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ITT Educational Services, Inc. Reports 2007 First Quarter Results, Earnings Per Share Increased 46.7 Percent

PRNewswire-FirstCall
CARMEL, Ind.
Apr 26, 2007

ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that Earnings Per Share ("EPS") in the first quarter of 2007 increased 46.7 percent to $0.66 compared to $0.45 in the first quarter of 2006. Revenue in the three months ended March 31, 2007 increased 15.8 percent to $204.2 million compared to $176.3 million in the first quarter of 2006.

New student enrollment in the first quarter of 2007 increased 13.1 percent to 12,738 compared to 11,264 in the first quarter of 2006. Total student enrollment increased 12.4 percent to 49,295 as of March 31, 2007, compared to 43,868 as of March 31, 2006. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.

The company provided the following information for the three months ended March 31, 2007 and 2006:

Financial and Operating Data For The Three Months Ended March 31st, Unless
                           Otherwise Indicated
       (Dollars in millions, except per share and per student data)

                                     2007           2006        Increase/
                                                               (Decrease)

  Revenue                          $204.2          $176.3         15.8%
  Operating Income                  $44.1           $30.2         45.9%
  Operating Margin                   21.6%           17.1%         450 bp
  Net Income                        $27.6           $20.5         34.8%
  Earnings Per Share (diluted)      $0.66           $0.45         46.7%
  New Student Enrollment (A)       12,738          11,264         13.1%
  Continuing Students (A)          36,557          32,604         12.1%
  Total Student Enrollment as of
   March 31st (A)                  49,295          43,868         12.4%
  Quarterly Persistence Rate (B)     78.0%           75.8%         220 bp
  Revenue Per Student (A)          $4,354          $4,102          6.1%
  Cash, Cash Equivalents,
   Restricted Cash and
   Investments as of March 31st    $350.0          $287.6         21.7%
  Bad Debt Expense as a Percentage
   of Revenue                         2.3%            1.4%          90 bp
  Days Sales Outstanding as of
   March 31st                         4.3             5.0         (0.7) days
  Deferred Revenue as of March
   31st                            $205.8          $179.3         14.7%
  Debt                             $150.0              $0           --
  Diluted Shares of Common
   Stock Outstanding           41,590,000      45,798,000         (9.2)%
  Shares of Common Stock
   Repurchased                    809,900©    2,225,700(D)        --
  Land and Building Purchases        $4.9(E)         $5.0(F)      (0.6)%
  Number of New Colleges in
   Operation                            3               3           --
  Number of New Learning Sites
   in Operation                        --               2           --
  Capital Expenditures, Net          $2.5            $3.6        (30.3)%



  (A)  Excludes international enrollments.
  (B)  Represents the number of Continuing Students in the quarter, divided
       by the Total Student Enrollment as of the end of the immediately
       preceding quarter.
  ©  For approximately $65.0 million or at an average price of $80.32 per
       share
  (D)  For approximately $140.1 million or at an average price of $62.96 per
       share.
  (E)  Represents the purchase of two college facilities and costs
       associated with purchasing, renovating, expanding or constructing
       buildings at six of the company's locations.
  (F)  Represents the costs associated with renovating, expanding or
       constructing buildings at 11 of the company's locations.

Kevin M. Modany, CEO and President of ITT/ESI, said, "We are extremely pleased with our performance in the first quarter of 2007. The effective execution of our operating initiatives once again delivered results that enhance the value we represent to our shareholders, our students and the employers who hire our graduates. We believe that the continued execution of our proven growth strategy can help us realize operating and financial results over the long term that are similar to our historical compound annual growth rates in these areas."

Modany continued, "In the first quarter, student success improved as a result of the modifications we made to our hybrid delivery model, as demonstrated by the significant improvement in our first quarter student persistence rate. At the same time, our marketing and recruiting efforts continued to generate strong interest in our programs of study, which helped to produce a substantial increase in our new student enrollment in the first quarter of 2007 compared to the same period in 2006. Advertising costs in the first quarter of 2007 increased 23 percent compared to the same period in the prior year, primarily due to increased advertising associated with operating new colleges and introducing new programs of study."

Modany added, "We continued our geographic expansion in the first quarter by beginning operations at our 88th college in Pinellas Park, FL, our 89th college in Baton Rouge, LA and our 90th college in Columbia, SC. We remain on track to achieve our goal of opening between six and eight new locations during 2007."

Modany said, "We are also developing new programs of study to further our programmatic expansion. During the second half of 2007, we plan to begin offering several new technology and non-technology programs that will be taught either in residence or online."

Modany concluded his remarks by saying, "We continue to believe that the long-term growth prospects for quality postsecondary education institutions, like the ITT Technical Institutes, are very positive."

Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "We had a very strong quarter financially, with revenue increasing as a result of improved student retention, higher student enrollment and a 5.0 percent tuition increase that became effective in March 2007."

Fitzpatrick added, "Our ability to leverage our operating model, together with greater operating efficiencies, allowed much of the increased revenue to fall to the bottom line, which resulted in a 450 basis point increase in Operating Margin to 21.6 percent in the three months ended March 31, 2007 compared to 17.1 percent in the first quarter of 2006."

Fitzpatrick noted, "In the three months ended March 31, 2007, we repurchased 809,900 shares of our common stock at an average purchase price of $80.32 per share or $65.0 million in total. If the market conditions remain appropriate, we intend to continue repurchasing our shares throughout the remainder of 2007."

The company announced that, on April 24, 2007, its Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of its outstanding common stock. As a result, there are 6,871,200 shares available for repurchase under the company's repurchase authorization. The shares may be repurchased, from time to time depending on market conditions and other considerations, in the open market or through privately negotiated transactions in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

Fitzpatrick said, "Bad debt expense as a percentage of revenue increased to 2.3 percent in the three months ended March 31, 2007 compared to 1.4 percent in the same period during 2006. We believe that our bad debt expense will remain within our historical range of 1.0 and 3.0 percent of revenue. Days sales outstanding was 4.3 days as of March 31, 2007 and 5.0 days as of March 31, 2006."

Fitzpatrick closed by noting, "The fundamentals of our business remain extremely strong and, as a result of our operational and financial performance during the first quarter of 2007, we are raising our internal goal for 2007 EPS from the range of $3.17 to $3.21 to the revised range of $3.40 to $3.50."

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 upon 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 the 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 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
                                         March 31,  December 31,   March 31,
                                            2007       2006         2006
                                        (unaudited)              (unaudited)
  Assets
  Current assets
    Cash and cash equivalents               $8,012    $161,905      $6,672
    Short-term investments                 341,460     195,007     270,879
    Accounts receivable, net                 9,858       9,367       9,775
    Deferred income taxes                    7,486       4,771       4,015
    Prepaid expenses and other
     current assets                         13,397       9,902      30,264
      Total current assets                 380,213     380,952     321,605

  Property and equipment, net              149,207     148,411     131,070
  Direct marketing costs, net               21,560      21,628      18,392
  Investments                                  --           --       9,521
  Other assets                               9,354       9,329       1,078
    Total assets                          $560,334    $560,320    $481,666

  Liabilities and Shareholders' Equity
  Current liabilities
    Accounts payable                       $56,358     $47,948     $42,185
    Accrued compensation and
     benefits                               11,273      13,899       9,010
    Accrued income taxes                     8,015      11,003       7,122
    Accrued other taxes                      3,574       3,242       2,901
    Other accrued liabilities                8,013       6,251       5,818
    Deferred revenue                       205,770     202,162     179,326
      Total current liabilities            293,003     284,505     246,362

  Long-term debt                           150,000     150,000          --
  Deferred income taxes                     12,822      13,713      14,432
  Minimum pension liability                     --          --       9,899
  Other liabilities                         12,869       8,157       7,737
    Total liabilities                      468,694     456,375     278,430

  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                         32,921      46,982      65,472
    Retained earnings                      537,961     508,195     410,153
    Accumulated other comprehensive
     (loss)                                 (6,448)     (6,533)     (6,016)
    Treasury stock, 13,344,700,
     13,029,471 and 10,322,431
     shares, at cost                      (473,335)   (445,240)   (266,914)
      Total shareholders' equity            91,640     103,945     203,236
      Total liabilities and
       shareholders' equity               $560,334    $560,320    $481,666



                       ITT EDUCATIONAL SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                (Dollars in thousands, except per share data)

                                                       Three Months
                                                     Ended March 31,
                                                       (unaudited)
                                                  2007              2006

  Revenue                                       $204,170          $176,315

  Costs and expenses:
    Cost of educational services                  90,770            90,404
    Student services and administrative
     expenses                                     69,293            56,112
    Special legal and other investigation
     costs                                            --              (430)
      Total costs and expenses                   160,063           146,086

  Operating income                                44,107            30,229
    Interest income, net                             844             2,507
    Income before provision for income
     taxes                                        44,951            32,736
    Provision for income taxes                    17,354            12,262

  Net income                                     $27,597           $20,474

  Earnings per share:
    Basic                                          $0.67             $0.46
    Diluted                                        $0.66             $0.45

  Supplemental Data:
  Cost of educational services                      44.5%             51.3%
  Student services and administrative
   expenses                                         33.9%             31.8%
  Special legal and other investigation
   costs                                             0.0%             (0.2%)
  Operating margin                                  21.6%             17.1%
  Student enrollment at end of period             49,295            43,868
  Technical institutes at end of period               90                84
  Shares for earnings per share
   calculation:
    Basic                                     40,915,000        44,823,000
    Diluted                                   41,590,000        45,798,000


  Effective tax rate                                38.6%             37.5%



                       ITT EDUCATIONAL SERVICES, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Dollars in thousands)

                                                        Three Months
                                                      Ended March 31,
                                                        (unaudited)
                                                   2007              2006
  Cash flows from operating activities:
    Net income                                   $27,597           $20,474
    Adjustments to reconcile net
     income to net cash from operating
     activities:
      Depreciation and
       amortization                                6,641             4,898
      Provision for doubtful
       accounts                                    4,641             2,549
      Deferred income taxes                       (3,606)             (764)
      Excess tax benefit from
       stock option exercises                    (11,050)           (3,164)
      Stock-based compensation
       expense                                     1,975             1,921
      Changes in operating
       assets and liabilities:
        Accounts receivable                       (5,132)            1,665
        Prepaid expenses and
         other assets                             (3,520)          (16,191)
        Direct marketing
         costs, net                                   68              (902)
        Accounts payable and
         accrued liabilities                      12,403           (14,432)
        Income and other
         accrued taxes                            10,746            12,036
        Deferred revenue                           3,608             3,872
  Net cash flows from operating
   activities                                     44,371            11,962

  Cash flows from investing activities:
    Facility expenditures and land
     purchases                                    (4,918)           (4,949)
    Capital expenditures, net                     (2,519)           (3,613)
    Proceeds from sales and
     maturities of investments                   590,817           372,535
    Purchase of investments                     (737,270)         (255,245)
  Net cash flows from investing
   activities                                   (153,890)          108,728

  Cash flows from financing activities:
    Excess tax benefit from stock
     option exercises                             11,050             3,164
    Proceeds from exercise of stock
     options                                       9,625             9,218
    Repurchase of common shares                  (65,049)         (140,135)
  Net cash flows from financing
   activities                                    (44,374)         (127,753)

  Net change in cash and cash
   equivalents                                  (153,893)           (7,063)

  Cash and cash equivalents at
   beginning of period                           161,905            13,735

  Cash and cash equivalents at end of
   period                                         $8,012            $6,672

First Call Analyst:
FCMN Contact: nbrown@ittesi.com

SOURCE: ITT Educational Services, Inc.

CONTACT: Nancy Brown, Director Corporate Relations of ITT Educational
Services, Inc., +1-317-706-9260

Web site: http://www.ittesi.com/


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