ITT Educational Services, Inc. (ESI)

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ITT Educational Services, Inc. (ESI)

Q4 2009 Earnings Call

January 21, 2010 11:00 am ET

Executives

Kevin M. Modany - Chief Executive Officer and Chairman

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

Analysts

Andrew Steinerman - JPMorgan

Gary Bisbee - Barclays Capital

Sara Gubins – Bank of America

Analyst for Paul Ginocchio - Deutsche Bank Securities

Brandon Dobell - William Blair & Company, L.L.C.

Andrew Fones – UBS

Jerry Herman - Stifel Nicolaus & Company, Inc.

Kelly Flynn - Credit Suisse

Corey Greendale - First Analysis Corp.

Robert Wetenhall – Royal Bank of Canada

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

Presentation

Operator

Greetings ladies and gentlemen and welcome to the ITT Educational Services fourth quarter and year end 2009 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 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.

Mr. Modany, you may begin.

Kevin M. Modany

Thank you. Good morning ladies and gentlemen and thank you for joining us on this conference call to review our 2009 fourth quarter and full year results. Joining me as usual is on the call this morning is our Executive Vice President and Chief Financial Officer, Dan Fitzpatrick.

We’re going to follow the abbreviated format that we introduced in our 2009 third quarter earnings call where we limit our prepared comments. We have a lot to talk about today and we provide a sufficient amount of time for you to pose your questions.

Let me begin with an update on the advertising environment. We continue to experience a very favorable advertising environment, although we’re beginning to see some signs of stabilization in the year-over-year costs for each advertising placement.

Advertising expenditures increased approximately 12% in the 2009 fourth quarter compared to the same prior year period. We believe that our advertising expenditures will increase approximately 15% in 2010 compared to 2009.

The response rates to our advertising continue to be strong in 2009 fourth quarter and we believe that it will remain strong well into 2010. As of December 31, 2009, we had approximately 15% more recruiters than at the same point in 2008. An 80 basis point improvement in our persistence rate as of December 31, 2009 compared to the same date in the prior year was primarily due to improved student retention in the 2009 fourth quarter compared to the fourth quarter of ’08.

Just to remind everyone, we reported in our 2009 third quarter earnings call that as of October 20, 2009, the graduate employment rate for our 2009 graduates was approximately 560 basis points below the rate for 2008 graduates at the same date in 2008.

We are very pleased to report this morning that as of January 20, 2010, the graduate employment rate for our 2009 graduates was approximately 240 basis points below the rate for our 2008 graduates at that same date in 2008.

Obviously, we made significant progress in the fourth quarter in narrowing the year-over-year gap in our graduate employment rate for our 2009 graduates as compared to our ’08 graduates. However, we believe that we can narrow the gap even further before the period for measuring the graduate employment rate of our ’09 graduates ends on April 30, 2010.

While we’ve made solid progress in improving the 2009 graduate employment rate, the great recession continues to impact the average annual salary reported by our ’09 employed graduates compared to the ’08 employed graduates.

The average annual salary reported by the ’09 employed graduates as of January 20, 2010 was approximately 4% lower than that reported by the ’08 employed graduates as of the same date in ’09.

While we continue to implement initiatives to increase the average annual salary of our 2009 employed graduates, we believe that the average annual salary reported by our ’09 employed graduates at the end of the measurement period on April 30, 2010 will be less than the average annual salary reported by the ’08 employed graduates at that same date in ’09.

Turning to an update on our geographic expansion efforts, we’ll begin operations at three new campuses during the fourth quarter in the following markets: Akron, Ohio, Johnson City, Tennessee, which is located in the tri-city Tennessee area, and DeSoto, Texas, our third Dallas location.

We are pleased to report that the market dynamics and related operational performance of five of our nine learning sites surpassed our original expectations. As a result, we converted those five learning sites into full campuses during the fourth quarter. Those five converted campuses are located in Dearborn, Michigan, Las Vegas, Nevada, Aurora, Colorado, which is a suburb of Denver, West Covina, California, and Culver City, California, both suburbs of Los Angeles.

As a result of the addition of the three new campuses and the conversion of the five learning sites into full campuses in the 2009 fourth quarter, we had 121 campuses and four learning sites in operation as of December 31, 2009. This total includes the Daniel Webster college campus in Nashua, New Hampshire.

Our goal for 2010 is to begin operations in 8 to 10 additional locations, pending receipt of all of the requisite regulatory authorization. Our 2010 geographic expansion goal includes both ITT Technical Institutes and Daniel Webster college locations.

There were no material changes to the other key elements of our growth strategy during the fourth quarter of 2009. As we noted in our earnings release this morning, we believe we are well positioned to achieve our internal operating and financial goals for 2010.

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