- On EdTech Newsletter
- 2U's Potential End Days Becoming More Clear
2U's Potential End Days Becoming More Clear
Today's earnings release confirmed November coverage and directly addresses the crisis
Was this forwarded to you by a friend? Sign up, and get your own copy of the news that matters sent to your inbox every week. Sign up for the On EdTech newsletter. Interested in additional analysis? Try with our 30-day free trial and Upgrade to the On EdTech+ newsletter.
In late November I finally took a deeper dive into the 2U / edX balance sheet and saw a crisis looming.
With today’s earnings release for Q4 and Full Year 2023, the potential end days of this once dominant company are becoming more clear. Read the post above if you want to see the full explanation of the debt-driven crisis that 2U faces.
For today’s release, 2U’s new CFO came right to the point.
Although the release summary might appear positive, but trust me, it is not [emphasis added].
The issue is that $54.6 million of Q4 revenue was from termination fees where academic partners pay 2U a fee for to cancel the agreement [emphasis added].
If you subtract that one-time $54.6 million amount, the Degrees segment (think traditional OPM) lost $28.2 million, more than a 20% year-over-year (YoY) decrease. That combines with the 7% loss in the Alternative Credential segment. If my math is correct, 2U / edX organically (in this case, removing one-time termination fees) decreased total revenue by more than 7% YoY for Q4.
The estimates of how much “portfolio management”, meaning program termination fees, should be expected moving forward was not too clear. In November 2U referenced an additional $40 million from 2U that did not occur in Q4. Once the formal 10K report comes out, we’ll see if that adds more clarity.
There are only two positive results to note:
Executive education increased enrollments by 8% to partially offset the losses from Bootcamps; and
There will be additional one-time termination fees recognized in 2024.
I do not want to imply that 2U / edX is hiding any of this situation. Further in the earnings release we get to the heart of the matter.
Intermingled with pure finances is a developing decrease in enrollment across all areas other than Executive Education.
Go back to my November post:
What we are seeing is more clarity on how those debt holders are making their moves.
Purchase receivables means that debt holders are directly taking over parts of the accounts receivables, with a 12% discount (or payment fee). Obviously, $86.2 million is not enough to solve a $900 million problem, but it buys time until we see the next move.
2U / edX is now forecasting total revenue in 2024 of $805 - $815 million, a further 14% decrease from the disastrous 2023. But, the company is working to decrease costs even further. A “12 quarter” “shrink to grow strategy” according to CEO Paul Lalljie.
Internally, the company is being run as a financial Hail Mary in the hopes of survival. Everything will be focused on financial metrics - “comprehensive review of our business to streamline and consolidate costs”, “optimize staffing levels”, “outsourcing”, etc. With clients, the key term is “going concern”, meaning the likelihood of surviving as an operating company that can pay its bills.
There was nothing in the earnings release or the earnings call Q&A that changed my outlook.
The main On EdTech newsletter is free to share in part or in whole. All we ask is attribution.
Thanks for being a subscriber.