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Bridgepoint Education (NYSE:BPI)

Q2 2012 Earnings Call

August 07, 2012 11:30 am ET

Executives

Paul Goodson

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

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

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

Analysts

James Samford - Citigroup Inc, Research Division

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

Peter P. Appert - Piper Jaffray Companies, Research Division

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

Jarrel Price - Height Analytics, LLC

Paul Ginocchio - Deutsche Bank AG, Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

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

Kelly A. Flynn - Crédit Suisse AG, Research Division

Operator

Good morning, and welcome to the Bridgepoint Education's Second Quarter 2012 Earnings Conference Call. Today's conference 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.

Paul Goodson

Thank you, Anthony, and good morning, everyone. Bridgepoint Education's second quarter earnings release was issued earlier this morning and is posted on the company's website at www.bridgepointeducation.com/investorrelations. Representing the company today are Andrew Clark, Chief Executive Officer; Dr. Jane McAuliffe, Chief Academic Officer; and Dan Devine, Chief Financial Officer.

Before we begin, we would like to remind you that some of that the statements we make today may be considered forward looking, including statements regarding Ashford University's plans and response to resent WASC and HLC developments, as well as statements regarding our financial and operational outlook.

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 our SEC filings, including our quarterly report on Form 10-Q for the period ended June 30, 2012, which we plan to file later today for a more detailed description of the company's financial performance and 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 Second Quarter Earnings Call. Our #1 priority is maintaining regional accreditation for Ashford University, and that will be our focus this morning. Uninterrupted regional accreditation is critical to our mission as an organization and the Ashford University leadership team and its Board of Trustees are singularly focused on ensuring that Ashford provides both WASC and HLC with comprehensive and timely responses.

The University has already organized a number of mission specific internal and external teams, which have begun working diligently to address Ashford's accreditation status.

Our research and data analytics has allowed us to implement initiatives that we feel will lead to better student outcomes. We continue to collect evidence of the initiatives we have implemented are working and have identified additional initiatives that should continue the goal of improving outcomes.

We will be introducing these new initiatives over the remainder of the year and look forward to improving student outcomes over the long term.

Consistent with the measures that underlie accreditation, our most intense focus will be on those key areas that validate the strength of Ashford's education model, retention, persistence, learning outcomes, graduation rates and all of the factors that contribute to success in these areas.

In every instance, the goal continues to be to improve those aspects of our operating model that demonstrate its educational effectiveness and its ability to deliver value and opportunities through the educational success of our students. Ashford's investment in student initiatives, together with the potential effect of recent regulatory actions on new students and student retention, reduces our financial and operating visibility.

As a result, we have elected to suspend the full year 2012 financial guidance that we customarily provide on these quarterly calls.

I want to emphasize that we have never been more steadfast in our mission to deliver educational value and opportunity.

Today, Ashford University provides a vibrant learning community where high-quality programs and leading-edge technology creates an immersive, stimulating learning experience for more than 90,000 students.

As Dr. McAuliffe will cover in more detail, students are positive about their educational experience at Ashford. In support of their continued educational success, we will take whatever steps are necessary to ensure Ashford's accreditation status.

With that, I'll now turn the call over to our Chief Academic Officer, Dr. Jane McAuliffe.

Jane L. McAuliffe

Thank you, Andrew. As most of you know, during the second week of July, Ashford University announced several events. Specifically, the Western Association of Schools and Colleges or WASC denied us for the application for initial accreditation.

Additionally, Ashford announced to have received 2 notifications from its current accreditor, the Higher Learning Commission or HLC. The first was notice of a December 1 deadline to comply with HLC's substantial presence requirement. And the second was notice that HLC had placed the university on special monitoring status as a result of WASC denial and detailed the specific time table for review of the issues that they pertain to the HLC criteria.

Ashford has been engaged with both accreditors regarding timelines and processes.

Let me provide an update with respect to WASC. In the full report of its decision, WASC acknowledged that Ashford University has several strength, including its faculty and staff whom it characterized as loyal, engaged and dedicated.

WASC also recognized Ashford's strong commitment to the core mission to provide its students with a high-quality, affordable education.

Especially noteworthy in its full report, WASC reported that more than 90% of 23,000 Ashford students responding to a WASC conducted survey are satisfied or very satisfied with Ashford's quality of instruction. Another 88% are satisfied or very satisfied with the value of the education they're receiving for the amount they're paying. And 83% are satisfied or very satisfied with job placement or prospects within Ashford education.

WASC also acknowledged that the University is addressing many of the areas cited in its notification, but that it was simply too soon to reach a determination as to impact.

As such, the Commission has permitted Ashford the option to pursue a re-application process, as well as exercising a review of the decision. Ashford University is pursuing both options.

A re-application would focus only on the 6 areas WASC cited in its original denial. The re-application would require only a single visit by a WASC accrediting team as early as the spring of next year, which would allow the re-application to be considered at WASC June 2013 Commission meeting.

Ashford's leadership team is currently in discussions with WASC regarding all of these options.

Now let me turn to HLC's notice of the December 1 deadline to demonstrate substantial presence.

Because of the potential overlap of WASC in HLC's decision processes, Ashford formerly requested an extension of the December 1 date. In recognition of this parallel process, HLC have determined its December 1 requirement to be the submission of an implementation plan detailing how Ashford will comply with the substantial presence requirement if the university does not move forward with its migration to WASC or if that migration is significantly delayed.

Ashford was also granted an extension for the special monitoring report and will be permitted to submit the report to HLC in 2 phases. The first part of the report is due August 31, and the second part of the report is due September 21. Following submission, a team will visit the University in October.

At its February 2013 meeting, it is anticipated that HLC will review the report of the advisory visiting team and will determine what if any further action is appropriate.

The Ashford leadership, faculty, staff and Board of Trustees are highly engaged in these processes and remain focused on providing a quality educational experience for students.

Now I'll turn the call over to Andrew.

Andrew S. Clark

I want to close by reinforcing what Dr. McAuliffe said about our students. Both Ashford and University of the Rockies have students and alumni who are positive about their experience with us as demonstrated by WASC survey, as well as our own.

Our institutions have faculty, administrators and executives who are committed to the success of our students.

The internal teams Ashford has formed with support from their external advisors will be working diligently with the accrediting bodies to implement any and all changes necessary to continue successfully serving our students as an accredited institution.

Before I open the call for questions, I'd like to emphasize that Ashford is currently in the process of responding to HLC and WASC, and we will not be able to go into the specifics of our responses or speculate about outcomes.

Now I'd like to open the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question from James Samford from Citi.

James Samford - Citigroup Inc, Research Division

Just wanted to touch on the physical presence issue. I'm just wondering how far along you are on your plans related to that. Any sort of parameters you could provide us as to how many people might need to be relocated, any cost numbers that could be associated with that? I appreciate it.

Andrew S. Clark

Yes, James, I really -- I appreciate the question, I can't go into the details about our plan and what we would propose to HLC. I can tell you that we're actively working on that plan. And we will submit that plan to them by the December 1 deadline.

James Samford - Citigroup Inc, Research Division

Have they provided you then, I guess, just sort of framework as to what would satisfy physical presence or substantial physical presence?

Andrew S. Clark

Well, I can tell you that we have been in discussions with HLC. So we are having conversations with them, and we believe that those conversations are helpful in developing our plan.

Operator

And we'll take our next question from Trace Urdan from Wells Fargo Securities.

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

Andrew, from your prepared remarks it sounds like your focus in responding to the WASC concerns is on showing better student outcomes, but WASC in their report also made recommendations, some several dramatic recommendations, regarding process. Can you speak to that tension? Are you inclined to sort of follow some of the process recommendations? Or is it your contention that you should be able to re-orient their focus on outcomes and then its outcomes that matter most?

Andrew S. Clark

Sure, Trace. Well, absolutely, I mean, our focus is on all 6 items that were in WASC commission action letter. Obviously, we want to balance the response with the institution's mission to serve underserved students and make sure that whatever we do doesn't lose sight of that mission. But we are 100% committed to making sure that we demonstrate to WASC on all 6 of their points that we're able to be in substantial compliance.

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

Does that mean that you'd be prepared to add to your full-time faculty?

Andrew S. Clark

Yes, I can't get into the specifics, Trace, but we will focus on all 6 areas and make sure that we respond while keeping that important balance around the mission of the institution.

Operator

And we'll go next to Peter Appert at Piper Jaffray.

Peter P. Appert - Piper Jaffray Companies, Research Division

So my one question has 2 parts. And part 1, Andrew, I was hoping you might give us some color on what you're seeing in terms of inquiry levels or just some color on pipeline metrics since the news flow has broken on the accreditation issue. And then the second part of the question is, just any commentary on the revenue per student metric and any increase in scholarship or discounting that you're doing in response to some of the current overhang.

Andrew S. Clark

Yes, sure, Peter, I'll take your first question and then I'll turn your second question over to Dan. In terms of providing additional color on the impact to prospective students that are inquiring to Ashford University, we did -- we have seen some impact in that area since July 9, but I would say that it's still too early to tell what the eventual impact will be and that's part of the reason for us suspending our guidance. So I think we'll have a clearer view on that on our next earnings call.

Daniel J. Devine

And your question relating to scholarship or discounting. We have not changed our policies or -- given any, I guess, scholarshiping or discounting inducements for students. We made no changes in that area.

Peter P. Appert - Piper Jaffray Companies, Research Division

About -- what should we anticipate then in the second half in terms of the revenue per student number?

Daniel J. Devine

I would say that the revenue per student, it's -- sequentially, it was basically flat. I think it was down 1 point in Q2 over Q1. I would suspect that revenue per student should remain relatively consistent at this point for the remainder of the year.

Operator

And we'll go next to Jeff Silber at BMO Capital Markets.

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

In your press release you talked about the reduced visibility. I'm just wondering, is it more so on the student pipeline, the current students that are attending in terms of future retention or on the expense line item in terms of what you might have to do to comply with some of the accreditor's requirements?

Andrew S. Clark

Yes, sure, Jeff. Well, I think it's both. It's both the inquiring students and any impact potentially to persistence. Negative impact as a result of the regulatory actions, as well as anything that we might contemplate in terms of changes that we might want to make and how that would impact our expenses going forward.

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

Okay. And you alluded in my second question in your answer, what kind of communication have you been providing to current students? And have you seen an impact on retention over the past few weeks since the announcements have been made?

Andrew S. Clark

Yes. We've been doing everything that we can to make sure that we communicate with our Ashford students, our current students. Certainly, social media is very helpful in that regard. And our students are very passionate about their education in Ashford and the quality of their education as Jane mentioned and as WASC's own survey demonstrated. And so I would say that while it's too still early to tell, we haven't seen much in the way of a decline in persistence, but it's only been about 4 weeks. So I think we'll know it better on our next earnings call how that's trending out.

Operator

And we'll go next to Jarrel Price with Height Analytics.

Jarrel Price - Height Analytics, LLC

When HLC placed Ashford on special monitoring, the Commission referenced the need to demonstrate compliance with their standards and "minimum expectations." Have you gotten any clarity on whether there are minimum thresholds that you'll have to meet to maintain HLC accreditation?

Andrew S. Clark

Well, we certainly know what the minimum expectations are as provided by HLC, but we really can't comment on thresholds. If you go on to their site and you look at the minimum expectation, you'll find that there's no quantitative thresholds for those areas.

Jarrel Price - Height Analytics, LLC

So they haven't articulated that they're establishing new quantitative, minimum standards?

Andrew S. Clark

They have only articulated what you can find publicly on their site, which is what their minimum expectations currently are.

Jarrel Price - Height Analytics, LLC

Got it. And one quick follow-up. The HLC staff recommendation for a delay and its substantial presence requirement, I understand it's still subject to the Board's approval. Have you gotten any additional color about the dynamic between the staff and the Board and on what grounds would the Board possibly reject your implementation plan?

Andrew S. Clark

No. I mean, we -- I can't comment on that. That would be speculation on my part to comment on the communication between the staff and the commission.

Operator

And we'll go next to at Paul Ginocchio at Deutsche Bank.

Paul Ginocchio - Deutsche Bank AG, Research Division

Along with the other lines of questions, just about enrollment counts or proactivity over the last month then retention or churn within the enrollment counselors.

Andrew S. Clark

Yes. Our focus, Paul, obviously, is on accreditation and on student outcomes and demonstrating continued success in student learning. So I don't have any comments with regards to admissions counselor productivity. There's really nothing to comment in that regard. Our focus is 100% on accreditation.

Paul Ginocchio - Deutsche Bank AG, Research Division

And did you think maybe due -- implementing or raising academic or entrance requirements to sort of slow down the growth rate or maybe even shrink growth dramatically. Is that potentially a scenario that you look at?

Andrew S. Clark

Yes, I mean, I don't want to -- as I said earlier, I don't want to speculate or comment too much, but absolutely, I mean, everything's on the table in terms of what we might consider that would, again, help focus on improving student outcomes. As we discussed, we have implemented things in the past that have demonstrated successful outcomes. And I think you saw that as an example in the second quarter in terms of the increase in persistence and that's been going on now for some time. So our focus is going to be entirely on how can we continue to build upon that improvement in student outcomes, and what more can we do.

Operator

We'll go next to Corey Greendale at First Analysis.

Corey Greendale - First Analysis Securities Corporation, Research Division

A couple of the issues in the WASC letter were more about input than about results. And I was just hoping you could comment on a couple of those. One of those was their comment that management of Ashford needed more depth. I'd be interested to hear what you're doing on that front? If anything?

Andrew S. Clark

Sure, Corey. I mean, I'd love to answer your questions with specifics, but I really can't right now, other than to say that we will focus on all of the 6 items from WASC. And we will continue to focus on their suggestions while balancing that with the mission of the institution in making sure that we don't negatively impact that mission.

Operator

And we'll go next to Gary Bisbee at Barclays.

Gary E. Bisbee - Barclays Capital, Research Division

In your initial remarks, you said you've identified incremental initiatives to improve outcomes. I wondered if you could tell us what those are and maybe what the cost of them would be or what impact on enrollment might happen. Just a little more color.

Andrew S. Clark

Yes, sure, Gary, I mean, I really would love to answer your question, but I can't right now. I know that when we have our earnings call in November, we should be in a position to describe those initiatives and any corresponding expense associated with them.

Gary E. Bisbee - Barclays Capital, Research Division

Can you give us any color at all? Is it similar to the stuff that you've talked about over the last 6 or 9 months that you've already implemented? Or are there very new courses of action? Anything at all you can share?

Andrew S. Clark

Well, certainly, a lot of the things that we've already implemented and discussed are having -- were having a positive impact. Now to the extent that, that might be offset by WASC and HLC's actions, I can't speak to, because it's just still too early. But we definitely were doing things that were having a positive outcome on student retention. For example, and you saw that in this last quarter. In terms of new initiatives, I can't give you any color on that, and I hope to be able to do so on the next earnings call.

Operator

And we'll go next to Brandon Dobell at William Blair.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Maybe some color on your philosophy around the balance sheet and use of capital right now. I would suspect given the lack of repurchases in the quarter that's a decent indication of what kind of how you're thinking about stuff. But any color around how you think about the cash balance would be great.

Daniel J. Devine

Sure, Brandon. We did not repurchase any stock in the quarter. We are having a discussion at our next Board meeting on if we will continue to -- if we will utilize our $75 million authorization. So that's certainly up for discussion.

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

And then capital spend in the back half of the year. Was Q2 a decent run rate or just because you’re going to take a step backwards?

Daniel J. Devine

It should be a decent run rate. There's no significant CapEx change in our current plan.

Operator

And we'll go next to Jeff Volshteyn at JPMorgan.

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

I wanted to go back to the timeline of the decisions. It's sounds like the WASC decision is scheduled for June and HLC in February. Is that correct?

Andrew S. Clark

Yes, Jeff, so the way that the timeline works is the commission for HLC will meet in February, and I would anticipate that the institution would be notified probably kind of, I don't know, 4 to 6 weeks after that. So the notification probably won't be until March. Then we would have the WASC visiting teams sometime there in the spring and then WASC meeting is in June, and again, I would expect kind of a similar type of time frame before the institution was officially notified.

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

Okay. And then switching gears a little bit. Is the education department involved in these processes? I know that earlier you talked about the program review of the University of the Rockies. Is that in some way connected or is that completely separate?

Andrew S. Clark

We have no reason to believe that they're connected. All of the indications that we have are that they're separate.

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

Okay. But is the education department involved in the WASC and HLC processes at all?

Andrew S. Clark

Not that we're aware of.

Operator

And we'll go next to Kelly Flynn at Crédit Suisse.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Couple of questions. First one relates also to the cash. Can you talk about the student deposits? First of all, maybe give us the balance for the quarter, because I think we wouldn't get it until the Q. And then advise us on how to think about that. I mean, is that cash that you're just holding for students that relates to stipends that you'll eventually have to pass along to the students, and therefore, should we consider it to be kind of restricted cash, if you will? Or -- if you could have that, that would be great. And I have a few others too.

Daniel J. Devine

Yes, I don't have that figure for the quarter directly in front of me. It is contained in the Q. Student deposits, they're not technically restricted that's why they're not treated as restricted cash. They -- a portion of those are kind of the stipend process, yes.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay. Do you know is it mostly that or?

Daniel J. Devine

Our student deposits, I would -- I'm trying to think here exactly what percentage -- I would say, in general, the majority of them are student deposits, yes.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay, great. And then just switching gears back to some of the drivers of revenue per student. I just wanted to talk about the technology fee. I just -- did you -- have you made any changes to that? Are there any changes contemplated as we think about revenue per student for the rest of the year?

Daniel J. Devine

We have not made any changes to that technology fee. And as far as speculating on what's going to happen in the remainder of the year, we're not giving out any guidance.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay. Fair enough. And then just another related issue is just the refund policy. I know this executive order hasn't -- the presidential order related to military hasn't really come up. But same question that I asked related to the tech fee, have you made any changes to the refund policy or are there any changes contemplating in particular related to the executive order?

Daniel J. Devine

I'll give you the same answer. A, we have not made any changes to-date to our refund policy and any changes to our refund policy in the future would be speculative.

Operator

And this does conclude today's question-and-answer session. At this time, I'd like to turn the conference back over to today's speakers for any additional or closing works.

Andrew S. Clark

I want to thank everyone for participating on the call today. This concludes today's call. Thank you.

Operator

This concludes today's presentation. We thank everyone for their participation.

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