News Releases
ITT Educational Services, Inc. Reports 2007 Second Quarter Results, Earnings Per Share Increased 58.2 Percent
PRNewswire-FirstCall
CARMEL, Ind.
Jul 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 second quarter of 2007 increased 58.2 percent to $0.87 compared to $0.55 in the second quarter of 2006. Revenue in the three months ended June 30, 2007 increased 16.9 percent to $217.0 million compared to $185.6 million in the three months ended June 30, 2006. Operating margin increased 690 basis points to 26.6 percent in the second quarter of 2007 compared to 19.7 percent in the same period in 2006.
Total student enrollment increased 11.0 percent to 48,873 as of June 30, 2007, compared to 44,025 as of June 30, 2006. New student enrollment in the second quarter of 2007 increased 3.2 percent to 12,043 compared to 11,674 in the second quarter of 2006. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.
The company provided the following information for the three and six months ended June 30, 2007 and 2006:
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/
2007 2006 (Decrease)
Revenue $ 217.0 $ 185.6 16.9 %
Operating Income $ 57.7 $ 36.6 57.6 %
Operating Margin 26.6 % 19.7 % 690 basis points
Net Income $ 35.9 $ 24.1 48.7 %
Earnings Per Share (diluted) $ 0.87 $ 0.55 58.2 %
New Student Enrollment (A) 12,043 11,674 3.2 %
Continuing Students (A) 36,830 32,351 13.8 %
Total Student Enrollment
as of June 30th (A) 48,873 44,025 11.0 %
Quarterly Persistence
Rate (B) 74.7 % 73.7 % 100 basis points
Revenue Per Student (A) $ 4,402 $ 4,230 4.1 %
Cash, Cash Equivalents,
Restricted Cash and
Investments as of June 30th $ 300.9 $ 214.5 40.3 %
Bad Debt Expense as a
Percentage of Revenue 2.5 % 1.5 % 100 basis points
Days Sales Outstanding as of
June 30th 4.2 days 4.8 days (0.6) days
Deferred Revenue as of
June 30th $ 192.4 $ 174.1 10.5 %
Debt $ 150.0 -- --
Weighted Average Diluted
Shares of Common Stock
Outstanding 41,110,000 44,042,000 (6.7)%
Shares of Common Stock
Repurchased 720,000© 1,660,500(D) --
Land and Building Purchases $ 3.8(E) $ 5.9(F) (35.6)%
Number of New Colleges in
Operation 3 3 --
Number of New Learning Sites
in Operation -- 1 --
Capital Expenditures, Net $ 4.4 $ 9.5 (53.3)%
Financial and Operating Data For The Six Months Ended June 30th, Unless
Otherwise Indicated
(Dollars in millions, except per share and per student data)
Increase/
2007 2006 (Decrease)
Revenue $ 421.2 $ 361.9 16.4 %
Operating Income $ 101.8 $ 66.8 52.4 %
Operating Margin 24.2 % 18.5 % 570 basis points
Net Income $ 63.5 $ 44.6 42.3 %
Earnings Per Share (diluted) $ 1.53 $ 0.99 54.5 %
Revenue Per Student (A) $ 8,756 $ 8,332 5.1 %
Bad Debt Expense as a
Percentage of Revenue 2.4 % 1.5 % 90 basis points
Weighted Average Diluted
Shares of Common
Stock Outstanding 41,350,000 44,920,000 (7.9)%
Shares of Common Stock
Repurchased 1,529,900(G) 3,886,200(H) --
Land and Building Purchases $ 8.7(I) $ 10.8(F) (19.6)%
Number of New Colleges in
Operation 6 3 --
Number of New Learning Sites
in Operation -- 3 --
Capital Expenditures, Net $ 6.9 $ 13.1 (47.0)%
(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 $75.7 million or at an average price of $105.16 per
share.
(D) For approximately $106.5 million or at an average price of $64.14 per
share.
(E) Represents the costs associated with purchasing, renovating,
expanding or constructing buildings at six of the company's
locations.
(F) Represents the costs associated with purchasing, renovating,
expanding or constructing buildings at 12 of the company's locations.
(G) For approximately $140.8 million or at an average price of $92.01 per
share.
(H) For approximately $246.6 million or at an average price of $63.46 per
share.
(I) Represents the costs associated with purchasing, renovating,
expanding or constructing buildings at nine of the company's
locations.
Kevin M. Modany, CEO and President of ITT/ESI, said, "Our financial performance in the second quarter of 2007 was extremely strong and exceeded our internal goals due to the outstanding execution of our operating plan by our management team. As a result, we are further raising our internal goal for 2007 EPS from the range of $3.40 to $3.50 to the revised range of $3.45 to $3.55. Total student enrollment increased at a rate in excess of our historical average which was driven by continued improvement in student persistence."
Modany continued, "Our advertising expenditures increased 16.9 percent in the second quarter of 2007, primarily due to incremental advertising associated with opening new colleges and introducing new programs of study, and higher advertising rates charged by certain media sources. In response to those higher advertising rates, we made adjustments to our media mix that had a negative short-term impact on the quantity of inquiries generated during the second quarter. As the third quarter began, we were able to negotiate lower advertising rates and return to the prior media mix, and the number of inquiries generated for our programs of study has since been strong."
Modany added, "We continued our geographic expansion in the second quarter by beginning operations at our 91st college in Wichita, KS, our 92nd college in South Bend, IN and our 93rd college in Mobile, AL. Classes at these new colleges will begin in the second half of 2007. So far in 2007, we have begun operations at six new colleges and plan to begin operations at two additional locations during the remainder of 2007."
Modany said, "We are also researching and developing new programs of study to further our programmatic expansion. We are extremely pleased to announce that we have obtained all of the necessary regulatory authorizations to begin offering an Associate of Science Degree program in Nursing at the ITT Technical Institute in Indianapolis, IN. Our first class of nursing students is scheduled to begin in September 2007. We are very excited to add this program to our School of Health Sciences, and we look forward to assisting our nation in addressing the urgent and growing need for nurses. We have begun to pursue the necessary regulatory authorizations to expand our offering of the nursing program to additional ITT Technical Institutes in other states."
Modany reported that, "The period for measuring the employment success of our 2006 graduates ended in the second quarter, and I am pleased to report that approximately 81 percent of our 2006 employable graduates obtained employment by April 30, 2007 in positions using skills taught in their programs of study, compared to 76 percent of our 2005 employable graduates by April 30, 2006. In addition, the average annual salary reported by our 2006 employed graduates increased 8.4 percent to approximately $31,100 compared to approximately $28,700 reported by our 2005 employed graduates."
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 good and that we remain on track to achieve our long-term internal goals."
Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, "Our financial results in both the second quarter and the first six months of 2007 were outstanding. Revenue in the second quarter of 2007 increased 16.9 percent compared to the second quarter of 2006. This increase was primarily due to a solid increase in total student enrollment attributable to improved student retention, and a 5.0 percent tuition increase implemented in March of 2007."
Fitzpatrick added, "The ability of our college management to execute our proven business model that focuses on student success and operational efficiencies has been a key driver of our strong financial results in the first six months of 2007. These efforts led to a 690 basis point improvement in operating margin for the second quarter of 2007."
Fitzpatrick noted, "In the three months ended June 30, 2007, we repurchased 720,000 shares of our common stock at an average purchase price of $105.16 per share or $75.7 million in total. We have 6,151,200 shares remaining in our repurchase authorization program. If conditions remain appropriate, we intend to continue repurchasing our shares throughout the remainder of 2007. Cash and cash equivalents, restricted cash and investments increased 40.3 percent to $300.9 million as of June 30, 2007 compared to $214.5 million as of June 30, 2006. Cash per diluted share increased 50.3 percent to $7.32 per share as of June 30, 2007 compared to $4.87 per share at the same point in 2006."
Fitzpatrick said, "Bad debt expense as a percentage of revenue increased to 2.5 percent in the three months ended June 30, 2007 compared to 1.5 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 were 4.2 days as of June 30, 2007 compared to 4.8 days as of June 30, 2006."
Fitzpatrick closed by noting, "We are very pleased with our financial results for the first half of 2007 and believe that the fundamentals of our business remain extremely 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 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
June 30, December 31, June 30,
2007 2006 2006
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash equivalents $ 10,079 $ 161,905 $ 8,073
Short-term investments 290,285 195,007 205,954
Accounts receivable, net 9,930 9,367 9,736
Deferred income taxes 9,464 4,771 4,950
Prepaid expenses and other
current assets 25,470 9,902 10,427
Total current assets 345,228 380,952 239,140
Property and equipment, net 151,309 148,411 141,314
Direct marketing costs, net 21,207 21,628 19,592
Other assets 11,304 9,329 19,421
Total assets $ 529,048 $ 560,320 $ 419,467
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term
debt $ 21,429 $ -- $ --
Accounts payable 60,117 47,948 59,910
Accrued compensation and
benefits 14,129 13,899 10,028
Other accrued liabilities 12,110 20,496 11,829
Deferred revenue 192,392 202,162 174,065
Total current liabilities 300,177 284,505 255,832
Long-term debt 128,571 150,000 --
Deferred income taxes 11,855 13,713 15,273
Minimum pension liability -- -- 9,899
Other liabilities 15,116 8,157 7,832
Total liabilities 455,719 456,375 288,836
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 15,635 46,982 59,435
Retained earnings 573,819 508,195 434,264
Accumulated other comprehensive
(loss) (6,364) (6,533) (6,016)
Treasury stock, 13,702,384,
13,029,471 and 11,738,007
shares, at cost (510,302) (445,240) (357,593)
Total shareholders' equity 73,329 103,945 130,631
Total liabilities and
shareholders' equity $ 529,048 $ 560,320 $ 419,467
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)
2007 2006 2007 2006
Revenue $ 216,982 $ 185,569 $ 421,152 $ 361,884
Costs and expenses:
Cost of educational
services 90,581 92,514 181,351 182,918
Student services and
administrative expenses 68,725 56,465 138,018 112,577
Special legal and other
investigation costs -- -- -- (430)
Total costs and
expenses 159,306 148,979 319,369 295,065
Operating income 57,676 36,590 101,783 66,819
Interest income, net 720 2,010 1,564 4,517
Income before provision
for income taxes 58,396 38,600 103,347 71,336
Provision for income
taxes 22,538 14,489 39,892 26,751
Net income $ 35,858 $ 24,111 $ 63,455 $ 44,585
Earnings per share:
Basic $ 0.89 $ 0.56 $ 1.56 $ 1.01
Diluted $ 0.87 $ 0.55 $ 1.53 $ 0.99
Supplemental Data:
Cost of educational
services 41.7% 49.9% 43.0% 50.5%
Student services and
administrative expenses 31.7% 30.4% 32.8% 31.1%
Special legal and other
investigation costs 0.0% 0.0% 0.0% (0.1%)
Operating margin 26.6% 19.7% 24.2% 18.5%
Student enrollment at end
of period 48,873 44,025 48,873 44,025
Technical institutes at
end of period 93 87 93 87
Shares for earnings per
share calculation:
Basic 40,449,000 43,110,000 40,682,000 43,967,000
Diluted 41,110,000 44,042,000 41,350,000 44,920,000
Effective tax rate 38.6% 37.5% 38.6% 37.5%
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)
2007 2006 2007 2006
Cash flows from operating
activities:
Net income $ 35,858 $ 24,111 $ 63,455 $ 44,585
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation and
amortization 6,099 5,096 12,740 9,994
Provision for
doubtful accounts 5,349 2,783 9,990 5,332
Deferred income taxes (2,945) (94) (6,551) (858)
Excess tax benefit
from stock option
exercises (12,224) (3,802) (23,274) (6,966)
Stock-based
compensation expense 1,196 313 3,171 2,234
Changes in operating
assets and
liabilities:
Accounts receivable (5,421) (2,744) (10,553) (1,079)
Direct marketing
costs, net 353 (1,200) 421 (2,102)
Accounts payable 3,730 17,725 12,169 3,809
Other operating
assets and
liabilities (3,950) 2,516 7,240 (2,155)
Deferred revenue (13,378) (5,261) (9,770) (1,389)
Net cash flows from operating
activities 14,667 39,443 59,038 51,405
Cash flows from investing
activities:
Facility expenditures and
land purchases (3,778) (5,864) (8,696) (10,813)
Capital expenditures, net (4,423) (9,476) (6,942) (13,089)
Proceeds from sales and
maturities of investments 593,489 433,586 1,184,306 806,121
Purchase of investments (542,314) (359,140) (1,279,584) (614,385)
Net cash flows from investing
activities 42,974 59,106 (110,916) 167,834
Cash flows from financing
activities:
Excess tax benefit from
stock option exercises 12,224 3,802 23,274 6,966
Proceeds from exercise of
stock options 7,916 5,549 17,541 14,767
Repurchase of common stock (75,714) (106,499) (140,763) (246,634)
Net cash flows from financing
activities (55,574) (97,148) (99,948) (224,901)
Net change in cash and cash
equivalents 2,067 1,401 (151,826) (5,662)
Cash and cash equivalents at
beginning of period 8,012 6,672 161,905 13,735
Cash and cash equivalents at end
of period $ 10,079 $ 8,073 $ 10,079 $ 8,073
First Call Analyst:
FCMN Contact:
SOURCE: ITT Educational Services, Inc.
CONTACT: David Landau, Manager Corporate Relations of ITT Educational
Services, Inc., +1-317-706-9274
Web site: http://www.ittesi.com/
