Bridgepoint Education Inc. Continues Its Slow Bleed

Source: Ashford University

While Bridgepoint Education (ZVO) has thus far escaped the death sentence that some of its for-profit peers have experienced, it continues to struggle. The company missed analyst estimates on both the top and bottom lines when it reported second-quarter earnings this week. And though the stock had an initial pop, it has settled about 8% lower than it was pre-earnings.

Let's dig into the company's quarter, from the headlines to the deeper shifts occurring in the industry and how they'll affect Bridgepoint.

Just the numbers, please
For those focusing on the top and bottom lines, the company failed to wow investors -- with a miss on both revenue and earnings.

Source: SEC filings

Note that for the same quarter last year, the company logged earnings per share of $0.28.

The company slashed spending across the board: Instructional costs were down 7%, admissions and marketing were down 13%, and G&A was down 21%. In the end, however, the revenue drop and over $14 million in restructuring charges related to the closing of the company's physical Ashford campus in Iowa were large enough to push the company into a money-losing situation.

The real key: Enrollment
In the for-profit industry, nothing is more important than enrollment. On that front, as well, the company didn't have much good news.

The company's 51,049 students at the end of June were a full 16% less than the same time last year and 8% lower than the figure from just three months ago. Additionally, even though management doesn't break out new student enrollment numbers during its quarterly releases, CEO Andrew Clark had this to say: "In the second quarter, we did experience a decline in year-over-year new enrollments. ... The decline ... was about mid-single digits."

This is an important tidbit because in the majority of previous quarters Clark has said that new student enrollments were actually growing. He claimed that almost all of the new student losses were due to an unusually slow month of April, with May and June showing positive gains. Clark would not, however, comment on how the company was doing so far in the third quarter, even though a month of data has likely already been collected.

The turnaround will take longer than expected
Perhaps nothing was more discouraging for investors to hear than the company's turnaround plans for positive enrollment gains will be pushed back into 2016 at the earliest. Clark cited a number of macro factors for this.

Among them were a poor public perception and competition: "The decline in new enrollment was driven primarily by a soft market and continued competition."

As well as an improving economy: "We experienced challenges in starting all of the applicants as our potential students faced increased verification scrutiny during their financial aid processing or deferred their decision to start in lieu of the strong job market." 

To me, that's fancy talk for: Students might be starting to realize that we don't have the greatest value proposition in the world.

Clark also pointed out that the school's retention rate dropped 300 basis points from the same time last year and gave an interesting explanation:

This decline of approximately 300 basis points was higher than we had anticipated. It does appear that a higher level of military enrollment on a percentage basis, lower annual reimbursement levels for the Navy and Coast Guard are contributing. 

Add all of these things together and you can see why Clark stated, "[I]t does not appear that we will achieve these goals [grow new enrollment and stabilize overall enrollment] until 2016."

Currently, the company trades for over 50% less than it did in 2013. If it can truly turn the enrollment trends around, the stock could be a steal at today's prices. But without evidence of a turning tide, investors need to be cautious.