ITT Educational Services, Inc. (NYSE:ESI) Refutes SEC Fraud Allegations

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Dallas, Texas 07/01/2015 (Financialstrend) – ITT Educational Services, Inc. (NYSE:ESI) shrinking footprint continues to work to its advantage seen by a 10% decline in expenses in the first quarter. Profit for the quarter was up to $10.4 million or 44 cents a share thanks to a reduction in capital expenses. However, an increase in legal fees as well as provision for loan losses continues to elicit concerns

A reduction in the total footprint meant ITT Educational Services, Inc. (NYSE:ESI) had fewer employees to compensate on the earnings front as well as fewer physical locations and reduced media advertising expenses. Operating margin, as a result, more than doubled to 12% from 5.5% a year ago

Fewer Physical locations resulted in a reduction in student enrollment resulting in a 3.3% drop in revenue, which came in at $230 million. The results come on the heels of the SEC announcing fraud charges against ITT Educational Services, Inc. (NYSE:ESI) and two of its executives. The agency alleges that the company failed to disclose in entirety the financial impact of its two student loan programs that were underperforming.

SEC Allegations

According to the SEC, the two loan programs developed to provide off-balance-sheet loans during the financial crisis were under immense pressure consequently triggering the company’s guarantee obligations. ITT Educational Services, Inc. (NYSE:ESI) mislead investors according to the SEC for not announcing it faced the risk of paying hundreds of millions of dollars on its guarantees. The result was the company creating an appearance that its exposure remained limited.

ITT Educational Services, Inc. (NYSE:ESI) on its defense maintains the SEC charges were a ‘mistaken’ decision.

Despite posting impressive earnings in Q1, TheStreet rates the stock as a ‘Sell’ citing some weaknesses that could have a greater impact going forward.  A high debt management risk is a point of concern for analysts at the firm a problem compounded by a disappointing return on equity. ITT Educational Services, Inc. (NYSE:ESI) is also struggling with weak operating cash

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