ITT Educational Services, Inc. Reports 2012 Third Quarter Results

CARMEL, Ind., Oct. 25, 2012 /PRNewswire/ -- 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 2012 decreased 15.8% to 19,298 compared to 22,909 in the same period in 2011.  Total student enrollment decreased 17.1% to 65,662 as of September 30, 2012 compared to 79,219 as of September 30, 2011. 

The company provided the following information for the three and nine months ended September 30, 2012 and 2011:


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/

2012


2011

(Decrease)








Revenue


$314.7


$360.6


(12.7)%

Operating Income


$70.8


$109.9


(35.6)%

Operating Margin


22.5%


30.5%


(800) basis points

Net Income


$42.9


$67.3


(36.3)%

Earnings Per Share (diluted)


$1.83


$2.48


(26.2)%

New Student Enrollment  


19,298


22,909


(15.8)%

Continuing Students  


46,364


56,310


(17.7)%

Total Student Enrollment as of September 30th


65,662


79,219


(17.1)%

Persistence Rate as of September 30th (A)


69.8%


71.5%


 (170) basis points

Revenue Per Student 


$4,740


$4,580


3.5%

Cash and Cash Equivalents, Restricted Cash and
     Investments as of September 30th


$175.2


$319.8


(45.2)%

Bad Debt Expense as a Percentage of Revenue


7.3%


3.8%


  350 basis points

Days Sales Outstanding as of September 30th


  26.1 days


  14.3 days


            11.8 days

Deferred Revenue as of September 30th


$119.1


$226.0


(47.3)%

Debt as of September 30th


$140.0


$150.0



Weighted Average Diluted Shares of Common
     Stock Outstanding


23,443,000


27,098,000



Shares of Common Stock Repurchased


0


370,000 (B)



Number of New Colleges in Operation


1


5



Capital Expenditures, Net


$3.2


$7.8


(59.3)%









 


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

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



2012


2011


Increase/
(Decrease)








Revenue


$986.4


$1,131.7


(12.8)%

Operating Income


$248.8


$380.5


(34.6)%

Operating Margin


25.2%


33.6%


(840) basis points

Net Income


$149.9


$231.7


(35.3)%

Earnings Per Share (diluted)


$6.20


$8.27


(25.0)%

Bad Debt Expense as a Percentage of Revenue


5.8%


3.9%


  190 basis points

Revenue Per Student


$14,043


$13,721


2.3%

Weighted Average Diluted Shares of Common
     Stock Outstanding


24,200,000


28,035,000



Shares of Common Stock Repurchased


3,025,700 (C)


3,470,000 (D)



Number of New Colleges in Operation


6


6



Capital Expenditures, Net


$14.8


$20.0


(26.0)%
















(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 $29.6 million or at an average price of $79.94 per share.

(C) For approximately $207.9 million or at an average price of $68.72 per share.

(D) For approximately $248.1 million or at an average price of $71.50 per share.



The Company adjusted its 2012 internal goal for earnings per share from the range of $8.00 to $9.00 to an adjusted range of $8.00 to $8.10.  

ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2012 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: 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


September 30, 2012


December 31, 2011


September 30, 2011


(unaudited)




(unaudited)

Assets






Current assets:






     Cash and cash equivalents

$174,458


$228,993


$172,577

     Short-term investments

0


148,488


146,799

     Restricted cash

720


2,128


413

     Accounts receivable, net

89,425


48,106


56,140

     Deferred income taxes

19,284


9,759


6,760

     Prepaid expenses and other current assets

18,331


18,814


19,565

          Total current assets

302,218


456,288


402,254







Property and equipment, net

194,253


201,257


201,010

Deferred income taxes

39,499


33,267


37,068

Other assets

49,080


38,006


46,422

     Total assets

$585,050


$728,818


$686,754







Liabilities and Shareholders' Equity






Current liabilities:






     Accounts payable

$76,358


$78,876


$88,825

     Accrued compensation and benefits

19,729


21,438


16,772

     Other current liabilities

19,910


18,190


12,809

     Deferred revenue

119,089


226,543


226,046

          Total current liabilities

235,086


345,047


344,452







Long-term debt

140,000


150,000


150,000

Other liabilities

78,189


64,972


63,840

     Total liabilities

453,275


560,019


558,292







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 issued

371


371


371

    Capital surplus

203,095


189,573


186,009

    Retained earnings

968,545


827,675


751,705

    Accumulated other comprehensive (loss)

(8,970)


(9,479)


(4,498)

    Treasury stock, 13,744,474, 10,969,425 and
          10,405,882 shares, at cost

(1,031,266)


(839,341)


(805,125)

        Total shareholders' equity

131,775


168,799


128,462

        Total liabilities and shareholders' equity

$585,050


$728,818


$686,754

 


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)


2012


2011


2012


2011









Revenue

$314,747


$360,638


$986,366


$1,131,686









Costs and expenses:








Cost of educational services

133,948


141,262


409,829


421,460

Student services and administrative
       expenses

110,046


109,512


327,779


329,721

Total costs and expenses

243,994


250,774


737,608


751,181









Operating income

70,753


109,864


248,758


380,505

Interest income

125


716


1,308


2,341

Interest (expense)

(1,021)


(378)


(2,822)


(1,442)

Income before provision for income
        taxes

69,857


110,202


247,244


381,404

Provision for income taxes

26,997


42,884


97,311


149,700









Net income

$42,860


$67,318


$149,933


$231,704









Earnings per share:








     Basic

$1.83


$2.51


$6.23


$8.34

     Diluted

$1.83


$2.48


$6.20


$8.27









Supplemental Data:








Cost of educational services

42.6%


39.2%


41.5%


37.2%

Student services and administrative
      expenses

35.0%


30.4%


33.2%


29.1%

Operating margin

22.5%


30.5%


25.2%


33.6%

Student enrollment at end of period 

65,662


79,219


65,662


79,219

Campuses at end of period

147


136


147


136

Shares for earnings per share calculation:








     Basic

23,359,000


26,839,000


24,054,000


27,791,000

     Diluted

23,443,000


27,098,000


24,200,000


28,035,000









Effective tax rate

38.7%


38.9%


39.4%


39.2%









 


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)


2012


2011


2012


2011

Cash flows from operating activities:








    Net income

$42,860


$67,318


$149,933


$231,704

    Adjustments to reconcile net income to net cash flows








        from operating activities:








           Depreciation and amortization

6,930


6,486


22,045


20,368

           Provision for doubtful accounts

22,873


13,864


57,480


44,018

           Deferred income taxes

(6,021)


(5,831)


(16,097)


(13,008)

           Excess tax benefit from stock option exercises

(3)


(167)


(1,382)


(1,145)

           Stock-based compensation expense

4,291


4,166


13,046


12,838

           Other

340


(820)


97


(3,237)

           Changes in operating assets and liabilities:








               Restricted cash

31


(26)


1,408


(158)

               Accounts receivable

(38,623)


(22,963)


(98,799)


(31,221)

               Accounts payable

(4,419)


22,817


(2,518)


20,905

               Other operating assets and liabilities

(5,758)


5,035


1,008


29,071

               Deferred revenue

(2,784)


(40,801)


(107,454)


(18,316)

Net cash flows from operating activities

19,717


49,078


18,767


291,819









Cash flows from investing activities:








     Facility expenditures and land purchases

(108)


(1,454)


(493)


(3,129)

     Capital expenditures, net

(3,185)


(7,827)


(14,820)


(20,013)

     Proceeds from sales and maturities of investments
        and repayment of notes

553


52,317


216,724


312,709

     Purchase of investments and note advances

0


(48,613)


(63,545)


(330,306)

Net cash flows from investing activities

(2,740)


(5,577)


137,866


(40,739)









Cash flows from financing activities:








     Excess tax benefit from stock option exercises

3


167


1,382


1,145

     Proceeds from exercise of stock options

254


303


8,345


5,286

     Debt issue costs

0


0


(1,525)


0

     Proceeds from revolving borrowings

0


0


175,000


0

     Repayments of revolving borrowings

(10,000)


0


(185,000)


0

     Repurchase of common stock and shares tendered
        for taxes

(10)


(29,629)


(209,370)


(248,713)

Net cash flows from financing activities

(9,753)


(29,159)


(211,168)


(242,282)









Net change in cash and cash equivalents

7,224


14,342


(54,535)


8,798









Cash and cash equivalents at beginning of period

167,234


158,235


228,993


163,779









Cash and cash equivalents at end of period

$174,458


$172,577


$174,458


$172,577

 

 

SOURCE ITT Educational Services, Inc.

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