ITT Educational Services, Inc. (ESI)

ESI 
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ITT Educational Services (ESI)

Q4 2012 Earnings Call

January 24, 2013 11:00 am ET

Executives

Kevin M. Modany - Chairman and Chief Executive Officer

Daniel M. Fitzpatrick - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Jeffrey P. Meuler - Robert W. Baird & Co. Incorporated, Research Division

Kelly A. Flynn - Crédit Suisse AG, Research Division

Sara Gubins - BofA Merrill Lynch, Research Division

James Samford - Citigroup Inc, Research Division

Gary E. Bisbee - Barclays Capital, Research Division

Jerry R. Herman - Stifel, Nicolaus & Co., Inc., Research Division

Peter P. Appert - Piper Jaffray Companies, Research Division

Jeffrey Lee - Wells Fargo Securities, LLC, Research Division

Brandon Burke Dobell - William Blair & Company L.L.C., Research Division

Corey Greendale - First Analysis Securities Corporation, Research Division

Jeffrey Y. Volshteyn - JP Morgan Chase & Co, Research Division

Paul Ginocchio - Deutsche Bank AG, Research Division

Presentation

Operator

Greetings, ladies and gentlemen, and welcome to the ITT Educational Services 2012 Fourth Quarter and Full Year Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

Joining us today from the management of ITT Educational Services, we have Kevin Modany, Chief Executive Officer and Chairman; and Dan Fitzpatrick, Executive Vice President and Chief Financial Officer.

Before we begin, ITT Educational Services, Inc. wishes to remind you that this conference call may include forward-looking information. Actual results may differ from the information presented during this call. For additional information, please review the section on forward-looking information contained in today's news releases or in the company's public filings with the Securities and Exchange Commission.

Thank you. Mr. Modany, you may begin

Kevin M. Modany

Thank you. Good morning, ladies and gentlemen, and thank you for joining us on our conference call to review our 2012 fourth quarter results. On the call with me this morning, as usual, is our Executive Vice President and Chief Financial Officer, Dan Fitzpatrick. In our prepared comments today, we plan to discuss the key focus areas of the organization. At the conclusion of our prepared remarks, we will open up the lines for your questions. We will attempt to be efficient with our remarks so as to provide ample time for your questions during the Q&A session.

With that said, we will begin by reviewing a few of the organizational's -- organization's current areas of focus. Protecting and enhancing our student value proposition and effectively communicating it to prospective students is a key focus area of our organization. We believe that this is especially important today given the current state of the postsecondary education environment. Our internal research suggests that prospective students are more sensitive of the cost of postsecondary education and are making educational decisions based on their perceived opportunity to derive value from their educational investment.

Our analysis of our prospective student behaviors led us to conclude that sensitivity to price and value are more prevalent today than in any time in our recent history. We believe this is a positive development that creates an opportunity for us to highlight the value of our career-based education offerings in disciplines where job growth is projected to exceed the national average. Specifically, we believe we are well positioned with our technology and health care-related programs for the career-changer demographic.

We further believe that our 40-plus-year history of focusing on student outcomes, coupled with our national network of technology and health care-related employers, makes us an attractive choice for students interested in obtaining an education to pursue entry-level careers in these growing fields. With more than 80% of our current students pursuing an associate's degree, we also believe that we are well positioned to offer the appropriate credential to this career-changer demographic.

The value of an associate's degree in today's employment market is demonstrated in a January 4, 2013, report by the U.S. Bureau of Labor Statistics. This report states that the average unemployment rate for individuals 25 years or older with an associate's degree is 5.5% or 260 basis points less than the average 8.1% unemployment rate for individuals whose highest educational credential is a high school diploma.

We continue to believe that we have the right programmatic focus and are appropriately incorporating employer needs into our curriculum. If we continue to focus on student outcomes and employer needs, we believe that our students can realize a good value on their investment in an education at ITT Technical Institute. That said, while we believe we have the right programs, we also think that we can improve the way in which we market our programs.

By highlighting to prospective students the attributes of our programs that we believe are paramount in their decision-making process, including cost and value, we think that we can improve our student enrollment trend. With that in mind, in the 2012 fourth quarter, in an effort to address prospective student sensitivity to the cost and value of a postsecondary education, we introduced the opportunity scholarship at 24 of our resident campuses that I will refer to as the pilot group.

The opportunity scholarship is an institutional scholarship intended to help reduce the cost of an ITT Technical Institute education and to increase access to our high-quality, career-based technology and health care-related programs of study. We should note that the pilot group only began offering the opportunity scholarship in the last 4 weeks of the recruitment period for the academic quarter that began in December 2012, so we have a limited amount of data to analyze to determine the effectiveness of the scholarship.

However, based on our review of this small data set, the rate at which prospective students who applied for admissions converted to new student enrollments in the academic quarter that began in December 2012 was 250 basis points higher for the pilot group compared to the non-pilot group. Further, new student enrollment for the pilot group declined 6.3% year-over-year in the 2012 fourth quarter compared to a 12.7% year-over-year decline for the non-pilot group.

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