ITT EDUCATIONAL SERVICES, INC. CARMEL, Ind., Nov. 5, 2015 /PRNewswire/ -- ITT Educational Services, Inc. (NYSE: ESI), a leading provider of technology-oriented postsecondary degree programs, today reported that diluted earnings per share in the first nine months of 2015 decreased to $0.54 compared to $0.60 in the first nine months of 2014. New student enrollment in the third quarter of 2015 decreased 18.4% to 14,943 compared to 18,317 in the same period in 2014. Total student enrollment decreased 15.5% to 48,231 as of September 30, 2015 compared to 57,101 as of September 30, 2014.
The company provided the following information for the three and nine months ended September 30, 2015 and 2014:
Financial and Operating Data for the Three Months Ended September 30th, Unless Otherwise Indicated
--------------------------------------------------------------------------------------------------
(Dollars in millions, except per share data)
Increase/
(Decrease)
---------
2015 2014
---- ----
Revenue $203.2 $242.6 (16.2)%
Operating Income $12.5 $6.8 84.5%
Operating Margin 6.2% 2.8% 340 basis points
Net Income $1.7 $10.3 (83.6)%
Earnings Per Share (diluted) $0.07 $0.44 (84.1)%
New Student Enrollment(A) 14,943 18,317 (18.4)%
Continuing Students 33,288 38,784 (14.2)%
Total Student Enrollment as of September 30th (A) 48,231 57,101 (15.5)%
Persistence Rate as of September 30th (A)(B) 69.5% 69.9% (40) basis points
Bad Debt Expense as a Percentage of Revenue 3.4% 6.9% (350) basis points
Days Sales Outstanding as of September 30th 19.4 days 26.0 days (6.6) days
Deferred Revenue as of September 30th $121.3 $144.0 (15.8)%
Cash and Cash Equivalents as of September 30th $131.5 $204.2 (35.6)%
Restricted Cash as of September 30th $5.7 $6.0 (5.0)%
Collateral Deposits as of September 30th $97.9 $8.7 1020.2%
Private Education Loans (current and non-current), $74.9 $94.6 (20.8)%
Less Allowance for Loan Losses,
as of September 30th (C)
PEAKS Trust Senior Debt (current and non-current) $48.0 $140.5 (65.9)%
as of September 30th (D)
CUSO Secured Borrowing Obligation (current and non- $111.6 $122.5 (9.0)%
current) as of September 30th (E)
Financing Agreement/Credit Agreement (current) $89.0 $50.0 78.0%
as of September 30th
Weighted Average Diluted Shares of Common Stock 23,937,000 23,703,000
Outstanding
Capital Expenditures, Net $3.3 $1.8 84.1%
Financial and Operating Data for the Nine Months Ended September 30th
---------------------------------------------------------------------
(Dollars in millions, except per share data)
2015 2014 Increase/
(Decrease)
---------
Revenue $647.4 $718.6 (9.9)%
Operating Income $51.8 $26.6 94.5%
Operating Margin 8.0% 3.7% 430 basis points
Net Income $12.9 $14.3 (10.4)%
Earnings Per Share (diluted) $0.54 $0.60 (10.0)%
Bad Debt Expense as a Percentage of Revenue 4.3% 6.6% (230) basis points
Weighted Average Diluted Shares of Common 23,947,000 23,777,000
Stock Outstanding
Capital Expenditures, Net $5.8 $4.5 30.6%
(A) Beginning in the three months
ended September 30, 2015, the
company changed its
definition of a new student
as it relates to first-time
students who enroll in an
online degree program. Under
the new definition, the
online student must attend
classes beyond the first 15
days of the program's term
(or 30 days, if the student
was only enrolled in courses
that are taught over a 12-
week period) in order to be
considered an enrolled new
student for reporting
purposes. Use of the new
definition resulted in 488
fewer new students being
included in the applicable
reporting metrics for the
three months ended September
30, 2015 than would have been
included using the previous
definition. The new student
definition impacts the new
student enrollment number and
the total student enrollment
number for periods and dates
beginning with the third
quarter of 2015, and will
impact the persistence rate
for dates after September 30,
2015. Prior period
information for these metrics
has not been modified, since
the updated definition of new
student was not in effect
during those prior periods.
The company's accounting
policies for revenue
recognition are not based on
the definition of a new
student and, therefore, the
company's revenue recognition
is not impacted by this
revised definition.
(B) Persistence rate represents
the number of Continuing
Students in the academic
term, divided by the Total
Student Enrollment in the
immediately preceding
academic term.
(C) With respect to the private
education loans as of
September 30, 2015, the
amount included $9.0 million
classified as current, and
$65.9 million classified as
non-current. With respect
to the private education
loans as of September 30,
2014, the amount included
$10.3 million classified as
current, and $84.3 million
classified as non-current.
(D) With respect to the PEAKS
Trust Senior Debt as of
September 30, 2015, the
amount included $20.5 million
classified as current, and
$27.4 million classified as
non-current. With respect
to the PEAKS Trust Senior
Debt as of September 30,
2014, the amount included
$96.5 million classified as
current, and $44.0 million
classified as non-current.
(E) With respect to the CUSO
Secured Borrowing Obligation
as of September 30, 2015, the
amount included $20.1 million
classified as current, and
$91.5 million classified as
non-current. With respect
to the CUSO Secured Borrowing
Obligation as of September
30, 2014, the amount included
$20.7 million classified as
current, and $101.9
classified as non-current.
Based on various assumptions, including the historical and projected performance and collection of the student loans held by the PEAKS Trust and the CUSO, the company reported that its current estimate of the payments it may have to make under the PEAKS guarantee and the CUSO risk sharing agreement (the "CUSO RSA"), in the aggregate, are approximately:
-- $43.9 million in 2015 (of which $38.4 million was paid in the nine
months ended September 30, 2015);
-- $25.3 million in 2016;
-- $13.4 million in 2017; and
-- $86.1 million in 2018 and later, which amount includes an approximately
$13.2 million payment in 2020 under the PEAKS guarantee.
These estimated payment amounts are net of estimated aggregate recoveries of approximately $5.9 million under the CUSO RSA, which the company expects to offset against amounts due by it under the CUSO RSA over these periods. The company urges readers to review the company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 when it is filed with the U.S. Securities and Exchange Commission, which report will contain additional information regarding these estimated payment amounts, including the assumptions used, the estimates of the type of payments, regular or discharge, and estimated recoveries, under the CUSO RSA and the estimated different payment amounts if the assumptions regarding the forms of payments made under the CUSO RSA are not realized.
ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2015 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: the impact of the company's late filings with the SEC, including the 2014 Form 10-K and the first quarter 2015 Form 10-Q; the impact of adverse actions by the U.S. Department of Education ("ED") related to certain deficiencies, the action by the U.S. Securities and Exchange Commission against the company and the company's failure to submit its 2013 audited financial statements and 2013 compliance audits with the ED by the due date; the impact of the consolidation of variable interest entities on the company and the regulations, requirements and obligations that it is subject to; the inability to obtain any required amendments or waivers of noncompliance with covenants under the company's financing agreement; the company's inability to remediate material weaknesses, or the discovery of additional material weaknesses, in the company's internal control over financial reporting; the company's exposure under its guarantees related to private student loan programs; the outcome of litigation, investigations and claims against the company; the failure of potential settlements to be approved and finalized on the terms proposed or initially agreed to; the effects of the cross-default provisions in the company's financing agreement; 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 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 ability to retain or attract qualified employees to execute its business and 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; the company's ability to repay moneys it has borrowed; the company's ability to collect internally funded financing from its students; 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.
WEBSITE: www.ittesi.com
ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(unaudited)
As of
-----
September 30, December 31, September 30,
2015 2014 2014
---- ---- ----
Assets
Current assets:
Cash and cash equivalents $131,461 $135,937 $204,227
Restricted cash 5,675 6,040 5,974
Accounts receivable, net 42,848 46,383 68,587
Private education loans, net 8,984 10,584 10,339
Deferred income taxes 25,764 34,547 51,053
Prepaid expenses and other current assets 77,571 57,923 48,478
------ ------ ------
Total current assets 292,303 291,414 388,658
Property and equipment, net 148,606 157,072 155,459
Private education loans, excluding current portion, net 65,938 80,292 84,272
Deferred income taxes 66,758 68,041 69,685
Collateral deposits 97,874 97,932 8,737
Other assets 56,992 54,409 60,695
------ ------ ------
Total assets $728,471 $749,160 $767,506
======== ======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $89,011 $9,635 $50,000
Current portion of PEAKS Trust senior debt 20,534 37,545 96,516
Current portion of CUSO secured borrowing obligation 20,121 20,813 20,662
Accounts payable 65,829 67,848 80,479
Accrued compensation and benefits 18,704 12,264 18,157
Other current liabilities 58,333 27,050 27,838
Deferred revenue 121,310 147,475 144,017
------- ------- -------
Total current liabilities 393,842 322,630 437,669
Long-term debt, excluding current portion 0 86,714 0
PEAKS Trust senior debt, excluding current portion 27,422 38,658 44,000
CUSO secured borrowing obligation, excluding current portion 91,450 100,194 101,880
Other liabilities 58,193 52,959 52,422
------ ------ ------
Total liabilities 570,907 601,155 635,971
------- ------- -------
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 371 371 371
authorized, 37,068,904 issued
Capital surplus 179,922 198,883 196,105
Retained earnings 982,709 969,670 954,753
Accumulated other comprehensive income 487 1,201 2,432
Treasury stock, 13,394,898, 13,619,010 and 13,619,729 (1,005,925) (1,022,120) (1,022,126)
shares at cost
Total shareholders' equity 157,564 148,005 131,535
------- ------- -------
Total liabilities and shareholders' equity $728,471 $749,160 $767,506
======== ======== ========
ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2015 2014 2015 2014
---- ---- ---- ----
Revenue $203,178 $242,561 $647,384 $718,580
Costs and expenses:
Cost of educational services 93,274 117,539 298,692 353,930
Student services and administrative expenses 84,622 100,440 266,282 297,225
Goodwill impairment 5,203 0 5,203 0
Settlements and legal and professional fees related to 6,813 11,269 20,104 25,196
certain lawsuits, investigations and accounting matters
Loss related to loan program guarantees 0 2,019 0 2,019
Provision for private education loan losses 754 4,511 5,311 13,582
Total costs and expenses 190,666 235,778 595,592 691,952
------- ------- ------- -------
Operating income 12,512 6,783 51,792 26,628
Gain on consolidation of variable interest entity 0 16,631 0 16,631
Interest income 22 17 57 51
Interest (expense) (9,709) (5,831) (30,088) (18,995)
------ ------ ------- -------
Income before provision for income taxes 2,825 17,600 21,761 24,315
Provision for income taxes 1,137 7,278 8,910 9,979
----- ----- ----- -----
Net income $1,688 $10,322 $12,851 $14,336
====== ======= ======= =======
Earnings per share:
Basic $0.07 $0.44 $0.54 $0.61
Diluted $0.07 $0.44 $0.54 $0.60
Supplemental Data:
Cost of educational services 45.9% 48.5% 46.1% 49.3%
Student services and administrative expenses 41.6% 41.4% 41.1% 41.4%
Goodwill impairment 2.6% 0.0% 0.8% 0.0%
Settlements and legal and professional fees related to 3.4% 4.6% 3.1% 3.5%
certain lawsuits, investigations and accounting matters
Loss related to loan program guarantees 0.0% 0.8% 0.0% 0.3%
Provision for private education loan losses 0.4% 1.9% 0.8% 1.9%
Operating margin 6.2% 2.8% 8.0% 3.7%
Student enrollment at end of period 48,231 57,101 48,231 57,101
Campuses at end of period 140 148 140 148
Shares for earnings per share calculation:
Basic 23,692,000 23,483,000 23,625,000 23,463,000
Diluted 23,937,000 23,703,000 23,947,000 23,777,000
Effective tax rate 40.2% 41.4% 40.9% 41.0%
ITT EDUCATIONAL SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2015 2014 2015 2014
---- ---- ---- ----
Cash flows from operating activities:
Net income $1,688 $10,322 $12,851 $14,336
Adjustments to reconcile net income to net cash flows
from operating activities:
Depreciation and amortization 4,816 5,537 16,858 18,507
Provision for doubtful accounts 6,879 16,830 27,754 47,212
Deferred income taxes (4,170) 25,046 8,253 23,036
Stock-based compensation expense 1,266 2,667 4,526 7,529
Goodwill impairment 5,203 0 5,203 0
Accretion of discount on private education loans (2,818) (2,727) (8,847) (9,099)
Accretion of discount on long-term debt 386 0 1,162 0
Accretion of discount on PEAKS Trust senior debt 1,455 1,788 4,475 4,770
Accretion of discount on CUSO secured borrowing obligation 201 0 634 0
Provision for private education loan losses 754 4,511 5,311 13,582
(Gain) on consolidation of variable interest entity 0 (16,631) 0 (16,631)
Other (265) (250) (680) (678)
Changes in operating assets and liabilities, net of acquisition:
Restricted cash 1,261 (468) 365 2,400
Accounts receivable (4,523) (16,480) (24,219) (15,498)
Private education loans 6,245 4,221 19,490 12,314
Accounts payable (10,446) 4,561 (4,056) 22,458
Other operating assets and liabilities 11,618 (18,591) 10,404 (28,021)
Deferred revenue 1,742 12,786 (26,165) (4,614)
----- ------ ------- ------
Net cash flows from operating activities 21,292 33,122 53,319 91,603
------ ------ ------ ------
Cash flows from investing activities:
Capital expenditures, net (3,310) (1,798) (5,819) (4,455)
Acquisition of company 0 (153) 0 (5,186)
Collateralization of letters of credit 0 (109) 60 (109)
Proceeds from repayment of notes 0 100 0 293
Purchase of investments (1) (1) (2) (2)
Net cash flows from investing activities (3,311) (1,961) (5,761) (9,459)
------ ------ ------ ------
Cash flows from financing activities:
Repayment of long-term debt (3,500) 0 (8,500) 0
Repayment of PEAKS Trust senior debt (7,525) (51,706) (32,551) (92,776)
Repayment of CUSO secured borrowing obligation 0 0 (10,351) 0
Common shares tendered for taxes (127) (184) (632) (912)
Net cash flows from financing activities (11,152) (51,890) (52,034) (93,688)
------- ------- ------- -------
Net change in cash and cash equivalents 6,829 (20,729) (4,476) (11,544)
Cash and cash equivalents at beginning of period 124,632 224,956 135,937 215,771
------- ------- ------- -------
Cash and cash equivalents at end of period $131,461 $204,227 $131,461 $204,227
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SOURCE ITT Educational Services, Inc.
