2U, Inc. Reports Third Quarter 2017 Financial Results

LANHAM, Md., Nov. 7, 2017 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the third quarter ended September 30, 2017. 2U completed its acquisition of GetSmarter (incorporated as Get Educated Proprietary International Limited) on July 1, 2017. GetSmarter's financial results are only included in the combined company's financial statements from the closing date forward and are not reflected in either 2U's financial statements or the presentation of non-GAAP measures included in this press release for periods prior to the acquisition date. As a result, the third quarter ended September 30, 2017 is the first period, which represents the combined results of 2U and GetSmarter.

Third Quarter 2017 Results

• Revenue was $70.3 million, an increase of 35% from $52.0 million in the third quarter of 2016.
• Net loss was $(14.7) million, or $(0.30) per share, compared to $(6.8) million, or $(0.14) per share, in the third quarter of 2016.
• Adjusted net loss was $(7.4) million, or $(0.15) per share compared to an adjusted net loss of $(2.7) million, or $(0.06) per share, in the third quarter of 2016.
• Adjusted EBITDA loss was $(3.7) million, compared to an adjusted EBITDA loss of $(0.2) million in the third quarter of 2016.

Of the 35% year-over-year revenue growth in the third quarter, 27% was related to 2U's Graduate Program business and the remainder was attributable to revenue from the recently acquired Short Course business. On a consolidated basis, the year-over-year net loss, adjusted net loss and adjusted EBITDA loss changes were primarily related to the consolidation of results from the recently acquired Short Course business. For more information on the impact of the GetSmarter acquisition on 2U's consolidated third quarter results, please see the Company's quarterly report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2017, and listen to the Company's third quarter 2017 financial results conference call or review the transcript thereof.

"We have now delivered 15 quarters of strong financial results with no plans of slowing down in 2018," 2U CEO and co-founder Christopher "Chip" Paucek said. "We are further cementing our leadership position and forging new pathways in the digital education space with short courses. Although we expect the domestic graduate landscape to continue to produce strong growth, short courses now allow us to provide a more comprehensive product solution to our clients. Based on this combined strength, we expect 2018 year-over-year revenue growth of between 38 to 39 percent. In addition, our acquisition of GetSmarter enables us to expand and more effectively serve the growing demand coming from global markets, a trend that we expect to continue in 2019 with our plans to launch 2U's first international graduate program, or IGP."

Program Developments

2U initially targeted 12 new Domestic Graduate Programs (DGPs) in 2018. Last year, 2U raised that target to 13 DGPs. 2U has now slotted all 13 launches, but due to university demand, 2U has increased the expected 2018 launch cohort to 14 DGPs, and for 2019 has already targeted 16 DGPs for launch.

The following 13 DGPs are each slotted to launch in 2018. They are listed in the order of their expected launch date. Included is the Yale Physician Assistant program, which has been approved by its accrediting body and will be the 13th DGP, with classes beginning in January 2018. 2U expects to announce the final 2018 DGP before the end of the year.

• Yale University: Yale PA Online, a Master of Medical Sciences for Physician Associates degree
• University of Denver: MBA@Denver, a Master of Business Administration degree
• University of Denver: MSW@Denver, a Master of Social Work degree
• Harvard University: Harvard Business Analytics Program, a business analytics certificate
• University of Dayton: Dayton Education Program, a suite of education and behavioral science degrees with the School of Education and Health Sciences
• University of California, Berkeley: cybersecurity@berkeley, a Master of Information and Cybersecurity degree
• University of Southern California: School Counseling Program, a Master of Education in School Counseling degree
• Fordham University: Education@Fordham, a suite of education degrees
• University of Southern California: DPT@USC, a Doctor of Physical Therapy degree
• Rice University: MBA@Rice, a Master of Business Administration degree
• The University of North Carolina at Chapel Hill: MPH@UNC, a suite of public health degrees
• Fordham University: OnlineMSW@Fordham, a Master of Social Work degree
• Emerson College: Speech@Emerson, a Master of Science in Communication Disorders degree

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for fourth quarter and full year of 2017, which incorporates the expected results for the Short Course business.

 

 

Note that in both the Graduate Program and Short Course businesses, marketing activities are typically reduced during the year-end holiday period resulting in increased fourth quarter margins. Fourth quarter margins should not be viewed as a run rate going into the early quarters of 2018.

Although the 2018 budget cycle is not complete, 2U is providing a preliminary view into 2018 based upon its early expectations:

• The distribution of revenue and earnings or loss measures across 2018 should change from that seen in 2017 because of both the concentration of 2018 Graduate Program launches earlier in the year and the addition of GetSmarter Short Course revenue, which we expect to accelerate in the second half of the year based on the timing of course launches.
• 2018 revenue is expected to increase by between 38% and 39% over 2017.
• Of 2018 revenue, we currently expect that 44% to 45% will be recognized in the first half of the year and 55% to 56% will be recognized in the second half of the year. For both the first and second halves of 2018, we currently expect that between 48% and 49% of that half year revenue will be recognized in the first three months of the period.
• We currently expect a net loss margin for 2018 of between (11.6)% and (11.0)%.
• We currently expect a net loss margin in the first half of between (20.2)% and (19.3)%, and of that dollar net loss, approximately 42% to 43% is expected to be generated in the first quarter.
• We currently expect a net loss margin in the second half of between (4.8)% and (4.3)%, and of that dollar net loss, approximately 100% is expected to be generated in the third quarter.
• We currently expect an adjusted net loss margin for 2018 of between (1.9)% and (1.4)%, but we expect to report adjusted net income for the second half of the year.
• We currently expect an adjusted net loss margin in the first half of between (10.2)% and (9.5)%, and of that dollar adjusted net loss, approximately 40% to 41% is expected to be generated in the first quarter.
• We currently expect an adjusted net income margin in the second half of between 4.8% and 5.3%, and of that dollar adjusted net income, substantially all of it is expected to be generated in the fourth quarter.
• We currently expect an adjusted EBITDA margin for 2018 of between 3.8% and 4.3%, but we expect to report an adjusted EBITDA loss for the first half of the year.
• We currently expect an adjusted EBITDA loss margin in the first half of between (4.3)% and (3.6)%, and of that dollar adjusted EBITDA loss, approximately 30% to 27% of the loss is expected to be generated in the first quarter.
• We currently expect an adjusted EBITDA margin in the second half of between 10.3% and 10.8%, and of that dollar adjusted EBITDA, approximately 22% to 23% is expected to be generated in the third quarter.

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

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 successful 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, 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, 2016 and other reports filed with the Securities and Exchange Commission. In addition, there are significant risks and uncertainties relating to 2U's acquisition and ownership of GetSmarter, including risks and uncertainties relating to the integration of GetSmarter's operations and the realization of anticipated benefits from the acquisition. 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: Molly Greenberg, 2U, Inc., [email protected]

 

 

 

 

 

 

 

 

 

 

 

 

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SOURCE 2U, Inc.