of fits in between. So we have the months of November and December, which are a little bit weaker seasonally speaking, and of course, with the holidays, we lose some working days. So we naturally are kind of flat from Q2 to sort of flat or slightly down from Q2 to Q3 every year. I think last year, we were down by about 7%, and I think this year, it'll be a similar kind of result.

Our next question comes from the line of Eric Martinuzzi with Lake Street.

Congrats on the good new student growth there in Q2, that terrific, that 50% number. I wanted to talk a little bit about the full year, I guess, the seasonality question there. And you talked about a flat to slightly down. I just wanted to clarify that, that was enrollments? That was revenue as far as Q3 versus Q2?

Yes. No, that was just a question about enrollments, not revenue.

Okay. And then -- you did say there was seasonality to keep in mind, but you grew...

And Eric, if I could interrupt quickly, I apologize. Darren was asking me specifically about only the Aspen nursing core unit. We're going to be up sequentially in all other units, Doctoral, USU, pre-licensure campus business. The only one that will be semi-flat will be our traditional Aspen core unit in enrollments only.

Got you. You talked about seasonal -- seasonality in the business. You're obviously having a nice seasonal rise in Q2 versus Q1 on the revenue side. When I look back at last year, last year was a little bit muddy because it was your first quarter, you had a partial quarter of USU, the business was up about, I think, $850,000 or $900,000. You've now got a little bit tougher comp, that sequential growth Q2 versus Q3, could we still see that potential $800,000 or $900,000 sequential growth in the top line all in?

Eric, the analyst expectations on the top line for Q3, I think, we have a couple of different analysts that are sort of, I believe, in the $880,000 range. That seems to be in the range for us, which would back into, what is that, about a $700,000 sequential increase.

Okay. Because I'm thinking also referencing those same at least the estimate -- the analyst estimates, where the analysts are still paying attention. They're talking about roughly a $35 million year. To get there, you got to $20 million in the back half. So that would imply -- and we're forecasting a substantial step up in Q4, but that would also suggest almost $11 million or so in Q4 to get to that amount implied for the year. Is that in the cards? Is that a stretch goal or is it more realistic to think there's, yes, a seasonal step up but just not quite over $11 million?

Yes. So every year in Q4, we see the biggest sequential step up for the year, and we expect a giant step up in Q4. We're not currently guiding on revenue for Q4. So we'll make some comments on that 90 days from now.

Okay. And then you talked a little bit about your cash needs. It was good to see you get some revolver, having that flexibility there and also the fact that you don't plan to -- there's no current plans to draw on that credit facility in 2019. What about the -- I guess, it's one way asking, what would be the path to adjusted EBITDA breakeven, that's not going to happen in fiscal '19, but is there an expectation in fiscal '20 and then in which quarter or which half do you expect that to cross that threshold?

Well, okay, let me first of all kind of talk, again, about what just happened. I think you guys noticed that we had a revenue increase of approximately $874,000. And on the gross profit line, we literally almost drop down the entire amount. So if that didn't impressed our shareholders base, I don't know if anything -- what else can we do other than stand on our heads? So we clearly have tremendous leverage in our business model. From a cash point of view, you can see we went from a $4.2 million cash burn, and we dropped all the way down to $2.7 million, right? And so it was -- and from an operating -- from a cash usage point of view, the increase sequentially was, in my opinion, a breathtaking $1.3 million. So as I specifically told everyone, Q1 was going to be the high point, if you will, of losses and cash burn, and that every quarter after that was going to show really nice improvement in leverage. And so I can't stress enough how proud we are of what we've been able to do and we did exactly what we said we would do. Now from a go-forward perspective, we're not calling for positive adjusted EBITDA for Q4 at this point, but if we don't hit it, it's not going to be far off. So what can I say? We'll be positive for next fiscal year and maybe Q4, we'll see. But hopefully, you can hear in my voice the tremendous confidence level that we are on a path to become profitable in the coming quarters and continue to have excellent growth.

Yes. That was some tremendous incremental margin there between Q2 -- Q1 and Q2. You talked a little bit about the 1 new campus each year for the next few years. I think that -- maybe you mentioned it before, but I don't think so. What was the discussion at the board level as far as how hard do we press on the accelerator in the pre-licensure program?

Yes, that's a great question, Eric. The -- we have a tremendous board and they're very, very involved in these kinds of critical decisions. And to be honest, in a perfect world, if we had all the cash in the world, we believe that we have the ability to launch 10 to 15 campuses in the next 7 to 10 years. And we believe that we have a very differentiated pre-licensure business model that will allow us to succeed in every major city that we go to. On a short-term basis, I've heard from a lot of shareholders that, Mike, we love your growth and you've launched into 2 new businesses, and those businesses have tremendous unit economic potential, right, but we want to see that this business has a lot of leverage and we don't want you guys to only focus on growth and not always -- not also worry about being adjusted EBITDA and cash flow positive. So we're trying to balance those 2 things certainly for the next 12 months.

I understand that perspective. I think you have -- you've gotten up in a lot of growth vectors, just if I look back a year ago when it was a relatively simple BSN completion company, and you've been doing several different things beyond that. So I think it's a proven course to kind of balance and digest, and I'm interested to see how things go here once we're in kind of a normalized "run rate".

(Operator Instructions) Our next question comes from the line of Mike Malouf with Craig-Hallum Capital Group.

If I can just get a little bit more clarity on the pre-licensure program. It sounds like you've kind of narrowed down the model to do $14 million in annual revenues once it's mature. Is that doing 60 per semester, is that what is the goal for each one that's been made at the end of the day?

Yes. Yes, so again we initially enroll -- for the first couple of semesters, as you know, we've been targeting enrolling 30 students into our final 2-year core nursing program per semester. And again, we now have 6 semesters per year. We just announced today that we're going to start to increase that already. We're going to start targeting about 40 students into that core nursing program per semester, accounting for a little bit of attrition, so that we net more than 30 every semester going forward. So I was guiding that we're going to -- we're becoming -- we're very confident in the program, confident in the demand. And we're confident in our academic team and our professors at this point. So we're ready to start growing methodically. And after 2 years when we have NCLEX scores, which is approximately in the summer of 2020, we will then move to 60 students on a net basis every semester. So once you have 2 years of enrolling 60 students per semester over 6 semesters, you end up with about 720 students in that final 2-year core program and the average revenue is about $20,000 a student. So that gives you what? $14.4 million in the core nursing program.

Great. That's really helpful. And then when you take a look at margins, can you give us a sense of where you think the margins would check up on these programs? I'm sure you've kind of run the numbers now that you've been operating for a while.

Yes, we have. But, I mean, it's still a new program and -- but I would say to you that there is the potential for us to be north of 30% operating margins for this business, which is higher, of course, than our traditional Aspen nursing business.

That's great. And then when you -- can we just switch a little bit to the Family Nurse Practitioner market? It looks like you've bumped that up as of October to 150 every 2 months. Is that where you expect to be for the next couple of years or do you think that there's some chance to raise that as well?

Our plan right now is to remain at that constant level, that will provide us a very, very large FNP program a couple of years from now. And you have to understand, this is not the RN to BSN program at Aspen, where there's no licensure program at the end of the degree program. So it's a very structured program. The students have to be placed exactly a year into the 2-year structured program. And so we feel like that is a good size of this program over the next couple of years. We'll reassess it, maybe 1 year from now. But for the next 12 months, the academic team is comfortable with that 150 mark every other month.

Great. And what would that be on a revenue basis once it's at maturity?

We're looking to be north of 2,000 students a couple of years from now.

Okay. And then those are at -- what's that rate at again? 17...

Yes. The LTV right now -- we're calling the LTV to be $17,820. That's per enrollment. And of course, there's some attrition on that. So the program is about $27,000 for those that graduate including fees.

Our next question comes from the line of Jamie DeYoung with Goudy Park Capital.

Just a couple of quick questions. I just want to follow up on the FNP, if I may, please. Well, it looks like you're at 493 enrollments through the first half of this year. You're going to see acceleration in the second half. So you're likely to finish this year at around 1,100 enrollments, and then next year you're going to have another 1,200, 1,300 enrollments. So isn't the run rate kind of going in the next year going to be around $9 million? I mean, shouldn't you pick up another $3 million or $4 million, so you should have a 100% plus year-over-year growth in that program?

Yes, that's exactly what our forecast suggests. Yes, you're correct.

Okay, great. That's helpful. Then I wanted to ask you how many clinical relationships do you now have set up in the field?

We've -- since we started the -- are you asking about at Aspen University or USU FNP?

I'm asking more USU FNP for the FNP Doctoral.

Yes, I mean, now that we have several hundred students in our FNP program, my director of field experience has told me recently that we're now north of 150 clinical partnerships already.

That's terrific. So I just want to drill down on the pre-licensure business, if I may. So you said in the detailed presentation that you provided, that the RN to BSN grad rate 76%. So I know it's early in pre-licensure, but if that's a $48,000 degree program, if you're getting $40,000 on average per student, that works to about an 83% graduation rates. So you're seeing a nice up -- you should see a nice uptick in that program. So what is the cost of the early students that you've acquired? What's that cost to acquire students for that program?

Yes, you probably won't believe this, Jamie, but we've spent about $25,000 between May and our July start, and we've spent di minimis amounts of money since. So the cost of enrollment has been literally less than $100. It's been almost immaterial. The demand in the Phoenix area, once we launched our radio campaign, hundreds and hundreds and hundreds of applications flowed in. And that's why we decided to launch a second campus in Phoenix, and that's also why we think that we'll be wildly successful in every major metro that we go to. Because if you look at Chamberlain College of Nursing, they charge $85,000 for tuition and we're $47,000 with -- all in, with fees. This is a huge difference. We haven't yet called an LTV to date on the pre-licensure business, but yes, you're not far off. I mean, at this point, we would probably guesstimate about an 80% graduation rate based on our initial attrition. And if -- that would suggest an LTV that's in the high $30,000 range per enrollment. So that basically is saying that we think that this business could potentially have double the LTV rate of our FNP program at USU, which is just under $18,000.

Yes, that would be fantastic. So then just finishing here on pre-licensure. So as you're ramping this evening weekend program, probably a little, somewhere around $3 million in revenue for the contribution from that degree program next year on the top line. Is that reasonable?

$3 million for next year?

Yes.

Yes, we're calling for revenues that are higher than that. But yes, I mean, it's at least $3 million. Yes.

Okay. Great. My only recommendation might be given you had another strong quarter of 67% growth, I might -- if you decide to give guidance in the future, I might consider giving flat guidance for next year.

Okay.

Maybe you'll get some credit to your growth.

Okay. I wasn't sure what you meant. I understand, yes. That's true.

We have no further questions at this time. I would now like to turn the call back to Michael Mathews for any further remarks.

Thank you, everyone, for your questions. And I want to thank everyone for joining us this afternoon. The team here looks forward to talking to you again soon. Have a good afternoon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.