China Distance Education Holdings’ CEO Discusses F3Q 2011 Results – Earnings Call Transcript(0)
China Distance Education Holdings Limited (DL) F3Q 2011 Earnings Conference Call August 18, 2011 9:00 AM ET
Good evening and thank you for standing by for the China Distance Education Holdings Limited third quarter fiscal 2011 earnings conference call.
Today, you will hear from Mr. Zhengdong Zhu, Chairman and CEO of the company; and Ms. Ping Wei, the CFO.
During the prepared remarks, all participants will be in a listen-only mode. After that, the company’s management will be available to answer your questions.
Before we start, we would like to remind listeners that this conference call contains forward-looking statements. These statements are made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995. Among other things, the outlook of the fourth quarter of fiscal year 2011 and oral statements from management on this call, as well as the company’s strategic and operational plans, contain forward-looking statements. Forward-looking statements involve inherent risk and uncertainty. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement.
Further information regarding these and other risk is included in the company’s Annual Report on Form 20-F and other documents of the company as filed with the Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law.
As a reminder, this conference call is being recorded. A summarized presentation can be downloaded from the company’s IR website and which we will refer to during the course of the call. In addition, a webcast of this conference call is available on the company’s Investor Relations website at ir.cdeledu.com.
I will now turn the call over to Mr. Zhu to discuss the operational highlights. Mr. Zhu, you may begin.
Thank you, everyone for joining us on our third quarter fiscal 2011 results conference call. Our operating results were released earlier and are available on the company’s website as well as our new slide services.
We are pleased to report yet another quarter of healthy performance in the third quarter with 22.7% year-over-year revenue growth exceeding our guidance range and increasing profitability on a non-GAAP basis.
Our results were driven by a steady increase in our core online education services net revenue, supported by broad based enrollment and ASP growth. Of course, our APQE and other accounting courses, healthcare and the construction engineering courses, as well as strong enrollment growth from accounting continuous education courses.
We also benefited from an increase in other revenue, resulting from offline business start-up training courses provided by Yucai, in-person courses for the “Big Four” accounting firms in addition to our online courses and services and the primary and secondary school supplementary courses. Such increase was partially offset by the decrease in revenues from courseware production services.
Our results reflect the continued execution of our strategy to provide a high-quality comprehensive life-long learning programs. Throughout 2011 we have focused on investing in our co-businesses and continuing to develop our newer initiative.
Our goal is to provide more students with comprehensive and high-quality educational content and services, by leveraging our scalable IT platform and our centralized marketing distribution network, powerful content development and the student service processes.
This investment which incur investments in our online learning platform, extensive marketing and advertising campaigns and efforts to bolster the quality of our courses and services are all aimed at further strengthening our brand name and delivering balanced top and bottom-line growth.
We believe we are successfully executing on this strategy and that our investment will lead to continued growth. We remain confident in our prospects and are committed to increasing value of our shareholders over the long-term.
Let me now walk you through our operational development for the quarter in more detail, starting on slide five. Net revenue for the quarter increased 22.7% year-over-year to $12.7 million, exceeding our guidance and the total cost enrollment was $324,400, an increase of 34% year-over-year. As noted, this result was supported by a healthy increase in online education service net revenue.
Starting with our accounting vertical on slide 7, our online accounting vertical performed well in the third quarter, with total accounting enrollment increasing 45.5% and average student payment or ASP for our accounting test preparation courses increasing by 25.5%. This quarter, we continued to deliver strong growth with our other online accounting training courses, in particular accounting certificate exam test preparation courses and accounting practical training. All-in-all, other online accounting enrollments grew by 52.4% year-over-year and ASP grew 17.5%.
Online accounting continuous education also continued its trend of strong growth with a 106.4% year-over-year enrollment increase. We continue to offer this course at a low ASP to grow our market share in this large market, which accounts for about 30 million students per year at impressive 54.9%. APQE exam was held last weekend. As this market tends to include a high level of repeat customers, we believe our relatively low pricing point is a good strategy to attract more students to CDEL’s online learning motto. And we believe our competitive pricing strategy will eventually payoff handsomely with large market share gains.
Online APQE exam enrollment increased 9% in the third quarter. In addition, ASP for APQE also increased 31.2% in the quarter as compared to the same period of last year. All-in-all for the 2011 test season which is roughly from Q4 of 2010 to Q3 of 2011, enrollment for APQE has been relatively unchanged as compared to the last year due to the relatively flat overall growth of the market. However, we demonstrated that we can grow our revenue amid a slow market as ASP for this test season increased again by 18.4%. Thanks to our diligence in delivering quality courses and services and our consistent focus on building a strong brand name. For the third quarter, online CPA test preparation course cash revenue continues to grow, even though enrollment decreased by 16%. Thanks to a strong ASP increase of 33.5%.
Let’s turn to slide eight about other non-accounting course offerings. Enrollment grew about a robust 47.1% in our steadily growing self-taught higher education vertical. As our program continue to gain traction in the [inaudible] we have signed contracts. Going forward, we will continue to focus on building brand awareness in the provinces where we offer our highly promising partial credit cards to grow enrollment. We’ll have the provinces that will have certain contract raise and we continue to introduce this program to more provinces.
Moving to slide nine, our online healthcare vertical again grew at relatively steady pace this quarter with enrollments growing 12.6% year-over-year and ASP increasing 17.7%. The growth in healthcare vertical its broad based as it would relate all of our house test preparation courses has registered revenue and ASP growth. This is primarily the result of our continued investment in offering more courses in this vertical. Continued focus in delivering end results to our existing students and continued effort in promoting awareness of our products and services to a large student base. We anticipate this vertical to continue if steady growth going forward.
Enrollments in our construction engineering courses rebounded after a relatively slow second quarter, resulting in healthy 22.5% growth in the third quarter. Enrollments was supported by continuous education courses which constitutes a large part of the total construction engineering enrollment. ASP increased to 6.8% year-over-year primarily due to the shift in revenue mix.
Moving onto slide 10, in terms of our offline businesses, this year we’re starting to test the orders by offering online and offline combined courses to further boost ASP for some of our many online type preparation subjects such as CPA and healthcare courses. We saw a decent level of interest and program participation. And as a result, potential in courses cash revenue for our professional awarding course for the fiscal year to date has already exceeded $1.1 million, while GAAP revenue for this quarter rose by a $160,000 to $510,000 as compared to the same period of last year.
We continue to offer business that have training courses and services and class payments for the training and services that were provided through our subsidiary Zhengbao Yucai. Yucai became our 60% owned subsidiary in March of 2009 through our acquisition for total of $2.4 million cash payment to its founder. We also injected $2.9 million of working capital into Yucai at the time. We had a challenging year in 2010, adjusting the management team, refining cost contents as well as stressing our partnership with the Ministry of Human Resources and the Social Security and various corporation parties.
We are happy to report to our shareholders that this year Yucai has made steady progress in growing revenues, expanding partnerships and collecting from its customers. This quarter, Yucai again generated revenue of $0.3 million. We expect Yucai to continue growing its revenue at a healthy pace going forward and to become an important revenue generator for DL.
In addition, we are very happy to report that in the quarter we were awarded the remaining 40% equity interest of Yucai for free by China International Economic and the Trade Arbitration Commission, the CIETAC. Following a year long arbitration process aiming to have the seller-owner the investment agreement we signed in 2009. In addition, we were also awarded $0.6 million of payment from the seller in compensation for loss of business suffered and the related legal cost. Such amount was paid to us subsequently to the quarter end.
As part of our original investment agreement, it was agreed that DL had a right to purchase the remaining 40% equity interest of Yucai. Such right was recorded as a purchased call option at the time of purchase. At the way we were awarded the 40% remaining equity interest by the CIETAC, we no longer have the need to exercise such purchased call option. As such, this quarter, we wrote-off the total book value of the purchased call option, resulting in a net GAAP noncash charge of $0.8 million net of income and income tax.
Finally turning to slide 11, we continued to make progress in our online K-12 after school training vertical. This quarter we reported another $0.6 million of courseware production service revenue from the Famous School Coalition program as we continued to record courses as evident to the coalition online platform. Our other K-12 initiatives such as in-person courses, case studies, digital class solutions and Educomp Smart-class are also progressing as we planned and have started to contribute to our revenue growth in the quarter.
Finally a word on our growth strategy. To date we have been very focused on growing our businesses with our co-online and professional offerings. This focused growth approach has started to payoff. For the fourth straight quarters of this fiscal year, we have already generated non-GAAP net income similar to the annual profit of fiscal year 2010. And with we have the fourth quarter to go, which is traditionally our largest revenue and the profit quarter. Such results will achieve end result of us investing more aggressively in marketing and brand building this year.
We believe that the investments will help us broaden our student base and enable us to charge a premium priced lower cost offering. As such, going forward, we will continue to invest more in this area, invest selectively and prudently, positioning the company well as a leader of our education in China and ensuring years of sustainable future growth.
This completes my update on business operations. Let me now turn the call over to Wei Ping, our CFO, to walk you through our financials.
Thank you, Chairman Zhu. As Chairman Zhu mentioned, we have maintained a balanced approach as we strive to grow our balanced top and bottom-line results. This approach has included our continuous – continued prudent investment in our marketing and growth initiatives, while maintaining a strict focus on cost control. Our investment in growth didn’t impact our bottom line, compounded by some inflationary headwind. However, we were also able to mitigate some of the cost increases by successfully controlling expenses elsewhere in the business. We will continue to maintain our focus on effectively balancing growth and investment and we believe this effort together with our share repurchase program will allow us to deliver healthy returns to our shareholders.
Let me now recap our key financial metrics for the third quarter on slide 13. Total net revenues for the third quarter were $12.7 million, representing a year-over-year increase of 22.7% from $10.3 million in the third quarter of fiscal 2010. Online education services net revenues for the third quarter of fiscal 2011 were $8.9 million, an increase of 42% from the third quarter of fiscal 2010. This increase was a result of increased revenue from accounting professional qualification exams or APQE, CPA exams, accounting certificate exams, accounting continuous education, healthcare and construction and engineering courses.
Net revenue from books and reference materials decreased by 25.1% to $1 million for the third quarter of fiscal 2011 from that of the same period fiscal 2010. The decrease by mainly caused by a new GAAP literature, requiring us to allocate price between study cards and books for our bundled book sales. In the quarter, about $0.4 million of book revenue was reallocated to online revenue. Excluding the effect of this reallocation, net revenue for books and reference materials would have increased by about 8.3% to $1.5 million for the third quarter of fiscal 2011.
Other revenues increased 1.2% year-over-year to $2.7 million for the third quarter of fiscal 2011. The increase was a result of increased revenues in the business start-up training courses, in-person training courses to supplement online courses for the “Big Four” accounting firms and primary and secondary school supplementary courses. Such increase was partially offset by the decrease in revenues from courseware production services from our Famous School Coalition program.
Cost of sales for the third quarter of fiscal year 2011 was $5.4 million, a 23.9% increase year-over-year. Excluding share-based compensation, non-GAAP cost of sales for the third quarter was $5.0 million, an increase of 27.8% over the same period last year. The increase in cost of sales was primarily due to increased salary and related expenses, lecture fees due to further expansion of our online course offerings, and cost of our books and reference materials due to the increase in sales.
Gross profit for the third quarter was $7.3 million, a 21.8% increase year-over-year. Excluding share-based compensation, non-GAAP gross profit was $7.7 million, an increase of 19.5% year-over-year. Gross margin for the third quarter was 37.6% in line with the third quarter of fiscal year 2010. Excluding share-based compensation, non-GAAP gross margin for the third quarter was 60.5% as compared to 62.1% in the same period of 2010. The decrease in non-GAAP gross margins was primarily a result of the increased lecture fees.
Total operating expenses for third quarter were $7.0 million, an increase of 42.4% year-over-year. Excluding share-based compensation and the write-off of a purchased call option asset for acquisition of Yucai, non-GAAP operating expenses were $5.3 million, representing a year-over-year increase of 23.6%.
Selling expenses and marketing $3.1 million for the third quarter, representing a 6.8% increase year-over-year. Excluding share-based compensation, non-GAAP selling expenses were $3.3 million, a 61.6% increase from the same period last year. The year-over-year increase was the result of increased advertising and promotional activities, salary and related expenses, and commissions to our agents due to the increased in sales.
G&A expenses were $2.8 million in the third quarter of fiscal 2011, a 5.5% year-over-year decrease. Excluding share-based compensation charge, non-GAAP G&A expenses were $2.3 million, a decrease of 5.8% year-over-year. The decrease in G&A expenses year-over-year was primarily due to decreased of bad debt provision for outstanding receivables according to our accounting policy. Such decrease was partially offset by increased salary and related expenses and professional fees.
Income tax expenses for the third quarter was $0.2 million as compared with income tax expense of $0.3 million in the same period last year. Net income was $0.9 million for the third quarter compared to net income of $1.3 million in the same period of 2010. Excluding share-based compensation and the $0.8 million of write-off of purchased call option for acquisition of the additional equity interest in Zhengbao Yucai, non-GAAP net income for the third quarter was $2.7 million, compared to non-GAAP net income of $2.4 million in the corresponding quarter in 2010.
Turning onto our balance sheet on slide 14, net operating cash inflow for the third quarter of fiscal 2011 was $0.8 million as compared to a net operating cash inflow of $1.8 million in the same period last year. This is primarily due to the increase in noncash working capital in fiscal year 2011. Cash and cash equivalents, term deposit and restricted cash as of June 30th, 2011 was $58.6 million, a decrease of $5.3 million from March 31, 2011, primarily due to the repurchase of $5.5 million worth of our shares and the CapEx of about $700,000 in the quarter. The cash balance at end of the quarter represents $1.8 per ADR.
Finally, at end of June 30th, 2011 total issued an outstanding shares of the company was 129, 643,500 shares or about 32.4 million ADR. We still have $7.2 million left in the Board approved share buyback programs and we intend to continue to buyback shares to boost our shareholder value. And this completes the financial overview.
Now I will turn the call back to Mr. Zhu for the final remarks on our strategy and business update, as well as revenue guidance for the fourth quarter of fiscal 2011. Mr. Zhu.
Thank you, Wei Ping. In conclusion, we continue to make positive strides in our goal to deliver consistent and a profitable growth. Our core businesses remains fundamentally sound and we are seeing steadied progress from our various growth initiative.
We expect this new verticals to beginning trending up in the coming quarters, which we believe will contribute new revenue streams and to strengthen our comprehensive course and service offering. In addition, we will continue to build further brand awareness to focus advertising and marketing campaigns which addresses the high-quality end value of our service.
As such, we expect our revenue for the fourth quarter to be in the range of $12.7 million to $13.3 million as compared to the net revenue of $11.4 million in the fourth quarter of fiscal 2010, representing 11% to 17% year-over-year increase. This represents our current and the preliminary review which is subject to change.
Thank you for your time. We’d now be happy to take your questions.
Capella Upped to Neutral(0)
We recently upgraded our recommendation on Capella Education Company (CPLA - Analyst Report), the provider of online education, to Neutral with a price target of $52.00 following better-than-expected first-quarter 2011 results. Earlier, we had a Sell rating on the stock.
Capella’s first-quarter 2011 earnings of 97 cents a share beat the Zacks Consensus Estimate of 82 cents, and grew 9% from 89 cents earned in the prior-year quarter. Management hinted that the growth in enrollment and revenue was marginally above expectations, which lends support to the bottom-line.
Total active enrollment, which climbed 7.3% to 39,904 from the year-ago quarter, betters the 4.5%-6.5% guidance range provided earlier. The quarterly revenue of $111.4 million jumped 10% from the prior-year quarter, and remained in line with the Zacks Consensus Estimate. The increase in the top-line was slightly above management’s previous expectation of 8.5%-9.5% growth.
However, we observe that the growth in enrollments in the quarter under review has decelerated sequentially. After increasing 16.2% in fourth-quarter 2010, the rate of growth in enrollment dropped sharply to 7.3% in first-quarter 2011. Capella now expects total enrollment to fall by 1% to 3% in second-quarter 2011. Further, revenue is expected to remain flat or climb 2% in second-quarter 2011.
The current potential risk looming over the education sector is the regulation proposed by the Department of Education that is weighing upon students’ enrollments and the company’s profits. The Department of Education has proposed that an educational program could only qualify for Title IV funds, if it helps in achieving gainful employment, which includes the criteria of loan repayment rate and debt-to-income ratios.
The institutions are under the scanner due to the rise in the default rate of student loans, and are now being asked to submit information relating to recruitment procedures and use of student’s grant.
Capella cautioned that new enrollment in second-quarter 2011 is expected to tumble by approximately 40%. Management hinted that other for-profit education institutes facing tougher norms are chasing Capella’s students who are financially sound and have better loan repayment rates.
The company generally focuses on working adults, and in order to draw students it is also ramping up its marketing and promotional expenditures, which rose 17.9% to $35.3 million during the quarter. The company also hinted at hiking the tuition fees for 2011-2012 academic year, and proposed to offer scholarships and grants to woo students.
To counter sluggishness in students’ enrollment, education companies are also resorting to restructuring their cost base. Capella said that it has lowered its headcount by about 120 non-faculty members and incurred a charge of about $1.9 million for the purpose in the quarter. Management hinted that the eliminations will result in cost savings of approximately $12 to $12.5 million per year.
Given the pros and cons we prefer to have a long-term Neutral rating on the stock. Moreover, Capella, which competes with Apollo Group Inc. (APOL - Analyst Report) and Strayer Education Inc.(STRA - Analyst Report), holds a Zacks #3 Rank, which translates into a short-term Hold recommendation.
This post was originally posted on http://www.zacks.com/stock/news/52519/Capella+Upped+to+Neutral
University of Phoenix : A Lot of Branding but Not Much Understanding(0)
NEW YORK (AdAge.com) — In the barrage of back-to-school ads, get ready to see a lot for the University of Phoenix. The school heaps more than $100 million a year into measured media alone and is a highly efficient marketing machine that spends more each year than Cheerios or Tide.
In a field where most old-line universities spend a few million a year at best, the University of Phoenix is an anomaly for its approach to both education and marketing. It’s the country’s largest private university, with more than 400,000 students and 230 campus and learning-center locations. Its parent, Apollo Group, posted more than $3.1 billion in revenue during fiscal 2008 (Phoenix represents about 95% of Apollo’s net revenue).
Because of the size of its student body, the university is the largest recipient among about 6,200 schools that receive federal funding for higher education in the U.S. With some 82% of its revenue derived from Title IV federally funded student-loan programs in its last fiscal year under the Higher Education Act, what it can afford to spend on marketing towers over most other schools.
That spending in turn draws more students, which yields more marketing dollars. Last year, Phoenix spent $134 million on measured media, according to TNS Media Intelligence, up 3.3% from 2007, and it’s on track to top that in 2009 — it spent $75 million in first half of the year. For five years running, the brand has ranked among Ad Age’s Top 200 Megabrands. This year Phoenix ranked No. 128, behind just one school, ITT, but above more well-known brands such as Quaker, Purina, FedEx and Revlon.)
Moreover, in 2006 it signed a $154 million contract for 20-year naming rights for the NFL stadium near its Phoenix headquarters — even though it has no sports team.
Party of one
So just what is the University of Phoenix? Since its inception in 1976, the school has catered specifically to working adults, a niche underleveraged by traditional colleges and universities. Citing data from the National Center for Education Statistics, Mr. Sullivan said only 27% of undergraduates are “traditional” students — those who live on campus and go to school full time. For the remaining majority, “University of Phoenix provides a quality alternative that is more accessible than conventional four-year colleges and universities,” he said. The average age of a Phoenix student is 34; most work full-time and/or raise a family while attending school.
Phoenix offers affordable tuition, flexible class scheduling and, since 1989, online classes — embracing a form of distance education few traditional universities have felt, at least until recently, is on par with face-to-face learning.
“Phoenix entered the higher-education landscape with a radically different approach, one that offered limitless flexibility and convenience. They developed a large and loyal following before other colleges and universities even realized what was going on,” said Elizabeth Scarborough, CEO of SimpsonScarborough, a higher-education-marketing consulting firm. “They’re filling a gap that really was not filled before.”
It’s a lucrative gap. In Securities and Exchange Commission filings, Apollo reported that revenue increased to $2.9 billion in the first nine months of fiscal 2009, up 25.5% from the same period in 2008. This jump in revenue came largely from increased enrollment and select tuition increases. Since Nov. 30, 2005, degree enrollment has grown 56% to 420,700, according to Phoenix’s 2008 annual report.
Since 1978, Phoenix has been accredited by the commission, the same body that accredits Northwestern University, the University of Michigan and the University of Arizona. “People can focus on the for-profit status in a negative way,” said Brian Mueller, former president of Apollo and CEO of Grand Canyon University, a private, for-profit Christian university. “But without question, on the positive side is the fact that these institutions are serving larger and larger numbers of students at affordable levels.”
Undergraduate tuition and fees average $12,000 per year at Phoenix but vary depending on location and degree program, Mr. Sullivan said. Average per-year tuition and fees for private four-year schools, by contrast, come to more than $25,000, according to the College Board, a not-for-profit membership association with more than 5,400 educational organization members. Average tuition and fees for public four-year schools total roughly $6,500 a year.
The school declined to talk about its marketing dollars or the allocation behind its ubiquitous “I am a Phoenix” ad campaign. Initiative is Phoenix’s local media agency; Carat is its national one. The school turned to startup Pereira & O’Dell for creative duties last December after a six-month review. Pereira & O’Dell did not comment for this article. Apollo also has an in-house agency, Aptimus, bought for $48 million in 2007 and based in San Francisco.
One agency executive who participated in the school’s account pitch last year said part of Phoenix’s perception problem was endemic to the success it has met with internet advertising. “If the majority of your focus is put on direct response and driving traffic to an enrollment form, you don’t have any emotional feeling as to what the University of Phoenix is,” he said. “And that’s why they feel more like an HMO or an insurance company than an institution that can improve your life.”
Average grad rates
But Phoenix’s in-house calculations, shared publicly for the first time last year in a self-published Academic Annual Report, are not comparable to any other data. Case in point: According to the Department of Education, Phoenix’s online campus had a 4% graduation rate for undergraduates; in its own academic report, Phoenix listed completion rates of 27% for associate degrees, 38% for bachelor’s degrees and 60% for graduate degrees — comparable to national averages.
Phoenix has fought criticism in court as well. According to the company’s most recent quarterly SEC filings, among the pending litigation is a lawsuit accusing the school of improperly compensating its enrollment counselors and submitting knowingly false records to get money from the federal government. And in a 2003 program review, the Department of Education found Phoenix had violated Title IV incentive-compensation regulations and later settled out of court for a $9.8 million fine, although Phoenix never admitted any wrongdoing and continues to call the report “flawed and dated.”
Phoenix does not have a standalone advertising program, though it does offer degrees in communications and marketing. Few agencies contacted for this article said they had seen Phoenix résumés come across their desks. “In the past three months, we have received around 750 résumés, and we can remember seeing only one from the University of Phoenix,” said Robin Lander, director of human resources at Deutsch.
But John Challenger, CEO of outplacement firm Challenger, Gray & Christmas, said in many ways, traditional and online education programs are merging, and we are in the midst of a major shift in how education is delivered in the U.S. That is particularly true given President Barack Obama’s wish to extend higher education to more Americans.
The difference between online and traditional education already has been minimized in the corporate world. Procter & Gamble, Unilever and Google are among the many companies that offer tuition reimbursement to employees taking classes at Phoenix. The University of Pennsylvanias of the world are offering more and more online classes, and even General Electric alum “Neutron” Jack Welch now has an online M.B.A. program.
As Phoenix’s size continues to grow — and, at the same time, more public and private nonprofit colleges and universities embrace the online world and come to understand the value of marketing — it may just be on its way toward acceptance, or at least understanding.
Media spending 101
Between 1996-97 and 2006-07, the market share of associate, bachelor’s, master’s and doctoral degrees from for-profit schools grew to 8% from 3%, according to “The Condition of Education, 2009,” a publication of the National Center for Education Statistics. That growth corresponds to a proliferation of for-profit schools. In the same 10-year time span, the number of two-year for-profit schools rose to 533 from 470, and the number of four-year schools rose to 453 from 144.
Bridgepoint Education Plunges as U.S. Audit Looms(0)
By John Lauerman
Sept. 4 (Bloomberg) –Bridgepoint EducationInc., a for- profit provider of college classes, fell the most in almost five months in New York trading after saying a government audit may assert the company misused federal student aid.
The U.S.Department of Education’s Office of Inspector Generalwill issue findings on Bridgepoint’s compliance with government regulations at its Ashford University campus in the next 30 days, the San Diego-based company said today in a statement. Ashford University got 87 percent of its revenue from federal financial aid in 2008, according to a company filing.
The Inspector General’s findings may cover Bridgepoint’s compensation of enrollment officers; returns and disbursement of U.S. student aid funds; and documentation of students’ leaves of absence, the company said. Investors may be concerned that the agency’s charges will lead to fines or settlement costs, saidAriel Sokol, an analyst with Wedbush Morgan Securities in New York.
“No one knows what the potential issues of noncompliance are,” said Sokol, who recommends investors buy the shares and doesn’t own them, in a telephone interview. “Without knowing what the specific allegations are, how can you quantify it?”
Bridgepoint fell $2.66, or 15 percent, to $15.57 at 4:01 p.m. in New York Stock Exchange composite trading after dropping as low as $13.76.Shelley Pfaendler, a spokeswoman for Bridgepoint at KCSA Strategic Communications in New York, declined to comment.
Bridgepointbought the Franciscan University of the Prairies in Clinton, Iowa, in March 2005, renaming it Ashford University, according to a company filing. Bridgepoint, which also owns the University of the Rockies, in Colorado Springs, Colorado, has about 46,000 students, most of whom take courses through the Internet.
The inspector general cited Bridgepoint’s compensation of enrollment officers, which has become an issue at other for- profit education providers, includingGrand Canyon EducationInc., based in Phoenix, andApollo GroupInc., also of Phoenix. In 1992, the government banned paying enrollment officers on the basis of the number of students they recruited. PresidentGeorge W. Bush’sadministration adopted regulations in 2002 that allowed a portion of enrollment-officer pay to be based on the number of students recruited.
Grand Canyon said on Sept. 2 it was in discussions to settle government charges of violating the enrollment law. Apollo Group, the parent company of the University of Phoenix, paid $9.8 million to settle compliance charges in 2004 and faces a lawsuit in federal court over incentive compensation, according to company filings.
The University of Phoenix is the largest private university in the U.S., with more than 400,000 students, most of them taking online courses.
Grand Canyon fell 67 cents, or 3.8 percent, to $16.95 in Nasdaq Stock Market composite trading. Apollo Group, based in Phoenix, fell 31 cents, or less than 1 percent, to $65.57.
Last Updated: September 4, 2009 16:20 EDT
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