ITT Educational Services, Inc. (ESI)

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ITT Educational Services, Inc (ESI)

Q4 2008 Earnings Call

January 22, 2009 11:00 am ET


Kevin M. Modany - Chairman, CEO and President

Daniel M. Fitzpatrick – SVP and CFO


Mark Marostica - Piper Jaffray

Gary Bisbee - Barclays Capital

Gordon Lasek - Robert W. Baird

Jerry Herman - Stifel Nicolaus

Trace Urdan - Signal Hill

Kelly Flynn - Credit Suisse

Brandon Dobell - William Blair

Corey Greendale - First Analysis

Andrew Steinerman - JPMorgan

James Mayer - ThinkEquity



Greetings, ladies and gentlemen, and welcome to the Fourth Quarter 2008 Year-End Earnings Conference Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. Joining us today from Management of ITT Educational Services, we have Kevin Modany, President and Chief Executive Officer and Dan Fitzpatrick, Senior Vice President and Chief Financial Officer.

Before we begin, ITT Educational Services Incorporated wishes to remind you that this conference call may include forward-looking information and 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 release or in the company's public filings with the Securities and Exchanges Commission. Thank you Mr. Modany, you may begin.

Kevin M. Modany

Thank you. Good morning everyone, and thanks for joining us on our conference call to review our operating and financial results for the fourth quarter and full year of 2008. As usual, Dan Fitzpatrick, our Senior VP and Chief Financial Officer, is with me on the call this morning. In a few minutes, he will provide additional color on our financial results in his prepared account.

We will begin the call by giving you a quick overview of the items that we will review today. We will follow our usual conference call outline by providing you with updates in several key areas of the business.

First we will provide you with some additional color on the exceptional fourth quarter operating results, reported earlier this morning in our press release. Then we will touch on the status of a few of the key elements of our strategic growth points. Following the strategic review we will give an update on the student lending environment.

Now, I will turn the call over to Dan who will provide additional comments on the excellent financial results for the quarter and full year, including as previously promised some additional insight in to the reserve accounting for our internally funded student financing.

I will then close of the call with a quick summary view of our current opportunities for the organization at which point, we will open up the phone lines for your questions.

Let me start, by reiterating some of the information from this morning’s press release. We reported exceptional operational and financial results for the fourth quarter 2008, that far surpass our internal growth. This amazing performance was achieved through the focused efforts of our Management, faculty and staff and their efficient execution of our proven growth strategy.

We would like to take a moment to recognize them for their contribution and to thank them once again for their dedication to our organization, our students and the employers who hire our graduates. As a result of their efforts we ended 2008 on an incredibly high note, and entered the New Year with a great deal of optimism regarding our ability to execute on our strategic plan to deliver additional shareholder value over the long-term.

As a result of our terrific performance in the fourth quarter, and optimistic outlook regarding the strong demand for our programs of study as we entered the New Year, we have set our internal goal for 2009 EPS in the range of $6.25 to $6.45.

Turning now, to a review of the key operating results. As read in the press release, New Student Enrollment increased to very impressive 29.2% to 14,911 in the three months ended December 31, 2008. Compared to 11,542 in the same period in the prior year, significantly exceeding our internal expectations.

The New student enrollment increased in the fourth quarter, marked the single largest year-over-year percentage increase in new student enrollment since we became a public company back in 1994.

The new student enrollment results were supported by a 5% increase in marketing expenditures during the first quarter of 2008, compared to fourth quarter of ‘07. The year-over-year increase in advertising expenditures in the fourth quarter of ‘08 was less than we had originally planned as the slowing National economy lowered the demand for advertising across the various media outlets that we utilize, which caused the cost to decline.

Looking ahead, we believe that our total advertising expenditures in 2009 were increased by approximately 10%, compared to the prior year, as we support the opening of new locations and the introduction of new programs at existing locations. The material disruption in the economy and the escalation in the unemployment rate for unskilled labor further emphasized the importance and value of obtaining a high-quality career focused postsecondary education like that provided by ITT Technical Institute.

We believe that the current economic environment, contributed to very robust response rate to our media placement across all six schools of study during the fourth quarter of 2008.

In addition that a favorable advertising environment and the strong demand for our programs of study, the average tenure of our student recruiter staff increased in the fourth quarter of 2008, compared to the same period in the prior year, marking the second consecutive quarter for such a year-over-year increase. As many of you are aware, the lead conversion rates of student recruiters have a historically correlated with their tenuring the position. As a result more experienced recruiters typically converts student increase at a higher rate than less experienced representative.

We believe that each of the favorable marketing and recruiting practice previously mentioned, contributed to the record new student enrollment increase during the fourth quarter of ‘08. Those positive factors continued, as we enter the New Year. As a result, the demand for our programs of study, measured by the level of inquiries from perspective students was extremely robust as we began the first quarter of fiscal 2009.

Further, we believe we are very well positioned to service the increased level of perspective student interest in part, because we employed approximately 15% more student recruiters at the beginning of 2009, than we did at the start of 2008.

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