2U, Inc.
Feb 23, 2017

2U, Inc. Reports Fourth-Quarter and Full-Year 2016 Financial Results

- Full-Year 2016 Revenue Growth of 37%, Year Over Year
- Full-Year Net Loss Margin Improvement of Eight Percentage Points, Year Over Year
- Full-Year Adjusted EBITDA Margin Improvement of Seven Percentage Points, Year Over Year
- 2016 was 2U's First Adjusted EBITDA Profitable Year

LANHAM, Md., Feb. 23, 2017 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the fourth quarter and full year ended December 31, 2016. 

Fourth-Quarter 2016 Results

  • Revenue was $57.4 million, an increase of 33% from $43.3 million in the fourth quarter of 2015.
  • Net loss was $(2.2) million, or $(0.05) per share, compared to $(3.4) million, or $(0.07) per share, in the fourth quarter of 2015.
  • Adjusted net income was $2.0 million, or $0.04 per share, compared to an adjusted net loss of $(0.1) million, or $(0.00) per share, in the fourth quarter of 2015.
  • Adjusted EBITDA was $4.5 million, compared to $1.9 million, in the fourth quarter of 2015.

Full-Year 2016 Results

  • Revenue was $205.9 million, an increase of 37% from $150.2 million, in 2015.
  • Net loss was $(20.7) million, or $(0.44) per share, compared to $(26.7) million, or $(0.63) per share, in 2015.
  • Adjusted net loss was $(4.9) million, or $(0.10) per share, compared to $(14.2) million, or $(0.34) per share, in 2015.
  • Adjusted EBITDA was $4.5 million, compared to an adjusted EBITDA loss of $(6.6) million, in 2015.

"We once again produced strong financial performance for both the fourth quarter and full-year 2016.  Both periods showed significant year-over-year revenue growth as well as continued margin progress in each of our earnings measures," said Chip Paucek, 2U's CEO and co-founder. "2016 was the year that the first of our three earnings measures, adjusted EBITDA, turned positive, which is the result of having an increasing number of programs progressing toward and reaching steady state margins. Additionally, the launch cohort margins we reported for the year are further validation that mature programs can achieve the long-term steady state margins we target in the time frames we expect.

"We have now announced our full slate of 10 program launches for 2017, one more than originally promised. We have also committed to a target of 12 or more programs for 2018. With the new programs, we intend to add new university partners, new degree verticals and geographic diversity, in addition to expanding our scope in existing multiple program verticals."

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for first quarter and full year of 2017.

(in millions, except per share amounts)

1Q 2017

FY 2017

Revenue

$63.6 - $64.0

$267.6 - $269.8

Net Loss

$(4.1) - $(3.7)

$(28.0) - $(25.6)

Net Loss per Share

$(0.09) - $(0.08)

$(0.58) - $(0.53)

Adjusted Net Income (Loss)

$0.1 - $0.4

$(7.2) - $(5.2)

Adjusted Net Income (Loss) per Share

$0.00 - 0.01

$(0.15) -$(0.11)

Weighted-Average Shares of Common Stock, Basic

47.3

48.3

Weighted-Average Shares of Common Stock, Diluted

51.5

n/a

Adjusted EBITDA

$2.9 - $3.2

$8.0 - $10.0

Stock-Based Compensation Expense

$4.1 - $4.2

$20.4 - $20.8

 

2U expects that of 2017 revenue, 52% to 53% should be recognized in the second half of the year, with the year's largest sequential revenue growth occurring in the fourth quarter. Further, as seen in prior years, we can experience significant margin variability driven by significant revenue growth combined with cost seasonality. For full-year 2017, we expect this margin variability to be distributed between the first half and the second half of the year as follows:

  • net loss margin of between (11)% and (12)% for the first half of the year and between (8)% and (9)% for the second half of the year,
  • adjusted net loss margin of between (4)% and (5)% for the first half of the year and between 0% and (1)% for the second half of the year, and
  • adjusted EBITDA margin of between 0% and 1% for the first half of the year and between 5% and 6% for the second half of the year.

Note that cost seasonality in the second and fourth quarters typically reduces margins in the first half of each year and improves margins in the second half of each year, so 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 fourth-quarter and full-year 2016 financial results conference call



When:

Thursday, February 23, 2017



Time:

5 p.m. ET



Live Call:

877-359-9508



Webcast:

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 online education. Our platform provides a comprehensive fusion of technology, services and data architecture to transform our clients, historically campus-based universities of the highest quality and rigor, into digital universities. 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, 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, VP of Investor Relations, 2U, Inc., egoodwin@2U.com 

Media Contact: Cassie France-Kelly, VP of Public Relations, 2U, Inc., cfrance-kelly@2U.com

 

2U, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)




December 31,




2016


2015




(unaudited)




Assets






Current assets:






Cash and cash equivalents


$

168,730


$

183,729


Accounts receivable, net


7,860


975


Advances to clients


567


1,508


Prepaid expenses and other assets


7,541


6,695


Total current assets


184,698


192,907


Property and equipment, net


15,596


3,621


Capitalized technology and content development costs, net


31,867


22,628


Advances to clients, non-current


2,100


1,042


Prepaid expenses, non-current


7,052


7,099


Other non-current assets


3,007


3,744


Total assets


$

244,320


$

231,041


Liabilities and stockholders' equity






Current liabilities:






Accounts payable


$

3,729


$

4,544


Accrued compensation and related benefits


16,491


13,405


Accrued expenses and other liabilities


17,712


12,039


Deferred revenue


3,137


2,609


Total current liabilities


41,069


32,597


Non-current liabilities


8,014


2,655


Total liabilities


49,083


35,252


Commitments and contingencies






Stockholders' equity:






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




Common stock, $0.001 par value, 200,000,000 shares authorized, 47,151,635 shares issued and outstanding as of December 31, 2016; 45,776,455 shares issued and outstanding as of December 31, 2015


47


46


Additional paid-in capital


371,455


351,324


Accumulated deficit


(176,265)


(155,581)


Total stockholders' equity


195,237


195,789


Total liabilities and stockholders' equity


$

244,320


$

231,041


 

 

2U, Inc.


Consolidated Statements of Operations


(in thousands, except share and per share amounts)






Three Months Ended
December 31,


Year Ended
December 31,




2016


2015


2016


2015




(unaudited)


(unaudited)





Revenue


$

57,350


$

43,252


$

205,864


$

150,194


Costs and expenses:










Servicing and support


10,859


8,749


40,982


32,047


Technology and content development


8,496


7,529


33,283


27,211


Program marketing and sales


27,306


20,231


106,610


82,911


General and administrative


13,061


10,064


46,021


34,123


Total costs and expenses


59,722


46,573


226,896


176,292


Loss from operations


(2,372)


(3,321)


(21,032)


(26,098)


Other income (expense):










Interest expense



(173)


(35)


(552)


Interest income


163


94


383


167


Other





(250)


Total other income (expense)


163


(79)


348


(635)


Loss before income taxes


(2,209)


(3,400)


(20,684)


(26,733)


Income tax expense






Net loss


(2,209)


(3,400)


(20,684)


(26,733)


Net loss per share, basic and diluted


$

(0.05)


$

(0.07)


$

(0.44)


$

(0.63)


Weighted average common shares outstanding, basic and diluted


47,075,167


45,651,475


46,609,751


42,420,356


 

 

2U, Inc.


Consolidated Statements of Cash Flows


(in thousands)






Year Ended December 31,




2016


2015


2014




(unaudited)






Cash flows from operating activities








Net loss


$

(20,684)


$

(26,733)


$

(28,999)


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








Depreciation and amortization


9,750


7,220


5,572


Stock-based compensation expense


15,823


12,499


7,527


Charge related to execution of new lease agreement



884



Changes in operating assets and liabilities:








(Increase) decrease in accounts receivable, net


(6,885)


(625)


1,485


Increase in advances to clients


(117)


(875)


(1,094)


Increase in prepaid expenses and other current assets


(973)


(4,001)


(374)


(Decrease) increase in accounts payable


(815)


2,251


(2,565)


Increase in accrued compensation and related benefits


3,086


4,317


3,123


Increase in accrued expenses and other liabilities


1,052


1,216


2,978


Increase in deferred revenue


528


703


640


Decrease (increase) in payments to clients


2,234


(3,664)


(826)


Decrease (increase) in other assets and other liabilities, net


2,211


(2,709)


153


Other



250


695


Net cash provided by (used in) operating activities


5,210


(9,267)


(11,685)


Cash flows from investing activities








Capitalized technology and content development cost expenditures


(16,728)


(12,358)


(9,454)


Purchases of property and equipment


(7,648)


(1,256)


(1,499)


Other


(142)


(2,331)


(29)


Net cash used in investing activities


(24,518)


(15,945)


(10,982)


Cash flows from financing activities








Proceeds from exercise of stock options


4,859


5,336


2,282


Proceeds from issuance of common stock, net of offering costs



117,112


100,302


Proceeds from revolving line of credit




5,000


Payment on revolving line of credit




(5,000)


Other


(550)


(436)



Net cash provided by financing activities


4,309


122,012


102,584


Net (decrease) increase in cash and cash equivalents


(14,999)


96,800


79,917


Cash and cash equivalents, beginning of period


183,729


86,929


7,012


Cash and cash equivalents, end of period


$

168,730


$

183,729


$

86,929


Supplemental disclosure of non-cash investing and financing activities








Accrued capital expenditures


$

6,729


$

415


$

557


Accretion of issuance costs on redeemable convertible preferred stock







89


Common stock granted in exchange for consulting services received




55


 

 

2U, Inc.

Reconciliation of Non-GAAP Measure

(unaudited)


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




Three Months Ended

December 31,


Year Ended

December 31,




2016


2015


2016


2015




(in thousands, except share and per share amounts)

Net loss


$

(2,209)


$

(3,400)


$

(20,684)


$

(26,733)


Adjustments:










Stock-based compensation expense


4,230


3,282


15,823


12,499


Total adjustments


4,230


3,282


15,823


12,499


Adjusted net income (loss)


$

2,021


$

(118)


$

(4,861)


$

(14,234)


Net loss per share (1)


$

(0.05)


$

(0.07)


$

(0.44)


$

(0.63)


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



47,075,167



45,651,475



46,609,751



42,420,356


Adjusted net income (loss) per share (2)


$

0.04


$

(0.00)


$

(0.10)


$

(0.34)


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



50,843,497



45,651,475



46,609,751



42,420,356



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

(2) The Company computes adjusted net income (loss) 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 (loss) for each of the periods indicated:




Three Months Ended

December 31,


Year Ended

December 31,




2016


2015


2016


2015




(in thousands)

Net loss


$

(2,209)


$

(3,400)


$

(20,684)


$

(26,733)


Adjustments:










Interest expense



173


35


552


Interest income


(163)


(93)


(383)


(167)


Depreciation and amortization expense


2,690


1,932


9,750


7,220


Stock-based compensation expense


4,230


3,282


15,823


12,499


Total adjustments


6,757


5,294


25,225


20,104


Adjusted EBITDA (loss)


$

4,548


$

1,894


$

4,541


$

(6,629)


 

 

Launch Cohort Financial Performance


Adjusted EBITDA loss improvement over the periods presented in this earnings release for the year ended December 31, 2016 is due partly to the maturing of programs within our entire program portfolio. Because we incur program marketing and sales expenses prior to generating the revenue related to those expenses, programs will typically show an adjusted EBITDA loss for several years prior to reaching adjusted EBITDA profitability. The following table presents a reconciliation, after allocation of all corporate costs, of full-year 2016 net income (loss) margin to adjusted EBITDA (loss) margin for our client programs, grouped by the length of time since program launch, as of December 31, 2016.



Less than
2 Years(4)


2-3 Years(5)


3-4 Years(6)


Greater than
4 Years(7)


Total


Net income (loss)

(155)

%

(19)

%

6

%

28

%

(10)

%

Interest expense(3)

0

%

0

%

0

%

0

%

0

%

Interest income(3)

0

%

0

%

0

%

0

%

0

%

Depreciation and amortization expense(3)

9

%

6

%

5

%

3

%

5

%

Stock-based compensation expense(3)

16

%

7

%

7

%

5

%

7

%

Adjusted EBITDA (loss)

(130)

%

(6)

%

18

%

36

%

2

%



(3)

We consider interest expense, interest income, and the non‑program specific portions of depreciation and amortization expense and stock‑based compensation expense to be corporate expenses, and therefore we allocate those expenses to the above groupings based on our corporate allocation methodology.

(4)

Includes programs launched in 2016 and 2015 and expenses incurred in connection with programs not yet launched.

(5)

Includes programs launched in 2014.

(6)

Includes programs launched in 2013.

(7)

Includes all programs launched prior to 2012.

 

 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


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




Three Months
Ended

March 31,


Year Ended
December 31,




2017


2017




(in thousands, except share and per share amounts)


Net loss


$

(3,900)


$

(26,800)


Adjustments:






Stock-based compensation expense


4,150


20,600


Total adjustments


4,150


20,600


Adjusted net income (loss)


$

250


$

(6,200)


Net income (loss) per share (8)


$

(0.08)


$

(0.55)


Weighted-average shares of common stock outstanding, basic or diluted (8)



47,341,000



48,320,000


Adjusted net income (loss) per share (9)


$

0.00


$

(0.13)


Weighted-average shares of common stock outstanding, basic or diluted (9)



51,461,000



48,320,000




(8)

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

(9)

The Company computes adjusted net income (loss) per share using basic and 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.

 

 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


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




Three Months
Ended
March 31,


Year Ended
December 31,




2017


2017




(in thousands)


Net loss


$

(3,900)


$

(26,800)


Adjustments:






Interest expense


100


175


Interest income


(150)


(475)


Depreciation and amortization expense


2,850


15,500


Stock-based compensation expense


4,150


20,600


Total adjustments


6,950


35,800


Adjusted EBITDA


$

3,050


$

9,000


 

 

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
December 31,


Year Ended
December 31,




2016


2015


2016


2015


Platform revenue retention rate


127.7%


127.0%


123.0%


120.2%


Number of programs included in comparison (10)


16


12


12


9




(10)

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.



Q1 '15

Q2 '15

Q3  '15

Q4 '15

Q1 '16

Q2 '16

Q3 '16

Q4 '16

Full course equivalent enrollments in our clients' programs

13,093

13,557

13,840

16,530

17,709

18,823

19,126

21,686










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

$   2,644

$  2,599

$   2,680

$   2,617

$   2,679

$   2,609

$   2,717

$   2,645

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/2u-inc-reports-fourth-quarter-and-full-year-2016-financial-results-300412833.html

SOURCE 2U, Inc.

News Provided by Acquire Media