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),
Less Allowance
for Loan Losses,
as of September
30th (C)
|
|
$74.9
|
|
$94.6
|
|
(20.8)%
|
|
PEAKS Trust Senior
Debt (current and non-current)
as of September 30th
(D)
|
|
$48.0
|
|
$140.5
|
|
(65.9)%
|
|
CUSO Secured
Borrowing Obligation (current and non-
current) as of
September 30th (E)
|
|
$111.6
|
|
$122.5
|
|
(9.0)%
|
|
Financing
Agreement/Credit Agreement (current)
as of September
30th
|
|
$89.0
|
|
$50.0
|
|
78.0%
|
|
Weighted Average
Diluted Shares of Common Stock
Outstanding
|
|
23,937,000
|
|
23,703,000
|
|
|
|
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
Stock Outstanding
|
|
23,947,000
|
|
23,777,000
|
|
|
|
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,
2015
|
|
December 31,
2014
|
|
September 30,
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
authorized, 37,068,904 issued
|
371
|
|
371
|
|
371
|
|
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
shares at
cost
|
(1,005,925)
|
|
(1,022,120)
|
|
(1,022,126)
|
|
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
certain lawsuits, investigations and accounting
matters
|
6,813
|
|
11,269
|
|
20,104
|
|
25,196
|
|
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
certain lawsuits, investigations and accounting
matters
|
3.4%
|
|
4.6%
|
|
3.1%
|
|
3.5%
|
|
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
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/itt-educational-services-inc-reports-2015-third-quarter-results-300172956.html
SOURCE ITT Educational Services, Inc.