ITT Educational Services, Inc. Reports 2011 Second Quarter Results

News provided by

ITT Educational Services, Inc.

Jul 21, 2011, 07:30 ET

CARMEL, Ind., July 21, 2011 /PRNewswire/ -- ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that new student enrollment in the second quarter of 2011 decreased 19.9% to 17,351 compared to 21,673 in the same period in 2010.  Total student enrollment decreased 7.0% to 78,743 as of June 30, 2011 compared to 84,695 as of June 30, 2010.  

The company provided the following information for the three and six months ended June 30, 2011 and 2010:


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

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














Increase/

2011

2010

(Decrease)







Revenue

$387.9

$401.8

(3.5)%

Operating Income

$130.0

$157.1

(17.3)%

Operating Margin

33.5%

39.1%

(560) basis points

Net Income

$79.0

$96.0

(17.7)%

Earnings Per Share (diluted)

$2.85

$2.78

2.5%

New Student Enrollment  


17,351

21,673

(19.9)%

Continuing Students  


61,392

63,022

(2.6)%

Total Student Enrollment as of June 30th

78,743

84,695

(7.0)%

Persistence Rate as of June 30th (A)

73.1%

74.5%

(140) basis points

Revenue Per Student  

$4,616

$4,753

(2.9)%

Cash and Cash Equivalents, Restricted Cash and





Investments as of June 30th

$305.8

$280.1

9.2%

Bad Debt Expense as a Percentage of Revenue

4.5%

5.7%

(120) basis points

Days Sales Outstanding as of June 30th

11.0 days

22.3 days

(11.3) days

Deferred Revenue as of June 30th

$266.8

$197.1

35.4%

Debt as of June 30th

$150.0

$150.0

Weighted Average Diluted Shares of Common Stock
Outstanding

27,719,000

34,525,000

Shares of Common Stock Repurchased

1,100,000 (B)

1,000,000 (C)

Land and Building Purchases and Renovations

$1.2 (D)

$1.8 (E)

(33.1)%

Number of New Colleges in Operation

1

2

Capital Expenditures, Net

$7.5

$7.2

3.4%

Graduate Employment Rate as of April 30th


70% (F)

73% (G)

(300) basis points

Average Annual Reported Graduate Salary as of April 30th

$31,300 (H)

$31,600 (I)

(0.9)%
















Financial and Operating Data for the Six Months Ended June 30th

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


2011

2010

Increase/
(Decrease)







Revenue


$771.0

$785.8

(1.9)%

Operating Income

$270.6

$299.7

(9.7)%

Operating Margin

35.1%

38.1%

(300) basis points

Net Income

$164.4

$183.5

(10.4)%

Earnings Per Share (diluted)

$5.77

$5.24

10.1%

Bad Debt Expense as a Percentage of Revenue

3.9%

5.8%

(190) basis points

Revenue Per Student


$9,141

$9,507

(3.8)%

Weighted Average Diluted Shares of Common
Stock Outstanding

28,511,000

35,010,000

Shares of Common Stock Repurchased

3,100,000 (J)

1,952,500 (K)

Land and Building Purchases and Renovations

$1.7 (L)

$2.6 (M)

(35.4)%

Number of New Colleges in Operation

1

4

Capital Expenditures, Net

$12.2

$12.5

(2.8)%







______________________


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

(B) For approximately $79.4 million or at an average price of $72.20 per share.

(C) For approximately $105.0 million or at an average price of $105.03 per share.

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

(E) Represents costs associated with renovating, expanding or constructing buildings at 13 of the company's locations.

(F) Represents the percentage of the ITT Technical Institutes' 2010 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2011.

(G) Represents the percentage of the ITT Technical Institutes' 2009 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2010.

(H) Represents the average annual salary reported by the ITT Technical Institutes' 2010 employed graduates as of April 30, 2011.

(I) Represents the average annual salary reported by the ITT Technical Institutes' 2009 employed graduates as of April 30, 2010.

(J) For approximately $218.5 million or at an average price of $70.49 per share.

(K) For approximately $200.1 million or at an average price of $102.46 per share.

(L) Represents costs associated with renovating, expanding or constructing buildings at 11 of the company's locations.

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

The Company adjusted its 2011 internal goal for earnings per share from the range of $8.50 to $10.50 to an adjusted range of $10.00 to $10.50.

ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2011 second 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: changes in federal and state governmental laws and regulations with respect to education and accreditation standards, or the interpretation or enforcement of those laws and regulations, 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; business conditions and growth in the postsecondary education industry and in the general economy; 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 federal or state authorizations or accreditations of its campuses or programs of study; 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 internally funded 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

June 30, 2011

December 31, 2010

June 30, 2010

(unaudited)


(unaudited)

Assets




Current assets:




    Cash and cash equivalents

$158,235

$163,779

$ 140,524

    Short-term investments

147,136

149,160

139,486

    Restricted cash

387

255

70

    Accounts receivable, net

47,041

68,937

98,390

    Deferred income taxes

4,804

9,079

17,141

    Prepaid expenses and other current assets

24,567

22,887

16,671

         Total current assets

382,170

414,097

412,282






Property and equipment, net

198,207

198,213

193,717

Deferred income taxes

33,165

21,814

12,237

Other assets

45,610

40,656

28,008

    Total assets

$659,152

$674,780

$646,244






Liabilities and Shareholders' Equity




Current liabilities:




    Accounts payable

$66,008

$67,920

$76,116

    Accrued compensation and benefits

23,610

28,428

26,049

    Other current liabilities

8,421

15,441

14,491

    Deferred revenue

266,847

244,362

197,107

         Total current liabilities

364,886

356,151

313,763






Long-term debt

150,000

150,000

150,000

Other liabilities

57,791

40,559

29,049

    Total liabilities

572,677

546,710

492,812






Shareholders' equity:




    Preferred stock, $.01 par value,




      5,000,000 shares authorized, none issued

0

0

0

   Common stock, $.01 par value, 300,000,000 shares authorized,




        37,068,904, 37,068,904 and 54,068,904  issued

371

371

541

   Capital surplus

181,954

173,935

165,678

   Retained earnings

684,905

524,678

1,182,204

   Accumulated other comprehensive (loss)

(4,438)

(4,509)

(9,555)

   Treasury stock, 10,045,948, 7,075,563 and 20,478,818 shares
      at cost

(776,317)

(566,405)

(1,185,436)

       Total shareholders' equity

86,475

128,070

153,432

       Total liabilities and shareholders' equity

$659,152

$674,780

$646,244

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)










Three Months

Six Months

Ended June 30,

Ended June 30,

(unaudited)

(unaudited)

2011

2010

2011

2010








Revenue

$387,877

$401,849

$771,048

$785,806








Costs and expenses:






Cost of educational services

142,272

133,763

280,198

268,145

Student services and administrative expenses  

115,626

110,954

220,209

217,914

Total costs and expenses

257,898

244,717

500,407

486,059








Operating income

129,979

157,132

270,641

299,747

Interest income

790

533

1,625

1,242

Interest (expense)

(507)

(514)

(1,064)

(934)

Income before provision for income taxes

130,262

157,151

271,202

300,055

Provision for income taxes

51,262

61,111

106,816

116,564








Net income

$79,000

$96,040

$164,386

$183,491








Earnings per share:






    Basic

$2.88

$2.82

$5.81

$5.31

    Diluted

$2.85

$2.78

$5.77

$5.24








Supplemental Data:






Cost of educational services

36.7%

33.3%

36.3%

34.1%

Student services and administrative expenses

29.8%

27.6%

28.6%

27.7%

Operating margin

33.5%

39.1%

35.1%

38.1%

Student enrollment at end of period  

78,743

84,695

78,743

84,695

Campuses at end of period

131

125

131

125

Shares for earnings per share calculation:






    Basic

27,474,000

34,081,000

28,275,000

34,552,000

    Diluted

27,719,000

34,525,000

28,511,000

35,010,000
















Effective tax rate

39.4%

38.9%

39.4%

38.8%

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)










Three Months

Six Months

Ended June 30,

Ended June 30,

(unaudited)

(unaudited)

2011

2010

2011

2010

Cash flows from operating activities:






   Net income

$79,000

$96,040

$164,386

$183,491

   Adjustments to reconcile net income to net cash flows






       from operating activities:






          Depreciation and amortization

7,040

6,724

13,882

13,482

          Provision for doubtful accounts

17,487

23,034

30,154

45,799

          Deferred income taxes

(4,492)

(6,485)

(7,177)

(9,463)

          Excess tax benefit from stock option exercises

(627)

(1,019)

(978)

(1,940)

          Stock-based compensation expense

4,758

4,186

8,672

8,999

          Other

(987)

334

(2,417)

490

          Changes in operating assets and liabilities:






              Restricted cash

1,433

5,228

(132)

1,821

              Accounts receivable

(4,730)

(33,134)

(8,258)

(58,763)

              Accounts payable

(6,681)

7,642

(1,912)

14,841

              Other operating assets and liabilities

(32,886)

(20,711)

24,036

22,340

              Deferred revenue

1,307

5,312

22,485

25,174

Net cash flows from operating activities

60,622

87,151

242,741

246,271








Cash flows from investing activities:






    Facility expenditures and land purchases

(1,173)

(1,754)

(1,675)

(2,593)

    Capital expenditures, net

(7,487)

(7,241)

(12,186)

(12,539)

    Proceeds from sales and maturities of investments
       and repayment of notes

118,307

115,128

260,392

199,826

    Purchase of investments and note advances

(123,104)

(115,602)

(281,693)

(222,774)

Net cash flows from investing activities

(13,457)

(9,469)

(35,162)

(38,080)








Cash flows from financing activities:






    Excess tax benefit from stock option exercises

627

1,019

978

1,940

    Proceeds from exercise of stock options

1,955

1,594

4,983

2,620

    Repurchase of common stock and shares tendered
       for taxes

(79,434)

(105,315)

(219,084)

(201,015)

Net cash flows from financing activities

(76,852)

(102,702)

(213,123)

(196,455)








Net change in cash and cash equivalents

(29,687)

(25,020)

(5,544)

11,736








Cash and cash equivalents at beginning of period

187,922

165,544

163,779

128,788








Cash and cash equivalents at end of period

$158,235

$140,524

$158,235

$140,524

WEB SITE:
www.ittesi.com

SOURCE ITT Educational Services, Inc.