Zovio Acquires TutorMe For Online Tutor Matching

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About: Zovio Inc (BPI), Includes: ATGE
by: Donovan Jones
Summary

Zovio has acquired TutorMe for up to $6.6 million in total consideration.

TutorMe has developed an online student/tutor matching system for higher education institutions and employers.

BPI gains an asset it can both grow as a standalone entity and leverage within its existing offerings.

Quick Take

Zovio (BPI) announced it has acquired TutorMe for cash, stock, bonuses, and RSUs of approximately $6.66 million.

TutorMe operates as an online tutor matching and communications platform.

With the deal, BPI gains a low cost, low-risk asset that it can leverage and continue to grow within its ecosystem.

Target Company

Los Angeles, California-based TutorMe was founded in 2015 to connect students with the most-qualified online tutor for their needs using its AI-powered matching system. The platform allows tutors to use video chat, screen-sharing, virtual whiteboards and more to improve retention rates.

Management is headed by Co-Founder and CEO Myles Hunter, who was previously Management Consultant at EY.

Below is an overview video of the company’s offerings:

Source: TutorMe

Investors have invested $1.3 million in the company and include LAUNCH and Rob Sciama. Source: Crunchbase

Acquisition Terms and Financial

Zovio disclosed the acquisition price and terms in a form 8-K as follows:

[1] paid a total of approximately $2.79 million in cash, subject to certain purchase price adjustments,

[2] issued a total of 309,852 shares of the Company’s common stock (“Company Common Stock”), par value $0.01 per share, and

[3] assumed all issued and outstanding options of TutorMe (the “Assumed Options”), of which a total of 231,406 shares of Company Common Stock are underlying the Assumed Options that are subject to certain time-based vesting requirements and a total of 79,199 shares of Company Common Stock are underlying the Assumed Options that are subject to certain performance-based vesting requirements.

In addition, as part of the transactions contemplated by the Merger Agreement, the Company

[x] paid a total of approximately $1.05 million in cash to certain service providers of TutorMe as a transaction bonus and

[y] issued a total of 293,621 performance based restricted stock units to certain continuing service providers of TutorMe pursuant to the Company’s 2009 Stock Incentive Plan (as amended) and a form restricted stock unit agreement.

Management did not provide a change in financial guidance as a result of the transaction.

A review of the firm’s most recent 10-K filing indicates that as of December 31, 2018, BPI had $166.3 million in cash and equivalents and $141.9 million in total liabilities, of which $63.8 million was deferred revenue and student deposits.

Free cash flow for the twelve months ended December 31, 2018, was a negative ($10.2 million).

In the past 12 months, BPI’s stock price has risen 4.4% vs. Adtalem’s (ATGE) rise of 0.27%, as the chart below indicates:

Source: Sentieo

Management has mostly beaten consensus earnings estimates over the past 12 quarters:

Source: Seeking Alpha

BPI has only two analysts covering the stock; they’re split between 'Outperform' and 'Hold', and the consensus price target of $11.75 represents an implied upside potential of nearly 84% from the stock’s current price:

Source: Seeking Alpha

Analyst sentiment in recent earnings calls has improved markedly since the 2017-2018 period, according to a linguistic analysis:

Source: Sentieo

Commentary

Zovio acquired TutorMe for its ‘learning service platform’ that helps higher education institutions and employers connect learners with tutors and enables the ongoing learning process through its toolset.

As Zovio stated in the deal announcement:

Through their academic partnerships, TutorMe reaches hundreds of thousands of students throughout the United States and Canada. Their tutoring solution seamlessly integrates with learning management systems and course management systems, making it an easy transition for colleges and universities to provide additional student learning support, leading to better student outcomes.

On-demand education tools that augment existing course instruction provide an effective bridging technology to assist learners in staying on track and up-to-speed in courses.

It’s in the interest of institutions and employers to have users complete their courses and do so in a timely manner, so those customer bases are increasingly interested in solutions that further their goals of student and workforce development.

For a relatively small sum, essentially a ‘team and technology’ acquisition, Zovio is gaining a low-risk system that should produce a variety of benefits over the medium term as it continues building out its solutions for growing education services markets in the U.S. and Canada.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.