UAGC Updates: Multi-step merger and financial updates

Author

Phil Hill
August 23, 2021

This year’s ASU+GSV conference was the first business trip I’ve had since February 2020, and I have to admit that I enjoyed it. It was nice seeing people again, having hallway conversations, and hearing from new people. I found myself attending far more sessions than I typically attended at similar conferences in 2018 or 2019 (the pandemic as burnout relief?). The conference logistics worked out much better than I expected, despite some last-minute changes when the mobile app chosen to track vaccination and testing status failed. The organizers must have spent some real money and lost sleep adding onsite rapid testing and prepping all of the staff. Let’s hope that schools have similar experiences this fall (not with failing apps, but with overall ability to handle vaccines, testing, and masks).

UAGC: Full Merger?

One of the sessions I attended included Paul Pastorek, the new CEO of the University of Arizona Global Campus (UAGC), as a panelist. The conversation was useful in terms of universities collaborating on new initiatives, and Pastorek led off his introduction giving an outsider view of the deal (he joined a few months after the deal was complete). Pastorek dropped several hints about future moves to more closely combine UAGC with the parent University of Arizona.

I think the there was a challenge with the university making this decision, and so the structure was set up to allow for a gradual relationship building between Ashford a very different university into a for-profit frame, and then with the possibility of bringing the two together in a full merger in the next few years. So it’s a very different structure yet independent but trying to meet this need.

I’ll just say this is a hint of what’s to come working through the cultural vision and other differences between the two institutions which is a very important delicate and challenging piece.

Pastorek is right to highlight cultural issues as a challenging piece of a merger, but I suspect that moving from a separate global campus to a “full merger” would create a whole new level of resistance, especially after the misleading descriptions used to sell the UAGC concept to the University of Arizona community.

As long as we’re on the topic of transparency . . .

UAGC: FY21 Financial and Enrollment Results

The University of Arizona (UA) purchase of Ashford University to create UAGC was completed in Dec 2020, and that unit has now completed its most recent fiscal year (half as Ashford University, half as UAGC). Like Purdue Global, good luck getting useful information on those enrollments or financials. What is becoming more clear is that UAGC is already facing significant challenges with enrollments and finances.

At last week’s University of Arizona Strategic Planning Budget Advisory Committee (SPBAC), there were a few updates noted on UAGC based on an email update distributed across the university.

A year ago SPBAC documents shared that UA would likely receive $20 million at closing, and they have now received that amount from Zovio. $3.5 million goes to legal costs, and $16.5 million can now be spent by the university. Note that this fee was part of the $37.5 million pre-payment for future guarantees for a 1.5 year term, meaning that UA is borrowing from future earnings from UAGC, using Zovio as a line of credit.

Zovio released their Q2 2021 earnings last month, and they continue to report revenue decreases due to UAGC enrollment challenges. The SPBAC notes:

UAGC struggling with recruitment following rebranding. UArizona is financially insulated from fluctuating UAGC enrollment.

In the earnings call, Zovio tried to explain the enrollment challenges as structural for higher ed in general.

Last quarter we discussed the enrollment headwinds we faced at UAGC as a result of the new brand as well as the longer term impact of the COVID pandemic similar to many higher education institutions.

In a later Q&A with analyst Alex Paris, interim CEO George Pernsteiner added some numbers to the enrollment drops (refering to the Q1 drop of 25% in new enrollments compared to one year ago).

Alex Paris: So when you say stabilization you’re just saying it’s not as bad as negative 25% right or you’re getting closer to zero but certainly not growing yet at this point?

George Pernsteiner: That’s correct, Alex probably closer to 20% decline versus the 25% and recently we are seeing stabilization in our total enrollment.

Enrollment is dropping at UAGC, from 20 – 25% year-over-year with new enrollments, but with some signs of stabilization. The problem is that this is a Zovio / UAGC problem, not one related to all of higher ed as alleged. In April I described the “flight to heavily online institutions” that enrollment increased by 3.2% for primarily online instituions, and also noted that for-profit enrollment increased year-over-year. UAGC’s peers are not losing enrollment. Purdue Global is increasing enrollment.

Making the situation more interesting, by comparison, is that Arizona Online, the internal group to the University of Arizona and not directly associated with UAGC, is seeing its own enrollment increases. From the SPBAC notes we see that revenue at Arizona Online is increasing at roughly $20 million per year in revenue, enrollment is increasing for undergraduates while dropping for graduate students, and retention rates are increasing. Remember, this is the internal group – UAGC was created to acquire enrollment growth rather than internally build it.

It is true that the internal Arizona Online serves fewer than 7,000 students while UAGC serves more than 25,000. But the trends are concerning for the vision of UAGC as a source of online education growth and best practices. As Pastorek further stated in the panel concerning the rationale for the UAGC acquisition (or merger):

It is really the knowledge exchange and the augmentation. Now it’s hard very frankly to get people to buy into that because their instinct is otherwise, but I think that’s my job every day is to inspire our own people to know that they will be focused on their mission and augmenting.

Pastorek is new, and he seems to be promoting the right values (transparency, dealing with culture). I would suggest that UAGC share their true enrollment picture and financial results and explain what is happening. 1 There are lessons to learn, knowledge to exchange, from transparent sharing of UAGC results. It will become much easier “to get people to buy into that” if UAGC can demonstrate its value while being open about the results.

1 And UAGC should stop using the “Zovio is public” shield to avoid transparency. It is the university, not the OPM partner, that is in control of what information can be made public.