2U, Inc.
2U, Inc. (Form: 8-K, Received: 05/02/2017 09:25:09)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):

May 1, 2017

 

2U, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

DELAWARE

(STATE OF INCORPORATION)

 

001-36376

 

26-2335939

(COMMISSION FILE NUMBER)

 

(IRS EMPLOYER ID. NUMBER)

 

7900 Harkins Road

 

 

Lanham, MD

 

20706

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

(ZIP CODE)

 

(301) 892-4350

(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 



 

Item 1.01                                            Entry into a Material Definitive Agreement

 

On May 1, 2017, 2U, Inc. (the “ Company ”), agreed to acquire Get Educated International Proprietary Limited, a private company duly incorporated in South Africa (“ GetSmarter ”) pursuant to a Share Sale Agreement (the “ Share Sale Agreement ”), by and among a wholly owned subsidiary of the Company (“ 2U South Africa ”), GetSmarter, the shareholders of GetSmarter (the “ Sellers ”) and Samuel Edward Paddock, as the Sellers’ Representative.

 

Pursuant to the Share Sale Agreement, 2U South Africa will acquire all of the outstanding equity interests of GetSmarter(the “ Acquisition ”) for approximately $103 million in cash (the “ Purchase Price ”), plus a potential earn out payment of up to $20 million, subject to the achievement of certain financial milestones in calendar years 2017 and 2018. Following the completion of the Acquisition, GetSmarter will be a wholly owned subsidiary of 2U South Africa. The Purchase Price is subject to certain purchase price adjustments for cash, indebtedness, transaction expenses and other matters.

 

Each of GetSmarter and the Sellers have made customary representations and warranties and covenants in the Share Sale Agreement and certain of the Sellers have agreed to indemnify 2U South Africa and the Company with respect to breaches of representations and warranties of GetSmarter and the Sellers, pre-closing taxes and certain other matters, in each case, subject to limitations.  Certain of the Sellers have agreed to customary non-competition and non-solicitation obligations following closing of the Acquisition.

 

The Acquisition is subject to customary closing conditions, including certain regulatory approvals and third party consents, absence of any order or laws prohibiting completion of the Acquisition, the absence of a material adverse effect on GetSmarter and the accuracy of each party’s representations and warranties (subject to certain qualifications), and each party’s material compliance with their respective covenants and agreements contained in the Share Sale Agreement.

 

The Acquisition is expected to close during the third quarter of 2017.

 

Under the terms of the Share Sale Agreement, the Company has agreed to issue restricted stock unit awards over the shares of common stock, par value $0.001 per share, of the Company to certain employees and officers of GetSmarter.  The awards will be subject to the 2014 2U, Inc. Equity Incentive Plan and will vest over either a two or four year period following closing of the Acquisition.

 

The foregoing summary of the Share Sale Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Share Sale Agreement. The Company currently expects to file a copy of the Share Sale Agreement as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.

 

Item 7.01                                            Regulation FD Disclosure

 

On May 2, 2017, the Company made available an Investor Presentation on the “Investors” section of the Company’s website located at http://investor.2u.com/index.cfm. A copy of the Investor Presentation is attached hereto as Exhibit 99.1 and is incorporated by reference solely for purposes of this Item 7.01 disclosure. In accordance with General Instruction B.2 of Form 8-K, the information set forth herein and in the Investor Presentation is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended. The information set forth in Item 7.01 of this Current Report on Form 8-K shall not be deemed an admission as to the materiality of any information in this Current Report on Form 8-K that is required to be disclosed solely to satisfy the requirements of Regulation FD.

 

2



 

Item 8.01                                            Other Events

 

On May 2, 2017, the Company issued a press related in connection with the Acquisition. The press release is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.

 

Item 9.01                                            Financial Statements and Exhibits

 

(d)                                  Exhibits

 

Exhibit Number

 

Exhibit Description

99.1 *

 

Investor Presentation, dated May 2, 2017

99.2

 

Press Release of 2U, Inc., issued on May 2, 2017

 


*                                          The exhibit relating to Item 7.01 is intended to be furnished to, and not filed with, the SEC pursuant to Regulation FD.

 

3



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

2U, INC.

 

 

 

 

By:

/s/ Christopher J. Paucek

 

Name:

Christopher J. Paucek

 

Title:

Chief Executive Officer

 

Date: May 2, 2017

 

4



 

EXHIBIT INDEX

 

Exhibit Number

 

Exhibit Description

99.1 *

 

Investor Presentation, dated May 2, 2017

99.2

 

Press Release of 2U, Inc., issued on May 2, 2017

 


*                                          The exhibit relating to Item 7.01 is intended to be furnished to, and not filed with, the SEC pursuant to Regulation FD.

 

5


Exhibit 99.1

2U getsmarter

 


SAFE HARBOR This presentation contains forward-looking statements. All statements other than statements of historical facts contained in this presentation, including statements regarding future results of the operations and financial position of 2U, Inc. (“2U” or the “Company”), including financial targets, business strategy, and plans and objectives for future operations, are forward-looking statements. 2U has based these forward-looking statements largely on its estimates of its financial results and its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, short term and long-term business operations and objectives, and financial needs as of the date of this presentation. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in our form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2017, and other filings with the SEC. Moreover, 2U operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for 2U management to predict all risks, nor can 2U assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements 2U may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this presentation may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements include, but are not limited to, statements about the benefits of the proposed acquisition of GetSmarter, including future financial and operating results, 2U’s and GetSmarter’s plans, objectives, expectations and intentions, the expected timing of completion of the transaction and other statements that are not historical facts. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include risks and uncertainties relating to: the risk that a condition to closing of the acquisition may not be satisfied; the timing to consummate the proposed acquisition; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the transaction may not be fully realized or may take longer to realize than expected; disruption from the transaction making it more difficult to maintain relationships with clients, employees or students; the risk that key employees of GetSmarter may leave the business; the diversion of management time on acquisition-related issues; general worldwide economic conditions and related uncertainties; and the effect of changes in governmental regulations. You should not rely upon forward-looking statements as predictions of future events. Although 2U believes that the expectations reflected in the forward-looking statements are reasonable, 2U cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither 2U nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, 2U undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this presentation, to conform these statements to actual results or to changes in 2U’s expectations.

1

 


World’s Best Digital Education 3

 


 

 

 

2U has entered into an agreement to acquire GetSmarter for approximately $103 million in cash, subject to certain purchase price adjustments, plus a potential earn out payment of up to $20 million. 2U will also provide the GetSmarter senior management team with approximately $9.4 million of restricted stock units, subject to continued vesting conditions. Upon acquisition: THE DEAL • GetSmarter will be an independently operating, wholly-owned subsidiary of 2U, based in Cape Town. GetSmarter Co-Founder & CEO, Sam Paddock, will remain its CEO, reporting to Chip Paucek, Co-Founder & CEO of 2U. GetSmarter will continue to be run by its current management team, including the founders, Sam & Rob Paddock. • The transaction is expected to close by the end of Q3.

 


MISSION 2U and GetSmarter both focus on driving high-quality, people-mediated digital education to unlock a learner’s full potential in different market segments within higher education. short course certificates on a wide world’s legendary university brands. BETTER TOGETHER § § § Additive Growth International Reach Marketing Leverage § § Operating Synergy Widened Market Opportunity 5 GetSmarter powers engaging, online variety of topics from some of the 2U partners with great colleges and universities to build the world's best online degree programs, providing students around the world the opportunity to attend a top graduate program online.

 


 

Short Course Certificates Portfolio of 70+ short course certificates offered through a revenue share model Partnered with four world class schools and Africa’s top three universities GETSMARTER Powering high-quality short course certificates from legendary university brands. with International Reach Working professionals from 150 countries (inception to date) University partners from three continents Focused on Quality Completion rate that averages 88% to Drive Growth Short course certificates taken by 50,000+ students (inception to date)

 


ENABLING A BROADER REACH ACROSS STUDENT NEEDS Selectivity More Less Certification More Less § Highest selectivity § Highest certification § Greater access § Less formality § Shorter course duration 7

 


Global Higher Education is estimated to be a $1.9 trillion market and is expected to grow approximately 8% in 2017. $1.9T+ $80B U.S. Graduate Education3 $80B across ~1,000 academic disciplines Total U.S. Higher Education2 $550+ Global Higher Education1 $1.9T+ Total Non-U.S. Higher Education $1.3T+ 1 Source: GSV estimates that higher education institutions will account for total revenues of approximately $1.9 trillion globally in 2015, with the higher education market expected to grow by approximately 8% per annum through 2017. 2 Source: U.S. National Center for Education Statistics, May 2015 Report 3 Source: U.S. National Center for Education Statistics, May 2015 Report TOTAL MARKET OPPORTUNITY 8

 


DELIVERING VALUE TO OUR STAKEHOLDERS COLLEGES & UNIVERSITY HIGH QUALITY STUDENTS SHORT COURSES DRIVING FURTHER SCALABILITY HIGH QUALITY DEGREE PROGRAMS GREATER INTERNATIONAL REACH FLEXIBLE EDUCATION OPPORTUNITIES STRONG OUTCOMES WORLDRENOWNED BRANDS “FRONT ROW” LEARNING

 


Hong Kong International Office International Office London Cape Town 2U GetSmarter 2U & GetSmarter Geographic Coverage Maryland EXPANDING OUR GLOBAL FOOTPRINT

 


UNIQUE CULTURE FIT Cherish Each Opportunity Give a Damn Strive for Excellence Be Bold and Fearless Be Candid, Honest and Open Have Fun Make Service Your Mission Don’t Let the Skeptic Win Honor Learning Relationships Matter Play to Win Honest & Straightforward Rude to Poor Process Attention to the Right Detail Heroic Support #NoBackRow drives #BetterEducation Guiding Principles Values 11

 

 

 


Source: IPEDS 2014 Degree conferral data We believe our new DGP launch cadence will fuel 2U’s 30+% revenue growth targets for the foreseeable future. At that point, we expect to have launched only 42% of our minimum target number of DGPs. At maturity, we believe we could launch approximately 200 DGPs which would generate more than $3B in annual steady state revenue. DOMESTIC GRADUATE PROGRAM (DGP) BUSINESS Expecting to launch 13 2018 Expecting to launch 16 2019 Expecting to launch 19 2020 12

 


Domestic Graduate Programs Short Courses International Graduate Programs Other Segments TBD § Future Opportunity § Strategy Under Development § 30+% Revenue Growth § $80B Market 13

 


FINANCIAL CONSIDERATIONS 14 • 2016 revenue of approximately $17M, primarily generated by students enrolled in existing courses with its legacy South African clients and one client in the United States • Significant new client acquisition in 2016 and early 2017, leading to: • increase in courses offered • increase in students taking courses • acceleration in overall business • After excluding $2.2M of cash compensation-related items and other costs in lieu of purchase price, and including the estimated impact of a future capital markets activity to replenish cash, we: • expect transaction to be neutral to adjusted net income per share for 2017 • expect transaction to be dilutive to net income per share for 2017

 

Exhibit 99.2

 

2U, Inc. to Acquire GetSmarter

 

LANHAM, Md., USA and CAPE TOWN, South Africa — May 2, 2017 — 2U, Inc. (NASDAQ: TWOU), a leader in partnering with colleges and universities to deliver the world’s best digital education, announced today, that it has entered into an agreement to acquire GetSmarter (incorporated as Get Educated International Proprietary Limited), a leader in collaborating with universities to offer premium online short courses to working professionals.  Both 2U and GetSmarter focus on delivering high-quality, high-touch digital higher education from world class colleges and universities to unlock a student’s full potential.

 

GetSmarter powers engaging online short courses in partnership with some of the world’s most renowned higher education institutions, including the University of Cambridge, Harvard University’s strategic online learning initiative, HarvardX, Massachusetts Institute of Technology (MIT), and Africa’s top three universities, University of Cape Town, University of the Witwatersrand and University of Stellenbosch Business School. It is a high growth business that has served more than 50,000 students since inception with course completion rates that average 88%. GetSmarter’s portfolio includes over 70 short courses offered with its university partners, including Business Sustainability Management from the University of Cambridge’s Institute for Sustainability Leadership, Global Health Delivery from HarvardX, and Healthcare Informatics from the University of Chicago. GetSmarter operates under a revenue share model with its university clients.

 

2U will acquire GetSmarter in all-cash transaction for approximately $103 million, subject to certain purchase price adjustments, and an earn-out payment of up to $20 million in cash, subject to achievement of certain financial milestones in calendar years 2017 and 2018. Subject to various closing conditions, the acquisition is expected to close during the third quarter of 2017. The acquisition is expected to strengthen 2U’s position in the approximately $1.9 trillion global higher education market which is expected to grow approximately 8% in 2017, while accelerating two of the company’s key strategic growth initiatives — expanding internationally and into non-degree alternatives.

 

“GetSmarter’s pursuit of quality in online education, demonstrated by a uniquely high student course completion rate that averages 88% is truly remarkable and mirrors 2U’s mission to offer the world’s best digital education as defined by our partner students’ outcomes and satisfaction.” said Christopher “Chip” Paucek, CEO and co-founder of 2U. “With GetSmarter, 2U expects to strengthen its position as a leader in digital education. We also expect to accelerate our growth, extend our global footprint and provide a broader suite of services by matching up more students to the right programs at the right time as they further their professional and personal development.”

 

“In 2U we have found a partner who makes us stronger. They bring deep experience and access to capital that allows us to pursue stellar growth and stand out student outcomes at scale.” said Sam Paddock, CEO and co-founder of GetSmarter. “We look forward to better serving our University partners and their students across the globe.”

 



 

2U intends to continue to grow its core business of powering online domestic graduate degree programs, a market that continues to provide strong and attractive growth opportunities. Following the closing of the acquisition, GetSmarter will be an independently operating, wholly-owned subsidiary of 2U, based in Cape Town, South Africa. GetSmarter will continue to be operated by its current management team, including its founders, Sam Paddock and Rob Paddock, with GetSmarter co-Founder & CEO, Sam Paddock, remaining as its CEO and reporting to Chip Paucek.

 

Expected Strategic Benefits of the Transaction

 

·                   Builds on 2U’s mission to deliver high-quality, high-touch, digital education focused on student outcomes. With student course completion rates averaging 88%, GetSmarter mirrors 2U’s high standards for student outcomes and retention.

 

·                   Accelerates 2U’s growth through increased new client acquisition activities during 2016 and early 2017, leading us to expect a substantial increase in the number of courses offered, the number of students taking courses and therefore an acceleration in the business.

 

·                   Ensures sustainability for GetSmarter’s partners through the strength, stability and resources associated with 2U’s overall business.  We expect this to ensure even more sustainability and growth for their university partners in the future.

 

·                   Expands 2U’s total addressable market opportunity

 

·                   Short Courses: With this acquisition, 2U can now provide high quality short courses to students not currently seeking a full graduate degree.

 

·                   International: With GetSmarter, 2U immediately adds world-class universities from three continents, a global base of students, and provides a better product-market fit for international audiences.

 

·                   Creates Marketing Leverage. 2U brings world class marketing analytics and optimization to GetSmarter, creating even greater access to high-quality digital education for students and working professionals.

 

Additional Transaction Details

 

Under the terms of the transaction, 2U will pay approximately $103 million in cash upon closing for all outstanding equity interests in GetSmarter, with up to an additional $20 million in cash payable to the equity holders of GetSmarter upon the achievement of certain financial milestones in calendar year 2017 and 2018.

 

In addition, 2U will provide certain members of GetSmarter’s senior management team with approximately $9.4 million of restricted stock units in the aggregate, subject to the continued service of such individual to GetSmarter following the closing.  Subject to various closing conditions, the acquisition is expected to close during the third quarter of 2017.

 



 

GetSmarter’s revenue was approximately $17 million for 2016, primarily generated by students enrolled in the company’s existing programs with its legacy South African universities and one university in the United States. In late 2016 and early 2017, GetSmarter significantly increased new client acquisition, leading us to expect a substantial increase in the number of courses offered, the number of students taking courses and therefore an acceleration in their business and the business of the combined company.

 

After excluding $2.2 million of cash compensation-related items and other costs that 2U expects to expense in lieu of purchase price, and including the estimated impact of potential future capital markets activities to replenish cash, 2U expects the transaction to be neutral to adjusted net income per share for 2017.  However, because of these expense items and transaction-related stock compensation expense, 2U expects the transaction to be dilutive to net income per share in 2017.

 

We anticipate providing more detail upon closing the transaction.

 

Transaction Conference Call

 

The company plans to discuss further details of the transaction on May 4, 2017 as part of its call to discuss its 2017 first quarter financial results.

 

The audio webcast and conference call is at 5 p.m. ET on May 4, 2017. To access the live webcast, please visit http://investor.2u.com. To participate in the conference call by telephone in the U.S., dial 1-877-359-9508, or outside of the U.S., dial 1-224-357-2393.

 

As soon as it is available, a recording of the webcast will be posted to the Investor Relations section of the 2U website at http://investor.2u.com.

 

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About 2U, Inc. (NASDAQ:TWOU)

 

2U partners with great colleges and universities to build what we believe is the world’s best digital education. Our platform provides a comprehensive fusion of technology, services and data architecture to transform high-quality and rigorous campus-based universities into the best digital versions of themselves. 2U’s No Back Row® approach allows qualified students and working professionals around the world to experience a first-rate university education and successful outcomes. To learn more, visit 2U.com.

 

About GetSmarter

 

GetSmarter is an online education company based in Cape Town and London. We collaborate with the world’s legendary Universities to offer premium online short courses to working professionals around the world. To learn more, visit GetSmarter.com.

 

Cautionary Language Concerning Forward-Looking Statements

 

This press release contains forward-looking statements regarding our future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation

 



 

Reform Act of 1995. All statements other than statements of historical facts contained in this press release, including statements regarding the completion of the acquisition, the expected benefits of the transaction, the future results of the operations and the financial position of 2U, Inc. are forward-looking statements. 2U has based these forward-looking statements largely on its estimates of its financial results and its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs as of the date of this press release. We undertake no obligation to update these statements as a result of new information or future events. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from the results predicted. These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016 and other reports filed with the U.S. Securities and Exchange Commission. In addition, there are significant risks and uncertainties relating to 2U’s proposed acquisition and ownership of GetSmarter, including risks and uncertainties relating to the receipt of required approvals from government and regulatory authorities, the receipt of any required third party consents and the integration of GetSmarter’s operations and the realization of anticipated benefits from the acquisition. Moreover, 2U operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for 2U management to predict all risks, nor can 2U assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements 2U may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this press release may not occur and actual results could differ materially and adversely from those anticipated.

 

Media Contacts:

 

Shirley Chow, 2U

schow@2U.com

 

Martin Hall, GetSmarter

martin.hall@getsmarter.com

 

Investor Contact:

 

Ed Goodwin, 2U

egoodwin@2U.com