EX-99 2 exhibit99_1.htm

Exhibit 99.1

 

 

ITT EDUCATIONAL SERVICES, INC. REPORTS 2006 FIRST QUARTER RESULTS,

NEW STUDENT ENROLLMENT INCREASED 14.7 PERCENT

 

 

CARMEL, IN, April 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 first quarter of 2006 increased 14.7 percent to 11,264 compared to 9,824 in the same period of 2005. Total student enrollment increased 5.6 percent to 43,868 as of March 31, 2006, compared to 41,557 as of March 31, 2005. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.

 

Earnings per share (“EPS”) in the first quarter of 2006 increased 40.6 percent to $0.45 compared to $0.32 in the first quarter of 2005. Before the effect of the stock-based compensation expense, EPS in the first quarter of 2006 would have been $0.47, a 46.9 percent increase, compared to $0.32 in the same period of 2005. The reconciliation to the company’s condensed consolidated statements of income for the financial measure in this paragraph that is not under generally accepted accounting principles is provided in the table below and on the company’s website at www.ittesi.com.

 

The company provided the following information for the three months ended March 31, 2006 and 2005:

 

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Financial and Operating Data For The Three Months Ended March 31, Unless Otherwise Indicated

(Dollars in thousands, except per share and per student data)

 

 

 

2006

 

 

2005

 

Increase/
(Decrease)

 

 

 

 

 

 

 

Revenue

 

$176,315

 

$160,153

 

10.1%

Operating Income

 

$30,229

 

$23,126

 

30.7%

Operating Margin

 

17.1%

 

14.4%

 

270 bp

Net Income

 

$20,474

 

$15,028

 

36.2%

Earnings Per Share (diluted)

 

$0.45

 

$0.32

 

40.6%

Stock-Based Compensation Expense Per Share

(diluted), Net of Tax

 

$0.03

 

N/A

 

--

Earnings Per Share (diluted) Before Stock-Based

Compensation Expense, Net of Tax (A)

 

$0.47

 

$0.32

 

46.9%

New Student Enrollment (B)

 

11,264

 

9,824

 

14.7%

Continuing Students (B)

 

32,604

 

31,733

 

2.7%

Total Student Enrollment as of March 31 (B)

 

43,868

 

41,557

 

5.6%

Online Course Registrations (C)

 

36,073

 

25,425

 

41.9%

Quarterly Persistence (Retention) Rate (D)

 

75.8%

 

77.6%

 

(180) bp

Revenue Per Student (B)

 

$4,102

 

$3,918

 

4.7%

Cash, Cash Equivalents, Restricted Cash and

Investments as of March 31

 

$287,572

 

$351,320

 

(18.1)%

Bad Debt Expense as a Percentage of Revenue

 

1.4%

 

1.8%

 

(40) bp

Days Sales Outstanding as of March 31

 

5.0

 

7.2

 

(2.2) days

Deferred Revenue as of March 31

 

$179,326

 

$150,663

 

19.0%

Debt

 

$0

 

$0

 

--

Diluted Shares of Common Stock Outstanding

 

45,798,000

 

47,079,000

 

--

Shares of Common Stock Repurchased

 

2,225,700 (E)

 

0

 

--

Land and Building Purchases

 

$4,949 (F)

 

$9,584 (G)

 

(48.4)%

Number of New Colleges Opened

 

3

 

0

 

--

Number of New Learning Sites Opened

 

2

 

2

 

--

Capital Expenditures, Net

 

$3,613

 

$3,146

 

14.8%

___________________

(A)

In evaluating the company’s performance, the company’s management uses this measurement that is not under generally accepted accounting principles (“GAAP”) and is, therefore, a non-GAAP financial measure. Although the non-GAAP financial measure excludes a non-cash cost to the company, management compensates for this by also using the GAAP measure. The non-GAAP financial measure should be considered in addition to, but not as a substitute for, the measure prepared in accordance with GAAP. Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment,” which prescribes the accounting for equity instruments (including stock options and restricted stock) exchanged for services. Stock-based compensation is measured at the grant date, based on the calculated fair value of the grant, and is recognized as an expense over the service period applicable to the grantee. The service period is the period of time that the grantee must provide services to the company before the stock-based compensation is fully vested. Prior to 2006, in accordance with existing accounting guidance, the company did not recognize any compensation expense in its financial statements for most of the stock-based compensation granted. The company believes that Earnings Per Share (diluted) Before Stock-Based Compensation Expense, Net of Tax provides useful information to investors, because it provides investors with a meaningful year-over-year comparison of the company’s financial performance. After the company’s 2006 fiscal year, investors will be able to make like comparisons of the company’s Earnings Per Share (diluted) to the same prior year period’s Earnings Per Share (diluted) without having to exclude stock-based compensation expense, because the stock-based compensation expense will be included in the calculation of the company’s Earnings Per Share (diluted) in both

 

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periods. Earnings Per Share (diluted) Before Stock-Based Compensation Expense, Net of Tax, is useful to the company’s management in its analysis of the company’s financial condition and results of operations. The company’s management uses Earnings Per Share (diluted) Before Stock-Based Compensation Expense, Net of Tax to facilitate comparison of its performance across reporting periods and to evaluate its (i) financial performance against internal budgets, (ii) success in achieving incentive compensation goals and (iii) core operating results. Earnings Per Share (diluted) Before Stock-Based Compensation Expense, Net of Tax can be reconciled to Earnings Per Share (diluted) as shown in the two lines of the table immediately preceding this entry. Individually, Earnings Per Share (diluted) and Stock-Based Compensation Expense Per Share (diluted), Net of Tax for the three months ended March 31, 2006, calculate to be $0.45 and $0.03, respectively. Due to rounding, Earnings Per Share (diluted) Before Stock-Based Compensation Expense, Net of Tax, calculates to be $0.47.

(B)

Excludes international enrollments.

(C)

Excludes any online courses that the company’s international enrollments may have been registered to take.

(D)

Represents the number of Continuing Students in the quarter, divided by the Total Student Enrollment as of the end of the immediately preceding quarter.

(E)

For approximately $140.1 million or at an average price of $62.96 per share.

(F)

Represents construction costs associated with renovating and building the facilities of 11 of the company’s colleges.

(G)

Represents the purchase of the facilities of one of the company’s colleges and construction costs associated with building the facilities of four of the company’s colleges.

 

Rene R. Champagne, Chairman and CEO of ITT/ESI, said, “We are very pleased with our performance in the first quarter of 2006. The implementation of our growth initiatives has positioned us well to enhance shareholder value over the long term. Our outlook for the balance of 2006 remains positive.”

 

Kevin M. Modany, President and Chief Operating Officer of ITT/ESI, said, “Our marketing and recruiting efforts, coupled with our geographic and programmatic expansion, helped us produce a strong increase in new student enrollment. In the three months ended March 31, 2006, compared to the same period in 2005, new student enrollment increased 14.7 percent while our advertising expenditures increased only 13.9 percent.”

 

Modany continued, “During the quarter, we began operations at our 82nd college in Clovis (Fresno), CA, our 83rd college in Lexington, KY and our 84th college in Oklahoma City, OK. In addition, we began operations at our 5th learning site in Culver City (Los Angeles), CA and our 6th learning site in Vista (San Diego), CA. These new locations, together with our other geographic expansion activities during the quarter, will help us achieve our internal goal of opening five to six new colleges and five to six new learning sites in fiscal 2006.”

 

Modany said, “Our efforts to diversify our curriculum offerings continue. Fourteen percent of our student body was enrolled in non-technology programs as of March 31, 2006 compared to 7 percent at the same point in the prior year. Expanding our bachelor degree offerings remains one of our key growth initiatives. Approximately 27 percent of our students were enrolled in bachelor degree programs as of March 31, 2006 compared to approximately 21 percent at the same point in 2005. We also continue to focus on developing new programs of study. During the second half of 2006, we plan to begin offering several new non-technology and technology-related programs that will be taught both in residence and online.”

 

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Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, “As of January 1, 2006, we began expensing our stock-based compensation in accordance with new accounting requirements, which reduced first quarter EPS by $0.03. We estimate that our stock-based compensation expense for all of 2006 will reduce our full year fiscal 2006 EPS by approximately $0.05. In addition, the costs associated with the hurricane-related closure and re-start of our St. Rose (New Orleans), LA college in 2005 reduced first quarter EPS by $0.01. We estimate that our full year fiscal 2006 EPS will be negatively impacted by approximately $0.04 as our college in St. Rose rebuilds its student enrollment over the next several quarters.”

 

Fitzpatrick noted, “In the three months ended March 31, 2006, we repurchased 2.2 million shares of our common stock at an average purchase price of $62.96 per share or $140.1 million in total. We intend to continue repurchasing our shares throughout the remainder of 2006.”

 

The company announced that on April 25, 2006, its Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of its outstanding common stock beyond the company’s remaining repurchase authorization of 1,062,000 shares. 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 declined to 1.4 percent in the three months ended March 31, 2006 compared to 1.8 percent in the same period during 2005. Days sales outstanding as of March 31, 2006 were 5.0 days, a 2.2 day decrease compared to 7.2 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;

 

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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.

 

FOR FURTHER INFORMATION:

COMPANY:

WEB SITE:

 

Nancy Brown

www.ittesi.com

Director Corporate Relations

 

(317) 706-9260

 

 

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ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data)

 

 

 

 

 

 

As of

 

March 31, 2006

 

December 31, 2005

 

March 31, 2005

 

(unaudited)

 

 

 

(unaudited)

Assets

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

$6,672

 

$13,735

 

$25,575

Short-term investments

270,879

 

388,152

 

320,563

Accounts receivable, net

9,775

 

13,989

 

12,785

Deferred and prepaid income tax

4,015

 

7,030

 

8,128

Prepaids and other current assets

30,264

 

14,102

 

14,898

Total current assets

321,605

 

437,008

 

381,949

 

 

 

 

 

 

Property and equipment, net

131,070

 

127,406

 

107,180

Direct marketing costs, net

18,392

 

17,490

 

15,609

Investments

9,521

 

9,538

 

5,182

Restricted cash

500

 

500

 

--

Other assets

578

 

549

 

981

Total assets

$481,666

 

$592,491

 

$510,901

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

$42,185

 

$56,101

 

$36,748

Accrued compensation and benefits

9,010

 

10,344

 

10,837

Accrued taxes

10,023

 

3,998

 

10,539

Other accrued liabilities

5,818

 

5,242

 

20,034

Deferred revenue

179,326

 

175,454

 

150,663

Total current liabilities

246,362

 

251,139

 

228,821

 

 

 

 

 

 

Deferred income tax

14,432

 

15,364

 

10,778

Minimum pension liability

9,899

 

9,899

 

9,101

Other liabilities

7,737

 

7,495

 

7,069

Total liabilities

278,430

 

283,897

 

255,769

 

 

 

 

 

 

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

65,473

 

68,715

 

61,872

Retained earnings

410,153

 

389,679

 

308,172

Accumulated other comprehensive loss

(6,016)

 

(6,016)

 

(5,532)

Treasury stock, 10,322,431, 8,377,780 and

7,903,325 shares, at cost

(266,914)

 

(144,324)

 

(109,920)

Total shareholders' equity

203,236

 

308,594

 

255,132

Total liabilities and shareholders' equity

$481,666

 

$592,491

 

$510,901

 

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ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except earnings per share and supplemental data)

 

 

 

 

 

Three Months

 

Ended March 31,

 

(unaudited)

 

2006

 

2005

 

 

 

 

Revenue

$176,315

 

$160,153

 

 

 

 

Costs and expenses

 

 

 

Cost of educational services

90,404

 

80,121

Student services and administrative expenses

56,112

 

49,194

Special legal and other investigation costs

(430)

 

7,712

Total costs and expenses

146,086

 

137,027

 

 

 

 

Operating income

30,229

 

23,126

 

 

 

 

Interest income, net

2,507

 

1,714

 

 

 

 

Income before income taxes

32,736

 

24,840

 

 

 

 

Income taxes

12,262

 

9,812

 

 

 

 

Net income

$20,474

 

$15,028

 

 

 

 

Earnings per share:

 

 

 

Basic

$0.46

 

$0.33

Diluted

$0.45

 

$0.32

 

 

 

 

Supplemental Data:

 

 

 

Cost of educational services

51.3%

 

50.0%

Student services and administrative expenses

31.8%

 

30.8%

Special legal and other investigation costs

(0.2%)

 

4.8%

Operating margin

17.1%

 

14.4%

Student enrollment at end of period

43,868

 

41,557

Technical institutes at end of period

84

 

77

Shares for earnings per share calculation:

 

 

 

Basic

44,823,000

 

46,086,000

Diluted

45,798,000

 

47,079,000

 

 

 

 

 

 

 

 

Effective tax rate

37.5%

 

39.5%

 

 

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ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

 

 

Three Months

 

Ended March 31,

 

(unaudited)

 

2006

 

2005

Cash flows from operating activities:

 

 

 

Net income

$20,474

 

$15,028

Adjustments to reconcile net income to net cash

 

 

 

from operating activities:

 

 

 

Depreciation and amortization

4,898

 

4,296

Provision for doubtful accounts

2,549

 

2,871

Deferred income taxes

(764)

 

(3,604)

Excess tax benefit from stock option exercises

(3,164)

 

2,005

Stock-based compensation expense

1,921

 

--

Changes in operating assets and liabilities:

 

 

 

Restricted cash

--

 

8,194

Accounts receivable

1,665

 

(5,226)

Prepaids and other assets

(16,191)

 

(9,482)

Direct marketing costs, net

(902)

 

(896)

Accounts payable and accrued liabilities

(14,432)

 

8,864

Income and other taxes

12,036

 

(3,198)

Deferred revenue

3,872

 

(6,129)

Net cash flows from operating activities

11,962

 

12,723

 

 

 

 

Cash flows from investing activities:

 

 

 

Facility expenditures and land purchases

(4,949)

 

(9,584)

Capital expenditures, net

(3,613)

 

(3,146)

Proceeds from sales and maturities of investments

372,535

 

193,747

Purchase of investments

(255,245)

 

(180,559)

Net cash flows from investing activities

108,728

 

458

 

 

 

 

Cash flows from financing activities:

 

 

 

Excess tax benefit from stock option exercises

3,164

 

--

Proceeds from stock option exercises

9,218

 

3,005

Purchase of treasury stock

(140,135)

 

--

Net cash flows from financing activities

(127,753)

 

3,005

 

 

 

 

Net change in cash and cash equivalents

(7,063)

 

16,186

 

 

 

 

Cash and cash equivalents at beginning of period

13,735

 

9,389

 

 

 

 

Cash and cash equivalents at end of period

$6,672

 

$25,575

 

 

 

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