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Bridgepoint Education (NYSE:BPI)

Q1 2014 Earnings Call

May 12, 2014 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

Corey Greendale - First Analysis Securities Corporation, Research Division

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

John D. Crowther - Piper Jaffray Companies, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Sou Chien - BMO Capital Markets Canada

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

Operator

Good morning, and welcome to the Bridgepoint Education First Quarter 2014 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Mr. Paul Goodson, Associate Vice President of Investor Relations for Bridgepoint Education.

Paul Goodson

Thank you, Stephanie, and good morning, everyone. Bridgepoint Education's first quarter 2014 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'd 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 enrollments, revenue, bad debt, our preliminary results for the first quarter of 2014, as well as other financial commentary and the 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, including the risk that total enrollments may not increase during 2014. 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, 2014, 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 2014 earnings call. After I discuss our operational results for the quarter, our CFO, Dan Devine, will review our first quarter results and key operating metrics. After Dan speaks, I will offer my closing comments.

As you'll recall, we have said several times that 2013 would be a transitional and pivotal year for Ashford University. The changes the university made in the fourth quarter of 2012 were deliberate and focused restructuring of the institution's practices from new student inquiries through a student's graduation. In admissions, the number of advisers was significantly reduced, and marketing efforts were directed away from aggregators in favor of a targeted branding strategy. We realize that the overall market demand for our industry remains challenging. However, we feel that the changes we have made to our marketing mix, combined with our compelling value proposition, have allowed us to remain very competitive against our peers.

As we transitioned to 2014, I'm pleased with the performance in the first quarter that showed a large year-over-year increase in the number of applications received in the quarter and a continuing increase in the number of applications coming from organic search and branding initiatives. This is the 12th quarter in a row that we have seen an increase in the number of applications coming from these organic sources, which now represent approximately 2/3 of the applications Ashford receives.

Regardless of the strong performance, we recognized that opportunities still exist for continued improvement. As I mentioned on the last call, and despite the strong application flow in the quarter, Ashford experienced lower new enrollments in Q1, resulting from the shorter quarter and management execution issues. Both factors hindered Ashford's ability to take advantage of the strong demand reflected by its application flow in the quarter. We are confident the execution issue has been resolved.

Turning to enrollment, I would like to describe how we measure the success of our efforts to help students persist and complete their academic studies. Historically, on our fourth quarter earnings call, we have provided our annual student cohort retention statistic. Going forward, we will now provide a 12-month retention of active students from the end of every quarter. We then compare that to the 12-month retention for students who are actively enrolled at the end of the year-ago quarter. In the first quarter of 2014, we measured the 12-month retention for all students who were active on the last day of Q1 2013 as 64.5%. I'm pleased to say that when compared to the 12-month retention for the same student cohort from the first quarter of 2012 of 61.6%, we saw an increase of 290 basis points or approximately 5%. We believe these results reflect the effectiveness of Ashford's branding strategy and enhanced student service initiatives, particularly in the comparison of the first quarter 2012 cohort, which entered before the late 2012 quality initiatives were put in place, to the 2013 cohort, which came in after. As I mentioned in our last earnings call, we firmly believe the institutional outcomes of cohort retention, graduation rates, low student debt and alumni success take precedent over new enrollment inputs. We will provide this quarterly cohort 12-month retention metric on each earnings call going forward so that you can track our progress.

We noted on our previous call that we will still be transitioning the company in the first half of 2014. In the first quarter, we purposely had higher year-over-year marketing spending as we included television advertising for the first time in the first quarter spend. Further, due to the high cost of airtime during the Winter Olympics, our investment in TV advertising in the first quarter was more expensive than it otherwise would have been. We continue to anticipate marketing spending as a percentage of revenue to decline over the remainder of the year. We anticipate positive year-over-year new enrollments beginning in the second quarter and through the remainder of the year. Additionally, the first quarter total ending enrollment was sequentially positive for the first time in 8 quarters, marking an important milestone in our transition. We continue to anticipate that the year-ending total enrollment will be positive as compared to 2013.

A transition of this magnitude is not easy and not always predictable, but we are seeing the positive signs we mentioned, and we are doing the right things to ensure success in the long term for our institutions and their students.

Before Dan speaks, I want to provide you with an update on our association with Forbes. Late last year, we announced that Ashford's business school had been renamed the Forbes School of Business at Ashford University. Obviously, it is still early, but we have some good news already. If we compare graduate and undergraduate business school applications from the first quarter of 2013, which was before the Forbes announcement, to the same business school applications in the first quarter of 2014, which is after, we have seen an increase of more than 11% in application flow from all sources, both third party and organic. We remain optimistic that the potential for the Forbes School to attract increasing numbers of high-quality students for a number of reasons, including the fact that the TV ads about the Forbes School began only in late February, after most of the quarter had already passed, yet we still saw good growth in the quarter. We look forward to sharing in more detail how the newly named business school is performing on our Q2 call.

Now I will turn the call over to Dan.

Daniel J. Devine

Thank you, Andrew. Let me begin by providing some key operating figures for the quarter ended March 31, 2014. For the first quarter of 2014, revenue is anticipated to be $160.5 million. As of March 31, 2014, total student enrollment was 64,495 compared to 78,782 as of March 31, 2013. However, sequential total enrollment at the end of the first quarter increased 1.4% over total enrollment of 63,624 at the end of the fourth quarter of 2013.

For the first quarter of 2014, instructional costs and services is anticipated to be $86.5 million or 53.9% of revenue. The lower expense was primarily driven by the anticipated decrease in bad debts, as well as the lower personnel costs in the areas of instruction, academic advisory, financial aid support and student services, consistent with our lower level of total enrollments as compared to the prior year period. Included in instructional costs and services for the first quarter of 2014 was bad debt expense, which is anticipated to be $10.9 million or 6.8% of revenue.

Admissions, advisory and marketing expenses for the first quarter of 2014 were $65.8 million or 41% of revenue. The higher expense is primarily due to an increase in branding and advertising costs period-over-period. Included in the increase is approximately $7.3 million or $0.09 per share in additional branding related to the development and airing of new television ad placements in the quarter. We believe that admission, advisory and marketing expenses will range between 31% and 34% of revenue for the full year 2014.

General and administrative expenses for the first quarter of 2014 were $16.3 million or 10.1% of revenue. The lower cost for the period was driven by lower personnel and administrative expenses, partially offset by increases in depreciation and professional fees.

Included in our 3 main expense categories for the first quarter of this year is approximately $1.9 million related to stock-based compensation expense. For the first quarter of 2014, the operating loss was $8 million. The effective tax rate used to calculate the tax benefit for the quarter ended March 31, 2014, is 42.2%.

The net loss for the first quarter of 2014 was $4.4 million or a loss of $0.10 per share. Because we had a net loss in Q1, the loss per share is calculated using the undiluted share count of 44.9 million shares for the first quarter of 2014. As of March 31, 2014, we had cash and total investments of $329.3 million.

Our accounts receivable, net of allowance for doubtful accounts, was $35.1 million, which represents 19.7 days sales outstanding on a quarter-to-date basis. Capital expenditures for the first quarter of 2014 were $3.1 million.

We have determined that we will be unable to file our quarterly report on Form 10-Q for the quarter ended March 31, 2014, by the filing deadline of May 12, 2014. We are working to quantify the impact of an outstanding comment the company received from the Securities and Exchange Commission, or SEC. The comment was received in connection with the SEC's review of the company's periodic reports and relates to the company's revenue recognition and accounting for doubtful accounts. Specifically, the company has historically not determined it necessary to reassess whether collectibility is reasonably assured on a student-by-student basis when recognizing revenue subsequent to a student's initial enrollment with the company's institutions. On May 2, 2014, the SEC informed the company that such a reassessment is required under accounting principles generally accepted in the United States upon certain changes in circumstances such as when a student loses financial aid eligibility. Based on our internal analysis to date, management has preliminarily estimated that the application of the student-by-student reassessment during the quarter ended March 31, 2014, resulted in a decrease in revenue and bad debt of $0.7 million and $0.2 million, respectively. These adjustments are reflected in the preliminary results contained in this presentation. However, our analysis is not complete, and these adjustments and the preliminary results may change. The company is also evaluating whether a lack of student-by-student reassessment either changes management's assessment of the effectiveness of the company's internal control over financial reporting as of December 31, 2013; or caused a previously issued quarter or annual financial statements for the periods from January 1, 2011, through December 31, 2013, to be materially misstated. At this time, management is unable to conclude whether any previously issued financial statements are materially misstated. In the event any prior period is materially misstated, the financial statements for such period and those of subsequent periods will be required to be restated in an amendment to our annual report on Form 10-K for the year December 31, 2013. Even if no prior period financial statements are materially misstated, our previously issued financial statements and our results for the quarter ended March 31, 2014, may be required to be revised on a prospective basis.

Under the previous revenue recognition, revenues recognized subsequent to a student losing financial aid eligibility and ultimately not collected were included in our bad debt expense. Going forward, our policy will exclude these revenues and will result in a corresponding decrease in our bad debt expense that will be realized over subsequent quarters.

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

Andrew S. Clark

Thank you, Dan. Over the last 18 months, we've made a tremendous monetary and human investment in the strategic and operational recasting of our company. This major undertaking had, as its goal, a redoubled emphasis on educational quality and improved student outcomes. As we discussed on the fourth quarter call on March, we anticipated that the first quarter earnings would be the hardest quarter in our history, driven by a short quarter and strategic spending related to our initiatives centered around student success. However, as I close the call, I want to reiterate the positive signs we've seen in the quarter. First, we have seen a meaningful improvement in the year-over-year cohort retention, reflecting the effectiveness of the initiatives at producing positive student outcomes. Second, our institutions posted positive sequential total enrollments for the first time in 8 quarters. And finally, we had a strong application volume in the first quarter, which supports our continued expectation of positive year-over-year enrollment growth and total enrollment growth for 2014.

At this time, I'd like to ask our operator to open the phone lines for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Corey Greendale with First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

So first, a question on the revenue per student. I think you clearly discussed last quarter the effect of the calendar shift, but I know that you said that you thought Q1 revenue would be similar sequentially, and I think generally, most of us relatively took it literally. So can you help us understand how much of the fact that it was below that was due to us underestimating, perhaps, the calendar shift or if anything else came in lower than your expectations?

Daniel J. Devine

Sure. If you look at Q1 as compared to Q1 2013, there were 6 less revenue days in Q1 2014. If you look at Q1, sequentially compared, there was one less revenue day as compared to Q4 '13. If you take that analysis, revenue per student, which, in this case, you have to do on a daily basis, was effectively flat. This issue that we noted with the SEC accounted for 0.5% of our revenue. It was really not a factor in the revenue per student presentation. We have experienced a higher percentage of military students as our enrollment has declined, and that is due to the fact that the military enrollment body is more stable than the rest of the body, so it didn't decline at the same rate as the rest of our students. As a result, that has put pressure on our revenue per student, but we are seeing effectively flat revenue per student quarter-over-quarter. So it is more a misunderstanding of the length of the quarter than an actual revenue per student in the quarter issue.

Corey Greendale - First Analysis Securities Corporation, Research Division

Right. And then with that, there are some moving pieces here. I presume that the military contribution is going to keep increasing for the moment anyway, but it sounds like persistence is improving, which could help. So help us think about how to model revenue per student year-over-year for the rest of the year.

Daniel J. Devine

I would say revenue per student over the rest of the year, I would model it flat effectively. Because I think what you're seeing is any increase from our tuition increase, which was small, is going to be offset by this increased military percentage. And I don't think the military percentage is going to grow going forward as a percentage of total enrollment because, as we said, we have kind of flattened out our enrollment situation. We're not in a continuous decline, so that should pretty much remain where it is today. So I don't think it will contribute negatively going forward.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. And then on the marketing and promotional, I just want to make sure I understand what you are telling us. So I heard you say that for the full year, it should be between 31% and 34% of revenue. I think Andrew also said something about it being down. So, should we be modeling it down year-over-year for the rest of the year? Or is it sequentially? Or what exactly should we take away?

Daniel J. Devine

Well, I think if you look year-over-year, you're going to see the same pattern, which is, you'll see a decline in Q2. You'll see a traditional increase in Q3 as we target the returning student in the fall, with advertising again, television advertising again. And then you'll see a decline again in Q4. So you have the contribution from Q1. You can model out -- it's going to flow in that pattern.

Corey Greendale - First Analysis Securities Corporation, Research Division

Okay. And one question about the -- I realize you're probably not going to be giving any guidance than what you what you've given us. But given that cash flow was, comes off as pretty negative in the quarter, can you help us think through if there's anything somewhat nonrecurring there, what to expect?

Andrew S. Clark

Sure. Yes, I mean, the change in cash balance primarily related to what we started to offer our students, which was an option and kind of a push to get students to really focus on only getting package to their own tuition and fees. Traditionally, a student is able to package all the way up to maximum. And we have kind of started a new program, where we're encouraging people to be, obviously, more conscious of what they borrow. That has had an impact on our student deposits, so the change in cash is effectively how those -- money that would have been siphoned out anyway.

Operator

Your next question comes from the line of Alex Paris with Barrington Research.

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

Just a quick follow-up question on that. What is military as a percentage of total enrollment right now?

Andrew S. Clark

I would say it's approximately about 26% of total enrollment, Alex.

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

Okay. And does that make it less than 26% of total revenue?

Daniel J. Devine

Yes. Because revenue is discounted to $250 per credit hour. And as always, our military enrollment, as always -- our military contribution has lagged our military enrollment and always has.

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

Okay. And then it has grown as a percentage because it's declined less than other enrollments. Have you noticed any negative impact that others have noted on military recently due to confusion over funding and so on?

Andrew S. Clark

I guess, Alex, I would have to say that we've kind of noticed less of an impact there. We tend to see 2 things from the military. One is that you have some people in the military, in the active duty population, that are concerned about the downsizing, so they're trying to use their educational benefits as much as possible before they're potentially released from the military. The second thing we see is those that are hoping to stay, of course, are trying to position themselves for promotions. And so they are also try to use their military benefits to go back to school and get that undergraduate or graduate degree. So we have seen a decline, but it's been a lot less than, certainly, what we expected and significantly less than our civilian population.

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

Okay. And then switching gears a bit, on the last quarter's conference call, again, you don't give specific financial guidance, but you did say that the first half revenue and earnings should be similar to the second half revenue and earnings of 2013. Given the financial results of the first quarter, it suggests a significant rebound in the second quarter if we were to hold you to that. How should we be thinking about that going forward?

Daniel J. Devine

Well, we're not going to give a guidance. We do expect that we will be significantly improved quarter-over-quarter, and I can tell you why in the second quarter. One, we just discussed marketing expense will be down, and we will have a full quarter of revenue. So if you take that -- those 2 factors, you will see a significant swing to the positive in earnings in the second quarter.

Andrew S. Clark

I think the other thing to emphasize, Alex, is that we do expect positive new enrollments in the second quarter. In the first quarter, we obviously -- we had negative new enrollments in the double digits. And we had tremendously positive persistence gains in the first quarter. We expect those persistence gains to continue in the second quarter. So I think when you kind of look at the second quarter in terms of positive year-over-year new enrollment and persistence, that, continued through the rest of the year, should allow us to do what we suggested before in terms of overall financial performance in the first half and then the second half of the year.

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

Got you. And then just 2 small things for the model. Last year, you had a tax rate of 35.7% for the full year. In the first quarter, you used 42.2% for taxes. What should we be thinking about taxes for the full year in 2014, the tax rate?

Daniel J. Devine

42%.

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

42%. And then lastly, what -- we had to use primary shares for the calculation given the loss in the first quarter. What is fully diluted shares outstanding, roughly?

Daniel J. Devine

An additional 1.7 million. So 46.5 million, 46.2 million.

Operator

Your next question comes from the line of Peter Appert with Piper Jaffray.

John D. Crowther - Piper Jaffray Companies, Research Division

Yes, you've got John Crowther on for Peter Appert. Quick question on -- very helpful, the detail you gave in terms of revenue per student and the impact on revenue from the 1 less week in the quarter. Maybe you could just kind of do the same thing for instructional costs and services? I just want to understand if there's any impact to that line.

Daniel J. Devine

Sure. Well, the biggest instructional cost and services impact was the change in bad debt, which was down $7.6 million sequentially. And of that -- that made up the entire change sequentially from the fourth quarter.

John D. Crowther - Piper Jaffray Companies, Research Division

Okay. So really no impact to sort of a full quarter run rate that you would have for sort of the instructional costs and services from the 1 less week?

Daniel J. Devine

No. No, there's not a dramatic change in your direct cost line in a 1 week shorter quarter versus a 1 week longer quarter -- or revenue quarter.

John D. Crowther - Piper Jaffray Companies, Research Division

Okay, that's very helpful. And maybe you could just give a brief update on -- any sort of updates to your cash or capital allocation plan here.

Daniel J. Devine

Well, I mean, we still have a significant amount of cash on the balance sheet. I don't have anything specifically to speak about that we have in the hopper right now to roll out in the next quarter. But we certainly look at both opportunities in the market to use that cash, as well as always looking at opportunities to return value to shareholders.

Operator

Your next question comes from the line of Paul Ginocchio with Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

A couple of questions. First, and I don't know if you'll be this specific, but do you think you'll be profitable in the second quarter? Second, I was just interested in the comment around, you're pushing students to package only tuition and fees. Obviously, that's better for them long term. Is that driven by Gainful Employment or another initiative? And then finally, if you could just talk to the cost per new student using TV or using your new media mix relative to using aggregators or whatever metric you're doing, cost per first, cost per retention or cost per graduation.

Andrew S. Clark

Sure. Maybe I'll start with the last end [ph] questions first, and I'll let Dan take the first question. In terms of packaging and what we're doing there to counsel students on just taking enough financial aid for tuition fees, I mean, it's not driven around Gainful Employment. It's driven around trying to help students take only the money that they need to get their college education and not put themselves into a situation where they take on additional debt that they really, quite frankly, don't need to take on. So just trying to, again, as we have with other initiatives, do what we can to help students make the best decisions and have the best possible outcomes. In terms of our advertising mix and what we're looking at there, I mean, we're seeing really good results, as I mentioned, in terms of -- if you just look at the applications we had on a year-over-year basis in the first quarter, which tells us that our continued focus on our organic channels and our branding strategy is working very effectively. And as I mentioned, I think 2/3 of our applications now come from that. We anticipate that as that continues to improve throughout the year, that we should see an improving overall cost per acquisition. And certainly, from a cost-per-persistence standpoint, that should improve as well. I mean, if you look at what our persistence was on a cohort basis year-over-year, that 300 basis points improvement is quite strong. And we believe that what we're doing there, Paul, in terms of the marketing mix should lead to even better gains in persistence in the future. Which then, of course, would continue to drive that cost per persistence number lower. So I'll let Dan address...

Daniel J. Devine

Sure. Your first question related to the second quarter, do we anticipate being profitable, and the answer is yes.

Paul Ginocchio - Deutsche Bank AG, Research Division

Great. Just one follow-up from earlier, when you talk about flat revenue per student for the rest of the year, you're talking about for the remaining 3 quarters year-on-year, correct?

Andrew S. Clark

Yes.

Operator

Your next question comes from the line of Jeff Silber with BMO.

Sou Chien - BMO Capital Markets Canada

It's Henry Chien calling in for Jeff. I was wondering if you could talk a little bit about some of the growth that you're seeing in terms of application, if you could give a little color on the type of students. I know you mentioned military is increasing as a proportion of enrollments. If you could just talk a little bit about the demand you're seeing in terms of application growth.

Andrew S. Clark

I'm sorry. Can you move closer to your phone there or something? Because I couldn't hear what you were saying.

Sou Chien - BMO Capital Markets Canada

Sorry. Yes, I was just wondering if you could talk a little bit about the demand that you're seeing in terms of application growth. I know you mentioned that military was increasing somewhat as a percentage of enrollment. And if you could talk a little bit about where you're seeing -- the type of students that you're seeing demand from in terms of applications.

Andrew S. Clark

Well, I would say the demand is strong for our applications across all of the various student groups. Certainly -- and both degree levels, both at the undergraduate, as well as the graduate level. I think our success -- our early success with Forbes, and it's very early, is indicative of not just what we've done from a branding perspective but the potential of that relationship, where you saw more than 11% increase in applications from all of our sources, both third party and organic. So we didn't start our branding advertising for the Forbes School of Business until late in February of the first quarter there. So I believe that we will continue to see strong improvement in applications across all of our educational degree programs in both degree levels, both the undergraduate as well as the graduate level. But the business school potentially, I think, could do better as a result of the branding of Forbes than the entire group as a whole.

Sou Chien - BMO Capital Markets Canada

Got it. And could you give a little guidance in terms of the percentage of students that are in the business school?

Daniel J. Devine

The kind of students that are what?

Sou Chien - BMO Capital Markets Canada

The percentage of enrollments -- total enrollments in the business school.

Andrew S. Clark

The percentage of total at the business -- you know what? I don't have that number in front of me. I could have Paul circle back around with you and provide that to you.

Operator

Your next question comes from the line of Trace Urdan with Wells Fargo Securities.

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

I'm going to ask a -- kind of a remedial question. I apologize for that. But can you walk us through the calculation, the persistence calculation that you described improving, which students are in that, how are the numerators and denominators calculated for that?

Daniel J. Devine

Yes, Trace, I mean, this works identically to what we've done historically for the past 5 years, when we report our cohort retention for the -- on our fourth quarter earnings call. So it works the same way. We take a look at all students that are enrolled in the first quarter -- at the end of the first quarter in 2013, then we look at all of those students again in 2014, less the students that have graduated and then, certainly, students that have dropped. And we have a cohort retention number there, and that represents all students: Associates, bachelors, as well as graduate students.

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

I apologize for making, again, the remedial aspect of it. Any dimension there with respect to the levels of the students or the types of programs and studies that you can share?

Andrew S. Clark

No, I mean, there's -- we saw improved persistence across all the different degree types and certainly, at the undergraduate level, as well as the graduate level seem to be doing very well. I think that -- I think the strong investments that we've made in student services, student outcomes and branding is really -- we started in late 2012, is really beginning to demonstrate its impact. It did in this quarter. I anticipate that it will continue to be very strong and improve, in fact, I think sequentially, at least in the second quarter or, perhaps, in each of the quarters for the remainder of the year.

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

Okay. And then last question. I know you were asked about it and described the practice of discouraging overborrowing. I know on their call, American Public talked about this issue of just -- the very difficult issue to deal with of students who look for those online programs that have a lower cost of tuition and basically sort of churn through and pick up their stipend check and then drop and move on to another school, and they're grappling with that issue. Is that an issue that you feel you've dealt with or are dealing with in any way?

Andrew S. Clark

I think, Trace, it's a legitimate issue. I think it's one that we've always dealt with and grappled with since Ashford started back in 2005. So I think government regulations require us to allow students to take the maximum amount. But we certainly are doing everything that we can in terms of counseling students to make sure that they see the wisdom in only taking what's required for tuition and fees.

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

And that's a conversation the admissions counselors have with the students when they're enrolling? Do you think that maybe scares off students that would otherwise be inclined to kind of pick you guys as part of that practice?

Andrew S. Clark

No. I mean, it's not a conversation -- first of all, let me correct you. It's not something the admissions adviser would have with the potential student. It's something that our financial service adviser would...

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

I'm sorry, my apologies. Right. But it's part of the on-boarding process.

Andrew S. Clark

Yes, certainly, it's part -- yes, you're correct. It's part of them getting started and ready to go to school. And I don't have any evidence, Trace, that would say that our counseling of students to do that, kind of scares people off. Maybe anecdotally, in a nonmaterial way, that's occurred. But as I mentioned, our applications in the first quarter were up significantly on a year-over-year basis.

Operator

I'm showing no further questions at this time. I turn the call back over to the presenters.

Andrew S. Clark

Okay. Thank you, everybody, for attending today's call.

Operator

And this concludes today's conference call. You may now disconnect.

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