Nat'l Univ of Natural Medicine (OR) Financial Health & Viability Review for Colleges & Communities

Welcome back to the College Financial Health Show with Matt Hendricks and Gary Stocker, where each week we look at the financial health and viability of two private colleges in the United States. And Dr. Hendricks, before we get started today, congratulations, this is our first anniversary. We've been doing this show every Tuesday without fail, I think, for the first year, and we've reviewed the financial health and viability of some 130 private colleges. And Matt, I'll give you my observation. I don't have to look for colleges to put on the show. We get requests all the time, and our list now is into September sometime, I believe, for colleges to show. That's fascinating. And we've had 50,000 hits to the YouTube channel, not all of them for the show, but it's fascinating to see how quickly this has caught on. What's your observation in the first year?

No, it's the same. I mean, I kind of expected we would get a lot of, uh, I don't know, support and people watching the show, also some pushback. I guess one of the things that, like, looking back on this whole year, over 100 shows, one is I'm like amazed that we did 100 shows, 100 schools, not 100 shows, 100 schools. That's a lot. Another is that I feel like this, the show's evolved a little bit. Initially we started, at least my focus was more on like sort of getting the word out about schools that are struggling financially because it seems to be one of the big hurdles, right? It's a lot of schools are in denial or they just hide it or whatever. And I feel like folks should know that are at these places that they're in serious trouble and they should know it early. But it has sort of evolved from doing just that to more about also how can we point to things that could help the schools. So yeah, part of that was just kind of user feedback because we do have tools that are quite useful, of course, for identifying schools that are in trouble, but also things they might do to fix their budgets. Right. So. I like that evolution of the show. Yeah, all the requests are a little bit, a little bit surprising to me, but it just, it goes to show you that, you know, there's a lot of, there's an information gap, right? And we're trying to fill it and there's a demand for that and we'll keep doing it. And, and I've enjoyed doing it this entire year.

Dr. Hendricks, what do you have for us today?

We have the National University of Natural Medicine in Oregon. All right, I'll put it up here. Okay. So I don't know much about this other than what I'm about to learn about their financials, the school. But I'm going to focus in on financials, which they have lots of negative net income here. But again, it's good to be in the habit of checking if this is operating versus nonoperating. It's not always broken out. And I double-checked theirs before the show and I'll show you how I see this. They have no non-operating section in their statement of activities, which happens a lot with some of these sort of smaller schools. But this number is what I'm showing on the dashboard, but it's not strictly operating. It could be non-operating things in here. So it's not ideal. What ideally we'll check then, if we don't break out operating versus non-operating, I'll go down to the cash flow statement. Which has to break out operating versus non-operating. And they do, right? Always net cash used in operating activities. That's your next best place to look. And they have a positive net cash from operating activities, although it's problematic in their case because remember, net cash from operating activities is going to pull out depreciation, which you need to cover that, right? You need to have— you need to generate enough cash to cover that as well. And you can see the depreciation number that's pulled out here, $276,000, which is tiny. Can't believe this is in thousands. They must not have very many buildings, I guess. But the key here thing to know is their net income or net cash from operating activities is not bigger than this depreciation value, which means that if they did the accounting the correct way with The operating activities pulled out probably means they would have a negative net income from operating activities because this would be the difference, the main difference, right? They're adding that back in as an expense. What's the conclusion? They have, they have net income deficits. They're not covering their depreciation. And so yeah, we have some indications of financial stress here. You can see that at least 2 years here, this is negative. So they don't even have cash coming from operations. Let alone to cover depreciation, but also just not covering payroll and everything else. So yeah, some serious financial red flags here. So let's take a look at the rest, how that's sort of playing out with their CapEx spend and their endowment and unrestricted net assets and stuff like that. So let's start with unrestricted net assets. And yeah, schools that struggle, they just don't have— they're not putting away money to sort of grow their unrestricted net assets. And that's certainly the case here. It's only up 7%. Normal is to be up 40%, 39% or so.

Um, so yeah, that's dangerously close to that red line of closed colleges. Yeah.

And it's like, look at, yeah, they only have $11 million in unrestricted net assets. You see how like all these schools that closed, it's a huge problem because they just have no— where you get your runway to start, if you're in financial distress, your runway really comes from these unrestricted net assets. And they don't have a lot, right? In fact, less than schools right at the end of their lives. So they can't afford to mess up, right? And they're— it appears they already are running deficits. So this— they don't have— they can't do that very long, right? This— you'll just run out of cash really fast. So that's a big red flag, but they've never had a lot of assets. But, you know, even just makes it more important to run balanced budget. That's depreciation and all that. And you can see it playing out here with their endowments. Again, schools that struggle tend to pull too much money out of their endowments, and it's probably the case here. They're only up 12%, should be up 59%. Uh, let's take a look at the issues here. I think there were 2 issues if I remember right. Yeah, 2 issues. One is the appropriations are quite large. For most years, uh, 7%, 6%, 6%, and then a normal one. Remember, normal is about 4.5% draw. Um, so that's part of it. And the other part was their contributions are like zero almost, huh? Um, except for this one year where they got a really big gift, it looks like. Yeah, not ideal. Uh, you have to look at the donor support, what kind of alumni support they have, because this is— this money should be coming into the endowment from restricted gifts that are expected for the endowment. I'm just not getting a lot of them. So, uh, something to flag there. And again, just like the previous school we looked at, check out the, the advancement office. What's the fundraising strategy? What's the cost? That kind of stuff. All right, let me move into— let's see— CapEx. What do you suppose this CapEx is going to look like for a financially stressed school?

I'm guessing not a good number.

Yeah, only above— never above 1. Never above 1, which I guess explains why their depreciation is so low because the property and equipment is probably worth very little.

Oh, yeah.

Yeah, they don't—

wow. They must have sold something.

I need to flag check these numbers, but let's double-check the raw values here just really quick. So we have $7 million in buildings. This is bizarre. So is this like online pretty much at this point, or just running and building?

Don't know the answer to that, man.

Repaired forever, uh, or maintained, really? I was gonna check that financial statement really quick. Uh, by the way, my app can be wrong sometimes, right? The AI does the best it can to pull numbers, but sometimes can be wrong. No, that's right, $6.7 million.

Uh, yeah, okay, let me check to see if it's online while you do the rest of the—

so is it? Yeah, it must have a lot of online because I think they're enrollments. Let me just double-check enrollments. I mean, $6 million is like, what, one or two buildings? Um, so students, okay, they only have 400 students, so it's possible that, uh, yeah, I guess it's possible they just have like, uh, one or two buildings. Okay. All right, let's take a look at some things, or what, what's happening on the revenue side. So clearly it's financial distress. Capital stock is like going to zero. Unrestricted net assets not growing, not great donor support, endowment's not growing. We have deficits, a lot of things going on here on the financial part. But let's see what we can uncover in terms of potential strategies. The Fix this. Net— oh, I went into net tuition revenue by accident, but wow. Yeah, net tuition revenue is down 41%. So again, note the track versus the red line. This is worse than schools that have already closed. Okay, so clearly serious problems on the revenue side, and it does not appear to be at all related to price. In fact, the price is about— it's pretty high, $26K on average. $27 used to be in 2016. Not a lot of change there. So the main reason their net tuition revenue must be falling because of enrollment. Let's go back to students again.

And Matt, they are not exclusively online. They have both face-to-face and online courses.

Yeah. Okay. So enrollment's down 37%. Although we did get this small bump from 44%. You're dealing with really small numbers now. So Uh, yeah, this, this is, uh, again, sharper decline than schools that have already closed. Doesn't look healthy on the revenue side. And again, remember, they don't have much of a runway. What was the unrestricted net assets? Was like $10 million.

Yeah.

Um, so they're gonna have to make sure their expenses fit inside of that, and they're gonna have to do it every year. They just don't have much of a runway. Operating expenses. So let's see if they're doing a good job at that. And it does appear that they're doing a good job managing expenses, down 33%. All right, expenses are down 33%. Let's see what the revenues— oh, total revenue, I didn't actually pull that up yet. Percent change. So revenue is down 35%, revenue, uh, expenses are down 33%. So they're doing a decent job of keeping pace, uh, which is good, but you can only go so long, right? Shedding students and shedding revenue. Wow. It's, yeah, it's like heading down, but they're, they're doing the management is doing a great job of keeping the expenses in line. I, I gotta applaud that.

All right.

So let's see what, what we can do. Obviously on the revenue side, I can't see much on this app. This school really does need a deep dive on the revenue side to see what's going on. What part of the funnel is the problem? I mean, one thing that I wonder about right away is the net tuition revenue. Did you guys happen to notice that? If you're following along, you got a school that it has a high price. It's $26,000 to go to the school on average just for tuition. I just wonder if they're pricing themselves out of the market, right? And they might actually do better at a lower price. I know it's counterintuitive that it doesn't. It doesn't mean— it's quite possible that they could reduce the net price, reduce the price, and actually increase their revenue. All right? You know how that works, right? You get a big impact on enrollment. It's called price elasticity of demand is really important here. It's a sort of standard concept in sort of how markets work and economics. But you get the intuition, right? Reduce your price has a massive impact on the number of people that buy your products. In this case, students brings up your total revenue, right? And I think that's what they need to inject more total revenue here, and that may require reducing the price.

So, Matt, the, Matt, the Strategic Compass that, that's available to colleges like the National University of Natural Medicine uses a peer group model. Mm-hmm. But this university is kind of unique. Can you envision a set of peers that would, that would work inside of your strategic compass?

Yeah.

Yeah.

I usually, I'll tailor it. I tailor it with the, with the institution, but we would just find other schools in this case, probably that are offering similar programs, if not the same. And, similar size resources, stuff like that. And I mean, you know, it's also worth, we, we usually use the, we do a machine learning algorithm to find peers. and then we also will submit all the apps or people, all the kids that were offered enrollment at your school. We can track where they actually went, right? I'm guessing a lot of them didn't go to this school. They went somewhere else, and we can find out where they went from the National Student Clearinghouse, and we call that a cross-app peer set, and it could reveal a lot about what's happening. If there's a different school offering similar programs that's just priced lower, there's your smoking gun, probably, right? You need to figure out what's happening.

So if you're at, if you're at the national university and, and you want to see exactly what's going on, drop me a note. I'll have my, my contact information in the show notes and we'll set up a demo to show you what this could do for you, Matt.

Yeah, it's incredibly useful. I just had a client, um, that is a doctoral university and there's a bachelor's level university in their same town and they never really recognized that other school as being a competitor, it sounds like. But they are. 20% of that bachelor school's class that just came in applied for the doctoral school but didn't enroll there. All right. And it was mind-blowing, I think, to the folks at that school that, wow, 20% of their freshman class actually, we had a, we could have enrolled them on our school, right? Those are like serious cross competitors that Again, you learn from the data that they, they just weren't really, uh, sort of cognizant of that sort of cross-competition that was happening, especially at the bachelor level. So I know the school's done pretty well on the expense side. I think there, there could be some opportunities on this pricing strategy, and that may be the most promising thing they can do. But they've done great on the expense side to keep things in line and keep things going. But I will show them there could be more things to look at here. Um, Starting with staffing, there, there could be something with these programs they're offering. I'm not sure how they offer this, but I'll just show you. We don't see this very often, Gary, but they have more staff than they do students, right? And what's probably happening here, these are the number of W-2 employees that they employ. What probably is happening is they're giving all of their students jobs on campus, or most of them, right? So they got a lot of— so they're both students and employees. So at the end of the day, what we could kind of think about is what you're getting, your net revenue per student may not be all that high because you're actually turning around and paying them as employees. And they may feel the need to like offer all the students jobs, right? Which isn't healthy for the budget. So I think they need to think about, think about the number of employees they actually need, right? And don't offer every student a job if that's what's happening right now. You just can't do it. So it's quite possible that they're just being overly generous with like work study and stuff like that. I don't know what's going on, but yeah, so really if you look at your numbers, you have more W-2s, people getting W-2s than people are paying tuition. And that's generally not going to work financially. I mean, even if you're not even paying them that much, it's not going to work. So that's that contractor count. So this could actually be part of the problem as well. Uh, number of contractors paid over $100K. I know I don't say this very often, but it's usually the opposite.

Yeah.

It was zero contracts over $100K. Um, so it's quite possible that they're just underutilizing, underutilizing vendors, um, which could be part of their issue with the overstaffing. There's probably an optimal mix that is not like this. Optimal mix is usually a mix of both vendors and in-house staff, not only in-house staff or not only vendors, right? So you've got some mix in the middle and they're clearly on the one edge, right? That's probably not optimal.

I've never seen zero before.

That's— No. Well, you do sometimes, but, you know, you gotta keep in mind these are contracts over $100K too. So $100,000 is a lot of money to this school. Um, so it's possible they have vendors, they're just lower costs. But, um, I'd look really closely at that. There's maybe optimization to be done there to outsource some stuff, reduce the W-2 staff, and save a bunch of money. Uh, a couple other things, and I'll hand it off to Gary. So insurance didn't look right, and yeah, it's in the 75th percentile for how much revenue they have. So per student's quite high as well. Some of that could be a product of just being a really small school with not a lot of revenue, but I don't know, there's, there could be some quirky things there, maybe money to be saved. I would look, it's probably worth your time. Okay, this is the $990 version. Occupancy per student is again way off the chart here. And what, what, what appeared to be, to be happening, it looked like they maybe are leasing some buildings and again, they're really small. So that's going to explode the expenses relative to their revenue and size. So. So it could be a product too of the fact that the buildings are just maybe not being maintained. I don't know. But I'll leave it at that and kick it back to you, Gary. Stuff to look at for them, definitely the staffing and contractor side again.

So when we look at the 2025 College Viability App for National University, I'm going to start off with tuition and fees today. I didn't find a lot of IPEDS data on them, Matt, so I'm not going to have much to show on the College Viability App. But they are down $7 million, so almost $7.5 million down in tuition fee revenue. And that essentially reflects what you said a couple of minutes ago as well. But I'll just show, because you know I always like to do graduation rates, I'll show both the 4-year, not listed, and the 6-year, not listed. Take that bay off. And then I'm going to show the graduate enrollment. So the graduate enrollment at the National Youth Center is down About 50%, about 40%. And again, that reflects what you're talking about as well. This is a college in trouble. They have substantial issues. And even on the College Majors Completion app, of all the 64 majors that I have, only one fit their bill. And by, by name, they're offering that different things than most colleges offer, so that doesn't show up. But I want to take this time today just to show another tool that's out there, a tool that released over the weekend. And it's not College Viability, it's My College Viability. And it's a tool that parents design for students and their families to take a look at any of the 1,400+ private colleges in the country and get a free report on that college. So I'm using this example, Meredith College, which is the show we did earlier, and all you do is type in the college name, request a free report, and it will ask you some questions and send that report to your email address. And here's what it looks like. Here's the college, Meredith. Here's some basic information. And then there's all sorts of additional data available. Valuability Val is the little icon we created to represent what's going on, to kind of get a cute explanation of what's going on with college finances. And you can see all of this data below, and I'm not going to spend time on that, but we show you how these colleges compare, compare based on the other 1,400 colleges in the country. And it's a free tool. Of course, there's a paid one as well. But Matt, I wanted to close with that today because, as you and I know, there's two ends to this college financial health market. You and I focus almost exclusively on college leaders, boards of trustees, bankers, bondholders, those kind of folks, a slightly lesser extent on faculty. And you know for a fact that I've worked for almost 6 years to try and get a product out the door for students and their families. And this is the first, even though I had an app version, for students and families. This is a much more thorough, automated process. And, and Matt, as you've heard me say before, if students and families want to make sure the colleges they are considering are financially healthy, this is a free report. And take that report on your college visit. Ask them why their graduation rates are so low. Ask them why their finances are so poor. And, and soon we'll have actually a dedicated PDF you can take with questions specific to that university. National University of Natural Medicine, the tools are available. Reach out to me if you want to set something up, and either Matt and/or I will take time to show you the value it would have. Be careful, the runway does not appear to be long for your organization, and probably sooner rather than better is the best approach. So for Matt Hendricks, I'm Gary Stocker. Thanks to everybody for making time to watch the show. We'll be back soon with two more colleges for the College Financial Health Show.