Lenoir-Rhyne College (NC) Financial Health & Viability Review for Colleges & Communities

Welcome back to the College Financial Health Show with Matt Hendricks and Gary Stocker, where each week, where each week we look at the financial health and viability of two or more colleges. Dr. Matt Hendricks out of Tulsa, Oklahoma. What's the first college we're looking at today?

First college is Lenore Rhyne in, I believe, North Carolina. I didn't write that down, but, uh, we'll see in a second. I'll pull this up here. I, yep, North Carolina.

Carolina.

All right. Yeah. So you see right here right away is what we always focus in on first is netting. This is like their profit, right? Really easy language here. This is their profit. This is their profit margin specifically. So this is a negative 23% profit margin. That's far worse than most schools that have closed here, at least in this set. In 2024. 2024 is a complete disaster on paper. Let's see if we can understand more about what happened and how they might fix it. And that will be the focus of my little presentation here. You can kind of guess already at some of the things that they did. You can see their endowment on this graph is not growing normally the last couple of years. You could see it was actually had better than normal growth and up to 2022. And then since then it's been kind of flat. Okay. So what, what's happened with this school? And by the way, let me just show you how devastating this is. So they also had negative cash from operating activities is only $1.7 million, which I was kind of curious because their loss, that net income loss was $12 million loss. So really what you should see here is just the $12 million loss. Plus whatever depreciation is generally. But when you look, I won't pull it up, not really worth it, but it would have been way worse. This number would have been way, way worse. But they had some timing of cash come in. It looks like they had some receivables that were collected in 2024 but were accrued probably in the prior year. So that was a much higher than normal, like $3 million. And they also had a really high He paid cash receipt. So that could be like, I don't know what that is actually. A lot of times that's like student deposits, but yeah, it's hard to say that would be the case in this case because they, it appears their enrollment's not doing well. So I'm not sure why that would be. So yeah, basically the reason I showed you this is that they have negative cash flow and it would have been way worse than what they're actually recording. Recording here, and it probably will be if they didn't fix this next year, just because of the timing of when cash came in. Um, okay, so on the endowment growth, why is the endowment not growing? Uh, just give you, um, show you the appropriations as percent of beginning year endowment value. You see their endowment appropriation has always been a bit high, um, but they took a sharp increase in '23 and '24, which is probably explaining most, if not all, of that flattening of the growth of the endowment. Uh, so those are much high— those are too high, right? Um, they need to come back down. And, um, so really their net income loss is probably even worse than what's on paper if they have a normal draw. Um, one thing that is a little bit surprising, given the financials that we've seen so far, is that their CapEx looks good. Um, yeah, it's kind of interesting. So Yeah, CapEx is always above 1. It looks like pretty close to above 1 every year. That's great. So they're keeping up on facilities, but they definitely are starting to get to a point where these deficits are massive. So how did they end up with such a big deficit? Let's take a look at the revenue. So just operating revenues to begin with. And you can see their revenue went— it's not super dramatic in this graph, but I want to show you the dollar value and then I'll show you how dramatic it was in percentage terms in the next one. But they went from $59 million to $51 million. So an $8 million loss in revenue in one year.

In one year. Yeah.

Yeah. That's a big change, right? On a percentage basis, that's like 20% drop, right? So yeah, that's pretty harsh. So what happened? What actually were the revenue sources that fell? And I already figured this out, so I'll show you what they were. One was private gifts went from $6 million, although $6 million was really abnormal for them, but it did go from $6 million to $3.5 million, which is a big loss of revenue there. And the other one was they were still getting CARES Act money, which was the money from COVID relief. So we have unrestricted government grants. You can see they're getting all these grants here. For some reason, they're still getting COVID money in '23. I don't see that very often anymore, but I guess the timing is always different and it goes basically—

is it fair to say that's COVID funds? Is that easy enough to categorize it that way?

Yeah, it is. I double-checked because I was like, what is this? But yeah, there's a line on their endowment here that's CARES Act money in 2023. Next one. CARES Act.

Yes. Okay. Yeah.

2 million. Yeah. So yeah, they lost—

that would have been for the fiscal year '24.

Nothing in '24. They just— it went away there finally. So they have a big loss on the revenue side, about $8 million whole from one year to the next. So that's certainly painful. But it's not just that. They also had losses and expenses or growth in expenses that was not normal. So, but I'll stay focused on the revenue side first. Let's look at their their net tuition revenues. And there's also some pain here. So just in millions, they went from $29 million to $28 million. So another million lost right there. And you can see their pretty dramatic graph here for net tuition revenue changes since 2016. They were doing spectacular until COVID, right? And since then, they've been really— it appears they've been struggling and just moving toward— you can see this 4-year path, right? Probably going to keep going, right? Just unless these freshman classes get bigger, which, yeah, it's probably happening.

That's not the first time we've seen this post-COVID trend. We've seen a fair number of colleges not recovering well from that.

Yeah, it's interesting. Yeah, there could have been— it's not like there's a reduction in students, but there could have been a sharp change in preferences of where students want to go. Like some schools are really slow to adapt their strategies. I'm not saying that that's the case, but I've seen that here. It could be something else as well. For example, I've seen during, during COVID some of the most elite schools in the country went, you know, essay-free, no, no ACT, none of that. And then there are other schools that are not selective at all that just sort of missed the ball on that and just continued to require testing and everything else, and they got crushed, right? And I'd have to look more into this one, but it's possible that that happened here. Are they still charging fees? Are they in the Common App? Do they have testing requirements? They should still say no to testing requirements, no to fees, no essays, nothing like that right now, right? There's still a lot of elite schools that are not requiring any of that. Okay. So that's one thing to check. But so net tuition revenue is falling. Looks like the price is going up a bit on average, the average pay at least, maybe not exactly the price, but that doesn't seem to be the problem. So it's got to be enrollment, right? So let's take a look at their student count. Yeah.

There you go.

Yeah. And so here's an interesting thing too. Like they started losing So I got to get this right. Fiscal year 2021. They shouldn't have lost students this year already. It would have been— this was COVID year from here to here. So really they started losing students before COVID That's what this timing looks like. So that could be a key clue though to go back. You need to go back actually to the year before COVID when they started sort of losing students, although accelerated here with COVID Yeah.

And for those, and for those folks from Lenore Ryan watching this, the Strategic Compass that's also available through Perspective Data Science would help them identify why those enrollment declines are taking place based on all sorts of factors, right, Matt?

Yeah. Yeah. Yeah. And honestly, the, some of the more recent Strategic Compass I've been doing, been a really interesting theme. It's not at all the freshman class, right? These, these freshman classes are bigger than normal. I, the schools I've been working with recently. The issue that they've had, which may not be on their radar at all, is that their transfers went to almost zero, right? They lost like all their transfers and never didn't seem to adjust to that, or maybe not recognizing how much of an impact that's going to have. So don't forget about your transfers. That's why I'm bringing that up. That's really important to look at your transfers, not just the freshman class. All right, so a lot of things to look at here, but yeah, clearly enrollment's down when it was up 25% in 2020. So that's painful. On top of that, lost a lot of gift revenue, lost their CARES Act money. So a lot of things happening on the revenue side, but it's also on the expense side that they've got issues. So operating expense changes. And so this is the percentage change in operating expenses. And so you would expect, you know, when things are kind of going goes haywire for them on the revenue side, that expenses should follow, in fact, even lead those changes. But they don't seem to be doing that very well in this case, which is a big problem. Again, suggests problem with budgeting where you're just not responsive to what's happening on the revenue side and sort of setting your budget. You just keep doing what you've always been doing, maybe, and that's not the best way to go about it. So yeah, you've got faster than normal expense growth even though the revenues— just to show you again, the operating revenues.

So bringing that up, those expenses are close to the 75th percentile mark. Yeah, some of the worst and some of the highest in the country.

Yeah. So expenses are up 37% since 2016. All right. Remember that 37% operating revenue. And revenue is up 22%. So you got a big gap that you're just creating, growing revenue faster than— or growing expenses faster than revenues, especially the last couple of years here. This last year is really a big one. Okay, so what can they do on the expense side? Actually, the staff looks okay, although I'll skip that part. I did go through a lot of this stuff, but the officer compensation does not look okay. So I'll show you the officer compensation. And this is from the 990s if you're wondering where I get this stuff. So, right, officer compensation per 100 or per $1 million in revenue is typically about $23,000, $24,000, and they're at $34,000. So this is something that's been high for a long time, it looks like here. On a per-student basis, it's a little high. But they can't be paid based on per student, right? They gotta be paid based on the revenue. Right? So you got to right-size your sort of administration to be sort of in the realm of what your revenue is ideally. And yeah, this is quite high. So I would look really closely at the officer numbers and I think I do have numbers, but they're not in here. I should have put those in here. Do that next time, next update. But yeah, look at, look at the number of officers and actually what they're getting paid on average. Could find some top heaviness potentially there. Yeah. Also, all employees. So the employee— so this is actually an important point. I suspect there's compensation issues because, again, there's a sharp increase here. This is, this is higher than normal. These are all other employees, non-officer, non-director employee salaries and wages. I mean, all of a sudden they're higher than normal for their revenue. Um, which coupled with the other graph, which I can show you, their employee count, their employee count looks about right. Yeah, a little high, but I suspect it's just higher than normal compensation potentially, or just a lot of full-time staff, not a lot of part-time staff. That's when you can usually see this kind of pattern where the numbers look fairly decent, but the spending is high, it's either compensation or the type of employees are off, right? So it could be some top heaviness there. But some other things that are pretty shocking here on the expense side. And again, you would only know this if you just did this analysis. There's nothing really against them. Nobody else is doing this, right? I mean, I do this with my clients, but so this is the stuff that we do. So IT spends I'll go, let me just go to show you this whole list here. So we've got IT, information technology expenses. This, this is something like right away this needs to be flagged. It's been high for a long time. So they wouldn't even catch it just by really looking at their own numbers, right? This is really off the charts. So IT spend, why is that so high? Insurance spend also off the charts.

And these comparisons are all across about 1,300 other private colleges, right?

Yeah. Travel spend off the charts. Their vendor spend appears to be another issue.

Somebody needs to take away the checkbook.

Yeah, they're just kind of getting carried away, it looks like, on other stuff. I mean, this is certainly what it looks like to me. I could be wrong, but this is their vendor spend. This doesn't look good. It's always way higher than normal. And, you know, maybe they can be high, but when you couple this with a big deficit, you just can't, right? You can't do it. So you gotta sort of stay in your budget constraint and look at these contracts. And I'll give you a hint on some of them right away. So food service looks like one of them. Food service. So per FTE, food service is now higher than normal. And relative to their revenue, quite high. All right, so that's one to look at. And then there's some others here I'll show you real quick and then I'll hang up on this one. So what was this? Lenore?

Lenore, yeah.

Okay, so here is what I'm looking to get at here is anything with color, right? These colors indicate this is high.

Oh, is that good?

High for their size of FCE and also high for their revenue. So this janitorial contract doesn't look good. It's $6 million for an only 2,000-student school. That's pretty high. As indicated by this color, it's like, I guess we're in this category of about a quarter standard deviation higher than normal. Per FTE and about a half standard deviation higher than normal per revenue. Same with their food service contract, about a half standard deviation. Here's the insurance one. So there's a lot of, Double confirmations on these things, right? I just said insurance looked terrible, right? Looked high. Yeah. And here it is. Here's the contract. This is a $1.2 million insurance contract. Like, what is this all about? You don't see this very often in here, to be honest. So what's that all about? I said IT spend was high, right? Here's IT. Although it's not flagged, you still need to ask questions about this, right? There's marketing spends. About $500K. That's pretty high, actually, but still not flagged. But yeah, lots of stuff to look at. And on top of this, they've got a lot of contracts, right? Other than these, it's not just these. I don't think I actually— let's do that one more thing here. Let's check the number and then I'll pass it back to you. Oops. I can spell contracts. Yeah, the number of contracts is high, so they need to check all of them really is my recommendation. In all these cases, they have 25 contracts that are over $100K. right? Including some of those big ones we just talked about.

Yeah.

Uh, they need to go through all those, including all the ones that—

they've been consistently above average for the last 8 years.

Yeah. It's been, it's been higher than normal. So yeah, this happens a lot. Schools just kind of like benchmark against themselves over time. Like, hey, they're looking, oh, we're doing pretty good compared to 2022. Right. But still, and when you have these other lines, it kind of puts it into perspective. Right. It's still quite high. So they can save some money there and probably balance their budget on that side. And also looking at the staffing stuff that I mentioned.

There you go. You know, we, we've talked about this so many times on the show and I'm going to do it again because we probably have a new audience with the folks from Lenore Rimes and their competitors looking at this. It's the comparisons that matter. And Matt, I know I'm preaching to the choir right now, but when it's, you can't look at your, in this day and age when data is so available, You just can't look at your own internal data. You've got to look at comparisons. And if you're Lenore Ryan or any of the other colleges that we've done, it's the same message. Comparing yourself to yourself just doesn't get it done in the 21st century. And what we have done here and what Matt has done at Perspective Data Science is given you comparisons. We're pulling your actual financial statements. It's your data. It's stuff you submitted through your audited financial statements. We're not aware of anybody else doing that. IPEDS doesn't get it done. Uh, 990s doesn't get it done by itself. You need those audited financial statements. And this tool that's available. And again, before I show briefly my stuff, if you're at Lenore Ryan, reach out. Um, I'll have my contact information in the show notes, and we can set up a private demo of not only the Advanced Compass, but Matt briefly referenced the Strategic Compass as well. And we'll show you what these tools can do, because the trend is not good for this college, and, and you want to really be careful with that. And having said that, Matt, what should I look at first when I bring up my screen?

Probably graduation rates is where we're going.

Graduation rates. Let's take a look at graduation rates. And we're looking at graduation rates for Lenore Rhyne University. And Matt showed some expense issues, Matt showed some finance issues, and Dr. Hendricks, I'm going to show some graduation rate issues. The folks at Lenore Rhyne, in addition to their revenue issues, in addition to their expense issues, they're not graduating students. If you look across the last 8 reported years, and this is IPEDS data straight from Lenore Rhyne, Averaging is less than 40%. So for every 100 students that started at Lenore Ryan 4 years ago, not even 40 of them graduate in 4 years. And I think I did a, looked at 6-year graduation rates. I don't think they're anything to write home about either, Matt. After 6 years, I don't know, Matt, I'm not doing the math in my head, but I don't think they get even to a 50% average in 6 years. And again, you know, Matt teases me, I tease myself about this. Colleges are paid to graduate students. They're not paid just to have students take courses, and Lenore Ryan is not getting students graduated. If you've got some pushback on that, happy to share that with you at any time, any way that you want to. Let's take a look at retention. Is something that we probably need to add to the Advance Compass sometime. But look at this, this is— it's not a fabulous number, but it's a 70% kind of number. There's certainly a lot worse. So in the second year Out of 100 students who start out the Norine, 70 return for the second year. Not awful, but not good. You can see another college I'm going to be talking about a little bit later has a much higher number. And the last thing I want to look at here is I want to look at unfunded institutional grants. And Matt, you and I know that to be merit aid and most scholarships are unfunded. It's not actual money transferring for a student's account. It's just a discount, just like you get for cars, computers, and cars, computers, watches, and other things. And the NORRINE in 2016, they were about 23 million. In 2023, the last year reported data, they were over 35 million, up 12 million, a million and a half per year. They're giving away the store. This is probably part of the revenue issue, Matt. They're giving away the store to get students in the door, and not many of those students are graduating, Dr. Hendricks. And so when you talk about colleges, and we, we do individual shows for one college at a time. And then O'Reilly is one that we're going to categorize, Matt, as it probably has a little bit of a runway, but not much of a runway to fix these things. Is that fair?

Well, yeah, not with that huge deficit. Like, it was really big, right? It was, just to put it into perspective again, they had a $12 million loss on only $50 million in revenue. So that gets you to a 24% negative net income loss. So significant.

So again, if you're looking for help and you're at Lenore Rhyne, whether you're administration, board, faculty, community leaders, students, families, you know, my contact information will be in there. I'll coordinate a demo for you of what you— a custom demo, private demo for you of the Advanced Compass and the Strategic Compass as appropriate. And maybe it's a tool that can help you out. So for Matt Hendricks, I'm Gary Stocker. We'll be back with another episode of the College Financial Health Show Soon.