ITT Educational Services, Inc. (ESI)

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ITT Educational Services, Inc. (ESI)

Q1 2009 Earnings Call

April 23, 2009 11:00 AM ET

Executives

Kevin M. Modany - Chief Executive Officer

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

Analysts

Gary Bisbee - Barclays Capital

Bob Craig - Stifel Nicolaus

Amy Junker - Robert W. Baird & Co. Inc.

Andrew Steinerman - JP Morgan

Trace A. Urdan - Signal Hill Capital Group

Kevin Doherty - Banc of America Securities-Merrill Lynch

Brandon Dobell - William Blair & Company

Corey Greendale - First Analysis

Paul Ginocchio - Deutsche Bank

Kelly Flynn - Credit Suisse

Presentation

Operator

Greetings ladies and gentlemen and welcome to the ITT Educational Services First Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. (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 Incorporated 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 release 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 everyone and thank you for joining us on our conference call to review our operating and financial results for the first quarter of 2009. Dan Fitzpatrick, our Executive Vice President and Chief Financial Officer is with me on the call this morning. In a few minutes he will provide you with additional detail regarding the financial results released earlier this morning.

We plan to follow our standard format for the call today and begin with a high level review of the operating results for the quarter. We next will provide some insight into the status of our efforts related to several of the key elements of our strategic growth plan that most of you are familiar with. After that, we will take some time to talk about our other press release this morning, where we disclosed the execution of a definitive asset purchase agreement to acquire Daniel Webster College.

I will also touch on the current student learning environment. At that point, I'll turn the call over to Dan so that he can provide a bit more insight into another quarter's simply outstanding financial results. I'll then wrap up our prepared comments with a quick summary of what we project in terms of an operating environment for the remainder of the year and then we'll begin the question-and-answer session.

Given that we have a pretty forward agenda today let's get right to it.

As discussed in the earnings release this morning, we had another incredibly successful quarter both operationally and financially and once again exceeded our expectations. We'd like to take a brief moment to recognize and thank our faculties, staff and college management teams for their dedication and commitment to their students and the employers that hire our graduates, to unwavering passion to help students improve their lives to a high quality career based education, is an inspiration to all of us and we congratulate them for the contributions to another outstanding quarter.

As a result of the tremendous performance of our college personnel in the first quarter of 2009 and our continued optimism for what appears to be a very attractive market opportunity for high quality providers of career-based education. We are raising our internal goal for 2009 EPS from the previous range of $6.50 to $6.75 to new range of $7 to $7.25.

Now let's turn our attention to the 2009 first quarter operating results. As we reported in the earnings release new student enrollment increased 36.8% to 18,935 in the three months ended March 31, 2009 compared to 13,844 in the same period in the prior year. This record result exceeded our internal goal and represents the single largest year-over-year percentage increase in new student enrollment since we became a public company back in 1994.

This increase beats the then record 29.2% year-over-year increase in the fourth quarter of 2008. We had very solid increases in new student enrollment in all six of our schools of study in the three months ended March 31, 2009, compared to the same period in '08.

The new student enrollment results were supported by a 3% increase in marketing expenditures during the first quarter of '09 compared to the same period in the prior year. As we reported in the earnings release this morning the year-over-year increase in advertising expenditures during the quarter was far less than we had originally planned.

We continue to experience a very favorable advertising market as the slow national economy impacts the demand for advertising across the various media outlets that we utilize. This reduced demand continues to favorably impact the cost of our advertising.

Based on the most current information that we have obtained we believe that this favorable advertising environment will likely continue through the second quarter and could potentially continue through the remainder of 2009.

As a result we projected our advertising expenditure for the rest of the year will be at or below our original expectation that 2009 expenditures would increase by approximately by 10% compared to 2008.

In addition, to experiencing favorable ad cost, the demand by perspective students for our programs across all six schools of study remained extremely robust as we ended the second quarter of 2009. We believe that the current economic environment once again contributed to this very strong response rates to our media placement.

Additionally, we are pleased to report that the average tenure of our recruiting representatives increased in first quarter 2009 for the same period in the prior year. As many of you are aware the late conversion rate of student recruiters have historically correlated to the tenure in the position.

As a result, more experienced recruiters typically convert student increase at a higher rate and the less experience recruiters. So, to summarize the key variables impacting our student recruitment efforts in the 2009 first quarter.

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