2U, Inc. Reports Results for Second Quarter 2020

LANHAM, Md., July 30, 2020 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the second quarter ended June 30, 2020.

Results for Second Quarter 2020 Compared to Second Quarter 2019

• Revenue increased 35% to $182.7 million
• Graduate Program Segment revenue increased 14% to $115.7 million
• Alternative Credential Segment revenue increased 97% to $67.0 million, including $36.6 million in revenue from Trilogy, acquired in May 2019
• Net loss increased $38.2 million to $66.2 million, or $1.03 per share

Non-GAAP Results for Second Quarter 2020 Compared to Second Quarter 2019

• Adjusted net loss was $21.8 million, or $0.34 per share, compared to adjusted net loss of $25.8 million, or $0.43 per share
• Adjusted EBITDA loss was $2.1 million, compared to a loss of $15.0 million

"In these complex and challenging times, the importance of 2U's mission and the value we deliver for our partners and their students has never been more clear," Co-Founder and CEO Christopher "Chip" Paucek said. "As universities accelerate their digital transformations and more students affirmatively choose to pursue an education online, we believe our strong relationships with leading universities and the unmatched scale and quality of our portfolio of offerings position us well for future growth."

"We are driving significant improvement in key profitability and cash flow metrics while maintaining quality, enhancing operational efficiency, and executing on growth opportunities," said Chief Financial Officer Paul Lalljie. "We delivered a significant improvement in free cash flow in the second quarter and expect to achieve EBITDA profitability next quarter and for the full year. We also increased our financial flexibility with our recent convertible senior notes offering and revolving line of credit."

Discussion of Second Quarter 2020 Results

Revenue totaled $182.7 million, a 35% increase from $135.5 million in the second quarter of 2019. Graduate Program Segment revenue grew 14% to $115.7 million driven by an 18% increase in full course equivalent ("FCE") enrollments, partially offset by a 3% decrease in average revenue per FCE enrollment. Alternative Credential Segment revenue increased 97% to $67.0 million, driven by FCE enrollments of 20,435. The acquisition of Trilogy was completed on May 22, 2019, making this quarter the last period for which comparative period results do not exist.

Costs and expenses totaled $231.8 million, a 28% increase from $181.5 million in the second quarter of 2019. This $50.3 million increase was driven by $33.8 million of incremental operating costs related to Trilogy, with the remaining increase primarily attributable to personnel and personnel-related expense, curriculum and teaching costs, and depreciation and amortization expense, partially offset by decreased spend on travel and entertainment due to cost efficiencies and the impact of COVID-19.

As of June 30, 2020, the company's cash, cash equivalents, and restricted cash totaled $213.0 million, an increase of $23.1 million from $189.9 million as of December 31, 2019. The cash balance as of June 30, 2020 reflects net proceeds from the convertible senior notes offering. As of June 30, 2020, the company's outstanding borrowings were $385.3 million, principally related to the issuance of its convertible senior notes.

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), taxes, depreciation and amortization expense, foreign currency gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, 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, restructuring-related and certain other 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, 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. As of the date of this earnings release, we revised our definitions of adjusted EBITDA (loss) and adjusted net income (loss) to exclude losses on debt extinguishment. We believe this change is useful to investors because we did not have a loss on debt extinguishment in prior periods, and as a result, excluding the impact of such a loss beginning this period facilitates a period-to-period comparison.

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

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 435 digital and in-person educational offerings, including undergraduate and 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 245,000 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 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, 2019, as amended and supplemented by risks and uncertainties under the heading "Risk Factors" in our Quarterly Report on Form 10-Q for the quarter ended June 30, 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: Ed Goodwin, 2U, Inc., [email protected]Media Contact: Glenda Felden, 2U, Inc., [email protected]

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SOURCE 2U, Inc.