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Bridgepoint Education (NYSE:BPI)

Q1 2013 Earnings Call

May 06, 2013 11:30 am ET

Executives

Paul Goodson - Associate Vice President of Investor Relations

Andrew S. Clark - Co-Founder, Chief Executive Officer, President and Director

Daniel J. Devine - Chief Financial Officer and Executive Vice President

Analysts

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

Jarrel Price - Height Analytics, LLC

David Warner - First Analysis Securities Corporation, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Jeffrey M. Silber - BMO Capital Markets U.S.

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

John D. Crowther - Piper Jaffray Companies, Research Division

Timo Connor

Operator

Good morning, and welcome to the Bridgepoint Education First Quarter 2013 Earnings Conference Call. Today's call is being recorded.

At this time, I would like to turn the call over to Mr. Paul Goodson, Associate Vice President of Investor Relations for Bridgepoint Education. Please go ahead.

Paul Goodson

Thank you, Anne, and good morning, everyone. Bridgepoint Education's first quarter 2013 earnings release was issued earlier this morning and is posted on the company's website at www.bridgepointeducation.com.

Representing the company today are Andrew Clark, Chief Executive Officer; and Dan Devine, Chief Financial Officer.

Before we begin, we would like to remind you that some of the statements we make today may be considered forward-looking, including statements with respect to our expectations regarding accreditation, enrollments student persistence, financial and related guidance, as well as commentary regarding enrollments, bad debt and the performance of our business for the remainder of 2013. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual performance or results to differ materially, including the risk that the results of 2012 initiatives are different than currently anticipated.

Please note that these forward-looking statements speak only as of the date of this presentation, and we undertake no obligation to update these forward-looking statements in light of new information or future events, except to the extent required by applicable securities laws.

Please refer to our SEC filings, including our report on Form 10-Q for the period ended March 31, 2013, to be filed with the SEC, for a more detailed description of the risk factors that may affect our results. Copies may be obtained from the SEC or by visiting the Investor Relations section of our website.

At this time, it is my pleasure to introduce Bridgepoint Education's CEO, Andrew Clark.

Andrew S. Clark

Thank you, Paul, and welcome to Bridgepoint Education's First Quarter 2013 Earnings Call. After I discuss our operational results for the first quarter and our accreditation progress, our CFO, Dan Devine, will review our first quarter results and key operating metrics. After Dan speaks, I will offer my closing comments.

For those of you on the call who may be new to our story, I'd like to provide a brief introduction to the company. Bridgepoint is an innovative educational services company that is using the power of both innovation and technology leadership to advance higher learning. Our institutions, Ashford University and University of the Rockies, offer a practical and dynamic educational model to students seeking associates, bachelors and graduate degrees online or on-campus. The foundation of our universities' ability to deliver value to students has always been their educational philosophy, which is comprised of 4 pillars: affordability, access, academic quality and student success.

This philosophy, together with our advanced technologies, expands and enhances our efforts to offer students a broad selection of rigorous, engaging and practical courses. As the parent company, Bridgepoint supports the mission of our universities in a number of ways, including the development or acquisition of advanced technologies and new learning methods.

I want to start by reaffirming that our #1 priority is for Ashford to maintain regional accreditation. Ashford continues to focus on the resolution of its notice status with the Higher Learning Commission, as the university moves along the path towards WASC accreditation. This objective has inspired changes in Ashford's recruitment and admissions process from student outreach to the structure and function of the admissions team to more stringent admissions standards and increased resources dedicated to student success. The goal of these initiatives is to attract high-quality students who are more likely to benefit from educational programs we provide and who will persist and complete their educational programs at higher rates.

In addition to these near-term goals, we have always been committed to a culture of continuous improvement at both of our academic institutions, and we are continuing to execute on a number of internal programs that are designed to ensure that Ashford and Rockies are considered best-in-class institutions.

Ashford's commitment to recruiting well-qualified students is continuing and has shown outcomes in line with our expectations. For example, we are continuing to see that of the students who enter Ashford's free 2-week orientation program, approximately 28% do not enroll in their first course. Also, the Ashford Promise is continuing to show positive results. As you will recall, this initiative allows students a full refund for all tuition and fees through the third week of their first class. As we reported to you last quarter, this initiative is continuing to show consistent results by screening out 11% to 12% of students prior to their incurring any financial obligation.

We at Bridgepoint fully support Ashford's vision for the future. Ashford University continues to focus its policies and outcomes on a meaningful shift towards high-quality students who persist at higher rates. I want to stress that Ashford University continues a meaningful repositioning of the institution, centered on increased student persistence and improved outcomes.

An example of this transition can be seen in the commitment to instructional costs and student services versus admissions, advisory and advertising expenses during the quarter. It's important to emphasize that the institution has been in the midst of a historic transition for the past 10 months and this transition will not be complete until the end of 2013.

Additionally, the industry continues to encounter a challenging external environment and unfavorable economic trends. With that said, we continue to anticipate that the university will return to positive quarterly year-over-year new enrollment growth by year end, but we expect Ashford's total enrollment at year end will be below the university's current student level.

Before I turn the call over to Dan, I'd like to provide you with an update on Ashford's accreditation progress. In April, a WASC visiting team conducted a site visit in support of Ashford's reapplication for initial accreditation. The visiting team will provide a draft report this month for Ashford's review, and Ashford will have an opportunity to respond to any errors of fact at that time. A final report will be written by the visiting team, which will be sent to Ashford as well as WASC. In addition, the visiting team will make a confidential recommendation to the commission regarding Ashford's application. Ashford will have the opportunity to present to WASC in June, and WASC expects to notify Ashford of its decision in mid-July.

Now I'll turn over the call to Dan.

Daniel J. Devine

Thank you, Andrew. Let me begin by providing some key operating figures for the quarter ended March 31, 2013. I should remind you that, effective in the fourth quarter of 2012, the company made changes in the presentation of its operating expenses. We determined that these changes would better reflect industry practices and would provide more meaningful information, as well as increased transparency into our operations. We believe that the reclassification better represents the operational changes and the business initiatives that have been implemented. The company has reclassified prior periods to conform with the new presentation.

For the quarter, revenue decreased to $222 million compared with $250.4 million for the same period last year. As of March 31, 2013, total student enrollment was 78,782 compared with 94,863 in the same period last year.

New enrollments for the period were 13,300 as compared to 24,275 the first quarter of 2012. The level of new student enrollments in the first quarter was consistent with our internal expectations, resulting from our commitment to higher quality student outcomes.

For the first quarter of 2013, instructional costs and services were $107.3 million, or 48.3% of revenue, compared with $82.5 million, or 32.9% of revenue, in the same period last year. The increase is due primarily to increased investment in personnel in the areas of academic advisory, financial aid support and student services, as well as increases in bad debt, instructional support services, instructional-related facilities and IT expenses.

Included in instructional costs and services for the first quarter of 2013 was bad debt expense of $23.9 million, or 10.8% of revenue. During the quarter, the company performed a review of its accounts receivable that resulted in the increase in bad debt expense for the quarter. We have incorporated the results of our analysis into our model for estimating bad debt expense in the future. We anticipate that the bad debt expense will be more in line with historical levels in coming quarters.

Admissions advisory and marketing expenses for the first quarter of 2013 was $57.5 million, or 25.9% of revenue, compared with $90 million, or 36% of revenue, in the same period last year. The decrease is primarily due to decreased compensation resulting from fewer admissions personnel. Other factors contributing to the decrease are lower costs for advertising, facilities and IT.

General and administrative expenses for the first quarter of 2013 were $19.4 million, or 8.7% of revenue, compared with $25.5 millio,n, or 10.2% of revenue, for the same period last year. The decrease is primarily due to the $10.8 million legal settlement, which was expensed in the first quarter of the prior year. This decrease is partially offset by increased administrative compensation and staffing services.

Included in our 3 main expense categories for the first quarter of this year is approximately $3.6 million related to stock-based compensation expense in the aggregate compared with $2.5 million for the first quarter of last year.

For the first quarter of 2013, operating income decreased to $37.8 million from $52.4 million in the same period last year. Our effective tax rate for the quarter ended March 31, 2013, was 39.2% compared with 37.7% in the same period last year.

Net income for the first quarter of 2013 was $23.5 million, or $0.43 per diluted share, compared with net income of $33 million, or $0.59 per diluted share, for the same period last year. Fully diluted EPS is calculated based on a diluted share count of 55 million shares for the first quarter of 2013 compared with 56.2 million shares for the same period in 2012. As of March 31, 2013, we had cash and total investments of $524.9 million compared with $514.7 million as of December 31, 2012. The company generated $15.6 million of cash from operations for the quarter ended March 31, 2013, compared with $40.4 million for the same period in 2012.

Our accounts receivable, net of allowance for doubtful accounts, was $71 million, which represents 29 days sales outstanding on a quarter-to-date basis compared with 33 days sales outstanding for the same period last year. Capital expenditures for the first quarter were $3 million compared with $7.2 million for the same period last year.

Now I'll turn the call back over to Andrew for his closing remarks.

Andrew S. Clark

Thank you, Dan. Bridgepoint Education, through its institutions, continues to demonstrate a strong commitment to affordability, value and quality.

First, our institutions were founded on and have been leaders in affordable tuition for students.

Second, in alumni survey after survey, our students have reported a tangible return on their investment in the form of increased earnings power.

Third, consistently, our students have rated the quality of their education in our institutions as being equal to or greater than their experiences at previous institutions.

Ashford University continues to focus its policies and outcomes on a shift towards high-quality students that persist at higher rates. From new leadership of the institution, prioritization on educational resources, increased full-time faculty, a significantly reduced admissions team, increased student advisement, tightened admissions standards, focusing on new student preparedness, career service and alumni support and a revised governing model, the university has taken dramatic and meaningful steps towards achieving its stated goal of becoming one of the best private sector institutions in the country over the next several years.

Bridgepoint fully supports Ashford's vision for the future. We also believe that the governance model between Bridgepoint and Ashford responds in a best-of-class fashion to the importance is placed upon the independence of any institution under today's accreditation criteria.

Finally, all of us at Bridgepoint, Ashford and the University of the Rockies believe that our success will be derived from the success of our institutions' students at meeting their educational goals. By continuing our support for our institution students and their endeavors, we believe we are creating a successful and sustainable model for all stakeholders.

This concludes our presentation on today's call. At this time, I will ask our operator to open the phone lines for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Trace Urdan with Wells Fargo.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

You guys have made so many significant changes in your operations. I think it's hard for us on the outside modeling to try to understand some of the enrollment numbers. Can you speak -- I know you said that the performance was in line with your expectations. But can you try to break down for us how much of the decline in the starts you see as a function of your efforts to improve quality and be more selective in terms of which students are coming in and likely to be successful, and how much of it is a function of things that are going on in the market or perhaps even market share changes that you're seeing?

Andrew S. Clark

Yes, sure, Trace. Well, I think, primarily, there's 2 main components to the decline in new enrollments. First and foremost, it's the repositioning of the institution and the admissions policies around student selectivity and attracting a higher-quality student that persists at longer rates. And I think that is, in large part, a driver, along with just the -- as I said, the historical transition that the institution's going through and all that, that means. I mean, you alluded to all of the operational changes that the institution's made. So I think those 2 things contribute the most. And I really believe that the external part is -- might be a slight factor, but I guess I should emphasize that we continue to see demand for the value proposition of Ashford. But it's really Ashford's decision to be a higher -- more higher selective institution that has led to the enrollment declines.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

You've redeployed a number of your admissions counselors into other roles and, as a function of that, I believe, have fewer admissions folks. What is life like for them? Do they have a bigger number of people that they have to talk to, or has their -- the number of leads that they're dealing with have been reduced as well?

Andrew S. Clark

Well, we have a student inquiry group that takes a look at prospective students and tries to ensure that those students meet the criteria before they're passed along to anybody in admissions at Ashford, so I think that helps, from that perspective. And then, we repositioned the role of the university advisers, so that they're not only just enrolling a student in their first course, Trace, but they're working with that student through their first 4 courses. So they're not only focused on assisting new prospective students, but then also on helping students that they've enrolled continue to persist in the first 4 courses, which, as you know, from previous conversations we've had, those are the -- that's the most meaningful period of time in terms of whether a student is able to persist eventually onto their degree or not, they're likely to drop within those first 4 courses.

Trace A. Urdan - Wells Fargo Securities, LLC, Research Division

Okay. And then, the last question -- I wanted to ask Dan if he could maybe elaborate a little bit on the comments regarding the bad debt analysis. Can you speak to what exactly you identified that caused the spike this quarter, and then why we should expect that the number to sort of revert back to historical norms going forward?

Daniel J. Devine

Sure. Well, we did a -- we've been looking at this issue for a little bit now, and we did a deeper analysis. The issue that kind of caused this spike, so to speak, is that in our underlying data that we used to build our models, those models had certain credits applied to them from when a student would leave the institution or receive a credit for another reason. That created 1 version of kind of our aging buckets. And then, we made the decision that it may be more appropriate if we kind of suppressed those credits. And that created another view of the aging buckets, which we feel is more appropriate. So that's kind of the situation. There's no other underlying items behind that. We think, going forward, we're going to adopt this new methodology for modeling this, and it should be more in line going forward.

Operator

We'll take our next question from Jarrel Price from Height Analytics.

Jarrel Price - Height Analytics, LLC

Just a quick focus on military enrollments. I was wondering if you experienced any disruption in TA enrollments during the 4- to 5-week program suspension? And did you see any surge in TA enrollments when the program was restored in mid-April?

Andrew S. Clark

Yes, sure, Jarrel. Yes, it's a good question. We definitely did see some disruption in the military enrollments from the disruption in TA, and it was then reinstated but it took a little while for it to be reinstated. It didn't happen quickly. And so, if you look at the persistence number that you calculate, there's some -- some of that decline in persistence is really around the disruption that occurred in military and TA. That seems to -- now that the benefits are being restored, we seem to see students coming back and reengaging into their courses. But that takes a little bit of time for that to develop.

Jarrel Price - Height Analytics, LLC

Would the students during the suspension -- the students that you lost, did you see them come back in higher numbers after it was reinstated in April, or are those students kind of forever lost?

Andrew S. Clark

No, not forever lost, by any stretch. I think many decided to -- because of the flexibility of the way Ashford schedules, many were able to take breaks and kind of wait for things to settle out in terms of their benefits and then -- so they were still actively scheduled, but not enrolled. So we were able to call those folks up and say, "Now that your benefits have been restored, we can actually schedule the course that -- and get you back from break." We haven't seen any material number of students that took a break and, for some reason, didn't come back. That just doesn't happen.

Jarrel Price - Height Analytics, LLC

Great. And then, one final one on this -- in this vein, are you modeling the same kind of TA reimbursement rates -- or payments, rather, through the end of the year? Are you anticipating any change to the program?

Andrew S. Clark

Right now, we're just modeling the same approach through the end of the year. We're not anticipating any change.

Operator

We'll take our next question from Corey Greendale from First Analysis.

David Warner - First Analysis Securities Corporation, Research Division

This is actually David Warner for Corey. Based on our calculations of revenue per student, number was up -- revenue per student figure was up considerably year-over-year. Could you maybe speak to what were some of the factors that were driving that, whether they were price increases or changes to fees or?

Daniel J. Devine

Well, sure. This is Dan. I don't know if it was up significantly based on the way we do it. The way I do it, I had us up about 3%, which is consistent with our price increase last April, offset partially by lower tech fee in the quarter. So I would say it's consistent with what we thought that it should increase. I don't know what number -- what did you come up with for percentages?

David Warner - First Analysis Securities Corporation, Research Division

A bit higher than that.

Daniel J. Devine

Yes. Well, we used -- I'll tell you how I do it. Take the beginning and ending enrollments, split it and divide it by revenue, and that's about 3.5%, based over Q1 2012.

David Warner - First Analysis Securities Corporation, Research Division

Okay. And I guess, on a similar vein, what are your expectations for scholarships going forward? They've sort of trended at about 10% growth year-over-year. Now that enrollment is starting to stabilize or flatten, what are your expectations as far as availability of scholarships?

Daniel J. Devine

The largest scholarship that is in our number is the military discount. So I would say you would see that number maybe increase a little bit. If the enrollment declines, the military enrollment does not decline at the same rate as total enrollment, so your scholarshipping percentage will be a little bit higher. But there's no new scholarships on the horizon that we plan on providing that would materially change the number besides that.

Operator

We'll take our next question from Gary Bisbee from Barclays.

Gary E. Bisbee - Barclays Capital, Research Division

I guess, just looking at the expense lines, G&A, if you backed out that charge a year ago, was actually up quite a bit year-over-year and, in dollar terms, up quite a bit from all 4 quarters of last year. Were there any one-time issues in here or onetime expenses as part of the -- all of the restructuring you're doing? Or is this a run rate we might think of moving forward?

Daniel J. Devine

In the first quarter of 2013, there were no significant onetime items in G&A expense. We've made a significant amount of investment in our compliance efforts. We have ongoing legal expenses that are not declining, and we've increased our internal legal and regulatory staff. So that really would be the component of the increase in G&A.

Gary E. Bisbee - Barclays Capital, Research Division

Okay. And then, on the admissions advisory and marketing, that line looks like it should probably fall considerably until you lap the headcount cuts. Outside of that, are you -- have you reduced marketing spend, or is that flattish? Are there other moving parts there? Is that pretty much all, it's just the headcount?

Daniel J. Devine

Well, no, we've reduced the corresponding investment in marketing to the headcount, not percent to percent, but we reduced our external marketing purchases because we have fewer admissions representatives. So there's 2 components to that line, both of them are moving downward.

Gary E. Bisbee - Barclays Capital, Research Division

Okay. All right. That's helpful. And then, just lastly, on capital spending, do you have any sense where it would likely be in the year? It was lower this quarter. Is that just timing, or are you pulling back some versus the prior plan?

Daniel J. Devine

Some of that is timing. Most of our capital expenditures are in the second and third quarter, which corresponds to kind of the break at the campus. It is down. I don't think our -- it's not going to be down for the year the same percentage as it was down in the quarter, but it will probably be lower this year than it was last year, yes.

Operator

We'll go next to Jeff Silber with BMO Capital Markets.

Jeffrey M. Silber - BMO Capital Markets U.S.

I wanted to go back to Trace's question. You have mentioned the more stringent admissions standards that the company has been employing. Can you just remind us when you did that? I know you talked about the 2-week orientation program and the Ashford Promise program, but if you can tell us when those were reinstated and if there are anything else that I'm missing?

Andrew S. Clark

Yes, sure, Jeff. So most of the newer admission standards were put into place kind of the late third quarter, early fourth quarter of last year. So, especially the orientation program as well as the Ashford Promise was kind of late Q3 and certainly impacted the entire fourth quarter, as well as the first quarter. And then, you'll recall that there's a lot of other admission standards, including having achieved perfect attendance in the first course, increasing the age of requirement. I think if you kind of stack up the standards that we've put in place from an admission standpoint, it's pretty significant compared to Ashford's peer group or competitors. Well...

Jeffrey M. Silber - BMO Capital Markets U.S.

I'm sorry. Go ahead.

Andrew S. Clark

No, go ahead.

Jeffrey M. Silber - BMO Capital Markets U.S.

No. So I guess my question is that if they were -- if these programs for the most part were instated for the full fourth quarter, I guess, we were a little bit surprised that the steep decline in 4Q versus 1Q. I know down 31% was pretty bad, but down 45% is even worse. Is there anything that really explains that?

Andrew S. Clark

Yes. I think, again, back out to the second part of my answer to Trace's question, which is that you have an institution that's going through a tremendous amount of transition and repositioning. And with all of the operational changes that have been made and just the focus of the vision of attracting and retaining a much-higher-qualified student, that takes a while for an institution to kind of adapt through all of those changes and transition through them. And I -- as I said in my comments, my expectation is it will take the entire year this year for the institution to kind of move through that. So we weren't surprised internally by new enrollments in the first quarter and what they ended up being at, but -- and so, that should give you some comfort on your end. But we think they're totally in line with the significant transition that the institution's going through.

Jeffrey M. Silber - BMO Capital Markets U.S.

So I know you don't give specific guidance by quarter, but I'm looking at the current quarter. Should we expect that kind of steep decline again this quarter?

Andrew S. Clark

Yes. I mean, I can't really answer your question, even though I want to, because of the fact that we don't give guidance. I mean, I think, directionally, what I've indicated is that we -- I indicated at last quarter, as well as this quarter, is that we still have a view that new enrollments will turn positive in the fourth quarter of the year.

Jeffrey M. Silber - BMO Capital Markets U.S.

Okay. That's fair. And then, just following up, I think it was from Gary's question, about the run rates on expenses. If I look at your 3 major expense line items and I remove the bad debt issue, should we expect that kind of run rate going forward?

Daniel J. Devine

Yes, you should.

Jeffrey M. Silber - BMO Capital Markets U.S.

And on bad debt, when you say, "Should be more normal going forward," does that include the current quarter?

Daniel J. Devine

You mean does that include the current quarter? You mean the next -- the second quarter?

Jeffrey M. Silber - BMO Capital Markets U.S.

Second quarter, correct.

Daniel J. Devine

I think it's going to work its way back down over the next several quarters, respectfully.

Jeffrey M. Silber - BMO Capital Markets U.S.

Okay. Great. And then, just one quick numbers question. Tax rate for the year which you will be using?

Daniel J. Devine

You could use the current rate. I believe -- is it 39.2%? I'd say -- yes, I think 39.5% is probably fine.

Operator

We'll take our next question from Jeff Volshteyn with JPMorgan.

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division

You mentioned the new enrollments came in about as expected. What about student retention and student persistence, at least the way we calculate it, and how did that fair against your internal estimates?

Andrew S. Clark

Yes, sure, Jeff. It's a great question. It was -- the student persistence was down a little bit more than what we expected internally, but that was due to the tuition assistance disruption for the military, primarily. I mean, there's a little bit of kind of, as you know, noise quarter-to-quarter that impacts your view of persistence externally. Our overall view is that persistence, directionally, should be positive especially in the back half of the year, with all of the new admissions standards and criteria that Ashford's put in place.

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division

Great. That's helpful. When I look at the reclassified expenses, the way we see them now in this quarter being somewhat transitional as far as buckets of expenses, how should we think about seasonality of expenses across your main expense line items for the remainder of the year?

Daniel J. Devine

I would say my only seasonality comment would be that you saw last -- 2012, in the third quarter, you saw some seasonality related to branding in the third quarter. I think you will see some of that again this year. The rest of the expenses should not have significant seasonality in them.

Operator

We'll take our next question from Paul Ginocchio from Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

I guess, if you took out the TA, what would have persistence looked like in the first quarter? And is there anything we can see publicly that would sort of highlight the improvements to quality of the students so far that we can sort of pick up on, or is that still yet to come?

Andrew S. Clark

Yes. Paul, I mean, we don't give the exact persistence numbers out, but it would have been slightly lower and not materially lower. In other words, we see that -- those fluctuations occur from quarter-to-quarter, and what's important more is the overall trend. I think, probably, we've indicated that the initiatives -- the admissions criteria that we've put in place has led to better persisting students in their second and third courses or their fourth course and beyond. And that's why I make the comments I do about better persistence towards the back half the year. I think that's when publicly you'd be able to really see the outcomes that are derived from those new admissions criteria.

Paul Ginocchio - Deutsche Bank AG, Research Division

And based on what you're seeing, what would that do to the overall level of persistence, how we calculate it over the longer term?

Andrew S. Clark

Well, it will increase your overall level of persistence. I mean, I can't tell you by how much, but it will increase it. I can tell you, on a cohort basis, internally, our view is that those cohort persistence rate should increase at a fairly healthy rate on a year-over-year basis.

Operator

We'll go next to Peter Appert from Piper Jaffray.

John D. Crowther - Piper Jaffray Companies, Research Division

You got John Crowther on for Peter. Just going back real quickly to the starts issue. As you pointed out, you're going through a tremendous period of transition. And I'm just wondering if there's something underneath the numbers that gives you confidence that you can grow starting in the back half of -- or in Q4 of this year beyond just anniversary of those -- implementing those initiatives in fiscal '12?

Andrew S. Clark

Yes, sure, John. That's a great question. Yes, I mean, underlying what you're seeing externally, we continue to see strong demand for the value proposition that Ashford University offers prospective students. And our negative new enrollment declines here are completely driven based upon a choice and decisions that leadership at Ashford made around increased selectivity of students. So that gives us confidence as we kind of look towards the end of the year and into 2014 that there will be continued demand for a value proposition. And once the institution has moved through the repositioning of the institution, the transitionary components of it, as well as the new admissions criteria, that the institution will be in a very modestly positive new enrollment growth position going forward.

Operator

We'll take our next question from Tim Connor from William Blair.

Timo Connor

I saw you had your commencement in Clinton. How many students participated in person, and then how many students across Ashford do you expect to graduate this year?

Andrew S. Clark

You know what, Tim, I don't have those numbers in front of me in terms of the numbers of students that participated in commencements this weekend. We don't usually give out the number for the entire year. We do generally report it in our fourth quarter earnings call, how many students graduated. I can tell you, just at a very high level, though, that the commencement ceremony was standing room only. So there was that capacity, and it was the best part of what Ashford does. It was a great weekend.

Timo Connor

Okay. Do you expect graduations to be up this year, though?

Andrew S. Clark

Yes, I think they'll be up slightly compared to previous years. Yes.

Timo Connor

Okay. And then, a follow-up, this one's probably for Dan, on average revenue per student. I think you mentioned the way you calculate it on average enrollments, it looks like the trend from the fourth quarter to the first quarter, you got about 300 basis points better, if not a little bit more. And then, with the texi [ph] going away, would have assumed that, that would be a little bit of a headwind. So how can you explain the average revenue per student trend getting better in the first quarter? Is there something...

Daniel J. Devine

Sequentially, you get better because you have a short quarter in the fourth quarter. So sequentially, you get better that way. I mean, if you look at our revenue in the fourth quarter, it's traditionally lower and that's because it's -- we have an annual break that is incorporated in the fourth quarter.

Timo Connor

Okay. And then, at what point will the texi [ph] start to sort of feed into that average revenue per student to become a little bit more of a headwind? Is that occurring right now?

Daniel J. Devine

I think, it would be -- if you're counting headwinds, I think the biggest headwind you'll probably see would be in this quarter, and then it should be less of a headwind. But it will still be a drag for the next 5 quarters -- or the basically 2013 and the beginning of 2014. It will drag -- each quarter, it gets better and better and better back to where -- back to a higher number.

Operator

And with no further questions in the phone queue, I would like to turn the call back over to Andrew Clark for any additional or closing remarks.

Andrew S. Clark

Good. I just want to thank everybody for joining our call today and for your interest in Bridgepoint Education. Thank you, operator.

Operator

And this does conclude today's conference. We thank you for your participation.

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