Good afternoon. Welcome to Aspen Group's fiscal year 2021 second quarter earnings call. Please note that the company's remarks made during this call, including answers to questions, include forward-looking statements which are subject to various risks and uncertainties. These include statements relating to the expansion of the highest LTV programs, revenue estimates and trends, future earnings and cash flow, G&A trends, including our main Phoenix campus and other campuses, and initial operating losses at our new campuses, enrollment growth, the impact on bookings, our estimates concerning LTV and ARPU, the impact of the COVID-19 vaccine rollout on future class starts in the fourth quarter, and future accounts receivable estimates. 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 respective supplement in the 10-K files with the Securities and Exchange Commission, and in the press release issued this afternoon. Aspen Group disclaims any obligation to update any forward-looking statements as a result of future developments. Also, I'd like to remind you that during the course of this conference call, the company will discuss adjusted net income and loss, and adjusted EPS, loss per share, 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 press release issued and the 10-Q filed by the company today. There will be a transcript of this conference call available for one year at the company's website.
Please note that the earnings slides are available on Aspen Group's website, aspu.com, in 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. Today, we delivered record revenue for the second quarter of $17 million. This record performance beat the top-line consensus revenue estimate of $15.6 million by $1.4 million or 9%, and was an increase of $4.9 million year-over-year or 40% top-line growth. Achieving a $17 million revenue quarter in Q2 was a function of three key factors. First, as we reported last month, we achieved record quarterly enrollments at both universities. We had over 2,000 quarterly enrollments for the first time at Aspen University. Additionally, USU delivered 649 enrollments, which was an increase of 65% year-over-year. This year, we planned and have executed significant increases in advertising spending in our highest LTV units, which are our USU, primarily FNP business, our Aspen BSN pre-licensure unit, and our Aspen doctorate unit.
Driving record enrollment growth in these three high LTV units was one key factor in the revenue beat. The second key factor is the revenue growth of our two highest LTV businesses. USU, primarily FNP, and Aspen BSN pre-licensure business achieved a key milestone as those two businesses now delivered 50% of the company's revenue in the quarter. The third key factor in the revenue beat was favorable seasonality. Our second quarter has historically been a strong seasonal quarter for both enrollments and revenue, given students have a back-to-school mentality in the months of August through October. Course starts in the second quarter were stronger than expected across every unit of the company, which we estimate delivered over $300,000 of incremental revenue for the quarter versus our internal forecast.
The result of this $17 million quarter, combined with the stronger-than-planned first quarter performance of $15.2 million, now implies a full-year revenue total of $67.7 million or 38% growth, given that consensus revenues in the second half of the fiscal year is currently $35.6 million. Specifically, Q3 consensus is $16.6 million, and Q4 is $19 million. While the company only provides full-year revenue guidance, we believe it is important to highlight and confirm the typical seasonal effects we will see in the third quarter that are reflected in the third quarter analyst consensus revenue forecast. Accordingly, we are confirming the existing consensus revenue estimate of $16.6 million for Q3, given the usual seasonal effects we see in Q3 as it falls during the holiday months.
In addition to the usual seasonal slowdown in Q3, we're also seeing slightly lower course registrations than seasonally expected in our Aspen Nursing plus other unit, and we believe COVID, what we call Wave two, is partly a factor given that all the states in the country are now affected, not just some of the major metros. There's no question our predominant student demographic of RNs has been especially overwhelmed over the past few months. This isn't unexpected. You may recall we saw a similar effect in March and April, Q4, during COVID Wave one, where for a six-week period we saw a slowing of enrollments, only to have enrollments bounce back in May and June Q1. With the rollout of vaccines, and as we move through the winter season, we are anticipating the same enrollment and course registration trend and recovery in our fourth quarter.
In summary, we saw more favorable seasonal enrollments and revenue in Q2 than expected, and we're seeing expected seasonality in Q3 with some additional slowness in course registration due to short-term COVID effects, which net-net will deliver total revenues for the two quarters in line with our expectations. Coming back to the advertising spending discussion, this quarter was a step-up in spending we had been planning. Recall that in Q1, we grew our enrollment advisor staff by 23%, from 96 EAs to 118 EAs, adding EAs across every unit of the company, completed in anticipation of this spending increase. We grew our advertising spend this quarter by approximately $700,000 sequentially, from $2.5 million- $3.2 million, with the majority of the increases in spending directed to our three highest LTV units, which is USU, primarily FNP, and Aspen University's BSN pre-licensure and doctoral units.
Three important comments to make about this growth spending. First, given our business plan is to maintain the company's compound annual growth rate, or CAGR, over 30% for the coming years, we cannot continue an essentially flat advertising spend rate as we accomplished last fiscal year. Second, as you know, there is a lead-lag relationship between marketing spend and revenue growth. While we do not plan on seeing the benefit in the form of revenue in the current quarter, this increased investment will set up the company for strong enrollment and revenue growth in our upcoming Q4 and fiscal 2022. Third, note that approximately 25% of the $700,000 sequential advertising increase was directed to our two new pre-licensure metros, Austin and Tampa. As a result, we're making strong progress in generating leads and first-year prerequisite student enrollments in both metros.
In summary, even given the $700,000 sequential advertising spend increase, total marketing as a percentage of revenues only increased to 21%, as compared to our last fiscal year average of 19%. Jumping to our operating metrics for the quarter. The company's bookings increased 34% year-over-year to $42.1 million, which delivered a company-wide average revenue per enrollment, or ARPU, of $15,825, an increase of 12% year-over-year. The company's weighted average cost per enrollment, or CAC, declined 5% on a sequential basis from $1,203- $1,143. The marketing efficiency ratio, or MER, representing revenue per enrollment over cost per enrollment for both of our universities remained above 13 times. The company's overall active student body grew 24% year-over-year, from 10,718- 13,238.
With our nursing active student body growing sequentially by just over 1,000 students to 11,442, or 86% of the company's total active student body. I'll complete my remarks today by giving an update on our BSN pre-licensure business. As everyone is aware, our Phoenix Metro campuses have grown very rapidly over the past three years. As of the end of the second quarter, we had nearly 500 students in our final two-year core program, which drives revenues of approximately $20,000 per year per student in those final two years, compared to $7,000 per year per student in year one of the program. In addition, we currently have enrolled approximately 1,800 first-year prerequisite students in the Phoenix Metro.
In order to ensure these students have very short wait times to begin in their core program, we will be moving to double cohorts in our main Phoenix campus by the airport starting this coming February. Rather than starting 30 students into the core program each semester, as a reminder, we have six semester starts per annum, we will increase that capacity by approximately 50% to a total of approximately 45 students each semester start. This will increase our annual revenue run rate at our main Phoenix campus by approximately $1.8 million starting in our fiscal fourth quarter. As a reminder, in Q1, our EBITDA margin for our Phoenix pre-licensure business was 37%. As Frank will walk you through momentarily, in the second quarter, that EBITDA margin increased into the 40s percentile.
This incremental revenue is projected to cause that margin to increase further in the coming quarters. In fact, it's no longer out of the realm of possibility that our Phoenix pre-licensure business could ultimately reach a 50% EBITDA margin. Another way we look at this, with this incremental $1.8 million of annualized revenues in our Phoenix pre-licensure metro at a margin in the 40s, that incremental margin will nearly overcome the projected aggregate first-year operating losses of our two new metros we recently launched in Austin and Tampa. I've been receiving a number of inquiries on our pre-licensure expansion plan for calendar year 2021. We're planning to announce our next pre-licensure metro toward the end of the fiscal year, once we receive all regulatory approvals.
We're very far along with this next metro and decided for competitive reasons to hold back on announcing until we're about to begin marketing in the spring. On the corporate front, Frank has been heading up the build-out of a corporate service center in our new Tampa location. This service center brings together many of the functions that support the internal operations of the company, namely accounting and accounts payable, human resources, payroll, and treasury functions, and allows for improved operational synergies and cost savings. Over the last year, we have moved a number of these positions from New York to Tampa in an effort to take advantage of the lower cost and have recruited very successfully in the Tampa area. Frank will be relocating to Tampa to work day-to-day with this group and to continue its progress.
Finally, you may see some small stock sales in the coming weeks by Frank, and these will be to facilitate his move to Tampa. That completes my remarks. Now I'll turn the call over to Frank to review our financial results for Q2.
Thank you, Mike, and good afternoon, everyone. I'll begin by reviewing our financial results for the 2021 fiscal second quarter, providing input on our financial progress, including some commentary on the unique non-cash financial events which transpired during the quarter. To begin, as Mike indicated, revenue in the second quarter increased $4.9 million or 40% over the prior year to a record $17 million. Revenue increased $1.8 million or 12% over the prior quarter. The second quarter is typically a seasonally strong quarter for Aspen Group, and this was no exception. Year to date, we have seen consistent momentum in our enrollment. One of the major drivers of this demand is the tailwind caused by the 1 million nurse shortage in our economy, combined with a deficit of available seats in nursing school programs across the country. We see no evidence that this need for nurses will abate.
Additionally, in Q1 and Q2 of this fiscal year, we felt enrollment tailwinds that have been augmented by the impact of COVID. In particular, two population groups. First, young adults who have lost jobs in the service industry and are now looking at a new career in nursing and come to Aspen for a pre-licensure BSN degree. Second, for nurses working on the front lines of the pandemic, an increasing number of these nurses are now looking to obtain a family nurse practitioner degree and work in more controlled and higher-paying private clinics. As a result, these two degree programs continue to be two of our fastest-growing programs. They are also our two highest LTV programs. As Mike mentioned, combined revenues from USU, which is primarily our family nurse practitioner program, and our Aspen University BSN pre-licensure program accounted for 50% of total company revenue in the quarter.
Aspen's nursing plus other and doctoral units accounted for the remaining 50% of revenue for the quarter. Given a strong demand backdrop, our effective marketing campaigns, and increasing enrollment from our two new campuses, we expect revenue from these two businesses to increase to over 50% of total company revenue in the second half of this fiscal year and continue to grow as a percentage of total company revenue in the coming years. This growth strategy of focusing investment resources into these two businesses while maintaining a steady flow of students into the other core Aspen programs will, over time, deliver stronger growth in revenue and provide gross margin expansion. With our stated goal of opening two new pre-licensure BSN campuses every year over the next five years, and the intention to embed FNP immersions in select metros, these programs are the principal drivers of our long-term growth.
The success of these two programs will place Aspen on a trajectory to achieve higher revenue, earnings, and sustainable free cash flow in the future. Aspen Group's gross profit in Q2 increased to $9.3 million from $7.6 million a year ago. The gross margin reduction from 63% - 55% was a strategic decision to invest in marketing and build an even stronger pipeline of students across our highest LTV programs and to begin marketing spending to support our two new campuses in the Austin and Tampa markets. Marketing spend, which increased year-over-year by $1.6 million this quarter, was 21% of revenue, up from 17% in the year-ago quarter and 18% in the prior sequential quarter. As Mike mentioned, that increase was predominantly due to the sequential advertising spend increase of $700,000.
The efficiency of our advertising spend is and will continue to be a primary factor in delivering gross margin expansion over the long run. It should be highlighted that advertising spending represents approximately 95% of total marketing spend. We continue to be able to source students in our highest LTV programs below the cost to acquire a student in our traditional Aspen Nursing and other business. This creates significant leverage as these higher LTV programs grow as a percentage of total revenue, especially when you consider the lifetime value of a Family Nurse Practitioner student is 2.6x higher, and the LTV of a pre-licensure student is 4.3 times higher than that of a traditional Aspen online nursing and other student with an LTV of $7,350 per student.
As I stated earlier, we expect our two highest LTV businesses, USU, which is primarily the family nurse practitioner business, and pre-licensure, to increase beyond the 50% level of total company revenue in the coming quarters. As a result, we anticipate achieving gross margin levels above historical levels as our new campuses mature and revenue and profitability from these programs continue to grow. Aspen University marketing cost was 20% of Aspen University revenues for the second quarter of 2021 versus 16% for Q2 last year. While USU marketing cost equals 18% of USU's revenues for second quarter 2021 versus 11% in Q2 last year. Total cost of revenue, excluding depreciation and amortization, increased from 35%- 43% due to the increased marketing spend, which I just spoke about. Instructional costs increased from $2.2 million, or 18% of revenue, to $3.7 million, or 22% of revenue.
Faculty and campus leadership for our new pre-licensure campuses in Austin and Tampa. Aspen University's instructional costs represented 20% of Aspen University's revenue for the quarter, while USU's instructional costs and services equaled 26% of USU's revenue for the quarter. For consolidated Aspen Group's second quarter, G&A was $11.3 million, an increase of $4.1 million over the prior year. For the quarter, this represented 66% of revenue, compared to 60% in the prior year second quarter. The first and primary reason for this increase was $1.2 million of accelerated stock-based compensation from the vesting of two tranches of performance-based equity grants in the second quarter. On our first quarter earnings conference call, I provided details on AGI's four-year performance-based bonus program.
The plan is structured to align leadership's performance with the interest of shareholders, which is to drive sustainable shareholder value. The plan calls for the vesting of restricted shares at price target thresholds when AGI's common stock trades at or above specific price thresholds for 20 consecutive trading days. As a reminder, the total grant was 375,000 shares. Vesting is set accordingly. 10% at $9, 25% at $10, and the remaining 65% vests when the stock trades at or above $12 for 20 consecutive trading days. Two of these vesting thresholds were achieved in the second quarter. On August 31st, the $9, or 10% tranche vested at $12.78. On September 2nd, the $10, or 25% tranche vested at $12.99. The total non-cash stock-based compensation expense reported in the second quarter, again, is $1.2 million. The second element of G&A growth was what we call growth OpEx.
Growth OpEx represents our investment in key infrastructure projects to support our expansion strategy. In this quarter, our growth OpEx investment of approximately a quarter million dollars is specifically defined as personnel and related costs to expand our enrollment center, academic and financial aid advisors, and clinical operations personnel. In our enrollment center, specifically, we decided to grow our EA staff from 96 EAs to 118 EAs, adding enrollment advisors across every unit of the company. We are now fully staffed for the fiscal year to accomplish our enrollment goals for the remainder of the fiscal year. This growth spending typically happens in the first half of the fiscal year and is done in conjunction with our increased marketing spend to drive and support the increasing enrollment activity across both universities.
This investment in marketing, enrollment staff, and other supporting roles will strengthen our student pipeline for enrollments, which will lead to higher course registrations and revenue at the back end of this year and into our next fiscal year. The third reason for the increase in G&A, we began investing in our new campuses in Austin, Texas, and Tampa, Florida. This new campus OpEx investment of approximately a quarter million dollars came in the form of faculty and campus leadership positions and operations personnel to launch and support these new markets. In the second quarter, after removing the accelerated stock-based compensation expense and these growth investments, our recurring G&A for the consolidated company was $9.6 million.
This represents an increase of $2.4 million versus the revenue growth of $4.9 million in the year-over-year quarter, which is in line with our target to grow recurring G&A expense at or below 50% of revenue growth. This quarter's interest expense reflects the acceleration of the original issuance discount on the $10 million of convertible notes. This $1.4 million charge is a non-cash expense. On September 14th, 2020, we announced that $10 million of secured convertible notes issued by the company on January 22nd, 2020, had achieved the conversion stock price threshold of $10.73 per share and converted into 1.4 million shares of common stock. As a result, Aspen Group removed the debt and associated annual interest expense of $700,000 from the P&L. Following this debt conversion, Aspen Group is now debt-free. Net loss applicable to shareholders was approximately $4.4 million, compared to a $-600,000 a year ago.
This increase in net loss of $3.8 million includes $2.6 million of unique non-cash items previously discussed, namely the $1.2 million non-cash charge related to the RSU vesting and the $1.4 million charge related to the conversion of $10 million of convertible notes. Without these two items, the net loss increase would have been approximately $1.2 million. This $1.2 million increase in net loss year-over-year is a result of the investments in marketing, about $800,000, including $300,000 for new campuses, growth OpEx, about $240,000, and new campus G&A costs, about $200,000, discussed earlier. From a university perspective, Aspen University generated $2.2 million of net income for Q2 2021. USU generated $0.6 million of net income in Q2 2021. AGI Corporate incurred a net loss of $7.1 million, of which 36%, or $2.6 million, was the two non-cash expense items previously discussed.
The net loss per share reported for the current quarter is $0.19 as compared to a net loss of $0.03 per share for the comparable year-ago period. In our previous earnings call, we introduced two new non-GAAP measures, adjusted net income loss and adjusted earnings per share. Adjusted net loss for the second quarter was $1.2 million as compared to $0.1 million in the prior year period. Adjusted loss per share for the second quarter was $0.05 compared to adjusted loss per share of $0.01 in the prior year period. These increased losses reflect our growth investments previously discussed. EBITDA was a negative $2.2 million or a -13% margin as compared to EBITDA of a $+0.5 million or + 4% margin in Q2 2020.
Adjusted EBITDA was $0.2 million or a 1% margin as compared to an adjusted EBITDA of $1.4 million or an 11% margin in Q2 2020. AGI Corporate generated an EBITDA of -$5.6 million and adjusted EBITDA of -$3.9 million in the second quarter of fiscal year 2021. Aspen University generated EBITDA of $2.7 million or 23% margin and adjusted EBITDA of $3.4 million or 28% margin for Q2 2021. Note that Aspen's consolidated pre-licensure BSN business accounted for $1.1 million of the $2.7 million EBITDA, including the new startup campuses. That business consequently operated at an EBITDA margin of 31%, which remains the highest margin unit of the company, even given the pre- revenue operating expenses of the new campuses. As Mike mentioned earlier, if you exclude the new campus expenses, the Phoenix pre-licensure operation will have an EBITDA margin in the 40s.
That operation has potential for the margin to rise further next fiscal year once we begin double cohorts in February, as discussed earlier. USU generated EBITDA of $0.6 million, or 12% margin, and $0.7 million of adjusted EBITDA, or 14% margin, for the second quarter of 2021. Before I switch to the balance sheet, I'd like to discuss the introduction of a new metric, same-store sales. We feel that this metric will allow us to demonstrate the performance of the steady state business with and without the effect of the new campuses as they evolve from start-up to break even, to standalone economic units, and the investments necessary to get them there. We will use this metric in future quarters as we execute our long-term growth strategy to open 10 new campuses throughout the Southern United States in the next five years.
Using this same-store sales concept, in the second quarter, the start-up campuses represented an EPS loss of $0.02. Without these investments, consolidated EPS would have been $0.17 loss instead of the $0.19 loss reported, and $0.03 loss of adjusted EPS instead of $0.05 loss reported. Turning to the balance sheet. Aspen Group ended the quarter with approximately $12.2 million in cash and cash equivalents, and $4.6 million in restricted cash. Included in this restricted cash is $3 million of unearned revenue that will be earned in the coming two months. This is compared to $14.4 million in cash and cash equivalents, and $3.6 million in restricted cash, of which $2.1 million was unearned revenue at year-end fiscal 2020.
The company used cash of $1.4 million in operations in the second quarter of fiscal year 2021, as compared to using $0.3 million in the same period last year. Regarding accounts receivable and our allowance for doubtful accounts, we continue to evaluate our student accounts and our allowance for doubtful accounts in the context of our increase in revenue growth and our change in the mix of our business. This quarter, we added $632,000 to our allowance, which included $232,000 of allowance replacement for write-offs of the receivable balance. We will continue to adjust our allowance in line with revenue growth and expected improvements in student payment performance. Regarding our share count, we started the quarter with 22,361,000 basic shares outstanding.
As a result of the conversion of the $10 million convertible notes into 1.4 million shares, as well as employee exercises of stock options, we ended the quarter with 24,416,000 basic shares outstanding. Finally, I want to remind shareholders that there is one remaining tranche of the RSU performance grant that could vest over the next three years. If and when Aspen's stock price maintains 20 consecutive trading days at or above the final vesting threshold of $12, the company will record the remainder of any unamortized stock-based compensation remaining at the vesting date as a non-cash expense in that quarter. As seen in this quarter, this expense, while it has a material impact on our reported net earnings loss and EBITDA numbers in the quarter, it is a non-cash item and will not negatively impact our ongoing operating performance. This concludes my prepared remarks.
I will now turn the call back to the operator for questions. Thank you all for joining us today. Stay safe, and happy holidays.
Thank you. Ladies and gentlemen, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Darren Aftahi with Roth Capital Partners. Please go ahead.
Hey, guys. Congratulations on the quarter. Hope you're doing well. Just a couple if I may. With the potential with the double cohorts, I'm just kind of curious, I know it's early with both Tampa and Austin, but is there any reason those schools over time wouldn't mirror the P&L of your Phoenix campus? If that's the case, is there any thought about accelerating the growth in the BSN program going forward?
Yeah. Good afternoon, Darren. It's Mike Mathews. How are you?
Hi, Mike. Good.
You broke up a little bit in the early part of your question, but I think I have an understanding of what you're asking. One thing to be aware of is that the Phoenix Metro is kind of a perfect world scenario for us for a number of reasons. One, we have two campuses rather than one in the metro. Second, we have this amazing relationship with HonorHealth.
Where not only are there long waitlists in the Phoenix metro and the public institutions, the nursing schools are full, HonorHealth sent us a number of their employees that enrolled very early on. I don't expect our new metros to be home runs, which is what I would describe the Phoenix operation. What I would say to you is that there's no reason why our Austin operation, for example, once we move to six semesters per year. At this point, the Board of Nursing guides us to four semesters per year currently. Once those campuses, both in Austin as well as in Tampa, reach maturity, I don't see any reason why, worst case, the margin would be in the mid to upper 30s and perhaps into the 40s.
Great. That's helpful. Then just as we look at the tack on both of your businesses, where do you feel like steady state Aspen and USU path shakes out at this point, or is it still too early?
No, I think we have enough years of experience now that we're pretty confident that USU is going to remain in that kind of $1,300 range, give or take $100 each way. The range is probably $1,200-$1,400, and we feel like that'll be a pretty consistent range. Aspen University, of course, as you know, it's now a weighted average of each of our three units. You've got Aspen Nursing plus other, which is our original traditional business, and then you've got our Aspen Doctoral business and then, of course, our pre-licensure campus business. When you put together each of those, weighted average for us has been under $1,200, and I don't see any reason why we can't continue in that same range.
Great. Thanks, guys. Congrats again.
Thank you. Our next question will come from Mike Grondahl with Northland Securities. Please go ahead.
Yeah, thanks, Mike and Frank. The incremental marketing in Tampa and Austin, what mediums were you using for the marketing, and how do you think it was efficient or successful? How are you measuring that early on?
Good afternoon, Mike. This is Michael Mathews. We are using the same exact advertising and marketing methodology in Austin and Tampa as we use in Phoenix. It's a compilation of three different marketing strategies. Actually, I would say four. We have a corporate sales force. We have an outside salesperson that's in each of our major metros that calls on prospective community colleges, high schools, as well as clinical partners. That's the first. The second is traditional internet advertising that we've done in all of our original programs. The third is social media. That works really well for us. As I've said publicly before, we augment those three channels with radio, traditional radio. That's our marketing strategy, and it's going quite successfully. Austin and Tampa, while it's not as successful as Phoenix was in its first couple of months, it's not far behind. We're seeing good demand in both locations.
Got it. When you talked about sort of the newer locations, and we might find out about them in the spring, were you implying there might only be one location, or can we still kind of think about that as being two different southern cities?
Yeah. We were just talking about the next campus, which we're planning to start marketing in the spring. We still have an intent to do two campuses per annum, two new metros per annum. We'll announce that second campus next calendar year, sometime in summer or fall. It's two per year. No change.
Yeah, that's what I thought. I just wanted to be sure. Okay. Thank you.
Thanks, Mike.
Thank you. Our next question will come from Eric Martinuzzi with Lake Street. Please go ahead.
Yeah, just wanted to clarify the top-line outlook for Q3 and Q4. Do I have this correct, that Q3 would be the $16.6 million and Q4 was $19.0 million, totaling out to a full-year FY 2021 at $67.7 million?
Good afternoon, Eric. It's Mike. Yes. We're just reiterating that the current consensus estimates for revenue in the second half of the year, we're going to maintain that number at this point, yes.
Okay. Obviously, we amped up the spend here on the Enrollment Advisors and on the marketing. You talked, and I know it's not guidance, but you talked about, hey, how do we keep this thing going at 30% CAGR? We've got to invest in marketing. We've already invested in the Enrollment Advisors. Just in broad strokes, if we are able to drive an incremental $20 million on the top line, is the assumption then that that would bring along an incremental, a 50% EBITDA conversion so that we could see incremental $20 million of revs equals an incremental $10 million of adjusted EBITDA?
Yeah, Eric, what I would say is that, again, as a company, we don't provide guidance as a company. I'd prefer not to get specific about exactly what the leverage would be. In future fiscal years, we do expect our EBITDA margin to grow into the double digits. I will say that, because right now, of course, EBITDA has been hovering in the positive range. This quarter, of course, we went negative, but we expect things to, in the second half of the year, to improve, particularly in Q4.
Got it. Well, congratulations on the second quarter. That 40% revenue growth is terrific.
Thank you, Eric.
Thank you. Our next question will come from Austin Moeller with Canaccord. Please go ahead.
Hi. Thanks for taking my questions. Given the change of administration, can you give us your thoughts on how you expect the regulatory landscape to change? Sort of secondarily, can you share where you are currently on that 90/10 rule, particularly as you expand your BSN business?
Yeah. Good afternoon, Austin. It's Michael Mathews. Yeah. I'll take the first question first. In terms of where we stand on the 90/10 rule, we filed our fiscal year 2020 government audit at the end of October. Both universities were in the low 30s percentile in terms of the percentage of revenue over the total revenue. We're very much a far cry from our for-profit brethren who sit in the 80%+ range. Our monthly payment plan, because it's such a predominant payment method at both schools, we always expect to be in that sort of 50% or less range. Now, from a governmental perspective, once Biden takes office, we have every expectation that the Department of Education will behave similarly as the Obama administration did. They put in, from my point of view, some very good regulations.
The gainful employment regulation, for example, I always felt that it was a good regulation. It makes sense. Us in the for-profit sector, though, felt like the gainful employment should apply to every college and university, not just for-profit. From our perspective, because 86% of our students are Registered Nurses and essentially just about in every nook and cranny of our great country, if you would like to be gainfully employed in the nursing profession, you may do so because of the shortage. We would never have any concerns about passing the gainful employment regulation should they be reinstituted.
Got it. Thank you for that. Lastly, can you just give us a quick update on, I think, as you put it, phase II of your CRM build-out?
I'm not really prepared to talk a lot about that right now. We are working on the system. For those of you that haven't been tracking the company carefully, phase II of our CRM system is designed to essentially play offense with our student body. We'd be the first universities in history to do so. The whole concept of that is it's a retention tool. It's a retention system that basically looks for potential negative events that could happen in a student's career. If we see one of those events occur, our academic advisors will contact the student proactively or playing offense, as I call it, in order to ensure that student is able to overcome whatever that issue might be. That system should be ready over the next year and a half.
Once that system is in place, I would humbly tell you that it would be far and away the most sophisticated CRM system in this industry's history.
Okay, thanks very much for taking my questions.
Thank you, Austin.
Thank you. Our next question will come from Jeremy Hamblin with Craig-Hallum Capital. Please go ahead.
Thanks for taking the question. I wanted to ask about the investment in marketing instructional cost needs here in the second half of your fiscal year. Obviously, appropriate to make the investments you have in opening the new campuses. You're going to have additional campus open in the first half of calendar 2021, I believe. I wanted to just get a sense of what we can expect on your marketing or what are your targets on marketing and promotional spend here in the back half of the year, if you're kind of at 21% in Q2. I imagine that your instructional costs will probably stay in that 20% range, but just looking for some confirmation on that.
Good afternoon, Jeremy, it's Michael Mathews. That's a great question. I'm really glad you asked. Let me just say that over the last several years, other than last year, we kept our marketing spending flat essentially for the year. Every year, we typically select a certain quarter, and it's usually early in the fiscal year, where we grow our enrollment center and then prepare for a growth spurt from a marketing spending perspective. As I guided everyone last quarter, we pretty much completed the increase of our enrollment center during Q1, and then we had a few more people trickle in during Q2. This was the quarter that we had that sort of big spending jump. What we've done in past years and what we plan to do this year is to now sort of flatten out the spend rate for the second half of the year.
We're not going to grow the spend rate in Q3 and Q4 by any more than, say, 10% from where we are. The beauty of doing that is so that we can basically allow the revenues to catch up to that growth spend that we invest. By the time we get to Q4, as we've done in previous fiscal years, I said to Mr. Cooperman a quarter ago that I'm very hopeful that we'll be in sort of that break-even range as a company in Q4. I just want to say that we remain hopeful that our result in Q4 will be similar to Q1, which is on an adjusted EPS basis, is approximately break-even. You'll see a significant improvement in all of our operating metrics and our bottom-line metrics as we deliver our fourth quarter result.
Great. That's helpful color. I wanted to also just come back to the question, I think, around ARPU. As we think about what you can achieve kind of total company in the Aspen University side of your business. You've now gotten up into the $15,000, $16,000 range. Is that fair to assume that even could drift up a little bit further here as your pre-licensure portion of your business becomes a greater portion?
Yes. You're absolutely thinking about that the right way. The vast majority of our spending increase, as I mentioned during the earnings remarks, is in our three high LTV units. You've got USU, which is the primarily FNP business. You've got the pre-licensure business at Aspen, and of course, you have the doctoral business at Aspen, which is growing very nicely as well. All those businesses are two, three, four times higher LTV than our traditional Aspen Nursing plus other unit. As a result of the majority of our enrollments continue to flow into these three highest LTV businesses, mathematically, no question, our ARPU will continue to trickle up. Yes.
Okay. On a separate note, you had a fairly large competitor, private company, announce that they've been acquired by a public company. It looks to me like they've made some changes in their pricing model almost right away, in terms of potentially maybe even in response to your entry into the Florida marketplace, where they have several campuses. Wanted to just get a sense for what you're seeing in the competitive set there, how that compares to Phoenix or Austin, as it looks to be maybe a little bit more crowded space. Any color that you could provide on that?
Yeah. What I would say to you is that every market that we enter is going to have a completely different sort of competitive environment, right? In Phoenix, that metro is arguably the most competitive metro in the United States for nursing schools. I think we've proved pretty clearly that our business model will work in an incredibly competitive environment. Austin, Texas, is a very different kind of a metro. There are almost no private competitors. You have the publics there as well, but one of the reasons why Baylor Scott & White recommended we launch in Austin when we came into the state of Texas is because there just isn't much competition there. We have a really nice advantage in Austin of it not being terribly competitive.
As you described, in the Tampa market, in a number of the major metros in Florida, there is much more competition, private competition, than Austin, for example. I don't consider Tampa to be more competitive than Phoenix. It's just not. Yes, the school that you mentioned, Rasmussen University, they're a good school, a good nursing school, and they're a good competitor of ours, and I wish them luck.
Great. Thanks for taking the question. Success and luck.
Thank you.
Thank you. Our next question will come from Raphi Savitz with RYS Advisors. Please go ahead.
Hey, Mike, congrats on another great quarter. Can you remind us, as you launch these new pre-licensure campuses, what is your affiliation with the local hospitals? Maybe dive a little bit deeper on the overall cost to launch a new campus and how you think about the time to pay that back.
Good afternoon, Raphi. Just from a financial point of view, I'll answer your last question first. We expect a new metro to basically take at least a year, perhaps a year and a half, for it to break even on an operating basis. In Phoenix, we broke even after 12 months, and we only burned about a half a million dollars on an operating basis. That's probably best case scenario. I would say that these new markets, I'd call it $500-$750, in that range, in terms of the loss. It's probably between 12-18 months, would be my best guess. Sorry, what was your first question again? I apologize, Raphi.
Yeah, just the affiliation with the hospital, how that relationship works, and is that a model that you intend to take into all your future markets?
Yeah, sorry about that. Okay. Yeah. Every market's a little different. We're not going to enter a market unless we have a very strong and tight relationship with whomever is kind of the largest, most sophisticated healthcare institution in that market. We've been able to accomplish that in each of the three metros that we've gone into to date. There are some states that have consortiums that we work with as well, where some of the healthcare institutions kind of band together to determine what the number of placements that they're able to accommodate on a per quarter or per year basis. Those are the two aspects of what we manage in order to ensure that we have proper placements as we move into each new metro.
When you say placement, is that a job afterwards?
No
Or a training kind of during the placement?
Yeah. No, that's the training. Those are the clinical rotations that our students take during their final two-year core program out in the field.
Got it. Okay. Then, I guess going to the USU business, what is the capacity there at USU? More broadly, what's the opportunity in the nurse practitioner market?
Well, the capacity for us, it's really unlimited for us because there's enough internet advertising impressions for us to be able to generate leads from. We're not concerned about that from a web publisher perspective. What I would say to you is that, whenever you get into a clinical program, whether it's a pre-licensure program in Aspen or the FNP program at USU, it requires a tremendous amount of operating, planning, and sophistication. For us to continue to grow that business, we have to do a number of things quite well. We obviously have to hire the faculty necessary. We have to have the clinical space available for weekend immersions, which we're moving to multiple campuses in order to accomplish that. Yeah, and we have to have an office of field experience that basically finds clinical rotation locations for each of our students.
Running the clinical program is a very sophisticated effort and so far we're doing it quite well. That would sort of be a little bit of a limitation in terms of how quickly we can grow. It's just making sure that we manage the growth from an operating perspective.
Got it. If I could ask just one more. When you started talking about the new CRM you're building, you had referenced really the goal was to improve retention rates in your business. Can you talk a little bit about that? Is that a challenge that you're currently facing in the business?
Raphi, I would say that every college in this country now has some type of an online representation to their student body. The challenge that you have whenever you have a student that is a fully online student is real-time data on how that student's doing. When they're online, you don't see them, you're not in person. There's no guidance counselor to go into, right?
Yep.
There's a number of factors that makes a success or failure of an online student. There's academic progress, the relationship they have with faculty members. There's time management issues. There's potentially job-related issues that a person might have. There's so many things that go into success in a college situation if it's fully online. If you have an edtech infrastructure that's designed to pull in all these different types of data and be able to then have an algorithm that in real time tells an advisor, "Hey, this is going on. Contact this person and work with him or her." It could increase our retention rate very materially. Imagine if you're a big for-profit school. Today, we're pretty large. We're in the 13,000 range.
Imagine a school that has 80,000 students online, or imagine all these OPMs, Online Program Managers, that are managing online programs across all the nonprofits. This system would be interesting to any of these institutions or companies across this sector.
Absolutely. It sounds like you're bringing kind of best-of-breed e-com tools to the education market.
Raphi, what I would say to you is that we're the first higher education company in history to essentially build a vertically integrated edtech infrastructure. It hasn't existed. That was our vision from the beginning, and it's coming to fruition. I'm so proud of all the people in our company that have helped shepherd us to where we are, and we're excited to ultimately finish that system, and it's not far off.
Very impressive. Congrats, guys.
Thanks, Raphi. Have a good afternoon.
Thank you. Our next question will come from Raj Sharma with B. Riley Securities.
Hi. Good afternoon, Michael, Frank. Congratulations for the great results. I wanted to ask you on the Phoenix double cohorts. Could you explain that a little bit? Why do this now, and how do you expect to impact it? You have a certain laid-out guidance for the second half of this year. How does that impact that guidance? Can you just explain the economics result again?
Yeah. Good afternoon, Raj.
Thanks.
The way our Phoenix operations works, which, of course, we have two campuses. We have our first inaugural campus by the airport in Phoenix, and then we have our HonorHealth campus on the north side of Scottsdale. Both of these locations, we implement six semester starts per annum. There's three day semester starts, and there's three weekend evening semester starts. For the first three years of our operation in our inaugural campus by the airport, our what we call our Elwood campus, we have had approximately 30 students that start in the final two-year core program. Now, everyone needs to understand that nursing schools, all nursing schools, essentially it's a two-phase effort. The phase one is your first year. We have to complete all the prerequisite courses first. For us, it's 41 credits, and it's all online, and it's about $7,000 to complete those credits.
Once a student completes that 1st year, the 41 prerequisite credits, they then have to pass the HESI A2 entrance exam in order to matriculate into our final two-year core program. What we've been doing is we've been basically enrolling around 30 students into our final two-year core program every semester, six semesters per annum, both at Elwood as well as our HonorHealth campus. What we just announced that last hour is that we're planning to have a double cohort in our inaugural campus, our Elwood campus. Rather than 40 students that start each semester, we're going to have rather than 30, we're going to have 45 students with 30 semesters. We're going to grow the number of students that start the core in our Elwood facility by 50%.
The math on that basically is about $1.8 million of annualized revenue run rate by doing so. Does that answer the question?
Yes. That doesn't start the impact, obviously, until the new cohorts start to graduate and finish up, right? You talked about the campus doing $12 million in revenues with close to 40%-50% EBITDA margins. Does that change that profile of-
No, actually. Yeah, good question. No. Whenever we've basically provided top-line guidance in our pre-licensure business, we've always assumed that in order to hit a $15 million revenue run rate, that we would move to a double cohort to get there. We're implementing this exactly how we had originally planned it. We just wanted everyone in the public to know that we're moving into our final stage of maturation in our first campus by moving to double cohorts to get to that $15 million number in the coming couple of years.
Got it. My other question was around the cost of acquisition, the CACs. Are you seeing any different CAC costs in Austin and Tampa than you saw in Phoenix?
It's a little early to say. Right now, the CAC is pretty similar in Austin than it was in Phoenix. Tampa so far is a little bit higher, but we just started Tampa. Tampa was last out of the two new launches. It's a little early to say, but it looks to me like Phoenix will be the lowest CAC, followed by Austin, followed by Tampa, thus far.
Right. Then my last question, Michael, is again on sort of a bigger philosophical question of the growth versus profitability. Has that changed at all in the last few quarters? Could you kind of touch upon that? You're getting excellent growth, you look to have profitability by the end of the fiscal year. How are you doing that?
Yeah. As I said earlier, we're hopeful to be in that sort of breakeven range, ±$0.02 in Q4 on an adjusted EPS basis. From our point of view, we want to keep a CAGR that's in the 30s. Perfect world, it'd be 35-40 like it is now. We feel like that the gross margins of these high LTV businesses are going to naturally drive us to profitability and to positive cash flow. As you can see, even though we did this huge marketing jump in spend rate, $700,000 sequentially, we still only had a cash burn of like $1.4 million on an operating basis. We're trying to manage high growth and try and keep that cash burn as quiet as we can as we go.
Yeah. I'm just trying to get a sense of your handle on the growth. Of course, we love the growth. We also understand that given the way your business is structured, it seems to be on a path to profitability. I'm not necessarily worried about that. You just seems to have a lot more control on the ability to show the growth and also have a profitable business model.
Yeah. We do. We've proven for, I think, a number of years that we're pretty intelligent about when we make a big spending increase, and then we try to flatten out over the subsequent couple of quarters in order to let the revenue catch up. That so far has allowed us to maintain the growth rate that we're looking for and move down the path of naturally becoming cash flow positive, which is, in our view, is an inevitability.
Got it. Perfect. Thank you so much again. Congratulations and great quarter.
Thanks, Raj.
I'm showing no further questions in the queue at this time. I would now like to turn the call back over to management for any closing remarks.
Thanks, everyone, for joining us today. We're looking forward to chatting with you in our next earnings call in mid-March. Good afternoon.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.