Springfield College MA: The College Financial Health Show

We'll start with Springfield College in Massachusetts. And starting out, the school does have some financial stress, it appears. 3 consecutive years of negative net income. And actually, if you go back before COVID they had a negative net income in 2020 and then a positive in 2021. That's probably the COVID relief just helping them out there. But we're at like 11% negative net income margin in fiscal year 2024. Um, and if we look at net cash, um, they also went negative on net cash from operating activities, which is a huge problem. Um, because that, again, if you've seen earlier shows, we saw a lot of really financially stressed schools initially when we were doing the show. When you have a negative net cash from operating activities, including your endowment draws, which the school does— I verified that— it means you got to sell assets to pay payroll or draw down your cash reserves or sell investments. Right. I guess.

And their only bump looks like a post-COVID bump from the Fed.

Yeah. Yeah. So this is a problem. And I'm sure I mean, I hope the folks in at the schools, uh, are, uh, in tune with what's happening here. And negative net cash from operating activities is very bad. Um, I double-checked the, the way they were able to cover that last year. Looked like they had a 3— so they have a negative cash deficit here of op— from operations of about $4.5 million. They got— they did an extra large draw on their endowment, and I think you might have saw that initially here, but this is a bigger than normal endowment draw. Again, the median is 4.4%. This is a 5.2. It's not huge. It's like a million-dollar extra draw.

I think we have seen bigger.

Yeah, much bigger. Last week was probably the biggest we've ever seen in consecutive years for like a decade. So that was part of it. They also had a big drawdown in cash. Probably can see it here. Yeah, it went from $6.7 million cash on hand to $3 million. So there's the other almost $4 million that they needed to cover expenses. So roughly there's some other nuances there, but yeah, that's not good. So why are they in this situation? Let's take a look at it. Again, breaking it down as a revenue side or a cost side. So I'll show you operating revenues. You know, this, this is the school that probably needs the most work out of the 3 that we're going to discuss today. But you can see this is their unrestricted operating revenue since 2016. It's down 17%. So clearly that's going to be an issue.

And look at that red line. What's that red line mean?

Yeah, like in the red line, our school's a set of 9 schools that have already closed, and they're sort of following that same track here. The difference is Springfield has a fairly large endowment. I believe it's like $100 million. Let's check that quick. Uh, I don't want to say stuff that's not true, uh, just off of memory. Yeah, $103 million, right? So, um, the expense part— keep this on the same graph. So again, revenue is down 16 0.8% and expenses are up 4%. So you can see how that's creating that big deficit that they have.

And we see that week after week after week.

Yeah. So, I mean, obviously this is super painful to have your revenues down, but really, you know, you have to keep your expenses in line with that. As sad as it is, otherwise you end up with big deficits like what they are facing right now and spending down your endowment. Yeah, and they, you know, they already started doing that. It could get worse. So it's something that will need to be fixed. Let's focus on the revenue side and see what's happening there, why the revenue is down so much. So starting with net tuition revenue, I'm just looking at the change in net tuition revenue since 2016. And this is their big problem. It appears it's down 29%. Ouch. Probably explaining almost all of, if not all of the loss in operating revenue. And so the question is, why is net tuition revenue down so much? Let's take a look at enrollments. So again, it can go down if you have fewer, it's price times quantity, right? So it can be price effects or enrollment effects, which is the quantity part, or both. So their enrollment's down 9%. 9.87%. And remember, net tuition revenue, what did I just say, was down like 30%? Yeah, 30%. So what's definitely going to see here, and I'm going to show you in a second, is you don't lose 30% of your net tuition revenue by only losing 9.7% of your students. Has to be a price effect mostly here. And let's take a look at that. We can see that here.

I want to bring that up, Matt. Was that a new report that you have, the percent change in FTE? I know you're always adding students.

No, that's been on there for a while. It's just there's so many now. Yeah, I know.

I know.

I mean, I'm always searching on here, but I did kind of lay this out. If you're new to this app, you can lay it— it's laid out like an audit statement of activities and then cash flow stuff and then the notes sections. And then there's some IRS 990 and then enrollment data. So you can find this a lot easier than probably it looks like when I'm searching around for stuff.

And when folks purchase this, they get all the updates, the updated reports automatically, right?

Yeah. And I'll be adding a lot more here shortly. This is kind of like a project that I fit, you know, anytime I have gaps in creating Strategic Compass, I'll fill in time, you know, updating this app and filling in more functionality. Okay, so here's where you can see it. They used to charge, so remember the net tuition revenue is down a whole bunch, a lot more than enrollment is. So it's really not a story, although their enrollment is down a little bit, it's Certainly not explaining the massive drop in net tuition revenue.

This does.

This does. Yeah, this is the biggest problem. They used to charge $24,000 per student roughly on average for tuition and fees. Now it's down to $19,000. So I did the math on that. That's a 20% reduction in price, net price on average. So that is, that's pretty painful. And even despite the drop in price, they're seeing a reduction in enrollment. So it's pretty concerning. So right on the revenue side, policy-wise, what I would recommend is they need to look very closely at their pricing strategy here. Is there any evidence that reducing this actually caused their enrollment to do better than it otherwise would have? It sounds, sounds like an easy thing to test, but it's actually fairly tricky because you don't know the counterfactual. I mean, it's entirely possible that if they would have kept their price at $24K this entire time, that their enrollment would have done exactly what it did. In which case this would have been a bad idea doing this.

And you can see, you can see from the data that they were above the 75th percentile. Yeah, 34 years, looks like they're dropping down to be a— yeah, like more towards the median now.

Yeah, so that's a concern. I mean, um, if this is really an indicator of willingness to pay, which I highly doubt— it's really hard to make a school go from being one of the most sought-after schools in the country in 2016 to all of a sudden it's like barely above the median. Yeah, I suspect there's just an inefficient pricing strategy here, to be honest, and they might experiment with bringing this net price back up and see if it impacts their enrollment at all. But I could be mistaken, right? Like, these are things that need to be tested on their end that I can't see, right? So they need to do experiments with different pricing and see what happens.

And the Strategic Compass would be a tool to help them do that.

Yeah, and you can find quirky things that we find it all the time and talk to our clients about it. Like, you know, weird, weird pricing for various income bands. Right. Right. You know, weird things about a recent conversation was, you know, schools being in the what's called the CSS profile, which is just another burden on applicants. You know, things like that is making it easier to apply. You know, that could be something with the app not related at all to pricing that's causing this. Enrollment drop, and then they're responding by— they're responding to an app problem by reducing the price, which price may not have been the problem, right? So you really need to dig into this in the strategic compass and identify what the pain point is. Okay, so Springfield, that's revenue side. So in the meantime, though, it's going to take a long time, right, Gary, to get that back up. Even if you fix it today, it's going to take 4 years to get that net tuition revenue back up at least. So best bet is to right-size your expenses. And you can see what I'm going to say here. I mean, their best shot to me looks like to right-size their expenses, they need to bring this staffing per FTE down. Another way to look at it. So by the way, that's right at the 75th percentile, right? 85 employees for 100 students is pretty high. And you can also look at it in terms of relative to their revenue. It's also, it's above the 75th percentile. So I mean, this staffing level is very high relative to their enrollment and relative to their revenue.

So either relative to the, to the line of the colleges that apply to close schools and relative, yeah, everything.

So what needs to probably happen at the schools, they need to look very closely at their staffing and start, and again, that's where the strategic compass is, it really shines, right? Because it can highlight exactly where to look, which departments in particular, which areas, which SOC codes in particular that may be high and what the right size should be given the revenues and enrollment. I think contractor-wise, they look pretty good. See, yeah. Oh, here's another way to look at it too. This is their amount of spent on payroll relative to their total revenue. And it's just, again, above the 75th percentile. Serious evidence here of a staffing problem.

So they're spending like they're a wealthy school, but they're not pricing like they're—

Yeah. So probably what happened was they've just held on to most, if not all, of their employees.

Yeah.

While their revenues have just sort of cratered. Yeah, that's not actually true. So they did do some cuts here.

It's gone down a little bit, but still were there.

Yeah, there's probably like 800 staff, um, over a 4-year period, which is significant. But I mean, they're just still way out of line. Yeah. Um, so, um, unfortunately for them, it's probably the pain for like reduction in force is likely not over. Um, okay, so their contractors per FTE looks pretty good. That's actually a bit low. And I did, I did notice though some, some stuff with the contracts. Let's take a look at food service, which I have embedded in this food service cost per FTE. That's very high at $2,500 per student. Again, the median is about $1,700 per student for food service. So again, I know there's context matters, but the context here is that this school is struggling financially, so they probably should get a contract that's closer to $1,700. $1,700 per student rather than $2,500.

Maybe I should go for lunch there because I bet they have really good food.

Yeah, I mean, I mean, you know, there's more than, more than what I'm saying. There could be additional revenue you're getting, but really take a look at this. I have, I have specific cases with clients where they literally just called their food vendor, talked about how they could reduce the cost, came to an agreement and got, you know, significant savings without really affecting their mission at all. So the food service contract, I'll show you some other contracts down here in the vendor table. Springfield, I'm spending a little bit more time on this call just because they're the one that probably needs it the most. Springfield. I'll try to speed up a bit on the next.

I can help you with the spelling if you'd like, Matt.

Yeah, okay. So here's again the food service contract that appears high. And this is a vendor that I don't see very often. I don't know if I've ever seen this one. So it could just be that they're less efficient. Say I have a $7 million food service contract for 2,800, 2,900 students. That's high relative to FTE and it's high relative to their revenues. So I recommend they Look into that. I can show you other options.

And the best way to read that, that table is the darker the color, the less—

yeah, there is close—

a college is to the median.

Yeah, nearly a standard deviation above the median in terms of this contract. So just go out and get some other, other estimates. Call your vendor, tell them, hey, you need to be closer to these other estimates. This is how we should do it and work out a deal. Another one to look at is this IT contracts. It's a bit high. You're talking like a quarter standard deviation high. Yeah. But there could be a few hundred K there. And notice the significant increase here, $1 million to $1.8 million. It's possible that this is a half of payments. Did they have a Lucian the year before? Yeah, this is probably not for a full year. But yeah, so you're pretty high here. This is again for a school that has their revenue. This is about a standard deviation higher than what's normal to spend on IT. Okay, that's how that shakes out. Okay.