2U, Inc.
May 4, 2017

2U, Inc. Reports First Quarter 2017 Financial Results

- Revenue Growth of 37 Percent, Year Over Year
- Net Loss Margin Improvement of Two Percentage Points, Year Over Year
- Adjusted EBITDA Margin Improvement of One Percentage Point, Year Over Year
- Agreed to Acquire GetSmarter, a Leading Provider of Short Course Certificates

LANHAM, Md., May 4, 2017 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the first quarter ended March 31, 2017

First Quarter 2017 Results

  • Revenue was $64.8 million, an increase of 37 percent from $47.4 million in the first quarter of 2016.
  • Net loss was $(3.4) million, or $(0.07) per share, compared to $(3.4) million, or $(0.07) per share, in the first quarter of 2016.
  • Adjusted net income was $0.5 million, or $0.01 per share compared to an adjusted net income of $0.2 million, or $0.00 per share, in the first quarter of 2016.
  • Adjusted EBITDA was $3.9 million, compared to $2.2 million in the first quarter of 2016.

"We once again produced strong financial performance in the first quarter of 2017, showing significant revenue growth as well as margin improvement in each of our earnings measures," said Christopher "Chip" Paucek, 2U's CEO and co-founder. "Our business now has a sizable, and increasing, number of domestic graduate programs operating at positive margins. This enables us to invest in accelerating our program launch cadence to drive future revenue growth while continuing to improve total company margins. Earlier this year, we confirmed our new domestic graduate program launch targets, which would result in more than tripling our total launched DGPs by the end of 2020. As of today, we have slotted 5 of the 13 new DGPs we expect to launch in 2018."

"We're also thrilled that we have agreed to acquire GetSmarter, a leader in collaborating with universities to offer premium online short courses to working professionals," Paucek said. "With clients like MIT, Cambridge and HarvardX, GetSmarter further solidifies our position as the go-to partner for the best brands in higher education."

Recent Developments

 

  • 2U agreed to acquire GetSmarter (incorporated as Get Educated International Proprietary Limited) for approximately $103 million in cash 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. 2U also agreed to issue $9.4 million of restricted stock unit awards to certain employees and officers of GetSmarter. This transaction is expected to close in the third quarter of 2017. Please refer to the Form 8-K filed with the Securities and Exchange Commission on May 2, 2017 for more detail regarding the acquisition.
  • 2U announced three new DGPs with one new and one existing university partner, for launch in 2018.
    • The University of Denver for MBA@Denver, a Master of Business Administration degree.
    • The University of Denver for MSW@Denver, a Master of Social Work degree
    • The University of Southern California Division of Biokinesiology and Physical Therapy to offer DPT@USC, a Doctor of Physical Therapy degree. The USC physical therapy program is ranked #1 in the country by U.S. News and World Report.

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for second quarter and full year of 2017. Note that this guidance is for 2U only and does not include any expectations for GetSmarter, which 2U has announced its intention to acquire. 2U will update its guidance to include expectations for GetSmarter once the transaction is closed and 2U has made the related filings. 2U expects this transaction to close in the third quarter of 2017.


2Q 2017


FY 2017




(in millions, except per share amounts)



Revenue

$64.0 - $64.4


$269.4 - $270.9



Net Loss

$(11.4) - $(10.9)


$(26.8) - $(25.0)



Net Loss per Share, Basic and Diluted

$(0.24) - $(0.23)


$(0.56) - $(0.52)



Adjusted Net Loss

$(5.8) - $(5.4)


$(6.2) - $(4.7)



Adjusted Net Loss per Share

$(0.12) -$(0.11)


$(0.13) - $(0.10)



Weighted-Average Shares of Common Stock 
     Outstanding, Basic and Diluted

47.8


48.1



Adjusted EBITDA (Loss)

$(2.1) - $(1.7)


$9.5 - $11.0



Stock-Based Compensation Expense

$5.5 - $5.6


$20.3 - $20.6



2U expects that of the revenue it recognizes in the second half 2017, approximately 47 percent will be recognized in the third quarter. Further, as seen in prior years, the company can experience significant margin variability driven by significant revenue growth combined with cost seasonality. 2U reiterates that for the second half of the year, it expects margin variability as follows:

  • Net loss margin of between (9)% and (8)%,
  • Adjusted net income (loss) margin of between (1)% and 0%, and
  • Adjusted EBITDA margin of between 5% and 6%.

Note that cost seasonality driven by reduced marketing spend during the year-end holiday period generally improves margins in the fourth quarter. Accordingly, second half margins should not be viewed as being a run rate for the first half of the following year.

Non-GAAP Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles ("GAAP"), we use adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss) and adjusted net income (loss) per share, which are non-GAAP financial measures.

We define adjusted EBITDA as net income or net loss, as applicable, before net interest income (expense), taxes, depreciation and amortization, and stock-based compensation expense. Some or all of these items may not be applicable in any given reporting period. Adjusted EBITDA margin represents adjusted EBITDA as a percentage of revenue.

We define adjusted net income (loss) as net income or net loss, as applicable, before stock-based compensation expense. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by diluted weighted-average shares of common stock outstanding for periods which result in adjusted net income, and basic weighted-average shares outstanding for periods which result in an adjusted net loss. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in the company's financial statements. These non-GAAP measures are key metrics company management uses to compare the company's performance to that of prior periods for trend analyses and for budgeting and planning purposes. These measures also provide useful information to investors and analysts relating to 2U's financial condition and results of operations. These financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

For more information on 2U's non-GAAP financial measures and reconciliations of such measures to the nearest GAAP measures, see the reconciliation tables on the last page of this press release under the heading "Reconciliation of Non-GAAP Measures." 2U urges investors to review these reconciliations and not to rely on any single financial measure to evaluate the company's business.

Conference Call Information

What: 

2U, Inc.'s first quarter 2017 financial results conference call

When:

Thursday, May 4, 2017

Time:

5 p.m. ET

Live Call:  

(877) 359-9508

Webcast: 

http://investor.2u.com/

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.

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 future results of the operations and financial position of 2U, Inc., 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 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, including, our failure to attract new colleges and universities as clients; our failure to acquire qualified students for our clients' programs; failure of clients' students to remain enrolled in their programs; loss, or material underperformance, of any one client; our ability to compete against current and future competitors; disruption to, or failure of, our Platform; and data privacy or security breaches. 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 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. 

Investor Relations Contact: Ed Goodwin, 2U, Inc., egoodwin@2U.com

Media Contact: Shirley Chow, 2U, Inc., schow@2U.com

 

2U, Inc.

Condensed Consolidated Balance Sheets

(unaudited, in thousands, except share and per share amounts)





March 31,
2017


December 31,
2016


Assets






Current assets:






Cash and cash equivalents


$

142,889


$

168,730


Accounts receivable, net


28,672


7,860


Advances to clients


296


567


Prepaid expenses and other assets


8,855


7,541


Total current assets


180,712


184,698


Property and equipment, net


29,659


15,596


Capitalized technology and content development costs, net


34,263


31,867


Advances to clients, non-current


2,100


2,100


Prepaid expenses, non-current


10,843


7,052


Other non-current assets


3,103


3,007


Total assets


$

260,680


$

244,320


Liabilities and stockholders' equity






Current liabilities:






Accounts payable


$

10,829


$

3,729


Accrued compensation and related benefits


8,823


16,491


Accrued expenses and other liabilities


19,468


17,712


Deferred revenue


11,719


3,137


Total current liabilities


50,839


41,069


Non-current lease-related liabilities


13,792


7,620


Other non-current liabilities


305


394


Total liabilities


64,936


49,083


Stockholders' equity:






Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2017 and December 31, 2016




Common stock, $0.001 par value, 200,000,000 shares authorized, 47,346,546 shares issued and outstanding as of March 31, 2017; 47,151,635 shares issued and outstanding as of December 31, 2016


47


47


Additional paid-in capital


375,549


371,455


Accumulated deficit


(179,852)


(176,265)


Total stockholders' equity


195,744


195,237


Total liabilities and stockholders' equity


$

260,680


$

244,320


 

 

2U, Inc.

Condensed Consolidated Statements of Operations

(unaudited, in thousands, except share and per share amounts)





Three Months Ended
March 31,




2017


2016


Revenue


$

64,829


$

47,444


Costs and expenses:






Servicing and support


10,925


9,512


Technology and content development


9,205


7,275


Program marketing and sales


34,670


23,656


General and administrative


13,664


10,447


Total costs and expenses


68,464


50,890


Loss from operations


(3,635)


(3,446)


Other income (expense):






Interest expense



(26)


Interest income


196


92


Total other income (expense)


196


66


Loss before income taxes


(3,439)


(3,380)


Income tax expense




Net loss


$

(3,439)


$

(3,380)


Net loss per share, basic and diluted


$

(0.07)


$

(0.07)


Weighted-average shares of common stock outstanding, basic and diluted


47,237,341


45,953,082


 


 

2U, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)





Three Months Ended
March 31,




2017


2016


Cash flows from operating activities






Net loss


$

(3,439)


$

(3,380)


Adjustments to reconcile net loss to net cash (used in) provided by operating activities:






Depreciation and amortization


3,648


2,149


Stock-based compensation expense


3,895


3,544


Changes in operating assets and liabilities:






Increase in accounts receivable, net


(20,812)


(287)


Decrease in advances to clients


271


575


Increase in prepaid expenses and other current assets


(816)


(1,397)


Increase in accounts payable


7,100


1,806


Decrease in accrued compensation and related benefits


(7,668)


(6,459)


Increase in accrued expenses and other liabilities


918


2,299


Increase in deferred revenue


8,582


7,373


Increase in payments to clients


(4,514)


(309)


Decrease in other assets and other liabilities, net


1,236


364


Net cash (used in) provided by operating activities


(11,599)


6,278


Cash flows from investing activities






Purchases of property and equipment


(9,384)


(345)


Capitalized technology and content development cost expenditures


(4,909)


(3,554)


Other



(68)


Net cash used in investing activities


(14,293)


(3,967)


Cash flows from financing activities






Proceeds from exercise of stock options


518


1,021


Tax withholding payments associated with settlement of restricted stock units


(467)


(182)


Other



(169)


Net cash provided by financing activities


51


670


Net (decrease) increase in cash and cash equivalents


(25,841)


2,981


Cash and cash equivalents, beginning of period


168,730


183,729


Cash and cash equivalents, end of period


$

142,889


$

186,710


 


 


2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


The following table presents a reconciliation of net loss to adjusted net income for each of the periods indicated:




Three Months Ended March 31,




2017


2016




(in thousands, except share and per share amounts)


Net loss


$

(3,439)


$

(3,380)


Adjustments:






Stock-based compensation expense


3,895


3,544


Total adjustments


3,895


3,544


Adjusted net income


$

456


$

164


Net loss per share (1)


$

(0.07)


$

(0.07)


Weighted-average shares of common stock outstanding, basic (1)



47,237,341



45,953,082


Adjusted net income per share (2)


$

0.01


$

0.00


Weighted-average shares of common stock outstanding, basic or diluted (2)



51,414,673



*



_________________

*      

Not provided.

(1)

The Company computes net loss per share using basic weighted-average shares of common stock outstanding.

(2)

The Company computes adjusted net income per share using diluted weighted-average shares of common stock outstanding for periods which result in adjusted net income, and uses basic weighted-average shares outstanding for periods which result in an adjusted net loss.

 

 

The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated:




Three Months Ended March 31,




2017


2016




(in thousands)


Net loss


$

(3,439)


$

(3,380)


Adjustments:






Interest expense



26


Interest income


(196)


(92)


Depreciation and amortization expense


3,648


2,149


Stock-based compensation expense


3,895


3,544


Total adjustments


7,347


5,627


Adjusted EBITDA


$

3,908


$

2,247


 

 

The following table presents (i) a reconciliation of net loss guidance to adjusted net loss guidance and adjusted EBITDA (loss) guidance and (ii) a reconciliation of net loss per share guidance to adjusted net loss per share guidance, each at the midpoint of the ranges provided by the company, for each of the periods indicated:




Three Months Ended
June 30, 2017


Year Ended
December 31, 2017




$


$/Share


$


$/Share




(in thousands, except per share amounts)


Net loss


$

(11,150)


$

(0.23)


$

(25,900)


$

(0.54)


    Stock-based compensation expense


5,550


0.11


20,450


0.43


Adjusted net loss


(5,600)


(0.12)


(5,450)


(0.11)


Net interest income (expense)


-


*


-


*


Depreciation and amortization expense


3,700


*


15,700


*


Adjusted EBITDA (loss)


$

(1,900)


$

*


$

10,250


$

*


Projected weighted-average shares of 
     common stock outstanding, basic and 
     diluted






47,800






48,100



_________________

*       Not provided.


 

 

 

Key Financial Performance Metrics

(unaudited)


Platform Revenue Retention Rate


The following table sets forth our platform revenue retention rate for the periods presented, as well as the number of programs included in the platform revenue retention rate calculation.



 

Three Months Ended

March 31,


 

2017


2016

Platform revenue retention rate

 

131.3%


123.3%

Number of programs included in comparison (1)


17



12

_____________________

 (1) Reflects the number of programs operating both in the reported period and in the prior year comparative period.

 

 

Full Course Equivalent Enrollments


The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in our clients' programs for the last eight quarters.



Q2 '15

Q3 '15

Q4 '15

Q1 '16

Q2  '16

Q3 '16

Q4 '16

Q1 '17

Full course equivalent enrollments
in our clients' programs

13,557

13,840

16,530

17,709

18,823

19,126

21,686

23,857










Average revenue per full course
equivalent enrollment in our clients'
programs

$   2,599

$   2,680

$   2,617

$  2,679

$   2,609

$   2,717

$   2,645

$   2,717

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/2u-inc-reports-first-quarter-2017-financial-results-300451944.html

SOURCE 2U, Inc.

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