ITT Educational Services, Inc. Reports 2015 Third Quarter Results
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)% |
|||
| PEAKS Trust Senior Debt (current and non-current) |
$48.0 |
$140.5 |
(65.9)% |
|||
| CUSO Secured Borrowing Obligation (current and non- |
$111.6 |
$122.5 |
(9.0)% |
|||
| Financing Agreement/Credit Agreement (current) |
$89.0 |
$50.0 |
78.0% |
|||
| Weighted Average Diluted Shares of Common Stock |
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/ |
||||
| 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 |
||||
| 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, |
|||
| 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 |
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 |
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 |
|||
SOURCE ITT Educational Services, Inc.
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