CARMEL, Ind., April 29, 2016 /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 three months of 2016
decreased to $0.17 compared to
$0.44 in the first three months of
2015. New student enrollment in the first quarter of 2016
decreased 16.4% to 11,788 compared to 14,104 in the same period in
2015. Total student enrollment decreased 15.4% to 43,293 as of
March 31, 2016 compared to 51,201 as
of March 31, 2015.
The company provided the following information for the three
months ended March 31, 2016 and
2015:
|
Financial and
Operating Data for the Three Months Ended March 31st,
Unless Otherwise Indicated
|
|
(Dollars in
millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
2016
|
|
2015
|
(Decrease)
|
|
|
|
|
|
|
|
|
Revenue
|
|
$191.5
|
|
$230.0
|
|
(16.7)%
|
|
Operating
Income
|
|
$14.2
|
|
$27.6
|
|
(48.6)%
|
|
Operating
Margin
|
|
7.4%
|
|
12.0%
|
|
(460) basis
points
|
|
Net Income
|
|
$4.1
|
|
$10.4
|
|
(60.7)%
|
|
Earnings Per Share
(diluted)
|
|
$0.17
|
|
$0.44
|
|
(61.4)%
|
|
New Student
Enrollment
|
|
11,788
|
|
14,104
|
|
(16.4)%
|
|
Continuing
Students
|
|
31,505
|
|
37,097
|
|
(15.1)%
|
|
Total Student
Enrollment as of March 31st
|
|
43,293
|
|
51,201
|
|
(15.4)%
|
|
Persistence Rate as
of March 31st (A)
|
|
70.1%
|
|
69.2%
|
|
90 basis
points
|
|
Bad Debt Expense as a
Percentage of Revenue
|
|
3.8%
|
|
5.3%
|
|
(150) basis
points
|
|
Days Sales
Outstanding as of March 31st
|
|
22.4
days
|
|
18.1 days
|
|
4.3 days
|
|
Deferred Revenue as
of March 31st
|
|
$106.0
|
|
$139.9
|
|
(24.2)%
|
|
Cash and Cash
Equivalents as of March 31st
|
|
$108.7
|
|
$146.0
|
|
(25.5)%
|
|
Restricted Cash as of
March 31st
|
|
$5.5
|
|
$6.3
|
|
(12.5)%
|
|
Collateral Deposits
as of March 31st
|
|
$91.2
|
|
$97.9
|
|
(6.8)%
|
|
Private Education
Loans (current and non-current),
Less Allowance for Loan
Losses,
as of March 31st
(B)
|
|
$64.7
|
|
$86.1
|
|
(24.8)%
|
|
PEAKS Trust Senior
Debt (current and non-current)
as of March
31st (C)
|
|
$44.6
|
|
$71.7
|
|
(37.8)%
|
|
CUSO Secured
Borrowing Obligation (current and non-
current) as of March 31st
(D)
|
|
$107.8
|
|
$117.2
|
|
(8.0)%
|
|
Term Loans (current
and non-current)
as
of March 31st (E)
|
|
$49.6
|
|
$93.2
|
|
(46.8)%
|
|
Weighted Average
Diluted Shares of Common Stock
Outstanding
|
|
23,856,000
|
|
23,819,000
|
|
|
|
Capital
Expenditures
|
|
$0.7
|
|
$0.9
|
|
(17.4)%
|
|
|
|
|
|
|
|
|
(A)
|
Persistence rate
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 March 31, 2016, the amount included
$9.8 million classified as current, and $54.9 million classified as
non-current. With respect to the private education loans as
of March 31, 2015, the amount included $9.5 million classified as
current, and $76.5 million classified as non-current.
|
|
(C)
|
With respect to the
PEAKS Trust Senior Debt as of March 31, 2016, the amount included
$15.6 million classified as current, and $28.9 million classified
as non-current. With respect to the PEAKS Trust Senior Debt
as of March 31, 2015, the amount included $26.5 million classified
as current, and $45.1 million classified as non-current.
|
|
(D)
|
With respect to the
CUSO Secured Borrowing Obligation as of March 31, 2016, the amount
included $18.1 million classified as current, and $89.7 million
classified as non-current. With respect to the CUSO Secured
Borrowing Obligation as of March 31, 2015, the amount included
$21.0 million classified as current, and $96.2 classified as
non-current.
|
|
(E)
|
With respect to the
term loans as of March 31, 2016, the full amount of $49.6 million
was classified as current. With respect to the term loans as
of March 31, 2015, the amount included $12.1 million classified as
current, and $81.1 million classified as non-current.
|
Chief Executive Officer Kevin M.
Modany noted, "We were disappointed with our new student
enrollment results for the first quarter of 2016 and continue to
experience a challenging new student recruitment environment.
As of April 24, 2016, new student
applications for academic periods that begin in the second quarter
of 2016 were down 20% compared to the same period in the prior
year, suggesting to us that we will experience similar
year-over-year declines in new student enrollment in the second
quarter of 2016."
Modany continued, "As we evaluate the relevant information, we
have been unable to find any indication or trend in the data that
suggests to us that the enrollment environment will materially
improve for the remainder of 2016. As a result, we are
adjusting our internal new student enrollment goals for 2016 from
our original expectation for a decrease of 12% to 15% compared to
2015 to a revised range of a decrease of 15% to 20% compared to the
prior year."
Chief Financial Officer Rocco
Tarasi added, "While we continue to experience strong
enrollment headwinds, we continue to have success in executing on
our cost containment efforts to right size the business to account
for our current and projected student census. As such, we are
increasing our internal goal for earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the twelve months
ended December 31, 2016 from the
previous range of $50 million to $70
million to a revised range of $55
million to $75 million."
The projected new student enrollment, EBITDA and EBITDA
component amounts are subject to various risks and uncertainties,
and do not guarantee actual results for the period indicated.
Factors, risks and uncertainties that could cause actual results to
differ materially from those projected include those discussed in
the documents that the company files with the U.S. Securities and
Exchange Commission. The company undertakes no obligation to update
or revise any of the projections, whether as a result of new
information, future developments or otherwise.
EBITDA is not a measurement under generally accepted accounting
principles in the United States
("GAAP") and may not be similar to EBITDA measures of other
companies. Non-GAAP financial information should be considered in
addition to, but not as a substitute for, information prepared in
accordance with GAAP. The company believes that EBITDA
provides useful information to management and investors as an
indicator of the company's operating performance. A reconciliation
of projected 2016 EBITDA to projected 2016 net income is included
on Schedule A attached to this release.
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:
- $27.4 million in 2016 (of which
$12.4 million was paid in the three
months ended March 31, 2016);
- $12.6 million in 2017;
- $13.0 million in 2018; and
- $105.3 million in 2019 and later,
which amount includes an approximately $10.3
million payment in 2020 under the PEAKS guarantee.
These estimated payment amounts are net of estimated aggregate
recoveries of approximately $3.8
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 March 31, 2016 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.
ITT Educational Services, Inc. will conduct a conference call
with financial analysts to discuss its 2016 first 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 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; issues or negative determinations
related to the restatement of the company's financial statements;
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.
|
ITT EDUCATIONAL
SERVICES, INC.
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
(Dollars in
thousands, except per share data)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
As
of
|
|
March 31,
2016
|
|
December 31,
2015
|
|
March 31,
2015
|
|
Assets
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$108,663
|
|
$130,897
|
|
$145,951
|
|
Restricted cash
|
5,538
|
|
6,015
|
|
6,328
|
|
Accounts receivable,
net
|
47,086
|
|
48,837
|
|
46,200
|
|
Private education
loans
|
9,787
|
|
8,480
|
|
9,541
|
|
Deferred income
taxes
|
22,044
|
|
26,440
|
|
28,584
|
|
Prepaid expenses and other
current assets
|
21,447
|
|
22,429
|
|
56,068
|
|
Total current assets
|
214,565
|
|
243,098
|
|
292,672
|
|
|
|
|
|
|
|
Property and
equipment, net
|
138,242
|
|
142,164
|
|
152,181
|
|
Private education
loans, excluding current portion, net
|
54,912
|
|
62,161
|
|
76,528
|
|
Deferred income
taxes
|
69,402
|
|
71,817
|
|
65,912
|
|
Collateral
deposits
|
91,229
|
|
91,168
|
|
97,932
|
|
Other
assets
|
54,041
|
|
53,246
|
|
54,022
|
|
Total assets
|
$622,391
|
|
$663,654
|
|
$739,247
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Current portion of term loans
|
$49,623
|
|
$68,161
|
|
$12,082
|
|
Current portion of PEAKS Trust senior debt
|
15,634
|
|
20,105
|
|
26,533
|
|
Current portion of CUSO secured borrowing obligation
|
18,065
|
|
23,591
|
|
20,963
|
|
Accounts payable
|
56,694
|
|
59,753
|
|
73,390
|
|
Accrued compensation and
benefits
|
15,949
|
|
12,425
|
|
15,151
|
|
Other current
liabilities
|
29,631
|
|
31,973
|
|
28,602
|
|
Deferred revenue
|
105,996
|
|
113,739
|
|
139,856
|
|
Total current liabilities
|
291,592
|
|
329,747
|
|
316,577
|
|
|
|
|
|
|
|
Term loans, excluding
current portion
|
0
|
|
0
|
|
81,147
|
|
PEAKS Trust senior
debt, excluding current portion
|
28,916
|
|
30,701
|
|
45,127
|
|
CUSO secured
borrowing obligation, excluding current portion
|
89,695
|
|
91,728
|
|
96,226
|
|
Other
liabilities
|
50,132
|
|
50,342
|
|
52,247
|
|
Total liabilities
|
460,335
|
|
502,518
|
|
591,324
|
|
|
|
|
|
|
|
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
|
178,134
|
|
181,160
|
|
185,936
|
|
Retained earnings
|
991,330
|
|
987,223
|
|
974,184
|
|
Accumulated other comprehensive (loss) income
|
(1,932)
|
|
(1,693)
|
|
963
|
|
Treasury stock, 13,369,997, 13,394,834 and 13,516,221 shares at
cost
|
(1,005,847)
|
|
(1,005,925)
|
|
(1,013,531)
|
|
Total
shareholders' equity
|
162,056
|
|
161,136
|
|
147,923
|
|
Total
liabilities and shareholders' equity
|
$622,391
|
|
$663,654
|
|
$739,247
|
|
ITT EDUCATIONAL
SERVICES, INC.
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
(Dollars in
thousands, except per share data)
|
|
(unaudited)
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Ended March
31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Revenue
|
$191,499
|
|
$229,975
|
|
|
|
|
|
|
|
Costs and
expenses:
|
|
|
|
|
|
Cost of educational
services
|
92,631
|
|
103,553
|
|
|
Student services and
administrative expenses
|
77,899
|
|
90,252
|
|
|
Legal and professional
fees related to certain lawsuits,
|
|
|
|
|
|
investigations and accounting matters
|
4,871
|
|
7,286
|
|
|
Provision for private
education loan losses
|
1,878
|
|
1,244
|
|
|
Total costs and
expenses
|
177,279
|
|
202,335
|
|
|
|
|
|
|
|
Operating
income
|
14,220
|
|
27,640
|
|
|
Interest
income
|
68
|
|
13
|
|
|
Interest
(expense)
|
(7,099)
|
|
(10,388)
|
|
|
Income before
provision for income taxes
|
7,189
|
|
17,265
|
|
|
Provision for income
taxes
|
3,082
|
|
6,818
|
|
|
|
|
|
|
|
Net
income
|
$4,107
|
|
$10,447
|
|
|
|
|
|
|
|
Earnings per
share:
|
|
|
|
|
|
Basic
|
$0.17
|
|
$0.44
|
|
|
Diluted
|
$0.17
|
|
$0.44
|
|
|
|
|
|
|
|
Supplemental
Data:
|
|
|
|
|
|
Cost of educational
services
|
48.4%
|
|
45.0%
|
|
|
Student services and
administrative expenses
|
40.7%
|
|
39.2%
|
|
|
Legal and
professional fees related to certain lawsuits,
|
|
|
|
|
|
investigations and
accounting matters
|
2.5%
|
|
3.2%
|
|
|
Provision for private
education loan losses
|
1.0%
|
|
0.5%
|
|
|
Operating
margin
|
7.4%
|
|
12.0%
|
|
|
Student enrollment at
end of period
|
43,293
|
|
51,201
|
|
|
Campuses at end of
period
|
138
|
|
143
|
|
|
Shares for earnings
per share calculation:
|
|
|
|
|
|
Basic
|
23,742,000
|
|
23,560,000
|
|
|
Diluted
|
23,856,000
|
|
23,819,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax
rate
|
42.9%
|
|
39.5%
|
|
|
ITT EDUCATIONAL
SERVICES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(Dollars in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
|
|
Three
Months
|
|
|
Ended March
31,
|
|
|
2016
|
|
2015
|
|
|
Cash flows from
operating activities:
|
|
|
|
|
|
Net income
|
$4,107
|
|
$10,447
|
|
|
Adjustments to reconcile net income to net cash flows
|
|
|
|
|
|
from
operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
5,183
|
|
5,981
|
|
|
Provision for doubtful accounts
|
7,309
|
|
12,183
|
|
|
Deferred income taxes
|
3,103
|
|
9,869
|
|
|
Stock-based compensation expense
|
1,227
|
|
1,896
|
|
|
Accretion of discount on private education loans
|
(2,724)
|
|
(3,081)
|
|
|
Accretion of discount on term loans
|
487
|
|
391
|
|
|
Accretion of discount on PEAKS Trust senior debt
|
720
|
|
1,655
|
|
|
Accretion of discount on CUSO secured borrowing
obligation
|
45
|
|
219
|
|
|
Provision for private education loan losses
|
1,878
|
|
1,244
|
|
|
Other
|
(237)
|
|
(267)
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Restricted cash
|
477
|
|
(288)
|
|
|
Accounts receivable
|
(5,558)
|
|
(12,000)
|
|
|
Private education loans
|
6,788
|
|
6,644
|
|
|
Accounts payable
|
(3,346)
|
|
5,542
|
|
|
Other operating assets and liabilities
|
618
|
|
717
|
|
|
Deferred revenue
|
(7,743)
|
|
(7,619)
|
|
|
Net cash flows from
operating activities
|
12,334
|
|
33,533
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
Capital
expenditures
|
(718)
|
|
(869)
|
|
|
Collateral and escrowed
funds
|
(61)
|
|
0
|
|
|
Net cash flows from
investing activities
|
(779)
|
|
(869)
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
Repayment of term
loans
|
(19,176)
|
|
(2,500)
|
|
|
Repayment of PEAKS Trust
senior debt
|
(6,976)
|
|
(15,646)
|
|
|
Repayment of CUSO secured
borrowing obligation
|
(7,604)
|
|
(4,037)
|
|
|
Common shares tendered for taxes
|
(33)
|
|
(467)
|
|
|
Net cash flows from
financing activities
|
(33,789)
|
|
(22,650)
|
|
|
|
|
|
|
|
Net change in cash
and cash equivalents
|
(22,234)
|
|
10,014
|
|
|
|
|
|
|
|
Cash and cash
equivalents at beginning of period
|
130,897
|
|
135,937
|
|
|
|
|
|
|
|
Cash and cash
equivalents at end of period
|
$108,663
|
|
$145,951
|
|
Schedule A
EBITDA is not a measurement under GAAP and may not be similar to
EBITDA measures of other companies. Non-GAAP financial information
should be considered in addition to, but not as a substitute for,
information prepared in accordance with GAAP. The company
believes that EBITDA provides useful information to management and
investors as an indicator of the company's operating
performance.
Projected EBITDA is only an estimate and contains
forward-looking information. The company has made a number of
assumptions in preparing the projection, including assumptions as
to the components of the projected EBITDA. These assumptions
may or may not prove to be correct. In order to provide
projections with respect to EBITDA, the company must estimate
amounts for the GAAP measures that are components of the
reconciliation of projected EBITDA. By providing these
estimates, the company is in no way indicating that it is providing
projections on those GAAP components of the reconciliation.
Projected EBITDA can be reconciled to the company's projected
net income for the period indicated, as follows:
|
|
PROJECTED
|
|
|
For the Twelve
Months Ending
December 31,
2016
|
|
|
Low End of
Range
|
|
High End
of
Range
|
|
|
(Dollars in
thousands)
|
|
Net Income
|
|
$10,200
|
|
$19,800
|
|
Plus: Interest
expense, net
|
|
23,000
|
|
25,000
|
|
Income taxes
|
|
6,800
|
|
13,200
|
|
Depreciation and amortization
|
|
15,000
|
|
17,000
|
|
EBITDA
|
|
$55,000
|
|
$75,000
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/itt-educational-services-inc-reports-2016-first-quarter-results-300259785.html
SOURCE ITT Educational Services, Inc.