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Bridgepoint Attempts A ‘Course Correction’

As Bridgepoint Education Inc., the San Diego for-profit provider of college classes mainly through online channels, awaits a decision on the accreditation of Ashford University from one entity, it’s pursuing a parallel effort to maintain the university’s current accreditation.

Bridgepoint is also engaged in a cost cutting and restructuring strategy in reaction to reduced enrollment at its colleges that occurred in recent quarters. Last month, Bridgepoint conducted a voluntary staff resignation program that will result in severance benefits totaling $6.2 million that will be paid in September. The company didn’t say how many of its 3,900 nonfaculty employees accepted offers to resign.

Bridgepoint said it was “optimizing the institution for a lower total student enrollment.” In the first quarter, total student enrollment decreased 17 percent year-over-year to about 79,000 students.

Bridgepoint has been pursuing dual accreditation for Ashford following denial by the Western Association of Schools and Colleges in July 2012. WASC covers accreditation of colleges in California, Hawaii, and the U.S. Pacific Islands.

In its decision, WASC said its request was denied due to a number of problems, including Bridgepoint’s low graduation and student retention rates, its insufficient full-time faculty, and an inordinate emphasis on marketing.

Bridgepoint’s two colleges, Ashford University in Iowa and University of the Rockies in Colorado, are currently accredited by the Higher Learning Commission of the North Central Association of Colleges and Schools (HLC). However, that agency notified Bridgepoint last year that Ashford did not have a “substantial presence,” meaning personnel, in the region the college is located.

Colorado Presence

To satisfy the requirement, Bridgepoint has been moving parts of its operations to Colorado in recent years. While the company said it has about 4,000 nonfaculty employees, and 5,400 adjunct faculty members, it doesn’t divulge any staffing breakdown by locale.

Yet a company spokeswoman said last year that Bridgepoint had about 5,000 employees at four San Diego locations.

Maintaining Ashford’s accreditation is essential for Bridgepoint because more than 90 percent of the student tuition it receives comes through federal financial aid. That aid could not be extended if the college lost accreditation.

Thus far, Bridgepoint’s business model seems to have worked well. Last year, the company, which was founded in 2004, reported net income of $128 million on revenue of $968 million. That compared with net income of $173 million on revenue of $933 million in 2011.

Yet, as enrollment fell, so did Bridgepoint’s key numbers. For the first quarter of 2013, it reported net income of $23.5 million, down from $33 million in the like quarter of 2012. Revenue for the quarter came in at $222 million, down from $250 million for the first quarter of last year.

Shares of Bridgepoint, traded under BPI on the New York Stock Exchange, were ranging in the $10 to $11 for most of this year, and reached $12 last week, giving it a market capitalization of about $650 million.

Declining Enrollment

In remarks made to analysts on the first quarter, CEO Andrew Clark acknowledged the decline in enrollment, saying it was the result of being more selective of new students it admits.

Following the WASC report last year, the company revamped its operations and slashed its payroll, cutting about 450 jobs, and reassigning 200 people.

“It’s really Ashford’s decision to be a more highly selective institution that has led to the enrollment declines,” Clark said.

Clark told analysts because of all the transitions the college is undergoing, new student enrollment would decline in the short term but then increase by the fourth quarter.

Several analysts who cover Bridgepoint maintained a hold recommendation on the stock, saying the company made the changes to its operations that are needed to obtain WASC accreditation.

Alexander Paris, analyst with Chicago-based Barrington Research, said based on Bridgepoint statements, the company should announce WASC’s decision in mid-July.

The Big Decision

“While (the decision on accreditation) remains the biggest risk to BPI, we have a high level of confidence in this management team and believe Ashford will ultimately be successful in gaining WASC approval,” Paris said.

Paris’ forecast reduced annual earnings per share for Bridgepoint of $1.35 per share, down from $2.29 in 2012, but maintained a market perform or hold on the stock.

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