Hello, thank you for standing by, and welcome to Aspen Group's Fiscal Year 2022 second quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Robert Alessi. Please go ahead.
Good afternoon. Welcome to Aspen Group's Fiscal Year 2022 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 statements include the continuing impact of COVID-19 on our operations and future growth, anticipated future revenue from our pre-licensure campuses, the timing for opening our next Tier 1 campuses, net income from our five operating campuses, the timing for new campuses to achieve breakeven, our campus growth by 2025, our future growth and growth strategy, the percentage of revenue from our campuses and USU, bookings and LTV, projected fiscal 2022 advertising spend, changes in our gross margins, fiscal 2022 EBITDA, our fiscal 2022 guidance, and our liquidity. 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 Aspen Group's business is contained in its filings with the Securities and Exchange Commission, including the Form 10-K for fiscal year ended April 30, 2021, Form 10-Q for the quarter ended October 31, 2021, and in the earnings 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 this conference call, the company will discuss EBITDA and adjusted 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 earnings release issued by the company today.
Please note that the earnings release is available on Aspen Group's website, aspu.com, on the IR Calendar page under News & Events. There will be a transcript of this conference call available for one year on the company's website. Please note that the earnings slides are available on Aspen Group's website, aspu.com, on the Presentations page under Company Info. Now, I will turn the call over to Michael Mathews, Aspen Group's Chairman and Chief Executive Officer.
Good afternoon, and thank you for joining our call today. In the second quarter, our Aspen 2.0 strategy once again delivered growth on a year-over-year basis in our high LTV degree programs, which increased to 54% of total revenue due to the solid revenue growth from our BSN pre-licensure and MSN family nurse practitioner or FNP degree programs. Cost management and the intended impact of our Aspen 2.0 strategy helped reduce costs and lower our net loss by 35% year over year. Our year-over-year revenue growth rate slowed to 12% this quarter as compared to the previous quarter's growth rate of 28%. The second quarter is typically a seasonally favorable quarter, given it falls during the fall back-to-school months.
This year in the second quarter, we felt a strong COVID effect among our predominantly RN student body, and the result was a decline of nearly half a million dollars sequentially. As I mentioned on the first quarter earnings call, last summer's increase in COVID hospitalizations caused a slowdown in class starts. Starting in the month of June, among our licensed registered nursing student body at Aspen University, working nurses were needed on the front lines for patient care and frankly showed clear signs of fatigue. This trend was seen across the entire nursing school sector. RNs represented 69% of our total active student body at the end of the second quarter of fiscal year 2022, and represent our student population primarily impacted by the COVID-19 pandemic trends.
The outcome, similar to the rest of the nursing school industry, was a decline in Aspen University's post-licensure RN class starts that began in the first quarter of fiscal 2022 and continued throughout the second quarter. In addition, FNP new student enrollments at USU, which is entirely comprised of RNs, saw a modest decline sequentially in the second quarter after strong sequential enrollment growth in the first quarter. Despite these headwinds, we saw a sequential pickup in BSN pre-licensure enrollments in the second quarter and have recently begun to see modest improvements in class starts from RNs starting in the month of November. Diving into the specifics of our sequential enrollment growth in the second quarter, new student enrollments reflect the success of the Aspen 2.0 strategy to align our ad spend with our highest efficiency businesses, as defined by return on marketing dollars spent.
Of particular note, AU's enrollment grew sequentially by 9%, primarily due to rising enrollments in our three new metros, Austin, Nashville, and Tampa. On a year-over-year basis, AU enrollments decreased 13% as expected, primarily due to the intentional reduction in advertising spending year-over-year in our lowest efficiency unit, which includes the Aspen University legacy Nursing + Other online unit, but excludes the high LTV doctoral program. In addition, recall that we announced last year that we'd reduce down to a maintenance advertising spend level in our Phoenix-based BSN pre-licensure campuses to manage our first-year prerequisite student pipeline, which is approaching full capacity. We remain committed to not putting students on a wait list and have dialed back our spend rate in this metro as a result.
As I mentioned earlier, USU new student enrollments decreased by 7% sequentially in the second quarter of fiscal year 2022, following a strong first quarter. Year over year, new student enrollments at USU decreased by 3%. On a company-wide basis, new student enrollments increased sequentially from 2,076 to 2,380, or 5%. Finally, on a year-over-year basis, new student enrollments for the company were down 10% due to the planned enrollment re-reduction in the Phoenix pre-licensure metro, the decreased spend rate in the Aspen Nursing + Other unit, and the COVID-19 impact on RN enrollments at USU. Two primary dynamics in the nursing sector favor the Aspen Group business model. First, the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre-licensure nursing program.
Second, RNs interested in moving to private clinics and the growing awareness within healthcare organizations of the economic benefits of hiring FNPs will be drivers for continued growth in our FNP degree program. We expect that as these temporary headwinds diminish, Aspen Group will be well-positioned for accelerated revenue growth as the ongoing nursing shortage provides a strong backdrop for the continued expansion of our high LTV BSN pre-licensure nursing program. As such, we continue to be on track to open our next pre-licensure campus in a Tier 1 metro in the spring of 2022. While the COVID-19 pandemic may continue to impact post-licensure revenue growth, the company will carefully manage discretionary G&A spending in the coming months to minimize the impact of any revenue shortfalls. However, we will not eliminate spending critical to the execution of the company's long-term strategy.
With $11 million in cash, in cash equivalents, the company has a solid liquidity position for the remainder of the fiscal year. Before I hand over the call to Matt to review our second quarter financial results and update our guidance for this year, I'd like to talk about what a critical asset we're building with our national pre-licensure footprint. Over the past 2 years, the two largest independent multi-city pre-licensure nursing schools have been acquired. First, Galen College of Nursing was acquired in 2020 by the healthcare system HCA. Then Rasmussen University, a few months ago, was acquired by American Public Education. Following those acquisitions, Aspen is now the only national pre-licensure nursing school that remains independent. As the nursing shortage continues to intensify in the coming quarters and years, this footprint will only grow in value.
I will now hand the call over to Matt to cover the details of our second quarter financial results. Please go ahead, Matt.
Thank you, Mike, and good afternoon, everyone. In my comments on the quarterly results, I will refer to the second quarter that ended on October 31, 2021. All comparisons are to the prior year's second quarter, ended October 31, 2020, unless otherwise stated. Total revenues were $18.9 million, versus $17 million in the year ago quarter. USU revenue for the quarter, which includes the high LTV MSN-FNP program, accounted for 33% or $6.2 million, versus 29% or $4.9 million. AU revenue in the second quarter of fiscal year 2022, which includes the high LTV BSN pre-licensure program, accounted for 67% or $12.8 million, versus 71% or $12.1 million.
GAAP gross profit increased 4% to $9.7 million for fiscal Q2 2022, compared to $9.3 million for fiscal Q2 2021. Gross margin was 51% for fiscal Q2 2022, compared to 55% for fiscal Q2 2021. Gross margin in fiscal Q2 2022 was impacted by higher instructional costs related to the opening of new campus locations in the pre-licensure program and fewer class starts than anticipated in the post-licensure program due to the effects of the COVID surge. AU gross margin was 50% of AU revenue for fiscal Q2 2022 versus 56%, and USU gross margin was 58% of USU revenue for fiscal Q2 2022 versus 56%.
As the student population continues to grow and our new high margin BSN pre-licensure unit locations and combined with reduced advertising spend in our lower LTV business unit, we anticipate gross margin improvement by the fourth quarter of this fiscal year. Please keep in mind that we can't anticipate the impact of the ongoing COVID headwind on our gross margin objectives, although we believe this headwind to be temporary. Overall instructional costs for the quarter were $4.8 million, or 26% of revenue, up from $3.7 million, or 22% of revenue. The increase in instructional costs as a percentage of revenue was primarily due to the hiring of full-time faculty for the new pre-licensure program at the new campus locations in Nashville, Tennessee, Tampa, Florida, and Austin, Texas, and increased costs for educational materials across all programs.
As our new campus enrollments increase, the additional contribution to profitability will factor into lifting the gross margin by the end of the fiscal year 2022. Total marketing and promotional costs for the second quarter were $4 million or 21% of total revenue, up from $3.6 million or 21% of revenue, and roughly in line with the prior quarter. The increase of marketing is from the planned increase in ad spend, primarily directed to our three new pre-licensure metros, and it's flat as a percentage of revenue. As we stated on earlier calls, we have shifted our marketing spend toward our highest LTV programs to improve the efficiency of our marketing spend. The quarter's general and administrative costs were $11.6 million, or 61% of total revenue, compared to $11.3 million, or 66% of total revenue.
G&A spend was almost flat as compared to the prior quarter and decreased as a percentage of revenue due to the continuation of cost controls implemented in conjunction with Aspen 2.0. We have specifically focused on managing our headcount costs by reducing hiring and focusing on adding positions essential to our strategy of growing our highest LTV programs. Net loss and net loss per share were $2.9 million and $0.11, respectively, for fiscal Q2 2022, compared to losses of $4.4 million and $0.19. From a subsidiary perspective, Aspen University's net income for the quarter was $1.3 million, down compared to $2.2 million. The decrease in AU's net income is attributable to the new campus openings in our pre-licensure program. USU's net income was $877,000 versus $558,000.
Finally, AGI incurred a net loss of $5.1 million for the quarter compared to a loss of $7.1 million. Consolidated EBITDA for the quarter was a loss of $1.9 million as compared to a loss of $2.3 million. Second quarter EBITDA period-over-period for each of the three subsidiaries was as follows. Aspen University generated $2 million compared to $2.7 million. USU generated $976,000 versus $589,000. AGI had an EBITDA loss of $4.9 million compared to an EBITDA loss of $5.6 million. Consolidated adjusted EBITDA was a loss of $715,000 compared to positive adjusted EBITDA of $185,000. The prior year quarter included a $1.2 million adjustment from non-reoccurring stock-based compensation items.
Adjusted EBITDA for fiscal Q2 2022 excludes a one-time positive impact of approximately $104,000, primarily related to non-recurring professional service fees, and $350,000 related to bad debt expense. From a subsidiary perspective, Aspen University generated adjusted EBITDA of $2.3 million in the second quarter as compared to adjusted EBITDA of $3.4 million. USU generated adjusted EBITDA of $1.1 million compared to $710,000. Finally, AGI Corporate incurred an adjusted EBITDA loss of $4.1 million in the quarter compared to an adjusted EBITDA loss of $3.9 million. Of note in this quarter is that once again, our operating subsidiaries delivered adjusted EBITDA margins in the high teens during a period of new campus investment and despite the temporary COVID-related headwinds that impacted RN enrollments.
Aspen University's adjusted EBITDA margin was 18% compared to 28%. USU's adjusted EBITDA margin was 18% as compared to 14%. Moving on to the balance sheet. At October 31, 2021, our unrestricted cash and cash equivalents were $11 million. Unrestricted cash was $1.4 million. At April 30, 2021, our unrestricted cash and cash equivalents were $12.5 million. Unrestricted cash was $1.2 million. On August 31, 2021, the company drew down $5 million on the credit facility and extended the maturity by one year to November 4, 2022. The purpose of these funds is to be used for general business purposes, including new campus rollouts. As we execute the Aspen 2.0 business plan, we anticipate decreasing the need to borrow funds in the future.
We are confident that despite COVID headwinds, we have adequate liquidity to execute our business plan for the remainder of fiscal 2022 with no additional borrowings. With respect to our share count, the weighted average number of common basic shares outstanding at the end of the quarter was 24,957,046, versus 22,791,503. Today, in the earnings release issued after the market closed, we introduced the revised guidance for the fiscal year 2022. This update reflects the COVID impact on our second quarter results and only assumes a modest recovery in the second half of the year. We previously stated, we believe the COVID impact is temporary, but there is significant uncertainty as to when the impact of the most recent surge will abate.
We anticipate revenue in the range of $77 million-$80 million, representing an increase of $18.7 million or 16% year-over-year from the midpoint of the guidance range. GAAP loss per share of $0.38-$0.29 for an improvement of 10 cents or 24% year-over-year from the midpoint. EBITDA for the full year is anticipated to be in the range of $5 million to $3 million loss, an increase of $2 million or 33% from the midpoint. Lastly, we expect adjusted EBITDA in a range of $2 million loss to break even, decreasing year-over-year by $2.3 million from the midpoint of the range. It is important to consider the impact of our pre-licensure expansion strategy on our guidance.
The expansion of pre-licensure campus locations reduces both gross margin and EBITDA during the 18-24 month period in which the student body ramps to break-even operating levels. The reduced profitability has purposely been implemented by management in order to ensure successful growth of the company for years to come. It is also discretionary. As a matter of fact, we estimate our fiscal 2022 high and low projected EBITDA guide without consideration of investments in ramping pre-licensure locations would increase by approximately $4.6 million, meaning the company would be approximately break-even EBITDA for this fiscal year if not for the opening of the 3 pre-licensure campus locations over the past 1.5 years. That concludes our prepared remarks. I will now turn the call back to the operator for questions. Operator, please open the call for Q&A.
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by. We'll compile a Q&A roster. Our first question comes from Darren Aftahi with Roth Capital Partners. You may proceed with your question.
Hey, guys. Good afternoon. Thanks for taking my questions. This is two, if I may. I know COVID's a little bit of a headwind for you guys. Just can you caveat what you can control on the cost side and what you can't control? Then on marketing, I know you've paired the enrollments in the Phoenix campus, but are you gonna in aggregate pull back on marketing spend just given what you're seeing? If so, where will you actually be putting the marketing dollars that are remaining? Thanks.
Yeah, Darren, it's Mike Mathews. I'll answer the second question first. We've had a lot of debates internally about how we wanna handle our marketing spend for the rest of the fiscal year, and we're gonna maintain our existing Aspen 2.0 business strategy, which means that we're gonna drive, you know, growth spending in our USU business as well as in our new pre-licensure locations. We've already, of course, dropped spend in our Phoenix location, and we dropped spend in our Aspen Nursing + Other units. We're not looking to make any changes at this time in our marketing plan. I'll turn it over to Matt on the cost side. Yeah. You know, the question is, or what's the controllable versus uncontrollable spend as we deal with COVID?
What we can control are corporate costs, G&A specifically. There's the Aspen 2.0 plan originally assumed that we were gonna control G&A costs and corporate G&A costs. The idea is we're gonna keep those costs flat for the remainder of this year and really into next year as well. We're very confident that we can keep that spend flat without impacting our operations or our ability to grow or execute on our strategy. That's what's in our control. Additionally, there's some ramping of G&A that's associated with the pre-licensure new campus rollouts. That's discretionary to some point because we obviously can pull back on rolling out new campuses, but that's not within our strategy.
The plan is to let that G&A increase just specific to the new campus rollouts. The other item that's not controllable would be the instructional cost piece of the equation. You know, as we grow our student body, we obviously have to fund their education, their experience. You will see instructional costs grow in proportion to the revenue growth. The one thing I'd say is, you know, in this current fiscal year, in 2022, you know, we've had multiple campuses rolling out, and we've had to invest in those instructional costs in advance of the student body ramping to full capacity or to our plan. We'll grow into that somewhat next year.
I think you'll see the you know, as you go through time, the instructional cost as a percentage of revenue modestly dropping off as we you know, accelerate our new campus rollouts. You know, as we talked about before, we might have you know, at least another Tier 1 next year, but that's out into the future, and the overall you know, trend will be positive. Hopefully that answers your question.
It does. Thank you.
Okay. Our next question comes from Eric Martinuzzi with Lake Street. You may proceed with your question.
Yeah. It sounds like you were seeing some evidence in November of a correction in the negative trend that you had seen from the middle of June through October. Was that November indication? 'Cause I know you guys don't have the same number of class starts per month, but was that based on evidence from at least a couple of class start cycles?
Yeah. Hi, Eric. It's Mike Matthews. If you don't mind, I wouldn't mind just kinda going back and talking a little bit about history so that you guys can get more color on kinda what this COVID effect has been. If you go back and you look at our active student body at Aspen University, so of course I'm excluding pre-licensure in this conversation, our year-over-year student body at Aspen University in fiscal year 2021, so last fiscal, it grew by 7% year-over-year on average. Our class starts, last fiscal year, rose by 10%. Typically, our class starts are, you know, 2%, 3%, 4% higher than the growth of the active student body.
As we went into fiscal year 2022, from May through October, the first five months of this fiscal year, our student body grew by, on average, 5%. It grew a little bit less at Aspen University than the year before, and partly because we've dropped our spend rate, you know, purposely, in the Aspen Nursing + Other unit. Typically, if you have an increase of 5% of your active student body, over this five-month period, you would assume that the class starts for these primarily registered nurses would grow by, you know, 7%-9%, somewhere in that range, and it only increased by 3%.
Hopefully, that gives you guys an understanding of kind of what has occurred, you know, in this first five months of the fiscal and how, registered nurses, you know, are showing fatigue, they're showing a little bit of exhaustion, and they're just simply taking less courses during this, you know, handful of months timeframe. We absolutely believe this is a temporary effect. I don't want anyone going away thinking that this is, you know, potentially a systemic issue. It's certainly not. For November, yes, Eric, we saw some normalcy in November, so we're pretty excited about that. Our first class start of December was also strong. Remember, last year, November, December were months where we saw our original, initial COVID effect. The year-over-year comp was not as difficult in November, December.
So far, you know, we're seeing an increase, kind of on a normalized basis of what we would usually expect. Hopefully, all that color helps you guys with, you know, sort of what the situation has been.
Okay. Just to follow up on the enrollment side there, what about the unit economics. I know you published your Q. I haven't had a chance to dive into it. That's usually where you talk about the unit economics. Have those been. Even though you're signing up fewer, are you having to pay more to get the students you're getting?
Yeah, that's a really good question. The results have been mixed. We announced today that our enrollments at USU were down 7% sequentially, and that was a bit of a surprise for us. We've never had a sequential decrease that I can recall at USU over a four-year period. There's no question. Of course, our FNP program, you have to be an RN with a baccalaureate degree to join that program. There's no question that the enrollment slowdown at USU was a kind of a COVID effect. As a consequence of that, obviously our cost of enrollment would go up in that kind of a situation 'cause we didn't change the spend rate.
However, interestingly, the good news is that in our Aspen Nursing plus Other and our doctoral groups, so in other words, our Aspen University programs, the cost of enrollment actually decreased. Part of that is because any time we decrease our spend rate, we do see some efficiency. Our cost of enrollment in our Aspen Nursing plus Other unit dropped down below $1,000, which we haven't been below $1,000, I think, in a couple years. Yes, it's been a bit of a mixed bag. The FNP program enrollments, you know, were a little bit challenging this quarter while our enrollments on the Aspen side did fine.
All right. Thanks for taking my questions.
Thank you. Our next question comes from Jeremy Hamblin with Craig-Hallum Capital. You may proceed with your question.
Thanks. So I wanted to follow up on the COVID fatigue aspect of the story. You know, in terms of thinking about how this pandemic is evolving into an endemic situation, with a new variant that seems to kind of pop up every five or six months, I think one of the concerns that we would have in looking at this is, you know, the requirements that some of our healthcare workers are facing with, you know, vaccinations required for many healthcare systems, which is seemingly turning off some subset of employees. You know, in terms of facing those type of headwinds, do you think that's a factor in why you're not seeing more people, you know, more enrollments for your programs? Any comments would be helpful.
I mean, Jeremy, I just have to say that it's really too early for us to have a strong opinion, either way. Our enrollments, again, this quarter, we had a challenge in terms of, you know, a little bit of, you know, slowness relative to our FNP side. But in our traditional Aspen Nursing + Other, things went according to plan. The short answer is we don't know yet. It's really too early to tell. We feel incredibly strongly about the business model that we have, which is focused intensely on the nursing sector. COVID is unquestionably a temporary situation. We all don't know exactly when that's gonna abate in terms of the requirement of nurses to remain, you know, working long hours.
You know, there's nothing that we're seeing that would suggest that, again, this would be a long-term systemic issue.
Got it. Then I wanted to come back to your commentary around you know, competitor acquisitions. You guys are now the largest independent nursing school. In terms of thinking about since those acquisitions have happened, competitor response on the pricing front, my understanding is, you know, some of your competition has slightly altered their pricing strategies in markets that you've entered. Can you comment at all on what you're seeing from competitors in your core markets, in particular, your newer markets, where it seems like they've maybe pushed back a little on pricing structure?
Well, I mean, you know, the two universities that have been acquired, you know, Galen College of Nursing and Rasmussen, yeah, you know, we certainly see them in our metro locations. Since Galen was acquired by HCA, they've been very aggressive at launching initially an Austin location inside an HCA hospital system. And they've also announced they're gonna move to Northern Virginia next. So they're moving relatively quickly to expand. We have not seen any pricing changes from a tuition point of view amongst our competitors. Just, you know, going in to jump subjects for a moment, we are seeing some significant increase in spend rates amongst some of our competitors.
You know, when we do see spurts of spending that take place with some of our competitors in some of our programs, and therefore we see you know, short-term cost per click, CPC, rises, we don't chase that. We never will. You know, we're not seeing any long-term changes in terms of you know, CPCs and you know, our cost per lead. But we'll continue you know, carefully watching you know, competitive set.
Great. Thanks. Last one for me. In your largest market in Phoenix metro, you know, as you started to have a series of NCLEX, you know, exam scores that, you know, have been lower than desired, you know, in terms of approaching that to improve test results, can you provide us with an update on, you know, the expectation for changes that are being made in the curriculum, training given to students that are, you know, prepping for those exams? You know, kind of an expectation around when the timeline that you think to kind of cure and get those exam scores up above the level that you're looking for. Thanks.
Sure. Yeah, I mean, you know, we recognize that, you know, NCLEX first-time pass rates is a clear indication of academic quality, so we're intensely focused on increasing these scores. The scores this year have, you know, been hovering in that 60% range, which is just not good enough. Over the last 12 months, we've made four significant changes to our program in Phoenix to ensure that we do get improvements to our NCLEX scores in the short term. Each of the changes that I'm gonna explain to you takes time to take full effect, but we're expecting next calendar year to see material improvements to our scores starting in the first quarter. The first thing we did is we increased our minimum GPA requirement for our first-year students that are matriculating into our final two-year core program.
We changed that GPA requirement from a minimum of 2.75 to 3.0. That change we made effective as of our November 2020 academic catalog. The second move we made, we've mentioned in our previous earnings call, we hired a full-time NCLEX coach for any students that are, you know, having difficulty passing some of the NCLEX prep exams during the curriculum. We hired that full-time NCLEX coach back in January. She's been in the system for around about, you know, eight, nine months now. The third thing we did is we implemented the Elsevier Predictor exam system into our curriculum, and that was inserted into the curriculum as of this past August. That's still relatively early days in terms of seeing improvements.
The most recent change we made is maybe the most critical change, which is, we've now implemented Kaplan's NCLEX test prep product as a requirement for graduation as of our graduating class of November, so this past month. It's embedded into our final 16-week semester curriculum, and the students must reflect that they're able to pass that prep exam in order to graduate and then take the NCLEX exam. Those four changes we're very, very comfortable that, you know, putting those four things together is going to allow for significant material improvements in the upcoming calendar year.
Thanks. That's super helpful. Best wishes.
Thanks.
Thank you. Our next question comes from Austin Moldow with Canaccord. You may proceed with your question.
Hi. Thanks for taking my questions. Another COVID one. Can you talk about what's different about the COVID impacts now versus a year ago, considering, you know, I don't think the impacts were as great a year ago, but sort of, you know, hospitalizations and other metrics were worse overall in the country. Can you just talk about what's different now?
Yeah. Well, basically, you know, we've been very transparent about any COVID effects that we've seen since the pandemic began. We felt it was very important to do so because we, I believe we're the most heavily concentrated nursing higher education company in the United States. You know, I think the important thing to recognize is that we saw a very short-term effect in November, December a year ago. That effect went away quite quickly. I think what happened in that first phase of the pandemic, sorry, RNs, it was their first opportunity to take a quick vacation and take a breather during that, the two holiday months of a year ago. We then saw a stronger than normal spring. If you guys remember, last quarter, Q1, we overperformed.
We beat all of our guidance for the first quarter. That was a result of registered nurses, you know, having taken off November, December, and then they came flowing back during sort of February through April. All of a sudden, as you guys know, as soon as mid-June came, we've seen the effect from mid-June all the way through the end of October, and then it looks like November, you know, November has turned back again. The best that I can say to you is that, you know, the second wave is causing, I think, a certain amount of burnout, a certain amount of exhaustion, a certain amount of fatigue.
If you're a registered nurse right now, you're probably just gonna take less courses short term, you know, while you are able to sort of overcome, you know, your daily life and the expectations and all the sadness and such. You know, we'll get through this. They will get through this. They'll come back to normal. Hopefully, they already have starting November. You know, I can't say enough about our great demographic of registered nurses that makes up most of our school. I frankly, looking back on the last year and a half, I'm amazed at how well they've hung in there and continue to do so.
Gotcha. That's helpful. On GAAP net income, so I understand that the guidance has come down, but can you talk to the kinda exit velocity for this fiscal year and how that changes from your prior guidance for the end of the year?
Yeah, I'm glad you asked, because we really wanted to touch on guidance for the rest of the fiscal and then talk about next year as well. I'm gonna turn it over to Matt for that.
Yeah. I mean, you know, we put the guidance out there for the rest of this fiscal, so I really would like to focus on where do we go from there? What does it look like going into 2023? Next year, you know, conservatively, we think that there's a 15% growth rate next year, which would imply about a $12 million increase in revenue year-over-year versus where our revised guide is today. You know, with that, I explained earlier, you know, we have this strategy of holding our corporate G&A flat, and that will continue through next year. You know, we are confident in our ability to control costs through next year. That means we're gonna get some leverage.
You know, the result would be an adjusted EBITDA improvement of about $6 million. Also fueling that adjusted EBITDA improvement is the fact, as I mentioned before, that our gross margin will improve as we grow into our new campus locations and, you know, that infrastructure becomes more and more productive. Gross margin improves, G&A's flat, adjusted EBITDA up about $6 million on a $12 million revenue increase. That would translate into, you know, if you look at the midpoint of adjusted EBITDA this year of about $5 million of adjusted EBITDA next year.
If I could just add to what Matt just said, we are intensely focused on becoming profitable as a company, you know, obviously given the announcement a quarter ago of our Aspen 2.0 business plan. Our forecast suggests that if we do in fact deliver a $6 million improvement, $6 million of leverage next year, next fiscal year, we won't burn cash. You know, we will be basically cash neutral for the year. That's a big goal of our company is to be self-sustaining, and I'm pretty confident we'll get there.
Got it. Last question, I wanted to ask how conversion rates and start rates are changing. For conversion rates, you know, leads to enrollments and starts, sort of enrollments to starts. Just curious if you could give any color there.
Well, I kind of did earlier. In the last 90 days, we saw our conversion rate decrease at USU. We're hopeful as the month of January rolls around that will turn around. At Aspen University, which includes our Nursing + Other unit and our doctoral unit, you know, our conversion rate is just as good, if not slightly better, over the last 90 days. Hopefully that helps.
You know, one other piece of color I'd like to add, you know, as it relates to the guide and next year. You know, I think the obvious question comes up, you know, how are we thinking about COVID as we put these revised numbers out? The answer is, you know, our forecast is conservative. We're assuming that this COVID effect persists, and that the growth is really based on where we are today and kind of a nominal growth rate from there. A lot of the growth as you know, Mike talked about, you know, we're growing our PL campus locations, that is one area that has not been affected by COVID, like the [audio distortion] population.
That growth will drive us forward, even in light of what's going on, you know, with the Delta variant, now the Omicron variant and all of that. You know, you can feel confident that the numbers that we're putting out there are not assuming some sort of a COVID snapback in the second half or into next year.
Okay, thanks very much.
Thank you. Our next question comes from Raj Sharma with B. Riley. You may proceed with your question.
Hi. Good afternoon, guys. I just wanted to get back on the guidance and also related impact from COVID. The guidance for FY 2022 revenues seems to be a bigger drop than a snapback would, you know, presume. The guidance was $86 million for the year before, now it's $78.5 million. That's about an $8 million drop in revenues that should happen in 3Q and 4Q. You're saying last year when December COVID intense overloads were sort of reversed when you came back in the April quarter, you're not expecting that sort of snapback in the third quarter and going forward.
Yeah. Yeah. Raj, if you go back one year, of course, everyone is aware that our January quarter is a slow seasonal quarter because you've got the holiday months of November, December, and our students have historically taken less courses during those holiday months. Last year, sequentially, our revenues went down from Q2 to Q3 by, I believe, about $350,000.
Right.
This year, back of the envelope, we're looking at maybe it only goes down by 100,000. That's what Q3 looks like. Then you are correct, we're being very conservative on Q4. We don't know how things are gonna occur at this point, whether there's gonna be a material improvement or a snapback. We're just being conservative at this point, which gets us to the middle of that 78.5 range.
Got it. Just on the pre-licensure, is Phoenix enrollment supposed to be back on in Q3?
No. You know, we've reduced our spend rate as of Q3 last year. In other words, we've had essentially 12 months now of lower spending in Phoenix, and we've been doing, you know, 200-250 enrollments per quarter for the past year. Whereas, you know, that year previous, if you guys recall, we were doing 500+ every quarter. It was a big dropdown, and we can—we're planning to continue that kind of a run rate. We're only doing a maintenance spend rate in Phoenix, and we've been doing that for, you know, again, multiple quarters. The plan is to-
Yes
Continue doing that going forward.
When can you start enrolling back into the first year of the program at Phoenix?
Well, it's the entire plan is based on us wanting to have approximately 1,650 students that are in the first-year program, always having that number in the pipeline. We're pretty close to that 1,650 number. The way that we're looking at this now is we study carefully how many, you know, what's our attrition gonna be in Phoenix each year, and the attrition is two pieces, right? You've got expected graduations, and you have withdrawals. You know, our analysis suggests that the attrition per annum is in the 800-1,000 student level per annum, and that's why we're enrolling that same number approximately per annum currently. Does that make sense?
Yeah. Okay. How are starts sort of shaping up at the other new campuses? Have those been impacted at all by the current environment, or you're just seeing really good sort of enrollment? Has that filtered through that people still wanna sign on?
Yeah. Yeah.
Could you give me a little bit more color on that?
We mentioned in our earnings remarks that we had a sequential increase of enrollment at Aspen University this past quarter, and it was almost entirely a result of pre-licensure growth in our three new metro markets. We're not seeing any headwinds from COVID with you know high school graduates that are looking you know to become registered nurses you know to joining our pre-licensure BSN program. I think I mentioned in the previous earnings call that you know if you look at the three new markets. Actually, let's start off with Phoenix. If you look at Phoenix, the first 12 months in Phoenix, we had about 500 new student enrollments in that first year.
Austin, I believe we just passed the one-year mark, and we had about 300. So Austin has been a very good market for us. We never expected Austin to meet Phoenix 'cause it's not a Tier 1 size. Nashville has not hit the one-year mark yet, but it's tracking pretty comfortably to about 200, and again, Nashville's a smaller market than Austin. It's kind of that to be expected. I think the only weakness that we've seen is Tampa has been slower than we expected. We've been enrolling in Tampa, I believe, for about eight months now, approximately. We're probably gonna have around 100 enrollments in Tampa in that first year.
Tampa's been a little bit weak, and the other two new markets have been either as expected or a little bit stronger than planned.
Got it. Then just lastly, on the guidance for the following year 2023, so you're expecting about. You talked about two numbers. You used $12 million would be increase to the revenues from the revised guidance.
Mm-hmm.
That'll put you closer to 90+. Then the $6 million is the adjusted EBITDA increase from, you know, the negative $2 million to the flat that you're expecting this year.
Yeah.
Is that correct?
Yeah.
Am I hearing that right?
Yeah. Correct. What Matt said is that we're expecting an increase of about $12 million in revenue year-over-year, and we expect to achieve adjusted EBITDA leverage of 50%. We expect the improvement to be $6 million year-over-year. If we're in the -$1 million of adjusted EBITDA this year, that's the middle of the range, that would imply a $5 million positive EBITDA for positive adjusted EBITDA for next fiscal year.
Yeah. We're able to achieve that leverage, as I said before, by holding that corporate G&A flat. As I mentioned, you know, we're gonna get some improvement on the gross margin percentage. When you factor that in, you know, we get enhanced EBITDA leverage, and that's not a stretch to get there.
Good. Okay. Thank you, guys. That completes my questions. Thank you.
Thank you. Our next question comes from Mike Grondahl with Northland Securities. You may proceed with your question.
Hey, guys. Just a little follow-up on Austin, Tampa, and Nashville. When do you roughly see those getting to be breakeven, and what can you take from the learnings at those three and apply it to this new market you may be starting in the spring?
Yeah. I mean, you know, we, you know, if you look at Tampa, for example, you know, we've had about 100 enrollments, you know, to date. We're approaching 100 enrollments to date. Last quarter at Tampa's operating loss was sort of in the vicinity of about $350,000. Our expectation is that, we should be able to achieve a break-even level, you know, in Tampa, probably, I would say, sometime late next fiscal year. For Austin, you know, we're getting close. I mean, we're within a couple of quarters of breaking even in Austin. Nashville, of course, was our last opening. We're probably looking at about a year before that turns profitable.
Got it.
I mean, the way to look at this is that in Phoenix, if you guys recall, we broke even after 12 months. It was a very rapid start to break-even level. These new markets are, you know, closer to kinda 2 years. That's what it's looking like, which is perfectly fine for us.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Michael Mathews for any closing remarks.
Thank you, everyone, for joining us on our second quarter earnings call today. We're looking forward to talking to you again in our third quarter, 90 days from now. Have a good afternoon. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.