On February 29th, I spent the day attending the 2U University Partner Advisory Board meeting. These conversations between 2U executives and university leaders are designed to encourage honest exchange and open dialogue. However, sharing my thoughts on what I learned at council meetings is only my own opinion, and the views expressed in this article may not reflect the thoughts of other council members.
The biggest question I wanted answered at the meeting was about the company's financial and operational resilience. Our committee meeting followed 2U's fourth quarter and annual earnings report on February 12th.
On that call, 2U CEO Paul Lalljie shared that there are “significant doubts” about the company's ability “if it does not modify or refinance its short-term loans or raise capital to reduce its debt in the near term.” It will be maintained as a going concern. (For more information, see our Q&A with Andrew Hermalyn, chair of 2U's degree programs, and Phil Hill's response to Andrew Hermalyn's follow-up question from 2U.)
Although the advisory board did not provide any new data to help it understand whether 2U can successfully repay its debt, the meeting gave it more confidence in the company's leadership.
Lalljie, who was 2U's CFO before becoming CEO in November, spent significant time talking to committee members and answering their questions. Again, Lalljie did not share any additional financial information that had not previously been disclosed, but this conversation was somewhat reassuring. Lalljie struck me as calm, non-dramatic and very competent. He listened carefully to the committee's concerns and refrained from attempting to “sell” us an overly rosy view of the company's challenges.
Through the Advisory Board meetings, it also became clear that 2U's leadership structure had evolved to become more professional and collaborative. As CEO, Lalljie is primarily focused on stabilizing 2U's financial position while rebuilding the company's internal culture. Lalljie acknowledged that 2U faces serious challenges on both fronts – finances and culture – and is committed to moving quickly to address both areas.
On the financial side, Lalljie believes 2U will be in a strong position to refinance its debt in the first half of 2024 as it carefully controls costs and focuses on investing in its most profitable programs and partnerships while remaining focused on its business. Learner outcomes. On the culture front, Lalljie recognized that 2U needed to motivate and retain top talent, a goal he listed as a top priority as CEO.
Strategic leadership and operational responsibility for online programs, university partnerships, and technology platforms are divided between Hermalyn (Chair, Degree Programs) and Aaron McCullough (Chair, Alternative Credentials). 2U announced this new structure in a press release on January 3, but it wasn't until I spent time with all three leaders that I understood what this organizational change meant for our university partners.
In my judgment, having a single responsible leader at the school who can work together on degree programs (Hermalyn) and alternative certifications (McCullough) will immediately improve communication and collaboration between 2U and its university partners.
Of course, gaining some confidence in 2U's leadership team is not the same as convincing them that the company is in a strong long-term position to be a valuable and resilient university partner. Any school that decides to partner with a for-profit company to develop, market, and operate degree or non-degree online programs must evaluate the financial, operational, and reputational risks of such an agreement.
Can 2U repay its debt? I do not know.
If 2U is unable to refinance, what does this mean for the long-term resilience of its university partners and online programs (degree and non-degree)? Again, unknown. It is impossible to predict how refinancing negotiations will proceed. Of course, it is expected that the current program will remain in operation.
Could 2U be acquired? That's questionable because anyone who buys 2U will be taking on about $900 million in liabilities as well as the company's assets. But when Harvard and MIT sold edX to 2U for $800 million in 2021, they never thought that would happen. So, there are no more surprises in the world of online learning.
Given 2U's financial difficulties resulting in part from debt accumulated through the edX acquisition, current and prospective 2U university partners should be particularly careful in conducting due diligence.
One data point in this analysis is how the university judges the company's top leadership in terms of trustworthiness, trustworthiness, listening, and openness to learning and true collaboration. For me at least, and not to mention any of my college colleagues on the Partner Advisory Board, my judgment of the new leadership team of Lalljie, Hermalyn and McCullough was initially (and cautiously) positive. This is the beginning.