ITT EDUCATIONAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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1-13144
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36-2061311
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(State or other
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(Commission
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(IRS Employer
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jurisdiction of
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File Number)
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Identification No.)
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incorporation)
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13000 North Meridian Street
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Carmel, Indiana 46032-1404
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (317) 706-9200
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¨
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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¨
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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¨
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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¨
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 2.02.
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Results of Operations and Financial Condition.
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(d)
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Exhibits:
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99.1
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Text of Press Release issued by the Registrant dated October 24, 2013.
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Financial and Operating Data for the Three Months Ended September 30th, Unless Otherwise Indicated
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(Dollars in millions, except per share and per student data)
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Increase/
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2013
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2012
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(Decrease)
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Revenue
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$ | 259.4 | $ | 314.7 | (17.6 | )% | ||||||
Operating Income
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$ | 32.1 | $ | 70.8 | (54.7 | )% | ||||||
Operating Margin
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12.4 | % | 22.5 | % |
(1,010) basis points
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|||||||
Net Income
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$ | 18.9 | $ | 42.9 | (55.8 | )% | ||||||
Earnings Per Share (diluted)
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$ | 0.80 | $ | 1.83 | (56.3 | )% | ||||||
New Student Enrollment
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20,307 | 19,298 | 5.2 | % | ||||||||
Continuing Students
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40,690 | 46,364 | (12.2 | )% | ||||||||
Total Student Enrollment as of September 30th
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60,997 | 65,662 | (7.1 | )% | ||||||||
Persistence Rate as of September 30th (A)
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69.4 | % | 69.8 | % |
(40) basis points
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|||||||
Revenue Per Student
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$ | 4,399 | $ | 4,740 | (7.2 | )% | ||||||
Cash, Cash Equivalents and Restricted Cash as of September 30th
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$ | 169.3 | $ | 175.2 | (3.3 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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6.9 | % | 7.3 | % |
(40) basis points
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|||||||
Days Sales Outstanding as of September 30th
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42.4 days
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26.1 days
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16.3 days
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Deferred Revenue as of September 30th
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$ | 132.2 | $ | 119.1 | 11.0 | % | ||||||
Debt as of September 30th
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$ | 60.0 | $ | 140.0 | ||||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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23,634,000 | 23,443,000 | ||||||||||
Shares of Common Stock Repurchased
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0 | 0 | ||||||||||
Number of New Colleges in Operation
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0 | 1 | ||||||||||
Capital Expenditures, Net
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$ | 0.9 | $ | 3.2 | (71.6 | )% | ||||||
Financial and Operating Data for the Nine Months Ended September 30th
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(Dollars in millions, except per share and per student data)
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2013
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2012
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Increase/
(Decrease)
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Revenue
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$ | 807.1 | $ | 986.4 | (18.2 | )% | ||||||
Operating Income
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$ | 120.0 | $ | 248.8 | (51.7 | )% | ||||||
Operating Margin
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14.9 | % | 25.2 | % |
(1,030) basis points
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Net Income
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$ | 70.9 | $ | 149.9 | (52.7 | )% | ||||||
Earnings Per Share (diluted)
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$ | 3.01 | $ | 6.20 | (51.5 | )% | ||||||
Bad Debt Expense as a Percentage of Revenue
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7.0 | % | 5.8 | % |
120 basis points
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Revenue Per Student
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$ | 13,370 | $ | 14,043 | (4.8 | )% | ||||||
Weighted Average Diluted Shares of Common Stock Outstanding
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23,556,000 | 24,200,000 | ||||||||||
Shares of Common Stock Repurchased
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0 | 3,025,700 | (B) | |||||||||
Number of New Colleges in Operation
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0 | 6 | ||||||||||
Capital Expenditures, Net
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$ | 4.3 | $ | 14.8 | (71.1 | )% |
(A)
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Represents the number of Continuing Students in the academic term, divided by the Total Student Enrollment in the immediately preceding academic term.
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(B)
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For approximately $207.9 million or at an average price of $68.72 per share.
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ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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(Dollars in thousands, except per share data)
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As of
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September 30, 2013
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December 31, 2012
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September 30, 2012
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(unaudited)
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(unaudited)
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Assets
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Current assets:
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Cash and cash equivalents
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$ | 168,721 | $ | 246,342 | $ | 174,458 | ||||||
Restricted cash
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612 | 601 | 720 | |||||||||
Accounts receivable, net
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119,529 | 77,313 | 89,425 | |||||||||
Deferred income taxes
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25,687 | 44,547 | 19,284 | |||||||||
Prepaid expenses and other current assets
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18,952 | 16,162 | 18,331 | |||||||||
Total current assets
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333,501 | 384,965 | 302,218 | |||||||||
Property and equipment, net
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174,394 | 189,890 | 194,253 | |||||||||
Deferred income taxes
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54,657 | 56,112 | 39,499 | |||||||||
Other assets
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46,409 | 41,263 | 49,080 | |||||||||
Total assets
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$ | 608,961 | $ | 672,230 | $ | 585,050 | ||||||
Liabilities and Shareholders' Equity
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Current liabilities:
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Accounts payable
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$ | 61,468 | $ | 63,304 | $ | 76,358 | ||||||
Accrued compensation and benefits
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20,113 | 21,023 | 19,729 | |||||||||
Other current liabilities
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51,285 | 86,722 | 19,910 | |||||||||
Deferred revenue
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132,246 | 135,900 | 119,089 | |||||||||
Total current liabilities
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265,112 | 306,949 | 235,086 | |||||||||
Long-term debt
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60,000 | 140,000 | 140,000 | |||||||||
Other liabilities
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82,852 | 98,327 | 78,189 | |||||||||
Total liabilities
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407,964 | 545,276 | 453,275 | |||||||||
Shareholders' equity:
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Preferred stock, $.01 par value,
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5,000,000 shares authorized, none issued
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0 | 0 | 0 | |||||||||
Common stock, $.01 par value, 300,000,000 shares authorized, 37,068,904 issued
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371 | 371 | 371 | |||||||||
Capital surplus
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206,714 | 206,703 | 203,095 | |||||||||
Retained earnings
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1,030,002 | 959,072 | 968,545 | |||||||||
Accumulated other comprehensive (loss)
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(7,715 | ) | (7,930 | ) | (8,970 | ) | ||||||
Treasury stock, 13,698,990, 13,744,395 and 13,744,474 shares at cost
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(1,028,375 | ) | (1,031,262 | ) | (1,031,266 | ) | ||||||
Total shareholders' equity
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200,997 | 126,954 | 131,775 | |||||||||
Total liabilities and shareholders' equity
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$ | 608,961 | $ | 672,230 | $ | 585,050 |
ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
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(Dollars in thousands, except per share data)
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Three Months
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Nine Months
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Ended September 30,
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Ended September 30,
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(unaudited)
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(unaudited)
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2013
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2012
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2013
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2012
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Revenue
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$ | 259,416 | $ | 314,747 | $ | 807,063 | $ | 986,366 | ||||||||
Costs and expenses:
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Cost of educational services
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121,994 | 133,948 | 371,043 | 409,829 | ||||||||||||
Student services and administrative expenses
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99,130 | 110,046 | 306,315 | 327,779 | ||||||||||||
Loss related to private student loan programs
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6,213 | 0 | 9,677 | 0 | ||||||||||||
Total costs and expenses
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227,337 | 243,994 | 687,035 | 737,608 | ||||||||||||
Operating income
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32,079 | 70,753 | 120,028 | 248,758 | ||||||||||||
Interest income
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170 | 125 | 376 | 1,308 | ||||||||||||
Interest (expense)
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(915 | ) | (1,021 | ) | (3,180 | ) | (2,822 | ) | ||||||||
Income before provision for income taxes
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31,334 | 69,857 | 117,224 | 247,244 | ||||||||||||
Provision for income taxes
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12,393 | 26,997 | 46,294 | 97,311 | ||||||||||||
Net income
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$ | 18,941 | $ | 42,860 | $ | 70,930 | $ | 149,933 | ||||||||
Earnings per share:
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Basic
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$ | 0.81 | $ | 1.83 | $ | 3.03 | $ | 6.23 | ||||||||
Diluted
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$ | 0.80 | $ | 1.83 | $ | 3.01 | $ | 6.20 | ||||||||
Supplemental Data:
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Cost of educational services
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47.0 | % | 42.6 | % | 46.0 | % | 41.5 | % | ||||||||
Student services and administrative expenses
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38.2 | % | 35.0 | % | 38.0 | % | 33.2 | % | ||||||||
Loss related to private student loan programs
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2.4 | % | 0.0 | % | 1.2 | % | 0.0 | % | ||||||||
Operating margin
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12.4 | % | 22.5 | % | 14.9 | % | 25.2 | % | ||||||||
Student enrollment at end of period
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60,997 | 65,662 | 60,997 | 65,662 | ||||||||||||
Campuses at end of period
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147 | 147 | 147 | 147 | ||||||||||||
Shares for earnings per share calculation:
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Basic
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23,418,000 | 23,359,000 | 23,410,000 | 24,054,000 | ||||||||||||
Diluted
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23,634,000 | 23,443,000 | 23,556,000 | 24,200,000 | ||||||||||||
Effective tax rate
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39.6 | % | 38.7 | % | 39.5 | % | 39.4 | % |
ITT EDUCATIONAL SERVICES, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(Dollars in thousands)
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Three Months
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Nine Months
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Ended September 30,
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Ended September 30,
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(unaudited)
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(unaudited)
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2013
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2012
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2013
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2012
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Cash flows from operating activities:
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Net income
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$ | 18,941 | $ | 42,860 | $ | 70,930 | $ | 149,933 | ||||||||
Adjustments to reconcile net income to net cash flows
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from operating activities:
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Depreciation and amortization
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6,173 | 6,930 | 20,816 | 22,045 | ||||||||||||
Provision for doubtful accounts
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17,967 | 22,873 | 56,890 | 57,480 | ||||||||||||
Deferred income taxes
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280 | (6,021 | ) | 16,614 | (16,097 | ) | ||||||||||
Excess tax benefit from stock option exercises
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0 | (3 | ) | 0 | (1,382 | ) | ||||||||||
Stock-based compensation expense
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3,304 | 4,291 | 8,698 | 13,046 | ||||||||||||
Settlement cost
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0 | 0 | (46,000 | ) | 0 | |||||||||||
Other
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102 | 340 | 467 | 97 | ||||||||||||
Changes in operating assets and liabilities, net of acquisition:
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Restricted cash
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164 | 31 | (11 | ) | 1,408 | |||||||||||
Accounts receivable
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(13,326 | ) | (38,623 | ) | (98,012 | ) | (98,799 | ) | ||||||||
Accounts payable
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(2,427 | ) | (4,419 | ) | (2,012 | ) | (2,518 | ) | ||||||||
Other operating assets and liabilities
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2,370 | (5,758 | ) | (8,634 | ) | 1,008 | ||||||||||
Deferred revenue
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17,769 | (2,784 | ) | (4,240 | ) | (107,454 | ) | |||||||||
Net cash flows from operating activities
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51,317 | 19,717 | 15,506 | 18,767 | ||||||||||||
Cash flows from investing activities:
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Facility expenditures
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(81 | ) | (108 | ) | (541 | ) | (493 | ) | ||||||||
Capital expenditures, net
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(904 | ) | (3,185 | ) | (4,277 | ) | (14,820 | ) | ||||||||
Acquisition of company, net of cash acquired
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(6,953 | ) | 0 | (6,953 | ) | 0 | ||||||||||
Proceeds from sales and maturities of investments and repayment of notes
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91 | 553 | 413 | 216,724 | ||||||||||||
Purchase of investments and note advances
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(138 | ) | 0 | (1,379 | ) | (63,545 | ) | |||||||||
Net cash flows from investing activities
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(7,985 | ) | (2,740 | ) | (12,737 | ) | 137,866 | |||||||||
Cash flows from financing activities:
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Excess tax benefit from stock option exercises
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0 | 3 | 0 | 1,382 | ||||||||||||
Proceeds from exercise of stock options
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0 | 254 | 0 | 8,345 | ||||||||||||
Debt issue costs
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0 | 0 | 0 | (1,525 | ) | |||||||||||
Proceeds from revolving borrowings
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0 | 0 | 0 | 175,000 | ||||||||||||
Repayment of revolving borrowings
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(60,000 | ) | (10,000 | ) | (80,000 | ) | (185,000 | ) | ||||||||
Repurchase of common stock and shares tendered for taxes
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(19 | ) | (10 | ) | (390 | ) | (209,370 | ) | ||||||||
Net cash flows from financing activities
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(60,019 | ) | (9,753 | ) | (80,390 | ) | (211,168 | ) | ||||||||
Net change in cash and cash equivalents
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(16,687 | ) | 7,224 | (77,621 | ) | (54,535 | ) | |||||||||
Cash and cash equivalents at beginning of period
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185,408 | 167,234 | 246,342 | 228,993 | ||||||||||||
Cash and cash equivalents at end of period
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$ | 168,721 | $ | 174,458 | $ | 168,721 | $ | 174,458 |