Dive Brief:
- Zovio, an educational services company, on Monday sold its tutoring services business to GoGuardian, a K-12-focused ed tech company, for $55 million in cash.
- The sale of the subsidiary, called TutorMe, comes after Zovio leaders recently said they were exploring selling segments of the business. Zovio still owns Fullstack Academy, a tech boot camp education provider, and provides educational services to the University of Arizona Global Campus through a 15-year contract.
- Zovio also repaid a $31.5 million loan that it took out in April in part to prepare to pay the final judgment of a lawsuit that California filed against the company in 2017. Earlier this year, the judge in that case determined Zovio misled students when it owned the for-profit Ashford University and fined the company $22.4 million.
Dive Insight:
Zovio, formerly known as Bridgepoint Education, has been attempting to transition to an educational services company after previously operating as an owner of for-profit colleges. As part of the pivot, the company snapped up TutorMe in 2019 for a deal including $2.8 million in cash and nearly 310,000 in shares.
In December 2020, Zovio sold Ashford University to the University of Arizona, which rebranded the online college as the University of Arizona Global Campus. Zovio retains close ties to the university through a 15-year contract under which it provides services such as marketing and recruitment in exchange for a cut of the online college's revenue.
But Zovio's transition has been tumultuous.
The company is facing a hefty fine from the California ruling, struggling with enrollment challenges at UAGC and grappling with ongoing criticism about its relationship with the online college. The company is also in danger of delisting from Nasdaq if it can't boost its closing share price above $1 for 10 straight business days by the end of October.
Zovio CEO Randy Hendricks said in an emailed statement that the sale of TutorMe highlights the company's ability to fulfill its plan to pursue strategic alternatives.
“We believe this transaction is in the best interest of our stakeholders and will be instrumental in our plan to unlock value for our shareholders," Hendricks said.
The California ruling in March kicked off some of Zovio's recent struggles. In a 49-page opinion, San Diego Superior Court Judge Eddie Sturgeon found Ashford University had misled students about the cost and career outcomes of the institution's programs. The judge cited evidence that the company made more than 1.2 million misleading calls to prospective students from March 2009 to April 2020.
The company filed a notice of intention for a new trial and to vacate the judgment. Sturgeon denied Zovio's motion for a new trial May 13. But the judge reduced the bond the company must secure to avoid paying the entire $22.4 million fine while it appeals the case to $7 million, down from over $33 million.
In court documents filed before that ruling, Zovio said it contacted multiple bond providers but the company did not have enough cash on hand, real estate assets and other marketable securities to meet their collateral requirements.
"We are pleased that the judge reduced the amount of the bond requirement and we are evaluating our options to appeal," Vickie Schray, Zovio's chief external affairs officer, said in an email.
After the court ruling that determined Ashford had misled students, Zovio leaders told analysts that they were considering selling parts of the business. It's unclear whether Zovio is also looking to offload Fullstack and its contract with the UAGC. The company did not answer a question Tuesday about whether it is exploring selling other business units.
TutorMe had been a growing source of revenue for Zovio. Along with Fullstack Academy, TutorMe brought in $9.3 million in the first quarter of 2022, up 29.5% from the same period the year before.
Meanwhile, revenue from Zovio's contract with UAGC declined 24.9% to $52.3 million in 2022's first quarter.
GoGuardian said in a statement that it shares a commitment with TutorMe to make learning more convenient, effective and equitable. "We're excited to join our teams in order to better support the students, schools and districts we serve," it said.
