ITT Educational Services, Inc. Reports 2009 Fourth Quarter and Full Year Results, New Student Enrollment Increased 31.2%; EPS Increased 59.0% to $2.56

Jan 21, 2010, 11:00 ET from ITT Educational Services, Inc.

CARMEL, Ind., Jan. 21 /PRNewswire-FirstCall/ -- ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that new student enrollment in the fourth quarter of 2009 increased 31.2% to 19,563 compared to 14,911 in the same period in 2008.  Total student enrollment increased 30.3% to 80,766 as of December 31, 2009 compared to 61,983 as of December 31, 2008.  

Earnings per share ("EPS") in the fourth quarter of 2009 increased 59.0% to $2.56 compared to $1.61 in the fourth quarter of 2008. Revenue in the three months ended December 31, 2009 increased 33.8% to $374.4 million compared to $279.8 million in the three months ended December 31, 2008.  Operating margin increased 440 basis points to 40.8% in the fourth quarter of 2009 compared to 36.4% in the same period in 2008.

The company provided the following information for the three and twelve months ended December 31, 2009 and 2008:

Financial and Operating Data for the Three Months Ended December 31st, Unless Otherwise Indicated

(Dollars in millions, except per share and per student data)

2009

2008 (A)

Increase/ (Decrease)

Revenue

$374.4   

$279.8   

33.8%

Operating Income

$152.9   

$101.8   

50.2%

Operating Margin

40.8%

36.4%

440 basis points

Net Income

$93.7   

$62.8   

49.0%

Earnings Per Share (diluted)

$2.56   

$1.61   

59.0%

New Student Enrollment

19,563   

14,911   

31.2%

Continuing Students

61,203   

47,072   

30.0%

Total Student Enrollment as of  December 31st

80,766   

61,983   

30.3%

Persistence Rate as of  December 31st (B)

77.3%

76.5%

80 basis points

Revenue Per Student

$4,727   

$4,545   

4.0%

Cash and Cash Equivalents, Restricted Cash and Investments as of  December 31st

$274.1   

$375.4   

(27.0)%

Bad Debt Expense as a Percentage of Revenue

6.9%

4.9%

200 basis points

Days Sales Outstanding as of  December 31st

21.0 days

9.8 days

11.2 days

Deferred Revenue as of  December 31st

$171.9   

$162.2   

6.0%

Debt as of December 31st

$150.0   

$150.0   

Weighted Average Diluted Shares of Common Stock Outstanding

36,549,000   

39,100,000   

Shares of Common Stock Repurchased

1,500,000   

(C)

--   

Land and Building Purchases and Renovations

$1.7   

(D)

$1.0   

(E)

74.4%

Number of New Colleges in Operation

3   

2   

Number of Learning Sites Converted to Colleges

5   

--   

Capital Expenditures, Net

$8.1   

$5.4   

48.5%

Financial and Operating Data for the Twelve Months Ended December 31st

(Dollars in millions, except per share and per student data)

2009

2008 (A)

Increase/ (Decrease)

Revenue

$1,319.2   

$1,015.3   

29.9%

Operating Income

$488.8   

$325.5   

50.2%

Operating Margin

37.1%

32.1%

500 basis points

Net Income

$300.3   

$201.5   

49.0%

Earnings Per Share (diluted)

$7.91   

$5.13   

54.2%

Bad Debt Expense as a Percentage of Revenue

6.2%

4.3%

190 basis points

Revenue Per Student

$19,059   

$18,162   

4.9%

Weighted Average Diluted Shares of Common Stock Outstanding

37,942,000   

39,243,000   

Shares of Common Stock Repurchased

3,477,875   

(F)

1,049,700   

(G)

Land and Building Purchases and Renovations

$4.2   

(H)

$18.1   

(I)

(76.8)%

Number of New Colleges in Operation

10   

(J)

8   

Number of Learning Sites Converted to Colleges

5   

--   

Capital Expenditures, Net

$24.0   

$17.5   

36.8%

(A) Financial data is adjusted from amounts reported in prior periods for the change in accounting for direct costs related to the enrollment of new students.

(B) Represents the number of Continuing Students in the academic term, divided by the Total Student Enrollment in the immediately preceding academic term.

(C) For approximately $139.3 million or at an average price of $92.86 per share.

(D) Represents costs associated with renovating, expanding or constructing buildings at nine of the company's locations, but it excludes all land and buildings of Daniel Webster College that the company acquired.

(E) Represents costs associated with renovating, expanding or constructing buildings at 10 of the company's locations.

(F) For approximately $348.1 million or at an average price of $100.10 per share.

(G) For approximately $87.8 million or at an average price of $83.62 per share.

(H) Represents costs associated with renovating, expanding or constructing buildings at 19 of the company's locations, but it excludes all land and buildings of Daniel Webster College that the company acquired.

(I) Represents costs associated with purchasing a parcel of land on which the company constructed a building, and purchasing, renovating, expanding or constructing buildings at 19 of the company's locations.

(J) Excludes Daniel Webster College.

The following table sets forth information provided by the company regarding its 2010 internal goals for the metrics indicated:

2010 Internal Goal Range

Days Sales Outstanding at December 31st

10 days to 15 days

Bad Debt Expense as a Percentage of Revenue

4% to 6%

Earnings Per Share (diluted)

$10.00 to $10.50

Kevin M. Modany, Chairman and Chief Executive Officer of ITT/ESI, said, "We are very pleased with our results in the final quarter and full year of 2009.  As we begin the New Year, we believe that we are well positioned to achieve our internal financial and operating goals for 2010."

ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2009 fourth quarter earnings at 11:00 am (ET) this morning.  The public is invited to listen to a live webcast of the conference call.  The webcast may be accessed by following the "Live Webcast" directions on ITT/ESI's website at www.ittesi.com.

Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based on the current expectations and beliefs of the company's management concerning future developments and their potential effect on the company. The company cannot assure you that future developments affecting the company will be those anticipated by its management. These forward-looking statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: business conditions and growth in the postsecondary education industry and in the general economy; changes in federal and state governmental regulations with respect to education and accreditation standards, or the interpretation or enforcement thereof, including, but not limited to, the level of government funding for, and the company's eligibility to participate in, student financial aid programs utilized by the company's students; the company's failure to comply with the extensive education laws and regulations and accreditation standards that it is subject to; effects of any change in ownership of the company resulting in a change in control of the company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of its institutes; the company's ability to implement its growth strategies; the company's failure to maintain or renew required regulatory authorizations or accreditation of its institutes; receptivity of students and employers to the company's existing program offerings and new curricula; loss of access by the company's students to lenders for education loans; the company's ability to collect internal student financing from its students; the company's exposure under its guarantees related to private student loan programs; the company's ability to successfully defend litigation and other claims brought against it; and other risks and uncertainties detailed from time to time in the company's filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

As of

December 31, 2009

December 31, 2008 (a)

(unaudited)

(unaudited)

Assets

Current assets:

    Cash and cash equivalents

$                   128,788 

$                         226,255 

    Short-term investments

143,407 

138,709 

    Restricted cash

1,891 

10,405 

    Accounts receivable, net

85,426 

29,779 

    Deferred income taxes

13,799 

12,104 

    Prepaid expenses and other current assets

17,651 

13,793 

         Total current assets

390,962 

431,045 

Property and equipment, net

195,449 

166,671 

Deferred income taxes

6,416 

7,462 

Other assets

23,878 

3,170 

    Total assets

$                   616,705 

$                         608,348 

Liabilities and Shareholders' Equity

Current liabilities:

    Accounts payable

$                     61,275 

$                           54,815 

    Accrued compensation and benefits

26,323 

21,133 

    Accrued income taxes

10,218 

14,976 

    Other accrued liabilities

15,043 

11,423 

    Deferred revenue

171,933 

162,206 

         Total current liabilities

284,792 

264,553 

Long-term debt

150,000 

150,000 

Other liabilities

25,328 

19,951 

    Total liabilities

460,120 

434,504 

Shareholders' equity:

    Preferred stock, $.01 par value,

      5,000,000 shares authorized, none issued

-- 

-- 

   Common stock, $.01 par value,

        300,000,000 shares authorized, 54,068,904 issued

541 

541 

   Capital surplus

154,495 

135,655 

   Retained earnings

1,006,903 

718,100 

   Accumulated other comprehensive (loss)

(10,093)

(13,384)

   Treasury stock, 18,622,809 and 15,352,376

      shares, at cost

(995,261)

(667,068)

       Total shareholders' equity

156,585 

173,844 

       Total liabilities and shareholders' equity

$                   616,705 

$                         608,348 

______________

(a)  Amounts as of December 31, 2008 have been retrospectively adjusted from amounts reported in prior periods for

a change in accounting for direct costs related to the enrollment of new students ("Direct Marketing Costs").  

Total shareholders' equity as of December 31, 2008 decreased by $14,007 from the previously reported amount

as a result of the change in accounting for Direct Marketing Costs.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

Three Months

Twelve Months

Ended December 31,

Ended December 31,

(unaudited)

(unaudited)

2009 (a)

2008 (b)

2009 (a)

2008 (b)

Revenue

$         374,378   

$         279,799   

$      1,319,194   

$      1,015,333   

Costs and expenses:

Cost of educational services

121,226   

101,550   

449,835   

383,769   

Student services and administrative expenses  

100,274   

76,436   

380,567   

306,099   

Total costs and expenses

221,500   

177,986   

830,402   

689,868   

Operating income

152,878   

101,813   

488,792   

325,465   

Interest income

464   

1,730   

3,291   

6,505   

Interest (expense)

(133)  

(1,023)  

(726)  

(4,611)  

Income before provision for income taxes

153,209   

102,520   

491,357   

327,359   

Provision for income taxes

59,568   

39,666   

191,094   

125,854   

Net income

$           93,641   

$           62,854   

$         300,263   

$         201,505   

Earnings per share:

    Basic

$              2.59   

$              1.62   

$              8.01   

$              5.18   

    Diluted

$              2.56   

$              1.61   

$              7.91   

$              5.13   

Supplemental Data:

Cost of educational services

32.4%

36.3%

34.1%

37.8%

Student services and administrative expenses

26.8%

27.3%

28.8%

30.1%

Operating margin

40.8%

36.4%

37.1%

32.1%

Student enrollment at end of period  

80,766   

61,983   

80,766   

61,983   

Campuses at end of period

121   

(c)

105   

121   

(c)

105   

Shares for earnings per share calculation:

    Basic

36,125,000   

38,712,000   

37,490,000   

38,881,000   

    Diluted

36,549,000   

39,100,000   

37,942,000   

39,243,000   

Effective tax rate

38.9%

38.7%

38.9%

38.4%

______________


    (a)  In the fourth quarter of 2009, we changed our accounting for Direct Marketing Costs to expense those costs in the period incurred.  Previously, we capitalized Direct Marketing Costs and amortized those costs over the period during which the associated revenue was recognized.  If we had not changed our accounting for Direct Marketing Costs:
      -  in the three months ended December 31, 2009,
        - our net income would have been approximately $384 higher, and
        - our diluted earnings per share would have been $0.01 higher; and
      -  in the twelve months ended December 31, 2009,
        - our net income would have been approximately $2,974 higher, and
        - our diluted earnings per share would have been $0.08 higher.
    (b)  Amounts for the three and twelve months ended December 31, 2008 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs.  The change in accounting resulted in the previously reported amounts of our:
      -  net income decreasing by $169 in the three months ended, and $1,467 in the twelve months ended, December 31, 2008; and
      -  diluted earnings per share decreasing by $0.04 in the twelve months ended December 31, 2008.
      The change in accounting did not affect our reported diluted earnings per share in the three months ended December 31, 2008.
    (c)  Includes the conversion of five learning sites to campuses.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Three Months

Twelve Months

Ended December 31,

Ended December 31,

(unaudited)

(unaudited)

2009 (a)

2008 (b)

2009 (a)

2008 (b)

Cash flows from operating activities:

   Net income

$   93,641 

$   62,854 

$ 300,263 

$  201,505 

   Adjustments to reconcile net income to net cash flows

       from operating activities:

          Depreciation and amortization

6,704 

5,895 

24,908 

22,230 

          Provision for doubtful accounts

25,971 

13,829 

81,983 

43,286 

          Deferred income taxes

937 

(1,309)

(3,066)

(9,389)

          Excess tax benefit from stock option exercises

(17)

(385)

(5,289)

(1,158)

          Stock-based compensation expense

2,827 

1,504 

13,074 

7,235 

          Other

(854)

1,554 

(1,163)

1,554 

          Changes in operating assets and liabilities, net of acquisition:

              Restricted cash

3,194 

(10,389)

5,775 

(4,350)

              Accounts receivable

(17,582)

(10,299)

(136,837)

(57,933)

              Accounts payable

(5,908)

(3,966)

4,911 

9,695 

              Accrued income taxes

2,318 

13,630 

1,010 

10,163 

              Other operating assets and liabilities

4,327 

(10,171)

5,334 

1,042 

              Deferred revenue

27,986 

20,162 

10,355 

(50,921)

Net cash flows from operating activities

143,544 

82,909 

301,258 

172,959 

Cash flows from investing activities:

    Facility expenditures and land purchases

(1,720)

(986)

(4,236)

(18,093)

    Capital expenditures, net

(8,079)

(5,440)

(23,992)

(17,543)

    Acquisition of college, net of cash acquired

-- 

-- 

(20,792)

-- 

    Proceeds from sales and maturities of investments

99,586 

120,994 

242,327 

1,085,559 

    Purchase of investments

(97,425)

(109,275)

(244,787)

(920,480)

    Issuance of note receivable

(1,531)

-- 

(18,225)

-- 

    Proceeds from repayments of note receivable

2,669 

-- 

5,374 

-- 

Net cash flows from investing activities

(6,500)

5,293 

(64,331)

129,443 

Cash flows from financing activities:

    Excess tax benefit from stock option exercises

17 

385 

5,289 

1,158 

    Proceeds from exercise of stock options

50 

970 

8,800 

3,241 

    Repurchase of common stock and shares tendered for taxes

(139,294)

-- 

(348,483)

(87,774)

Net cash flows from financing activities

(139,227)

1,355 

(334,394)

(83,375)

Net change in cash and cash equivalents

(2,183)

89,557 

(97,467)

219,027 

Cash and cash equivalents at beginning of period

130,971 

136,698 

226,255 

7,228 

Cash and cash equivalents at end of period

$ 128,788 

$ 226,255 

$ 128,788 

$  226,255 

_______________

(a)  Net cash flows from operating activities, investing activities and financing activities in the three and twelve months ended December 31, 2009 did not change as a result of the changes in accounting for Direct Marketing Costs.

(b)  Amounts for the three and twelve months ended December 31, 2008 have been retrospectively adjusted from amounts reported in prior periods for     the change in accounting for Direct Marketing Costs.  Net cash flows from operating activities, investing activities and financing activities in the three and twelve months ended December 31, 2008 did not change as a result of the change in accounting.

SOURCE ITT Educational Services, Inc.



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http://www.ittesi.com