2U, Inc.
Aug 4, 2016

2U, Inc. Reports Second-Quarter 2016 Financial Results

- Revenue Growth of 39 Percent, Year Over Year
- Net Loss Margin Improvement of 10 Percentage Points, Year Over Year
- Adjusted EBITDA Loss Margin Improvement of Seven Percentage Points, Year Over Year

LANDOVER, Md., Aug. 4, 2016 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the second quarter ended June 30, 2016

Second-Quarter 2016 Results

  • Revenue was $49.1 million, an increase of 39 percent from $35.2 million in the second quarter of 2015.
  • Net loss was $(8.3) million, or $(0.18) per share, compared to $(9.6) million, or $(0.23) per share, in the second quarter of 2015.
  • Adjusted net loss was $(4.4) million, or $(0.09) per share, compared to an adjusted net loss of $(5.8) million, or $(0.14) per share, in the second quarter of 2015.
  • Adjusted EBITDA loss was $(2.1) million, compared to an adjusted EBITDA loss of $(4.0) million in the second quarter of 2015.

"2U had another great quarter as we once again exceeded previously stated guidance for all of our financial measures," said Chip Paucek, 2U's CEO and co-founder. "In addition to 39 percent revenue growth, we also saw significant margin improvement in our earnings measures for the quarter. On a year-over-year basis, our net loss margin improved by 10 percentage points and our adjusted EBITDA loss margin improved by seven percentage points."

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for third quarter and full year of 2016.

(in millions, except per share amounts)

3Q 2016

FY 2016

Revenue

$49.9-$50.4

$201.6-$202.6

Net Loss

$(9.0)-$(8.6)

$(24.6)-$(23.7)

Net Loss per Share

$(0.19)-$(0.18)

$(0.53)-$(0.51)

Adjusted Net Loss

$(4.6)-$(4.2)

$(8.1)-($7.2)

Adjusted Net Loss per Share

$(0.10)-$(0.09)

$(0.17)-$(0.15)

Weighted-Average Shares of Common Stock

47.0

46.7

Adjusted EBITDA (Loss)

$(2.0)-$(1.6)

$1.7-$2.6

Stock-Based Compensation Expense

$4.3-$4.5

$16.3-$16.7

In giving third-quarter and full-year 2016 guidance, the Company's expectations for the fourth quarter are implied. Note that cost seasonality 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.

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 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.

We define adjusted net income (loss) as net income or net loss, as applicable, attributable to holders of common stock before stock-based compensation expense.  Adjusted net loss per share is calculated as adjusted net loss divided by weighted-average common shares outstanding, basic and diluted. Adjusted net income per share is calculated as adjusted net income divided by weighted-average common shares outstanding, on a diluted basis.

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, 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 second-quarter 2016 financial results conference call

When:

Thursday, August 4, 2016

Time:

5 p.m. ET

Live Call:

(877) 359-9508

Webcast:

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, 2015 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. 

Investor Relations Contact: Ed Goodwin, Sr. Director of Investor Relations, 2U, Inc., egoodwin@2u.com

Media Contact: Shirley Chow, Director of Public Relations, 2U, Inc., schow@2u.com

 

2U, Inc.

Condensed Consolidated Balance Sheets

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




June 30,
2016


December 31,
2015


Assets






Current assets:






Cash and cash equivalents


$

188,251


$

183,729


Accounts receivable, net


5,242


975


Advance to clients


1,125


1,508


Prepaid expenses and other assets


7,163


6,695


Total current assets


201,781


192,907


Property and equipment, net


3,994


3,621


Capitalized technology and content development costs, net


26,820


22,628


Advance to clients, non-current


1,350


1,042


Prepaid expenses, non-current


8,123


7,099


Other non-current assets


3,768


3,744


Total assets


$

245,836


$

231,041


Liabilities and stockholders' equity






Current liabilities:






Accounts payable


$

5,588


$

4,544


Accrued compensation and related benefits


9,987


13,405


Accrued expenses and other liabilities


16,916


12,039


Deferred revenue


17,587


2,609


Total current liabilities


50,078


32,597


Non-current liabilities


2,543


2,655


Total liabilities


52,621


35,252


Stockholders' equity:






Preferred stock, $0.001 par value, 5,000,000 shares authorized,
0 shares issued and outstanding as of June 30, 2016 and
December 31, 2015




Common stock, $0.001 par value, 200,000,000 shares
authorized, 46,632,069 shares issued and outstanding as of
June 30, 2016; 45,776,455 shares issued and outstanding as of
December 31, 2015


47


46


Additional paid-in capital


360,466


351,324


Accumulated deficit


(167,298)


(155,581)


Total stockholders' equity


193,215


195,789


Total liabilities and stockholders' equity


$

245,836


$

231,041


 


2U, Inc.

Condensed Consolidated Statements of Operations

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




Three Months Ended
June 30,


Six Months Ended
June 30,




2016


2015


2016


2015


Revenue


$

49,110


$

35,238


$

96,554


$

69,850


Costs and expenses:










Servicing and support


10,260


7,903


19,772


15,454


Technology and content development


8,842


6,466


16,117


12,600


Program marketing and sales


27,483


21,526


51,139


41,113


General and administrative


10,944


8,871


21,391


15,582


Total costs and expenses


57,529


44,766


108,419


84,749


Loss from operations


(8,419)


(9,528)


(11,865)


(14,899)


Other income (expense):










Interest expense


(9)


(126)


(35)


(252)


Interest income


91


24


183


53


Total other income (expense)


82


(102)


148


(199)


Loss before income taxes


(8,337)


(9,630)


(11,717)


(15,098)


Income tax expense






Net loss


$

(8,337)


$

(9,630)


$

(11,717)


$

(15,098)


Net loss per share, basic and diluted


$

(0.18)


$

(0.23)


$

(0.25)


$

(0.37)


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


46,494,464


41,362,476


46,226,117


41,171,669


 


2U, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)




Six Months Ended
June 30,




2016


2015


Cash flows from operating activities






Net loss


$

(11,717)


$

(15,098)


Adjustments to reconcile net loss to net cash provided by operating
    activities:






Depreciation and amortization


4,526


3,390


Stock-based compensation expense


7,520


5,915


Changes in operating assets and liabilities:






Increase in accounts receivable, net


(4,267)


(4,043)


Decrease (increase) in advance to clients


75


(875)


Increase in prepaid expenses and other current assets


(645)


(366)


Increase in accounts payable


1,044


784


Decrease in accrued compensation and related benefits


(3,419)


(1,533)


Increase in accrued expenses and other liabilities


4,776


8,108


Increase in deferred revenue


14,978


11,520


Decrease (increase) in payments to clients


1,664


(336)


Increase in other assets and other liabilities, net


(3,028)


(1,424)


Net cash provided by operating activities


11,507


6,042


Cash flows from investing activities






Purchases of property and equipment


(1,029)


(589)


Capitalized technology and content development cost expenditures


(7,437)


(5,949)


Other


(142)



Net cash used in investing activities


(8,608)


(6,538)


Cash flows from financing activities






Proceeds from exercise of stock options


2,156


2,227


Other


(533)


(436)


Net cash provided by financing activities


1,623


1,791


Net increase in cash and cash equivalents


4,522


1,295


Cash and cash equivalents, beginning of period


183,729


86,929


Cash and cash equivalents, end of period


$

188,251


$

88,224


Supplemental disclosure of non-cash investing and financing
    activities






Accrued capital expenditures


$

904


$

199


 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


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




Three Months Ended
June 30,


Six Months Ended
June 30,




2016


2015


2016


2015




(in thousands)


Net loss


$

(8,337)


$

(9,630)


$

(11,717)


$

(15,098)


Adjustments:










Stock-based compensation
  expense


3,976


3,867


7,520


5,915


Total adjustments


3,976


3,867


7,520


5,915


Adjusted net loss


$

(4,361)


$

(5,763)


$

(4,197)


$

(9,183)


 

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




Three Months Ended
June 30,


Six Months Ended
June 30,




2016


2015


2016


2015




(in thousands)


Net loss


$

(8,337)


$

(9,630)


$

(11,717)


$

(15,098)


Adjustments:










Interest expense


9


126


35


252


Interest income


(91)


(24)


(183)


(53)


Depreciation and amortization
  expense


2,377


1,677


4,526


3,390


Stock-based compensation
  expense


3,976


3,867


7,520


5,915


Total adjustments


6,271


5,646


11,898


9,504


Adjusted EBITDA (loss)


$

(2,066)


$

(3,984)


$

181


$

(5,594)


 

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
September 30, 2016


Year Ended
December 31, 2016




$


$/Share


$


$/Share




(in thousands, except per share amounts)


Net loss


$

(8,800)


$

(0.18)


$

(24,150)


$

(0.51)


    Stock-based compensation expense


4,400


0.09


16,500


0.35


Adjusted net loss


(4,400)


(0.09)


(7,650)


(0.16)


Net interest income (expense)


-


*


-


*


Depreciation and amortization expense


2,600


*


9,800


*


Adjusted EBITDA (loss)


$

(1,800)


$

*


$

2,150


$

*


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






47,000






46,700



*  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
June 30,


Six Months Ended
June 30,




2016


2015


2016


2015


Platform revenue retention rate


134.2%


130.5%


123.7%


124.8%


Number of programs included in
  comparison (1)


15


10


12


9



(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 '14

Q4 '14

Q1 '15

Q2 '15

Q3  '15

Q4 '15

Q1 '16

Q2 '16

Full course equivalent enrollments in
our clients' programs

10,389

11,505

13,093

13,557

13,840

16,530

17,709

18,823










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

$   2,734

$   2,673

$   2,644

$  2,599

$   2,680

$   2,617

$   2,679

$   2,609

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/2u-inc-reports-second-quarter-2016-financial-results-300309490.html

SOURCE 2U

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