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Nov 12, 2019

2U, Inc. Reports Results for Third Quarter 2019

Delivers revenue growth of 44%

LANHAM, Md., Nov. 12, 2019 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the third quarter ended September 30, 2019 and updated its guidance for full-year 2019.

Results for Third Quarter 2019 Compared to Third Quarter 2018

  • Revenue increased 44% to $153.8 million
  • Graduate Program Segment revenue increased 15% to $103.4 million
  • Alternative Credential Segment revenue increased 192% to $50.4 million, including $29.2 million in revenue from the Trilogy acquisition completed in May 2019
  • Net loss increased $131.2 million to $141.1 million, or $(2.23) per share

Non-GAAP Results for Third Quarter 2019 Compared to Third Quarter 2018

  • Adjusted net loss increased $25.6 million to $26.2 million, or $(0.41) per share
  • Adjusted EBITDA loss increased to $10.7 million

"Our strong topline growth and recent pipeline wins, bolstered by the success of our strategic M&A, validate our position as a leader in the digital transformation of higher education," Co-Founder and Chief Executive Officer Christopher "Chip" Paucek said. "2U's expanding portfolio of 72 top tier universities and over 300 offerings are testaments to the ongoing strength of our partnership model and to the quality of the student outcomes we deliver."

Chief Financial Officer Paul Lalljie commented, "I chose to join 2U because of its mission and unique position as a leader in the education technology market. I feel good about our performance this quarter, and I am confident about the guidance we provided. As we continue to invest in the quality of our solutions, we want to take a closer look at improving the efficiency of our operations. With disciplined cost management and focused execution behind working capital initiatives, we expect to drive improved cash flow progression company-wide. Additionally, we will accelerate our integration of the Trilogy acquisition."

Discussion of Third Quarter 2019 Results

Revenue totaled $153.8 million, a 44% increase from $107.0 million in the third quarter of 2018. Graduate Program Segment revenue grew 15% to $103.4 million driven by a 25% increase in full course equivalent enrollments, partially offset by an 8% decrease in average revenue per full course equivalent enrollment. Alternative Credential Segment revenue increased 192% to $50.4 million, driven by full course equivalent enrollments of 14,729.

Costs and expenses totaled $288.8 million, a 143% increase from $118.8 million in the third quarter of 2018. This $169.9 million increase was driven by a $70.4 million non-cash impairment of goodwill related to the carrying value of the boot camp business acquired in 2019 within the company's Alternative Credential Segment, $9.1 million in acquisition-related transaction, integration, and organizational restructuring-related costs, and $59.9 million of incremental operating costs resulting from the acquisition of Trilogy. The remainder is primarily attributable to increases in costs related to direct marketing, personnel, and curriculum and teaching. These cost increases are due to new offerings and growth in existing offerings, increased depreciation and amortization expense associated with implementing new features and capabilities in the company's platform, and content for the company's offerings. For a further discussion of the non-cash impairment of goodwill, see Note 4 to the company's unaudited financial statements included in its periodic report on Form 10-Q for the quarter ended September 30, 2019.

As of September 30, 2019, the company's cash and cash equivalents totaled $154.1 million, a decrease of $64.6 million from $218.7 million as of June 30, 2019, and a decrease of $295.7 million from $449.8 million as of December 31, 2018. The $64.6 million decrease from June 30, 2019 was primarily driven by a use of cash from operations of $37.7 million and additions of amortizable intangible assets related to content and technology of $18.5 million. As of September 30, 2019, the company reported outstanding long-term debt of $253.5 million principally related to its term loan facility maturing in May 2024.

Business Outlook for Fiscal Year 2019

The company updated its full year 2019 guidance measures provided on July 30, 2019:

  • Revenue to range from $570.0 million to $575.0 million, or growth of 38% to 40%
  • Net loss to range from $238.8 million to $232.8 million, or $(3.89) to $(3.79) per share
  • Adjusted net loss to range from $78.5 million to $72.5 million
  • Adjusted EBITDA loss to range from $28.0 million to $22.0 million
  • Weighted-average shares of common stock outstanding of 61.4 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), 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), taxes, depreciation and amortization expense, foreign currency gains or losses, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, impairment charges, and stock-based compensation expense. 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, impairment charges, 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 company's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, 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), adjusted net income (loss), and adjusted net income (loss) per share measures have 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 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, Inc.'s third quarter 2019 financial results conference call

When:

 

Tuesday, November 12, 2019

Time:

 

5 p.m. ET

Live Call:

 

(877) 359-9508

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 300 digital and in-person educational offerings, including graduate degrees, professional certificates, Trilogy-powered boot camps, and GetSmarter short courses. Together with our partners, 2U has positively transformed the lives of more than 170,000 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 the acquisition of Trilogy and future results of the 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 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, or SaaS, 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 ability to meet the anticipated launch dates of its educational offerings;
  • the company's expectations about the predictability, visibility and recurring nature of its business model;
  • the company's ability to acquire new university clients and expand its offerings with existing university clients;
  • its ability to successfully integrate the operations of its acquisitions, including Get Educated International Proprietary Limited, or GetSmarter, and Trilogy Education Services, Inc., or Trilogy, achieve the expected benefits of its acquisitions and manage, expand and grow the combined company;
  • 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 company's ability to service its substantial indebtedness and comply with the financial and other restrictive covenants contained in the credit agreement governing its senior secured term loan 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 acquire prospective students for its offerings;
  • the company's ability to affect or increase student retention in its graduate programs;
  • the company's ability to attract, hire and retain qualified employees;
  • the company's expectations about the scalability of its cloud-based platform;
  • the company's expectations regarding future expenses in relation to future revenue; and
  • potential changes in regulations applicable to the company or its university clients.

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 2U's Annual Report on Form 10-K for the year ended December 31, 2018, as amended and supplemented by risks and uncertainties under the heading "Risk Factors" in 2U's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 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, 2U, Inc., egoodwin@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)

 
 

September 30,
2019

 

December 31,
2018

 

(unaudited)

   

Assets

     

Current assets

     

Cash and cash equivalents

$

154,091

   

$

449,772

 

Restricted cash

16,739

   

 

Investments

   

25,000

 

Accounts receivable, net

84,797

   

32,636

 

Prepaid expenses and other assets

39,239

   

14,272

 

Total current assets

294,866

   

521,680

 

Property and equipment, net

56,105

   

52,299

 

Right-of-use assets

40,391

   

 

Goodwill

414,027

   

61,852

 

Amortizable intangible assets, net

336,373

   

136,605

 

University payments and other assets, non-current

71,808

   

34,918

 

Total assets

$

1,213,570

   

$

807,354

 

Liabilities and stockholders' equity

     

Current liabilities

     

Accounts payable and accrued expenses

$

59,607

   

$

27,647

 

Accrued compensation and related benefits

27,256

   

23,001

 

Deferred revenue

58,634

   

8,345

 

Lease liability

7,104

   

 

Other current liabilities

12,362

   

9,487

 

Total current liabilities

164,963

   

68,480

 

Long-term debt

245,856

   

3,500

 

Deferred tax liabilities, net

6,172

   

6,949

 

Lease liability, non-current

62,709

   

 

Other liabilities, non-current

812

   

23,416

 

Total liabilities

480,512

   

102,345

 

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, 63,388,705 shares
issued and outstanding as of September 30, 2019; 57,968,493 shares issued
and outstanding as of December 31, 2018

63

   

58

 

Additional paid-in capital

1,180,298

   

957,631

 

Accumulated deficit

(434,804)

   

(244,166

 

Accumulated other comprehensive loss

(12,499)

   

(8,514

 

Total stockholders' equity

733,058

   

705,009

 

Total liabilities and stockholders' equity

$

1,213,570

   

$

807,354

 

 

 

2U, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited, in thousands, except share and per share amounts)

 
 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

Revenue

$

153,798

   

$

106,963

   

$

411,493

   

$

296,674

 

Costs and expenses

             

Curriculum and teaching

21,336

   

6,351

   

41,345

   

16,665

 

Servicing and support

27,351

   

16,586

   

71,518

   

49,116

 

Technology and content development

34,132

   

16,361

   

79,969

   

45,436

 

Marketing and sales

93,521

   

60,548

   

260,231

   

171,982

 

General and administrative

42,040

   

18,974

   

93,471

   

63,323

 

Impairment charge

70,379

   

   

70,379

   

 

Total costs and expenses

288,759

   

118,820

   

616,913

   

346,522

 

Loss from operations

(134,961)

   

(11,857)

   

(205,420)

   

(49,848)

 

Interest income

924

   

1,799

   

5,087

   

3,053

 

Interest expense

(5,651)

   

(27)

   

(8,130)

   

(81)

 

Other expense, net

(710)

   

(273)

   

(1,093)

   

(1,493)

 

Loss before income taxes

(140,398)

   

(10,358)

   

(209,556)

   

(48,369)

 

Income tax (expense) benefit

(714)

   

414

   

18,918

   

5,207

 

Net loss

$

(141,112)

   

$

(9,944)

   

$

(190,638)

   

$

(43,162)

 

Net loss per share, basic and diluted

$

(2.23)

   

$

(0.17)

   

$

(3.14)

   

$

(0.78)

 

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

63,358,890

   

57,663,361

   

60,690,536

   

55,128,845

 

Other comprehensive loss

             

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

(5,856)

   

(2,781)

   

(3,985)

   

(12,327)

 

Comprehensive loss

$

(146,968)

   

$

(12,725)

   

$

(194,623)

   

$

(55,489)

 

 

 

2U, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)

 
 

Nine Months Ended
September 30,

 

2019

 

2018

Cash flows from operating activities

     

Net loss

$

(190,638)

   

$

(43,162)

 

Adjustments to reconcile net loss to net cash used in operating activities:

     

Depreciation and amortization expense

46,639

   

23,382

 

Stock-based compensation expense

36,086

   

24,064

 

Non-cash lease expense

8,407

   

 

Bad debt expense

1,785

   

 

Impairment charge

70,379

   

 

Changes in operating assets and liabilities:

     

Accounts receivable, net

(39,743)

   

(35,543)

 

Payments to university clients

(22,257)

   

(11,066)

 

Prepaid expenses and other assets

(6,760)

   

(5,426)

 

Accounts payable and accrued expenses

12,712

   

10,796

 

Accrued compensation and related benefits

(109)

   

1,185

 

Deferred revenue

20,162

   

12,210

 

Other liabilities, net

(24,263)

   

(3,976)

 

Other

1,939

   

1,493

 

Net cash used in operating activities

(85,661)

   

(26,043)

 

Cash flows from investing activities

     

Purchase of a business, net of cash acquired

(388,004)

   

 

Additions of amortizable intangible assets

(50,950)

   

(51,713)

 

Purchases of property and equipment

(11,310)

   

(8,027)

 

Purchase of investments

(10,000)

   

(25,000)

 

Proceeds from maturities of investments

25,000

   

 

Advances made to university clients

(100)

   

(300)

 

Advances repaid by university clients

350

   

25

 

Other

4

   

 

Net cash used in investing activities

(435,010)

   

(85,015)

 

Cash flows from financing activities

     

Proceeds from issuance of common stock, net of offering costs

   

330,862

 

Proceeds from exercise of stock options

2,942

   

7,032

 

Proceeds from debt

243,726

   

 

Tax withholding payments associated with settlement of restricted stock units

(2,573)

   

(3,450)

 

Proceeds from ESPP share purchases

1,895

   

1,278

 

Payments for acquisition of amortizable intangible assets

(1,283)

   

(4,900)

 

Payment of debt issuance costs

(1,953)

   

 

Net cash provided by financing activities

242,754

   

330,822

 

Effect of exchange rate changes on cash

(1,025)

   

(908)

 

Net (decrease) increase in cash, cash equivalents and restricted cash

(278,942)

   

218,856

 

Cash, cash equivalents and restricted cash, beginning of period

449,772

   

223,370

 

Cash, cash equivalents and restricted cash, end of period

$

170,830

   

$

442,226

 

 

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
September 30,

 

Nine Months Ended
September 30,

   

2019

 

2018

 

2019

 

2018

   

(in thousands, except share and per share amounts)

Net loss

 

$

(141,112)

   

$

(9,944)

   

$

(190,638)

   

$

(43,162)

 

Adjustments:

               

Foreign currency loss

 

710

   

273

   

1,093

   

1,493

 

Amortization of acquired intangible assets

 

11,096

   

1,446

   

17,863

   

4,723

 

Income tax benefit on amortization of acquired
intangible assets

 

(393)

   

(396)

   

(1,165)

   

(1,294)

 

Acquisition-related income tax expense (benefit)

 

1,504

   

   

(17,758)

   

(2,987)

 

Deferred revenue fair value adjustment

 

5,927

   

   

9,279

   

 

Transaction costs

 

92

   

   

4,466

   

 

Integration costs

 

2,436

   

   

2,493

   

 

Restructuring-related costs

 

6,581

   

   

7,174

   

 

Impairment charge

 

70,379

   

   

70,379

   

 

Stock-based compensation expense

 

16,535

   

7,933

   

36,086

   

24,064

 

Total adjustments

 

114,867

   

9,256

   

129,910

   

25,999

 

Adjusted net loss

 

$

(26,245)

   

$

(688)

   

$

(60,728)

   

$

(17,163)

 

Net loss per share, basic and diluted

 

$

(2.23)

   

$

(0.17)

   

$

(3.14)

   

$

(0.78)

 

Adjusted net loss per share, basic and diluted

 

$

(0.41)

   

$

(0.01)

   

$

(1.00)

   

$

(0.31)

 

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

 

63,358,890

   

57,663,361

   

60,690,536

   

55,128,845

 

 

 

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

 
   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

   

2019

 

2018

 

2019

 

2018

   

(in thousands)

Net loss

 

$

(141,112)

   

$

(9,944)

   

$

(190,638)

   

$

(43,162)

 

Adjustments:

               

Interest income

 

(924)

   

(1,799)

   

(5,087)

   

(3,053)

 

Interest expense

 

5,651

   

27

   

8,130

   

81

 

Foreign currency loss

 

710

   

273

   

1,093

   

1,493

 

Income tax expense (benefit)

 

714

   

(414)

   

(18,918)

   

(5,207)

 

Depreciation and amortization expense

 

22,288

   

8,599

   

46,639

   

23,382

 

Deferred revenue fair value adjustment

 

5,927

   

   

9,279

   

 

Transaction costs

 

92

   

   

4,466

   

 

Integration costs

 

2,436

   

   

2,493

   

 

Restructuring-related costs

 

6,581

   

   

7,174

   

 

Impairment charge

 

70,379

   

   

70,379

   

 

Stock-based compensation expense

 

16,535

   

7,933

   

36,086

   

24,064

 

Total adjustments

 

130,389

   

14,619

   

161,734

   

40,760

 

Adjusted EBITDA (loss)

 

$

(10,723)

   

$

4,675

   

$

(28,904)

   

$

(2,402)

 

 

 

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

 

The following table presents (i) a reconciliation of net loss guidance to adjusted net income (loss) guidance and adjusted EBITDA (loss) guidance and (ii) a reconciliation of net loss per share guidance to adjusted net income (loss) per share guidance, each at the midpoint of the ranges provided by the company, for each of the periods indicated:

 
 

Year Ending

December 31, 2019

 

$

 

$/Share

 

(in millions, except per share amounts)

Net loss

$

(235.8)

   

$

(3.84)

Foreign currency loss

1.0

   

0.02

Amortization of acquired intangible assets

28.4

   

0.46

Income tax benefit on amortization of acquired intangible assets

(1.6)

   

(0.02)

Acquisition-related income tax benefit

(17.8)

   

(0.29)

Deferred revenue fair value adjustment

11.1

   

0.18

Transaction costs

4.5

   

0.07

Integration costs

2.5

   

0.04

Restructuring-related costs

8.7

   

0.14

Impairment charge

70.4

   

1.15

Stock-based compensation expense

53.1

   

0.86

Adjusted net loss

(75.5)

   

(1.23)

Interest income

(5.5)

   

*

Interest expense

14.1

   

*

Income tax expense

0.5

   

*

Depreciation and amortization expense

41.4

   

*

Adjusted EBITDA loss

$

(25.0)

   

*

Projected weighted-average shares of common stock outstanding, basic

   

61.4

           

*       Not provided.

 

2U, Inc.
Key Business and Financial Performance Metrics
(unaudited)

 

Full Course Equivalent Enrollments

 

Graduate Program Segment

 

The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in the company's Graduate Program Segment for the last eight quarters.

 
   

Q4 '17

 

Q1 '18

 

Q2 '18

 

Q3 '18

 

Q4 '18

 

Q1 '19

 

Q2 '19

 

Q3 '19

Graduate Program Segment full
course equivalent enrollments

 

27,082

   

29,770

   

30,548

   

32,665

   

34,695

   

39,512

   

39,180

   

40,910

 

Graduate Program Segment
average revenue per full course
equivalent enrollment

 

$

2,758

   

$

2,706

   

$

2,658

   

$

2,747

   

$

2,792

   

$

2,637

   

$

2,588

   

$

2,527

 
                                                                 

 

Alternative Credential Segment

 

The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in the company's Alternative Credential Segment for the last eight quarters.

 
   

Q4 '17

 

Q1 '18

 

Q2 '18

 

Q3 '18

 

Q4 '18

 

Q1 '19

 

Q2 '19*

 

Q3 '19*

Alternative Credential Segment full course equivalent enrollments

 

6,751

   

6,002

   

8,222

   

8,937

   

9,041

   

9,128

   

12,662

   

14,729

 

Alternative Credential Segment average revenue per full course equivalent enrollment

 

$

1,777

   

$

1,954

   

$

1,972

   

$

1,930

   

$

2,015

   

$

1,979

   

$

2,955

   

$

3,825

 
                                                                 
                                                                 
 
         

The Trilogy acquisition, completed on May 22, 2019, is fully incorporated in the company's results
from that date forward. Average revenue per full course equivalent enrollment for the company's
Alternative Credential Segment includes $3.3 million and $6.0 million of purchase accounting
adjustments for the second and third quarters of 2019, respectively.

 

 

 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/2u-inc-reports-results-for-third-quarter-2019-300956709.html

SOURCE 2U, Inc.