Admissions and Enrollment: Applications to undergraduate programs for entrance in fall 2019, totaled 18,635, a decrease of 8.7% from 20,403 the prior year. Acceptances were 8,835, reflecting an acceptance rate of 47.4%, up sharply from 43.0% for the fall 2018 application cycle. New enrollment of 1,665 students, in fall 2019, was a 6.3% decrease from the record 1,778 in fall 2018, and represented a yield on accepted students of 18.8%, down from 20.3% a year earlier. The median combined SAT score for the fall 2019 entering class was 1,410, a single point increase from 1,409 for the prior year’s class. Graduate enrollment for fall 2019 was effectively unchanged at 1,185 students versus 1,188, a year ago. Full-time undergraduate enrollment for fall 2019 was 6,203, down from 6,590 the prior year. However, this is not a valid comparison because of the impact of the first full year of Summer Arch. During summer 2019, an estimated 1,400-1, 450 juniors were enrolled full-time and living on-campus. Presently, approximately 700 juniors are engaged in their “away semester.” It should be noted that 7 of the 12 weeks of the recent Summer Arch fell within the 2019 fiscal year. Therefore, it is reasonable to state that, during fiscal year 2019, RPI achieved a new record high level of undergraduate “flow”, or “throughput.”
Operations: During fiscal 2019, RPI experienced strong growth in Total Revenues, up 5.7% versus the prior year, on a restated basis (see section on accounting changes, following conclusions). Given the record flow of undergraduates during fiscal 2019, Student Related Revenue grew by $30.5 million (a 10.7% increase from $286.2 million to $316.7 million). A secondary source of revenue growth was Grants and Contracts (for research), which rose by $6.4 million (an 8.2% increase from $78.0 to $84.4 million), helping to offset the $9.6 million decline in Gifts and $3.8 million decline in the “Other”category. The strong growth in total revenues, combined with controlled growth of operating expense of 3.7% (from $417.0 to $432.6million) generated Operating Cash Flow of $37.1 million, an increase of 3.8x (380%) from $9.8 million in fiscal 2018. This figure is net of debt service for interest ($36.6 million), operating leases (estimated to be $7.0 million), and pension and health care payments ($13.2 million). The strong cash flow enabled the annual endowment draw to be reduced by $7.6 million (to $30.9MM from $38.5MM) and debt repayments (see below). Clearly, the financial benefits of six years of growth in undergraduate enrollment, plus the first full year of Summer Arch operation, showed through during fiscal 2019.
Balance Sheet: Due to continued balance sheet weakness,however,there was no shortage of needs for the added cash flow and some were not fully met. Approximately $9.0 million of cash was required to extinguish the maturing bonds as part of last December’s $200 million refinancing of long-term debt. Furthermore, during fiscal 2019, the Institute reduced its outstanding debt (inclusive of capital leases and short-term borrowings) by $20.4 million, from $742.5million to $722.1million. Offsetting the debt repayment was a $13.8 million increase in the unfunded pension liability (from $90.3 million to $104.1 million), primarily due to the actuarial impact of a lower market discount rate (used for valuing pension liabilities). Furthermore, the Institute reduced its cash contribution to its legacy pension plan from $15.7 million the prior year, to $12.8 million in fiscal 2019. Consequently, the plan’s funding ratio fell from 75% to 72%. Capital spending on facilities was again substantially below depreciation ($18.8 vs. $28.4million), the eighth consecutive year of such shortfall. Thanks to gifts of equipment and other capital items of $10.3 million, the book value of Property Plant and Equipment held even at $663 million, although it continues to beat its lowest nominal level since 2008. Investment returns for the fiscal year were only 3.0%, below the median of 4.9% for colleges and universities, nationally. Gifts & Bequests increased from $42.5 to $49.0 million, but likely included the $10.3 million of equipment mentioned above. The endowment market value increased by 3%, from $718.2 million to $739.6 million, aided by the lower draw (mentioned above). Yet, balance sheet leverage showed minimal improvement. At June 30, 2019, the ratio of total liabilities to total assets stood at 64.3%, down slightly from 64.6%, the prior year. Net Assets increased by 2.6% from $534.3 million to $548.2 million, during fiscal 2019.
Status of Capital Campaign: In its 2019 Annual Report, the Institute stated that it had raised $483 million toward the campaign goal of $1 billion, as of October 5, 2019. Given the announced figure of $400 million, as of the public launch of the campaign, on October 14, 2017, RPI has raised approximately $80 million over the succeeding two years.
Liquidity and Capital Resources: With improved cash flow from operations and the effects of a fully ramped Summer Arch, RPI’s liquidity has improved. At June 30, 2019, there was 17.6 million of cash and equivalents on the balance sheet, although this was more than offset by a $23.1 million increase in Deferred Revenue Liabilities related to Summer Arch. There were no outstanding bank borrowings at fiscal year end, and the combined unused capacity under its two annually renewable bank credit lines stood at $50million. One of the most positive developments, this past May, was the Department of Education’s cancellation of the outstanding $20.9 million Letter of Credit backing the Institute’s participation in Federal student loan programs, because had RPI met its financial requirements. However, the Institute’s Unrestricted Net Assets remained significantly negative, at ($105 million). RPI’s long-term debt ratings remain at A3 from Moody’s and BBB+ from S&P.
Conclusions: In fiscal 2019, RPI enjoyed its strongest operating results in many years, reflecting the impact of peak enrollment during the fall and spring terms, plus seven weeks of the first full year of Summer Arch. Results were also aided by a small increase in research revenues, although these remained 15% below peak levels, as Federal dollars for research remain scarce. The Institute’s strong operating results were offset by its heavy burden of debt service payments, increased costs for pension and health benefits, and a competitive pricing environment for new students. Attracting students has become increasingly difficult due to declining demographics for high school seniors, especially in the Northeast, as reflected in the increased acceptance rate and decline in Yield from accepted students. The demographic decline is projected to continue through 2026. The Institute’s challenge is to remain competitive over the long-term, given its limited reserve of investable resources. This is evidenced by the 2019 depreciated value of land, building and equipment continuing to be at its lowest level since 2008. For the eighth consecutive year, the investment in campus facilities has been less than depreciation by a significant margin. Campus facilities are aging again. Fundraising continues to be weak, with Gifts & Bequests at only $49.0 million (10.8% of total revenues). That figure needs to reach 15% to 20%, in order to maintain competitiveness. The Institute is still over-leveraged. The legacy pension plan will continue to be a burden for at least another decade. The so-called “crossover” has not really happened when total debt and debt equivalents (including leases and unfunded pension liabilities) are included. The Institute has been able to ramp undergraduate enrollment because of its strong market position in STEM, plus the continued strong demand for undergraduate degrees (and employees) in those fields. However, it is unlikely that RPI can further expand undergraduate enrollment to a significant degree. Furthermore,the ability of the current faculty to manage the record throughput of students is likely to remain strained. Endowment investment returns have been consistently below the median for colleges and universities, nationally. With the current high market valuations of both equity and bonds, and a slowing domestic and global economy, the prospects for highfuture investment returns are not good. Due to its high leverage and relatively small endowment, RPI is not well positioned for an economic downturn and will be challenged to have the unrestricted resources for needed investments. 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.
Comments on Changes in Accounting Standards and Disclosures
As described in footnotes 2-l and 2-m of its 2019 Consolidated Financial Statements, RPI has recently adopted several new FASB accounting standards, the most significant of which impacts the timing of the recognition of Student Related Revenue, requiring that such revenue be appropriately apportioned to the periods in which the related student services are rendered, rather than recognized when payments are received. Proper matching of the timing of recorded revenues and related services has taken on added significance because of the full ramping of the Summer Arch, with its increased enrollment and operations from mid-May to early-August, a period which spans portions of two different fiscal years.
Separately, in its fiscal 2019 reports, RPI eliminated and/or modified the disclosure of certain important and valuable items of information, as compared to what it had been providing for many years.
These items are as follows:
- dollar amount of operating lease payments for the year (not disclosed in 2019);
- undergraduate tuition discount rate (not disclosed in 2019);
- apportionment of discounts on tuition and fees between Undergraduate and Graduate students eliminated (discounts now aggregated across all categories of tuition and fees);
- changed the expense classifications reported on its Statement of Activities, such that expenses are no longer apportioned between Instruction and Research.