ITT Educational Services, Inc. Reports 2011 Third Quarter Results

CARMEL, Ind., Oct. 20, 2011 /PRNewswire/ — ITT Educational Services, Inc.
(NYSE: ESI), a leading provider of technology-oriented postsecondary degree
programs, today reported that new student enrollment in the third quarter of
2011 decreased 14.1% to 22,909 compared to 26,664 in the same period in 2010.
Total student enrollment decreased 10.0% to 79,219 as of September 30, 2011
compared to 88,004 as of September 30, 2010.

The company provided the following information for the three and nine months
ended September 30, 2011 and 2010:

Financial and Operating Data for the Three Months Ended
September 30th, Unless Otherwise Indicated
——————————————————-
(Dollars in millions, except per share and per student
data)

Increase/
2011 2010 (Decrease)
—- —- ———-

Revenue $360.6 $400.6 (10.0)%
Operating Income $109.9 $151.4 (27.4)%
(730) basis
Operating Margin 30.5% 37.8% points
Net Income $67.3 $93.2 (27.8)%
Earnings Per Share
(diluted) $2.48 $2.82 (12.1)%
New Student
Enrollment 22,909 26,664 (14.1)%
Continuing Students 56,310 61,340 (8.2)%
Total Student
Enrollment as of
September 30th 79,219 88,004 (10.0)%
Persistence Rate as
of September 30th (90) basis
(A) 71.5% 72.4% points
Revenue Per Student $4,580 $4,730 (3.2)%
Cash and Cash
Equivalents,
Restricted Cash
and
Investments as of
September 30th $319.8 $262.5 21.8%
Bad Debt Expense as
a Percent of (170) basis
Revenue 3.8% 5.5% points
Days Sales
Outstanding as of
September 30th 14.3 days 19.6 days (5.3) days
Deferred Revenue as
of September 30th $226.0 $195.2 15.8%
Debt as of
September 30th $150.0 $150.0
Weighted Average
Diluted Shares of
Common Stock 27,098,000 33,011,000
Outstanding
Shares of Common
Stock Repurchased 370,000 (B) 1,775,000 (C)
Land and Building
Purchases and
Renovations $1.5 (D) $1.8 (E) (18.1)%
Number of New
Colleges in
Operation 5 1
Capital
Expenditures, Net $7.8 $8.1 (3.3)%

Financial and Operating Data for the Nine Months Ended
September 30th
——————————————————
(Dollars in millions, except per share and per student
data)
2011 2010 Increase/
—- —- (Decrease)
———-

Revenue $1,131.7 $1,186.4 (4.6)%
Operating
Income $380.5 $451.2 (15.7)%
Operating (440) basis
Margin 33.6% 38.0% points
Net Income $231.7 $276.7 (16.3)%
Earnings Per
Share
(diluted) $8.27 $8.06 2.6%
Bad Debt
Expense as a
Percentage (180) basis
of Revenue 3.9% 5.7% points
Revenue Per
Student $13,721 $14,237 (3.6)%
Weighted
Average
Diluted
Shares of
Common Stock
Outstanding 28,035,000 34,336,000
Shares of
Common Stock
Repurchased 3,470,000 (F) 3,727,500 (G)
Land and
Building
Purchases
and
Renovations $3.1 (H) $4.4 (I) (28.4)%
Number of New
Colleges in
Operation 6 5
Capital
Expenditures,
Net $20.0 $20.6 (3.0)%

(A) Represents the number of Continuing Students in the
academic term, divided by the Total Student Enrollment in
the immediately preceding academic term.
(B) For approximately $29.6 million or at an average price
of $79.94 per share.
(C) For approximately $114.9 million or at an average price
of $64.73 per share.
(D) Represents costs associated with renovating, expanding
or constructing buildings at eight of the company’s
locations.
(E) Represents costs associated with renovating, expanding
or constructing buildings at seven of the company’s
locations.
(F) For approximately $248.1 million or at an average price
of $71.50 per share.
(G) For approximately $315.0 million or at an average price
of $84.49 per share.
(H) Represents costs associated with renovating, expanding
or constructing buildings at 11 of the company’s
locations.
(I) Represents costs associated with renovating, expanding
or constructing buildings at 17 of the company’s
locations.

The Company adjusted its 2011 internal goal for earnings per share from the
range of $10.00 to $10.50 to an adjusted range of $10.40 to $10.60.

ITT Educational Services, Inc. will conduct a conference call with financial
analysts to discuss its 2011 third quarter earnings at 11:00 am (ET) this
morning. The public is invited to listen to a live webcast of the conference
call. The webcast may be accessed by following the “Live Webcast” directions on
ITT/ESI’s website at www.ittesi.com.

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: changes in federal and state
governmental laws and regulations with respect to education and accreditation
standards, or the interpretation or enforcement of those laws and regulations,
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; business conditions and growth in the postsecondary
education industry and in the general economy; 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 campuses; the company’s ability to implement its growth
strategies; the company’s failure to maintain or renew required federal or state
authorizations or accreditations of its campuses or programs of study;
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 education loans; the company’s ability to collect internally funded
financing from its students; the company’s exposure under its guarantees related
to private student loan programs; 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
—–
September 30, December 31, September 30,
2011 2010 2010
————– ————- ————–
(unaudited) (unaudited)
Assets
Current assets:
Cash and cash
equivalents $172,577 $163,779 $119,956
Short-term
investments 146,799 149,160 142,483
Restricted cash 413 255 108
Accounts
receivable, net 56,140 68,937 85,246
Deferred income
taxes 6,760 9,079 17,488
Prepaid expenses
and other current
assets 19,565 22,887 17,494
—— —— ——
Total current
assets 402,254 414,097 382,775

Property and
equipment, net 201,010 198,213 197,383
Deferred income
taxes 37,068 21,814 18,189
Other assets 46,422 40,656 29,383
—— —— ——
Total assets $686,754 $674,780 $627,730
======== ======== ========

Liabilities and
Shareholders’
Equity
Current liabilities:
Accounts payable $88,825 $67,920 $79,620
Accrued
compensation and
benefits 16,772 28,428 19,545
Other current
liabilities 12,809 15,441 12,051
Deferred revenue 226,046 244,362 195,168
——- ——- ——-
Total current
liabilities 344,452 356,151 306,384

Long-term debt 150,000 150,000 150,000
Other liabilities 63,840 40,559 29,004
—— ——
Total liabilities 558,292 546,710 485,388
——- ——- ——-

Shareholders’
equity:
Preferred stock,
$.01 par value,
5,000,000 shares
authorized, none
issued 0 0 0
Common stock, $.01
par value,
300,000,000
shares 371 371 541
authorized,
37,068,904,
37,068,904 and
54,068,904
issued
Capital surplus 186,009 173,935 170,699
Retained earnings 751,705 524,678 1,270,248
Accumulated other
comprehensive
(loss) (4,498) (4,509) (9,147)
Treasury stock,
10,405,882,
7,075,563 and
22,151,915 (805,125) (566,405) (1,289,999)
shares at cost
Total
shareholders’
equity 128,462 128,070 142,342
——- ——- ——-
Total liabilities
and shareholders’
equity $686,754 $674,780 $627,730
======== ======== ========

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

Three Months Nine Months
Ended September 30, Ended September 30,
(unaudited) (unaudited)
———– ———–
2011 2010 2011 2010
—- —- —- —-

Revenue $360,638 $400,597 $1,131,686 $1,186,403

Costs and
expenses:
Cost of
educational
services 141,262 134,478 421,460 402,623
Student services
and
administrative
expenses 109,512 114,706 329,721 332,620
Total costs and
expenses 250,774 249,184 751,181 735,243
——- ——- ——- ——-

Operating income 109,864 151,413 380,505 451,160
Interest income 716 634 2,341 1,876
Interest (expense) (378) (490) (1,442) (1,424)
—- —- —— ——
Income before
provision for
income taxes 110,202 151,557 381,404 451,612
Provision for
income taxes 42,884 58,380 149,700 174,944
—— —— ——- ——-

Net income $67,318 $93,177 $231,704 $276,668
======= ======= ======== ========

Earnings per
share:
Basic $2.51 $2.84 $8.34 $8.15
Diluted $2.48 $2.82 $8.27 $8.06

Supplemental
Data:
Cost of
educational
services 39.2% 33.6% 37.2% 33.9%
Student services
and
administrative
expenses 30.4% 28.6% 29.1% 28.0%
Operating margin 30.5% 37.8% 33.6% 38.0%
Student enrollment
at end of period 79,219 88,004 79,219 88,004
Campuses at end of
period 136 126 136 126
Shares for
earnings per
share
calculation:
Basic 26,839,000 32,777,000 27,791,000 33,954,000
Diluted 27,098,000 33,011,000 28,035,000 34,336,000

Effective tax rate 38.9% 38.5% 39.2% 38.7%

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

Three Months Nine Months
Ended September 30, Ended September 30,
(unaudited) (unaudited)
———– ———–
2011 2010 2011 2010
—- —- —- —-
Cash
flows
from
operating
activities:
Net income $67,318 $93,177 $231,704 $276,668
Adjustments
to
reconcile
net
income
to
net
cash
flows
from
operating
activities:
Depreciation and
amortization 6,486 6,205 20,368 19,687
Provision for
doubtful accounts 13,864 22,151 44,018 67,950
Deferred income
taxes (5,831) (6,568) (13,008) (16,031)
Excess tax benefit
from stock option
exercises (167) (1,313) (1,145) (3,253)
Stock-based
compensation
expense 4,166 3,708 12,838 12,707
Other (820) 268 (3,237) 758
Changes
in
operating
assets
and
liabilities:
Restricted cash (26) (38) (158) 1,783
Accounts
receivable (22,963) (9,007) (31,221) (67,770)
Accounts payable 22,817 3,504 20,905 18,345
Other operating
assets and
liabilities 5,035 6,756 29,071 29,096
Deferred revenue (40,801) (1,939) (18,316) 23,235
——- —— ——- ——
Net cash flows
from operating
activities 49,078 116,904 291,819 363,175
—— ——- ——- ——-

Cash
flows
from
investing
activities:
Facility
expenditures and
land purchases (1,454) (1,775) (3,129) (4,368)
Capital
expenditures, net (7,827) (8,090) (20,013) (20,629)
Proceeds from
sales and
maturities of
investments and 52,317 81,517 312,709 281,343
repayment
of
notes
Purchase of
investments and
note advances (48,613) (100,741) (330,306) (323,515)
Net cash flows
from investing
activities (5,577) (29,089) (40,739) (67,169)
—— ——- ——- ——-

Cash
flows
from
financing
activities:
Excess tax benefit
from stock option
exercises 167 1,313 1,145 3,253
Proceeds from
exercise of stock
options 303 5,210 5,286 7,830
Repurchase of
common stock and
shares tendered
for (29,629) (114,906) (248,713) (315,921)
taxes
Net cash flows
from financing
activities (29,159) (108,383) (242,282) (304,838)
——- ——– ——– ——–