News Releases
ITT Educational Services, Inc. Reports 2006 Fourth Quarter and Full Year Results, New Student Enrollment Increased 15.6 Percent
PRNewswire-FirstCall
CARMEL, Ind.
Jan 25, 2007
ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that new student enrollment in the fourth quarter of 2006 increased 15.6 percent to 10,208 compared to 8,828 in the same period of 2005. Total student enrollment increased 9.1 percent to 46,896 as of December 31, 2006, compared to 42,985 as of December 31, 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.
Earnings per share ("EPS") in the fourth quarter of 2006 increased 19.8 percent to $0.97 compared to $0.81 in the fourth quarter of 2005. EPS in the company's 2006 fiscal year increased 16.7 percent to $2.72 compared to $2.33 in 2005. Stock-based compensation expense in 2006 reduced the company's full- year EPS by $0.04. The company began expensing its stock-based compensation on January 1, 2006 in accordance with the new accounting requirements.
The company provided the following information for the three and twelve months ended December 31, 2006:
Financial and Operating Data For The Three Months Ended December 31st, Unless
Otherwise Indicated
(Dollars in millions, except per share and per student data)
2006 2005 Increase/
(Decrease)
Revenue $206.2 $182.3 13.1%
Operating Income $63.6 $55.0 15.6%
Operating Margin 30.8% 30.2% 60 basis points
Net Income $40.9 $37.9 7.9%
Earnings Per Share (diluted) $0.97 $0.81 19.8%
New Student Enrollment (A) 10,208 8,828 15.6%
Continuing Students (A) 36,688 34,157 7.4%
Total Student Enrollment as
of December 31st (A) 46,896 42,985 9.1%
Quarterly Persistence Rate (B) 76.2% 77.0% (80) basis points
Revenue Per Student (A) $4,282 $4,112 4.1%
Cash and Cash Equivalents,
Restricted Cash and
Investments as of
December 31st $357.4 $411.9 (13.2)%
Bad Debt Expense as a
Percentage of Revenue 1.6% 1.0% 60 basis points
Days Sales Outstanding as of
December 31st 4.2 7.1 (2.9) days
Deferred Tuition Revenue
as of December 31st $202.2 $175.5 15.2%
Debt $150.0 $0 --
Diluted Shares of Common
Stock Outstanding 42,025,000 46,977,000 --
Shares of Common Stock
Repurchased 566,500 © 928,600 (D) --
Land and Building Purchases $2.2 (E) $1.6 (F) 34.4%
Number of New Colleges in
Operation 0 2 --
Number of New Learning Sites
in Operation 1 -- --
Capital Expenditures, Net $3.0 $7.2 (58.1)%
Depreciation and Amortization $6.5 $5.0 29.7%
Financial and Operating Data For Fiscal Year Ended December 31st
(Dollars in millions, except per share data)
2006 2005 Increase/
(Decrease)
Revenue $757.8 $688.0 10.1%
Special Legal and Other
Investigation Costs ($0.4) $1.2 (135.3)%
Operating Income $181.5 $165.4 9.7%
Operating Income Before
Special Legal and Other
Investigation Costs (G) $181.1 $166.6 8.7%
Special Legal and Other
Investigation Costs as a
Percentage of Revenue 0.0% 0.2% (20) basis points
Operating Margin 24.0% 24.0% --
Operating Margin Before
Special Legal and Other
Investigation Costs (G) 24.0% 24.2% (20) basis points
Special Legal and Other
Investigation Costs,
Net of Tax ($0.3) $0.8 (135.2)%
Net Income $118.5 $109.7 8.0%
Net Income Before Special
Legal and Other
Investigation Costs, Net
of Tax (G) $118.2 $110.5 7.0%
Special Legal and Other
Investigation Costs Per
Share (diluted), Net of Tax ($0.01) $0.01 (200.0)%
Earnings Per Share (diluted) $2.72 $2.33 16.7%
Earnings Per Share (diluted)
Before Special Legal and Other
Investigation Costs Per Share
(diluted), Net of Tax (G) $2.71 $2.34 15.8%
New Student Enrollment (A) 49,935 45,073 10.8%
Revenue Per Student (A) $16,922 $16,359 3.4%
Bad Debt Expense as a
Percentage of Revenue 1.4% 1.6% (20) basis points
Diluted Shares of Common
Stock Outstanding 43,629,000 47,112,000 --
Shares of Common Stock
Repurchased 5,606,600 (H) 928,600 (I) --
Land and Building Purchases $18.9 (J) $25.1 (K) (24.7%)
Number of New Colleges
in Operation 6 4 --
Number of New Learning Sites
in Operation 5 3 --
Capital Expenditures, Net $23.7 $21.3 11.3%
Depreciation and Amortization $21.6 $17.8 21.3%
(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 $39.2 million or at an average price of $69.22 per
share.
(D) For approximately $55.6 million or at an average price of $59.88 per
share.
(E) Represents the purchase of one parcel of real estate on which the
company intends to build a facility for one of the company's
colleges, and costs associated with purchasing, renovating, expanding
or constructing buildings at four of the company's locations.
(F) Represents the purchase of one parcel of real estate on which the
company intends to build a facility for one of the company's
colleges, and costs associated with purchasing, renovating, expanding
or constructing buildings at five of the company's locations.
(G) 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 ("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 2006 fiscal year with the
Operating Income without the Special Legal and Other
Investigation Costs for the 2005 fiscal year. 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
2006 fiscal year with the Operating Income without the Special
Legal and Other Investigation Costs as a percentage of Revenue
for the 2005 fiscal year. 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 2006
fiscal year with the Net Income without the Special Legal and
Other Investigation Costs, Net of Tax for the 2005 fiscal year.
For the purpose of calculating this measure, the company used a
marginal tax rate of 38.5 percent for 2006 and 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 2006 fiscal year with the Earnings Per Share
(diluted) without the Special Legal and Other Investigation
Costs Per Share (diluted), Net of Tax for the 2005 fiscal year.
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.
(H) For approximately $363.0 million or at an average price of $64.74 per
share.
(I) For approximately $55.6 million or at an average price of $59.88 per
share.
(J) Represents the purchase of one parcel of real estate on which the
company intends to build facilities for one of the company's
colleges, and costs associated with purchasing, renovating, expanding
or constructing buildings at 11 of the company's locations.
(K) Represents the purchase of three parcels of real estate on which the
company intends to build facilities for three of the company's
colleges, and costs associated with purchasing, renovating, expanding
or constructing buildings at ten of the company's locations.
Rene R. Champagne, Chairman and CEO of ITT/ESI, said, "We are very pleased with our results for the fourth quarter and full year of 2006. Our growth initiatives continued to help us produce strong increases in new and total student enrollment, and our disciplined approach to managing the business delivered attractive financial results once again. As we enter 2007, we believe that the company is well positioned to continue its attractive historical operating and financial performance."
Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, said, "The number of inquiries for our programs of study was strong in the fourth quarter of 2006 and that strength has continued into the new year. Our advertising expenditures during the fourth quarter increased 17 percent over the same period during the prior year. This increase was primarily used to support our new locations and program offerings. We expect that advertising expenditures in 2007 will increase approximately 20 percent year-over-year in order to support our continuing geographic and programmatic expansion efforts."
Modany continued, "We are very pleased with our efforts to train and help prepare our new recruiting representatives who we are hiring to respond to an increased number of student inquiries for our programs of study. We began 2007 with approximately 20 percent more recruiters than we had at the start of 2006. As a result, we believe that we are well positioned to service what we anticipate will be a higher number of inquiries for our programs of study in 2007."
Modany said, "In the fourth quarter of 2006, 12 of our colleges commenced one or more classes of students in one or both of our new degree programs in Health Information Technology and Construction Management. We plan to begin offering these new programs at additional ITT Technical Institutes throughout 2007, pending receipt of the requisite regulatory authorizations. During the fourth quarter, we continued to research and develop additional program offerings in both technology and non-technology subjects that can be delivered both online and in residence. We hope to be in a position to begin offering one or more of these new programs in 2007."
Modany stated, "Our geographic expansion goals include beginning operations at between six to eight new locations in 2007, subject to obtaining the requisite regulatory authorizations in a timely manner. This compares to the 11 new locations that we began operating in 2006 and the seven new locations that we began operating in 2005."
Modany summarized, "We are optimistic that our planned growth initiatives can help us realize student enrollment increases that are similar to our historical compound annual growth rate in this area and, in turn, produce attractive financial results in 2007."
Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "We are extremely pleased with our financial performance in both the fourth quarter and full year of 2006. Revenue increased 13.1 percent to $206.2 million in the fourth quarter of 2006 compared to $182.3 million in the fourth quarter of 2005. Revenue increased 10.1 percent to $757.8 million in 2006 compared to $688.0 million in 2005. Operating margin was 30.8 percent in the fourth quarter of 2006 compared to 30.2 percent in the fourth quarter of 2005. This 60 basis point increase was primarily due to improved operating efficiencies in our college operations and greater leveraging of our fixed operating costs. The Operating Margin increase in the fourth quarter was partially offset by increased costs associated with the acceleration of our geographic and programmatic expansion in 2006. Operating Margin was 24.0 percent in both 2006 and 2005. Our effective tax rate was approximately 37.5 percent in 2006. "
Fitzpatrick said, "Bad debt as a percentage of revenue increased to 1.6 percent in the three months ended December 31, 2006 compared to 1.0 percent in the same period of 2005. We anticipate that our bad debt expense in 2007 will be in our historical range of one to three percent of revenue. Days sales outstanding as of December 31, 2006 were 4.2 days, a 2.9 day decrease compared to 7.1 days as of the same point in 2005. Our return on equity in 2006 was 57.5 percent compared to 40.4 percent in 2005."
Fitzpatrick continued, "Our cash and cash equivalents, restricted cash and investments as of December 31, 2006 were $357.4 million compared to $411.9 million as of December 31, 2005. In the fourth quarter, we repurchased 0.6 million shares of our common stock at an average purchase price of $69.22 per share or $39.2 million in total. In the twelve months ended December 31, 2006, we purchased 5.6 million shares of our common stock at an average purchase price of $64.74 per share or $363.0 million in total. There are 2.7 million shares of our common stock that remain available for repurchase under our current share repurchase program that was authorized by our Board of Directors. Depending on the market conditions, we intend to continue repurchasing our shares in 2007."
Fitzpatrick noted, "During the fourth quarter of 2006, we entered into a Credit Agreement that provides us with a reducing revolving line of credit of up to $150 million that matures on October 1, 2009. We borrowed $150.0 million upon closing to allow us to continue repurchasing shares of our common stock while maintaining compliance with certain financial ratios required by the federal and state education authorities and our accrediting agency."
Fitzpatrick reported, "In 2006, we recorded $3.1 million of stock-based compensation expense, which reduced our full year EPS by $0.04 per share. We estimate that stock-based compensation expense in 2007 will reduce our 2007 EPS by approximately $0.10. After taking into account the effect of stock- based compensation expense, our internal goal for 2007 EPS is in the range of $3.17 to $3.21."
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.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
As of
December 31, 2006 December 31, 2005
(unaudited)
Assets
Current assets
Cash and cash equivalents $161,905 $13,735
Short-term investments 195,007 388,152
Accounts receivable, less
allowance for doubtful accounts
of $2,181 and $1,118 9,367 13,989
Deferred income taxes 4,771 4,190
Prepaids and other current
assets 9,902 16,942
Total current assets 380,952 437,008
Property and equipment, net 148,411 127,406
Direct marketing costs, net 21,628 17,490
Investments -- 9,538
Prepaid pension obligation 8,277 --
Restricted cash 527 500
Other assets 525 549
Total assets $560,320 $592,491
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable $47,948 $56,101
Accrued compensation and
benefits 13,899 10,344
Accrued income taxes 11,003 --
Accrued other taxes 3,242 3,998
Other accrued liabilities 6,251 5,242
Deferred revenue 202,162 175,454
Total current liabilities 284,505 251,139
Long-term debt 150,000 --
Deferred income taxes 13,713 15,364
Minimum pension liability -- 9,899
Other liabilities 8,157 7,495
Total liabilities 456,375 283,897
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 541 541
Capital surplus 46,982 68,714
Retained earnings 508,195 389,679
Accumulated other comprehensive
loss (6,533) (6,016)
Treasury stock, 13,029,471 and
8,377,780 shares, at cost (445,240) (144,324)
Total shareholders' equity 103,945 308,594
Total liabilities and
shareholders' equity $560,320 $592,491
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share data)
Three Months Twelve Months
Ended December 31, Ended December 31,
(unaudited) (unaudited)
2006 2005 2006 2005
Revenue $206,213 $182,304 $757,764 $688,003
Costs and expenses:
Cost of educational services 89,379 85,020 356,851 328,343
Student services and
administrative expenses 53,274 42,297 219,820 193,003
Special legal and other
investigation costs -- -- (430) 1,219
Total costs and expenses 142,653 127,317 576,241 522,565
Operating income 63,560 54,987 181,523 165,438
Interest income, net 1,847 2,870 8,104 8,853
Income before provision for
income taxes 65,407 57,857 189,627 174,291
Provision for income taxes 24,528 19,987 71,111 64,579
Net income $40,879 $37,870 $118,516 $109,712
Earnings per share:
Basic $0.99 $0.82 $2.77 $2.38
Diluted $0.97 $0.81 $2.72 $2.33
Supplemental Data:
Cost of educational services 43.3% 46.6% 47.1% 47.7%
Student services and
administrative expenses 25.8% 23.2% 29.0% 28.1%
Special legal and other
investigation costs 0.0% 0.0% (0.1%) 0.2%
Operating margin 30.8% 30.2% 24.0% 24.0%
Student enrollment at end of
period 46,896 42,985 46,896 42,985
Technical institutes at end of
period 87 81 87 81
Shares for earnings per share
calculation:
Basic 41,196 45,994 42,722 46,138
Diluted 42,025 46,977 43,629 47,112
Effective tax rate 37.5% 34.5% 37.5% 37.1%
ITT EDUCATIONAL SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Three Months Twelve Months
Ended December 31, Ended December 31,
(unaudited) (unaudited)
2006 2005 2006 2005
Cash flows from operating
activities:
Net income $40,879 $37,870 $118,516 $109,712
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation and
amortization 6,532 5,038 21,641 17,819
Provision for doubtful
accounts 3,374 1,849 10,862 10,679
Deferred income taxes 863 6,636 (1,906) 5,232
Excess tax benefit from
stock option exercises (4,021) 4,883 (14,289) 8,704
Stock-based compensation
expense 290 -- 3,067 --
Changes in operating
assets and liabilities:
Restricted cash (4) (500) (27) 7,694
Accounts receivable (569) 2,042 (6,240) (14,238)
Prepaid expenses and
other assets 11,892 (1,975) (4,053) (8,254)
Direct marketing
costs, net (1,068) (638) (4,138) (2,777)
Accounts payable and
accrued liabilities (11,067) 7,510 (13,667) 13,526
Income and other
taxes 5,505 (11,929) 27,383 (12,580)
Deferred revenue 2,421 23,123 26,708 18,662
Net cash flows from operating
activities 55,027 73,909 163,857 154,179
Cash flows from investing
activities:
Facility expenditures and
land purchases (2,165) (1,611) (18,929) (25,145)
Capital expenditures, net (3,027) (7,217) (23,717) (21,334)
Proceeds from sales and
maturities of investments 433,402 260,506 1,637,322 690,025
Purchase of investments (444,945) (281,723) (1,434,639) (748,782)
Net cash flows from investing
activities (16,735) (30,045) 160,037 (105,236)
Cash flows from financing
activities:
Proceeds from revolving
borrowings 150,000 -- 150,000 --
Excess tax benefit from
stock option exercises 4,021 -- 14,289 --
Proceeds from exercise of
stock options 4,144 5,410 22,960 11,008
Repurchase of common shares (39,213) (55,605) (362,973) (55,605)
Net cash flows from financing
activities 118,952 (50,195) (175,724) (44,597)
Net change in cash and cash
equivalents 157,244 (6,331) 148,170 4,346
Cash and cash equivalents at
beginning of period 4,661 20,066 13,735 9,389
Cash and cash equivalents at end
of period $161,905 $13,735 $161,905 $13,735
First Call Analyst:
FCMN Contact:
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/
