2U, Inc.
May 7, 2015

2U, Inc. Reports First Quarter 2015 Financial Results

Revenue increased 31 percent and Adjusted EBITDA loss improved 58 percent year-over-year

LANDOVER, Md., May 7, 2015 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), a leading provider of cloud-based software-as-a-service technology fused with technology-enabled services that enables leading nonprofit colleges and universities to deliver their high-quality degree programs online, today reported financial and operating results for the quarter ended March 31, 2015

First Quarter 2015 Results

  • Revenue was $34.6 million, an increase of 31 percent from $26.3 million in the first quarter of 2014.
  • Net loss attributable to holders of common stock was $(5.5) million, or $(0.13) per share, compared to $(7.1) million, or $(0.93) per share, in the first quarter of 2014.
  • Adjusted net loss was $(3.4) million, or $(0.08) per share compared to $(5.2) million, or $(0.17) per pro forma share, in the first quarter of 2014.
  • Adjusted EBITDA loss was $(1.6) million, compared to a loss of $(3.8) million in the first quarter of 2014.

"We kicked off 2015 with a very strong first quarter across all of our financial measures so we are increasing our expectations for full-year 2015," said Chip Paucek, 2U's Chief Executive Officer and Co-Founder. "At the mid-point of full-year guidance, we're now expecting revenue to increase by approximately 33 percent and Adjusted EBITDA loss to improve by approximately 36 percent, year-over-year."

"I'm also excited to introduce our new enterprise program model," Paucek continued. "In this model, 2U will aggregate a number of degrees at a single university that we would not have previously considered because of their expected sizes. By implementing shared overhead and streamlined operating cost structures, we will be able to provide our clients with the benefits of our entire Platform for a greater number of degrees, while expanding our market opportunity and deepening our client relationships."

Recent Program Related Development

2U today announced that it has entered into its first enterprise program contract with current partner Simmons College in Boston. 2U will enable five (5) degrees for Simmons to be rolled out during 2016 and 2017. These degrees are a Master of Business Administration, a health care-focused Master of Business Administration, a Master of Science in Communications Management, a Master of Public Health, and a Master of Science in Behavior Analysis.

2U expects that by aggregating these five degrees into a single program, the program will approximate the size and average financial performance of a typical 2U-enabled program.  Despite incorporating multiple degrees rolling out over time, the Simmons enterprise program will be considered as a single program launch for the company, expected in 2016.

For the most current list of 2U's programs and program offerings, please visit the company's investor website at http://investor.2u.com.

Impact Report

2U recently launched its second annual Impact Report, available at http://2u.com/impact-report-2015/. The report challenges preconceived notions of online education and shows that 2U-enabled degree programs are having a positive effect on students and faculty around the world.

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for second quarter and full year of 2015.

(in millions, except per share amounts)

2Q 2015

FY 2015

Revenue

$34.1-$34.6

$145.6-$147.4

Adjusted Net Loss

$(8.3)-$(7.9)

$(18.7)-$(17.2)

Adjusted Net Loss per Share of Common Stock

$(0.20)-$(0.19)

$(0.45)-$(0.41)

Weighted-Average Shares of Common Stock

41.7

41.8

Adjusted EBITDA Loss

$(6.3)-$(5.9)

$(10.2)-$(8.7)

Stock-Based Compensation Expense

$3.6-$3.8

$12.8-$13.5

Of the revenue the company expects to recognize in the second half of 2015, it believes that approximately 47% should be recognized in the third quarter. 2U now expects the Adjusted EBITDA loss margin to be (2) to (1) percent for the second half of the year. Note that cost seasonality in the fourth quarter typically improves margins in the second half of each year so second half margins should not be viewed as 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 GAAP, we use adjusted net loss and adjusted EBITDA loss, which are non-GAAP financial measures. Additionally, for the first quarter of 2014, we calculated adjusted net loss per share of common stock using pro forma weighted-average shares of common stock.

Adjusted net loss is defined as net loss attributable to holders of common stock before preferred stock accretion, the warrant expense portion of net interest income (expense), and stock-based compensation expense. Some or all of these items may not be applicable in any given reporting period.

Adjusted EBITDA loss is defined as net loss 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.

Pro forma weighted-average shares of common stock are defined as the company's weighted-average shares of common stock outstanding calculated as though the conversion of shares of preferred stock to shares of common stock, which occurred upon the closing of our initial public offering, had occurred on January 1, 2014.

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 the company's 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 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, please 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 2015 financial results conference call

When:         

Thursday, May 7, 2015

Time:           

5:00 p.m. ET

Live Call:

(877) 359-9508

Webcast:       

To access the live webcast, please visit http://investor.2u.com

About 2U, Inc. (NASDAQ: TWOU)

2U partners with leading colleges and universities to deliver the world's best online degree programs so students everywhere can reach their full potential. Our Platform, a fusion of cloud-based software-as-a-service technology and technology-enabled services, provides schools with the comprehensive operating infrastructure they need to attract, enroll, educate, support and graduate students globally. Blending live face-to-face classes, dynamic course content and real-world learning experiences, 2U's No Back Row™ approach ensures that every qualified student can experience the highest quality university education for the most successful outcome.

To learn more, go to 2U.com. Be sure to follow us on LinkedIn (http://www.linkedin.com/company/2u), Twitter (http://twitter.com/2Uinc) and Facebook (http://www.facebook.com/2u).

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, 2014, and other reports filed with the Securities and Exchange Commission.  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 Contact: Shirley Chow, Director, Communications, 2U, Inc., (858) 336-0358, schow@2u.com

Investor Relations Contact: Ed Goodwin, Sr. Director of Investor Relations, 2U, Inc., (301) 892-4239, egoodwin@2u.com

 


2U, Inc.

Condensed Consolidated Balance Sheets

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




March 31,
 2015


December 31,
2014


Assets






Current assets:






Cash and cash equivalents


$

83,077


$

86,929


Accounts receivable, net


4,305


350


Advance to clients, current


658



Prepaid expenses


5,212


2,709


Total current assets


93,252


89,988


Property and equipment, net


6,936


6,755


Capitalized content development costs, net


14,201


13,155


Advance to clients, non-current


1,204


1,675


Other non-current assets


1,456


1,466


Total assets


$

117,049


$

113,039


Liabilities and stockholders' equity






Current liabilities:






Accounts payable


$

7,078


$

2,293


Accrued expenses and other current liabilities


14,406


17,138


Deferred revenue


6,152


1,906


Refunds payable


2,815


2,431


Total current liabilities


30,451


23,768


Rebate reserve


641


639


Other non-current liabilities


576


621


Total liabilities


31,668


25,028


Commitments and contingencies






Stockholders' equity:






Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of March 31, 2015 and December 31, 2014




Common stock, $0.001 par value, 200,000,000 shares authorized, 41,211,038 shares issued and outstanding as of March 31, 2015; 40,735,069 shares issued and outstanding as of December 31, 2014


41


41


Additional paid-in capital


219,656


216,818


Accumulated deficit


(134,316)


(128,848)


Total stockholders' equity


85,381


88,011


Total liabilities and stockholders' equity


$

117,049


$

113,039


 

 


2U, Inc.

Condensed Consolidated Statements of Operations

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




Three Months Ended
March 31,




2015


2014


Revenue


$

34,612


$

26,332


Costs and expenses:






Servicing and support


7,550


6,248


Technology and content development


6,134


5,674


Program marketing and sales


19,587


15,241


General and administrative


6,711


5,436


Total costs and expenses


39,982


32,599


Loss from operations


(5,370)


(6,267)


Other income (expense):






Interest expense


(126)


(784)


Interest income


28


1


Total other income (expense)


(98)


(783)


Loss before income taxes


(5,468)


(7,050)


Income tax expense




Net loss


(5,468)


(7,050)


Preferred stock accretion



(87)


Net loss attributable to holders of common stock


$

(5,468)


$

(7,137)


Net loss per share attributable to holders of common stock, basic
     and diluted


$

(0.13)


$

(0.93)


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


40,978,741


7,698,709


Pro forma net loss per share attributable to holders of common
     stock, basic and diluted





$

(0.20)


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




31,199,917


 

 

2U, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)




Three Months Ended
March 31,




2015


2014


Cash flows from operating activities






Net loss


$

(5,468)


$

(7,050)


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






Depreciation and amortization


1,713


1,283


Stock-based compensation expense


2,048


1,195


Change in the fair value of the Series D redeemable convertible preferred stock
     warrant prior to conversion



688


Loss on disposal of long-lived assets



2


Changes in operating assets and liabilities:






Accounts receivable, net


(3,955)


1,203


Advances to clients


(187)


257


Prepaid expenses


(2,503)


(1,108)


Other assets


(3)


(23)


Accounts payable


4,785


4,244


Accrued expenses and other current liabilities


(2,304)


(3,020)


Deferred revenue


4,246


4,511


Refunds payable


384


209


Rebate reserve


2


3


Other liabilities


(45)


80


Net cash (used in) provided by operating activities


(1,287)


2,474


Cash flows from investing activities






Expenditures for property and equipment


(946)


(1,116)


Capitalized content development cost expenditures


(2,409)


(1,505)


Other investing activities



(17)


Net cash used in investing activities


(3,355)


(2,638)


Cash flows from financing activities






Payment of deferred offering costs



(1,411)


Proceeds from exercise of stock options


1,226


262


Tax withholding payments in connection with net settlement of restricted stock
     units


(436)



Proceeds from revolving line of credit



5,000


Payment on revolving line of credit



(5,000)


Net cash provided by (used in) financing activities


790


(1,149)


Net decrease in cash and cash equivalents


(3,852)


(1,313)


Cash and cash equivalents, beginning of period


86,929


7,012


Cash and cash equivalents, end of period


$

83,077


$

5,699


Supplemental disclosure of non-cash investing and financing activities






Accretion of issuance costs on redeemable convertible preferred stock


$


$

87


Accrued capital expenditures


129


73


Deferred offering costs included in accounts payable and accrued expenses



1,504


Common stock granted in exchange for consulting services received



55


 

 

2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)

The following table presents a reconciliation of net loss attributable to holders of common stock to adjusted net loss for each of the periods indicated:



Three Months Ended
March 31,




2015


2014




(in thousands)


Net loss attributable to holders of common stock


$

(5,468)


$

(7,137)


Adjustments:






Changes in the fair value of the warrant to
     purchase Series D redeemable convertible
     preferred stock



688


Accretion of deferred preferred stock offering
     costs



87


Stock-based compensation expense


2,048


1,195


Total adjustments


2,048


1,970


Adjusted net loss


$

(3,420)


$

(5,167)


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



Three Months Ended
March 31,




2015


2014




(in thousands)


Net loss


$

(5,468)


$

(7,050)


Adjustments:






Interest expense


126


784


Interest income


(28)


(1)


Depreciation and amortization expense


1,713


1,283


Stock-based compensation expense


2,048


1,195


Total adjustments


3,859


3,261


Adjusted EBITDA (loss)


$

(1,609)


$

(3,789)


 

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,




2015



2014


Platform revenue retention rate


122.7

%


122.3

%

Number of programs included in comparison (1)


9



4


(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 '13

Q3 '13

Q4  '13

Q1 '14

Q2 '14

Q3 '14

Q4 '14

Q1 '15

Full course equivalent enrollments
in our clients' programs

6,950

7,673

9,065

9,809

9,331

10,389

11,505

13,093










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

$  2,689

$  2,672

$  2,736

$  2,685

$   2,652

$   2,734

$   2,673

$   2,644

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/2u-inc-reports-first-quarter-2015-financial-results-300079898.html

SOURCE 2U, Inc.

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