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Aspen Group Bear Case

EDUInvestor profile picture


  • Questionable Financial Statements/Quality of Earnings.
  • Flawed Business Model.
  • Lack of regional accreditation.
  • Negative regulatory environment for for-profits.
  • Excessive Valuation.

This article was amended on 5/4/2020 to reflect a clarification related to the company's graduation rate.

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Questionable Financial Statements/Quality of EarningsQuality of ASPU's financial statements and earnings are highly suspect. Specifically, the company's accounts receivable is growing at a much faster rate than revenue increasing tenfold from $2 million in 2016 to $20.2 million in January 2020. DSO's have grown from 86.9 days to 163.1 days during this same period (See Table 1). DSO's are an indication of the quality of revenue and receivables.

Compounding this problem is Allowance for Doubtful Accounts which is only 8.2% of gross accounts receivable - much lower than other for-profits. The peer group has reserves consistently around 35% versus ASPU's 8.2% (See Table 2). Also, the peer group books around 5% of revenue for bad debt. ASPU's Bad Debt rate is only 1.9% YTD. And the peer group A/R is majority sourced from the government (i.e. Title IV, TA, VA) which have no default risk. ASPU's A/R are from students that defaults at a much higher rate, especially those student that drop or are inactive. So how can ASPU's bad debt rate be lower than the peer group?

APSU's accounts receivable has grown to an astounding 45% of annual revenue and $6.1 million is now long term which further increases default risk. This ballooning accounts receivable balance is a result of management's liberal payment program allowing students a low monthly cash payment plan that covers only half of earned revenue - similar to a negative amortization loan. As such, by all industry metrics a significant amount

This article was written by

EDUInvestor profile picture
Private investor with extensive experience and focus on for-profit post secondary education stocks.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (119)

CatCameBack profile picture
Nice to have index funds buying and holding shares soon.
Aspen Group, Inc. Set to Join Russell 2000® Index and Russell® 3000 Index
CatCameBack profile picture
Seems good:
June 2, 2020
Aspen Group, Inc. Pre-Announces 42% Increase in Q4 2020 Revenue to $14.5 Million and FY 2020 Revenue Increase of 45% to $49.5 Million; Higher LTV Programs now Represent 44% of Revenues.

Full press release is on their website.
Patrick Irish profile picture
Would like to see what EDUInvestor thinks about these latest numbers.
CatCameBack profile picture
she/he said something here, seems to be an attempt to cast doubt.

EDUInvestor profile picture
Thanks Patrick. I am finalizing my analysis, thoughts and comments and will publish a new article shortly.
EDUInvestor profile picture
APSU's stock price has been buoyed by new enrollments start growth over the past few quarters. Much of this growth in starts is a result of the ramp in prelicensure nursing. However, prelicensure nursing starts growth should be flattening out starting this quarter (4Q20) due to capacity constraints. In the prior year quarter (4Q19) there were 186 prelicensure starts which is the stated capacity of this program based on management's past comments (30 enrollments per term x 6 terms/quarter). Without prelicensure enrollments, 2Q20 starts growth was 18% versus overall growth of 42%. This might be the reason management failed to disclose prelicensure starts in 3Q20 and overspent marketing by $500k to drive starts growth which came in at 28%. Until new campuses open starts growth will be challenged. So I expect a more modest starts growth rate in 4Q20 or an overspend in marketing to drive starts. The CEO stated that he expected approval of the Tampa campus at the end of April with recruiting to begin in May for an August start. But there has been no announcement the campus received approval which does not bode well for meeting this projected opening date. A delay will put pressure on starts growth and margins since the costs of these new campuses are ramping up without revenue to offset startup costs.
EDUInvestor profile picture
Quarterly revenue per student dropped from $1274/student in 2Q20 to $1153/student in 3Q20. I used a mid-quarter convention to calculate average student population. Assuming this rate/student remained at this level revenue will come in around $13.0 million for 4Q20 or a miss of $300k in revenue. I assumed a 28% Y/Y starts growth rate which would be high if prelicensure enrollments are restricted due to capacity constraints in the core program. Also, the attrition rate could move this number. CEO projected annual revenue growth rate of 42% which would impute $13.3 million 4Q20 revenue. This $300k miss in revenue would also result in a miss in EBITDA. CEO projected a positive EBITDA but this would result in an EBITDA loss of ($500k). The rate/student is impacted by the mix of students in the calculation. The higher percentage of lower earning prerequisite students probably drove this rate down in 3Q20. The question is what will be the mix in 4Q20 and if higher earning core students will move the rate up.
DeepValuePlay profile picture
Spoiler alert - revenues for the quarter will exceed $13.3M :)
EDUInvestor profile picture
How did you develop your projection? Please share what assumptions you made to come up with $13.3+ million for 4Q20.
EDUInvestor profile picture
Last quarter the company missed their estimate by 7 cents and the stock dropped from $7.97 to $5.14. This is the reason you need to do your own due diligence and not rely on projections provided by the CEO.
EDUInvestor profile picture
The 4Q20 investor call could be pivotal as management has a number of issues/questions that needs to be addressed.

1. Prelicensure Nursing - Solution to Nursing Core constraints/projected waitlists and impact on prerequisites new student enrollments. Will new student enrollments be lowered to prevent long waitlists to Core Nursing.
2. Matriculation rate of Prelicensure students to Core nursing program.
3. Current student census in Prelicensure Core nursing program and projected graduates and dates of graduation. Reason for discontinuing reporting of enrollment metrics for Prelicensure Nursing.
4. Nursing board site visit date and earliest date for possible increase in enrollment caps
5. Accounts receivables growth rate and reserve methodology. Are reserves adequate to cover future defaults?
6. Impact of Covid of enrollments and costs.
- Has loss of income for prospective students impacted new student enrollments
- Has monthly cash payments been impacted resulting in delinquencies, higher bad debt and/or drops due to non-payment?
7. Status of opening Tampa campus (Nursing board meeting was late April but no announcement on decision)
8. Status of Austin campus opening

It would be great if management could provide some transparency on the above.
DeepValuePlay profile picture
Re the breakout of Aspen University enrollment numbers: I know it is frustrating when all of the short arguments in the actual article were pretty much refuted, so now it seems the author is coming with new material in the comments section. However, I would appreciate some DD for the benefit of those who care about actual facts. The company indeed mention that the new CFO wanted to change the reporting... that makes some sense... they have two universities and wanted to break it between the two and not go into too much detail. Even Apple reduced its disclosure recently - investors didn't like it at first but then the stock re-rated. This change in the last quarter made me think as well as this is a potential red flag. The difference is I actually crunched some numbers:
It is easy to calculate the ARPU (Average Revenue Per Enrollment) for the quarters before Q3 and also for Q3 (only for Aspen University and ignoring USU). So ARPU was $11,200 (Q4), $12,500 (Q1), $13,350 (Q2) and $14,500 (Q3).
You can see that even though the company did not disclose hybrid enrollment that ARPU continued to increase significantly. The only logical conclusion is that the percentage of students in the higher priced hybrid programs increased.
So - NO, the company is not hiding hybrid enrollment numbers because they are lower.
EDUInvestor profile picture
Thank you for confirming that management indeed stopped providing this key metric even though the CEO crowed about the growth in pre-licensure enrollments in past releases and calls.

And not liking what was reflected in the article is not the same as “refuting” the facts and opinions stated.
DeepValuePlay profile picture
"facts" LOL
EDUInvestor profile picture
One number I can't wrap my head around is the 437 pre-licensure nursing new student enrollments for 2Q20. There are three starts per quarter. I believe the CEO said that they have 30 enrollments/capacity per start for the Core program or 90 core starts per quarter. So if 2/3 of the 437 new student enrollment complete that would be 292 students for 90 slots or only 30% could matriculate into the core program? If someone has better number please share them with me.
DeepValuePlay profile picture
You're obviously wrong... that just makes zero sense...
EDUInvestor profile picture
Please explain how this is wrong if it is so obvious?
DeepValuePlay profile picture
There could be so many explanations... go ask IR instead of speculating. I'm sure the right explanation is NOT that they enrolled students that they won't have room for in the next year... I mean.. they'd have to be complete idiots to do that.
Patrick Irish profile picture
Insider selling just came through of about 50,000 shares from the CEO. I guess that tells us what he thinks about the $7 price for the stock. He stills owns a lot but I don't like that one bit.
Per the footnotes of the Form 4, the "shares were sold to pay (i) federal, state and local income taxes incurred from the cashless exercise of 162,500 stock options in July 2019 (ii) the withholding taxes due in connection with the planned exercise of 66,667 stock options expiring in July 2020 and (iii) to pay the exercise price on the options expiring in July 2020."

The author is long ASPU.
EDUInvestor profile picture
In modeling ASPU's enrollments and new student starts I notice that the company did not break out pre-licensure nursing enrollments and starts in the most recent quarter (3Q20). Unless I missed it I could not find this metric in the 10-Q or investor call transcripts. This metric has been broken-out and reported separately since the roll-out of this program in July 2018. See the links below to the 2Q 2020 10-Q and 3Q 2020 10-Q to see the change in reporting. Look at the MD&A section of the reports. The CEO talked about pre-nursing enrollment results in the 2Q conference call but did not provide these number in the 3Q conference call. You recall that 3Q20 was the quarter ASPU overspent by $500k in marketing leading some to question whether there were problems with leads and starts. It is always an issue when management stops reporting a key metric used to evaluate performance.

If someone could point me to these numbers that would be great. If not you would have to question whether the rate of growth in pre-licensure nursing is flattening out as to the reason it was not reported.


schoolyd profile picture
i published short sell research for many years and managed short biased hedge funds from 2000-2013 so I appreciate your effort and enjoy reading your analysis as well as the back and forth from the readers. the following is my article on short selling methodology I used. seekingalpha.com/...

i personally think your timing is too early and the longs are going to be only focused on the enrollment numbers. As I said, I was long and didnt like the change in marketing spend so I sold, but I don't think it's a short, either, at least yet. I actually was tempted to buy it back if it the stock got below $6, but you raised some valid issues, and so I am just going to be a bystander, enjoying the game between the longs and shorts
EDUInvestor profile picture
Thanks and I will review your research and appreciate the feedback. It might be too early to short but I feel the valuation is way too rich. And you are right that the stock is obviously not being valued on earnings but on enrollments and enrollments growth rate. And there are signs that enrollments growth might disappoint. And given that the stock is priced to perfection it could tank the stock price. Management's not breaking out pre-licensure nursing enrollments for the 1st time last quarter has me thinking that this program is not ramping as fast as is priced in the stock. But I will read your research and might change my thoughts on this being a good short candidate.
schoolyd profile picture
My main thesis has always been about ensuring the flags/flaws I uncover will lead to a near term disappointment in whatever metric bulls care about. I also try to avoid high growth and I am never that focused on valuation, more about the catalyst. Shorting has become much more difficult the past 10 years . Much easier to devote brain cells to finding great longs, but that's just me
schoolyd profile picture
Interesting discussion. I was long and sold after last quarter, but not for the reasons outlined in this report. What concerned me was the mid quarter decision to ramp marketing expenses (see CC thread below). The prior quarter was unbelievable with massive enrollment growth AND lower marketing expenses so I can see how that would be hard to continue indefinitely, but I didn't like the suddenness of the decision to increase the spend. It didn't seem like it was on the table and then suddenly it was once the offering was completed. I do like a lot about the company and while I do appreciate the author's efforts here, I do think that the cash flow and A/R issues are will resolve itself as the newly instituted payment methodology cycles through.

Eric Martinuzzi

Okay. Why did we choose to ramp up the marketing mid quarter? In other words, as you gave guidance last quarter, it wasn't on the table, and then mid quarter you changed your mind.

Michael Mathews

Well, I mean, we were on the doorstep of, obviously, looking at doing an equity raise. And we were pretty confident we were going to be able to get that done. And we felt like we've had a year's worth of flat marketing spending. And it was about time that we started to get more aggressive. I think if you look at our marketing efficiency ratio versus any other company in our space, or frankly, in the business to consumer sector, in total, we probably have one of the best ratios that exist. So we're not doing our shareholders justice if we don't start to significantly increase our marketing spend.
DeepValuePlay profile picture
I understand where you're coming from but disagree with you. Marketing costs is how you increase enrollments, and I think these costs will generate handsome returns, especially if invested in the higher margin programs. I trust Mike's judgment - I believe he doesn't spend just because he has the money, but because he sees the return potential.
EDUInvestor profile picture
Congratulations on your prescient stock sale and my BS meter also went off on Mathews comment about the mid-session decision to ramp up marketing spend by $500k over the prior quarter. Mathews talks about the robust demand for their programs. So it is suspect that being a public company he would make the decision to ramp up marketing mid-quarter and miss street estimates unless there was a problem with leads and new student starts. I am sure that he had a budgeted spend to get to the budgeted start number built into their forecast. So why increase it?

Also, there is much talk about the shortage of nursing programs and long waiting lists. However, it needs to be evaluated on a regional level and there are a number of quality nursing programs in the Phoenix market. For example, Chamberlain University is a very reputable nursing school with regional accreditation, 92% NCLEX pass rate and no wait list in Phoenix. There are many on this board who believe that all the quality nursing programs have wait lists. This is not true.


The concern is that ASPU has been successful in enrolling new students in the Phoenix market by enrolling "unqualified" students with the institution's low admissions requirements and 50% lower tuition rate. The low admissions requirement is an exposure as these "unqualified" students enroll and are not successful in completing the program and/or passing the NCLEX exam. How many 2.0 GPA high school graduates will be successful in a nursing program requiring college level A&P, micro-biology, math and English? Especially given that these prerequisites are all taught online which requires a more disciplined student which most 2.0 students are not. And if the nursing graduates do not pass the NCLEX exams at an acceptable rate the State of Arizona Nursing Board will not grant full approval and will restrict enrollments.

Much of ASPU's valuation is based on the successful scaling of pre-licensure nursing in Phoenix, Tampa, Austin and other cities. But the company has yet to graduate one nursing student that has successfully passed the NCLEX exam. Maybe a better time to invest is when the first campus demonstrates success and profitability.
CatCameBack profile picture
2.0, you just don’t know what you are talking about. Most university nursing programs are highly competitive. After two years many students with 3.5 and above don’t get in. Under 3.5 and odds are extremely small. This is one reason a program like ASPU is offering will be highly successful, there are numerous good students who would make good nurses that can’t get in to insanely competitive nursing programs.
gmk profile picture
The author does not understand ASPU. This response will address the question of account receivables.

Aspen Group is made up of Aspen University or AU (BSN completion, MSN completion, Doctorate, Pre-Licensure, and a few other smaller programs) and USU (primarily the FNP program). ASPU has three core programs (BSN completion, Pre-Licensure, and FNP) have very different pricing/billing plans. The Pre-Licensure and the FNP program are the growth drivers of the company.

The Pre-Licensure is a pre-paid program, and collects cash before it recognizes revenue. That explains, the growth in deferred revenue from $2.5m at YE CY2019 to $5.7m as of the last quarterly report on January 31, 2020.

The AR is attributable largely to the BSN completion and the FNP programs. The bulk of the bulk of the growth in AR over the past two years is attributable to the FNP program.

USU began offering MPP in the summer of 2017. Initially, the online hybrid FNP program charged $375 per month. Per the FY 2019 10K,

“Effective August 2019, new student enrollments for USU’s FNP monthly payment plan will be offered a $9,000 two-year payment plan ($375/month x 24 months) designed to pay for the first year’s pre-clinical courses only (approximate cost of $9,000). The second academic year in which students complete their clinical courses (approximate cost of $18,000) will be required to be funded through conventional payment methods (either cash, private loans, corporate tuition reimbursement or federal financial aid.”

The FNP program is a two-year program. Prior to the changes in payment plan in August 2019, USU FNP students who opted for the MPP (65% as of October 2019) paid $375 per month, and thus paid only a portion of the $27,000 tuition during the course of the program and owed two thirds of the tuition post-graduation. The new payment plan changed that. Starting in August 2019, new students still pay $375 per month for two years (i.e., they pay for the first year tuition over a two-year period), and pay the second year’s tuition of $18,000 in three upfront payments (i.e., three payments of $6,000 for each of three semesters, prior to starting semester classes). Thus, the FNP program, which caused the growth in AR over the past two years, will no longer be an AR growth generator post August 2020.

Per my analysis, Aspen Group’s AR will not only stop growing post August 2020, but they will actually decline, even as overall corporate revenue continues to grow. Starting in August 2020, the new cohort of USU FNP second year students will pay their second year upfront (3x $6,000), thus not increasing AR, while FNP students who graduated in prior years and who opted for the MPP will keep paying at the rate of $375 per month (minus some defaults). This will cause AR to decline. At that time, cash generation will no longer lag revenue recognition, but will exceed it. Around that time, in FY2021, Aspen will not only turn net income positive, but will also see enhanced cash generation for a period of three-four years, as the FNP students on the old payment plan cycle through the system.

Post the change in the USU FNP payment plan in August 2019 , Aspen Group’s financial model is sound, which will become apparent via accelerated cash generation in 2H FY2021 and beyond. In addition, the company also has a solid operating model: it is able to recruit and educate nursing students at lower tuition rates than its peers, while achieving meaningful profit at scale. That’s another discussion for another time.

The author is long ASPU.
EDUInvestor profile picture
Thank you for your thoughtful analysis and I agree with some of the points that you made but disagree with others.

The pre-licensure nursing program is not eligible for the MPP and these students are probably using Title IV loans to fund their education and not cash. This demographic typically does not have cash to prepay their tuition. The institution can draw down T4 in advance so it would result in an increase in deferred revenue. The bad debt exposure using Title IV is the one discussed by the CEO. T4 student often borrow for living expenses (stipends) which are included as institutional costs in determining refunds when a student drops. So often in the R2T4 calculation funds need to be returned to ED creating a receivable from the student and bad debt since it probably won't be collected. So you would expect bad debt expense from the pre-licensure students will be closer to the other for-profits 5% than the current bad debt rate of 2% booked by ASPU.

Also, I agree with you that the DSO's will eventually start to level off and possibly decline. But it is still very high and I am not confident it will level off at an acceptable level.

And finally, there is still the issue of the adequacy of reserves for the $22 million in gross accounts receivable.
If you are considering betting against Aspen, I suggest reading the following before taking a position.

The Aspen Group Bear Case article provides an incomplete financial analysis, omits some key information about the Company, fails to fully understand the business model, and ignores some incredibly positive trends.


• Aspen is managing its A/R well and the Company has already taken steps to decrease A/R (as a % of Revenues) over time
• Aspen’s Allowance for doubtful accounts seems reasonable considering additional facts
• An expanded analysis of Aspen’s business reveals why it completed two rounds of capital raising and illustrates the Company's potential for significant future growth
• There are some compelling reasons and trends why going short Aspen could be a losing bet

The author's Questionable Financial Statements section centers almost entirely around a discussion about A/R, bad debts and the Allowance for doubtful accounts. I agree that growth of A/R (as a % of revenues), especially long-term A/R, should be questioned. However, management has already addressed this issue. Let's look at the A/R data in Table 1. First, a minor typo - the A/R Revenue % LT row appears to show the short-term A/R (as a % of Revenue) and the A/R Revenue % ST appears to show the long-term A/R (as a % of Revenues) [the titles on these two rows need to be switched]. You will note that short-term A/R (as a % of Revenues) has been steady at 31% from 2017 through 2020 (TTM). That's almost 4 years of stability. However, the long-term A/R (as a % of Revenues) has increased during the same period from 5% to 13%. So, why did this occur and what did management do to correct it? Part of the reason for Aspen's high growth rate is its monthly payment plan (MPP), which allows students to pay an affordable fixed monthly amount (varies slightly depending on the degree being sought) independent of how many courses are taken at a time. In most instances, this results in students receiving their degree prior to making the final payment under the MPP. [Note: Some of the following information comes from the Q4 2019 earnings call in July 2019 - see link below this paragraph]. Prior to the USU acquisition in December 2017, the MPP for the Company's post-licensure degrees resulted in an average of 10 monthly payments remaining upon graduation (10-month tail). For students taking heavy class loads (thereby finishing their program quickly), this could result in more than 12 payments remaining after graduation. The portion of the (payment) tail that exceeds 12 months would then be included in long-term A/R. As the MPP was launched in the Spring of 2014, long-term A/R initially occurred (per Table 1) in 2017 when students (participating in the MPP) that took heavy class loads graduated. This would explain the long-term A/R for 2017. So, why then did long-term A/R % increase in subsequent years? When USU was acquired in December 2017, the purpose was to begin offering family nurse practitioner (FNP) degrees. Even though the cost of an FNP degree is more than twice as much (in total) as the Company's bachelors and masters post-licensure degree offerings, the monthly payment amount extended for the FNP degree was almost the same as the other two aforementioned degree offerings. Thus, the tail for the FNP degrees averaged 42 months after graduation, which was not sustainable. In the aforementioned earnings call in July 2019, the Company modified the payment plan for all new FNP students commencing August 1, 2019 whereby new students in the FNP program would be allowed to pay for the first year of the program ($9,000 cost) over 24 months (same monthly rate as before), but for year two of the program ($18,000 cost) will need to be paid from federal financial aid, cash resources, corporate tuition reimbursement, private loan funds or a combination thereof. To quote the earnings release, "This will eliminate our 42-month tail entirely and allows the University to get paid in full upon students’ graduation date." Bottom line is management has addressed the concern regarding growing long-term A/R (as a % of Revenues) and the Company should see the ensuing benefits from this change in the form of improved cashflows in just a few months commencing August 1, 2020 (beginning of fiscal Q2). From that point forward, long-term A/R (as a % of Revenues) should trend lower. Below is the link noted above - in particular, please see pg. 4, paragraph 3 through pg. 5, paragraph 3.


The author also expressed concerns regarding Aspen's bad debts and the Allowance for doubtful accounts. Contrary to the author's position, A/R is not a "potential ticking time bomb", and Aspen's A/R is not from students that default at a much higher rate than its peers.
Aspen only extends its MPP to licensed individuals. Students seeking an initial degree (i.e., the Pre-Licensure BSN degree) are not allowed to participate in the MPP. Why is this significant? Because individuals possessing a license (e.g., nurses) are already employed and, when presented with an affordable monthly payment arrangement, are likely more able to pay for an increased degree than someone seeking their initial degree who does not yet have a license (e.g. high school graduates) and must rely on loans, grants, etc. A key point is that students in the MPP must be current (pay as they go) in order to continue taking courses. Per Aspen's most recent earnings announcement (Q3 2019) on March 10, 2020, the Pre-Licensure BSN program represented 14% of Aspen's quarterly revenues. Also note the Pre-Licensure BSN program (launched in July 2018) is Aspen's fastest growing revenue stream, having grown from 0% to 14% of Revenues in just 6 quarters. This leaves approximately 86% of Aspen's students eligible for the MPP, all of which are licensed individuals seeking to advance in their chosen profession. Hence, it appears that Aspen extends credit to customers (students) bearing less default risk than its peers. The MSN - FNP program (see above regarding the modification to this payment plan that is expected to result in the eventual elimination of the extended tail payment plan) represented 27% of Aspen's quarterly revenues (Q3 2019). Accordingly, as the Pre-Licensure BSN program continues to grow (see below) and the MSN - FNP payment plan modification goes into effect (collectively, these two revenue streams represent 41% of revenues as of Q3 2019), both long-term and short-term A/R (as a % of Revenues) should trend lower. The key takeaway is that Aspen's relatively low Allowance for uncollectible accounts may be justified given: (i) credit is extended only to licensed individuals; (ii) students must pay as they go in order to continue taking courses; and (iii) the fact that the monthly payment amounts are affordable.

Let's expand on the business analysis. Aspen has experienced high growth for good reason. Per the March 16, 2020 Investor Presentation (pg. 10), the overall cost of each program ranges from 47% - 56% of the cost of competitor programs. Below is the link.


Nursing programs represent 84% of Aspen's student body (pg. 7 of the Investor Presentation) and include the following degrees:

1. RN to BSN (nurse with an associate’s degree seeking to obtain a bachelor’s degree)
2. MSN (nurse with a bachelor’s degree seeking to obtain a master’s degree)
3. DNP (nurse with a master’s degree seeking a doctorate degree)
4. MSN - FNP (nurse with a BSN seeking a Family Nurse Practitioner master’s degree)
5. Pre-Licensure (non-licensed individual seeking an undergraduate degree)

Prior to July 2017, Aspen offered programs 1 and 2 above (both 100% online). In July 2017, Aspen expanded its degree programs to include the DNP program (also 100% online). In December 2017, Aspen completed its acquisition of USU (December 1, 2017 press release) thereby adding its MSN - FNP program. The May 18, 2017 press release initially announcing the USU acquisition stated that Aspen acquired USU at a cost of $9,000,000 (50% of which was paid with Aspen shares) and that USU is a regionally accredited university. USU has a campus in San Diego. In January 2018, Aspen launched its Pre-Licensure BSN program with its initial Phoenix campus. Both the USU acquisition and the launching of the Pre-Licensure BSN programs were the reasons for the "multiple rounds of diluted raises" mentioned by the author. The capital raised was allocated towards growth initiatives that significantly increase the Company's growth potential by being able to offer nursing degrees at all levels. Note all three of the degree programs added in 2017-2018 offer degrees at a cost more than double the cost of the degrees from programs 1 and 2 above. And, on a percentage basis, they are growing faster as well. This explains why Aspen's revenues have been growing so robustly. Long-term growth comes at a short-term cost. For USU, capital was required for the acquisition and to improve operations. For the Pre-Licensure BSN program, capital was required to build out each new campus and ramp up operations. Two of the Pre-Licensure BSN campuses have begun operations in Phoenix, with two more campuses scheduled to open this calendar. Currently, the Company plans to open two more Pre-Licensure BSN campuses per year up to a total of 12 campuses nationally, each of which is expected to produce approximately $9,000,000 of annual revenue (once they reach full capacity; my understanding is this takes 3-4 years). Aspen's annual EPS losses were trending higher when the Company incurred a loss of ($0.10) per share in fiscal 2017. Then, due to the growth initiatives, both fiscal 2018 and fiscal 2019 resulted in a loss of ($0.50) per share. The consensus for fiscal 2020 (per Yahoo Finance), which just ended April 30, 2020, is a loss of ($0.31) per share. The consensus for fiscal 2021, which just started, is a loss of ($0.06) per share. This is a positive trend that is expected to continue.

Going short Aspen, the author's apparent position, also bears risks.

First, you are betting against "smart money" (institutional investors).
On January 22, 2020, the Company closed on, "...2,415,000 shares of its common stock at a price to the public of $7.15 per share. The number of shares sold by Aspen includes 315,000 shares of common stock pursuant to an option granted to the underwriters to cover overallotments that was exercised in full. Net proceeds from the offering to Aspen are approximately $16 million." Note that subsequent to the closing of the offering at $7.15/share, Aspen's stock price climbed steadily to reach over $10/share in February and stayed well over $9.00/share until the Coronavirus pandemic ensued. Why did investors flock to Aspen? Just look at the growth potential of the Pre-Licensure BSN program alone - it is in its early stages with several years of high-margin growth potential.

Second, you are betting against a very solid management team.
Mike Mathews, the CEO, has a vision of making college affordable again. He has a history of success, especially as it relates to marketing (see his bio in the Company's proxy statement). Combining internet marketing expertise with degree programs that cost approximately 50% of the competition, and adding in a monthly payment program (MPP)(which I'm not sure if any other universities offer), there should be little left to wonder why Aspen has such low customer acquisition costs.
Dr. Cheri St. Arnauld, the Company’s Chief Academic Officer, was previously the Provost, Chief Academic Officer of Grand Canyon University from 2008 to 2012. In a November 7, 2019 press release, the Company announced it had received its initial accreditation for its DNP program (just over 2 years after its launch in July 2017). "Aspen was required to operate the program for at least a year and to graduate its first cohort prior to granting this initial accreditation." Based on Dr. Arnauld's credentials and accomplishment at getting the DNP program accredited, it would appear the author's reference to the risk associated with Aspen obtaining accreditation for its Pre-Licensure BSN program is low.

Third, you are betting the current valuation of the Company is too high.
Aspen is poised for continued revenue growth estimates of 25% - 30% for several years to come. Aspen's cash flows used in operations of $3.8 million for Q3 2019 YTD has improved by approximately 49% compared to the prior year period and this improvement is prior to the aforementioned modification to the MSN - FNP payment plan, which will begin positively affecting cashflows in Q2 2020. Per the Q4 2019 earnings release (pg. 5), "The result of this MPP program change for USU's FNP program is expected to reduce our operating cash requirements by over $2 million in fiscal year 2021 and much more in future fiscal years and therefore shortens the timeframe for the company to begin generating positive free cash flow on an operating basis." Aspen's estimated revenues for fiscal 2020 are approximately $62.3 million. Given a market cap of $150.1 million on Friday's close (May 1, 2020), Aspen is trading at 2.41 times fiscal 2020 estimated revenues. Investors will have to make their own determination as to whether the valuation is excessive. You have time to make up (or change) your mind as Q4 earnings (the Company's seasonally best quarter) are expected in early July.

I am long Aspen Group.
EDUInvestor profile picture
You are correct and there is a minor typo in the heading and S.T. Receivables % rate has been relatively constant at 31%. This is a good observation. However, the growing L.T. Receivables should have a higher allowance given that this debt is from inactive students with higher default risk. Also, DSO’s continue to increase meaning A/R is growing at a faster rate than revenue. The current TTM DSO of 163 days is in itself very high and an indicator of the quality of earnings and receivable. Possibly the flat S.T. Receivables percentage is a leading indicator of flattening DSO’s. But it is still high and should be decreasing. Typically companies with high DSO’s have collection issues or need liberal credit policies to grow revenue. But I know that most on this board think ASPU is a “special” case especially if they are long.

Also, besides the pre-licensure nursing students ASPU has non-nursing students in many of their other programs (e.g. Business, Psychology, Early Childhood Studies, Healtcare Administration, Education, Criminal Justice, Information Science, Information Systems). And It is bad to assume that being a nurse means they will repay their loans to ASPU. According to the BLS the average salary for registered nurses is $68,450. Better than being unemployed or minimum wage but repayment risk exists at this income level.
DeepValuePlay profile picture
@dpthnkr528 thank you for the detailed comment.
My only correction would be that management on many occasions during CC mentioned that peak sales for a campus is more like $14M and not the $9M in the investor presentation.
Yes, I recall hearing the $14M figure during a conference call as well. Perhaps the investor presentation amount will be adjusted upward as the initial Pre-Licensure BSN campus approaches full capacity.
While the ADA as a % of AR is lower for ASPU compared to comps, it is important to note that the bad debt expenses as a % of AR that ASPU has faced are significantly lower compared to comps. All the data is sourced from 10K/10Q that the companies filed.

Allowance as a % of Gross AR 8.0% 48.0% 35.3% 35.2%
Bad Debt as a % of Gross AR 4.0% 56.1% 22.3% 51.2%
EDUInvestor profile picture
That further supports the case that net accounts receivable are overstated and a larger reserve needs to be booked. Increasing allowance for doubtful accounts would flow through the income statement in the form of higher bad debt expense. If this were to be done there would be a large one-time adjustment and lower profit margin going forward.
EDUInvestor profile picture
To resolve this debate management should disclose in detail the company's reserve methodology for bad debt. Most for-profit postsecondaries reserve based on the classification of student (i.e., active, inactive), source of funds (i.e., government, students) and number of days outstanding. The following is typical of how the reserve is determined.

Active Students:
- Title IV Receivable: 0%
- Student Receivable: 10%

Inactive Students:
- Title IV Receivable: 0%
- Student Receivable
0 to 30 days: 50%
31 days to 60 days: 75%
61 days+ 100%

There is a low reserve rate for active students since they know they will be dropped if they miss a payment. It is much more difficult to collect from inactive students especially dropped students. These percentages can and should be adjusted based on actual payment experience.of the institution's students. A good auditor will evaluate and sign-off on management's support for their methodology.
DeepValuePlay profile picture
I asked the CEO regarding the low bad debt and he confirmed my feeling by saying the reason bad debt allowances (and write offs) have historically been much higher in the for-profit education space is because these universities have historically enrolled undergraduate (non-clinical) students -- nearly all on federal financial aid -- and the grad rates for these students has been reportedly 26% for this demographic. These students withdraw at an alarming rate and the universities often can't collect the stipend monies owed back to the government (the university eats the stipend return money that can't be collected). These universities also created private student loan programs for students that hit their lifetime FA borrowing limit which turned out to be worse than a sub-prime loan. So, bottom line, Aspen's combination of primarily cash payments via payment plans and having a predominantly nursing students body, makes us an apples vs. oranges comparative vs. the failed for-profits in history.
EDUInvestor profile picture
This statement by the CEO is not accurate. The large for-profits are regionally accredited and not required to report current graduation rates similar to DEAC's 150% time-to-completion. What is reported is the same Department of Education 8-year graduation rate which had ASPU at 26.4% which I admitted was misleading. But using this source for competitors would have a similar graduation rate as ASPU (26.4%). A large percentage of students enroll with prior earned credits and are not counted in the calculation. If they were you would see a much higher graduation rate than 26% for the other for-profits. A better more relevant metric would be persistence rate which is term-to-term. APEI has a 87% persistence rate which is as good or possibly better than ASPU. And as noted above, APEI has a 35.4% allowance for doubtful accounts versus ASPU's 8.2%.

Also, I agree with the CEO's comment that the other for-profits private student loan programs were worse than sub-prime loans. This is the reason I take issue with ASPU's extended payment plans that are very similar to those private student loan programs in that they were to students and not secured. As I noted, inactive students especially those that drop have high default rates and do not appear to be reflected in ASPU's bad debt reserves. ASPU has $22.0 million in this type of paper on their books and only $1.8 million in allowance for doubtful accounts. This would imply a collection rate of 92%! And do you really think that 92% of their students loans are going to be repaid by their student?

The company should resolve this debate and disclose their accounting policy and methodology for calculating their reserves for bad debt and bad debt expense. And the new CFO could discuss this on the next investor call. A rigorous review of this account would be a positive action for the company in that it would allow investors to have more confidence in their financial statements and reporting.
DeepValuePlay profile picture
Yes I do think 92% collection makes sense. As we already concluded, about 70-80% go on to graduate. No doubt they will pay. Of the remaining 20-30% lets say you're a nurse that completed half your credits towards a BSN with ASPU, you're still employed and for whatever reason you decided to stop taking courses. You are facing a $250 monthly payment for about another year. This is not a lot for an employed nurse. If you pay it you have the option to complete the BSN at a later time and keep your high credit score - It's an easy decision really. Also an 8% bad debts means that between 26% and 40% of those who don't graduate end up not paying which fits with comps.
Anyway you slice and dice this you come to the conclusion ASPU is legit.
EDUInvestor profile picture
Based on the CEO's comments only 60% will complete the pre-licensure nursing program. He stated that 1/3 will drop out before the core program and 90% of those students will graduate. This is 60% (.6667 x .9 = 60%). And the institution's overall graduation rate is 65% using the DEAC calculation and not 70%-80%. If I am mistaken please provide a link to your 70-80% graduation rate. Finally, not all APSU's students are licensed registered nurses and by definition none of the students in the pre-licensure program are nurses. So there are a number of students that drop that are not nurses, do not have good income or degree who will more than likely default on their loan.
CatCameBack profile picture
We will have to agree to differ on 15000 per year being low.
CatCameBack profile picture
I want to address the point about ‘low tuition’ with respect to the BSN program. Last fall when ASPU was breaking that tuition out separately it was 30000 for two years. The idea being a student with two years of undergrad credits would transfer to ASPU. Most university nursing programs accept students as Juniors. The 30000 compares favorably to what universities cost for two years. They also require most of the money, if not all, be paid before one graduates, but even if some of it us left till after graduation, it can easily be paid off on a nurses salary. So all in all this 30000 is not “low’, and there is not a lot of risk that it doesn’t get paid. Also, Nursing student have a high incentive to finish the program because a well paying job awaits them.
EDUInvestor profile picture
I am not sure where you got the $30k tuition for two years and please post a link to support this number.

I provided a link to AU's tuition schedule by program and all their programs' tuition rates are significantly lower than $15k/year.

EDUInvestor profile picture
I answered my own question and confirmed that the pre-licensure nursing program costs $37,069 + $8,217 in fees for a total cost of $45,286. It is a three year program so the annual cost is $15,095. This is still low versus the peer group. And I still believe will be difficult to achieve margin given the difficulty to scale due to enrollment caps and high cost to operate this program.
TMT Investor profile picture
A very constructive piece as the A/R and Bad Debt needs to be better understood and potentially calls into question the authenticity of profitability, lifetime value and ROI calculations provided by management. Further, the debate that has ensued has generally been healthy... though needs to focus as much if not more on the accounting than graduation rates, IMO. This is a model for SA articles and commentary and wish all were more like this...
EDUInvestor profile picture
TMT - I appreciate your thoughtful and unbiased comments. You must be a successful investor given that you are open all comments unemotionally and objectively without making personal attacks. I believe these to be attributes of a good investor. As you can imagine, making negative comments about ASPU on this board is not very popular.

And I would like to get your thoughts on two other factors that should cause some questions about the veracity of ASPU's financial statements and reported earnings.

1. The prior CFO appears to have been terminated last December after a little over one year with the company. The comment made by the CEO was that he left to "pursue other interests". It was also mentioned in the last earnings call that part of the reason for the EPS miss was due to the payment of severance to the CFO. Firing a CFO is never a positive event which is the reason stocks typically drop when this is announced. Was it due to incompetence or possibly disagreement with the CEO over accounting policies? Who knows? It would be nice to know the real reason but I am sure the company will not disclose this.

2. As I noted previously, the company's auditors is a very small accounting firm in Florida. Typically public companies are audited by a Big 4 or regional accounting firm. But I was shocked when I went to the accounting firm's website and saw how small and experience of the management team. I attached a link to their website.

TMT Investor profile picture
Easy to be unbiased with no position or axe to grind. The CFO exit and accounting firm issues are circumstantial... as you said "who knows?" The business model is based on their marketing efficiency where the customer acquisition cost is upfront and known but the lifetime value is an estimate based on graduation rates and bad debt estimates. They publish expected lifetime value for the various schools, so somebody can figure out whether they factored in what would actually be realized and if not done by mgmt should be estimated based on what is actually occurring. On profitability, it looks like mgmt is adding back bad debt expense to get Adjusted EBITDA... which is misleading. But somebody should look at bad debt expense, changes in refunds owed students and long term receivables against revenue growth and the peer group in depth (which you started). Reported profitability is meaningless if they end up with huge write-offs and cash needs regardless of what says the income statement. In any case, you are bringing this issue to a head and somebody will dig enough for answers...
CatCameBack profile picture
(To paraphrase the author) This short article is nuts!

Must admit this is the first short article I have read where the potential vice president candidate is a main argument to short.

ASPU is a long based on being an affordable way for people to get their BSN degree. It is also hard to copy because of the need for clinical in-person requirements. During and after a pandemic there is going to be an even bigger need for nurses.

Finally, the main argument here seems to be that they are now growing to fast to be believed, which just means the author doesn’t understand how difficult and expensive it is to get a BSN through the current university systems.
EDUInvestor profile picture
I agree with you that ASPU's low tuition rate is good for students that graduate and pass their NCLEX and becomes a practicing nurses. But bad for the company if fully burdened cost of enrollment is higher than the low tuition rate. Ask yourself the question how enrollments can be growing 50% a year for the past few years. 40% revenue growth but they are still unprofitable and cash flow negative and continue to have to go to the market for dilutive capital raises.

And I did not question their growth rate. I questioned the profitability of their pricing/model and whether they have sufficient reserves for bad debt on their balance sheet.
CatCameBack profile picture
Companies with high growth are constantly not profitable because they are putting the revenue back into the business as it grows. To offer a BSN degree they have to have physical, not virtual, clinical classes, it costs real money to develop these clinical classrooms, and to partner with hospitals to host their students for their clinical training. Nicely for ASPU that is also a significant barrier to entry, a competitor just can’t slap together a bunch of virtual classes and call it a BSN degree.

Having been very successful in Phoenix they are now expanding the BSN degree to Tampa and Austin. It is city based, not just virtual, because of the need to partner with hospitals in those cities. This cost real money, sure, but will be churning out revenue and profits soon. Then it is on to more cities, the growth potential is enormous, every large city in the US could use an ASPU branch.

And this cuts into another of your incorrect fearful arguments, employment. The nurses who graduate and are good will have immediate job opportunities with the hospitals they did their clinical classes at, and these are good paying jobs, in a pandemic era where people will be looking to re-educate themselves for new employment.

This company, at this valuation, seems like one of the best values out there right now.
EDUInvestor profile picture
I did not question the employment opportunities of their nursing graduates. They might not get a premium job versus a regionally accredited grad, but they will get a job somewhere.

And your point supports my argument. It is very costly to build and run a nursing program. You are correct that the labs, equipment, faculty and staff are very costly. And low student-to-teacher ratios make it even more costly per student and difficult to scale. This is the reason a low tuition rate for this program does not provide a sufficient margin to be profitable or at a minimum an adequate ROI.
Kippington Capital Management profile picture
FYI we are long ASPU. I'm very interested in hearing the other side of any position we're long. It's an interesting thought on the bad debt and bad A/R reserves percentages. Will look into this more.

With that said, the argument re increasing A/R is completely nonsensical given ASPU's payment plan setup. Second, please cite the source in a comment for the graduation rate as this is quite far off my research and conversation with Mike Mathews.

Lastly, "about to explode" and the "valuation is nuts" are not common phrases I read in well-researched, objective articles. Unfortunately, they're more common in hit pieces so I hope for your sake that your disclosure of "no position" is accurate.
DeepValuePlay profile picture
@EDUInvestor posted a few comments on my article here:
I explained exactly what you mentioned regarding A/R being nonsensical, and asked for the source for graduation rate which he provided and later realized how wrong he was... that didn't stop him from posting this article though which makes me question his integrity.
EDUInvestor profile picture
Attached are the two sources of published graduation rates. The first is from the U.S. Department of Education which is the source of the 26.4% graduation rate. This is based on time-to-completion of 8 years. But I will admit it is a little misleading given the small cohort and number of years.


The second is from the company's website. I would find this to be more meaningful. It reflects a blended rate of 65%. Still not great given that majority of the graduates were in shorter length graduate or degree completion programs. But I would be interested in hearing from you what graduation rate was quoted by the CEO.


And I would agree with you that my comments "about to explode" and "valuation is nuts" were inappropriate for my article. I was paraphrasing some of the comments made by the CEO in past investor calls but that is no excuse.
EDUInvestor profile picture
For all our sake please explain how my argument about APSU's excessive A/R, inadequate reserves and understated bad debt expense in nonsensical. My analysis is based on the company's published financial statements and the financial statements of the peer group. You are a CPA so it should be easy for you.
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