Saturday, September 8, 2018

National American University and the Subprime College Crash


NAUH and the Subprime College Crash
While subprime college college companies like Corinthian Colleges (COCO), Apollo Group (NASDAQ:APOL), DeVry University (DV), ITT Educational Services (ESI), and Education Management Corporation (EDMC) made the greatest profits and the greatest losses over the last two to three decades, National American University Holdings (NAUH) has been flying under the radar.

The reason for so little attention: NAUH is a small cap company with about 35 small ground campuses. Their campuses are spread out across the US West and Midwest, including Ellsworth Air Force Base near Rapid City, South Dakota. The company also has a few real estate holdings in South Dakota.

NAUH's shares have never risen to the heights of other subprime colleges that have already crashed. Its peak was $12--more than eight years ago.

According to the National Center for Education Statistics, NAUH's 3-year student loan default rate is 24% and their student loan repayment rate is 27%. Their graduation rate is 13-35%, depending on the campus. 

Worse yet, NAUH is targeting service members and veterans even more as the company lies at the brink of delisting. That's something that could get negative media attention.

Downward Trajectory
NAUH has made some money by scavenging from other failed schools, including Everest College (once part of the infamous Corinthian Colleges), ITT Tech, Brown Mackie College, Wright Career College, Career Point College, and Westwood College. But overall it has been on a three-year streak of earnings losses. NAUH's last reported gains were in February 2015.

Revenues are also down, way down. According to NAUH's last quarterly report, "FY 2018 annual revenues were $77.2 million, compared to $86.6 million in the prior year."
National American University's campuses are small, but most are too expensive to maintain. It appears that more than a dozen schools have closed or are in the process of closing.

Revenue + Earnings
(2015) 117.9M (-6.7M)
(2016) 96.1M (-8.2M)
(2017) 86.6M (-7.8M)
(2018) 77.2M (-12.3M)

Nearly all students are now learning online or through hybrid education. NAU has 4,6817 students in its online programs, 617 students at its campuses, and 747 students attend hybrid learning locations.

(2015) 9,519
(2016) 8,185
(2017) 6,703
(2018) 5,648

In 2016, National American University began closing campuses.  In 2018, they continue to consolidate and downsize.  

National American University Campus Populations 
(Source: National Center for Education Statistics)

Salem, VA  980
Kettering, OH  22
Lexington, KY 233
Youngstown, OH  34
Albuquerque, NM (2) 190+163
Austin, TX (2) 222+?
Bellevue, NE 98
Bloomington, MN 68
Brooklyn Center, MN 125
Burnsville, MN 44
San Antonio, TX  287
Centennial, CO  176
Colorado Springs, CO (2) 196 + 152
Ellsworth AFB, SD  295
Garden City, KS  48
Georgetown, TX   138
Houston, TX   77
Independence, MO  255
Indianapolis, IN  96
Lee's Summit, MO    154
Lewisville, TX  107
Mesquite, TX   105
Overland Park, KS  207
Rapid City, SD  1,346
Richardson, TX  150
Rochester, MN  81
Roseville, MN  99
Sioux Falls, SD  219
Tulsa, OK  172
Watertown, SD  70
Aurora, Co (Westwood teachout site) ?
Wichita, KS (2) 130+90
Kansas City, MO  149 

It Gets Worse
National American may gain some attention--in a bad way--because it shows few signs that it can survive.

The 2018 year started out rough, with the unsealing of a False Claims lawsuit by a former NAUH official. The lawsuit alleged that the school defrauded the US government out of millions of dollars in a student aid program, unlawfully paid bonuses to university employees for recruiting students and rigged the accreditation for its medical assisting program.
As part of its cost cutting, almost all of NAU's students are now online, which usually results in lower graduation rates--and more students who cannot repay their student loans.
NAUH has now been been forced to mortgage its properties for $8M in order to maintain liquidity. The loan is with Black Hills Community Bank. While the conditions may be favorable, maybe too favorable, business deals like this sound reminiscent of other subprime colleges before they failed.

NAUH Cash (in thousands)
(2015) 23,300
(2016) 21,713
(2017) 11,974
(2018) 5,324

NAUH's debt surpassed its equity value in May 2018. 

At this point, only one investor stands between NAUH and delisting--T. Rowe Price, a huge company that can afford to lose a little money in spots. But with all other institutional investors out, how long will T. Rowe Price keep their shares?

No comments: