ITT's youthful CEO has large shoes to fill

June 4, 2007

If you didn't know Kevin Modany ran ITT Educational Services Inc., you might think he was one of its 50,000 students. A young-looking 40-year-old, Modany carries an iPod and downloads drum solo videos from YouTube.

But when Modany switches gears and talks about ITT's 35-percent increase in first-quarter profit, or the 70-percent increase in its stock price this year, he comes across as a savvy CEO confident of his ability to take the post-secondary-education provider to even greater heights.

That's a lofty goal considering his predecessor, Rene Champagne, tripled the company's revenue over the last 10 years. Since Champagne took ITT Educational public at the end of 1994, shares have soared more than 4,900 percent, ballooning the company's market value to $4.6 billion.

Industry watchers say Modany's biggest challenge may be continuing the rapid growth without lowering the quality of its programs.

The company also must navigate a regulatory minefield. The federal financial aid program provides more than half of ITT's revenue. Continued participation hinges on complying with the program's complex rules. The company also must remain in good stead with education accreditation agencies.

Those who know Modany, who succeeded Champagne when he retired in April, say he has the drive and energy to take the company past $1 billion in annual revenue. Last year, ITT's revenue topped $750 million.

"I get e-mails from Kevin at 5 in the morning, at midnight," said Harris Miller, CEO of the Washington, D.C.-based Career College Association and an ITT board member from 1999 to 2006.

Champagne said Modany was being groomed for bigger things from the time he joined ITT as director of finance in 2002.

"Kevin had a unique blend that combined the financial expertise we were looking for, as well as some operational experience that told us maybe he had some longer-term potential to bring him up the ladder," Champagne said.

"Within six months, he was the understudy to the existing CFO," Champagne recalled. Two years later, he became president and chief operating officer. After another two years, he landed the top job.

Modany, who carries an unassuming air of confidence, says he's done nothing alone. He credits the staff that already was in place for many of the company's achievements.

Still, "You make your own luck," Modany said, sitting in his tidy office adorned with family photos as well as Pittsburgh Steelers and Indianapolis Colts memorabilia. Modany had lived in Pittsburgh his entire life before relocating here to work for ITT.

Not just a passive sports fan, Monday has run the Indianapolis Life 500 Festival Mini-Marathon each year since he's been here.

He said he learned the value of hard work at a young age helping with his family's construction business. From digging holes to project management, Modany learned a lot about business. He also figured out that he didn't particularly care for the construction industry. But, those early years, Modany said, made it possible for him to identify with ITT students, who typically work full time as they earn a degree.

Company clicking

Analysts say one reason the company has prospered is by keeping a tight focus on the needs of employers.

"When you look at other for-profit schools, their performance is explainable by their curriculum," said Mark Hughes, an analyst with SunTrust Robinson Humphrey. "ITT has a better curriculum. The more male-oriented programs, like drafting and electronics, are more in favor these days."

That's not happenstance. Advisory committees meet with employers nationally to determine job demand, Modany said.

ITT's for-profit competition has been all over the map in terms of performance. Some, like Illinois-based Devry Inc., also are prospering. But others have become ensnared in investigations into whether they made false reports to the U.S. Department of Education or other regulators.

"ITT has been an industry leader for many years, continually surpassing its competitors," said Alex Paris, an analyst with Barrington Research. "And that gap is widening even, partly because of stumbling by their peers."

ITT knows what it's like to have investigators swarming. On a chilly morning in early 2004, federal officials converged on the company's Carmel headquarters and some of its schools to seize records.

The probe into whether ITT falsified student records lasted 16 months. The company racked up $330 million in expenses conducting its own inquiry and working with authorities. Ultimately, federal investigators found no wrongdoing.

Getting top job

Modany wasn't always Champagne's heir apparent. Omer Waddles was ITT's No. 2 executive until he quit in July 2004 to join a New York-based private equity fund.

"At the time, Kevin was still a little wet behind the ears," said Miller, the former ITT board member. "I wasn't sure he had quite enough vision being so young. But at the end of the day, without exception, Kevin was the best person to become president."

After Champagne named Modany president, "he turned over lots of duties and responsibilities so the board could watch Kevin work," Miller said. "You could see Kevin's readiness during just the first few meetings. ... He could look at things granularly, but also see the big picture."

Modany, for instance, helped refine the company's hybrid model of instruction--which combines one online class with two taught in the classroom--to improve student retention. Analysts call the hybrid program a key part of the company's success.

Modany is thrilled to be leading the charge as the company continues to grow. He said he's been dreaming of an opportunity like this since he was a youngster.

"I wanted to run a large, public company," he said. "The day I stop having fun at it is the day I go home."

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