CARMEL, Ind., July 24 IN-ITT-Educat-Q2-earn
CARMEL, Ind., July 24 /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 second
quarter of 2008 increased 22.5% to 14,751 compared to 12,043 in the second
quarter of 2007. Total student enrollment increased 12.1% to 54,793 as of
June 30, 2008 compared to 48,873 as of June 30, 2007.
Earnings per share ("EPS") in the second quarter of 2008 increased 37.9%
to $1.20 compared to $0.87 in the second quarter of 2007. Revenue in the
three months ended June 30, 2008 increased 13.6% to $246.4 million compared to
$217.0 million in the second quarter of 2007. Operating margin increased 440
basis points to 31.0% in the second quarter of 2008 compared to 26.6% in the
same period in 2007.
The company provided the following information for the three and six
months ended June 30th, 2008 and 2007:
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/
20082007 (Decrease)
Revenue $246.4 $217.0 13.6%
Operating Income $76.3 $57.7 32.3%
Operating Margin 31.0% 26.6% 440 basis points
Net Income$47.1 $35.9 31.4%
Earnings Per Share (diluted) $1.20 $0.87 37.9%
New Student Enrollment 14,751 12,043 22.5%
Continuing Students 40,042 36,830 8.7%
Total Student Enrollment as of
June 30th 54,793 48,873 12.1%
Quarterly Persistence Rate (A) 73.9% 74.7% (80) basis points
Revenue Per Student $4,547 $4,402 3.3%
Cash and Cash Equivalents,
Restricted Cash and Investments
as of June 30th $249.9 $300.9(16.9)%
Bad Debt Expense as a
Percentage of Revenue 3.9%2.5% 140 basis points
Days Sales Outstanding as of
June 30th10.8 days4.2 days 6.6 days
Deferred Revenue as of June
30th$138.3 $192.4(28.1)%
Debt as of June 30th $150.0 $150.0
Weighted Average Diluted
Shares of Common Stock
Outstanding 39,167,000 41,110,000
Shares of Common Stock
Repurchased -- 720,000 (B)
Land and Building Purchases$6.9 (C)$3.8 (D) 82.5%
Number of New Colleges in
Operation2 3
Capital Expenditures, Net $5.3$4.4 19.5%
Financial and Operating Data For The Six Months Ended June 30th
(Dollars in millions, except per share and per student data)
Increase/
20082007(Decrease)
Revenue $481.3 $421.2 14.3%
Operating Income $145.0 $101.8 42.5%
Operating Margin 30.1% 24.2% 590 basis points
Net Income$89.8 $63.5 41.5%
Earnings Per Share (diluted) $2.28 $1.53 49.0%
Revenue Per Student $8,976 $8,756 2.5%
Bad Debt Expense as a
Percentage of Revenue 3.5%2.4% 110 basis points
Weighted Average Diluted
Shares of Common Stock
Outstanding 39,339,000 41,350,000
Shares of Common Stock
Repurchased865,000 (E) 1,529,900 (F)
Land and Building Purchases $13.2 (G)$8.7 (H) 51.7%
Number of New Colleges in
Operation5 6
Capital Expenditures, Net $7.8$6.9 12.2%
(A) Represents the number of Continuing Students in the academic quarter,
divided by the Total Student Enrollment in the immediately preceding
academic quarter.
(B) For approximately $75.7 million or at an average price of $105.16 per
share.
(C) Represents costs associated with purchasing, renovating, expanding or
constructing buildings at 11 of the company's locations.
(D) Represents costs associated with purchasing, renovating, expanding or
constructing buildings at six of the company's locations.
(E) For approximately $71.8 million or at an average price of $83.01 per
share.
(F) For approximately $140.8 million or at an average price of $92.01 per
share.
(G) Represents costs associated with purchasing a parcel of land on which
the company is building a facility, and purchasing, renovating,
expanding or constructing buildings at 15 of the company's locations.
(H) Represents costs associated with purchasing, renovating, expanding or
constructing buildings at nine of the company's locations.
Kevin M. Modany, Chairman, CEO and President of ITT/ESI, said, "Our second
quarter results were outstanding in all areas of the business. These results
demonstrate that our faculty, staff and management team are well prepared to
handle the recent disruption in student financing, and that their number one
priority is to continue helping people improve their lives through a high-
quality postsecondary education. We could not be more proud of our colleges'
performance or more pleased with the impressive results that we report to you
today as a result of their efforts. Our second quarter results far exceeded
our expectations and, as a result, we are raising our internal goal for 2008
EPS from the range of $4.10 to $4.60 to the revised range of $4.65 to $4.75.
We believe that we are extremely well positioned to achieve our internal goals
for 2008."
Modany observed, "We experienced a very favorable advertising environment
in the second quarter of 2008, and those conditions persisted as we entered
the third quarter of 2008. Interest in our programs of study during the
second quarter was very strong across all six of our schools of study and for
programs delivered in residence and online. The strong student interest was
generated by our second quarter advertising expenditures, which increased 2%
year-over-year. That rate of increase was below our planned level of
expenditures and was primarily the result of the current economic conditions
affecting the general advertising market. Looking forward to the second half
of the year, we anticipate that the increase in our quarterly advertising
expenditures compared to the same prior year quarters will be at or below our
originally planned increase of between 10% to 15%. Consistent with our
successful historical practice and our strategic growth plan, we anticipate
using those additional advertising expenditures to promote new colleges and
program offerings."
Modany noted that, "Our quarterly persistence rate declined 80 basis
points to 73.9% in the second quarter compared to 74.7% in the same period in
2007. Excluding the increase in the number of graduates in the second quarter
of 2008, however, our quarterly persistence rate in the second quarter was
consistent with the same prior year quarter. The number of graduates in the
second quarter of 2008 increased as a result of the improvements in our
student retention that we experienced in 2007. We believe that our quarterly
persistence rate in the remaining quarters of 2008 will be fairly consistent
with the rate reported for the same quarters in the prior year after excluding
year-over-year increases in graduates."
Modany commented that, "We continued to expand our geographic footprint in
the second quarter of 2008 by beginning operations at our 101st college in
Phoenix, AZ and our 102nd college in Columbus, OH. These two new colleges
bring to five the total number of new locations opened during the first half
of 2008 and position us well to achieve our 2008 goal of opening between six
and eight new locations."
Modany reported that, "The period for measuring the employment success of
our 2007 graduates ended in the second quarter. I am pleased to report that
approximately 82% of our 2007 employable graduates obtained employment in
positions using skills taught in their programs of study by April 30, 2008,
compared to 81% of our 2006 employable graduates by April 30, 2007. In
addition, the average annual salary reported by our 2007 employed graduates
increased 5% to approximately $32,400 compared to the average annual salary
reported by our 2006 employed graduates. As of June 30, 2008, the percentage
of our 2008 employable graduates who obtained employment in positions using
skills taught in their programs of study was approximately the same percentage
as our 2007 employable graduates at the same point in the prior year. The
average annual salary reported by our 2008 employed graduates through June 30,
2008, however, is approximately 5% higher than the average annual salary
reported by our 2007 employed graduates through June 30, 2007."
Modany concluded, "As we began the second half of 2008, the operating
environment for the ITT Technical Institutes continued to be very positive,
and the demand for our high-quality programs across all six of our schools of
study remained very strong. We are on track with all of the components of our
growth strategy for 2008, and we have a high degree of confidence in the
ability of our management team, faculty and staff to achieve our internal
operating and financial goals for 2008."
Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said,
"Revenue increased 13.6% to $246.4 million in the three months ended June 30,
2008 compared to $217.0 million in the same period in 2007. The increase in
revenue was primarily due to increases in student enrollment and tuition
rates."
Fitzpatrick continued, "Operating margin in the three months ended June
30, 2008 increased 440 basis points to 31.0% compared to 26.6% in the second
quarter of 2007. This increase was primarily due to further leveraging of our
fixed operating costs, additional operating efficiencies related to our
delivery of educational services and greater efficiencies realized in the
execution of our marketing and advertising plan during the quarter."
Fitzpatrick added, "Bad debt expense as a percentage of revenue increased
to 3.9% in the three months ended June 30, 2008 compared to 2.5% in the same
period in 2007. Days sales outstanding as of June 30, 2008 were 10.8 days,
compared to 4.2 days at the same point in 2007. We believe that our bad debt
expense as a percentage of revenue and our days sales outstanding could
increase in the remaining quarters of 2008 as we continue to offer internally
funded financing to eligible students who fail to qualify for private
education loans."
Fitzpatrick further noted, "In the three months ended June 30, 2008, we
did not repurchase any shares of our common stock. There are approximately
4.2 million shares remaining to be repurchased under our current share
repurchase program. We intend to resume repurchasing our shares in the
remainder of 2008, if market conditions are appropriate."
Fitzpatrick closed by noting, "We believe that we are very well positioned
to continue achieving our internal operating and financial goals, and that the
fundamentals of our business are incredibly strong."
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 student loans; the company's ability to collect internally
funded financing from its students; 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
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,December 31, June 30,
2008 20072007
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $78,691 $7,228 $10,079
Short-term investments 170,500 303,360 290,285
Accounts receivable, net 29,198 15,132 9,930
Deferred income taxes11,776 7,418 9,464
Prepaid expenses and other
current assets 10,771 16,685 25,470
Total current assets 300,936 349,823 345,228
Property and equipment, net 162,987 153,265 151,309
Direct marketing costs, net 21,963 20,567 21,207
Other assets 18,675 17,298 11,304
Total assets $504,561$540,953$529,048
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term
debt $-- $-- $21,429
Accounts payable 54,409 45,120 60,117
Accrued compensation and
benefits20,823 16,137 14,129
Accrued income taxes 5,443 6,028 --
Other accrued liabilities13,198 11,512 12,110
Deferred revenue138,338 213,127 192,392
Total current liabilities 232,211 291,924 300,177
Long-term debt 150,000 150,000 128,571
Deferred income taxes 10,818 11,754 11,855
Other liabilities 18,486 16,717 15,116
Total liabilities 411,515 470,395 455,719
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 131,389 127,017 110,082
Retained earnings620,901 531,363 479,372
Accumulated other comprehensive
(loss) (3,417) (3,417) (6,364)
Treasury stock, 15,235,461,
14,375,582 and 13,702,384
shares, at cost(656,368) (584,946) (510,302)
Total shareholders' equity93,046 70,558 73,329
Total liabilities and
shareholders' equity $504,561$540,953$529,048
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)
2008200720082007
Revenue $246,411$216,982$481,261$421,152
Costs and expenses:
Cost of educational
services95,183 90,581 187,208 181,351
Student services and
administrative expenses 74,910 68,725 149,036 138,018
Total costs and expenses 170,093 159,306 336,244 319,369
Operating income 76,318 57,676 145,017 101,783
Interest income 1,177 2,798 3,210 5,747
Interest (expense) (1,057) (2,078) (2,576) (4,183)
Income before provision
for income taxes76,438 58,396 145,651 103,347
Provision for income taxes 29,307 22,538 55,888 39,892
Net income$47,131 $35,858 $89,763 $63,455
Earnings per share:
Basic $1.21 $0.89 $2.30 $1.56
Diluted$1.20 $0.87 $2.28 $1.53
Supplemental Data:
Cost of educational
services38.6% 41.7% 38.9% 43.0%
Student services and
administrative expenses 30.4% 31.7% 31.0% 32.8%
Operating margin 31.0% 26.6% 30.1% 24.2%
Student enrollment at end
of period 54,793 48,873 54,793 48,873
Technical institutes at
end of period102 93 102 93
Shares for earnings per
share calculation:
Basic 38,842,000 40,449,000 39,020,000 40,682,000
Diluted 39,167,000 41,110,000 39,339,000 41,350,000
Effective tax rate 38.3% 38.6% 38.4% 38.6%
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)
2008 2007 2008 2007
Cash flows from operating
activities:
Net income$47,131 $35,858 $89,763 $63,455
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and
amortization5,763 6,09911,257 12,740
Provision for
doubtful accounts 9,685 5,34916,618 9,990
Deferred income taxes (3,666) (2,945) (5,303) (6,551)
Excess tax benefit
from stock option
exercises (54) (12,224) (87)(23,274)
Stock-based
compensation expense1,928 1,196 4,103 3,171
Changes in operating
assets and
liabilities:
Restricted cash (159) (7)5,858 (13)
Accounts
receivable(23,811) (5,421) (30,684)(10,553)
Direct marketing
costs, net (659) 353(1,396)421
Accounts payable(2,395)3,730 9,286 12,169
Accrued income
taxes (18,626) (5,259) (485) 7,239
Other operating
assets and
liabilities 2,160 1,316 6,882 14
Deferred revenue (65,310) (13,378) (74,789) (9,770)
Net cash flows from operating
activities (48,013) 14,66731,023 59,038
Cash flows from investing
activities:
Facility expenditures and
land purchases (6,896) (3,778) (13,189) (8,696)
Capital expenditures, net (5,286) (4,423) (7,790) (6,942)
Proceeds from sales and
maturities of investments 180,430 593,489 471,805 1,184,306
Purchase of investments (138,845) (542,314) (338,945) (1,279,584)
Net cash flows from investing
activities29,40342,974 111,881(110,916)
Cash flows from financing
activities:
Excess tax benefit from
stock option exercises 5412,22487 23,274
Proceeds from exercise of
stock options 234 7,916 275 17,541
Repurchase of common stock-- (75,714) (71,803) (140,763)
Net cash flows from financing
activities 288 (55,574) (71,441)(99,948)
Net change in cash and cash
equivalents (18,322)2,06771,463(151,826)
Cash and cash equivalents at
beginning of period 97,013 8,012 7,228 161,905
Cash and cash equivalents at end
of period$78,691 $10,079 $78,691 $10,079
SOURCE ITT Educational Services, Inc.
