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Aug 02, 2018

2U, Inc. Reports Second Quarter 2018 Financial Results

Raises full-year revenue growth guidance to 43%

 

LANHAM, Md., Aug. 2, 2018 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the second quarter ended June 30, 2018.

Second Quarter 2018 Results

  • Revenue was $97.4 million, an increase of 50% from $65.0 million in the second quarter of 2017.
  • Net loss was $(18.3) million, or $(0.33) per share, compared to $(11.8) million, or $(0.25) per share, in the second quarter of 2017.
  • Adjusted net loss was $(10.3) million, or $(0.19) per share, compared to $(5.2) million, or $(0.11) per share, in the second quarter of 2017.
  • Adjusted EBITDA loss was $(5.6) million, compared to $(1.5) million in the second quarter of 2017.

"In the three months since our last earnings report, we've announced a total of eight new graduate programs, putting us on pace to complete our 2019 launch cohort this quarter, the earliest in 2U's history" said CEO and Co-Founder Christopher "Chip" Paucek. "Ten years in, we have a proven and unparalleled track record of delivering for our partners and their students, which continues to drive exceptional momentum in both degree and short course pipeline as well as long-term contract extensions by existing clients."

Program Developments

2U recently announced the following:

  • Two DGPs with Tufts University to deliver GlobalBusiness@Tufts, an online Master of Global Business Administration, and Education@Tufts, a suite of online graduate-level education degrees.
  • A DGP with the University of Dayton School of Law to deliver Law@Dayton, an accredited hybrid Juris Doctor degree. The School of Law received approval from an American Bar Association variance in May.
  • The addition of the MBA@Pepperdine offering to the previously announced Business@Pepperdine DGP at the Pepperdine University Graziadio Business School.
  • A DGP with the American University Washington College of Law to deliver Law@American, an online Master of Legal Studies degree.
  • An expansion of a partnership with the Baylor University Robbins College of Health and Human Sciences to deliver a new DGP, Speech@Baylor, an online Master of Science in Communication Sciences and Disorders degree.
  • Washington University in St. Louis School of Law has extended their existing partnership with the Company for 12 years through 2033. This extension includes the addition of a new L.L.M. in Taxation degree offering.
  • A DGP with the University of Denver Daniel Felix Ritchie School of Engineering & Computer Science to deliver DataScience@Denver, an online Master of Science in Data Science program.
  • Two DGPs with Fordham University to deliver Law@Fordham, a Master of Studies in Law in Compliance, and Business@Fordham, a suite of specialized management and finance degrees.

Other Recent Developments

  • The Company hired two new senior executives. Mark Chernis, former 2U Board member, was named chief operating officer, and John Ellis joined the Company as senior vice president, corporate controller, and chief accounting officer.
  • 2U was named a 2018 Top Workplace by The Washington Post for the fourth consecutive year.

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for third quarter and full-year of 2018. This guidance assumes foreign exchange rates as of June 30, 2018, including a U.S. dollar/South African rand rate of 13.72.

   

3Q 2018

 

FY 2018

 
   

(in millions, except per share amounts)

 

Revenue

 

$106.0 - $107.0

 

$409.7 - $412.2

 

Net loss

 

$(11.6) - $(11.0)

 

$(42.7) - $(41.5)

 

Net loss per share, basic and diluted

 

$(0.20) - $(0.19)

 

$(0.77) - $(0.75)

 

Adjusted net loss

 

$(1.7) - $(1.1)

 

$(5.8) - $(4.6)

 

Adjusted net loss per share

 

$(0.03) - $(0.02)

 

$(0.10) - $(0.08)

 

Weighted-average shares of common stock outstanding, basic

 

57.5

 

55.7

 

Adjusted EBITDA

 

$4.2 - $4.8

 

$16.9 - $18.1

 

Stock-based compensation expense

 

$8.7 - $8.8

 

$33.9 - $34.2

 

 

In giving third quarter and full-year guidance, the Company's expectations for the fourth quarter are implied. Note that the cost seasonality driven by reduced marketing spend during the holiday period 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.

For more information regarding the guidance above, the Company's management team strongly encourages stockholders and other interested parties to listen to the Company's second quarter 2018 financial results conference call or review the transcript thereof. Both can be found on the Company's investor relations website at investor.2u.com.

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, foreign currency gains or losses, acquisition-related gains or losses 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 foreign currency gains or losses, acquisition-related gains or losses 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 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 second quarter 2018 financial results conference call

When:

 

Thursday, August 2, 2018

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 digital education. Our platform provides a comprehensive fusion of technology, services and data architecture to transform high-quality and rigorous campus-based universities into the best digital versions of themselves. 2U's No Back Row® approach allows qualified students and working professionals around the world to experience a first-rate university education and achieve desired outcomes. 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, 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; our ability to comply with evolving regulations and legal obligations related to data privacy, data protection and information security; our expectations about the potential benefits of our cloud-based software-as-a-service ("SaaS") technology and technology-enabled services to university clients and students; our dependence on third parties to provide certain technological services or components used in our solutions; our ability to meet the anticipated launch dates of our graduate programs and short courses; our expectations about the predictability, visibility and recurring nature of our business model; our ability to acquire new university clients and expand our graduate programs and short courses with existing university clients; our ability to successfully integrate the operations of Get Educated International Proprietary Limited, or GetSmarter, achieve the expected benefits of the acquisition and manage, expand and grow the combined company; our ability to execute our growth strategy in the international, undergraduate and non-degree alternative markets; our ability to continue to acquire prospective students for our graduate programs and short courses; our ability to affect or increase student retention in our graduate programs; our ability to successfully execute our growth strategy; our expectations regarding the scalability of our cloud-based SaaS technology; our expectations regarding future expenses in relation to future revenue; potential changes in regulations applicable to us or our university clients; and our expectations regarding the amount of time our cash balances and other available financial resources will be sufficient to fund our operations. 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, 2017 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: Molly Greenberg, 2U, Inc., mgreenberg@2u.com

 

2U, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)

 
   
   

June 30,
2018

 

December 31,
2017

 
   

(unaudited)

     

Assets

         

Current assets

         

Cash and cash equivalents

 

$

488,834

 

$

223,370

 

Accounts receivable, net

 

50,031

 

14,174

 

Prepaid expenses and other assets

 

15,087

 

10,509

 

Total current assets

 

553,952

 

248,053

 

Property and equipment, net

 

50,264

 

49,055

 

Goodwill

 

64,873

 

71,988

 

Amortizable intangible assets, net

 

126,062

 

90,761

 

Prepaid expenses and other assets, non-current

 

30,313

 

22,205

 

Total assets

 

$

825,464

 

$

482,062

 

Liabilities and stockholders' equity

         

Current liabilities

         

Accounts payable and accrued expenses

 

$

32,055

 

$

22,629

 

Accrued compensation and related benefits

 

16,956

 

19,017

 

Deferred revenue

 

30,862

 

7,024

 

Other current liabilities

 

17,096

 

9,330

 

Total current liabilities

 

96,969

 

58,000

 

Deferred government grant obligations

 

3,500

 

3,500

 

Deferred tax liabilities, net

 

6,935

 

10,087

 

Lease-related and other liabilities, non-current

 

24,613

 

22,643

 

Total liabilities

 

132,017

 

94,230

 

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, 57,315,585 shares issued and outstanding as of June 30, 2018; 52,505,856 shares issued and outstanding as of December 31, 2017

 

57

 

53

 

Additional paid-in capital

 

936,664

 

588,289

 

Accumulated deficit

 

(239,054)

 

(205,836)

 

Accumulated other comprehensive income (loss)

 

(4,220)

 

5,326

 

Total stockholders' equity

 

693,447

 

387,832

 

Total liabilities and stockholders' equity

 

$

825,464

 

$

482,062

 

 

 

 

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

 
   
   

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 
   

2018

 

2017

 

2018

 

2017

 

Revenue

 

$

97,423

 

$

64,995

 

$

189,711

 

$

129,824

 

Costs and expenses

                 

Curriculum and teaching

 

6,007

 

 

10,314

 

 

Servicing and support

 

17,297

 

13,458

 

32,530

 

24,383

 

Technology and content development

 

15,235

 

11,140

 

29,075

 

20,345

 

Marketing and sales

 

58,376

 

37,242

 

111,434

 

71,912

 

General and administrative

 

22,480

 

13,930

 

44,349

 

27,594

 

Total costs and expenses

 

119,395

 

75,770

 

227,702

 

144,234

 

Loss from operations

 

(21,972)

 

(10,775)

 

(37,991)

 

(14,410)

 

Interest income

 

912

 

53

 

1,254

 

249

 

Interest expense

 

(27)

 

(1)

 

(54)

 

(1)

 

Other income (expense), net

 

(825)

 

(1,031)

 

(1,220)

 

(1,031)

 

Loss before income taxes

 

(21,912)

 

(11,754)

 

(38,011)

 

(15,193)

 

Income tax benefit

 

3,565

 

 

4,793

 

 

Net loss

 

$

(18,347)

 

$

(11,754)

 

$

(33,218)

 

$

(15,193)

 

Net loss per share, basic and diluted

 

$

(0.33)

 

$

(0.25)

 

$

(0.62)

 

$

(0.32)

 

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

 

54,981,192

 

47,668,397

 

53,840,582

 

47,454,059

 

Other comprehensive loss

                 

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

 

(14,178)

 

 

(9,546)

 

 

Comprehensive loss

 

$

(32,525)

 

$

(11,754)

 

$

(42,764)

 

$

(15,193)

 
                                 

 

 

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

 
   
   

Six Months Ended
June 30,

 
   

2018

 

2017

 

Cash flows from operating activities

         

Net loss

 

$

(33,218)

 

$

(15,193)

 

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

         

Depreciation and amortization

 

14,783

 

7,431

 

Stock-based compensation expense

 

16,131

 

9,390

 

Changes in operating assets and liabilities:

         

Increase in accounts receivable, net

 

(35,932)

 

(15,566)

 

(Increase) decrease in prepaid expenses and other assets

 

(3,705)

 

179

 

Increase in accounts payable and accrued expenses

 

10,207

 

5,135

 

(Decrease) increase in accrued compensation and related benefits

 

(1,998)

 

1,417

 

Increase in deferred revenue

 

24,086

 

4,228

 

Increase in payments to university clients

 

(8,923)

 

(7,471)

 

(Decrease) increase in other liabilities, net

 

(2,854)

 

1,282

 

Other

 

1,221

 

1,031

 

Net cash used in operating activities

 

(20,202)

 

(8,137)

 

Cash flows from investing activities

         

Additions of amortizable intangible assets

 

(40,039)

 

(10,808)

 

Purchases of property and equipment

 

(5,124)

 

(15,449)

 

Advances made to university clients

 

(100)

 

 

Net cash used in investing activities

 

(45,263)

 

(26,257)

 

Cash flows from financing activities

         

Proceeds from issuance of common stock, net of offering costs

 

330,862

 

 

Proceeds from exercise of stock options

 

4,793

 

2,908

 

Tax withholding payments associated with settlement of restricted stock units

 

(3,407)

 

(1,291)

 

    Proceeds from debt

 

 

3,500

 

Net cash provided by financing activities

 

332,248

 

5,117

 

Effect of exchange rate changes on cash

 

(1,319)

 

(1,031)

 

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

 

265,464

 

(30,308)

 

Cash, cash equivalents and restricted cash, beginning of period

 

223,370

 

168,730

 

Cash, cash equivalents and restricted cash, end of period

 

$

488,834

 

$

138,422

 


 

 

 

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

 
   

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

 
   
   

Three Months Ended
June  30,

 

Six Months Ended
June 30,

 
   

2018

 

2017

 

2018

 

2017

 
   

(in thousands, except share and per share amounts)

 

Net loss

 

$

(18,347)

 

$

(11,754)

 

$

(33,218)

 

$

(15,193)

 

Adjustments:

                 

Foreign currency loss

 

825

 

1,031

 

1,220

 

1,031

 

Amortization of acquired intangible assets

 

1,597

 

 

3,277

 

 

Income tax benefit on amortization of acquired intangible assets

 

(438)

 

 

(898)

 

 

Acquisition-related tax benefit

 

(2,987)

 

 

(2,987)

 

 

Stock-based compensation expense

 

9,009

 

5,495

 

16,131

 

9,390

 

Total adjustments

 

8,006

 

6,526

 

16,743

 

10,421

 

Adjusted net loss

 

$

(10,341)

 

$

(5,228)

 

$

(16,475)

 

$

(4,772)

 

Net loss per share, basic and diluted (1)

 

$

(0.33)

 

$

(0.25)

 

$

(0.62)

 

$

(0.32)

 

Adjusted net loss per share, basic and diluted (1)

 

$

(0.19)

 

$

(0.11)

 

$

(0.31)

 

$

(0.10)

 

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

 

54,981,192

 

47,668,397

 

53,840,582

 

47,454,059

 
   

 

(1)

The Company computes net income (loss) per share and/or adjusted net income (loss) per share using diluted weighted-average shares of common stock outstanding for periods which result in net income and/or adjusted net income, and uses basic weighted-average shares of common stock outstanding for periods which result in net loss and/or 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
June 30,

 

Six Months Ended
June 30,

 
   

2018

 

2017

 

2018

 

2017

 
   

(in thousands)

 

Net loss

 

$

(18,347)

 

$

(11,754)

 

$

(33,218)

 

$

(15,193)

 

Adjustments:

                 

Interest income

 

(912)

 

(53)

 

(1,254)

 

(249)

 

Interest expense

 

27

 

1

 

54

 

1

 

Foreign currency loss

 

825

 

1,031

 

1,220

 

1,031

 

Depreciation and amortization expense

 

7,408

 

3,783

 

14,783

 

7,431

 

Income tax benefit

 

(3,565)

 

 

(4,793)

 

 

Stock-based compensation expense

 

9,009

 

5,495

 

16,131

 

9,390

 

Total adjustments

 

12,792

 

10,257

 

26,141

 

17,604

 

Adjusted EBITDA (loss)

 

$

(5,555)

 

$

(1,497)

 

$

(7,077)

 

$

2,411

 

 

 

 

 

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 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:

 
   

Three Months Ended
September 30, 2018

 

Year Ended
December 31, 2018

 
   

$

 

$/Share

 

$

 

$/Share

 
   

(in thousands, except per share amounts)

 

Net loss

 

$

(11,275)

 

$

(0.20)

 

$

(42,150)

 

$

(0.76)

 

Foreign currency loss

 

 

 

1,200

 

0.02

 

Amortization of acquired intangible assets

 

1,675

 

0.03

 

6,650

 

0.12

 

Income tax benefit on amortization of acquired intangible assets

 

(550)

 

(0.01)

 

(1,800)

 

(0.03)

 

Acquisition-related tax benefit

 

 

 

(2,975)

 

(0.05)

 

Stock-based compensation expense

 

8,775

 

0.16

 

33,850

 

0.61

 

Adjusted net loss

 

(1,375)

 

(0.02)

 

(5,225)

 

(0.09)

 

Net interest income

 

(1,450)

 

*

 

(4,100)

 

*

 

Depreciation and amortization expense

 

7,525

 

*

 

26,700

 

*

 

Income tax (benefit) expense

 

(175)

 

*

 

150

 

*

 

Adjusted EBITDA

 

$

4,525

 

$

*

 

$

17,525

 

$

*

 

Projected weighted-average shares of common stock outstanding, basic

     

57,475

     

55,750

 
   

*              Not provided.

 

 

 

Key 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 our Graduate Program Segment for the last eight quarters.

 
   

Q3 '16

 

Q4 '16

 

Q1 '17

 

Q2 '17

 

Q3 '17

 

Q4 '17

 

Q1 '18

 

Q2 '18

 

Graduate Program full course

  equivalent enrollments

 

19,126

 

21,686

 

23,857

 

23,903

 

24,062

 

27,082

 

29,770

 

30,548

 
                                   

Graduate Program average revenue

  per full course equivalent

  enrollment

 

$

2,717

 

$

2,645

 

$

2,717

 

$

2,719

 

$

2,740

 

$

2,758

 

$

2,706

 

$

2,658

 
                                                   

 

Short Course Segment

 

The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in our Short Course Segment for the last four quarters, since the acquisition of GetSmarter on July 1, 2017.

 
   

Q3 '17

 

Q4 '17

 

Q1 '18

 

Q2 '18

 

Short Course full course equivalent

  enrollments

 

4,079

 

6,751

 

6,002

 

8,222

 
                   

Short Course average revenue per

  full course equivalent enrollment*

 

$

1,232

 

$

1,777

 

$

1,954

 

$

1,972

 
                           

 

*       

The calculation of the Short Course Segment's average revenue per full course equivalent enrollment includes $0.7 million of revenue that was excluded from the results of operations in the third quarter of 2017, due to an adjustment recorded as part of the valuation of GetSmarter.

 

 

 

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SOURCE 2U, Inc.