2Q21 Results: UAGC Trends Appear to Have Stabilized; Continued Strong Results at Zovio Growth



KEY POINTS
  • UAGC enrollments were in line with the guidance set in May. For the quarter, the segment reported revenues of $62.2 million versus $73.3 million last year.
  • Zovio Growth continues to perform well with revenues of $6.9 million in the quarter versus $5.0 million last year. The company is maintaining its 30% revenue growth guidance for the year for Zovio Growth, with an expected EBITDA loss of about $7 million. The segment should become profitable by 2023.
  • The company maintained its annual revenue guidance of $265 million to $275 million and break-even to slight negative EBITDA. While revenues could be closer to the lower end of the guidance, management augmented its cost-reduction initiative, with expected annualized savings of $60 million versus the $40 million previously indicated.
  • Management has expanded coordination efforts with UAGC to improve student retentions and to accelerate new enrollments, with a focus on corporate partner programs (such as the recently announced partnership with Walgreens) and on the military vertical.
  • FullStack and TutorMe continue to perform well and to add new partners. Revenues for this segment grew 57% in the first half of the year and management sees continued 30% annual growth through at least 2025 for this segment. New partners are typically dilutive during the first year of a contract and become accretive thereafter. Thus, given its strong growth off a small base, the segment is currently EBITDA negative but is moving toward profitability.
  • The company ended the quarter with $24 million in cash versus $35 million at the beginning of the year. However, it should be cash flow positive for the second half of the year and expects to end the year with about $40 million in cash.
  • Despite a debt-free balance sheet, Zovio trades at a 2021 EV/Revenue multiple of 0.2x versus around 3x for the industry. This reflects the uncertainty in the business model transition from running Ashford University to providing a comprehensive range of services to UAGC under a long-term agreement. Any improved visibility and performance in that business could start moving Zovio’s valuation closer to that of its peers.

COMPANY OVERVIEW

Zovio is an education technology company headquartered in Chandler, Arizona. Zovio provides services to universities to help them manage distance learning programs. These services include program development, marketing, and student monitoring and retention. Its current largest university partner is the University of Arizona Global Campus, with about 30,000 students enrolled. Zovio also provides specific services directly to students or in partnership with universities and schools, such as the FullStack Academy (coding and computer security training), and TutorMe (tutoring services).

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