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2U Reports Results for First Quarter 2021

04/28/2021
Delivers revenue growth of 32%
Reports improved profitability and positive cash flows from operations

LANHAM, Md., April 28, 2021 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the quarter ended March 31, 2021.

Results for First Quarter 2021 Compared to First Quarter 2020

  • Revenue increased 32% to $232.5 million
  • Degree Program Segment revenue increased 23% to $145.9 million
  • Alternative Credential Segment revenue increased 52% to $86.6 million
  • Net loss improved $14.5 million to $45.6 million, or $0.62 per share
  • Total cash balance at quarter end increased to $505.1 million, from $157.5 million

Non-GAAP Results for First Quarter 2021 Compared to First Quarter 2020

  • Adjusted EBITDA improved $18.1 million to $13.7 million
  • Adjusted net loss improved $12.7 million to $8.6 million, or $0.12 per share

"2U's industry-leading scale and quality are clearly demonstrated by our stellar first quarter results and the extension and expansion of our partnerships across both degree and alternative credential offerings," said Christopher "Chip" Paucek, Co-Founder and CEO of 2U. "Whether it's training the next generation of healthcare workers, reskilling working adults, or strengthening the connection between higher education and career readiness, our business is delivering unmatched value to universities, students, and society."

Paul Lalljie, 2U's Chief Financial Officer, added, "Our results in the first quarter were outstanding. Accelerating revenue growth and continued improvement in profitability and cash flow demonstrate the strength of our business model and strategic positioning. This outperformance and our current expectations for the remainder of 2021 give us the confidence to increase our full-year guidance."

Discussion of First Quarter 2021 Results

Revenue totaled $232.5 million, a 32% increase from $175.5 million in the first quarter of 2020. This increase was driven by a 23% increase in Degree Program Segment revenue to $145.9 million, primarily due to growth in full course equivalent ("FCE") enrollments of 14,273, or 31%, and a 52% increase in Alternative Credential Segment revenue to $86.6 million, primarily due to growth in FCE enrollments of 5,937, or 39%. FCE enrollments increased 33% over the prior year period to 81,085.

Costs and expenses for the first quarter totaled $269.6 million, an 18% increase from $229.4 million in the first quarter of 2020. This increase was primarily driven by higher personnel and personnel-related expense, curriculum and teaching expense, and depreciation and amortization expense. These increases were partially offset by savings related to COVID-19, particularly from travel and related expense, as well as operating efficiencies.

As of March 31, 2021, the company's cash, cash equivalents, and restricted cash totaled $505.1 million, a decrease of $13.8 million from $518.9 million as of December 31, 2020. Positive cash from operations of $7.6 million in the quarter was offset by capital expenditures of $15.1 million and cash used in financing activities of $6.3 million.

Business Outlook for Fiscal Year 2021

The company provided updated guidance for the full-year 2021 for the following metrics:

  • Revenue to range from $925.0 million to $955.0 million, or growth of 19% to 23%
  • Net loss to range from $175.0 million to $165.0 million
  • Adjusted EBITDA to range from $55.0 million to $65.0 million

Non-GAAP Measures

To provide investors and others with additional information regarding 2U's results, the company has disclosed the following non-GAAP financial measures: adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share. The company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The company defines adjusted EBITDA (loss) as net income or net loss, as applicable, before net interest income (expense), foreign currency gains or losses, taxes, depreciation and amortization expense, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense. The company defines unlevered free cash flow as net cash provided by (used in) operating activities, less capital expenditures, payments to university clients, certain non-ordinary cash payments, and cash interest payments on debt. The company defines adjusted net income (loss) as net income or net loss, as applicable, before foreign currency gains or losses, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, 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 that result in adjusted net income, and basic weighted-average shares outstanding for periods that result in an adjusted net loss. Some of the adjustments described in the definitions of adjusted EBITDA (loss), unlevered free cash flow, and adjusted net income (loss) may not be applicable in any given reporting period and they may vary from period to period. 

The company's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, to understand cash that is generated by or available for operational expenses and investment in the business after capital expenditures, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate the company's financial performance. Management believes these non-GAAP financial measures reflect the company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the company's business as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the company's operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.

The use of adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share measures has certain limitations, as they do not reflect all items of income and expense that affect the company's operations. The company compensates for these limitations by reconciling the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review the company's financial information in its entirety and not rely on a single financial measure.

Conference Call Information

What:


2U's first quarter 2021 financial results conference call

When:


Wednesday, April 28, 2021

Time:


4:30 p.m. ET

Live Call:


(833) 900-2243

Conference ID #:


6289853

Webcast:


investor.2U.com

 

About 2U, Inc. (Nasdaq: TWOU)

Eliminating the back row in higher education is not just a metaphor—it's our mission. For more than a decade, 2U, Inc., a global leader in education technology, has been a trusted partner and brand steward of great universities. We build, deliver, and support more than 500 digital and in-person educational offerings, including undergraduate and graduate degrees, professional certificates, boot camps, and GetSmarter short courses. Together with our partners, 2U has positively transformed the lives of more than 300,000 students and lifelong learners. To learn more, visit 2U.com. #NoBackRow

Cautionary Language Concerning Forward-Looking Statements

This press release contains forward-looking statements regarding 2U, Inc.'s 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 operations and financial position of 2U, 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. The company undertakes 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, but not limited to:

  • trends in the higher education market and the market for online education, and expectations for growth in those markets;
  • the acceptance, adoption and growth of online learning by colleges and universities, faculty, students, employers, accreditors and state and federal licensing bodies;
  • the impact of competition on the company's industry and innovations by competitors;
  • the company's ability to comply with evolving regulations and legal obligations related to data privacy, data protection and information security;
  • the company's expectations about the potential benefits of its cloud-based software-as-a-service technology and technology-enabled services to university clients and students;
  • the company's dependence on third parties to provide certain technological services or components used in its platform;
  • the company's expectations about the predictability, visibility and recurring nature of its business model;
  • the company's ability to meet the anticipated launch dates of its degree programs, short courses and boot camps;
  • the company's ability to acquire new university clients and expand its degree programs, short courses and boot camps with existing university clients;
  • the company's ability to successfully integrate the operations of its acquisitions, including Trilogy, to achieve the expected benefits of its acquisitions and manage, expand and grow the combined company;
  • the company's ability to refinance its indebtedness on attractive terms, if at all, to better align with its focus on profitability;
  • the company's ability to service its substantial indebtedness and comply with the covenants and conversion obligations contained in the indenture governing its convertible senior notes and the credit agreement governing its revolving credit facility;
  • the company's ability to generate sufficient future operating cash flows from recent acquisitions to ensure related goodwill is not impaired;
  • the company's ability to execute its growth strategy in the international, undergraduate and non-degree alternative markets;
  • the company's ability to continue to recruit prospective students for its offerings;
  • the company's ability to maintain or increase student retention rates in its degree programs;
  • the company's ability to attract, hire and retain qualified employees;
  • the company's expectations about the scalability of its cloud-based platform;
  • potential changes in regulations applicable to the company or its university clients;
  • the company's expectations regarding the amount of time its cash balances and other available financial resources will be sufficient to fund its operations;
  • the impact and cost of stockholder activism;
  • the impact of any natural disasters or public health emergencies, such as the coronavirus disease 2019 ("COVID-19") pandemic;
  • the company's expectations regarding the effect of the capped call transactions and regarding actions of the option counterparties and/or their respective affiliates; and
  • other factors beyond the company's control.

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, 2020, and other SEC filings. 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: Ken Goff, 2U, Inc., investorinfo@2U.com

Media Contact: Glenda Felden, 2U, Inc., media@2U.com

 

2U, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)



March 31,
2021


December 31,
2020


(unaudited)



Assets




Current assets




Cash and cash equivalents

$

486,830



$

500,629


Restricted cash

18,226



18,237


Accounts receivable, net

74,744



46,663


Prepaid expenses and other assets

57,770



39,353


Total current assets

637,570



604,882


Property and equipment, net

50,745



52,734


Right-of-use assets

59,653



60,785


Goodwill

415,145



415,830


Amortizable intangible assets, net

306,083



312,770


Other assets, non-current

86,317



97,263


Total assets

$

1,555,513



$

1,544,264


Liabilities and stockholders' equity




Current liabilities




Accounts payable and accrued expenses

$

131,310



$

130,674


Deferred revenue

108,364



75,493


Lease liability

10,211



10,024


Other current liabilities

25,315



21,178


Total current liabilities

275,200



237,369


Long-term debt

280,429



273,173


Deferred tax liabilities, net

2,054



2,810


Lease liability, non-current

80,645



83,228


Other liabilities, non-current

6,697



6,694


Total liabilities

645,025



603,274


Stockholders' equity




Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued




Common stock, $0.001 par value, 200,000,000 shares authorized, 74,038,208 shares issued and outstanding as of March 31, 2021; 72,451,521 shares issued and outstanding as of December 31, 2020

74



72


Additional paid-in capital

1,662,439



1,646,574


Accumulated deficit

(741,436)



(695,872)


Accumulated other comprehensive loss

(10,589)



(9,784)


Total stockholders' equity

910,488



940,990


Total liabilities and stockholders' equity

$

1,555,513



$

1,544,264


 

 

2U, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)



Three Months Ended

March 31,


2021


2020

Revenue

$

232,473



$

175,479


Costs and expenses




Curriculum and teaching

33,148



20,478


Servicing and support

33,184



30,533


Technology and content development

42,924



35,510


Marketing and sales

113,237



99,215


General and administrative

47,112



43,653


Total costs and expenses

269,605



229,389


Loss from operations

(37,132)



(53,910)


Interest income

362



513


Interest expense

(7,881)



(5,493)


Other expense, net

(915)



(2,271)


Loss before income taxes

(45,566)



(61,161)


Income tax benefit

2



1,055


Net loss

$

(45,564)



$

(60,106)


Net loss per share, basic and diluted

$

(0.62)



$

(0.94)


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

73,676,409



63,626,333


Other comprehensive loss




Foreign currency translation adjustments, net of tax of $0 for all periods presented

(805)



(16,115)


Comprehensive loss

$

(46,369)



$

(76,221)


 

 

2U, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)



Three Months Ended March 31,


2021


2020

Cash flows from operating activities




Net loss

$

(45,564)



$

(60,106)


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




Non-cash interest expense

7,693



492


Depreciation and amortization expense

24,987



23,485


Stock-based compensation expense

24,947



20,870


Non-cash lease expense

4,291



3,620


Provision for credit losses

2,022



629


Changes in operating assets and liabilities, net of assets and liabilities acquired:




Accounts receivable, net

(30,698)



(42,744)


Payments to university clients

2,352



2,739


Prepaid expenses and other assets

(10,859)



(5,273)


Accounts payable and accrued expenses

(660)



26,423


Deferred revenue

32,850



21,650


Other liabilities, net

(4,664)



(3,920)


Other

930



2,272


Net cash provided by (used in) operating activities

7,627



(9,863)


Cash flows from investing activities




Purchase of a business, net of cash acquired



(958)


Additions of amortizable intangible assets

(14,219)



(15,808)


Purchases of property and equipment

(838)



(2,436)


Advances repaid by university clients



100


Net cash used in investing activities

(15,057)



(19,102)


Cash flows from financing activities




Proceeds from debt

2,908




Payments on debt

(176)



(358)


Payment of debt issuance costs



(2,500)


Proceeds from exercise of stock options

3,533



384


Tax withholding payments associated with settlement of restricted stock units

(12,613)




Net cash used in financing activities

(6,348)



(2,474)


Effect of exchange rate changes on cash

(32)



(944)


Net decrease in cash, cash equivalents and restricted cash

(13,810)



(32,383)


Cash, cash equivalents and restricted cash, beginning of period

518,866



189,869


Cash, cash equivalents and restricted cash, end of period

$

505,056



$

157,486


 

 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


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



Three Months Ended

March 31,


2021


2020


(in thousands, except share and per

 share amounts)

Net loss

$

(45,564)



$

(60,106)


Stock-based compensation expense

24,947



20,870


Foreign currency loss

915



2,271


Amortization of acquired intangible assets

10,472



10,783


Income tax benefit on amortization of acquired intangible assets

(293)



(379)


Other*

946



5,251


Adjusted net loss

(8,577)



(21,310)


Net interest expense

7,519



4,980


Income tax expense (benefit)

291



(676)


Depreciation and amortization expense

14,515



12,702


Adjusted EBITDA (loss)

$

13,748



$

(4,304)






Net loss per share, basic and diluted

$

(0.62)



$

(0.94)


Adjusted net loss per share, basic and diluted

$

(0.12)



$

(0.33)


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

73,676,409



63,626,333


___________

*

Includes (i) transaction and integration expense of $0.1 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively, (ii) restructuring-related expense of $0.5 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively, and (iii) stockholder activism and litigation-related expense of $0.4 million and $4.2 million for the three months ended March 31, 2021 and 2020, respectively.

 

 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


The following table presents a reconciliation of unlevered free cash flow to net cash provided by (used in) operating activities for each of the twelve-month periods indicated:



Twelve Months Ended


March 31,

2021


December 31,
2020


September 30,
2020


June 30,

2020


(in thousands)

Net cash provided by (used in) operating activities

$

47,094



$

29,604



$

26,829



$

(10,669)


Additions to amortizable intangible assets

(61,195)



(62,784)



(60,723)



(64,990)


Purchases of property and equipment

(4,919)



(6,517)



(7,627)



(9,536)


Payments on acquisition of amortizable intangible assets





(897)



(897)


Payments to university clients

6,550



5,800



4,100



7,500


Non-ordinary cash payments*

15,530



19,379



17,153



17,874


Free cash flow

3,060



(14,518)



(21,165)



(60,718)


Cash interest payments on debt

5,923



10,785



11,270



16,475


Unlevered free cash flow

$

8,983



$

(3,733)



$

(9,895)



$

(44,243)


___________

*

Includes transaction, integration, restructuring-related, stockholder activism, and litigation-related expense.

 

 

2U, Inc.

Reconciliation of Non-GAAP Measures

(unaudited)


The following table presents a reconciliation of adjusted EBITDA guidance to net loss guidance, at the midpoint of the ranges provided by the company, for the period indicated:



Year Ending

December 31, 2021


(in millions)

Net loss

$

(170.0)


Stock-based compensation expense

105.0


Foreign currency (gain) loss


Amortization of acquired intangible assets

40.0


Income tax benefit on amortization of acquired intangible assets


Other


Adjusted net loss

(25.0)


Net interest expense

30.0


Income tax benefit

(4.5)


Depreciation and amortization expense

59.5


Adjusted EBITDA

$

60.0


 

 

2U, Inc.

Key Financial Performance Metrics

(unaudited)


Full Course Equivalent Enrollments


Degree Program Segment


The following table presents the FCE enrollments and average revenue per FCE enrollment in the company's Degree Program Segment for the last eight quarters.



Q1 '21


Q4 '20


Q3 '20


Q2 '20


Q1 '20


Q4 '19


Q3 '19


Q2 '19

Degree Program Segment FCE enrollments

60,007



58,425



47,842



46,142



45,734



41,704



40,910



39,180


Degree Program Segment average revenue per FCE enrollment

$

2,431



$

2,234



$

2,551



$

2,507



$

2,590



$

2,595



$

2,527



$

2,588


































Alternative Credential Segment


The following table presents the FCE enrollments and average revenue per FCE enrollment in the company's Alternative Credential Segment for the last eight quarters.



Q1 '21


Q4 '20


Q3 '20


Q2 '20


Q1 '20


Q4 '19


Q3 '19


Q2 '19

Alternative Credential Segment FCE enrollments

21,078



22,190



23,067



20,435



15,141



14,639



14,729



12,662


Alternative Credential Segment average revenue per FCE enrollment*

$

4,108



$

3,821



$

3,426



$

3,279



$

3,766



$

3,883



$

3,825



$

2,955




*

The Trilogy acquisition was completed on May 22, 2019. Average revenue per FCE enrollment for the company's Alternative Credential Segment includes $3.3 million, $6.0 million and $1.9 million of purchase accounting adjustments for the second, third and fourth quarters of 2019, respectively.

 

 

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