The College Financial Health Show for January 14, 2025. A financial health and viability review.

It is the College Financial Health Show with Matt Hendricks and Gary Stocker. Welcome to this show for Tuesday, January 14th. Already the middle of January in 2025. We're doing the show a little bit differently today. We saw that two colleges, Gannon University and Ursuline College in the Northeast, announced a merger a couple of weeks ago. And we're looking at both colleges individually. And Matt and I will talk about what some of the opportunities and even challenges will be for this merger. Hi, welcome to the show. My name is Gary Stocker, founder of College Viability.

And I'm Matt Hendricks, founder of Perspective Data Science. As Gary mentioned, we're going to look at Gannon University and Ursuline College. One's in Pennsylvania, Gannon, and the other is in Ohio. But I guess they're close together, Gary. They're like 90—

I think so. I think they're, they're along Lake Erie in some form or fashion.

Um, so yeah, I'll just take— I'm, I'm going to be fairly brief. I'll just show you the financials of the two schools. And so generally my sense is that Gannon is the stronger of the two, uh, financially. And it looks like, um, you know, even in the merger, it looks like it's basically Gannon acquiring Ursuline, uh, which I think is, is probably a smart move, although I, I worry a little bit about them losing a bit of their unique mission. Um, so those are some questions I would ask if I were a stakeholder. Uh, but I'll get into the financials first. In particular, so Ursuline is a predominantly women's school. We just checked it and it's like 1,000 women and less than 100 men at Ursuline. And Gary is— Gannon is, you know, admitting both genders. Yeah, it's co-ed. So, yeah, just that's, that's one thing to you'd wonder about, um, just keeping— that's the biggest thing with a merger, right, of a, of a nonprofit or, uh, of a university in particular, is just maintaining your mission. And if your mission is to serve women and you're merging with a school that doesn't have that same mission, those become tricky. Um, all right, so let me get into the financials though, uh, starting with Gannon, the stronger partner, and I'll show you why I think they're stronger. Um, they don't have their 2024 audit in yet. Uh, Ursulin does, so we have the 2024 data for them. But this is the, you know, key driver for financial sustainability here, is that are your revenues exceeding your expenses for operations? And almost every year Gannon has the positive— in fact, every year here, every year positive net income margin. Excellent. Uh, big, big positive during COVID right? Uh, that was It's pretty common. You can see the median line going up there because they got all this government support and actually didn't lose many students. So nice, nice result there. So they look good. Cash flow is negative here. That's probably some anomaly because their cash flow is positive on all of these. And as you know, if you've seen other shows, cash flow should always be— cash flow from operating activity should be higher than net income because you're taking out depreciation expense. So it'll pump up your operating cash flow margin. So I didn't look at this in particular why this went negative because I'm not concerned about this school financially, but there may be some timing issue or, you know, some maybe they changed their accounting and started taking their as possible as well. But you can try to understand that if you're one of these stakeholders. So one thing to check, and I already know because just looking at this, but let's take a look at their revenues and expenses. We should see that the revenues have, you know, sort of tracked with expenses. Looks like they had a big net income back here and a slightly smaller one. So you'd expect to see the revenues going, hopefully going up and expenses going up, but expenses slightly more. But I'll show you that. Let's take a look. I don't even actually remember what it looks like. There's operating revenue and on the bottom graph I'll put expenses, operating expenses. So what you're going to see here is the change since 2016. And so they're operating— Gannon's operating revenues have grown by almost 17% between 2016 and 2023. That's better than median. So that's good. Their expenses have grown slightly faster, just exactly what I expected to see. Not a concern though. They still have a positive net income. So that's fine. Let's take a look at net tuition revenue. I put it here on the bottom graph. Their net tuition revenue has grown A lot. All right. This is well above the median school, 11.6% growth since 2016.

Rare that we see that, Matt.

Yeah, that's excellent. So this, this school's in a really good place financially, comparatively to what we've looked at. That's great. Those are their operating revenues up there. Key operating revenue, net tuition revenue is up. Let's take a look at their endowment management. Let's take a look first at the growth in the endowment. Their endowment has not grown. Very quickly. Again, this is why it's really important to benchmark. Their board may not be aware that this is not good, right? You look at 31% growth in your endowment since 2016, you might think that that's excellent, but it's actually quite poor. The reason is that most schools are above 45%, all right, growth since 2016. So there's a problem potentially with how the endowment's been managed. Let's see if I can figure it out. I don't have every piece of information about the endowment in here, although I'll be adding that to the Advanced Compass here shortly. Um, the big thing that I do have in here is appropriations that may reveal a bit about this, and I don't see it offhand. I mean, there are some big draws here in 2017. The recent draw in 2023 is a bit high but certainly doesn't explain this gap. So if I were them, uh, what this tells me is that you either have an issue with the returns not being good, right? They're not, they're not maybe invested in the proper securities. Maybe their portfolio manager has put them in some stuff that doesn't move with the market. That could be a problem. Could have high fees on their investments. That's another issue. Or they're just not contributing enough to their endowments. They're not getting a lot of donor support. That's another thing to check. All of those will be in the advanced compass. Let's take a look at the last thing. Let's just take a look at their property and equipment. And this may explain why, partly why the endowment's not growing as fast. Maybe all of their money is going into building. And, you know, usually you have a surplus and that money will go into your unrestricted endowment fund. But it looks like they're pumping it into buildings. And, and/or acquiring other campuses. So interesting strategy. The school is growing quite a bit in terms of physical capital, buildings, equipment, machines, that kind of stuff. They're up 56%, almost 58% since 2016. That's, that's going to be, you know, one of the highest in the country. This is the 75th percentile right here. So they're well above—

you hardly ever see that. You hardly ever see that also, right?

Yeah. And, you know, I already know what I'm going to see here, but their investment in their property, plant, and equipment must be well outpacing depreciation. And it is, it's like 2, 2.5 times depreciation every year. So this is a school that has obviously a growth strategy and not just growing, you know, virtually they're growing with buildings, campuses. I think I did actually read this in my prep this morning that they had another campus they were investing in, in addition to sort of acquiring.

Simflora.

Yeah, you did see that. Okay. Yeah, so the— that's the strategy here, um, and they seem to be doing quite well with it. Uh, they look very healthy, and I can totally see why they're acquiring schools. All right, so here's Ursuline. Ursuline College in Ohio. Um, I'll start with the same stuff here at the top here with cash flow. Uh, let me just say a little bit about these numbers. They look weird. They, they're really volatile, in part because Let me pull up their audit. So this is a problem. If you see this at your school, I highly recommend you look into getting a different auditor. This audit is not very useful, and you should have your board using the audit regularly to check, cross-check against your budget. And so the reason I'm bringing this up, this is Ursuline's statement of activities here compared to Gannon's. Notice just the difference in detail. Right? This is the standard look for a statement of activities. This is not. Um, here they don't have revenues broken out by operating versus non-operating, and in GANON they do. These are operating revenues. This is non-operating activities.

Okay.

And that's really important because, like I said, you should be always cross-checking your budget relative to the audit. All right. And at least reconciling the budget to the audit, it's a lot more difficult if you're not breaking out operating versus non-operating. So it's also difficult for me to benchmark your stuff because notice, um, Gannon's pulling out it correctly, pulling out things that are not related to their operations. And what I'm trying to put into the Compass are these numbers that are operating related. In particular, this one, their increase in net, that's their net income, right? The increase in net assets from operating activities. I don't have that for Ursuline College. I have their revenues, which includes non-operating things. Uh, I can't even really see a lot of the line items that should be there. And expenses, same thing. We could have non-operating expenses in here. These aren't even broken out by the correct groups as well. Notice the, uh, they're doing natural expenses here, but what's typically done is a functional expense. This is totally fine to do it this way. There's kind of differences that way. But what they should be breaking this out is by instruction, by student services, by institution, academic support, and so on. And again, really important that the board's cross-checking that and benchmarking that not only against their own budget but against other schools. And again, this audit is not helpful for that. I would immediately look for a different auditor if they can't comply or produce an audit that matches what we typically see.

Right.

Another issue, so I could look more closely at the cash flow statement, but here it's not even clear to me. Again, remember the issue where there's always schools pulling out investments out of here and the nice, the thing you worry about is if they're pulling out investments that are related to the spending policy for the endowment, you ideally, you would keep that in because that's operating revenue, right? It's not clear to me. I suspect they are keeping that in here, but it's not clear because this number should match what's reported on the statement of activities, probably 2 lines actually, but it doesn't match anything that's on statement of activities. I'm not sure if they're pulling out the full endowment of value here or just the investments in excess of the draw. But at any rate, you can see that this is important. I would need more context to understand exactly what this means, but this is not good. You never want a cash flow unless you have a big endowment, like I said, and they're pulling out the endowment value. This school does not have a big endowment, but it's possible that if they are pulling out their endowment draw, that their net cash from operations would actually be still positive had they included— kept it. That's all that's to say. I don't really know what's happening with Ursuline here. These numbers look bad, and I would need to talk to their board and their auditor and their CFO to understand exactly what this means. But this is a net cash from operating activities that's negative. $1.3 million in 2024 was negative $3 million the year before that. The way they're covering their expenses here is by selling investments. You can see that they're selling a bunch, $22 million in investments, only purchasing $17 million. So the net there is almost $5 million. Some of that went into repairing buildings and replacing equipment, right? Which is too low, as I think I'm going to show you here in a little bit. But yeah, it's not— so you can you can see right here their depreciation is $1.8 million and they only spent $600K on building and equipment. $1.6 million depreciation, they spent $1.2. So again, their property equipment value's going to fall off. You could— that could be indicating some issues with loss of technology or deferred maintenance, stuff like that. So yeah, these are not good. I'm not happy. Of course I wouldn't be happy if I were a board member here, and I'd want to understand why this is happening, make sure the accounting is squared away and standardized with everybody else. And notice in, in contrast here, we have a positive net income from operations for Gannon, $13 million positive, $6 million positive. Typically that money would be then invested in the unrestricted endowment, but this school is spending a ton of money on buildings. Wait, that's not the one. Buildings and equipment right here, $13 million. $16 million. So I already showed you those results, but that's just to say, make sure your audit is compliant with sort of standardized accounting standards and is useful and that your board is using it. It's really hard to imagine that they're using that audit in decision-making, and that's a big problem just from a management perspective. Okay, so all that to say is, I don't, this number is not very reliable up here because there's non-operating and operating mixed together. This one down here does not look good, right? You never want these negative cash flow numbers, and they're almost always negative here. So a really concerning financial result there. Again, I need more information, but that does not look good. Uh, let's take a look at their revenues. Well, I'm not going to even do that because revenues are not useful. Endowment here, um, change in endowment value. Yeah, so their endowment is not doing well. Again, this is another case where it's really important to benchmark against peers because if you just look at your board is just sitting there looking at your endowment over time, it's not obvious that a 26% growth is bad, right? Most board members are not going to know that that's bad. The only way you know is by comparing it to other schools. And again, 26% growth for your endowment is really bad.

Um, over this period, it's bad compared to your peers.

Yeah. Bad compared to all the other schools, right? Actually, a better benchmark here would be to compare Ursuline to other schools with a similar size endowment. Um, And, but my, my guess is you could still see the same thing. If you want to do that, you can do that on Strategic Compass or yeah, the, the paid app we've been calling it. You can see why their endowment's not growing, right, Gary? Look at these endowment draws here. 13%, 11.8%.

They're using a piggy bank to keep the lights on.

What's that?

They're using a piggy bank to keep the lights on.

Yeah. Those endowment draws are way too big. Uh, not sustainable and your endowment's not going to grow very well. You can see it's shrunk actually since 2021. That's not normal, right? Endowments have grown since 2021. Yeah, that's a problem. Again, another indication that there's something not right here at the finances. They may be having to cover losses with big endowment draws. I suspect we're not going to see a lot of investment in property and equipment here as well because they have financial struggles, and that's the case. The value of their property and equipment since 2016 is down almost 13%. Again, that's probably— that's what— that's in the bottom 25% of schools. Probably well below bottom 25%. And you can see why. Again, just not investing much in their cap since— see, well, all but 2 years, their investment in their property, plant and equipment is less than their depreciation rate over the last— what is this, 9 years? A normal value. Again, if you haven't seen the previous shows, a normal value is a little bit above 1. So that you're maintaining your capital stock over time. Okay. That's the median, 1.03, 1.04, and so on. Only a couple of years it's been low because of COVID Nobody was building anything during that time. But they're catching up now, right? So yeah, some issues there. Clearly looks like financial stress with the big draws on the endowment, lack of investment in capital equipment. Uh, potentially some issues with, um, with, uh, deferred maintenance. Um, maybe some issues with the auditor and, uh, just fiscal control. How's the board actually able to, to cross-verify these things, which is a really important function of a board? Not sure that that's happening. Lots of questions I would have if I were a stakeholder, but it's good that they're joining up with Gannon. Uh, I'm sure the they're going to benefit a lot from that partnership. And so I'll hand it back to you, Gary, but we can discuss more about what that— what the challenges of that might be.

So yeah, so it's interesting, you know, you use the term stakeholder for— in the context for Ursuline, and it looks like Gannon is going to become a really big stakeholder.

Yeah.

And you and I both know when we do this show on a weekly basis that Gannon, Pace University, University of Mary are just 2 or 3 that come to mind that have been really strong. There are others that they don't come to mind right away. So Gannon really doing well, doing really, really well. You'll see with the graduation rates here in a minute. If you're on the Gannon board, I assume, Matt, that you've looked at this stuff. If you are— if we actually put you on the Gannon board, what's your biggest concern?

Yeah, I guess the, the biggest concern I would have for any school that, like Gannon, that's expanding, building, they're acquiring other schools, is that if you do it too fast and take on, you know, it becomes more complex. You're bringing in a different culture, a different mission, got to integrate the staff somehow, different controls. It's going to be a lot of work, right? To just get everybody on the same page. And then you just worry, you worry that the stress of the merger might create financial problems. You know, if, you know, Gannon's not able to sort of translate their financial controls over to Ursuline very well. Um, you know, there's, there's lots of issues that could potentially come out of that. I haven't obviously acquired another school, but I, you know, I've heard of these discussions, big discussions like this, uh, changing the mission, uh, what happens to the current staff that's there. I'm sure with a merger, they're going to do a lot of shared services across the two campuses. So that means a lot of people are going to lose their jobs, right? There's a lot of, um, growing pains, so to speak, involved with these.

And this is just an announcement. It's got to go through the review by the accrediting agency, by the Department of Education, by the Department of Education, and maybe banks and those kind of places. So it's not a done deal. But like you, I like what I see here. You've heard me say before, Matt, and I'll say it again, that I, while mom-and-pop mergers, which is what this is, two colleges coming together, I don't think it gets to enough scale. If I'm on Gannon's board, if you could appoint me to be on Gannon's board for a moment here, I would be looking at growing. But you make a good point, don't grow too fast. But to really scale expenses, to really scale academic leverage, it really needs to be more than one college. And maybe Gannon has that in mind because I like what they're doing now. Hey, let's look at the 2024 College Viability App. I'll let you know the 2025 version will be out in the next few weeks or so. But let's start by looking at enrollment. And again, Gannon, we can see throughout my brief presentation, Gannon is doing well. And that week after week we show FTE enrollment, and week after week we show colleges with negative numbers. Gannon is not one of them. Almost 400 students, up 10% over the last 8 years. Ursuline does fall expectedly into that category of colleges who, while not down a lot, um, 46 students, you know, do the math on tuition for 46 students, that becomes a significant number. That's why I like this. Gannon is big enough and is doing something right, Matt. We may not be able to pinpoint what they're doing right, but they're certainly doing something right. And when we look at graduation rates, same thing. Look at Gannon, man, they're doing things right. Now, 55% is not exceptional, I will grant you that, but I'm not going to get into my spiel on graduation rates in great depth. My threshold is 50% as the minimum. Gannon exceeds that. And Matt, as you well know, not very many colleges graduate even half their students over 4 years, and Ursuline's one of those. About 35% over the last 8 years is all that Ursuline is able to graduate. So again, if you're, if you're Gannon University and you're looking at this and you haven't looked at graduation rates— I gotta think you have— you really want to ask the folks at Ursuline why it's so low and do what you can to fix that. Tying in with that, I looked at percent admitted. Interestingly, both are pretty high, um, so they're not very selective. Uh, Ursuline has been essentially unselective. They'll take almost anybody who applies. Gannon, a little bit more selective than that. And I don't know if that's a bad deal. Um, the only issue that I have with that is if a college is accepting students just for their enrollment dollars and they're happy with getting them enrolled and not graduating them. That's a big concern. And when you are admitting a higher percentage of students, I can make a logical argument— it's tough to do in the data— I can make a logical argument that, are you really prepared to help those less than prepared students graduate in 4 years? My operating premise, Matt, right or wrong, is that it's tough to do, and high admission rates are going to result in lower graduation rates. And then we even look at the yields for these two, the admissions yield for both. And, you know, Ursuline, because they're a private women's college, they're a little bit on the high side. That's not right, they're a good number, around 20% admissions yield. Gannon has slipped a little bit. Be interesting to watch that in the coming years with a high percent admitted, with a high percent admitted and a decreasing yield rate. That's got to mean something. I'm not sure what that is, but again, if I'm on the—

yeah, well, Can you quickly pull up applications?

I don't have applications on.

Yeah, I see this a lot. Almost every school has a declining yield rate. It's mostly because a lot of students are submitting apps all over the place, right? With Common App and—

Oh yeah, it's common to see that yield rate slip for sure.

Yeah, really. And it could be that, you know, maybe Gannon's done a great job of building up the number of applications and you saw they're admitting like 85%. So you'd expect a pretty low yield rate in that case. But still, at the end of the day, who cares, right? If they get a lot of students that graduate, that's perfect.

And for those watching the show, if you want to look at a deep drill down for your college, the Strategic Compass will do that. It will actually drill down on admissions and enrollment, and there's even an enrollment trend analysis that Matt has incorporated in the Strategic Compass. Look at the endowment value. I thought this was interesting. Ursuline's endowment per student is considerably higher than Gannon's. But when you look at the absolute numbers, Gannon's is about 3 times higher, a little more than 3 times higher than Urschel's. My minimum threshold is $50 million. You know, you saw during Matt's presentation that Gannon, while it has grown about $12 million, about $13 million, they have been spending on stuff. So again, they're growing their endowment a little bit, and also looks like they're preparing for their future. So kudos to them. And then finally, before I look at the majors, let's look at tuition and fees. And again, you're not gonna be surprised. Gannon has grown theirs. On the far right-hand side, they're about $12 million over the last 8 reported years into IPEDS. And Ursuline is down about $2 million, probably from those 40-some-odd students. They are down in FTE enrollment since 2015. And so the last piece we're gonna look at, and we started showing this a couple weeks ago, and it's the 2025 College Majors Completions app. So what we have, and this is the, this is the working version, the actual version will be out here shortly. This takes all public and private colleges in the country and compares their associate, master's, bachelor's, and master's degree completions. So you can see I've brought up both Gannon and Ursuline on below, and let's set it up for initially for bachelor's. So we can see the number of bachelor's degrees that Gannon has awarded over the last 4 reported years up about 1,000, and the same numbers for Ursuline. Well, that's fine, but let's drill down because we've got two colleges merging, Matt. Let's look briefly at where they're strong in academic and majors and completions and where they're not so strong. And you can see again, if we're going to pick out a couple, they're strong in biology, um, they're strong in sports kinesiology— that's a nice little niche— and some decent numbers but not great numbers in some of these others: respiratory, psych, maybe criminal justice, maybe business administration. These are students who've graduated with that major from Gannon in those reported years, and you can see the total numbers over the last 4 reported years over on the far right-hand side. Let's do the same thing for Ursuline. And again, when you look at the Ursuline numbers, I've expanded it right here, the numbers are much smaller. Gannon had about 1,000, Ursuline's not quite 200. And as you look across the board, You know, no real consistent strength with any significant numbers. Psychology is somewhat strong by comparison inside of Ursuline. Social Work somewhat strong, but even that has dropped off a little bit from already small numbers. So here's, here's a tool you can use if you're at Gannon, if you're at Ursuline, if you're anywhere else, and you're looking at majors to cut or majors to add at the bachelor level. Let's do the same thing, Matt, briefly for the master's. Again, now we're looking at graduate level completions for curriculum. Gannon clearly doing something well here, business admin, they probably have an MBA program. PA, physician assistant, again, Gannon just doing so many things so well. It's always good to see that. Maybe, um, Ursuline on the other hand, again, not going to be surprised, they've got a decent number but not great for educational administration. And again, none of this should surprise the viewers. Gannon is strong across on the financial side. Gannon is strong by comparison on the completion side for majors. This is the kind of data, Matt, that we look at in this era of— and you've heard me say this before— Moneyball. This is the Moneyball era. You and I are just two of the folks, two of the groups, two individuals taking data the colleges themselves provide and analyzing it and doing the comparisons. And you make a great point. You can't do this in isolation, man. You've gotta do it by comparison.

Yeah. Yeah. It's, uh, like I said, I see a lot of boards using, you know, using data, but just not bringing it to its full potential, right? Like looking over time at your own school is helpful to see trends at your own school. But if your school's always been weird and you have no idea, right? Like you just know, Hey, your, your fees for your investments on your endowment are just not normal. Uh, and the returns are low net of the fees. You would never know that just looking over time, right? You have to compare yourself to other schools. That's, that's where the, the value of data really comes in.

Let's for a second talk about scale. You heard me mention a couple of minutes ago that I don't believe mom and pop mergers. That's just my euphemism for one or two college mergers. I don't think that's enough. Do you agree or not?

I don't know. Honestly, I, I have the sense that schools of any size can survive if they're just managed well, right? If you just stay within your means, do what you do really well, I think you can survive and thrive in that, in that kind of setting. I've seen, I've analyzed schools that have fewer than 500 students, totally balanced budget, they're fine. Right. Um, and others with huge endowments and double that in students and just can't seem to get their budget balanced. All right. So that's sort of the perspective I've come from. So I guess just in my experience, yeah, it's easier to balance a budget when you have more resources, more students, there's more flexibility, but I've seen some schools that are much smaller and are just very good at staying within their means. And I guess that's sort of the takeaway for me is it's, it's more about just managing the place well, doing your thing well and sustaining that over time, I think is the most important part.

But what we're seeing on the show is, yes, select small percentage number of colleges are doing that. But what we see throughout the industry is too many. And we do see this on the show are not balancing their budget. They're not doing a lot of financially worthy things. And, and as their last dollars circle the financial drain, they say, oh, please find somebody to save us. And, and I think that's more of a trend than strong colleges like Gannon, like University of Mary, like Pace University that we've seen are the exceptions to the rule. And the general rule is colleges are not doing what you suggest.

Yeah, yeah. Um, there are a lot of resources out there. We're providing resources, right? If you're a board member on one of these schools, it's It's, it's time. Uh, you want your school to survive. This is how you can do it. Uh, it's really simple, honestly. Just use the data and start asking questions and you'll put your school on a path, uh, to sustainability that way. Just start asking questions, make sure you get answers, uh, and answers that make sense, right? Not just made up answers or intuition. You have to double check everything and you'll probably find a route to sustainability that way.

So let's do this again next Tuesday night at 10:30 Central Time. We'll have 3 different colleges on the show. For those watching this, uh, at the College Viability website, we have a page that shows future colleges we'll be covering. And as we do the announcement a couple days before each show, we tag you in our social media. You're welcome to join us. Drop me a note at gary@collegeviability, and I will certainly get you on the show to join us to talk about your college, to get some suggestions. We can have a back and forth exchange. For Matt Hendricks, I'm Gary Stocker. We'll look forward to joining you next week. And as always, thanks for making time to watch the show. Take care.