Pearson is getting out of the K-12 curriculum business in the U.S., the global education company announced Friday during a discussion of its 2017 financial results.
The company, which had said last May it was exploring the sale, is already in conversations with potential acquirers, according to company officials.
Curriculum products and services were identified as a “lower margin” part of its enterprise, representing about 9 percent of its revenues but returning profits of about 2 percent or £11 million (approximately $15.35 million) last year. The K-12 revenues have been under £400 million or $550 million based on today’s exchange rate.
Geographically, Pearson generated about 61 percent of its sales in the U.S. to pre-kindergarten through 12th grade and higher education.
At the same time, the company plans to keep its $1.2 billion U.S. assessment business, which grew 7 percent in number of digital tests administered last year. Pearson said it is the market leader in this segment, with a share of greater than 35 percent share. The company is expecting stabilization in student assessment in the U.S., according to Coram Williams, the company’s chief financial officer.
Next month, the company plans to publish the first of its “fully audited efficacy reports” into a series of key products, the company said. Details of its PreK-12 efficacy research thus far are available on its site.
The distribution of various portions of the company’s revenues is represented in the chart below.
Revenues from U.S. Curriculum Sales
The K-12 curriculum business, which is called Pearson Learning Services, offers thousands of titles across dozens of programs in math, literacy, science, social studies, world languages, music, and intervention, according to the company.
Pearson reported a revenue decline in the “high single digits” last year in U.S. sales of curriculum products due primarily, the company said, to “sharp declines across open territory states in the second half of the year.” In open territory states, schools and districts can make their own choices about what to buy. In adoption states, the state makes selections and schools choose off of a list.
This revenue decline was “partially offset” by growth from adoption states. Pearson indicated that it had “strong performance” in Spanish for grades K-12 in Texas, K-12 science in Indiana, and science for grades 6 to 8 in South Carolina.
Overall, the company’s new adoption participation rate fell from 64 percent in 2016 to 61 percent last year. It won a 38 percent share of adoptions competed for in 2017, compared to 30 percent the year before, and 29 percent of $365 million total new adoption expenditure, compared to 9 percent of $470 million in 2016.
Pearson chose last year not to compete in California’s K-8 English/language arts adoption process.
U.S. Assessments: Growth Potential
Pearson’s assessment sales in the U.S. and the U.K. account for about 16 percent of the company’s revenues, according to John Fallon, chief executive of Pearson.
“They have, as you know, been through some difficult times around policy and curriculum change in recent years,” the chief executive said in the discussion of Pearson’s results. “But we’re now through that. We’ve continued to invest and we’re well-positioned now to grow again in these markets as they stabilize.”
My colleague Sean Cavanagh reported last week on the latest developments in Pearson’s ongoing dispute of Iowa’s award of a $31 million state testing contract to the American Institutes of Research.
Fallon said Pearson is still the largest testing vendor in the U.S. It has spearheaded a shift toward digital testing with TestNav, its digital platform. More than half of the total tests administered are now digital, he said, and Pearson’s leadership role in developing digital tests “is allowing us to develop strong partnerships, and through those partnerships reduce our own regulatory risk.”
In the U.S. and the U.K., Pearson is working on the adoption of artificial intelligence in assessment “to support better learning providing real-time personalized feedback,” he said. The company is also using artificial intelligence scoring systems, which it said have scored 35 million responses to open-ended test items—around 30 percent of the total.
Virtual Education: Another Avenue for Growth?
Two of the biggest structural growth opportunities for Pearson, Fallon said, are partnering with charter boards to run virtual schools, and partnering with universities to provide fully online degrees. “Both markets are relatively earlier in their development,” he said.
In the U.S., virtual schools represent a $1.5 billion market across 34 authorized states, and Pearson has a .7 percent penetration with Connections Education, making it the second largest virtual education provider behind K12, Inc. Last year, Connections experienced a 6 percent growth in full-time equivalent student enrollment.
Virtual schools have been beset by many concerns and criticisms over the years in the U.S., as my Education Week colleagues Ben Herold and Arianna Prothero have reported extensively. (Connections Education presented a defense of cyber charters.)
While this portion of Pearson’s business now represents just under 13 percent of its revenues, the investment required to scale this part of the business means it will not become a short-term source of large profits. Rather, the company is looking toward “long-term growth in revenue and profitability as they mature and become a much bigger part of the Pearson portfolio.”
Fallon acknowledged that the company has seen “some shifts in contracts,” where some of the early adopters have chosen to bring the development of their online education in-house. “We’re learning from that,” he said.
This blog post has been updated with information about how many products are part of the curriculum sale.