Bridgepoint Education Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 5.13 | About: Bridgepoint Education, (BPI)

Bridgepoint Education (NYSE:BPI)

Q3 2013 Earnings Call

November 05, 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

Jane L. McAuliffe - Chief Academic Officer and Executive Vice President of External Affairs

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

Analysts

Alexander P. Paris - Barrington Research Associates, Inc., Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

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

Peter P. Appert - Piper Jaffray Companies, Research Division

Timothy Connor - William Blair & Company L.L.C., Research Division

Timo Connor

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

Paul Condra

Adrienne Colby - Deutsche Bank AG, Research Division

Operator

Well, good morning, ladies and gentlemen, and welcome to Bridgepoint Education's Third Quarter 2013 Earnings Conference Call. Today's conference is being recorded.

And at this time, I will turn the conference over to Mr. Paul Goodson, Associate Vice President of Investor Relations for Bridgepoint Education. Please go ahead, Mr. Goodson.

Paul Goodson

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

Joining me on the call today are Andrew Clark, Chief Executive Officer; and Dr. Jane McAuliffe, Chief Academic Officer; and Dan Devine, Chief Financial Officer.

Before we begin, we'd like to remind you that some of the statements we make today may be considered forward-looking, including statements addressing our expectations regarding student persistence and enrollments, new enrollments for the fourth quarter, the benefits of our agreement with a subsidiary of Forbes Media, our branding campaign, the impact of our temporary military tuition assistance grants, the approval of the Department of Education for Ashford University's transition of accreditors and the related regulatory actions, as well as commentary regarding future performance of our business.

These forward-looking statements are subject to a number of risks and uncertainties that could cause actual performance or results to differ materially. 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 the our SEC filings, including our report on Form 10-Q for the period ended September 30, 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's my pleasure to introduce Bridgepoint Education's CEO, Andrew Clark.

Andrew S. Clark

Thank you, Paul. Welcome to Bridgepoint Education's Third Quarter 2013 Earnings Call. After I discuss our recent developments and plans, our Chief Academic Officer, Dr. Jane McAuliffe, will provide you with the regulatory update and then our CFO, Dan Devine, will review our third quarter results and key operating metrics. After Dan speaks, I will offer my closing comments.

I have a number of very positive things to share with you this morning. But I want to begin by announcing that Bridgepoint has entered into an agreement with a subsidiary of Forbes Media, under which Ashford's College of Business and Professional Studies will now be known as the Forbes School of Business. The school will benefit from Forbes' worldwide recognition as a knowledgeable, well-respected business authority. The school's students will benefit from the incorporation of material from Forbes' robust business archive into the curriculum and textbooks. Additionally, students will benefit from Forbes' contributors, who may also serve as guest lecturers, sharing their expansive knowledge with Ashford's online students.

We think this partnership will further enhance the value proposition of Ashford's programs and further differentiate itself as a provider of high-quality education at an affordable price for working adults.

Turning to the quarter. Those of you who have followed us over the last several quarters know that we have implemented a number of significant changes in 2012. I'm pleased to report that we are seeing evidence that those initiatives are paying off in several important respects.

For example, new features designed to ensure student preparedness and commitment, including the orientation program, the Ashford Promise, and the enhanced level of student support we are providing, are increasing the persistence rate of students who have benefited from them.

While our persistence in the third quarter of 2013 exceeded last year's quarter, it would have been even higher if it were not for the fact that the increased number of graduations in 2013 masked some of the improvement we've seen in persistence.

We expect an increasing number of graduations to continue exerting some negative influence on the persistence calculation into 2015, but we also expect the 2012 initiatives to continue providing support for admissions quality and student persistence over this time frame.

Again, this year, as we did in the third quarter last year, we conducted a significant branding and advertising campaign designed to increase awareness of the Ashford brand, and build the strength of the brand, by communicating Ashford's value proposition. This program has already increased the percentage of new enrollments who come to us organically by 41% over the results from last year's quarter.

Students who come to us organically are more committed to their education, convert at higher rates and persist better than students who come from aggregators. Based on this, we continued to decrease the use of aggregator channels and we expect that we will continue to reduce this channel going forward. The strength of our value proposition generally, and the success we have had with our branding program specifically, were key factors in the improvement in the year-over-year decline in the third quarter new enrollments.

We expect that this will continue in this quarter and despite the government shutdown effect on military starts, as well as increased identity verification by the Department of Education, we continue to believe that we will show positive year-over-year new enrollment growth in the fourth quarter.

Before I turn it over to Dr. McAuliffe, I'd like to make some comments about recent tuition comparisons to others in our sector. The value proposition at Ashford has never been solely predicated on price. For over 4 years, we have articulated that our value proposition defines the intersection of affordability, quality and innovation, resulting in a superior student academic experience that is enhanced by affordable tuition.

We have always successfully competed in an environment that included lower-priced peers, including community colleges and a small number of private sector peers. That being said, yesterday's comparison between Ashford and 2 of its peers was misleading to the reader. The scenario provided was an optimal case where a student begins with 0 credits and completes their studies uninterrupted through 40 classes.

Several of the scholarships that were noted were highly conditional and the average student likely may not meet the criteria required to receive the scholarship. Any changes in a student's attendance, academic performance and transferred credits could materially change the average cost of attendance for the peers provided.

Ashford University is a leader in providing affordable tuition to its students. The price in the student catalog is the price that they pay.

Now I will ask Dr. McAuliffe to give you a regulatory update and tell you about our most recent graduation ceremony.

Jane L. McAuliffe

Early in the third quarter, on July 10, we announced that WASC had approved Ashford's application to transfer its accreditation from HLC to WASC. With this major goal behind us, Ashford submitted its application to the Department of Education for approval of the transfer.

I'm happy to report that Ashford has received a letter from the Department of Education indicating that the department will and I quote "approve the change in accreditor, recognizing WASC as Ashford University's accreditor, along with the renewal of certification for continued participation in the Title IV, HEA programs. We anticipate completing our review and approval of the application and issuing a new program participation agreement within the next few weeks." We're pleased to receive this news.

I wanted to give you an update on graduation since we celebrated graduation ceremonies at both Ashford University and the University of the Rockies this past month. I'm pleased to report that our institutions awarded over 19,000 degrees during the 2012-13 academic year, an increase of 14% over the previous year and a new record for Bridgepoint's institutions.

This includes year-over-year increases of degrees awarded at all degree levels. We are proud to announce that our institutions have now produced a total of more than 60,000 graduates since 2005.

Looking forward to early next year, for the 5th year running, we will conduct our annual alumni survey, which summarizes our graduates' views of Ashford's educational quality, whether it was worth the time and commitment, how many would recommend Ashford to others, how many gained confidence to seek new job opportunities, their overall satisfaction levels and our graduates' salaries before and after completing their degrees. On our earnings call in March, we will update you on the results of our alumni survey.

Now I'll turn the call over to Dan.

Daniel J. Devine

Thank you, Jane. I'll begin by providing some key operating figures for the quarter ended September 30, 2013. I should remind you that effective in the fourth quarter of 2012, the company made changes in the presentation of its operating expenses to better reflect industry practices and provide more meaningful information, as well as increased transparency to its operations. We believe that the reclassification better represents the operational changes and business initiatives that we -- have been implemented. The company has reclassified prior periods to conform with this new presentation.

For the quarter, revenue was $185.6 million compared with $252.1 million for the same period last year. The decrease in revenue is due to lower total enrollments, as well as a change in the technology fee effective January 1, 2013.

As of September 30, 2013, total student enrollment was 68,566 compared to 91,358 on the same date last year. New enrollments for the third quarter were approximately 12,500, as compared to 20,500 for the third quarter of 2012.

The results of new enrollments in the quarter were in line with internal expectations and represent a favorable trend in new enrollments over recent quarters.

While we continue to focus on improvements in our recruitment processes, we have been and will continue to be subject to changing regulations, including increased student identification screening, that may delay or decrease the number of students who attend our institutions.

For the third quarter of 2013, instructional costs and services were $92.2 million or 49.7% of revenue, compared with $91 million or 36.1% of revenue in the same period last year. The increase is due primarily to increased support services Bridgepoint provided to Ashford, facilities, costs and compensation for the academic management, financial aid and student services personnel. Included in the instructional cost and services for the third quarter of 2013 was bad debt expense of $16.8 million or 9% of revenue.

Admission advisory and marketing expenses for the third quarter of 2013 were $64.5 million or 34.8% of revenue compared with $96.7 million or 38.4% of revenue in the same period last year. The decrease is primarily due to decreased advertising and lower compensation resulting from fewer admissions personnel.

Other factors contributing to the decrease are lower cost for corporate support services, facilities and IT.

General and administrative expense for the third quarter of 2013 were $16.1 million or 8.5% of revenue compared with $17.2 million or 6.9% of revenue for the same period last year. The decrease reflects lower professional fees, administrative compensation and support services.

Included in our 3 main expense categories for the third quarter is approximately $3.3 million related to stock-based compensation expense in the aggregate compared with $3.4 million for the third quarter last year.

For the third quarter of 2013, operating income was $12.9 million compared to $47.1 million in the same period last year. Our effective tax rate for the quarter ended September 30, 2013, was 25.7% compared to 38% in the same period last year. The decrease is due to the exploration of a statute of limitations on a prior tax year, which triggered the release of a $1.9 million tax reserve.

Net income for the third quarter of 2013 was $10.1 million or $0.18 per diluted share compared with net income of $29.8 million or $0.53 per diluted share for the same period last year.

Our year-to-date net income of $47.5 million or $0.85 per share includes the effect of the $5.9 million pretax restructuring charge we recorded in the second quarter, which had an impact of $0.06 per share to the year-to-date fully diluted earnings per share.

Fully diluted EPS is calculated based on a diluted share count of 56.4 million shares for the third quarter of 2013 compared with 55.8 million shares for the same period in 2012.

As of September 30, 2013, we had cash and total investments of $553.3 million compared to $514.7 million as of December 31, 2012. The company generated $54.3 million of cash from operations for the 9 months ended September 30, 2013, compared with $93.6 million for the same period in 2012.

Capital expenditures for the 9 months ended September 30, 2013, were $11.7 million compared with $20.8 million for the same period last year.

I want to make a brief comment about the government shutdown and what Ashford has been able to do to support its military students during that time.

As we announced earlier, Ashford offered scholarships to any continuing students whose aid was denied as a result of the shutdown. We estimate that those cohorts impacted approximately 3,600 continuing students. Additionally, we estimate that over 400 new military enrollments had to be deferred during the shutdown period.

While we don't have all the information in to make a specific calculation at present, we estimate that the shutdown will cost Ashford between $4 million and $5 million in lost revenue in the fourth quarter.

Now I will turn the call back over to Andrew for his closing comments.

Andrew S. Clark

Thank you, Dan. As I suggested a few minutes ago, Ashford has always positioned itself at the intersection of educational quality, innovation and affordability. Therefore, while affordability has always been an important part of our value proposition, quality and innovation are also important differentiating factors.

Our student and alumni surveys consistently show that 95% of our students with experience at other universities believe the quality we offer is equal to or greater than that offered by those other institutions. High levels of student satisfaction were also registered by WASC's own independent survey of more than 20,000 of our students.

One of the reasons for this positive student opinion is the innovative technology platform that our students consistently rate very highly, which currently includes Waypoint Constellation and our mobile learning platform. Many of you know that our Constellation eTextbook technology offers students a powerful combination of quality, readability, interactivity and affordability.

Under the Thuze name, the value of this technology to students has recently been validated in more than 20 other universities across the U.S., which are now using Thuze. In the last year, we have further differentiated and enriched the Ashford experience with numerous other enhancements, beginning with the students' first academic exposure and extending all the way through graduation and into our alumni network. Today, of course, we have announced another enhancement to the student experience in the form of Ashford's affiliation with Forbes.

These examples provide a tangible demonstration of our commitment to offering affordable degree programs that are differentiated by high-quality and innovation, which have been hallmarks of our institutions since we were founded.

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

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Alex Paris with Barrington Research.

Alexander P. Paris - Barrington Research Associates, Inc., Research Division

Let me just follow up on that pricing question. Regardless of comps versus others, what is the normal processing, when does that process occur when you evaluate tuition? I think last year, you raised tuition 2.7%, is that right? And then -- and so when will you do it? And what inputs do you take into account when making that decision?

Andrew S. Clark

Yes, sure. Thanks, Alex. This is Andrew. Well, the time of year when we make that analysis is actually around this time of the year. We don't implement the change, or Ashford won't implement the change until the spring of next year. We do what we do every year, which is we do a full competitive analysis of all institutions, public, private, private sector, as well as just kind of a larger economic view of how folks are doing and how the economy is doing. And we make a determination based upon that. Generally speaking, I think the tuition increases at Ashford over the last several years, as a percentage, have been getting smaller and smaller each year.

Alexander P. Paris - Barrington Research Associates, Inc., Research Division

All right. And then if you determine that a price increase is warranted by those -- price decrease, I'm sorry, is warranted based on the competitive factors, the economy and so on. Given where you're starting, being one of the lowest price point providers within the group, I would assume that any decrease would be less, or could be accomplished through targeted scholarships and things like that. And then given your technology platform, I would assume that you'd be able to absorb that better than most given, a, the absolute magnitude of any reduction and the ability to surmount that. For example, what other levers do you have? Your enrollment counts are still down by 50% year-over-year. You could add enrollment counts, or is that true?

Andrew S. Clark

Yes, that's true. But I think I want to start, Alex, by just saying that I don't believe that a price decrease is a consideration, and I'll tell you why I don't believe that. The fact of the matter is that Ashford University continues to see strong demand. The only reason there's been a decline in enrollments has been because of, as you well know, internal admission standards and initiatives that were put into place in 2012. All which had a focus on the quality of entering students and the eventual persistence of success of those students in pursuing their college education. So we're dramatically different than many of our peers that had negative enrollments because of external issues that are outside their control. All of our negative new enrollment growth, Alex, has come from internal admissions standards and various quality initiatives that we've put in place. We continue to see very strong demand. And we believe, as I've mentioned, that we'll see a return to positive new enrollment in the fourth quarter as a result of that. So I can tell you right now that any discussion of price decreases has not even occurred within the institution or here at Bridgepoint because of the factors that we're seeing with regards to students and potential students and how they respond to our overall value proposition. That response is still very, very robust. In our most recent marketing survey, we have not seen any kind of material change in terms of our students and their behaviors and their responses to competitive factors, pricing or kind of onetime highly conditioned scholarship offers.

Operator

Moving on to Corey Greendale with First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

Let me actually start by asking a question on the cost side. Now that you're starting to anniversary some of the changes you made in conjunction with ensuring you're meeting WASC requirements, I think the overall enrollment, even if your starts do turn positive in Q4, your overall enrollment numbers are still going to be down. How much ability do you have to manage the cost structure down from the Q3 levels? And what should we be looking at in Q4 and beyond?

Andrew S. Clark

Yes, sure, Corey. Well, the institution's managed this cost structure previously and I know that you're aware of that. And it certainly has opportunities to do that in the future should it choose to. I think it has to kind of -- it'll have to weigh managing the cost structure so they're appropriately aligned for the institution with this return in positive new enrollments and eventually positive total enrollment. So you don't want to cut the cost structure so dramatically that as that return occurs, you then find yourself in kind of under-resourced or understaffed capacity. So I think it's safe to say that there is opportunity. There are things that can be done. I think all of that will be heavily weighted against, first and foremost, what's in the best interest of students and how we view the return to positive total enrollment growth in 2014.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. I have a couple of others, if I could. The Forbes alliance, could you just speak a little bit more? So it's a good brand name. Given that you're working on building a brand name for Ashford, what's the thinking behind bringing in someone else's brand name? And did you expect you'll be doing similar alliances to the other schools within Ashford?

Andrew S. Clark

Yes, sure. Well, I mean, I think it's a great brand name. We're really proud of our affiliation with Forbes. They're very well respected business authority. They have a tremendous brand. I think it's going to be wonderful benefit to our students at Ashford and to future students who join Ashford. I think it's an innovative, another example of the innovative approach where you're just continuing to raise the bar in terms of quality and the student experience. So in terms of the other schools and the potential for doing that, I think the potential is there. I wouldn't want to make any comment beyond that. But I think that this is going to be a great opportunity for Ashford and Forbes School of Business. I think everything from guest lecturers, to access to various speakers that they have and contributors that will be online and the relevancy of their content is going to be really beneficial to student learning.

Corey Greendale - First Analysis Securities Corporation, Research Division

Can you give us some sense of how we should model the licensing fee?

Daniel J. Devine

Well, the initial upfront payment is over the 12-year period. You're going to see that being amortized. And then I think you can see -- I think it's outlined, the percentages are outlined. I would say in the first year, I would stick to what probably the minimum is, slightly better, slightly more. And so probably 2015, I think you'll see potentially a higher royalty based on the increased contribution of that license.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. And just one last quick one, if I could. The cash balance continues to build. I think up until recently, anyway, you've been talking about M&A as a relatively high probability use of that cash. With the stock kind of moving all over the place, how are you thinking about buybacks versus acquisitions at this point?

Andrew S. Clark

Well, I mean, we're continuing to think about all of the above, Corey. Yes, buybacks and acquisitions, we're doing a lot of work on both fronts. So stay tuned. I think we always said that any further action on that front would be continued upon kind of the formal approval from the Department of Education. So it looks like we are getting close to that approval. So that will be another data point in our analysis.

Operator

Trace Urdan with Wells Fargo has the next question.

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

First question was, Andrew, in your comments, you addressed the strategic move away from the third-party lead aggregators fairly well. I wondered if you could quantify that in anyway? And maybe if you can't tell us what percentage are from third-party aggregators today maybe you could give us a sense of where you've moved from your time of peak exposure to that source?

Andrew S. Clark

Yes, I mean, I can't quantify it for you in terms of a percentage, Trace. I can tell you that our students that are in enrolling into Ashford, that a smaller and smaller and smaller percentage of those students are coming from aggregators. And that trend has been consistent and continues to -- that number continues to get smaller over the past 4 quarters. So we've had a very deliberate strategic approach. It is being very successful. And we are finding a smaller and smaller percentage of our new students starting, coming from the aggregator channel.

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

Can you, I mean, are we talking about half as many? Or are you talking about 10% fewer? Just something that gives us a sense of the relative change that you've undergone there?

Andrew S. Clark

The change is significant. So it's a material change. It's not just -- it's not 10%.

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

Okay, all right, I'll let it go. Dan, I wondered if you could talk about -- you guys did make some fixed cost reductions and I'm wondering if -- when we look at the composition of third quarter operating costs, whether that represents, from a fixed cost standpoint, a basic run rate. Or if there's sort of more of those cost reductions that we would see in subsequent quarters?

Daniel J. Devine

There's nothing specifically related to the cost reduction that will -- that are still to come. I mean, all those items have been adjusted. I mean, looking forward, I mean, they're looking into next year, the only comment I would make is that despite what we continue to have is a higher-than-wanted bad debt percentage in the third quarter, that will likely continue through the fourth quarter. But we do expect in 2014 that, that should move down by probably 2 points without even additional improvement in the processes. So if you're looking into 2014, I would say you'll see some improvement in that area, but the specific adjustments that we made to our fixed cost structure in the second quarter, they're all reflected in this quarter.

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

Okay. And I apologize if I should know this already. But what is the driver of that sort of decline without any change in process improvement?

Daniel J. Devine

Well, I mean, not any additional change in process. The process improvements that we have put in place that we feel will benefit us beginning -- throughout this quarter, but this fourth quarter will still be higher, and then through 2014. But without any further improvement than what we've already think we've achieved.

Operator

Moving on to Peter Appert with Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So Andrew, you've spoken with great confidence about getting back to positive starts. So my apologies, but I have to push you on this because the numbers have obviously been very challenging here. And if I'm looking at sort of the 2-year run rate to get to positive would require pretty dramatic improvement here on a quarter-to-quarter basis, even thinking about the 2-year trend. So what gives you the confidence in the ability to get back to positive starts?

Andrew S. Clark

Yes, sure, Peter. I appreciate your question. I mean, first of all, obviously, Peter, you just have to look at the comps for the fourth quarter of 2012 that we're measuring ourselves against. And I think everybody will conclude that, that comp is a relatively achievable one in terms of improvement. Besides that, again, I'll just make comments on what we're seeing internally. Internally, we continue to see a favorable response from prospective students with regard to the value proposition. And we believe that many of the initiatives we've done over the past year, as well as what I commented on with regards to branding, and a reduced reliance on aggregators, are leading to and will lead to a positive outcome in terms of new enrollment growth for the quarter. I think the final thing and the most important thing probably, Peter, is, again, our negative new enrollment growth has been predicated off of internal initiatives, not external competition or various influences that have occurred externally that are outside our control. So I think when it's predicated upon internal initiatives that you put in place, it can give you a lot more comfort. Obviously, if I felt like the reason for all of our declines were externally-related and outside our control, I don't think I would have the confidence about the fourth quarter or the belief that I have that it'll do well. I think it will do well despite the fact that, as I commented, we had the government shutdown, we had some military students who were unable to start as a result of the lack of funding. We also have seen a little issue with the identity management requirements of the Department of Ed, so that has played a little bit of a role. But again, I think the big point to take away is these are internal items that we all have control over rather than external pressures that would be outside of our control and for some reason lead to us not being able to return to positive new enrollments.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay, fair enough. The -- and based on all of that, I guess, it would be reasonable to assume that starts would then stay positive into '14? Are there any anomalies in terms of how the quarters might play out next year?

Andrew S. Clark

Well, certainly, Peter, we're in the process of working toward next year's budget. And I don't want to comment too much other than to say that, again, because of the internal components to what Ashford has gone through, it is my belief that new enrollments will remain positive throughout 2014 and then total enrollments will return to positive some time during 2014.

Daniel J. Devine

Okay. Peter, just one technical, since you brought that up. I believe in the first quarter of 2014, there is one less start week as compared to the prior year. So I'm not -- that would give you a mechanical adjustment to the new enrollments.

Peter P. Appert - Piper Jaffray Companies, Research Division

And does that then shift into the second quarter?

Daniel J. Devine

I believe it shifts into the second. But I can call you back and confirm, I don't know if that rolls' in [ph] yet.

Peter P. Appert - Piper Jaffray Companies, Research Division

Yes, okay. And then Dan, one other thing. The $4 million to $5 million in lost revenues you called out from the government shutdown for the fourth quarter, I assume that has fairly significant margin implications.

Daniel J. Devine

Yes.

Peter P. Appert - Piper Jaffray Companies, Research Division

Okay. So that -- we should just basically assume that largely comes out of net income or operating income?

Daniel J. Devine

Yes. Yes, I would -- that is correct.

Operator

Our next question will come from Tim Connor with William Blair.

Timothy Connor - William Blair & Company L.L.C., Research Division

The 400 new military tuition assistance enrollments that you said were deferred in the fourth quarter, do you expect those to be -- those students to start in the fourth quarter? Or would they be deferred longer than that into 2014 or kind of permanent losses?

Daniel J. Devine

Tim, I don't have a specific count of how many of those individuals will start in the fourth quarter or how many possibly left the interest of our institution or going back to schools. So I don't have that figure. But I know that there were 400, and about 400 people in the queue to start and they did not start.

Timo Connor

And then one other timing question. Did you notice any change in the behavior of prospective students when you received WASC accreditation early in the third quarter?

Andrew S. Clark

I think the change that we saw was that whereas it was an accreditation in Ashford status with accreditation was always the question from prospective students. That question went away and allowed admissions counselors to focus just on the students' needs and the value proposition that Ashford offers. So I think that's it. It's not left at -- I don't want to leave with the impression that they were calling up, saying, "Please, now that you've got WASC accreditation, I'm giving you a call." I think it's just -- it was no longer something that was brought to their attention like it was previously.

Timothy Connor - William Blair & Company L.L.C., Research Division

Okay. And the tax reserve relief, maybe you mentioned it, but what are the expectations for tax rate in the fourth quarter and then in 2014?

Daniel J. Devine

Well, I think it's actually should be back up to the -- I think it was 39.5% for the fourth quarter. And I apologize, I don't have the full year effect off the top of my head.

Timothy Connor - William Blair & Company L.L.C., Research Division

For next year, though, it should be a more normalized tax rate, you're not expecting any changes?

Daniel J. Devine

We are not, correct.

Operator

We'll now hear from Jeff Volshteyn with JPMorgan.

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

I wanted to focus on underlying student retention. In the third quarter, how did they perform versus sort of student persistence dynamic?

Andrew S. Clark

Well, Jeff, I think if you look at the persistence, from a straight perspective in how you measured it, performed well. I'm pretty sure you've already done the calculation, and I think it's 170 basis points better. So I commented earlier in my opening remarks that many of the initiatives that we put in place a year ago are beginning to produce results. We believe that persistence rate would have been even higher had it not been for kind of a very positive thing, which is all the students that are graduating, but that does, in that calculation, kind of pull down the rate a little bit.

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

Okay. And then looking forward into the fourth quarter, how should we think about underlying student retention, particularly taken into account the onetime items, this 3,600 impact to students and so forth?

Andrew S. Clark

Well, I mean, it's kind of hard to comment on the fourth quarter. The fourth quarter is a little bit of an anomaly every single year because of the holidays and just the fact that we have students who take quite a few breaks during that Thanksgiving, as well as end of December, period. So I wouldn't look at our fourth quarter from a persistence standpoint as any kind of real benchmark for the future in terms of how things are going to trend going forward. I think it'll be more important to look at the overall trend in subsequent quarters in 2014, which I believe should be positive, again, for the reasons that we've outlined around the 2012 initiatives, as well as what we're doing from a branding and marketing standpoint to attract a higher-quality student in the first place.

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

That's helpful. And then last question on the number of graduates. I appreciate the number, I think it was 19,000 in 2012, '13. How does that compare in the numbers with 2012? And in 2014, should we expect that number, in absolute numbers, go up or remain about the same?

Andrew S. Clark

Well, I know that the graduation number for this year was higher than last year. I can't recall the number, exact number specifically off my head. We can go back in our previous call and retrieve that for you and provide it to you. I think for next year, our graduation number should be probably similar to what we did this year.

Daniel J. Devine

Yes. I don't think it will exceed this year's rate, but it will not -- it will be high compared to the opening enrollment.

Andrew S. Clark

Yes. I think our graduation -- our graduates this year, think in Jane's comments were 14% higher than they were last year.

Operator

We'll now hear from Paul Condra with BMO.

Paul Condra

I just got one for you about the Forbes partnership and I just wondered if you could talk a little bit how you plan to brand that? How are you going to roll it out? And then are there any costs that we should look for that might be associated with any kind of branding shift or anything?

Andrew S. Clark

Sure, Paul. Well, we plan on rolling it out over the next several months. I think -- I know that there'll be more and more communication to students in our business school, as well as potential students as we get into the first quarter of next year. I think that in terms of additional costs, I don't perceive much and certainly nothing material. I think from a marketing standpoint, we will just -- Ashford would fold in the branding of the Forbes Business School into the advertising and branding that it already has planned, so there wouldn't be anything incremental there. There might be some additional costs around things that we might want to do from a textbook standpoint, from a conferencing standpoint, from a guest lecturer video that we embed into the classroom online. But again, I don't see any of those costs being significant enough that it would increase marketing expenses by even a point.

Operator

And our next question will come from Paul Ginocchio with Deutsche Bank.

Adrienne Colby - Deutsche Bank AG, Research Division

It's Adrienne Colby for Paul Ginocchio. I was hoping you could comment on how you see the value proposition and affordability of Ashford's programs changing with an increasingly competitive environment and the downward pressure we're seeing on tuition, will it be more emphasis on innovation?

Andrew S. Clark

Yes, sure, Adrienne. Well, I don't really see much in the way of change. As I discussed earlier, Ashford's value proposition is really at the intersection of affordability and quality and innovation, where students really derive the maximum amount of value. I think one thing that's important to understand is when students are paying for their courses, especially the courses that they're in, they're focused on what that payment is. They are not focused on what some future discounted tuition rate might be a year or more out. So I think students pay close attention to what the published tuition rates are for the various institutions. And with that in mind, obviously, Ashford is well-positioned. But we've never been -- Ashford has never been -- its value proposition has never been solely focused on affordability. And Ashford has done, as you know, quite well even while there's been many private institutions with much lower price points that have done well by their own right over the last 3, 4, 5 years.

Operator

And no further questions.

Andrew S. Clark

All right. Well, thank you, operator. I want to thank everyone for your interest in Bridgepoint, and for participating today. And I look forward to having you all join us on our fourth quarter and full year call in early March. Thank you.

Daniel J. Devine

Thank you.

Operator

And again, ladies and gentlemen, that does conclude our conference for today. We thank you, all, for your participation.

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