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Greenberg: Earth to ITT Education

The only question you ask after listening to ITT Education’s third quarter conference call was this: What planet are these guys living on?

Never mind that the industry is going through significant changes in anticipation of new rules-of-engagement by the Education Department.

And never mind that industry leader Apollo Group (University of Phoenix) effectively swallowed a very bitter pill a week ago when it announced it had withdrawn 2011 guidance, saying the industry was in too much flux to forecast.

Nope, never mind all of that.

According to ITT CEO Kevin Modany, speaking on the call: “Based on all of the variables we see, it’s business as usual for us.”

Business as usual?

Maybe, but this is also worth noting:

  • Revenue growth of 18 percent, which was down sharply from prior quarters and back to 2008 levels.
  • New enrollments, down 3.9 percent.
  • Revenue per student, down 2.5 percent.
  • Persistence rate, down to 72.4 percent from 73.6 percent.

The company blamed the drop in new enrollments on less experienced recruiters, who were unable to “convert” prospects as more experienced recruiters would.

As for persistence: It said that while its retention of students through the first academic year improved, it has fallen in the second academic year—perhaps as higher “risk profile” get further in the program.

Brad Safalow of PAA Research, who has tracked the industry for more than 10 years, has a different view: He says the revenue slowdown and decrease in revenue per student “suggests that student churn has increased meaningfully.”

He also thinks the slowdown at ITT is a proxy for true organic growth before any changes in Education Department rules go into effect. The changes, it would appear, are a wild card—and not one that can help.

And that's assuming ITT doesn't follow the lead of Apollo and WashingtonPost's Kaplan University, which are letting students try classes, or take orientation programs, before paying a dime. (ITT also didn't say anything about doing something similar.)

My take: ITT may not be conceding that its business model has gone through a hard reset. Its numbers, I believe, suggest it’s really only a matter of time.

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