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ITT Educational Services, Inc. Reports 2015 Second Quarter Results And Announces Executive Leadership Developments
[July 30, 2015]

ITT Educational Services, Inc. Reports 2015 Second Quarter Results And Announces Executive Leadership Developments


CARMEL, Ind., July 30, 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 six months of 2015 increased to $0.47 compared to $0.17 in the first six months of 2014.  New student enrollment in the second quarter of 2015 decreased 18.6% to 12,638 compared to 15,523 in the same period in 2014. Total student enrollment decreased 13.7% to 47,874 as of June 30, 2015 compared to 55,485 as of June 30, 2014. 

The company provided the following information for the three and six months ended June 30, 2015 and 2014:





Financial and Operating Data for the Three Months Ended June 30th, Unless Otherwise Indicated

(Dollars in millions, except per share, per student data and average annual salary data)















Increase/

2015


2014

(Decrease)








Revenue


$214.2


$238.1


(10.0)%

Operating Income


$11.6


$6.8


70.6%

Operating Margin


5.4%


2.9%


250 basis points

Net Income


$0.7


$0.4


82.7%

Earnings Per Share (diluted)


$0.03


$0.02


50%

New Student Enrollment


12,638


15,523


(18.6)%

Continuing Students


35,236


39,962


(11.8)%

Total Student Enrollment as of June 30th


47,874


55,485


(13.7)%

Persistence Rate as of June 30th (A)


68.8%


70.0%


(120) basis points

Bad Debt Expense as a Percentage of Revenue


4.1%


5.8%


(170) basis points

Days Sales Outstanding as of June 30th


19.2 days


26.3 days


(7.1) days

Deferred Revenue as of June 30th


$119.6


$131.4


(9.0)%

Cash and Cash Equivalents as of June 30th


$124.6


$225.0


(44.6)%

Restricted Cash as of June 30th


$6.9


$2.8


150.6%

Collateral Deposits as of June 30th


$97.9


$8.6


1034.5%

Private Education Loans (current and non-current),







              Less Allowance for Loan Losses,







              as of June 30th (B)


$79.1


$73.4


7.7%

PEAKS Trust Senior Debt (current and long-term)







              as of June 30th (C)


$54.1


$190.9


(71.7)%

CUSO Obligation (current and long-term) as of







              June 30th (D)


$111.1


$113.5


(2.1)%

Financing Agreement/Credit Agreement (current

and long-term) as of June 30th (E)


$92.1


$50.0


84.3%

Weighted Average Diluted Shares of Common Stock Outstanding


24,086,000


23,785,000



Capital Expenditures, Net


$1.6


$1.1


43.0%

Graduate Employment Rate as of April 30th


73% (F)


70% (G)


300 basis points

Average Annual Reported Graduate Salary as of April 30th


$34,500 (H)


$33,400(I)


3.3%


 

Financial and Operating Data for the Six Months Ended June 30th

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



2015


2014


Increase/
(Decrease)








Revenue


$444.2


$476.0


(6.7)%

Operating Income


$39.3


$19.8


97.9%

Operating Margin


8.8%


4.2%


460 basis points

Net Income


$11.2


$4.0


178.1%

Earnings Per Share (diluted)


$0.47


$0.17


176.5%

Bad Debt Expense as a Percentage of Revenue


4.7%


6.4%


(170) basis points

Weighted Average Diluted Shares of Common
Stock Outstanding


23,953,000


23,815,000



Capital Expenditures, Net


$2.5


$2.7


(5.6)%








 

(A)   Represents the number of Continuing Students in the academic term, divided by the Total Student Enrollment in the immediately preceding academic term.

(B)    With respect to the private education loans as of June 30, 2015, the amount included $9.4 million classified as current, and $69.7 million classified as non-current.  With respect to the private education loans as of June 30, 2014, the amount included $7.4 million classified as current, and $66.0 million classified as non-current.

(C)    With respect to the PEAKS Trust Senior Debt as of June 30, 2015, the amount included $23.1 million classified as current, and $31.0 million classified as non-current.  With respect to the PEAKS Trust Senior Debt as of June 30, 2014, the amount included $132.4 million classified as current, and $58.4 million classified as non-current. 

(D)   As of June 30, 2015, this amount represented the CUSO secured borrowing obligation recorded on the company's balance sheet, $19.8 million of which was classified as current and $91.3 million of which was classified as non-current.  As of June 30, 2014, this amount represented the contingent liability amount recorded on the company's balance sheet related to the company's guarantee obligations under the CUSO risk sharing agreement.  Beginning on September 30, 2014, the CUSO was consolidated in the company's consolidated financial statements, resulting in the elimination of the contingent liability related to the CUSO risk sharing agreement that the company had previously recorded, and resulting in the company instead recording the estimated amount of the CUSO's obligations to its owners related to their participation interests in the private education loans made under the CUSO program.

(E)   With respect to the company's Financing Agreement as of June 30, 2015, the amount included $14.5 million classified as current, and $77.6 million classified as non-current.  With respect to the company's Credit Agreement as of June 30, 2014, the full $50.0 million was classified as current.

(F)  Represents the percentage of the ITT Technical Institutes' 2014 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2015.

(G)  Represents the percentage of the ITT Technical Institutes' 2013 employable graduates who obtained employment in positions using skills taught in their programs of study as of April 30, 2014.

(H)  Represents the average annual salary reported by the ITT Technical Institutes' 2014 employed graduates as of April 30, 2015.

(I)  Represents the average annual salary reported by the ITT Technical Institutes' 2013 employed graduates as of April 30, 2014.

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;
  • $27.0 million in 2016;
  • $16.2 million in 2017; and
  • $84.6 million in 2018 and later, which amount includes an approximately $15.3 million payment in 2020 under the PEAKS guarantee.

These estimated payment amounts are net of estimated aggregate recoveries of approximately $6.0 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 June 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.

The company also announced that it has entered into a third amendment to the letter agreement with its Chief Executive Officer, Kevin M. Modany, to extend to December 31, 2015 the period during which he will remain in his current position.

In addition, the company announced that its Board of Directors has elected Rocco F. Tarasi, III as the Company's interim Executive Vice President, Chief Financial Officer, to be effective on the business day immediately following the date on which the company files its Quarterly Report on Form 10-Q for its quarter ended June 30, 2015 (the effective date of Mr. Tarasi's election being referred to as the "Effective Date").  The company believes that it will file the Form 10-Q within the next few days.  Daniel M. Fitzpatrick will remain in his current position as Executive Vice President, Chief Financial Officer of the company, and will continue to perform all of the functions of the company's principal financial officer, through the filing of the Form 10-Q and until the Effective Date.  Following the Effective Date, Mr. Fitzpatrick will remain employed by the company for 30 days as Special Advisor to the interim Chief Financial Officer, after which he will become a consultant to the company for a period of 18 months.

Mr. Tarasi, age 43, has served as the company's Senior Vice President, President – The Center for Professional Development since January 2013. He served as the company's Vice President, Finance – Corporate Strategy and Development from October 2011 through January 2013. Mr. Tarasi was the co-founder of BrainCredits Corporation, an education start-up, from August 2010 through October 2011, and served as managing director, policyIQ for Resources Global Professionals, a multinational professional services firm, from July 2003 through August 2010.  Mr. Tarasi began his professional career with Arthur Andersen and held various positions in the firm's audit practice for more than five years, including senior auditor and audit manager.  Mr. Tarasi is a certified public accountant (inactive).

ITT Educational Services, Inc. will conduct a conference call with financial analysts to discuss its 2015 second 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 document or in the attached 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; any inability to file the second quarter 2015 Form 10-Q in the time indicated; the impact of adverse actions by the ED related to 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 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.

 

 


ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

(unaudited)









As of


June 30, 2015


December 31,
2014


June 30, 2014

Assets






Current assets:






     Cash and cash equivalents

$124,632


$135,937


$224,956

     Restricted cash

6,936


6,040


2,768

     Accounts receivable, net

45,204


46,383


68,937

     Private education loans, net

9,379


10,584


7,420

     Deferred income taxes

24,795


34,547


67,415

     Prepaid expenses and other current assets

57,294


57,923


36,056

          Total current assets

268,240


291,414


407,552







Property and equipment, net

150,095


157,072


158,947

Private education loans, excluding current portion, net

69,724


80,292


65,997

Deferred income taxes

63,447


68,041


78,218

Collateral deposits

97,873


97,932


8,627

Other assets

61,921


54,409


56,878

     Total assets

$711,300


$749,160


$776,219







Liabilities and Shareholders' Equity






Current liabilities:






    Current portion of long-term debt

$14,546


$9,635


$50,000

    Current portion of PEAKS Trust senior debt

23,068


37,545


132,429

    Current portion of CUSO secured borrowing obligation

19,750


20,813


0

     Accounts payable

76,476


67,848


75,918

     Accrued compensation and benefits

16,535


12,264


23,320

     Other current liabilities

27,288


27,050


46,233

     Deferred revenue

119,568


147,475


131,378

          Total current liabilities

297,231


322,630


459,278







Long-term debt, excluding current portion

77,579


86,714


0

PEAKS Trust senior debt, excluding current portion

31,007


38,658


58,442

CUSO secured borrowing obligation, excluding current portion

91,339


100,194


0

Other liabilities

59,049


52,959


138,361

     Total liabilities

556,205


601,155


656,081







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 authorized,






         37,068,904 issued

371


371


371

    Capital surplus

186,501


198,883


198,806

    Retained earnings

980,833


969,670


944,431

    Accumulated other comprehensive (loss)

725


1,201


2,670

    Treasury stock, 13,490,795, 13,619,010 and 13,665,129 shares at cost

(1,013,335)


(1,022,120)


(1,026,140)

        Total shareholders' equity

155,095


148,005


120,138

        Total liabilities and shareholders' equity

$711,300


$749,160


$776,219

 

 

ITT EDUCATIONAL SERVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share data)

(unaudited)











Three Months


Six Months


Ended June 30,


Ended June 30,


2015


2014


2015


2014









Revenue

$214,231


$238,096


$444,206


$476,019









Costs and expenses:








Cost of educational services

101,865


116,276


205,418


236,391

Student services and administrative expenses 

91,408


97,547


181,660


196,785

Legal and professional fees related to certain lawsuits,
       investigations and accounting matters

6,005


8,380


13,291


13,927

Provision for private education loan losses

3,313


9,071


4,557


9,071

Total costs and expenses

202,591


231,274


404,926


456,174









Operating income

11,640


6,822


39,280


19,845

Interest income

22


15


35


34

Interest (expense)

(9,991)


(6,263)


(20,379)


(13,164)

Income before provision for income taxes

1,671


574


18,936


6,715

Provision for income taxes

955


182


7,773


2,701









Net income

$716


$392


$11,163


$4,014









Earnings per share:








     Basic

$0.03


$0.02


$0.47


$0.17

     Diluted

$0.03


$0.02


$0.47


$0.17









Supplemental Data:








Cost of educational services

47.5%


48.8%


46.2%


49.7%

Student services and administrative expenses

42.7%


41.0%


40.9%


41.3%

Legal and professional fees related to certain lawsuits,
    investigations and accounting matters

2.8%


3.5%


3.0%


2.9%

Provision for private education loan losses

1.5%


3.8%


1.0%


1.9%

Operating margin

5.4%


2.9%


8.8%


4.2%

Student enrollment at end of period 

47,874


55,485


47,874


55,485

Campuses at end of period

141


148


141


148

Shares for earnings per share calculation:








     Basic

23,621,000


23,459,000


23,591,000


23,453,000

     Diluted

24,086,000


23,785,000


23,953,000


23,815,000

















Effective tax rate

57.2%


31.7%


41.0%


40.2%

 

 

ITT EDUCATIONAL SERVICES, INC.

 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)











Three Months


Six Months


Ended June 30,


Ended June 30,


2015


2014


2015


2014

Cash flows from operating activities:








    Net income

$716


$392


$11,163


$4,014

    Adjustments to reconcile net income to net cash flows








        from operating activities:








           Depreciation and amortization

6,061


6,508


12,042


12,970

           Provision for doubtful accounts

8,692


13,767


20,875


30,382

           Deferred income taxes

2,554


(1,594)


12,423


(2,010)

           Stock-based compensation expense

1,364


2,311


3,260


4,862

           Accretion of discount on private education loans

(2,948)


(3,239)


(6,029)


(6,372)

           Accretion of discount on long-term debt

385


0


776


0

           Accretion of discount on PEAKS Trust senior debt

1,365


1,441


3,020


2,982

           Accretion of discount on CUSO secured borrowing obligation

214


0


433


0

           Provision for private education loan losses

3,313


9,071


4,557


9,071

           Other

(148)


(248)


(415)


(428)

           Changes in operating assets and liabilities, net of acquisition:








               Restricted cash

(608)


1,525


(896)


2,868

               Accounts receivable

(7,696)


(5,320)


(19,696)


982

               Private education loans

6,601


4,083


13,245


8,093

               Accounts payable

848


8,582


6,390


17,897

               Other operating assets and liabilities

(1,931)


(5,545)


(1,214)


(9,430)

               Deferred revenue

(20,288)


(10,171)


(27,907)


(17,400)

Net cash flows from operating activities

(1,506)


21,563


32,027


58,481









Cash flows from investing activities:








     Capital expenditures, net

(1,640)


(1,147)


(2,509)


(2,657)

     Acquisition of company

0


(584)


0


(5,033)

     Collateralization of letters of credit

60


0


60


0

     Proceeds from repayment of notes

0


97


0


193

     Purchase of investments

(1)


(1)


(1)


(1)

Net cash flows from investing activities

(1,581)


(1,635)


(2,350)


(7,498)









Cash flows from financing activities:








     Repayment of long-term debt

(2,500)


0


(5,000)


0

     Repayment of PEAKS Trust senior debt

(9,380)


0


(25,026)


(41,070)

     Repayment of CUSO secured borrowing obligation

(6,314)


0


(10,351)


0

    Common shares tendered for taxes

(38)


(7)


(505)


(728)

Net cash flows from financing activities

(18,232)


(7)


(40,882)


(41,798)









Net change in cash and cash equivalents

(21,319)


19,921


(11,305)


9,185









Cash and cash equivalents at beginning of period

145,951


205,035


135,937


215,771









Cash and cash equivalents at end of period

$124,632


$224,956


$124,632


$224,956

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/itt-educational-services-inc-reports-2015-second-quarter-results-and-announces-executive-leadership-developments-300121117.html

SOURCE ITT Educational Services, Inc.


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