RPI Financial Review: FY 2018
Admissions and Enrollment: Applications to undergraduate programs for entrance in Fall 2018, totaled 20,403, an increase of 4.6% from 19,504 in the prior year. Acceptances were 8,770, reflecting an acceptance rate of 43%, down slightly from 43.2% for the Fall 2017 entering class. New enrollment of 1,778 students (a 6.9% increase from the prior year) was a record level, and represented a yield on accepted students of 20.3%, up from 19.8% a year earlier. (It is worth noting that over the past five years, full-time undergraduate enrollment has increased by 1,211 students, from 5,379 to 6,590). The average combined SAT score for the Fall 2018 entering class was 1,409, a slight increase from 1,400 for the class that entered in Fall 2017. Graduate enrollment for Fall 2018 increased 6%, from 1,120 to 1,188.
Operations: During fiscal 2018, RPI had significant revenue growth (up 8.1% vs. the prior year), following trendless, flat revenues over the prior six years. All revenue categories showed improvement. Student related revenue grew by 4.9% (from $280.1 to $293.7 million) due to increased enrollment. The only negative was that the average undergraduate tuition discount rate increased to 46% from 45.5%, causing average revenue per student to decline slightly. It is important to note this is a continuation of a seven year trend of increases in the tuition discount rate, likely reflective of the on-going competitive price environment. Grant and Contract revenues (for research) grew 4.5%, (from $74.7 to $78* million), following several years of declines. Gift revenue was up 48% (from $23.3 to $34.5 million). Without additional information, the cause of this sharp increase is not determinable. The strong total revenue growth, combined with controlled operating expense growth of 2.0% (from $416.0 to $424.2 million) and capital spending below depreciation ($19.3 vs. $27.6 million), generated sufficient free cash flow to permit modest net debt reduction (see below) and an increased contribution to the legacy pension plan ($15.7 vs. $4.1 million in the prior year). In fiscal 2018, RPI continued to carry a heavy burden of total debt service payments. At $44.8 million, total debt service was comprised of $37.8 million in interest expense and $7.0 million of operating lease payments, and was down only slightly from the prior year level of $45.2 million. Debt service payments were 10% of total revenues, and remained well in excess of the endowment draw of $38.5 million.
*same level as in 2008.
Balance Sheet: During fiscal 2018, the Institute reduced its debt (inclusive of capital leases) by $15.1 million, from $757.6 million to $742.5 million. Solid investment returns of roughly 8.8%, due to the strong capital markets, a 5% increase in the amount of Gifts & Bequests (from $40.5 vs. $42.5 million), and an endowment draw roughly equal to the prior year amount, led to net growth in the value of the endowment of 6.1% (from $677.2 to $718.2 million). The higher level of market bond yields helped to reduce the actuarially determined amount of legacy pension obligations. Combined with a higher employer cash contribution to pension assets, the unfunded pension liability fell from $125.3 million to $90.3 million. Balance sheet leverage showed improvement due to the aforementioned debt repayment, endowment growth and reduced pension liability. At June 30, 2018, the ratio of total liabilities to total assets stood at 64.6%, down from 69.3%, the prior year. Net Assets increased to $534.3 from $451.1, a year ago. It is important to note that the book value of Land, Building and Equipment (including construction in progress), declined again, as depreciation exceeded capital expenditures for the seventh year in a row.
Liquidity and Capital Resources: RPI continues to run at an effective zero-to-negative cash balance. At fiscal year end, the $1.5 million of cash and equivalents on the balance sheet was offset by $5.4 million of borrowings under one of its bank credit lines. Combined unused capacity under its two annually renewable bank credit lines was $44.6 million, at fiscal year end. In addition, there was an issued and outstanding Letter of Credit, for the benefit of the Department of Education, in the amount of $20.9 million, as of June 30, 2018.
Conclusions: The 2018 financial results showed indications of improvement. But, one has to ask whether this is reflective of a long-term sustainable trend. For seven years in a row, the investment in campus facilities has been less than the depreciation, and by a significant margin. In other words, some campus facilities are falling into disrepair. Fundraising continues to be weak, with Gifts & Bequests at only $42.5 million, less than 10% of total revenues. That percentage needs to reach 15% to 20%, in order to maintain competitiveness. The Institute, by several measures, is still over-leveraged. The endowment draw was, once again, well exceeded by the total debt service payments. The so-called “crossover” has not happened. Total debt and debt equivalents (including leases) are still well above the value of the endowment. Grant and Contract revenues for research have not recovered from their 25% drop between 2013 and 2017, and federal dollars remains scarce. The discount rate on undergraduate tuition continues to rise. The Institute cannot expand undergraduate enrollment indefinitely. Furthermore, the ability of the current faculty to handle all the recently added students is likely to be a strain. The legacy pension plan will continue to be a burden for at least another decade. It is unlikely that endowment investment returns will average 9%, (as was achieved in fiscal 2018), going forward. In total, there remains a lot to be concerned about for the intermediate and long-term financial situation. Due to its high leverage and relatively small endowment, RPI is not well positioned for an economic downturn and will be challenged to remain competitive. Without substantially improved alumni engagement and financial support, RPI will not be in a position to recruit and retain sufficient new tenured faculty, adequately invest in its programs and facilities, or offer competitive financial aid packages for students.