On February 29, I spent the day participating in a 2U University Partner Advisory Council meeting. These conversations between 2U executives and university leaders are designed to encourage honest exchange and open dialogue. However, in sharing my thoughts on what I learned from the Council meeting, I speak only for myself, and the views expressed in this piece may not reflect the thinking of other members of the Council.
The big questions that I wanted to be answered at the meeting were about the company’s financial and operational resilience. Our Council meeting followed 2U’s February 12 fourth-quarter and full-year earnings call.
In that call, 2U’s CEO, Paul Lalljie, shared that if the company “does not amend or refinance its term loan, or raise capital to reduce its debt in the short term,” then there is “substantial doubt” about the company’s ability to continue as a “going concern.” (See my Q&A with Andrew Hermalyn, 2U’s president of the degree program segment, and Phil Hill’s Andrew Hermalyn From 2U Responds to Follow Up Questions for more context).
While the Advisory Council did not provide any new data to help us understand whether 2U will be able to successfully refinance its debt, the meeting left me with more confidence in the company’s leadership.
Lalljie, who was 2U’s CFO before becoming CEO in November, spent significant time speaking with and answering questions from Council members. While, again, Lalljie did not share any additional financial information that had not been previously publicly disclosed, I found this conversation to be somewhat reassuring. Lalljie struck me as calm, no-drama, and highly competent. He listened well to the Council’s concerns and refrained from trying to “sell” us on an overly rosy perspective on the company’s challenges.
From the Advisory Council meeting, it also became clear to me that 2U’s leadership structure has evolved to be more specialized and collaborative. As CEO, Lalljie is focused primarily on stabilizing 2U’s financial position while rebuilding the company’s internal culture. Lalljie acknowledged that 2U faces significant challenges on both fronts (finances and culture), and he is committed to moving swiftly to address both areas.
On the financial front, Lalljie believes that 2U will be in a strong position in the first half of 2024 to refinance its debt as the company narrows its focus to investing in its most profitable programs and partnerships while carefully controlling costs and maintaining a strong focus on learner outcomes. On the culture front, Lalljie acknowledged the need for 2U to motivate and retain its best people, a goal he put forth as a top priority as CEO.
The strategic leadership and operational accountabilities for online programs, university partnerships and technology platforms are divided between Hermalyn (President of the Degree Program Segment) and Aaron McCullough (President of the Alternative Credential Segment). 2U communicated this new structure in a January 3 press release, but it was not until spending time with all three leaders that I understood what this organizational change means for university partners.
In my judgment, having a single accountable leader that schools can work with for degree programs (Hermalyn) and alternative credentials (McCullough) will immediately improve communication and collaboration between 2U and its university partners.
Of course, arriving at some confidence in 2U’s leadership team is not the same as being persuaded that the company is in a strong long-term position to be a valuable and resilient university partner. Any school that decides to work with a for-profit company to develop, market and run degree or nondegree online programs must evaluate the financial, operational and reputational risks of such an arrangement.
Will 2U be able to refinance its debt? I don’t know.
What would it mean for university partners and the long-term resilience of the online programs (degree and nondegree) if 2U can’t refinance? Again, unknown. We can’t predict how refinancing negotiations will go—although I suspect that the operations of current programs will be maintained.
Might 2U get acquired? Doubtful, as anyone buying 2U would assume the approximately $900 million in debt as well as the company’s assets. But then again, I didn’t see it coming when Harvard and MIT sold edX to 2U for $800 million in 2021. So, nothing surprises me any longer in the world of online learning.
Given 2U’s financial challenges resulting from the debt it accumulated in part through the edX acquisition, current and prospective 2U university partners should be particularly cautious in conducting due diligence.
One data point in this analysis is how universities judge a company’s top leadership in credibility, trustworthiness and openness to listening, learning and authentic collaboration. At least for me, and again, not speaking for any of my university colleagues on the Partner Advisory Council, my judgment about the new leadership team of Lalljie, Hermalyn and McCullough is initially (and cautiously) positive. It’s a start.
