In this YouTube discussion, Gary Stocker and a colleague (Speaker B) conduct a detailed financial and operational review of Eureka College in Illinois. They identify a pattern of five consecutive years of negative net income, stagnant endowment growth, and declining operating cash flow, which the college has been covering by drawing down the endowment. Revenue has fallen roughly 20% since 2016, driven primarily by a 23% drop in net tuition revenue as enrollment shrinks and tuition pricing remains low. Expenses have risen 5% since 2016, with staffing levels remaining high relative to revenue and a sharp increase in contractor spending—seven new contracts over $100 K (about $1 M+), indicating a misalignment between staff reductions and vendor reliance. Student outcomes are poor: graduation rates hover around 40% (four‑year) and 50% (six‑year), retention has slipped 7 points over eight years, and the college holds minimal market share in most majors. Liquidity is weak, with only $2.6 M in liquid assets and $4 M in unrestricted net assets, giving an estimated runway of about five years, which the analysts deem unsustainable. The conversation concludes with recommendations: aggressively renegotiate or terminate unnecessary contracts, right‑size staff, consider raising tuition to improve revenue, and focus on controllable expense reductions to extend the college’s viability.
Chapters
Dr. Hendricks, what is the next college we're looking at today?
All right, Eureka College in Illinois as well, and I'll share my screen. I want to be laser-focused on this one. I also made a strategic compass for this school a while back and shared it with some alumni, um, and I believe some board members got a hold of it as well, or former board members. But, um, they seem to be doing some of the stuff that I saw on the strategic compass but maybe ignoring maybe the easiest path to sustainability. But let me just show you, give you the background first, actually. So I have no idea. I think they announced just recently a bunch of staff cuts, but it doesn't look to me that they have really a staffing issue. It's more of, more of the contractor side stuff. But here's the deal. So we got 1, 2, 3, 4, 5 years of negative net income. Endowment is not growing. Very well the last few years. I'm guessing we have some appropriations here that are outsized. Yes, '23 and '24 appropriations of the endowment values are too big. Um, that explains probably the slow growth in the endowment recently. Um, I think they had some net cash problems. Operating cash flow margin, yeah, some negative net cash here, negative net cash from operating. So again, how do you How do you pay the payroll when this happens? You either draw more on the endowment, just looks like what they did, or borrow or sell stuff. Right.
And we see many times where colleges in financial distress are breaking the endowment bank, piggy bank, to fund operations. And that's unsustainable, Matt. Yeah.
And so let's get a sense of what's going on here with the revenue versus expenses. So revenue is down 8% since 2016. A small bump here, which is probably artificial again because of that big endowment draw. That again, that shows up in the operating revenue. So probably really down somewhere around 20% on the revenue side. Let's take a look at expenses. Total operating expenses and then percent change since 2016. And so this is a problem, right? When your revenue is down 20%, you can't just let expenses grow, which is what's happened here. Expenses are up 5% since 2016 and in fact have surged since 2021, which is frustrating for me to see these kinds of things. All right. And so I think this clearly shows an expense problem, certainly a revenue side issue as well. But this is much more controllable than the revenue side is. Yeah. So I'll, I'll show you both, but let's take a look at net tuition revenue. I'm sure it's struggling.
Yep.
Net tuition revenue is down 23%, so that pretty much explains all of the revenue loss. Uh, question of whether it's the price versus enrollments. Looks like the price is pretty constant, right? And low. All right, again, this might be a school that can just experiment Go back and look at your data. What was your freshman class in 2020? That was the most expensive moment per student ever for them, it looks like. Check if the price impacted that freshman class. There's ways to tease that out. And you got a nice natural experiment here. It could be that they just need to bring this price back up and that will help a lot, even with a loss in enrollment. But let's take it their student body is going to be shrinking quite a bit.
Yeah. Yeah.
So they're down 22%. But again, even this growth right here doesn't really matter a whole lot if your price is low, right? On real terms, the price is probably the lowest it's ever been. So you might try a trade-off here and bring that price back up.
And again, probably like many of the other colleges, they're discounting tuition in the, in the hope that it will bring in more students. And even if it does, that revenue gain is not—
yeah, it doesn't matter. Yeah, you get more.
It's actually worse, right?
You get more students and more more expenses to, to, to serve them, right? You're better off not having more students at that low price. Uh, let's take a look at the expense side. All right. So usual stuff. Biggest expenses, of course, is staffing. So let's look at employees and they just announced a big employee cut, right?
Yeah.
And yeah, it looks like, okay. Yeah. I mean, that, that's something to do here for sure. That's relative to their revenue. Their employee count is high. and also relative to FTE, it's high. All right. So both that looks good. So yeah, I'd bring this down ideally as close to this median line as possible and they can back that number out. Just looking at the recent proposal for cuts in raw terms. Yeah, they just really haven't done much at all to address the size of the staff. Right. Even though they're— again, that's why you see the expenses going up. Right. They're just not being responsive here to what's happening on the revenue side, it looks like. But here's the biggest thing, and they may not know this, their spending on contractors for their revenue has gotten way out of control. And there's like a really tight correlation here with the net income. And I just made a post about this. I saw, notice the first year they have a negative net income is actually coinciding with this surge in vendors, right? Contractors over $100K. And in real terms, that's a 7 contractor increase. That's at least $1 million, probably much, much more. In terms of spend on contractors. And so, and in fact, they've even increased it since, right? They were at 15 in 2022. Those are really high for how big this school is, both revenue basis and FTE basis. So they may not know that. The only way you would know is by doing this, right, Gary? And this is why you need to do it.
Well, yeah, and look at the combination. We just saw a minute ago that their employee count has not gone down in the face of decreasing enrollment and their contractor count has gone up in the face of decreasing enrollment. That's a terrible mix.
That's a great point because when you see this increase in vendor contracts, you should see an almost perfect one-for-one decrease in staff, right? You're basically hiring vendors to do things that your staff would be doing, but it doesn't appear to be the case. They're just adding vendors, it looks like, that are doing more stuff. Right, but not necessarily generating revenue and or just not any of the— yeah, they're not generating more revenue and they're not displacing any of their costs. Right. So it's a problem. So my biggest piece of advice for them and look at how close this negative correlation is, you can just see like every movement here is virtually in step with what's happening with their net income. So I suspect that their biggest problem is here. Just looking at this, and that they need to go through all 15 contracts above $100K, plus all the other contracts, probably dozens that are under $100K, and just start throwing out the ones that they don't need, right? Which are probably a lot, right? So that would be my biggest piece of advice for them, and do it immediately. And then renegotiate contracts that don't look great. I wonder if they have, Actually, this is an interesting case. Let's look at their vendors. They may actually have been doing some of this, and I'll give them some props for that. So look at their food service contracts here. I think I mentioned this a couple years ago, but maybe they did take this advice. I don't know. I don't want to take credit for it. But this food service contract is very high, right? So what did they do? It looks like they renegotiated the contract. They got a new vendor. Quest food, but it's a half year, right? So they did half year still with Sodexo and then switched in the Quest. But even the sum of those is, is better.
Still the same. Yeah.
That's actually about the same, right?
About the same. Yeah.
I hope that when this is a full year, this is much lower than a million. But yeah, it'd be, it'll be interesting to see when I get there 2024. Maybe I was giving them too much credit, but There's got to be a reason they switched here. Hopefully it's because they saved some money by making this switch. So keep an eye on that. There's some other contracts to look at here. Legal contract, what's going on there? This IT contract looks high. I would double-check that. Again, go through all the contracts. Janitorial contract doesn't look right. That looks high. Go through all of those and renegotiate and or throw out contracts you don't need. All right, I'll pass it back to you, Gary.
So let's take a look. We're going to do the sustainable, unsustainable for Eureka here in a second. Let's take a quick look at the college viability stuff, and let's take a look for Eureka College. And we'll start with graduation rates. And, you know, kind of in the same category, a little bit better than other colleges we have had before, but 42%, averaging looks like around 40% over the last 8 reported years. Not good. Let's take a look at 6-year, 'cause I noticed this as I was preparing this morning. After 6 years, Eureka College, if you look at those last 8 years worth of data, barely graduates half of their students after 6 years. After 6 years. It's a coin toss college after 6 years. I usually use that phrase, coin toss college after 4 years, and they're not even graduating much more than half their students over the last 8 reported years at a 50% rate or higher. Let's take a look at— I want to take a look at retention rate for Eureka College. And again, it's, it's not plummeted, but it's gone down. So clearly students are not sticking around. Our retention is down 7 points over the last 8 reported years. And I also want to take a look at institutional grants because we saw that low price. And we're going to look at institutional grants, the unfunded version. Matt, you and I know that as merit aid and most scholarships. And interestingly I did notice this when I did the work earlier this morning. Eureka doesn't even report the data that will let us know how much of their tuition, how many weeks they're offering. And maybe it's a data entry error, maybe, but you've heard me say before and I'll say again, if a college can't even enter, submit the data needed to do these comparisons, to me, Matt, that's a red flag in and of itself. And then lastly, let's take a look at tuition and fees, and this is going to be down, it's down about $1.8 million. Over the last 8 reported years, from $8 million down to $6.5 million. Again, if you and I are running a coffee shop, Matt, we don't want our revenue— maybe our revenue goes down from one year to the next, but we don't want it to go down consistently. And it's down 1, 2, 3, 4, 5 the last 8 years. Not a good trend at all. You know what we're going to see when we do the internal market share for Eureka College? Again, we see business as a common high-volume one. A little bit high early on, but it's shrunk down to about 26% of their total volume. You can see the numbers. They've got, you know, 3 or 4 majors that have some decent volume but not great. But look at all these again, trying to be everything to everybody kind of approach that Eureka College has, and all of these really low major completions. I've said time and time again, if it's, if it's, if it's, if it's not a significant contributor, why are you in that business? And then we'll look at the market share for Eureka College. And do I have them started yet? Eureka College, this is external market share from the 2025 College Majors Completion App. And Eureka College for accounting-related services has half a percent of the market share. Again, I ask this all the time, what are you doing in that business with such a small market share? And we can look at that. There's 64-some-odd majors. I'll grab another one just for sake of example. I think I had sociology up. Social Work College, uh, it's not a good one for them. So with that, Matt, we have some, some rating categories. We have sustainable, we have sustainable with concerns, we have unsustainable with a, with a greater than 5-year runway, and unsustainable with a less than 5-year runway. What's your opinion on York College?
Yeah, I mean, definitely unsustainable. I'm just going to double-check how many, how much they have in assets. I'm going to do unrestricted net assets. I know you can't see my screen, but I'm just checking this real quick. Yeah, they only have $4 million in unrestricted net assets at the end of 2024. And how big was the deficit? Net cash from operating activities. So their deficit is about negative $500K. This is— and then the year before was negative $1.6.
So right around 5 years.
Yeah, maybe a short runway. They're right on the edge. Maybe, I would say.
Okay.
But that's a really rough— it could be illiquid assets. Part of that unrestricted assets, it could be buildings mostly, right? It's hard to— if you sell all your academic buildings, it's going to be hard to generate revenue still, right?
And we see that too often. Well, colleges will use their buildings for collateralize and they'll go to the bank and say, we need some more money and they have nothing left to collateralize.
And let me see if I have their liquid. Yes. Okay. Their liquid assets are $2.6 million. So, yeah, again, this is a really short runway.
Okay. All right.
That's a new thing on the dashboard, by the way. The liquid assets is the note section that has how much cash they could get within one year to cover costs. They have $2.6 million. And in terms of months of liquidity, they have 1.7 months. Which is not a lot. Normal is 4. Okay, so yeah, they're really getting scary low on liquidity.
