Zovio sells its tutoring services business for $55 million

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Diving brief:

  • Zovio, an educational services company, on Monday sold its tutoring services business to GoGuardian, an educational technology company focused on K-12, for $55 million in cash.
  • the sale of subsidiary, called TutorMe, comes after Zovio executives recently said they were exploring selling segments of the company. Zovio still owns Fullstack Academy, a technology boot camp education provider, and provides educational services to the University of Arizona Global Campus under a 15-year contract.
  • Zovio also repaid a $31.5 million loan he 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 that Zovio misled students when he owned the for-profit Ashford University and imposed a fine of 22, $4 million to the company.

Overview of the dive:

Zovio, formerly known as Bridgepoint Education, attempted to transition into an educational services company after owning for-profit colleges. As part of the pivot, the company acquired TutorMe in 2019 for a deal that included $2.8 million in cash and nearly 310,000 in shares.

In December 2020, Zovio sold Ashford University to the University of Arizona, which renamed the online college to the University of Arizona Global Campus. Zovio retains close ties to the university through a 15-year contract under which he provides services such as marketing and recruiting in exchange for a cut in online college revenue.

But Zovio’s transition has been tumultuous.

The company faces a hefty fine from the California ruling, grapples with UAGC enrollment issues and grapples with continued criticism over its relationship with the online college. The company also risks delisting from Nasdaq if he can’t raise his stock’s closing price above $1 for 10 consecutive 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 deliver on its plan to pursue strategic alternatives.

“We believe this transaction is in the best interests of our stakeholders and will be instrumental in our plan to create value for our shareholders,” Hendricks said.

The California decision in March launched some of Zovio’s recent struggles. In a 49-page opinion, San Diego Superior Court Judge Eddie Sturgeon found that Ashford University 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 has filed a notice of intent for a new trial and to set aside the judgment. Sturgeon denied Zovio’s request for a new trial on May 13. But the judge reduced the bail the company must post to avoid paying the full $22.4million fine while it appeals the case at $7 millionagainst more than 33 million dollars.

In court documents filed before that decision, Zovio said it contacted several bond providers, but the company did not have enough cash, real estate assets and other marketable securities to meet their collateral requirements.

“We are delighted that the judge has reduced the amount of bond required and we are evaluating our options to appeal,” Vickie Schray, Zovio’s director of external affairs, said in an email.

After the court ruling determined that Ashford misled the students, Zovio executives told analysts they were considering selling parts of the business. It’s unclear if Zovio is also looking to offload Fullstack and his contract with UAGC. The company did not respond to a question Tuesday about whether it plans to sell other business units.

TutorMe had been a growing source of income for Zovie. Along with Fullstack Academy, TutorMe grossed $9.3 million in Q1 2022, up 29.5% from the same period a year earlier.

Meanwhile, revenue from Zovio’s contract with UAGC fell 24.9% to $52.3 million in the first quarter of 2022.

GoGuardian said in a statement that it shares a commitment with TutorMe to make learning more convenient, efficient and fair. “We are excited to join our teams to better support the students, schools and districts we serve,” he said.