School Update Feb09_townhall
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State of the School: Managing in Turbulent Times February 19, 2009 1
Impact of the Crisis in Higher Education • Endowments down 25% or more • State appropriations for higher education being cut dramatically – ASU $90M since June 2008
• Expense reductions underway at most private and public universities • Corporate spending in training and development down • GMAT test taker up, but unemployment and family net worth down • High growth expected in for-profit sector – P/E Apollo: 27, DeVry: 29, Grand Canyon: 147 (IPO Nov. 08, 07/08 revenues $100M, Market Cap: $834M)
Impact of the crisis on Thunderbird • Decline in forecasted Corporate Learning revenues – $3.1M in Russia (business plus currency), $2.9M in other programs (deferrals, cancellations and less new business), $0.4M contingency
• • • •
Real Estate transactions not completed Endowment loss of $6.6M (31%) since 6/30/08 Slowdown in new philanthropic commitments Loss of liquidity due to CommonFund short-term fund closure ($2.4M still tied up) • Lower interest cost on variable rate bond debt (current rate < 1.5%, vs. 5% budgeted) • Declining liquidity ratio as consequence of short-term fund closure and endowment loss (58% expected at 6/30/09 vs. required 50%)
Revenue Trends 100,000
100,000
80,000
80,000
60,000
60,000
40,000
40,000
20,000
20,000
-
0
0 4 /0 5
0 5 /0 6
08/09 B udget and 09/10 S trategic P lan C o rpo rate Learning
0 6 /0 7
0 7 /0 8
0 8 /0 9 F
0 9 /1 0 F
A c adem ic P ro gram s & K no wledge N etwo rk N o n-P ro gram
Fall Enrollment Trends 1,600 1,400 1,200 1,000 800 600 400 200 04/05 Full-time MBAGM
05/06 Executive MBA
06/07
07/08
GMBA Latin America
08/09F GMBA On-Demand
09/10F MA/MS
Corporate Fee Trends
30,000
L e a rn in g a n d C o n s u ltin g N e tw o rk D is ta n ce L e a rn in g
25,000 20,000
O p e n E n ro llm e n t
15,000
C o n s o rtia R u s s ia
10,000
C u s to m 5,000 04/05
05/06
06/07
07/08
08/09F
09/10F
Amount (in thousand)
Change in Unrestricted Net Assets vs. Free Cash Flow 2,000 Change in unrestricted net assets *
(2,000)
Unrestricted Investment and Currency Gain/Lo ss
(4,000)
Free Cash Flo w
(6,000) (8,000) 04/05
05/06
06/07
07/08
08/09F
* Change in unrest rict ed net asset s is bef ore unrealized gains or losses on unrest rict ed endowment and currency t ranslat ion.
Capital Expenditures 5,000
5,000
4,000
4,000
Russia
3,000
3,000
Glendale
2,000
2,000
1,000
1,000
-
04/05 05/06 06/07 07/08 08/09F 09/10F
08/09 Budget & 09/10 Strategic Plan
Millions
Capital Campaign $70 $60 $50 $41.56M
$44.44M
$40 $30 $20
$15.62M
$10 $0 2/1/2006
FY 06-07
FY 07-08
FY 08-09
FY 09-10
Level Pace Actual Commitments (as of February 16, 2009) Needed per year (3 yrs) as 6/30/08 -$7.81M Needed per year (2 yrs) based on current amount raised -$10.49M 28M
FY 10-11
How is Thunderbird positioned to weather the storm? • Program portfolio diversification to tap multiple markets – On-Demand, MA/MS, future European EMBA and future Part Time MBA
• Concentration of Corporate Learning clients in resilient sectors – Oil & Gas and Pharma industries
• Promising new business in the Corporate Learning pipeline • Prior reorganization improved productivity and flexibility • New Learning Management System to support new distance programs
How is Thunderbird positioned to weather the storm? • Limited reliance on endowment or state funding • Preparedness to execute transactions – Land zoning completed
• Letter of credit in place until Sept. 2011, new $2M line of credit • Significant campaign commitments in place • Endowment moved to a 100% insured bank account to eliminate any further downside risk • Actions to improve cash position – Deferred $3M capex – Reviewed all open positions, with significant savings from deferred hires/replacements – Converted rubles to US dollars – Other expense reductions – $15.8M of cash in the bank as of Jan 31st (includes Spring tuition)
Risks going forward • Outstanding bond risks – Default risk from missing covenants (ex: liquidity ratio), – Other risks: Interest rate volatility (currently covered by interest rate cap), Bank of NY rating downgrade, inability to remarket bonds – Limited options to restructure debt before Sept. 2011
• Further declines in corporate learning revenues • Further decline in new philanthropic commitments and pledge payments • Shift in applications from Full Time MBA to early career and working professional degree programs • Potential decline in enrollments due to lack of financing • Foreign currency impact on affordability of Thunderbird programs
Weathering the storm in the next two years • • • •
Revenue opportunities Expense reductions Restructuring of assets and liabilities Strategic initiatives
Planning for the worst while working for the best 09/10 Revenue Projection Scenarios $ in Thousands 09/10 Forecast
Revenue Tuition and fees net of scholarships Corporate Fees (excluding Russia) Other Total revenue (excluding Russia)
07/08
08/09
Actual
Forecast
Lo MidPoint
Middle Case
Hi Midpoint
Best Case
$36,119
$39,355
$37,126
$38,432
$40,578
$41,496
$42,514
15,126
13,707
11,435
12,699
13,844
15,535
17,225
9,282
8,714
6,691
7,104
7,517
7,840
8,163
$60,527
$61,776
$55,252
$58,235
$61,939
$64,871
$67,902
(6,524) (11%)
(3,541) (6%)
163 0%
3,095 5%
6,126 10%
$59,252
$62,735
$66,939
$70,871
$74,902
09/10 Fcst vs 08/09 Fcst $ 09/10 Fcst vs 08/09 Fcst % Total Revenue (including Russia)
Worst Case
$69,801
$68,537
Revenue Opportunities & Potential Expense Reductions • Consultative process: Identify and prioritize options for revenue opportunities and expense reductions – Suggestion box open to all faculty and staff – Senior administration in consultation with the faculty senate and others to review all options and submit a final proposal to the president
• Budget process for 2009/10 fiscal year – Incorporate suggestions from consultative process
Restructuring of assets and liabilities • Potential sale of multi-family residential and office parcels • Restructure bond debt before Sept. 2011 • Endowment management – Minimize down-side risk – Once liquidity position improves and market volatility subsides, look for opportunities to re-enter markets
Strategic Initiatives • Opportunities in the Middle East – Kingdom of Saudi Arabia
• Partnership with for-profit sector – Expansion of the CBSD model to other emerging markets – Other initiatives
State of the School: Managing in Turbulent Times February 19, 2009 18
Impact of the Crisis in Higher Education • Endowments down 25% or more • State appropriations for higher education being cut dramatically – ASU $90M since June 2008
• Expense reductions underway at most private and public universities • Corporate spending in training and development down • GMAT test taker up, but unemployment and family net worth down • High growth expected in for-profit sector – P/E Apollo: 27, DeVry: 29, Grand Canyon: 147 (IPO Nov. 08, 07/08 revenues $100M, Market Cap: $834M)
Impact of the crisis on Thunderbird • Decline in forecasted Corporate Learning revenues – $3.1M in Russia (business plus currency), $2.9M in other programs (deferrals, cancellations and less new business), $0.4M contingency
• • • •
Real Estate transactions not completed Endowment loss of $6.6M (31%) since 6/30/08 Slowdown in new philanthropic commitments Loss of liquidity due to CommonFund short-term fund closure ($2.4M still tied up) • Lower interest cost on variable rate bond debt (current rate < 1.5%, vs. 5% budgeted) • Declining liquidity ratio as consequence of short-term fund closure and endowment loss (58% expected at 6/30/09 vs. required 50%)
Revenue Trends 100,000
100,000
80,000
80,000
60,000
60,000
40,000
40,000
20,000
20,000
-
0
0 4 /0 5
0 5 /0 6
08/09 B udget and 09/10 S trategic P lan C o rpo rate Learning
0 6 /0 7
0 7 /0 8
0 8 /0 9 F
0 9 /1 0 F
A c adem ic P ro gram s & K no wledge N etwo rk N o n-P ro gram
Fall Enrollment Trends 1,600 1,400 1,200 1,000 800 600 400 200 04/05 Full-time MBAGM
05/06 Executive MBA
06/07
07/08
GMBA Latin America
08/09F GMBA On-Demand
09/10F MA/MS
Corporate Fee Trends
30,000
L e a rn in g a n d C o n s u ltin g N e tw o rk D is ta n ce L e a rn in g
25,000 20,000
O p e n E n ro llm e n t
15,000
C o n s o rtia R u s s ia
10,000
C u s to m 5,000 04/05
05/06
06/07
07/08
08/09F
09/10F
Amount (in thousand)
Change in Unrestricted Net Assets vs. Free Cash Flow 2,000 Change in unrestricted net assets *
(2,000)
Unrestricted Investment and Currency Gain/Lo ss
(4,000)
Free Cash Flo w
(6,000) (8,000) 04/05
05/06
06/07
07/08
08/09F
* Change in unrest rict ed net asset s is bef ore unrealized gains or losses on unrest rict ed endowment and currency t ranslat ion.
Capital Expenditures 5,000
5,000
4,000
4,000
Russia
3,000
3,000
Glendale
2,000
2,000
1,000
1,000
-
04/05 05/06 06/07 07/08 08/09F 09/10F
08/09 Budget & 09/10 Strategic Plan
Millions
Capital Campaign $70 $60 $50 $41.56M
$44.44M
$40 $30 $20
$15.62M
$10 $0 2/1/2006
FY 06-07
FY 07-08
FY 08-09
FY 09-10
Level Pace Actual Commitments (as of February 16, 2009) Needed per year (3 yrs) as 6/30/08 -$7.81M Needed per year (2 yrs) based on current amount raised -$10.49M 28M
FY 10-11
How is Thunderbird positioned to weather the storm? • Program portfolio diversification to tap multiple markets – On-Demand, MA/MS, future European EMBA and future Part Time MBA
• Concentration of Corporate Learning clients in resilient sectors – Oil & Gas and Pharma industries
• Promising new business in the Corporate Learning pipeline • Prior reorganization improved productivity and flexibility • New Learning Management System to support new distance programs
How is Thunderbird positioned to weather the storm? • Limited reliance on endowment or state funding • Preparedness to execute transactions – Land zoning completed
• Letter of credit in place until Sept. 2011, new $2M line of credit • Significant campaign commitments in place • Endowment moved to a 100% insured bank account to eliminate any further downside risk • Actions to improve cash position – Deferred $3M capex – Reviewed all open positions, with significant savings from deferred hires/replacements – Converted rubles to US dollars – Other expense reductions – $15.8M of cash in the bank as of Jan 31st (includes Spring tuition)
Risks going forward • Outstanding bond risks – Default risk from missing covenants (ex: liquidity ratio), – Other risks: Interest rate volatility (currently covered by interest rate cap), Bank of NY rating downgrade, inability to remarket bonds – Limited options to restructure debt before Sept. 2011
• Further declines in corporate learning revenues • Further decline in new philanthropic commitments and pledge payments • Shift in applications from Full Time MBA to early career and working professional degree programs • Potential decline in enrollments due to lack of financing • Foreign currency impact on affordability of Thunderbird programs
Weathering the storm in the next two years • • • •
Revenue opportunities Expense reductions Restructuring of assets and liabilities Strategic initiatives
Planning for the worst while working for the best 09/10 Revenue Projection Scenarios $ in Thousands 09/10 Forecast
Revenue Tuition and fees net of scholarships Corporate Fees (excluding Russia) Other Total revenue (excluding Russia)
07/08
08/09
Actual
Forecast
Lo MidPoint
Middle Case
Hi Midpoint
Best Case
$36,119
$39,355
$37,126
$38,432
$40,578
$41,496
$42,514
15,126
13,707
11,435
12,699
13,844
15,535
17,225
9,282
8,714
6,691
7,104
7,517
7,840
8,163
$60,527
$61,776
$55,252
$58,235
$61,939
$64,871
$67,902
(6,524) (11%)
(3,541) (6%)
163 0%
3,095 5%
6,126 10%
$59,252
$62,735
$66,939
$70,871
$74,902
09/10 Fcst vs 08/09 Fcst $ 09/10 Fcst vs 08/09 Fcst % Total Revenue (including Russia)
Worst Case
$69,801
$68,537
Revenue Opportunities & Potential Expense Reductions • Consultative process: Identify and prioritize options for revenue opportunities and expense reductions – Suggestion box open to all faculty and staff – Senior administration in consultation with the faculty senate and others to review all options and submit a final proposal to the president
• Budget process for 2009/10 fiscal year – Incorporate suggestions from consultative process
Restructuring of assets and liabilities • Potential sale of multi-family residential and office parcels • Restructure bond debt before Sept. 2011 • Endowment management – Minimize down-side risk – Once liquidity position improves and market volatility subsides, look for opportunities to re-enter markets
Strategic Initiatives • Opportunities in the Middle East – Kingdom of Saudi Arabia
• Partnership with for-profit sector – Expansion of the CBSD model to other emerging markets – Other initiatives
State of the School: Managing in Turbulent Times February 19, 2009 18
