News Releases
ITT Educational Services, Inc. Reports 2006 Second Quarter Results, New Student Enrollment Increased 10.4 Percent
PRNewswire-FirstCall
CARMEL, Ind.
Jul 27, 2006
ITT Educational Services, Inc. (NYSE: ESI), a leading for-profit provider of postsecondary degree programs, today reported that new student enrollment in the second quarter of 2006 increased 10.4 percent to 11,674 compared to 10,576 in the same period of 2005. Total student enrollment increased 6.3 percent to 44,025 as of June 30, 2006, compared to 41,419 as of June 30, 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments. Earnings per share ("EPS") in the second quarter of 2006 increased 14.6 percent to $0.55 compared to $0.48 in the second quarter of 2005.
The company provided the following information for the three and six months ended June 30, 2006 and 2005:
Financial and Operating Results For The Three Months Ended June 30th,
Unless Otherwise Indicated
(Dollars in millions, except per share and per student data)
Increase/
2006 2005 (Decrease)
Revenue $185.6 $168.8 9.9%
Operating Income $36.6 $34.8 5.1%
Operating Margin 19.7% 20.6% (90) basis points
Net Income $24.1 $22.4 7.6%
Earnings Per Share (diluted) $0.55 $0.48 14.6%
New Student Enrollment (A) 11,674 10,576 10.4%
Continuing Students (A) 32,351 30,843 4.9%
Total Student Enrollment
as of June 30th (A) 44,025 41,419 6.3%
Quarterly Persistence
(Retention) Rate (B) 73.7% 74.2% (50) basis points
Revenue Per Student (A) $4,230 $4,061 4.2%
Cash and Cash Equivalents,
Restricted Cash and
Investments as of June 30th $214.5 $353.1 (39.2)%
Bad Debt Expense as
a Percentage of Revenue 1.5% 1.8% (30) basis points
Days Sales Outstanding
as of June 30th 4.8 days 7.4 days (2.6) days
Deferred Tuition Revenue
as of June 30th $174.1 $140.3 24.0%
Debt $-- $-- --
Diluted Shares of
Common Stock Outstanding 44,042,000 47,134,000 --
Shares of Common Stock
Repurchased 1,660,500 © -- --
Land and Building Purchases $5.9 (D) $10.2 (E) (42.7)%
Number of New Colleges
in Operation 3 2 1
Number of New Learning
Sites in Operation 1 1 --
Capital Expenditures, Net $9.5 $6.9 38.2%
Financial and Operating Results For The Six Months Ended June 30th
(Dollars in millions, except per share and per student data)
Increase/
2006 2005 (Decrease)
Revenue $361.9 $328.9 10.0%
Special Legal and Other
Investigation Costs $(0.4) $7.7 (105.6)%
Operating Income $66.8 $57.9 15.3%
Operating Income Before
Special Legal and Other
Investigation Costs (F) $66.4 $65.7 1.1%
Special Legal and Other
Investigation Costs as a
Percentage of Revenue (0.1)% 2.3% (240) basis points
Operating Margin 18.5% 17.6% 90 basis points
Operating Margin Before
Special Legal and Other
Investigation Costs (F) 18.4% 19.9% (150) basis points
Special Legal and Other
Investigation Costs,
Net of Tax $(0.3) $4.7 (105.6)%
Net Income $44.6 $37.4 19.1%
Net Income Before Special
Legal and Other
Investigation Costs, Net
of Tax (F) $44.3 $42.1 5.2%
Special Legal and Other
Investigation Costs Per
Share (diluted), Net of Tax $-- $0.10 (100.0)%
Earnings Per Share (diluted) $0.99 $0.79 25.3%
Earnings Per Share (diluted)
Before Special Legal and
Other Investigation Costs,
Net of Tax (F) $0.99 $0.89 11.2%
Revenue Per Student (A) $8,332 $7,979 4.4%
Diluted Shares of Common
Stock Outstanding 44,920,000 47,107,000 --
Shares of Common Stock
Repurchased 3,886,200 (G) -- --
Land and Building Purchases $10.8 (H) $19.8 (I) (45.4)%
Number of New Colleges in
Operation 3 2 1
Number of New Learning
Sites in Operation 3 2 1
Capital Expenditures, Net $13.1 $10.0 30.8%
(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 $106.5 million or at an average price of $64.14
per share.
(D) Represents costs associated with purchasing, renovating, expanding
or constructing buildings at 12 of the company's locations.
(E) Represents costs associated with purchasing, renovating, expanding
or constructing buildings at nine of the company's locations.
(F) Given the large amount of legal and other investigation costs
accrued in connection with the U.S. Department of Justice ("DOJ")
investigation of the company, the U.S. Securities and Exchange
Commission's ("SEC") inquiry into the matters being investigated by
the DOJ, and the securities class action, shareholder derivative
and books and records inspection lawsuits filed against the
company, as described in the company's 2005 second quarter report
on Form 10-Q which was filed with the SEC on July 29, 2005
(collectively, the "Actions"), the company's management believes
that the company's performance results without these additional
costs is a useful measure for management and might be a useful
supplement for investors in comparing the company's performance
absent the legal and other investigation costs associated with the
Actions. Although legal and other investigation costs are a
regular expense of the company, the level of legal and other
investigation costs incurred by the company as a result of the
Actions is much larger than the company has previously experienced,
and the company hopes that legal and other investigation costs at
this level will not occur in the future. In evaluating the
company's performance, the company's management uses the following
measurements that are not under generally accepted accounting
principles ("GAAP") and are, therefore, non-GAAP financial
measures. Although the non-GAAP financial measures exclude cash
cost to the company, management compensates for this by also using
the GAAP measures. The non-GAAP financial measures should be
considered in addition to, but not as a substitute for, the
measures prepared in accordance with GAAP.
(1) The company believes that Operating Income Before Special
Legal and Other Investigation Costs provides useful
information to management and investors by improving their
ability to compare the company's Operating Income without
the Special Legal and Other Investigation Costs for the six
months ended June 30, 2006 with the Operating Income without
the Special Legal and Other Investigation Costs for the six
months ended June 30, 2005. Operating Income Before Special
Legal and Other Investigation Costs can be reconciled to
Operating Income as shown in the two lines of the table
immediately preceding this entry.
(2) The company believes that Operating Margin Before Special
Legal and Other Investigation Costs provides useful
information to management and investors by improving their
ability to compare the company's Operating Income without
the Special Legal and Other Investigation Costs as a
percentage of Revenue for the six months ended June 30, 2006
with the Operating Income without the Special Legal and
Other Investigation Costs as a percentage of Revenue for the
six months ended June 30, 2005. Operating Margin Before
Special Legal and Other Investigation Costs can be
reconciled to Operating Margin as shown in the two lines of
the table immediately preceding this entry.
(3) The company believes that Net Income Before Special Legal
and Other Investigation Costs, Net of Tax provides useful
information to management and investors by improving their
ability to compare the company's Net Income without the
Special Legal and Other Investigation Costs, Net of Tax for
the six months ended June 30, 2006 with the Net Income
without the Special Legal and Other Investigation Costs, Net
of Tax for the six months ended June 30, 2005. For the
purpose of calculating this measure, the company used
marginal tax rates of 38.5% for 2006 and 38.5% for 2005.
Net Income Before Special Legal and Other Investigation
Costs, Net of Tax can be reconciled to Net Income as shown
in the two lines of the table immediately preceding this
entry.
(4) The company believes that Earnings Per Share (diluted)
Before Special Legal and Other Investigation Costs Per Share
(diluted), Net of Tax provides useful information to
management and investors by improving their ability to
compare the company's Earnings Per Share (diluted) without
the Special Legal and Other Investigation Costs Per Share
(diluted), Net of Tax for the six months ended June 30, 2006
with the Earnings Per Share (diluted) without the Special
Legal and Other Investigation Costs Per Share (diluted), Net
of Tax for the six months ended June 30, 2005. Earnings Per
Share (diluted) Before Special Legal and Other Investigation
Costs Per Share (diluted), Net of Tax can be reconciled to
Earnings Per Share (diluted) as shown in the two lines of
the table immediately preceding this entry.
(G) For approximately $246.6 million or at an average price of $63.46
per share.
(H) Represents costs associated with purchasing, renovating, expanding
or constructing buildings at 12 of the company's locations.
(I) Represents costs associated with purchasing, renovating, expanding
or constructing buildings at 10 of the company's locations.
Rene R. Champagne, Chairman and CEO of ITT/ESI, said, "We are very pleased with our performance in the second quarter of 2006. Our growth initiatives helped us to deliver strong financial and operational results. We are optimistic that we can continue delivering solid results in the remainder of 2006, based on the strong interest that continued to be expressed in our programs of study as we began the third quarter of 2006."
Champagne said, "I am also pleased to announce that Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, was elected on July 25, 2006 to serve as a director on ITT/ESI's Board of Directors."
Kevin M. Modany said, "Our marketing efforts generated a significant increase in leads in the second quarter compared to the same period last year. The increase in leads was supported by a 19 percent increase in advertising expenditures in the three months ended June 30, 2006 compared to the same period in 2005. The increase in advertising expenditures was primarily due to incremental advertising associated with operating new colleges and the introduction of new programs of study."
Modany continued, "During the second quarter of 2006, we began operations at our: 85th college in Dunmore (Scranton), PA; 86th college in Charlotte, NC; and 87th college in Maumee (Toledo), OH. Our new college in Charlotte increases to 33 the number of states in which we have colleges. All three new colleges have begun recruiting and expect to commence classes in September 2006. In the six months ended June 30, 2006, we began operations or started classes at six new colleges."
Modany further noted, "We also began operations at our 7th learning site in Dearborn, MI. This learning site belongs to the ITT Technical Institute in Canton, MI. During the first half of 2006, we added three new learning sites to existing institutes and we plan to add two more learning sites in the second half of 2006."
Modany said, "As part of our continuing efforts to diversify our curriculum offerings, we are pleased to announce a new Associate Degree program in Health Information Technology. We are pursuing the required authorizations to begin offering this program at five of our colleges in the second half of 2006 and at additional colleges throughout 2007 and beyond. The Health Information Technology program also marks the introduction of our new School of Health Sciences, which is our sixth school of study. We plan to develop additional programs of study at the bachelor and associate degree levels that will be offered through our School of Health Sciences and taught both in residence and online. We also plan to begin offering three new concentrations of our bachelor degree program in Business Administration. The new concentrations are in marketing, human resources and finance, and will be taught online."
Modany continued, "We are also awaiting the remaining authorization to begin recruiting students at three colleges for a new bachelor degree program in Construction Management. This program will be offered at additional colleges in future quarters, subject to obtaining the required authorizations."
Modany said, "As of June 30, 2006, 15 percent of our students were enrolled in non-technology programs of study compared to 9 percent as of June 30, 2005. Approximately 27 percent of our students were enrolled in bachelor degree programs of study as of June 30, 2006 compared to 22 percent at the same point in 2005."
Modany concluded, "The second quarter 2006 student persistence rate was 73.7 percent compared to 74.2 percent in the same period in 2005. Despite the decline, we are pleased with the student persistence rate in the quarter, considering that the prior quarter declines in the student persistence rate had been much more significant since we began expanding our use of the hybrid delivery model. We hope that the student persistence rate in the second quarter of 2006 marks the beginning of an improving trend and indicates that our various student retention initiatives are working."
Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "We are pleased with our financial results for the three months ended June 30, 2006, which were in line with our internal expectations. We continue to generate strong returns on our investments in our various growth initiatives and believe that we are on track to achieve our internal financial goals for 2006."
Fitzpatrick continued, "Operating margin in the second quarter of 2006 decreased 90 basis points to 19.7 percent compared to 20.6 percent in the second quarter of 2005, primarily due to the acceleration of our geographic expansion efforts. During the second quarter of 2006, there were 12 more colleges and learning sites within their first 24 months of operation than in the second quarter of 2005."
Fitzpatrick added, "In the three months ended June 30, 2006, we repurchased 1.7 million shares of our common stock at an average purchase price of $64.14 per share or $106.5 million in total. We intend to continue repurchasing our shares throughout the remainder of 2006."
Fitzpatrick said, "Bad debt expense as a percentage of revenue declined to 1.5 percent in the three months ended June 30, 2006 compared to 1.8 percent in the same period in 2005. Days sales outstanding as of June 30, 2006 were 4.8 days, a 2.6 day decrease, compared to 7.4 days at the same point in 2005."
Fitzpatrick closed by noting, "The fundamentals of the company remain strong, and our internal goal for 2006 EPS remains in the range of $2.66 to $2.69."
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 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 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
(Amounts in thousands, except per share data)
As of
June 30, December 31, June 30,
2006 2005 2005
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $8,073 $13,735 $37,283
Short-term investments 205,954 388,152 312,734
Accounts receivable, net 9,736 13,989 13,722
Deferred and prepaid income tax 4,950 7,030 6,746
Prepaids and other current assets 10,427 14,102 14,966
Total current assets 239,140 437,008 385,451
Property and equipment, net 141,314 127,406 119,829
Direct marketing costs, net 19,592 17,490 16,497
Investments -- 9,538 3,055
Restricted cash 500 500 --
Other assets 18,921 549 561
Total assets $419,467 $592,491 $525,393
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $59,910 $56,101 $39,688
Accrued compensation and
benefits 10,028 10,344 12,534
Accrued taxes 5,978 3,998 7,937
Other accrued liabilities 5,851 5,242 18,004
Deferred revenue 174,065 175,454 140,346
Total current liabilities 255,832 251,139 218,509
Deferred income tax 15,273 15,364 10,580
Minimum pension liability 9,899 9,899 9,101
Other liabilities 7,832 7,495 7,121
Total liabilities 288,836 283,897 245,311
Shareholders' equity
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued or outstanding -- -- --
Common stock, $.01 par value,
300,000,000 shares authorized,
54,068,904 issued and outstanding 540 540 540
Capital surplus 59,436 68,715 62,914
Retained earnings 434,264 389,679 330,325
Accumulated other comprehensive
loss (6,016) (6,016) (5,532)
Treasury stock, 11,738,007,
8,377,780 and 7,822,422
shares, at cost (357,593) (144,324) (108,165)
Total shareholders' equity 130,631 308,594 280,082
Total liabilities and
shareholders' equity $419,467 $592,491 $525,393
ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
Revenue $185,569 $168,782 $361,884 $328,935
Costs and expenses
Cost of educational services 92,514 81,795 182,918 161,916
Student services and
administrative expenses 56,465 52,165 112,577 101,359
Special legal and other
investigation costs -- -- (430) 7,712
Total costs and expenses 148,979 133,960 295,065 270,987
Operating income 36,590 34,822 66,819 57,948
Interest income, net 2,010 2,205 4,517 3,919
Income before provision for income
taxes 38,600 37,027 71,336 61,867
Income taxes 14,489 14,626 26,751 24,438
Net income $24,111 $22,401 $44,585 $37,429
Earnings per share:
Basic $0.56 $0.49 $1.01 $0.81
Diluted $0.55 $0.48 $0.99 $0.79
Supplemental Data:
Cost of educational services 49.9% 48.5% 50.5% 49.2%
Student services and
administrative expenses 30.4% 30.9% 31.1% 30.8%
Special legal and other
investigation costs 0.0% 0.0% (0.1%) 2.4%
Operating margin 19.7% 20.6% 18.5% 17.6%
Student enrollment at end of
period 44,025 41,419 44,025 41,419
Technical institutes at end of
period 87 79 87 79
Shares for earnings per share
calculation:
Basic 43,110 46,181 43,967 46,134
Diluted 44,042 47,134 44,920 47,107
Effective tax rate 37.5% 39.5% 37.5% 39.5%
ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
Cash flows from operating
activities:
Net income $24,111 $22,401 $44,585 $37,429
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and
amortization 5,096 4,442 9,994 8,738
Provision for doubtful
accounts 2,783 3,028 5,332 5,899
Deferred income taxes (94) 1,184 (858) (2,420)
Excess tax benefit from
stock option exercises (3,802) 964 (6,966) 2,969
Stock-based
compensation expense 313 -- 2,234 --
Changes in operating assets
and liabilities:
Restricted cash -- -- -- 8,194
Accounts receivable (2,744) (3,965) (1,079) (9,191)
Prepaids and other assets 1,494 352 (14,697) (9,130)
Direct marketing costs, net (1,200) (888) (2,102) (1,784)
Accounts payable and
accrued liabilities 18,990 2,660 4,558 11,524
Income and other taxes (243) (2,602) 11,793 (5,800)
Deferred revenue (5,261) (10,317) (1,389) (16,446)
Net cash flows from operating
activities 39,443 17,259 51,405 29,982
Cash flows from investing
activities:
Facility expenditures and
land purchases (5,864) (10,232) (10,813) (19,816)
Capital expenditures, net (9,476) (6,859) (13,089) (10,005)
Proceeds from sales and
maturities of investments 433,586 116,331 806,121 310,078
Purchase of investments (359,140) (106,375) (614,385) (286,934)
Net cash flows from investing
activities 59,106 (7,135) 167,834 (6,677)
Cash flows from financing
activities:
Excess tax benefit from stock
option exercises 3,802 -- 6,966 --
Proceeds from stock option
exercises 5,549 1,584 14,767 4,589
Purchase of treasury stock (106,499) -- (246,634) --
Net cash flows from financing
activities (97,148) 1,584 (224,901) 4,589
Net change in cash and cash
equivalents 1,401 11,708 (5,662) 27,894
Cash and cash equivalents at
beginning of period 6,672 25,575 13,735 9,389
Cash and cash equivalents at end
of period $8,073 $37,283 $8,073 $37,283
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/
