ITT Educational Services, Inc. Reports 2010 Third Quarter Results

Oct 21, 2010, 07:30 ET from ITT Educational Services, Inc.

CARMEL, Ind., Oct. 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 third quarter of 2010 decreased 3.9% to 26,664 compared to 27,738 in the same period in 2009.  Total student enrollment increased 11.1% to 88,004 as of September 30, 2010 compared to 79,208 as of September 30, 2009.  

The company provided the following information for the three and nine months ended September 30, 2010 and 2009:

Financial and Operating Data for the Three Months Ended September 30th, Unless Otherwise Indicated

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

Increase/

2010

2009 (A)

(Decrease)

Revenue

$400.6

$339.6

17.9%

Operating Income

$151.4

$121.5

24.6%

Operating Margin

37.8%

35.7%

210 basis points

Net Income

$93.2

$74.6

24.9%

Earnings Per Share (diluted)

$2.82

$1.98

42.4%

New Student Enrollment  

26,664

27,738

(3.9)%

Continuing Students  

61,340

51,470

19.2%

Total Student Enrollment as of September 30th

88,004

79,208

11.1%

Persistence Rate as of September 30th (B)

72.4%

73.6%

(120) basis points

Revenue Per Student  

$4,730

$4,852

(2.5)%

Cash and Cash Equivalents, Restricted Cash and

Investments as of September 30th

$262.5

$280.8

(6.5)%

Bad Debt Expense as a Percentage of Revenue

5.5%

6.8%

(130) basis points

Days Sales Outstanding as of September 30th

19.6 days

25.4 days

(5.8) days

Deferred Revenue as of September 30th

$195.2

$146.2

33.5%

Debt as of September 30th

$150.0

$150.0

Weighted Average Diluted Shares of Common Stock Outstanding

33,011,000

37,763,000

Shares of Common Stock Repurchased

1,775,000(C)

827,842 (D)

Land and Building Purchases and Renovations

$1.8 (E)

$0.7 (F)

167.3%

Number of New Colleges in Operation

1

5

Capital Expenditures, Net

$8.1

$3.9

107.1%

Financial and Operating Data for the Nine Months Ended September 30th

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

2010

2009 (A)

Increase/

(Decrease)

Revenue

$1,186.4

$944.8

25.6%

Operating Income

$451.2

$335.9

34.3%

Operating Margin

38.0%

35.5%

250 basis points

Net Income

$276.7

$206.6

33.9%

Earnings Per Share (diluted)

$8.06

$5.38

49.8%

Bad Debt Expense as a Percentage of Revenue

5.7%

5.9%

(20) basis points

Revenue Per Student

$14,237

$14,332

(0.7)%

Weighted Average Diluted Shares of Common Stock Outstanding

34,336,000

38,412,000

Shares of Common Stock Repurchased

3,727,500(G)

1,977,875 (H)

Land and Building Purchases and Renovations

$4.4 (I)

$2.5 (J)

73.6%

Number of New Colleges in Operation

5

7 (K)

Capital Expenditures, Net

$20.6

$15.9

29.6%

(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 ("Direct Marketing Costs").

(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 $114.9 million or at an average price of $64.73 per share.

(D)  For approximately $84.5 million or at an average price of $102.06 per share.

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

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

(G)  For approximately $315.0 million or at an average price of $84.49 per share.

(H)  For approximately $208.8 million or at an average price of $105.58 per share.

(I)  Represents costs associated with renovating, expanding or constructing buildings at 17 of the company's locations.

(J)  Represents costs associated with renovating, expanding or constructing buildings at 15 of the company's locations, excluding all land and buildings of Daniel Webster College that the company acquired.

(K)  Excludes Daniel Webster College.

Kevin M. Modany, Chairman and Chief Executive Officer of ITT/ESI, said, "Based on our performance in the first nine months of 2010 and our outlook for the remaining quarter of 2010, we are reiterating our 2010 internal goal for EPS in the range of $11.00 to $11.35."

ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2010 third 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 laws and 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 campuses; the company's ability to implement its growth strategies; the company's failure to maintain or renew required regulatory authorizations or accreditation of its campuses; 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

September 30, 2010

December 31, 2009

September 30, 2009 (a)

(unaudited)

(unaudited)

Assets

Current assets:

    Cash and cash equivalents

$119,956

$128,788

$ 130,971

    Short-term investments

142,483

143,407

144,146

    Restricted cash

108

1,891

5,723

    Accounts receivable, net

85,246

85,426

93,819

    Deferred income taxes

17,488

13,799

16,328

    Prepaid expenses and other current assets

17,494

17,651

19,106

         Total current assets

382,775

390,962

410,093

Property and equipment, net

197,383

195,449

192,341

Deferred income taxes

18,189

6,416

6,533

Other assets

29,383

23,878

20,705

    Total assets

$627,730

$616,705

$629,672

Liabilities and Shareholders' Equity

Current liabilities:

    Current portion of long term debt

$--

$--

$150,000

    Accounts payable

79,620

61,275

67,183

    Accrued compensation and benefits

19,545

26,323

23,340

    Other current liabilities

12,051

25,261

23,801

    Deferred revenue

195,168

171,933

146,203

         Total current liabilities

306,384

284,792

410,527

Long-term debt

150,000

150,000

--

Other liabilities

29,004

25,328

22,262

    Total liabilities

485,388

460,120

432,789

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

541

   Capital surplus

170,699

154,495

151,653

   Retained earnings

1,270,248

1,006,903

913,310

   Accumulated other comprehensive (loss)

(9,147)

(10,093)

(12,558)

   Treasury stock, 22,151,915, 18,622,809 and 17,123,838

      shares, at cost

(1,289,999)

(995,261)

(856,063)

       Total shareholders' equity

142,342

156,585

196,883

       Total liabilities and shareholders' equity

$627,730

$616,705

$629,672

_____________

(a)  Amounts as of September 30, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

Three Months

Nine Months

Ended September 30,

Ended September 30,

(unaudited)

(unaudited)

2010

2009 (a)

2010

2009 (a)

Revenue

$400,597

$339,643

$1,186,403

$944,816

Costs and expenses:

Cost of educational services

134,478

116,730

402,623

328,609

Student services and administrative expenses  

114,706

101,421

332,620

280,293

Total costs and expenses

249,184

218,151

735,243

608,902

Operating income

151,413

121,492

451,160

335,914

Interest income

634

716

1,876

2,827

Interest (expense)

(490)

(191)

(1,424)

(593)

Income before provision for income taxes

151,557

122,017

451,612

338,148

Provision for income taxes

58,380

47,409

174,944

131,526

Net income

$93,177

$74,608

$276,668

$206,622

Earnings per share:

    Basic

$2.84

$2.00

$8.15

$5.44

    Diluted

$2.82

$1.98

$8.06

$5.38

Supplemental Data:

Cost of educational services

33.6%

34.4%

33.9%

34.8%

Student services and administrative expenses

28.6%

29.9%

28.0%

29.7%

Operating margin

37.8%

35.7%

38.0%

35.5%

Student enrollment at end of period  

88,004

79,208

88,004

79,208

Campuses at end of period

126

113

126

113

Shares for earnings per share calculation:

    Basic

32,777,000

37,324,000

33,954,000

37,950,000

    Diluted

33,011,000

37,763,000

34,336,000

38,412,000

Effective tax rate

38.5%

38.9%

38.7%

38.9%

_____________

(a)  Amounts for the three and nine months ended September 30, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

Three Months

Nine Months

Ended September 30,

Ended September 30,

(unaudited)

(unaudited)

2010

2009 (a)

2010

2009 (a)

Cash flows from operating activities:

   Net income

$93,177

$74,608

$276,668

$206,622

   Adjustments to reconcile net income to net cash flows

       from operating activities:

          Depreciation and amortization

6,205

6,276

19,687

18,204

          Provision for doubtful accounts

22,151

23,183

67,950

56,012

          Deferred income taxes

(6,568)

989

(16,031)

(4,003)

          Excess tax benefit from stock option exercises

(1,313)

(1,385)

(3,253)

(5,272)

          Stock-based compensation expense

3,708

2,891

12,707

10,247

          Other

268

113

758

(309)

          Changes in operating assets and liabilities, net of acquisition:

              Restricted cash

(38)

(5,743)

1,783

2,581

              Accounts receivable

(9,007)

(47,255)

(67,770)

(119,255)

              Accounts payable

3,504

4,763

18,345

10,819

              Other operating assets and liabilities

6,756

(2,809)

29,096

(301)

              Deferred revenue

(1,939)

19,325

23,235

(17,631)

Net cash flows from operating activities

116,904

74,956

363,175

157,714

Cash flows from investing activities:

    Facility expenditures and land purchases

(1,775)

(664)

(4,368)

(2,516)

    Capital expenditures, net

(8,090)

(3,907)

(20,629)

(15,913)

    Acquisition of college, net of cash acquired

--

--

--

(20,792)

    Proceeds from sales and maturities of investments and notes

81,517

57,352

281,343

142,741

    Purchase of investments and notes

(100,741)

(56,614)

(323,515)

(161,353)

Net cash flows from investing activities

(29,089)

(3,833)

(67,169)

(57,833)

Cash flows from financing activities:

    Excess tax benefit from stock option exercises

1,313

1,385

3,253

5,272

    Proceeds from exercise of stock options

5,210

2,756

7,830

8,750

    Repurchase of common stock and shares tendered for taxes

(114,906)

(84,497)

(315,921)

(209,187)

Net cash flows from financing activities

(108,383)

(80,356)

(304,838)

(195,165)

Net change in cash and cash equivalents

(20,568)

(9,233)

(8,832)

(95,284)

Cash and cash equivalents at beginning of period

140,524

140,204

128,788

226,255

Cash and cash equivalents at end of period

$119,956

$130,971

$119,956

$130,971

________________

(a)  Amounts for the three and nine months ended September 30, 2009 have been retrospectively adjusted from amounts reported in prior periods for the change in accounting for Direct Marketing Costs that was made in the fourth quarter of 2009.

SOURCE ITT Educational Services, Inc.



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http://www.ittesi.com