2U, Inc. Reports Second Quarter 2017 Financial Results
LANHAM, Md., Aug. 7, 2017 /PRNewswire/ -- 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the second quarter ended June 30, 2017.
Second Quarter 2017 Results
-- Revenue was $65.0 million, an increase of 32% from $49.1 million in the
second quarter of 2016.
-- Net loss was $(11.8) million, or $(0.25) per share, compared to $(8.3)
million, or $(0.18) per share, in the second quarter of 2016.
-- Adjusted net loss was $(5.2) million, or $(0.11) per share compared to
an adjusted net loss of $(4.4) million, or $(0.09) per share, in the
second quarter of 2016.
-- Adjusted EBITDA loss was $(1.5) million, compared to an adjusted EBITDA
loss of $(2.1) million in the second quarter of 2016.
"We just had another excellent financial quarter as well as one of the most active and exciting periods in our nearly ten-year history," said Christopher "Chip" Paucek, 2U's CEO and co-founder. "On July 1(st), we completed our acquisition of GetSmarter, a leader in offering premium online short courses. With university partners like MIT, Cambridge and the recently added London School of Economics and Oxford, GetSmarter expands our global reach with some of the most internationally recognized brands in higher education."
"In addition, our core DGP business continues to scale for the long run. We have now slotted 12 of our targeted 13 launches for 2018, including the two we are announcing in this release. Universities are recognizing the unparalleled nature of our overall offering. We've always met our annual launch targets, but we've never been so far along this early. As a result, we remain confident in our multi-year launch cadence."
Program Developments
2U is now announcing a DGP with Emerson College, a new partner, and a second DGP with the University of Dayton, an existing partner. Taken together with its recently announced third DGP with the University of North Carolina at Chapel Hill, as well as new partnerships with Fordham University, Rice University, and Harvard University, the following seven DGPs are each slotted for launch in 2018:
-- The University of North Carolina at Chapel Hill: MPH@UNC, a suite of
public health degrees.
-- Fordham University: Education@Fordham, a suite of education degrees.
-- Fordham University: OnlineMSW@Fordham, a Master of Social Work degree.
-- Rice University: MBA@Rice, a Master of Business Administration.
-- Harvard University: Harvard Business Analytics Program.
-- Emerson College: Speech@Emerson, a Master of Science in Communication
Disorders (pending faculty approval).
-- University of Dayton: a suite of education and behavioral science
degrees with the School of Education and Health Sciences.
Also, 2U extended its agreements with the Milken Institute School of Public Health at the George Washington University until 2034 for both the MPH@GW, a Master of Public Health, and MHA@GW, a Master of Health Administration.
Financial Outlook
Based on information available as of today, 2U is issuing the following guidance for third quarter and full year of 2017. Note that this guidance incorporates expected results for the GetSmarter business we acquired on July 1, 2017.
3Q 2017 FY 2017
------- -------
(in millions, except per share
amounts)
Revenue $68.8 - $69.8 $282.7 - $285.7
Net Loss $(16.3) - $(15.8) $(32.1) - $(31.0)
Net Loss per
Share,
Basic and
Diluted $(0.34) - $(0.33) $(0.67) - $(0.65)
Adjusted Net
Loss $(9.9) - $(9.5) $(9.1) - $(8.2)
Adjusted Net
Loss per
Share $(0.21) -$(0.20) $(0.19) - $(0.17)
Weighted-
Average
Shares of
Common
Stock
Outstanding,
Basic and
Diluted 48.0 47.8
Adjusted
EBITDA
(Loss) $(4.1) - $(3.7) $10.3 - $11.2
Stock-Based
Compensation
Expense $6.2 - $6.3 $21.8 - $22.0
In giving third quarter and full-year guidance, the Company's expectations for the fourth quarter are implied. Note that 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, particularly given the Company's recent acquisition of GetSmarter, the Company's management team strongly encourages stockholders and other interested parties to listen to the Company's second quarter 2017 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 2017 financial
results conference call
When: Monday, August 7, 2017
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 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., egoodwin@2U.com
Media Contact: Jemila Woodson, 2U, Inc., jwoodson@2u.com
2U, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share and per share amounts)
June 30, December 31,
2017 2016
---- ----
Assets
Current assets:
Cash and cash equivalents $37,435 $168,730
Restricted cash 100,987 -
Accounts receivable, net 23,426 7,860
Advances to clients 213 567
Prepaid expenses and other assets 8,398 7,541
----- -----
Total current assets 170,459 184,698
Property and equipment, net 34,390 15,596
Capitalized technology and content
development costs, net 37,402 31,867
Advances to clients, non-current 2,163 2,100
Prepaid expenses, non-current 14,789 7,052
Other non-current assets 2,770 3,007
----- -----
Total assets $261,973 $244,320
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $4,323 $3,729
Accrued compensation and related benefits 17,908 16,491
Accrued expenses and other liabilities 22,324 17,712
Deferred revenue 7,365 3,137
----- -----
Total current liabilities 51,920 41,069
Non-current lease-related liabilities 15,202 7,620
Deferred government grant obligations 3,500 -
Other non-current liabilities 300 394
--- ---
Total liabilities 70,922 49,083
Stockholders' equity:
Preferred stock, $0.001 par value,
5,000,000 shares authorized, 0 shares
issued and outstanding as of June 30,
2017 and December 31, 2016 - -
Common stock, $0.001 par value,
200,000,000 shares authorized,
47,858,326 shares issued and outstanding
as of June 30, 2017; 47,151,635 shares
issued and outstanding as of December
31, 2016 48 47
Additional paid-in capital 382,609 371,455
Accumulated deficit (191,606) (176,265)
-------- --------
Total stockholders' equity 191,051 195,237
------- -------
Total liabilities and stockholders'
equity $261,973 $244,320
======== ========
2U, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except share and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Revenue $64,995 $49,110 $129,824 $96,554
Costs and expenses:
Servicing and support 13,458 10,260 24,383 19,772
Technology and content development 11,140 8,842 20,345 16,117
Program marketing and sales 37,242 27,483 71,912 51,139
General and administrative 13,930 10,944 27,594 21,391
------ ------ ------ ------
Total costs and expenses 75,770 57,529 144,234 108,419
------ ------ ------- -------
Loss from operations (10,775) (8,419) (14,410) (11,865)
Other income (expense):
Interest income 53 91 249 183
Interest expense (1) (9) (1) (35)
Foreign currency loss (1,031) - (1,031) -
------ --- ------ ---
Total other income (expense) (979) 82 (783) 148
---- --- ---- ---
Loss before income taxes (11,754) (8,337) (15,193) (11,717)
Income tax expense - - - -
--- --- --- ---
Net loss $(11,754) $(8,337) $(15,193) $(11,717)
======== ======= ======== ========
Net loss per share, basic and
diluted $(0.25) $(0.18) $(0.32) $(0.25)
====== ====== ====== ======
Weighted-average shares of common
stock outstanding, basic and
diluted 47,668,397 46,494,464 47,454,059 46,226,117
========== ========== ========== ==========
2U, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Six Months Ended
June 30,
--------
2017 2016
---- ----
Cash flows from operating activities
Net loss $(15,193) $(11,717)
Adjustments to reconcile net loss to net
cash (used in) provided by operating
activities:
Depreciation and amortization 7,431 4,526
Stock-based compensation expense 9,390 7,520
Foreign currency loss 1,031 -
Changes in operating assets and
liabilities:
Increase in accounts receivable, net (15,566) (4,267)
Decrease in advances to clients 291 75
Increase in prepaid expenses and other
current assets (112) (645)
Increase in accounts payable 594 1,044
Increase (decrease) in accrued
compensation and related benefits 1,417 (3,419)
Increase in accrued expenses and other
liabilities 4,262 4,776
Increase in deferred revenue 4,228 14,978
(Increase) decrease in payments to
clients (7,471) 1,664
Decrease (increase) in other assets and
other liabilities, net 1,561 (3,028)
----- ------
Net cash (used in) provided by operating
activities (8,137) 11,507
Cash flows from investing activities
Purchases of property and equipment (15,449) (1,029)
Capitalized technology and content
development cost expenditures (10,808) (7,437)
Other - (142)
--- ----
Net cash used in investing activities (26,257) (8,608)
Cash flows from financing activities
Proceeds from deferred government grant
obligations 3,500 -
Proceeds from exercise of stock options 2,908 2,156
Tax withholding payments associated with
settlement of restricted stock units (1,291) (365)
Other - (168)
--- ----
Net cash provided by financing
activities 5,117 1,623
Effect of exchange rate changes on cash (1,031) -
------ ---
Net (decrease) increase in cash, cash
equivalents and restricted cash (30,308) 4,522
Cash, cash equivalents and restricted
cash, beginning of period 168,730 183,729
------- -------
Cash, cash equivalents and restricted
cash, end of period $138,422 $188,251
======== ========
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of net loss to adjusted net income for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except share and per share amounts)
Net loss $(11,754) $(8,337) $(15,193) $(11,717)
Adjustments:
Foreign currency loss 1,031 - 1,031 -
Stock-based compensation expense 5,495 3,976 9,390 7,520
----- ----- ----- -----
Total adjustments 6,526 3,976 10,421 7,520
----- ----- ------ -----
Adjusted net loss $(5,228) $(4,361) $(4,772) $(4,197)
======= ======= ======= =======
Net loss per share (1) $(0.25) $(0.18) $(0.32) $(0.25)
Adjusted net loss per share (1) $(0.11) $(0.09) $(0.10) $(0.09)
Weighted-average shares of common stock outstanding, basic (1) 47,668,397 46,494,464 47,454,059 46,226,117
(1) The Company computes net loss
per share and adjusted net
loss per share using basic
weighted-average shares of
common stock outstanding.
The following table presents a reconciliation of net loss to adjusted EBITDA (loss) for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands)
Net loss $(11,754) $(8,337) $(15,193) $(11,717)
Adjustments:
Interest income (53) (91) (249) (183)
Interest expense 1 9 1 35
Foreign currency loss 1,031 - 1,031 -
Depreciation and amortization expense 3,783 2,377 7,431 4,526
Stock-based compensation expense 5,495 3,976 9,390 7,520
----- ----- ----- -----
Total adjustments 10,257 6,271 17,604 11,898
------ ----- ------ ------
Adjusted EBITDA (loss) $(1,497) $(2,066) $2,411 $181
======= ======= ====== ====
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents (i) a reconciliation of net loss guidance to adjusted net loss guidance and adjusted EBITDA (loss) guidance and (ii) a reconciliation of net loss per share guidance to adjusted net loss per share guidance, each
at the midpoint of the ranges provided by the Company, for each of the periods indicated:
Three Months Ended Year Ended
September 30, 2017 December 31, 2017
------------------ -----------------
$ $/Share $ $/Share
--- ------- --- -------
(in thousands, except per share amounts)
Net loss $(16,050) $(0.33) $(31,550) $(0.66)
Foreign currency (gain) loss - * 1,050 0.02
Stock-based compensation expense 6,350 0.13 21,850 0.46
----- ---- ------ ----
Adjusted net loss (9,700) (0.20) (8,650) (0.18)
Net interest (income) expense - * (200) *
Depreciation and amortization expense 5,800 * 19,600 *
----- --- ------ ---
Adjusted EBITDA (loss) $(3,900) $ * $10,750 $ *
======= === === ======= === ===
Projected weighted-average shares of common stock outstanding, basic and diluted 48,000 47,800
* Not provided.
Key Financial Performance Metrics
(unaudited)
Platform Revenue Retention Rate
The following table sets forth our platform revenue retention rate for the periods presented, as well as the number of programs included in the
platform revenue retention rate calculation.
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2017 2016 2017 2016
---- ---- ---- ----
Platform revenue
retention rate 127.4% 134.2% 128.8% 123.7%
Number of programs
included in comparison
(1) 18 15 17 12
(1) Reflects the number of programs
operating both in the reported
period and in the prior year
comparative period.
Full Course Equivalent Enrollments
The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in our clients' programs for the last eight quarters.
Q3 '15 Q4 '15 Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17
------ ------ ------ ------- ------ ------ ------ ------
Full course equivalent enrollments in 13,840 16,530 17,709 18,823 19,126 21,686 23,857 23,903
our clients' programs
Average revenue per full course $2,680 $2,617 $2,679 $2,609 $2,717 $2,645 $2,717 $2,719
equivalent enrollment in our clients'
programs
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SOURCE 2U, Inc.
