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ITT Educational Services Inc. Message Board

  • aaatiles aaatiles Apr 24, 2008 6:05 PM Flag

    Student Enrollment

    This info is for the benefit of "are you really skiing"....[from the filed quarterly and annual statements at [Edgar reports]:

    12/31/06, 87 campuses, 46,896 students
    comes to 539 students/campus

    3/31/07, 90 campuses, 49,295 students
    comes to 548 students/campus

    12/31/07, 97 campuses, 53,027 students
    comes to 547 students/campus

    3/31/08, 100 campuses, 54,194 students
    comes to 542 students/campus

    If not for the additional campus openings, the student enrollment at existing campuses is not increasing 10% per year like management would like you to believe. Sure, it increased 9.9% overall from 3-31-07 (49,295 students at 90 campuses) to 3-31-08 (54,194 students at 100 campuses), but there are 11% more campuses (100 versus 90)!

    Sounds all warm and fuzzy to analysts and investors until you look at it closer.

    Therefore, the only thing keeping enrollment and revenues up is the opening of new campuses, which is eroding capital at a concerning rate.

    Does that help you?

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    • Q2 2008 update:
      12/31/06, 87 campuses, 46,896 students
      comes to 539 students/campus

      3/31/07, 90 campuses, 49,295 students
      comes to 548 students/campus

      12/31/07, 97 campuses, 53,027 students
      comes to 547 students/campus

      3/31/08, 100 campuses, 54,194 students
      comes to 542 students/campus

      6/30/08, 102 campuses, 54,793 students
      comes to 537 students/campus
      [lower than even 12/31/06 figures]

      As stated earlier, the only thing keeping total enrollment and revenues up is the opening of new campuses, which is eroding capital at a concerning rate.

      Speaking of capital, operating cash flow for the three months of April-June 2008 was negative because of the change in deferred revenue, as a dual change in the reduction from the private lending to sub-prime students and the increase in internally funding revenue. I guess we'll see how 3Q goes with that. A/R Days outstanding will probably increase to 20 days. Again, cash/cash equivalents decreased from 12/31/07 and Q1 at Q2. I don't care what anyone says, that is not a trend to throw a party over.

      Plain and simple, ESI does not have enough cash to both fund revenue internally AND buy back more shares.

      I didn't listen to the earnings presentation, but was anything mentioned if ESI found any new lenders for the private student loan program? Was there any mention of the anticipated impact of the new legislation set to be implemented 7/1/08?

      With a market cap of $3.8 billion and shareholder equity of $93 million at 6/30/08, ESI is still in the top 10 of the 9000+ listed stocks for Price/Book at almost 41 and certainly in the top 5 for companies over $1 bil market cap. That's undeniably scary for any tecnical person.

    • "Fund expansion through cash flow, debt or leases"

      Let's examine each of those.

      Cash Flow: Cash flow from operations for the last three years has been positive. However, overall cash flow has been negative because of the investments and financing. Look at the balance sheet. The only saving grace to increase overall cash flow going forward is they decided at 3-31-08 to stop buying treasury shares. So that will help.

      Debt: The Company has borrowed $150 million of its maximum $160 million credit facilities (two total). They only have $10 million available up against equity that has decreased from $90 million to $43 million. What lender is going to step forward and provide even more credit? I certainly wouldn't.

      Leases: ESI leases something like 88 buildings. When they sign a lease, they are committing for 10 years.

      Lenders HAVEN'T stepped up to replace the private student lending gap when Sallie Mae left. Bank of America stopped and so did Citi, I think Chase just announced they scaling back. The reason Sallie Mae left is because of the losses and because ESI would no longer guarantee the losses. If ESI is unwilling to provide a guarantee on the losses, NO private lender is going to fill that 29% of revenues gap. Period. Would you lend money to that program without a guarantee? What makes you think that if ESI wouldn't guarantee losses on loans from SLM just three months ago that it has had a change of heart and will now guarantee loans to another lender? The reason ESI won't guarantee loan losses to private student lenders is because ESI doesn't have the financial wherewithall to do it! And they know it. Even $158 million of its short-term investments are pledged as collateral on the outstanding $150 credit facility. I keep waiting for a grand announcement from management of some big name lenders that have stepped in to replace that 29% of private student lending revenues after 3/1/08, but no such announcement has occurred, has it?

      ESI knows it cannot fund the private student lending gap with its own cash flows for the already stated reasons. Plus, it has the history of default and collections. If it won't even provide a guarantee to lenders, what makes you think they will outright fund the gap with their own cash? That is even more laughable.

      ESI may not free fall, but the changes in the marketplace will impact the company going forward and will become evident when the second and third quarter statements are released. Any good news from government increases in grants and loans is already baked in to the current price. Then, we'll see how far ESI goes without any private student lenders to step in. I guess we'll see how much revenues, equity and cash ESI has at 6-30-08

      I told you, after riding the wave on 2000 shares at open last Thursday, I bought 15 Oct 35 puts that same day, so I NOW have skin in the game. Will probably buy 10 Oct 40 puts and 5 Oct 45 puts today if the price stays above $71. Capiche?

    • AAATILES- There is absolutely no way ESI is going to do a stock offering. They can fund expansion through cash flow, debt, or leases. Period. End of story.

      And forget about issuing stock to fund student loans. Ain't gonna happen. Lenders will step up and if necessary, ESI will guarantee some portion of the loans. No debt needed to be issued as any guarantee could easily be funded by cash flow.

      ESI has come a long way. The next several weeks will be choppy. Anyone looking for a free fall who puts there money where their mouth is (unlike you) will lose.

      Time for a late night egg salad sandwich.

    • ESI has to use the LIFO method for re-selling treasury shares, meaning using the 2008 purchase prices first, which was $83/share average.

      If ESI sells some of its treasury shares for say $70, the accounting would be:

      Cash $70
      Retained Earnings $13
      Treasury Stock $83

      (since ESI has no "APIC-treasury stock" account)

      A reduction to retained earnings, essentially.

      If ESI were to re-issue $300 million in treasury stock, it could pay off the $150 million line of credit and have $150 million cash left over for expansion and to fill the private student lending gap. This would only be about a 10% dilution of current shares.

      Don't be surprised if management announces either a second offering or decides to sell some treasury shares this quarter and they will say the proceeds will be used to:
      a.) pay down debt to increase their ratio used by Educ. Dept. for Title IV participation
      b.) for expansion of campuses
      c.) to fund the gap from private student lending pull-back

      There are three parts to the cash flow statement, in case you didn't know, operations being just one part of it. If you are using more cash in investments and financing than in operations, total cash still goes down, as it has been due to the share repurchase program.

      I feel more sorry for anyone who may have listened to your input for all of 2007 and early 2008 as they would still be upside down right now. Anybody that could read Thursday morning would have figured a short-term price increase from the herd mentality.

      This is a board for ideas, not advice. I have maintained and still maintain that the full effect of the credit crunch will not appear in ESI until the second quarter since Sallie Mae funding ended only 2/28/08. For sure, we will know where this story will go by the end of the year.

      I don't need any lectures from you or anyone else on financial statements or accounting, thankyou. By the way, did you burn lots of gasoline this weekend? I hope so, I'm long PBR.

    • 2o point run in a week, shorts destroyed stock hasn't seen a down day in a week.

    • Response Part 1

      I read financial statements and analyze them frequently. The fact is, plenty of people predicted the fall in stock prices in for-profit education companies, along with alot of other companies as the economy slows. They may not have posted here, but the analyst articles are out there. The other fact is, ESI's equity has decreased by more than 50% in less than 1.5 years from $90 million to $43 million. I completely understand the gross down effect that buying treasury shares has on the balance sheet. I have undergraduate degrees in finance and a masters in accountancy. Management’s decision to use the proceeds from its credit facility and free cash flow from the past two years to buy open shares has hurt its equity position in the face of a decreasing market since January.

      Buying back some shares is a prudent management practice. However, ESI management made a conscious decision to go overboard and it has hurt them. Had they not bought back SO many shares, they would be sitting on more cash and higher equity position.

      So, if the equity keeps decreasing, it will be forced to have a secondary offering to avoid having its liabilities exceed its assets as the company is now addicted to expansion. Then your precious shares will be diluted. Even if they raised $300 million, the shares would be diluted less than 10%, which is not bad, but would make them look alot more solid. Since ESI does not pay a dividend, it wouldn't cost them anything and would save them the interest paid on the credit facility. You won’t be double-taxed if the Company doesn’t pay dividends, which ESI does not have excess cash laying around to pay anyway. Buying back shares is done by alot of companies, but not the extreme extent that ESI has, and it has hurt them.

      If you care, the ave. buy price was around $99 in 2007, and $83 in 2008. And if you know your accounting rules, instead of a secondary offering, if they just re-issue some of the treasury shares on the open market over a period of time, they will incur a recognized loss that will be transferred from treasury shares to retained earnings.

    • I think if ESI were a retail seller of goods then the "same store sales" model which you have brought to bare may move analysts. But they don't sell shoes and socks they educate people. I always thought small classes and close relationships with the teaching staff ment something in the educational field. Oh well.
      Growth by expanding the number of campuses is the best way to grow in education. Wouldn't be surprised if thats how other for profits do it.

      • 2 Replies to are_you_ready_skidaddy
      • Other for profits do it by increasing student base to justify additional campuses. ESI is simply blowing smoke up everyone's skirts. Any reasonsing why Modany took Champagne's place? Hint: Modany is no educator.

        I think the stock price drop today is a beginning of things to come. ITT is at a crossroad where it must adapt and survive or continue and wither. I believe based on the stock price history, the later of the two has been chosen by Modany.

        Throughout the rough times aloisjjohnson remains dealingwithimpotency

      • don't kid yourself, this outfit is selling diplomas at a high price. There are numerous instances of teachers walking out during tests and kids cheating off each other. Even when the instructor finds it they are supposed to look the other way. Many students, graduates and former instructors have stated this occurs regularly. Read all the other ITT boards out there. If this happened even once at a not-for-profit education school, the students would get an "F" for the course, be expelled and the teachers fired. That's the difference.

        ESI is an education retailer. It will sell it's high-priced products to anyone who can get a loan. Plain and simple,

    • do not trust aatiles ... I sold my ESI earlier for loss by believing him...

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