Second Quarter 2017 Results
"We just had another excellent financial quarter as well as one of the most active and exciting periods in our nearly ten-year history," said Christopher "Chip" Paucek, 2U's CEO and co-founder. "On
"In addition, our core DGP business continues to scale for the long run. We have now slotted 12 of our targeted 13 launches for 2018, including the two we are announcing in this release. Universities are recognizing the unparalleled nature of our overall offering. We've always met our annual launch targets, but we've never been so far along this early. As a result, we remain confident in our multi-year launch cadence."
Program Developments
2U is now announcing a DGP with
Also, 2U extended its agreements with the
Financial Outlook
Based on information available as of today, 2U is issuing the following guidance for third quarter and full year of 2017. Note that this guidance incorporates expected results for the GetSmarter business we acquired on
3Q 2017 |
FY 2017 |
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(in millions, except per share amounts) |
|||||
Revenue |
|
|
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Net Loss |
|
|
|||
Net Loss per Share, Basic and Diluted |
|
|
|||
Adjusted Net Loss |
|
|
|||
Adjusted Net Loss per Share |
|
|
|||
Weighted-Average Shares of Common Stock Outstanding, Basic and Diluted |
48.0 |
47.8 |
|||
Adjusted EBITDA (Loss) |
|
|
|||
Stock-Based Compensation Expense |
|
|
In giving third quarter and full-year guidance, the Company's expectations for the fourth quarter are implied. Note that cost seasonality driven by reduced marketing spend during the holiday period in the fourth quarter typically improves margins in that quarter; fourth-quarter margins therefore should not be viewed as a run rate for the first quarter of the following year.
For more information regarding the guidance above, particularly given the Company's recent acquisition of GetSmarter, the Company's management team strongly encourages stockholders and other interested parties to listen to the Company's second quarter 2017 financial results conference call or review the transcript thereof. Both can be found on the Company's investor relations website at investor.2u.com.
Non-GAAP Measures
To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with
We define adjusted EBITDA as net income or net loss, as applicable, before net interest income (expense), taxes, depreciation and amortization, foreign currency gains or losses, acquisition-related gains or losses 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 foreign currency gains or losses, acquisition-related gains or losses and 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: |
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When: |
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Time: |
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Live Call: |
(877) 359-9508 |
Webcast: |
About
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
Investor Relations Contact: Ed Goodwin, 2U, Inc., egoodwin@2U.com
Media Contact: Jemila Woodson, 2U, Inc., jwoodson@2u.com
2U, Inc. |
|||||||
|
|
||||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ |
37,435 |
$ |
168,730 |
|||
Restricted cash |
100,987 |
— |
|||||
Accounts receivable, net |
23,426 |
7,860 |
|||||
Advances to clients |
213 |
567 |
|||||
Prepaid expenses and other assets |
8,398 |
7,541 |
|||||
Total current assets |
170,459 |
184,698 |
|||||
Property and equipment, net |
34,390 |
15,596 |
|||||
Capitalized technology and content development costs, net |
37,402 |
31,867 |
|||||
Advances to clients, non-current |
2,163 |
2,100 |
|||||
Prepaid expenses, non-current |
14,789 |
7,052 |
|||||
Other non-current assets |
2,770 |
3,007 |
|||||
Total assets |
$ |
261,973 |
$ |
244,320 |
|||
Liabilities and stockholders' equity |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ |
4,323 |
$ |
3,729 |
|||
Accrued compensation and related benefits |
17,908 |
16,491 |
|||||
Accrued expenses and other liabilities |
22,324 |
17,712 |
|||||
Deferred revenue |
7,365 |
3,137 |
|||||
Total current liabilities |
51,920 |
41,069 |
|||||
Non-current lease-related liabilities |
15,202 |
7,620 |
|||||
Deferred government grant obligations |
3,500 |
— |
|||||
Other non-current liabilities |
300 |
394 |
|||||
Total liabilities |
70,922 |
49,083 |
|||||
Stockholders' equity: |
|||||||
Preferred stock, |
— |
— |
|||||
Common stock, |
48 |
47 |
|||||
Additional paid-in capital |
382,609 |
371,455 |
|||||
Accumulated deficit |
(191,606) |
(176,265) |
|||||
Total stockholders' equity |
191,051 |
195,237 |
|||||
Total liabilities and stockholders' equity |
$ |
261,973 |
$ |
244,320 |
2U, Inc. |
|||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||
Revenue |
$ |
64,995 |
$ |
49,110 |
$ |
129,824 |
$ |
96,554 |
|||||
Costs and expenses: |
|||||||||||||
Servicing and support |
13,458 |
10,260 |
24,383 |
19,772 |
|||||||||
Technology and content development |
11,140 |
8,842 |
20,345 |
16,117 |
|||||||||
Program marketing and sales |
37,242 |
27,483 |
71,912 |
51,139 |
|||||||||
General and administrative |
13,930 |
10,944 |
27,594 |
21,391 |
|||||||||
Total costs and expenses |
75,770 |
57,529 |
144,234 |
108,419 |
|||||||||
Loss from operations |
(10,775) |
(8,419) |
(14,410) |
(11,865) |
|||||||||
Other income (expense): |
|||||||||||||
Interest income |
53 |
91 |
249 |
183 |
|||||||||
Interest expense |
(1) |
(9) |
(1) |
(35) |
|||||||||
Foreign currency loss |
(1,031) |
— |
(1,031) |
— |
|||||||||
Total other income (expense) |
(979) |
82 |
(783) |
148 |
|||||||||
Loss before income taxes |
(11,754) |
(8,337) |
(15,193) |
(11,717) |
|||||||||
Income tax expense |
— |
— |
— |
— |
|||||||||
Net loss |
$ |
(11,754) |
$ |
(8,337) |
$ |
(15,193) |
$ |
(11,717) |
|||||
Net loss per share, basic and diluted |
$ |
(0.25) |
$ |
(0.18) |
$ |
(0.32) |
$ |
(0.25) |
|||||
Weighted-average shares of common stock outstanding, basic and diluted |
47,668,397 |
46,494,464 |
47,454,059 |
46,226,117 |
2U, Inc. |
|||||||
Six Months Ended |
|||||||
2017 |
2016 |
||||||
Cash flows from operating activities |
|||||||
Net loss |
$ |
(15,193) |
$ |
(11,717) |
|||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|||||||
Depreciation and amortization |
7,431 |
4,526 |
|||||
Stock-based compensation expense |
9,390 |
7,520 |
|||||
Foreign currency loss |
1,031 |
— |
|||||
Changes in operating assets and liabilities: |
|||||||
Increase in accounts receivable, net |
(15,566) |
(4,267) |
|||||
Decrease in advances to clients |
291 |
75 |
|||||
Increase in prepaid expenses and other current assets |
(112) |
(645) |
|||||
Increase in accounts payable |
594 |
1,044 |
|||||
Increase (decrease) in accrued compensation and related benefits |
1,417 |
(3,419) |
|||||
Increase in accrued expenses and other liabilities |
4,262 |
4,776 |
|||||
Increase in deferred revenue |
4,228 |
14,978 |
|||||
(Increase) decrease in payments to clients |
(7,471) |
1,664 |
|||||
Decrease (increase) in other assets and other liabilities, net |
1,561 |
(3,028) |
|||||
Net cash (used in) provided by operating activities |
(8,137) |
11,507 |
|||||
Cash flows from investing activities |
|||||||
Purchases of property and equipment |
(15,449) |
(1,029) |
|||||
Capitalized technology and content development cost expenditures |
(10,808) |
(7,437) |
|||||
Other |
— |
(142) |
|||||
Net cash used in investing activities |
(26,257) |
(8,608) |
|||||
Cash flows from financing activities |
|||||||
Proceeds from deferred government grant obligations |
3,500 |
— |
|||||
Proceeds from exercise of stock options |
2,908 |
2,156 |
|||||
Tax withholding payments associated with settlement of restricted stock units |
(1,291) |
(365) |
|||||
Other |
— |
(168) |
|||||
Net cash provided by financing activities |
5,117 |
1,623 |
|||||
Effect of exchange rate changes on cash |
(1,031) |
— |
|||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(30,308) |
4,522 |
|||||
Cash, cash equivalents and restricted cash, beginning of period |
168,730 |
183,729 |
|||||
Cash, cash equivalents and restricted cash, end of period |
$ |
138,422 |
$ |
188,251 |
2U, Inc. |
|||||||||||||
The following table presents a reconciliation of net loss to adjusted net income for each of the periods indicated: |
|||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||
(in thousands, except share and per share amounts) |
|||||||||||||
Net loss |
$ |
(11,754) |
$ |
(8,337) |
$ |
(15,193) |
$ |
(11,717) |
|||||
Adjustments: |
|||||||||||||
Foreign currency loss |
1,031 |
— |
1,031 |
— |
|||||||||
Stock-based compensation expense |
5,495 |
3,976 |
9,390 |
7,520 |
|||||||||
Total adjustments |
6,526 |
3,976 |
10,421 |
7,520 |
|||||||||
Adjusted net loss |
$ |
(5,228) |
$ |
(4,361) |
$ |
(4,772) |
$ |
(4,197) |
|||||
Net loss per share (1) |
$ |
(0.25) |
$ |
(0.18) |
$ |
(0.32) |
$ |
(0.25) |
|||||
Adjusted net loss per share (1) |
$ |
(0.11) |
$ |
(0.09) |
$ |
(0.10) |
$ |
(0.09) |
|||||
Weighted-average shares of common stock outstanding, basic (1) |
47,668,397 |
46,494,464 |
47,454,059 |
46,226,117 |
|||||||||
(1) |
The Company computes net loss per share and adjusted net loss per share using basic weighted-average shares of common stock outstanding. |
The following table presents a reconciliation of net loss to adjusted EBITDA (loss) for each of the periods indicated: |
|||||||||||||
Three Months Ended |
Six Months Ended |
||||||||||||
2017 |
2016 |
2017 |
2016 |
||||||||||
(in thousands) |
|||||||||||||
Net loss |
$ |
(11,754) |
$ |
(8,337) |
$ |
(15,193) |
$ |
(11,717) |
|||||
Adjustments: |
|||||||||||||
Interest income |
(53) |
(91) |
(249) |
(183) |
|||||||||
Interest expense |
1 |
9 |
1 |
35 |
|||||||||
Foreign currency loss |
1,031 |
— |
1,031 |
— |
|||||||||
Depreciation and amortization expense |
3,783 |
2,377 |
7,431 |
4,526 |
|||||||||
Stock-based compensation expense |
5,495 |
3,976 |
9,390 |
7,520 |
|||||||||
Total adjustments |
10,257 |
6,271 |
17,604 |
11,898 |
|||||||||
Adjusted EBITDA (loss) |
$ |
(1,497) |
$ |
(2,066) |
$ |
2,411 |
$ |
181 |
2U, Inc. |
|||||||||||||
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 |
Year Ended |
||||||||||||
$ |
$/Share |
$ |
$/Share |
||||||||||
(in thousands, except per share amounts) |
|||||||||||||
Net loss |
$ |
(16,050) |
$ |
(0.33) |
$ |
(31,550) |
$ |
(0.66) |
|||||
Foreign currency (gain) loss |
— |
* |
1,050 |
0.02 |
|||||||||
Stock-based compensation expense |
6,350 |
0.13 |
21,850 |
0.46 |
|||||||||
Adjusted net loss |
(9,700) |
(0.20) |
(8,650) |
(0.18) |
|||||||||
Net interest (income) expense |
- |
* |
(200) |
* |
|||||||||
Depreciation and amortization expense |
5,800 |
* |
19,600 |
* |
|||||||||
Adjusted EBITDA (loss) |
$ |
(3,900) |
$ |
* |
$ |
10,750 |
$ |
* |
|||||
Projected weighted-average shares of common stock outstanding, basic and diluted |
48,000 |
47,800 |
|||||||||||
* Not provided. |
Key Financial Performance Metrics | |||||||||
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 |
Six Months Ended |
||||||||
2017 |
2016 |
2017 |
2016 |
||||||
Platform revenue retention rate |
127.4 |
% |
134.2 |
% |
128.8 |
% |
123.7 |
% | |
Number of programs included in comparison (1) |
18 |
15 |
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. | ||||||||
Q3 '15 |
Q4 '15 |
Q1 '16 |
Q2 '16 |
Q3 '16 |
Q4 '16 |
Q1 '17 |
Q2 '17 | |
Full course equivalent enrollments in our clients' programs |
13,840 |
16,530 |
17,709 |
18,823 |
19,126 |
21,686 |
23,857 |
23,903 |
Average revenue per full course equivalent enrollment in our clients' programs |
$ 2,680 |
$ 2,617 |
$ 2,679 |
$ 2,609 |
$ 2,717 |
$ 2,645 |
$ 2,717 |
$ 2,719 |
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