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)% Less Allowance for Loan Losses, as of September 30th (C) PEAKS Trust Senior Debt (current and non-current) $48.0 $140.5 (65.9)% as of September 30th (D) CUSO Secured Borrowing Obligation (current and non- $111.6 $122.5 (9.0)% current) as of September 30th (E) Financing Agreement/Credit Agreement (current) $89.0 $50.0 78.0% as of September 30th Weighted Average Diluted Shares of Common Stock 23,937,000 23,703,000 Outstanding 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 23,947,000 23,777,000 Stock Outstanding 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, 2015 2014 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 371 371 371 authorized, 37,068,904 issued 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 (1,005,925) (1,022,120) (1,022,126) shares at cost 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 certain lawsuits, investigations and accounting matters 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% certain lawsuits, investigations and accounting matters 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 ======== ======== ======== ========
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SOURCE ITT Educational Services, Inc.