What does it look like when a college increases both total revenue and total expenses?

Welcome to the College Financial Health Show with Matt Hendricks and Gary Stockwell. Each week we look at the financial health and yes, even the viability of private colleges across the United States, and we use the data that the colleges themselves submit, whether it's audited financial statements IRS 990, or even we go to iPads from the, from the National Center for Education Statistics. And Dr. Hendricks, we're approaching 200 colleges that we have reviewed on this show. You and I, man, we keep after it. What are the two colleges we're looking at today?

All right, University of Denver, obviously in Denver, Colorado, and then Cambridge College in Massachusetts. I'll share my screen. I'm going to follow a little bit different. I have these new reports that are out and I—

are you going to show off again?

Are you going to use the report? Um, so I just generated them actually and started looking at the Denver one. Um, take advantage of this. These reports are pretty good. I, I think, uh, you'll see the value as I go through them right now. And lots of people are generating them right now. Um, and it's, it's just going to save you time if you don't want to click through stuff and try to synthesize everything. Basically, these are, um, following meaning an AI writes the report, but I give it a series of instructions on how to structure the report and all this, a lot in the background that basically follows the way that we've done the show for 200 schools. Yeah. So really, I'll just get into it with Denver. This is Denver, University of Denver, and I just started going through it. And so just keep in mind, I'm not writing these. This is an AI that's writing these. and I don't always agree with it, um, but it, it normally follows really closely what it sees in the data, uh, but how it has leeway to just interpret it the way that it sees it. So, so for Denver, um, really you always get 3 paragraphs summarizing a whole, uh, more than a dozen graphs that I'll go through at the bottom. But basically I highlighted what the AI was seeing here. It says that they have slower asset accumulation compared to peer institutions And if you're wondering who the peer institutions are, that's on the third page or so. And this is a great peer set. These are all double confirms. Double confirms, that means both SLU and University of Denver, both of their peers. Pepperdine is a self-report by Denver and confirmed through a double confirm. So it's also a very close peer. Marquette double confirmed and so on. These are all really good. Really good. Hard to argue with that, although I just got feedback. By default, it's just going to pick the peer set based on the double confirms that we have. But there's no reason I can't let users just pick their own peer set and then generate a report with that peer set.

So interesting.

I just had an email a little bit ago. Okay, so where was I? So the AI picked up that the unrestricted net assets excluding plant— it's a lot, it's a mouthful— but basically that's just your liquid unrestricted net assets. Or liquid financial resources have been historically low at Denver. We're actually negative for a bit, which is problematic potentially. It's not a problem until you, you need it, right? Uh, if you run deficits, that's your way to dig out of it without selling, uh, selling assets generally. Um, so this is going to be like investments in cash normally that you can sell and cover the, COVID the deficit. Um, so their total net assets grew by 46%, uh, but that was slower than the peer median. So this is where it's really important. Um, so that peer group that they— we already noted, they're falling sort of behind that peer set in terms of net asset growth, which is not ideal. You want to keep up with your peers and competitors as much as possible in that area. Generally, when your net assets are not growing as fast as your competitors, it'll mean that you can't be as generous with financial aid and stuff going in the future. So yeah, become less competitive with that set. Okay, so moving on to the second paragraph. So we'll confirm that. So we have unrestricted, so we have net assets growing slowly, UNEP a bit low, and we'll double-check that. And I thought I got a kick out of this paragraph. So operating revenue grew by 40%, which is excellent. Better than their comparison group and better than the national median, significantly better than the comparison median, 25% growth, national median 18%, which is great. But at the same time that expense, our revenues grew by 40%, their expenses also grew by 40%. So that's one of the issues where expenses are growing much faster than normal at the same time as the revenue. So the AI is pretty down on this, but I thought it was kind of funny because the AI may be thinking thinking more about nonprofit institutions. Generally, it's okay if your expenses and revenues— you're a nonprofit— if they grow at the same pace, uh, as long as your starting point, you had a balanced budget, right?

Um, so the AI makes a good point at the end of that paragraph though.

Yeah, so parallel rise in expenditures suggests revenue gains were fully absorbed, which is true. Potentially we'll double-check. You want to double-check everything here, right? This is an AI, so it can make mistakes. Um, um, yeah, so I thought it was more negative than that. Doesn't seem too bad. That's absolutely true. Okay, um, on the operational fronts, so we have fast growth, uh, in expenses and revenue, uh, declining net assets— or net assets that are growing but not as growing as fast as their competitors. Um, operationally, the AI is flagging two very important things that we see all on the show all the time. It looks like they're spending 63% of their operating revenue on in-house labor, which is very high for a school like this in particular. And we'll double-check that. I think that's high. We'll, we'll see compared to their peer set in a second. And they also have high vendor spend. So they have high in-house staff and high vendor spend. Usually don't want to do both. And there's probably some optimal combination there that the AI is saying, hey, you guys gotta look at your vendors and your in-house staff, both look high. All right, so how does the AI make this judgment? It's only using the graphs that we've attached here. So this isn't really gonna reveal much. Looks like their student enrollment's stable. None of those conclusions were coming from this graph. I tell the AI to focus mostly on these ones that are flagged here. And it certainly didn't key on that because a 1% decline in FTE student enrollment over 5 years is not a big deal generally. Okay, so here's what it's talking about. This is one of the first things that talked about in the report was that net asset growth. Yeah, net asset growth, uh, this total net asset growth is lagging behind the peer set and just slowly getting further and further away, although it's right at the national median. But a school like Denver probably shouldn't be at the national median. They're going to have a lot more assets generally. Um, all right, so UNAP. I just wonder if maybe this is a data— I'll double-check this, but this big jump here usually doesn't happen in UNAP, um, unless they were— got a massive gift or something like that. But that— this is like an $800 million jump. Uh, so let's ignore this part, which the AI wouldn't know. This is why I need to double-check it, but I'll double-check this data when we get off the show. But even this part, which probably is true, is problematic, right? UNEP is flat, uh, and in real terms would be declining if we adjusted this for inflation, while the peer set's growing normally.

And you can do the adjustments for inflation on the actual—

yeah, uh, this— I just feed this, this graph, which is nominal, because really Mostly I'm having the AI focus on the differences between the, the school that we're studying and the peer set and median, national median. Cash and investments looks good. All right. The main thing it was flagging here is that we had some deficits popping up. And let's see if we get down to that. There's a lot of graphs in here, and this is what's great about these reports is you don't have to click around. You just get kind of the key graphs right away. Endowments growing normally. Endowment appropriations look normal. All right, yeah, this is what the AI was starting to talk about. We have a deficit here, net income loss, um, in fiscal year 2024. Uh, looks like about— it's a small one, like 1.5% or so, um, loss, but certainly not normal for a school like Denver. Their peer set is always above 2%, looks like. Pierce median at least, um, which is what you'd expect from these bigger wealthier schools. So, uh, yeah, some budget stress here at Denver which is going to make their net assets not grow as fast generally. Uh, property and equipment looks about normal. Fine. Okay, here's the— here's what the AI was picking up, this dramatic growth in operating revenue compared to both the national median and the peer set median. This is amazing. They're growing the revenue so much. Uh, we'll see a little bit in a second why that's happening, but we have about 40% growth in revenue since 2016.

I saw why it was happening.

Did you?

Yeah.

Operating expenses though are up even slightly more than that. So that's what the— this AI did a good job of picking that up, I think.

Yeah.

Um, so that's great. And yes, here's one main reason why their revenues are growing so much. That student revenues are up 25%. So you might wonder why— how can their total revenues be up 40% when net student revenues are up 25%? This school is going to get a lot of their revenue from their endowment draw, um, I'm assuming. Then I didn't really look at it, how big their endowment was, but, um, What's the stock market? Stock market booming so much. Um, so I got cash and investments here. That's the ratio. Yeah, they've got $1.2 billion in cash and investments. So if you just have— think about what's 5% of that. That's a lot of revenue every year. Um, so Yeah, that's where they're getting a ton of revenue outside of student revenues, which have been growing probably faster than these student revenues even have grown. We also get gift revenue and so on. So that's where all that comes from. Yeah, here's the gift revenue. They get $20 million or so in unrestricted private gifts and grants. This looks about normal. Again, we have this low value. I wonder if their audit is a little tricky to read. Um, enrollments, uh, yeah, so we look long, long-term enrollments up a little bit, uh, like 6 or 7% since 2016. But that top graph, uh, top table we saw was starting, I believe, at 2020 or '21 or so. So there's a small decrease over the last 5 years. That's fine. Uh, okay, so here's the, here's the other thing that the AI was flagging. This is salary, wage, and benefits. This is your internal staff, right? How much you spending on your internal staff as a proportion to your total operating revenue. And normal is about 55%, all right? Um, 55, 56, which is right around where their peer set is, and they're at 63% or so, which is way, way high. Higher than normal. So a school like this, you should— ideally, a school like this, if you have a lot of internal staff or very high internal staff costs, you should be low on the vendor spend. They should be substituting for each other for the most part, but we'll see in a second if that's the case. They also have a lot more W-2 employees. This is just a count of the number of employees per $1 million. It's quite a bit higher than their peer set. Which they should keep in mind. They probably paid higher than normal wages, right? This is a pretty prestigious wealthy school. So the way that that works, in order to pay those high wages, you have to keep your count low, lower than normal relative to your operating revenue. So this again suggests we have an overstaffing issue perhaps. And good job by the AI again flagging fees for services are also incredibly high. It's like 15% of their revenue is going to vendors. Um, normal is less than, you know, less than 1%. Um, so, or less than 10%. No, you don't, right? Yeah, this is 15%, less than 10% would be normal. All right, that's for their peer study. Then for the— normally schools aren't spending a whole lot of their operating budget on vendors, but so this needs a big check, what's going on here with the vendors. I may flip back over to the app now. So that's the key. So this report can really just bring you up to speed really fast. I hope you saw how that happens. And you can dig deeper than going into the app. So what's going on with fees for services and staffing? We already can see that we have a lot of staff. In the Strategic Compass, we can help you go very deep into that. But in this app, you can see— I'll just check their vendors really quick. Might have to do University of Denver. So this is odd. Student program services, $3.4 million. Surprised this advertising Contracts not flagged. Yeah, we got lots of expensive contracts here though. That— a million dollars for a media campaign. It's interesting. Yeah, I don't even know what to say about that. I mean, it could be an amazing program. I just don't know what it is. Um, we got lots of marketing. $3.7 million here just in these two contracts. I'm willing to bet if I checked marketing here that that might be problematic. Actually looks about normal.

Yeah.

Okay. But yeah, you can just keep digging deeper. I'm not going to spend more time on this, but it sends you in the right direction. I mean, clearly the school wants to get back to a balanced budget. Looks like the lowest hanging fruit here is the staff size and vendor count. And the actual vendor contracts themselves, those are usually pretty, especially the vendor contracts, pretty easy to, to straighten that out with just a few phone calls, to be honest.

And, and Matt, just a, a sidebar on this because of course moving to Colorado, I get the Denver Post, uh, coming to my email regularly. Just in the last, last 2 weeks there have been stories about University of Denver and cutbacks.

Okay.

Potential layoffs. So some big news in the Denver area that this college recognizes they have issues and there's some stories that are following that.

Right. Right. Yeah, I would— I mean, I just hope that they're not ignoring the vendor side. There's a lot of money that's going out the door to the vendors. Yeah, the staff side— staff looked expensive too, but just keep in mind that there's a lot of— you can fire a vendor and there's no repercussion really, like, but when you fire somebody on campus, yeah, the morale takes a big hit, right? So there's some side effects, unintended consequences that happen when you do the reduction in force type strategy that are hard to predict, right? Many an administrator has been fired because they didn't predict what was gonna happen. You know, you hire, you fire one staff member that has, you know, that's beloved on campus, that can be catastrophic. And then you can see how this can funnel through. It can funnel through recruitment, morale, all sorts of ways that this can play out over years. That's why I would advise Denver to look first at their vendor spend and just cut that first. They can probably balance their budget just by doing that, to be honest. But I would hope they would do that first rather than ending up in the Denver Post. Nobody would even know that you changed your vendor spend. So that's my advice there, having done this dozens of times now. Gone through this with various clients. All right, for now I'll pass it back to you.

So let's take a quick look then at, um, the retention before I forget. So let's bring up just a couple of things on my end. And I've got graduation rates up— well, okay, here's part of the issue: they're not graduating anybody. Cambridge College, University of Denver, I don't know why they didn't report these few years, but their graduation rate is good. Matt, we want to take a look at retention. For these two colleges. Take a look. So I— you gotta wonder about the quality of the data. That just doesn't look—

yeah, that's not accurate.

Yeah, yeah.

So, right, yeah. I mean, I just wonder what's happening. How can you even, uh, make a decision if your retention is 100% then it's all freshman class, right? But it's highly unlikely that that is right.

And even Denver, I noticed, look at 2020, they must have lost a lot during the pandemic.

Oh, that's possible because they took a year off.

Yeah, but they're still kind of bouncing around here the last 5 years, last 4 or 5 years retention, right?

Yeah, it's possible that COVID class just didn't come back for 1 year.

Yeah. Yeah. So this, this is just a tool that I use. It's not publicly available. we can look at all sorts of reports for public and private colleges, some 2,500 public and private colleges. That's what Matt and I use— mostly me use— 2026 College Majors Completion App. And I brought up both University of Denver— this is internal market share. So from 2020 through 2024, we're looking at the bachelor's degrees, we're looking at some 160+ majors that are offered at the University of Denver or at Cambridge College. And we take a look at the major players, so we can see that finance is a big deal at the University of Denver in terms of courses offered, maybe not so much in administration. Um, and we can look at a good mix of reasonably strong colleges. The breakoff that I'm seeing, Matt, across the country is about averaging 15. If you've got majors not averaging more than 15 over the last set of years, whatever numbers you want, that's a major to look at. And we can see a dozen, couple dozen maybe at University of Denver that you really have to wonder, is it worth them? Is it profitable for them? Is it, is it wise to invest in some of these low completion majors? And again, these are completed majors, not just enrollments, but completed majors. And so this is one of the things that the College Majors Completion app does. We've got some 14 million completions over the last 5 years for 2,000, again, 2,500+ colleges. We look at it across associate's, bachelor's, and master's degrees. And we divide it up by sectors, by states. You can do any kind of combination that you want. And while I won't show it here, we also do— And so interesting set of colleges today. University of Denver, of course, a prestigious college, but facing the same kind of financial pressures, Matt, that we see everywhere. And I guess I wanna wrap up, Matt, with going back to your AI Insights report. And you showed it here. I know you and I both promoted it, Matt. Pearson's promoted it as well. But to those watching the show, whether you're regular watchers or just special for Denver or Cambridge, this is yet another example of the Moneyball era. And I know, Matt, you probably get tired of me talking about that, but the data is out there. Look what Matt Hendricks did at PDS with that data. Matt, it's fair to call it Fitch-like in terms of the way it focuses on data for private colleges. And I know you're working on a college version as well. Um, so do you want to do a follow-up on the AI Insights report before I call the show?

Yeah, I mean, check it out. As soon as you, uh, as soon as you sign up for an account, the standard license on the Financial Compass, you get 2 free credits to generate reports. Um, you can buy more credits on there. It's pretty cheap. I think we're charging $50 per report. Um, and it can really get you a high-level view of what's happening to sort get you on the right direction on where to dig. That's really where we start everything that we do, um, and it works really well. Um, several other major consulting firms are sort of following this approach now too, so, um, take advantage.

Yeah, yeah. So hey, let's do this again sometime soon, Matt. We'll be back with another episode of the College Financial Health Show with Matt Hendricks and Gary Stocker. Thanks all for watching. We'll be back soon.