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Bridgepoint Education (NYSE:BPI)

Q3 2012 Earnings Call

November 05, 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

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

George K. Tong - Piper Jaffray Companies, Research Division

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

Jarrel Price - Height Analytics, LLC

David Warner - First Analysis Securities Corporation, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Paul Condra

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

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

James Samford - Citigroup Inc, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Operator

Good morning, and welcome to the Bridgepoint Education's Third Quarter 2012 Earnings Conference Call. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Paul Goodson, Associate Vice President of Investor Relations for Bridgepoint Education. Please go ahead, sir.

Paul Goodson

Thank you, Lisa, and good morning, everyone. Bridgepoint Education's third quarter earnings release was issued earlier this morning and is posted on the Investor Relations page of the company's website. 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'd like to remind you that some of the statements we make today may be considered forward-looking, including statements regarding Ashford University's plans and response to recent WASC and HLC developments, expected impact of Ashford's new academic quality and student success initiatives on enrollment assistance and our 2013 revenue, as well as statements regarding our financial and operational plans and outlook.

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 Ashford is not successful in implementing its new academic quality or student success initiatives or that the results of such initiatives are different than currently anticipated.

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

Please refer to our SEC filings, including our quarterly report on Form 10-Q for the period ended September 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's my pleasure to introduce Bridgepoint Education's CEO, Andrew Clark.

Andrew S. Clark

Thank you, Paul, and welcome to Bridgepoint Education's third quarter earnings call. Following my comments today, Dr. Jane McAuliffe, our Chief Academic Officer, will update you on our progress and next steps with WASC and HLC. After her remarks, I will offer my closing comments, and then open the call for questions.

I want to begin by reiterating what I said last quarter. Our #1 priority is to maintain regional accreditation for Ashford. In doing so, Ashford is focused on continuing to maintain its HLC accreditation in good standing as the University works towards WASC accreditation. The foundation of Ashford's ability to deliver value to students has always been its educational philosophy, which is comprised of 4 pillars: affordability, access, academic quality and student success.

My primary focus this morning will be on the actions we are taking in the academic quality and student success, which build upon the university's earlier progress in these areas. We also believe these new initiatives will extend Ashford's leadership position in private sector education and will continue to demonstrate that Ashford offers a successful model for the future of higher education in the U.S.

To best position the University to implement the new initiatives, Ashford's Board of Trustees has elected 2 key leaders. I'm pleased to report that just this morning Ashford announced the election of Dr. Greg Geoffroy as chairman elect of the Ashford Board of Trustees. Dr. Geoffroy has a distinguished 38-year academic career, culminating in his 10-year role as president of Iowa State University and his current role as president emeritus of Iowa State. Previously, a senior vice president and provost, he was the chief academic officer of the University of Maryland in College Park. Dr. Geoffroy holds a PhD in chemistry from CalTech.

I'm also very pleased to report that Dr. Richard Pattenaude was unanimously elected by Ashford University's Board of Trustees as Ashford's president. He succeeds Dr. Elizabeth Tice, who remains with Ashford as executive vice president of academic affairs. We're grateful for Dr. Tice's contributions as Ashford's president and for her continued support of the University.

Dr. Pattenaude was recently chair of the commission on Institutions of Higher Education for the New England Association of Schools and Colleges, which like WASC and HLC, is 1 of the 6 regional accrediting bodies in the U.S. Dr. Pattenaude has had a long and distinguished career in higher education, including a total of 21 years in top academic leadership position. He comes to Ashford from the University of Maine System, where he had served as chancellor for the past 5 years. Prior to his position there, he was president of the University of Southern Maine for 16 years.

To facilitate the University's success in its leadership transition and the implementation of its new initiatives, Ashford's Board of Trustees established a Transition Council to advise Dr. Pattenaude as he begins serving in his new role as university president. Dr. James Appleton and Dr. David Paris, 2 experts in higher education, have been selected to serve in this capacity and will support Dr. Pattenaude as new external senior advisers. Dr. Appleton is president emeritus of the University of Redlands, a WASC-accredited school; and Dr. Paris is executive director of the New Leadership Alliance for Student Learning and Accountability. Both have deep academic experience and are well known in the academic community.

Collectively, we believe that these individuals will help expand the breadth and depth of Ashford's leadership and will advance Ashford's continuous improvement efforts in academic quality and student success. Our philosophy of continuous improvement and our focus on academic quality and student success has led to the development of a group of new initiatives that are already being implemented. The foundation for these is evidence-based, using the data analytics and predictive modeling capability we previously developed. We expect these new initiatives to build upon Ashford's earlier success at improving student retention and the graduation rate.

In the academic quality area, Ashford is launching 2 new initiatives to improve academic quality and give students the best chance to succeed, both while studying at Ashford as well as post-graduation. The first of these initiatives is an expansion of something Ashford has been dedicated to some -- to for some time now, the addition of more full-time faculty. We expect that the growing body of full-time faculty will help produce a more robust environment for advancing academic quality and student success. Our predictive modeling studies illustrated that first year retention is strongly correlated with early student success, which led Ashford to modify its support services in 2 important ways: Knowing that effective early student support positively contributes to early student success, admissions counselors and student advisers will collaborate on supporting students through their first 4 courses rather than a transfer taking place after the first course. As a result, we believe this additional early support will result in greater first-year retention, and Ashford is implementing this change.

In addition, to provide better support to continuing students, Ashford has used predictive modeling to focus more intently on the identification of students who are experiencing difficulties, and we have increased the size of our student support team. This increased investment will complement the extended support from admission staff for fewer -- for newer students and provide increased levels of support for students throughout the entire academic program at Ashford.

I'd like to turn now to Ashford's student success initiatives. Overall, they are aimed at ensuring the right students are admitted, that the students who ultimately would drop do not start in the first place. In broad terms, we will reduce spending on marketing and sales and reallocate those funds to educationally-focused initiatives aimed at student success. More specifically, a portion of Ashford admissions department workforce has been reassigned to work as a point of first contact with prospective students to ensure that they have accurate awareness of what it takes to successfully earn a degree from Ashford, and that they're sufficiently prepared for university education. With the renewed focus on lead analytics to make new student selection process more effective, the role of Ashford's new student success initiatives in helping identify and admit students who'd fit best with Ashford and the expanded orientation program, we require a smaller, more focused admissions counselor workforce.

While we anticipate that these changes will result in fewer new enrollments, we believe that the students who are admitted to persist and complete at higher rates, which will continue a trend we began in prior quarters.

Next, we are implementing policy changes in the admissions area, further designed to ensure that students are well matched with our academic programs. For example, Ashford will limit all new admissions to online programs to adults 22 years of age or older once they already have at least an A.A. degree, which is an expansion of an earlier policy. In addition to this expanded policy, we've also discontinued new enrollments into 2 associate programs, business and organizational management.

Third, Ashford plans to further verify student readiness through an expansion of the student orientation program. This free 2-week course is expanded to all 0-credit undergraduate students at Ashford and will give students a hands-on look at what it's like to be an Ashford student.

The fourth initiative in the student success area is an expansion of what we call the Ashford Promise. Under this initiative, all new students will benefit from a broadening of Ashford's refund policy, which will allow a student to experience the first 3 weeks of class before incurring any financial obligation. At any time during these first 3 weeks, students who either opt out or do not demonstrate satisfactory academic progress will not be matriculated into the university. They will not be responsible for any tuition and fees and, of course, will not incur any related debt. In addition to helping students to be sure that Ashford is the right institution for them before incurring any financial obligation, this initiative is one way that Ashford can help address the national problem of rising student loan debt.

In parallel with the student success initiatives, we are expanding the support we provide in 2 other important ways. First, Ashford is continuing to expand the breadth of technology it provides students over the entire length of their experience with Ashford. As a result, Ashford has decided to replace the current onetime technology fee with a $50 per course charge beginning with students entering the institution on or after January 1, 2013.

Second, to help our graduates make the most of their careers post-graduation, Ashford is expanding the level of career support services. This will take the form and help with resume building, job search and interview preparation for our students nearing graduation. For alumni, we are establishing an alumni networking system and an employer awareness program for Ashford and its graduates.

To help attract the students who have the best opportunity to succeed at Ashford, we have recently launched a campaign to broaden national awareness of the Ashford brand. As with our other initiatives, predictive modeling helped us identify the characteristics of students who persist well and benefit the most from Ashford's academic programs. One of our observations with the students who came to us organically, in other words, through a contact they initiated directly with us by phone or through our website, have on average a better record of persistence and academic success than the students we obtained through lead aggregators. Within this organic group, our predictive modeling capability further helped identify certain subgroups, such as those who have already earned college credits or those who are already employed full-time, as being strong predictors of success as Ashford students. These insights pointed us toward brand awareness as being an important first step in reaching students who might come to us organically and who are therefore more likely to persist and complete at high rates. We developed a brand awareness campaign with advertising around the message that technology changes everything and how education is delivered along with a targeted media mix aimed specifically at those adult learners who could best benefit from Ashford's degree offering.

Although we launched the branding campaign only in late July, I'm pleased to report that we have had early success. For example, we've seen an 80% increase in new visitors to our websites, while nearly doubling the conversion rate of student inquiries on our website at the same time. Furthermore, these students are showing early indicators of persistence, including strong engagement in class. More broadly speaking, we've seen a 100% increase in awareness of the Ashford brand by individuals who already have college credits and 114% increase in the awareness by individuals who are employed full time.

Before turning the call over to Jane, I'd like to give you my bigger picture perspective on Ashford's progress in delivering value for students and in maintaining regional accreditation. The university has roughly 90,000 students and currently more than 40,000 alumni. In survey after survey, including WASC surveys as well as our own, students and alumni persistently state that Ashford provides them with an affordable, high-quality education in an accessible format that provides meaningful support to them in their careers after graduation. Despite these high marks, Ashford has further strengthened its support to students.

Now I'll turn the call over to Jane.

Jane L. McAuliffe

Thank you, Andrew. I want to provide an update on Ashford University's accreditation initiatives. The university leadership and Board of Trustees decided to withdraw from the review process, which was the first step in the appeal process for the Western Association of Schools and Colleges, or WASC. We believe that all [indiscernible] be directed towards preparing for the reapplication process instead of [indiscernible] decisions. The team placed its entire focus on writing the reapplication and submitted it to WASC as scheduled. This document focused only on the 6 areas WASC cited in its original action letter. The university will participate in a single special visit by a WASC-accrediting team, which has been set for April 2013. The university still anticipates the decision at WASC in 2013 commission meeting. Ashford's leadership team remains in close contact with WASC as they progress through this process.

Ashford submitted its response to the Higher Learning Commission, demonstrating how the University continues to meet the HLC criteria. They're hosting an advisory team in October and a decision will be formalized to determine what, if any, further action is appropriate at HLC's February 2013 Commission Meeting. Ashford is currently focused on writing its response to the Higher Learning Commission, detailing how it will comply with the substantial presence policy if the university does not move forward with its migration to WASC or if that migration is significantly delayed. This proposal will be considered at a February 2013 commission meeting as well.

The Ashford leadership, faculty, staff and Board of Trustees continues to be highly focused on submitting these documents, implementing new quality initiatives and, above all, continuing to provide a quality educational experience to its students.

I'd like to close with Ashford's most recent graduation ceremony. On the weekend of October 13 and 14, more than 1,200 graduating students, along with another 5,000 guests, packed the iWireless Center in Moline, Illinois, for Ashford's 2012 Fall Commencement Ceremony. Three-time Olympic gold medalist, Jackie Joyner-Kersee, provided the commencement address, telling graduates Ashford University has given them a place to call home. Just one of the many individual success stories from this fall graduation was a 72-year-old mother and grandmother from Maryland, who received her B.A. in business and currently owns a non-profit organization for families in her area who seek emergency needs. As both her grandchildren are currently attending college, she was very proud to share with others that she too is a college graduate. She realized that her age, going back to school, was not something her peers would be considering, but was something she promised to herself she would achieve. We are always gratified to play a role in the success of so many deserving Ashford graduates, and the 2 graduation ceremonies each year bring many of their interesting stories to our attention.

Now I'll turn the call back over to Andrew.

Andrew S. Clark

Thank you, Jane. As you know, we posted our earnings results this morning, outlining our performance for the third quarter. While we did not elaborate on the results during this call, I will say that we were satisfied with our performance during the quarter, considering the current industry environment and the challenges facing the company.

Looking ahead, I think it's is clear that Ashford has strengthened its efforts to ensure that the students who engage with us and those students who begin their studies at Ashford, have the best chance of success. The changes in admissions requirements, admissions screening, orientation, student support and the addition of full-time faculty all should have the effect of increasing persistence, learning outcomes and the graduation rate. Our branding campaign complements these outcomes by enhancing our ability to attract students who will be successful.

The senior academic leadership we have attracted to Ashford, along with the many initiatives we have mentioned today, reinforce our commitment to the academic success of our students and demonstrate that we have the resources, knowledge and organizational structure to support their success. In turn, we believe the numerous ways in which we are committed to academic quality and student success support our goal of maintaining Ashford's HLC accreditation and achieving its migration to WASC.

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

Question-and-Answer Session

Operator

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

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

I wonder if we could start -- if you could describe what quantitative goals perhaps, you have for full-time faculty hiring? And if you could explain to us what, if any, are the financial implications does that transition represent?

Andrew S. Clark

Yes, sure, Trace. Quantitatively, I can't give you a specific number. I will say that we're making a -- obviously, a very concerted effort and focus on increasing full-time faculty and on our focus on academic quality. And because I can't give you an exact number, I don't -- I think it would be difficult for Dan to quantify the financial impact for you.

Daniel J. Devine

Those individuals who are going to be full-time faculty do teach our courses as well. So there is some offset to what currently is done by adjunct faculty. It's not 100% net adds, so to speak.

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

I understand that. So my question is, is it effectively neutral because the driver of cost is actually the time spent in the classroom? Or is there sort of an incremental cost associated with a new faculty hire?

Daniel J. Devine

There would be an incremental cost in this case.

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

Okay. And then I'm wondering -- Andrew, you made sort of an oblique reference to the environment and its impact on enrollment. I'm wondering if you found that the accreditation issues that you're going through at the moment has filtered into the marketplace and students are aware of that, if that's becoming a factor on a competitive basis?

Andrew S. Clark

Yes. It's a good question, Trace. The decline in new enrollments that we saw were -- I would say, the majority of that was concentrated around the changes that we made in terms of admissions requirement, as well as various things we did to focus on students that we know will be much more successful, like the orientation. We actually have seen very little in the way of prospective students or even continuing students, and any concerns over the accreditation. We have a few here and there, but nothing that's material.

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

Okay, And then last question for me. I'm wondering if the customer facing -- or the students facing aspects of this plan, such as the change in the technology fee and the -- and then the initial 3 weeks -- I know what you call it, a trial. I guess, whether those had been presented to students and whether you've seen any kind of reaction from the student population to some of those changes?

Andrew S. Clark

Yes, the tech fee change begins January 1, 2013. And Ashford Promise will occur during the quarter, which is the 3 weeks that you were mentioning, where they'll spend those first 3 weeks in class and will either decide that Ashford and a college education is something that they're capable of pursuing or the institution will proactively have the student withdraw, based upon how well they're doing academically, if they're not performing at college-level work. So...

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

You're basically making these announcements today for the first time, so you haven't started implementing them in the marketplace yet?

Andrew S. Clark

Well, I wouldn't say -- I mean, some of these initiatives have already been implemented, hence my comment about admissions and the negative new enrollments for the quarter. Some of them are being initiated during this quarter.

Operator

We will now take our next question from Peter Appert with Piper Jaffray.

George K. Tong - Piper Jaffray Companies, Research Division

This is George Tong for Peter Appert. One of the issues cited by WASC in its initial review of Ashford was high spending on recruiting compared to instruction. In the third quarter though, marketing expense jumped 31% year-over-year, while instructional costs only increased 9%. Can you comment on this?

Daniel J. Devine

Sure. This is Dan. George, the issue is our branding expenditure was expensed when our programming was run, which was -- majority of that was in the third quarter. The net branding was $15.1 million or 6.1% of expenses for the quarter. So that is the vast majority -- or that's basically the biggest uptick in year-over-year related to marketing.

Andrew S. Clark

The other thing I'd say, George, at a very high level, obviously, all the initiatives that I went through this morning are targeted at student success and academic quality. Many of those initiatives, if not most of them, will fall in the instructional costs and services line. And you probably are aware of some of the changes that we made from an admissions perspective. I would say, over the longer term, you will see a market shift in the percentage of expense allocation between instructional costs and services versus marketing and selling. Instructional costs and services will definitely be higher in the future than the marketing and selling would be.

George K. Tong - Piper Jaffray Companies, Research Division

That's very helpful. And just one follow-up question. By our calculations, persistence fell to roughly 76% from 81% last year. Could you tell us what contributed to that year-over-year dropoff?

Daniel J. Devine

Sure. Part of the favorable -- I guess, if you look at -- the third quarter 2011 was favorably impacted by the changes that related to leave of absences and recording student has dropped. I don't know if you remember those from last year, July 1, 2011. The DOE changed their procedures. That caused an increase in the number of enrollments and the number -- the fewer drops in that quarter. That is normalized this year, but it has an unfavorable variance year-over-year. That contributed to about 1/3 of that number. We did have higher graduations in the quarter compared to the prior year. That was also a contributor. And then, there was just some natural quarter-to-quarter flux that is involved in that also.

Operator

And we'll take our next question from Joe Janssen with Barrington Research.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

This is Joe Janssen filling in for Alex Paris. Andrew, maybe you could just comment -- in Jane's prepared remarks, you talked with regards to HLC. There was a team visit in October. Anything you can share with us in terms of takeaway, was there an exit interview, anything we should be concerned about?

Andrew S. Clark

Yes. Joe, thanks for your question. I mean, in keeping with what we've done historically, we're not going to comment on any of the -- any of our interactions with the accreditors. So we'll just -- we'll have to wait until March when the institution will be notified by HLC on the results of its visit and, of course, we'll share those with you.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division

All right. I thought I'd try it. So one other question. You talked about predictive analytics. You talked about a lot of the initiatives and the policy changes. And if -- any way you could give us a sense on all these changes, what your expectations may be, 1, 2, 3 quarters out, in terms of starts? I'm not looking for exact but maybe kind of ranges, anything -- given your analytics, anything you can share with us?

Andrew S. Clark

Yes. I mean, Joe, we're not giving guidance, so I can't really quantify. But I would, at a high level, say that these initiatives will lead to negative new enrollments and negative total enrollment. I think some of the -- in terms of the admissions initiatives, some of the student success academic quality initiatives will lead to higher retention, which will offset some of the new -- some of the negative new enrollments. And so, I think, generally, at a high level, that's kind of how we see things for probably, the next 4 quarters.

Operator

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

Jarrel Price - Height Analytics, LLC

I have a two-part question related to your incentive compensation policies. I was hoping you could describe how your incentive compensation plan complied to the Safe Harbors during the period of 2006 to 2007 that was reviewed by the OIG report?

Andrew S. Clark

Well, I mean, we responded to the IG audit, and I think that's publicly available. So you can read exactly from that report what our response is and how we did -- our view of how we complied with regards to the Safe Harbors in '06, '07.

Jarrel Price - Height Analytics, LLC

Okay. And then, have you made any material changes since then that you think are important?

Andrew S. Clark

Well, when the new incentive comp policies came into effect back in July 2011, we obviously put a new policy in place. Actually, we started before that. It was fully implemented by then. To be compliant with the new rules, and it's very straightforward, our admissions advisers receive a cost-of-living adjustment on an annual basis. They receive an adjustment based on tenure. And then they receive an adjustment based on their own educational attainment. If they go from a bachelors to a masters degree in a particular year at that annual review, they can receive a slight increase as well for that. So very straightforward.

Jarrel Price - Height Analytics, LLC

Okay. And then just one other really quick one. I was wondering if you've gotten any clarity from HLC about how many employees you'd have to move to their region if you were to, in fact, have to comply with their geographic presence requirement?

Andrew S. Clark

Yes. I mean, I can't comment on that other than to tell you that our deadline for submitting that to HLC is December 1.

Operator

And we'll go next to Corey Greendale with First Analysts.

David Warner - First Analysis Securities Corporation, Research Division

This is David Warner for Corey. Prior to submitting your reapplication to WASC, did you receive any further guidance on what would constitute an acceptable counselor, student ratio or a full-time faculty student ratio, attrition rate, anything specific in that regard? And then, could you just speak to, sort of, your level of confidence that the changes that have been put in place thus far will be deemed sufficient by WASC?

Andrew S. Clark

Yes. David, WASC and most accreditors do not have bright lines in terms of numbers or percentages. I would generally say that the institution is in discussions and very collaborative from that perspective with WASC, and there's a lot of dialogue back and forth. So I think that's about as far as I would characterize that.

David Warner - First Analysis Securities Corporation, Research Division

Okay. And just one more follow-up. You didn't -- I don't think touched on scholarships, but are you -- what were scholarships in the quarter and what are your plans with regard to that going forward?

Daniel J. Devine

I don't [Audio Gap] scholarship figure in front of me, because I have the net numbers that we report. I don't think our policy toward scholarships has changed, so there's really no update there. It will be in the Q, I think.

Operator

And we'll go next to Gary Bisbee with Barclays Capital.

Gary E. Bisbee - Barclays Capital, Research Division

The first question, I guess, can you give us a sense what portion of the total bucket of initiatives that you talked about today was implemented during the third quarter versus what will be implemented? Or if not a number, general sense, is there much more still coming versus already been implemented?

Andrew S. Clark

Generally speaking, Gary, at a high level, it's probably 2/3 implemented and 1/3 left to go.

Gary E. Bisbee - Barclays Capital, Research Division

Okay. All right. And then the second question, interesting commentary about the better performance from the folks who came to you through your website, or I think you call it organically. What percent of new students have been coming to you on their own or through the website? Is that -- I assume that it's a pretty small number but -- and how is that -- how quickly do you think you can ramp that up through the new campaign you've talked about?

Andrew S. Clark

Yes. I mean, I don't have a specific number for you, Gary. I can tell you that we were very pleased with the results of the branding campaign. It actually performed much higher than our internal expectations. And the thing that we really are looking at, like I mentioned in my opening remarks, is we're really looking at the success of those students, their ability to persist over students that find us through an aggregator channel. And that -- those indicators are, again, very good as well and were higher than what we had forecasted internally. So I think branding, obviously, is very important, especially in a highly competitive market. I would anticipate it as something that the institution would continue to commit itself to, not just from a differentiation standpoint, but most importantly from a student success standpoint and being able to identify the students that are most likely to be successful at the University.

Operator

And we'll go next to Paul Condra with BMO Capital Markets.

Paul Condra

And I guess, I just wanted to follow up also on the 3-week trial period. Is that open to all incoming students?

Daniel J. Devine

Yes, it is.

Paul Condra

And is this something that -- I don't know if you can give any details on, this is something that you have already started rolling out? Maybe you're just seeing some kind of outgoing over, whether you're seeing students take advantage of it and then stay in or drop out?

Andrew S. Clark

That's being rolled out during the quarter, Paul, as I mentioned earlier. So I think that the orientation program will be very effective at filtering out students that aren't quite prepared for college-level work. And then, I think this is an additional opportunity, obviously, for prospective students to see if they're ready as well for the institution to monitor them.

Paul Condra

Okay. Great. And then I just wanted to follow up on CapEx too. I don't know if you can you tell us your expectations for the fourth quarter, CapEx expense. I think you had said 4% of revenues last quarter. It's coming in a lot lower than that so...

Daniel J. Devine

We expect for the year to just come in around about 4%, I believe. So I don't have it for the fourth quarter in front of me, but it should be about 4% for the year.

Paul Condra

Okay. Is there -- I mean, is there any reason that would go up a lot in the fourth quarter?

Daniel J. Devine

There's no particular reason. I don't know where we are in certain projects, so that would be the only time -- the timing issue at the end of the quarter where it falls in the third quarter or fourth quarter. I don't know when we're closing out some of those projects.

Operator

We'll go next to Jeff Volshteyn with JPMorgan.

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

When I think about timing of the impact from the technology fee change as well as the orientation program, can you just help us think through the timing? I know it starts -- at least, the technology fee change starts January 1. How long will it take before it's sort of fully cycled out?

Daniel J. Devine

It should take -- you'll see an impact in 2013 of approximately $30 million in revenue. The change in the technology fee, it will take about, I think, 13 months to get back to kind of the full enrollment body being absorbing a monthly charge. So it corrects itself -- majority of the correction happens in '14, where you're back to a -- everyone -- full engagement of the entire enrollment.

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

Okay. And the orientation program change?

Daniel J. Devine

The orientation program is the expansion of a program we have today, so it will -- I imagine most of that will be in Q4, Q1.

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

Okay. And one follow-up on bad debt expense, it came down in the quarter, it was coming down last quarter as well. What are you guys doing differently on the collections front?

Daniel J. Devine

Well, we're putting a lot of effort into the collections. We continue to try to improve our processes, add some staffing there where required. We still expect it to be about 6% for the year.

Operator

We'll go next to Brandon Dobell with William Blair.

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

A couple of quick ones. You mentioned a couple of programs that you're not going to be enrolling students into, it sounds like, business and organizational management. Any sense as -- for as to how big those are and maybe how much they contributed to recent start growth the last couple of quarters?

Andrew S. Clark

Yes. Brandon, it's a good question. I don't have exact -- I don't have numbers that I can give you. But I think the main takeaway at a high level for us, on the associate degree in business and org management, was that a high propensity of those students tended not to persist, certainly beyond 3 courses. And again, our analytics and our ability to look the data over a period of time lead the institution to make a decision that it was in the institution and the students' best interest for us to discontinue those programs.

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

Okay. And then, Dan, if you -- can you talk about the -- well, it's kind of $6 million or so of branding spend, like if you take that away, kind of, looking more about of kind of a normalized level of marketing spend. How do we size the spend [indiscernible] decline -- the decrease in marketing spend going forward, it seems to be down 10% and kind of the last 12 months number down 20%. I just wanted to figure out how to size what the more normal level will be for marketing.

Daniel J. Devine

Well, I don't think I'm going to give you a specific number. I mean, if you look at it -- if you take away the branding in Q3, you're pretty flat to the prior year. I think what you're going to see, Brandon, is it's going to kind of tick down over the next 3 quarters as we work through some things. I'm not going to give you a target of where it is going to end up because we haven't completed our plans for 2013. But we do expect that the investment in that area will be, as a percentage, smaller in 2013.

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

And with all the changes in the faculty, I guess, kind of makes it solid. Should we expect the average class size will change? Or is it really just replacing adjunct with full-time, so it's a better mix of faculty but no change in the average size in a classroom?

Andrew S. Clark

Yes. I think that -- you're breaking up a little bit, Brandon, but I think the class size is generally going to tick down as well as we increase the number of full-time faculty. I think that will go down. I can't really say by how much. But at a high level, it will go down.

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

Okay. And final quick one for me, with all the things you guys are doing, should we expect any kind of restructuring charges, impairment charges, those kind of things in the fourth quarter or maybe in the first quarter, if these things pull through?

Daniel J. Devine

We do not expect any of those charges.

Operator

We'll go next to James Samford with Citigroup Research.

James Samford - Citigroup Inc, Research Division

Just -- you're not under any restrictions at this point for launching any new programs, or did you launch any new programs during the quarter?

Andrew S. Clark

We didn't launch any new programs during the quarter. Generally, you might recall, James, that we didn't -- when we went from HLC to WASC, when we started the institution -- started the application process for accreditation at WASC. You need to kind of leave your current state within HLC unchanged, meaning you don't add -- you don't go and add any programs. You want to remain static while you're in the application process with WASC. So we haven't requested new programs for probably, the last 1.5 years or 2 years.

James Samford - Citigroup Inc, Research Division

Okay. Got it, silly me. I guess a follow-up question is -- on the positive side from a data analytics perspective, I know you decided to opt out of the business and organizational management side. Any particular programs that have been sort of successful? Were there some silver lining out of all this?

Andrew S. Clark

No -- I mean, nothing from a program-specific standpoint. I would just say that we had many of these initiatives, either partially implemented or fully implemented in the pipeline. We have a strong analytical group that was -- that's been able to demonstrate that and track that -- if we made these various changes that would have kinds of positive outcomes in student success and learning that the institution's driving for as part of its continuous improvement. So we're very pleased, and it's all evidenced-based. We know that what we're doing are the right things to do for the student.

James Samford - Citigroup Inc, Research Division

Okay. And then, I guess any updates on where you stand on 90/10 or where do you think you will be at the end of the year?

Andrew S. Clark

No. We'll provide that at our end of the year earnings call.

Operator

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

Paul Ginocchio - Deutsche Bank AG, Research Division

Just a question on -- is it HLC policy or your policy not to talk about the interviews? I'm just wondering if HLC has asked you not to talk about things.

Andrew S. Clark

It's our policy, but it's also HLC and WASC both treat the process as confidential. We're not supposed to comment on it. HLC, in particular, doesn't want you to make your reports publicly available. You have to go through a process and ask them special permission to do something like that.

Paul Ginocchio - Deutsche Bank AG, Research Division

Maybe I could just -- a couple of follow-ups. Just based on your comments that the persistence decline was sort of some of the catch-up from a year ago, should we expect the persistence as much better in the fourth quarter? Or -- I just was surprised that there was no impact from the accreditation in your persistence number. Then I've got one more follow-up.

Andrew S. Clark

I would think that persistence would be -- certainly the variance would be much closer, meaning it'd be much closer to last year, either slightly hopeful or slightly favorable.

Paul Ginocchio - Deutsche Bank AG, Research Division

And then just without looking for guidance, is there any way you could just comment on new enrollment trends that maybe you've seen over the last month or 6 weeks?

Andrew S. Clark

I think our new enrollment trends have been what we expected with the new admissions processes and initiatives we put in place. I really can't comment much beyond that. We're very satisfied with the steps that we've taken and the changes that we've made. Our students at Ashford University -- well, I mean, they have demonstrated in that WASC survey, they're very passionate about the institution, believe the quality of the education they're receiving is very good and I would expect that to continue and even improve.

Paul Ginocchio - Deutsche Bank AG, Research Division

So -- but overall, the initiatives would mean overall a weaker enrollment trend, correct?

Andrew S. Clark

Yes, as I said, I think, to an earlier question, at a high level, you're going to see negative new enrollments for probably the next 4 quarters and total enrollment will be negative because of the initiative. I think it will be offset by the retention gains that will occur because of the initiatives.

Operator

We'll go next to Kelly Flynn with Crédit Suisse.

Kelly A. Flynn - Crédit Suisse AG, Research Division

A couple of questions. First question on the tech fee, I was hoping you could provide a little more high-level color on how should we should think about the economics of this fee? I know you talked about the $30 million revenue impact but -- and I think the consensus view is that the tech fee is very profitable for you, in part because it's paid up front. So I'm wondering if we should assume that much of that $30 million comes out of the operating income line as well.

Daniel J. Devine

Well, we haven't given guidance on the operating income line for 2013. It's a change in policy. There's not -- we're not making any headcount adjustments related to that. So I would assume that if on a stand-alone basis that was the only transaction that we did for 2013, a large portion of that would be impacted on operating income. But it's just a change compared to a bunch of other changes, so we're not giving any guidance, specifically, how much is impacting operating income.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay. Fair enough. And then, on the branding spend, just to clarify, I think you said marketing spend overall should tick down over the next 3 quarters. But is that branding amount that you talked about, is that sustainable for over that period? That branding spend, will it continue?

Daniel J. Devine

Well, that was our -- why don't you go ahead?

Andrew S. Clark

Well, I mean, it does continue. I mean it's up to the institution in terms of the level of investment they want to make. I think assuming that it continues, you would still see a tick down in the marketing expense over the next 3 to 4 quarters.

Kelly A. Flynn - Crédit Suisse AG, Research Division

Okay. Great. And then the last question, I know you've gotten this question in various ways, but I just want to come back to it. As far as the new, sort of, quality initiatives you introduced on today's call, can you just explain which ones are starting in the fourth quarter and which ones are starting in the first quarter of 2013?

Andrew S. Clark

Well, the only one that's starting in the first quarter would be the technology fee change of $50 per course, which starts January 1. I think the only ones left in the fourth quarter really are continuing to hire more full-time faculty and the Ashford Promise. I think all the others have -- for the most part, have been implemented already.

Operator

And it appears there are no further questions at this time. I'd like to turn the conference back to our speakers for any additional or closing remarks.

Andrew S. Clark

Thank you, everybody, for joining our call. And we'll talk to you soon. Good day.

Operator

And ladies and gentlemen, that does conclude today's conference call. Thank you for your participation.

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