Exhibit 99.1
ITT EDUCATIONAL SERVICES, INC. REPORTS 2007 FIRST QUARTER RESULTS,
EARNINGS PER SHARE INCREASED 46.7 PERCENT
CARMEL, IN, April 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 first quarter of 2007 increased 46.7 percent to $0.66 compared to $0.45 in the first quarter of 2006. Revenue in the three months ended March 31, 2007 increased 15.8 percent to $204.2 million compared to $176.3 million in the first quarter of 2006.
New student enrollment in the first quarter of 2007 increased 13.1 percent to 12,738 compared to 11,264 in the first quarter of 2006. Total student enrollment increased 12.4 percent to 49,295 as of March 31, 2007, compared to 43,868 as of March 31, 2006. The enrollment numbers and percentages referenced above in this paragraph exclude international enrollments.
The company provided the following information for the three months ended March 31, 2007 and 2006:
Financial and Operating Data For The Three Months Ended March 31st, Unless Otherwise Indicated | ||||||
(Dollars in millions, except per share and per student data) | ||||||
|
|
2007 |
|
2006 |
| Increase/ |
|
|
|
|
|
|
|
Revenue |
| $204.2 |
| $176.3 |
| 15.8% |
Operating Income |
| $44.1 |
| $30.2 |
| 45.9% |
Operating Margin |
| 21.6% |
| 17.1% |
| 450 bp |
Net Income |
| $27.6 |
| $20.5 |
| 34.8% |
Earnings Per Share (diluted) |
| $0.66 |
| $0.45 |
| 46.7% |
New Student Enrollment (A) |
| 12,738 |
| 11,264 |
| 13.1% |
Continuing Students (A) |
| 36,557 |
| 32,604 |
| 12.1% |
Total Student Enrollment as of March 31st (A) |
| 49,295 |
| 43,868 |
| 12.4% |
Quarterly Persistence Rate (B) |
| 78.0% |
| 75.8% |
| 220 bp |
Revenue Per Student (A) |
| $4,354 |
| $4,102 |
| 6.1% |
Cash, Cash Equivalents, Restricted Cash and Investments as of March 31st |
| $350.0 |
| $287.6 |
| 21.7% |
Bad Debt Expense as a Percentage of Revenue |
| 2.3% |
| 1.4% |
| 90 bp |
Days Sales Outstanding as of March 31st |
| 4.3 |
| 5.0 |
| (0.7) days |
Deferred Revenue as of March 31st |
| $205.8 |
| $179.3 |
| 14.7% |
Debt |
| $150.0 |
| $0 |
| -- |
Diluted Shares of Common Stock Outstanding |
| 41,590,000 |
| 45,798,000 |
| (9.2)% |
Shares of Common Stock Repurchased |
| 809,900 (C) |
| 2,225,700 (D) |
| -- |
Land and Building Purchases |
| $4.9 (E) |
| $5.0 (F) |
| (0.6)% |
Number of New Colleges in Operation |
| 3 |
| 3 |
| -- |
Number of New Learning Sites in Operation |
| -- |
| 2 |
| -- |
Capital Expenditures, Net |
| $2.5 |
| $3.6 |
| (30.3)% |
___________________
(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. |
(C) | For approximately $65.0 million or at an average price of $80.32 per share |
(D) | For approximately $140.1 million or at an average price of $62.96 per share. |
(E) | Represents the purchase of two college facilities and costs associated with purchasing, renovating, expanding or constructing buildings at six of the company's locations. |
(F) | Represents the costs associated with renovating, expanding or constructing buildings at 11 of the company’s locations. |
Kevin M. Modany, CEO and President of ITT/ESI, said, “We are extremely pleased with our performance in the first quarter of 2007. The effective execution of our operating initiatives once again delivered results that enhance the value we represent to our shareholders, our students and the employers who hire our graduates. We believe that the continued execution of our proven growth strategy can help us realize operating and financial results over the long term that are similar to our historical compound annual growth rates in these areas.”
Modany continued, “In the first quarter, student success improved as a result of the modifications we made to our hybrid delivery model, as demonstrated by the significant improvement in our first quarter student persistence rate. At the same time, our marketing and recruiting efforts continued to generate strong interest in our programs of study, which helped to produce a substantial increase in our new student enrollment in the first quarter of 2007 compared to the same period in 2006. Advertising costs in the first quarter of 2007 increased 23 percent compared to the same period in the prior year, primarily due to increased advertising associated with operating new colleges and introducing new programs of study.”
Modany added, “We continued our geographic expansion in the first quarter by beginning operations at our 88th college in Pinellas Park, FL, our 89th college in Baton Rouge, LA and our 90th college in Columbia, SC. We remain on track to achieve our goal of opening between six and eight new locations during 2007.”
Modany said, “We are also developing new programs of study to further our programmatic expansion. During the second half of 2007, we plan to begin offering several new technology and non-technology programs that will be taught either in residence or online.”
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 positive.”
Daniel M. Fitzpatrick, Senior Vice President and CFO of ITT/ESI, said, “We had a very strong quarter financially, with revenue increasing as a result of improved student retention, higher student enrollment and a 5.0 percent tuition increase that became effective in March 2007.”
Fitzpatrick added, “Our ability to leverage our operating model, together with greater operating efficiencies, allowed much of the increased revenue to fall to the bottom line, which resulted in a 450 basis point increase in Operating Margin to 21.6 percent in the three months ended March 31, 2007 compared to 17.1 percent in the first quarter of 2006.”
Fitzpatrick noted, “In the three months ended March 31, 2007, we repurchased 809,900 shares of our common stock at an average purchase price of $80.32 per share or $65.0 million in total. If the market conditions remain appropriate, we intend to continue repurchasing our shares throughout the remainder of 2007.”
The company announced that, on April 24, 2007, its Board of Directors authorized the repurchase of up to an additional 5,000,000 shares of its outstanding common stock. As a result, there are 6,871,200 shares available for repurchase under the company’s repurchase authorization. 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 increased to 2.3 percent in the three months ended March 31, 2007 compared to 1.4 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 was 4.3 days as of March 31, 2007 and 5.0 days as of March 31, 2006.”
Fitzpatrick closed by noting, “The fundamentals of our business remain extremely strong and, as a result of our operational and financial performance during the first quarter of 2007, we are raising our internal goal for 2007 EPS from the range of $3.17 to $3.21 to the revised range of $3.40 to $3.50.”
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.
FOR FURTHER INFORMATION:
COMPANY: | WEB SITE: |
Nancy Brown | www.ittesi.com |
Director Corporate Relations |
(317) 706-9260
ITT EDUCATIONAL SERVICES, INC. | |||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
(Dollars in thousands, except per share data) | |||||
|
|
|
|
|
|
| As of | ||||
| March 31, 2007 |
| December 31, 2006 |
| March 31, 2006 |
| (unaudited) |
|
|
| (unaudited) |
Assets |
|
|
|
|
|
Current assets |
|
|
|
|
|
Cash and cash equivalents | $8,012 |
| $161,905 |
| $6,672 |
Short-term investments | 341,460 |
| 195,007 |
| 270,879 |
Accounts receivable, net | 9,858 |
| 9,367 |
| 9,775 |
Deferred income taxes | 7,486 |
| 4,771 |
| 4,015 |
Prepaid expenses and other current assets | 13,397 |
| 9,902 |
| 30,264 |
Total current assets | 380,213 |
| 380,952 |
| 321,605 |
|
|
|
|
|
|
Property and equipment, net | 149,207 |
| 148,411 |
| 131,070 |
Direct marketing costs, net | 21,560 |
| 21,628 |
| 18,392 |
Investments | -- |
| -- |
| 9,521 |
Other assets | 9,354 |
| 9,329 |
| 1,078 |
Total assets | $560,334 |
| $560,320 |
| $481,666 |
|
|
|
|
|
|
Liabilities and Shareholders' Equity |
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Accounts payable | $56,358 |
| $47,948 |
| $42,185 |
Accrued compensation and benefits | 11,273 |
| 13,899 |
| 9,010 |
Accrued income taxes | 8,015 |
| 11,003 |
| 7,122 |
Accrued other taxes | 3,574 |
| 3,242 |
| 2,901 |
Other accrued liabilities | 8,013 |
| 6,251 |
| 5,818 |
Deferred revenue | 205,770 |
| 202,162 |
| 179,326 |
Total current liabilities | 293,003 |
| 284,505 |
| 246,362 |
|
|
|
|
|
|
Long-term debt | 150,000 |
| 150,000 |
| -- |
Deferred income taxes | 12,822 |
| 13,713 |
| 14,432 |
Minimum pension liability | -- |
| -- |
| 9,899 |
Other liabilities | 12,869 |
| 8,157 |
| 7,737 |
Total liabilities | 468,694 |
| 456,375 |
| 278,430 |
|
|
|
|
|
|
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 | 32,921 |
| 46,982 |
| 65,472 |
Retained earnings | 537,961 |
| 508,195 |
| 410,153 |
Accumulated other comprehensive (loss) | (6,448) |
| (6,533) |
| (6,016) |
Treasury stock, 13,344,700, 13,029,471 and |
|
|
|
|
|
10,322,431 shares, at cost | (473,335) |
| (445,240) |
| (266,914) |
Total shareholders' equity | 91,640 |
| 103,945 |
| 203,236 |
Total liabilities and shareholders' equity | $560,334 |
| $560,320 |
| $481,666 |
ITT EDUCATIONAL SERVICES, INC. | |||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||
(Dollars in thousands, except per share data) | |||
| |||
| Three Months | ||
| Ended March 31, | ||
| (unaudited) | ||
| 2007 |
| 2006 |
|
|
|
|
Revenue | $204,170 |
| $176,315 |
|
|
|
|
Costs and expenses: |
|
|
|
Cost of educational services | 90,770 |
| 90,404 |
Student services and administrative expenses | 69,293 |
| 56,112 |
Special legal and other investigation costs | -- |
| (430) |
Total costs and expenses | 160,063 |
| 146,086 |
|
|
|
|
Operating income | 44,107 |
| 30,229 |
Interest income, net | 844 |
| 2,507 |
Income before provision for income taxes | 44,951 |
| 32,736 |
Provision for income taxes | 17,354 |
| 12,262 |
|
|
|
|
Net income | $27,597 |
| $20,474 |
|
|
|
|
Earnings per share: |
|
|
|
Basic | $0.67 |
| $0.46 |
Diluted | $0.66 |
| $0.45 |
|
|
|
|
Supplemental Data: |
|
|
|
Cost of educational services | 44.5% |
| 51.3% |
Student services and administrative expenses | 33.9% |
| 31.8% |
Special legal and other investigation costs | 0.0% |
| (0.2%) |
Operating margin | 21.6% |
| 17.1% |
Student enrollment at end of period | 49,295 |
| 43,868 |
Technical institutes at end of period | 90 |
| 84 |
Shares for earnings per share calculation: |
|
|
|
Basic | 40,915,000 |
| 44,823,000 |
Diluted | 41,590,000 |
| 45,798,000 |
|
|
|
|
|
|
|
|
Effective tax rate | 38.6% |
| 37.5% |
ITT EDUCATIONAL SERVICES, INC. | |||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
(Dollars in thousands) | |||
| |||
| Three Months | ||
| Ended March 31, | ||
| (unaudited) | ||
| 2007 |
| 2006 |
Cash flows from operating activities: |
|
|
|
Net income | $27,597 |
| $20,474 |
Adjustments to reconcile net income to net cash |
|
|
|
from operating activities: |
|
|
|
Depreciation and amortization | 6,641 |
| 4,898 |
Provision for doubtful accounts | 4,641 |
| 2,549 |
Deferred income taxes | (3,606) |
| (764) |
Excess tax benefit from stock option exercises | (11,050) |
| (3,164) |
Stock-based compensation expense | 1,975 |
| 1,921 |
Changes in operating assets and liabilities: |
|
|
|
Accounts receivable | (5,132) |
| 1,665 |
Prepaid expenses and other assets | (3,520) |
| (16,191) |
Direct marketing costs, net | 68 |
| (902) |
Accounts payable and accrued liabilities | 12,403 |
| (14,432) |
Income and other accrued taxes | 10,746 |
| 12,036 |
Deferred revenue | 3,608 |
| 3,872 |
Net cash flows from operating activities | 44,371 |
| 11,962 |
|
|
|
|
Cash flows from investing activities: |
|
|
|
Facility expenditures and land purchases | (4,918) |
| (4,949) |
Capital expenditures, net | (2,519) |
| (3,613) |
Proceeds from sales and maturities of investments | 590,817 |
| 372,535 |
Purchase of investments | (737,270) |
| (255,245) |
Net cash flows from investing activities | (153,890) |
| 108,728 |
|
|
|
|
Cash flows from financing activities: |
|
|
|
Excess tax benefit from stock option exercises | 11,050 |
| 3,164 |
Proceeds from exercise of stock options | 9,625 |
| 9,218 |
Repurchase of common shares | (65,049) |
| (140,135) |
Net cash flows from financing activities | (44,374) |
| (127,753) |
|
|
|
|
Net change in cash and cash equivalents | (153,893) |
| (7,063) |
|
|
|
|
Cash and cash equivalents at beginning of period | 161,905 |
| 13,735 |
|
|
|
|
Cash and cash equivalents at end of period | $8,012 |
| $6,672 |