2U, Inc. Reports Fourth Quarter and Full-Year 2017 Financial Results
LANHAM, Md., Feb. 26, 2018 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), today reported financial and operating results for the fourth quarter and full-year ended December 31, 2017.
Fourth Quarter 2017 Results
-- Revenue was $86.7 million, an increase of 51% from $57.4 million in the
fourth quarter of 2016.
-- Net income was $0.5 million, or $0.01 per share, compared to net loss of
$(2.2) million, or $(0.05) per share, in the fourth quarter of 2016.
-- Adjusted net income was $7.9 million, or $0.14 per share, compared to
$2.0 million, or $0.04 per share, in the fourth quarter of 2016.
-- Adjusted EBITDA was $12.7 million, compared to $4.5 million in the
fourth quarter of 2016.
Full-Year 2017 Results
-- Revenue was $286.8 million, an increase of 39% from $205.9 million in
2016.
-- Net loss was $(29.4) million, or $(0.60) per share, compared to $(20.7)
million, or $(0.44) per share, in 2016.
-- Adjusted net loss was $(4.3) million, or $(0.09) per share, compared to
$(4.9) million, or $(0.10) per share, in 2016.
-- Adjusted EBITDA was $11.4 million, compared to $4.5 million in 2016.
"A decade into our journey, 2U is now at the forefront of the digital transformation in higher education and the strength of our business performance and the high-quality student outcomes in our partner programs prove it," CEO and Co-Founder Christopher "Chip" Paucek said. "The positive momentum in our GetSmarter short course business combined with the organic growth in our graduate program business produced strong fourth quarter and full-year 2017 financial results and sets us up nicely for 2018."
Recent Developments
Today, 2U is announcing the signing of its first International Graduate Program: an MBA with University College London ("UCL"). This is the first online MBA offered by the UCL School of Management. The first cohort is expected to launch in 2019, subject to applicable internal approvals.
"The MBA@UCL is the first international graduate program in the history of 2U and a monumental step forward in the company's evolution," Paucek said. "This school has innovation in its DNA. The school's long-term vision centers on its goal of creating disruptive research and entrepreneurial leaders for the complex, interconnected world of the future. Now with our partnership, we are helping UCL extend that mission across the globe."
UC Berkeley is the first graduate program client that has signed to offer short courses. UC Berkeley School of Information will offer a range of technology-focused online short courses.
2U appointed two new board members to our Board of Directors: Valerie Jarrett, former Senior Advisor to President Obama, joined the board in December and Greg Peters, Chief Product Officer of Netflix, will be joining the board on March 15, 2018.
2U entered into aglobal, multi-year, exclusive partnership to enhance the future of work and learning with WeWork, a company that provides co-working space and other services to more than 175,000 members in 207 locations across the globe. The multi-dimensional deal includes:
-- A perpetual license of Flatiron School's, a wholly owned subsidiary of
WeWork Companies, Inc. ("WeWork"), Learn.co technology to 2U;
-- Access to any WeWork location around the globe for students enrolled in
2U-powered graduate programs;
-- $5 million in scholarships over three years offered by 2U exclusively to
WeWork members and employees in 2U-powered graduate programs; and
-- A commitment by 2U and WeWork to develop a Future of Learning and Work
center in a WeWork location in 2019.
Financial Outlook
Based on information available as of today, 2U is issuing the following guidance for first quarter and full-year of 2018. This guidance assumes foreign exchange rates as of December 31, 2017, including a U.S. Dollar/South African Rand rate of 12.39.
1Q 2018 FY 2018
------- -------
(in millions, except per share
amounts)
Revenue $91.1 - $91.6 $397.7 - $402.7
Net loss $(14.9) - $(14.5) $(45.0) - $(42.8)
Net loss
per share $(0.28) - ($0.27) $(0.84) - $(0.80)
Adjusted
net loss $(7.3) - $(6.9) $(7.7) - $(5.6)
Adjusted
net loss
per share $(0.14) - $(0.13) $(0.14) - $(0.10)
Weighted-
average
shares of
common
stock
outstanding,
basic 52.8 53.5
Adjusted
EBITDA
(loss) $(2.3) - $(1.9) $15.0 - $17.3
Stock-
based
compensation
expense $6.2 - $6.3 $31.6 - $32.1
2U expects that of 2018 revenue, approximately 54% should be recognized in the second half of the year. Of second half 2018 revenue, we now expect that approximately 49% will be recognized in the third quarter. Further, we expect to experience meaningful margin variability between periods driven by revenue growth combined with cost seasonality. For full-year 2018, we expect this margin variability to be distributed between the first half and the second half of the year as follows:
-- net loss margin of between (19.8)% and (19.1)% for the first half of the
year and between (4.1)% and (3.4)% for the second half of the year;
-- adjusted net loss margin of between (10.2)% and (9.7)% for the first
half of the year and adjusted net income margin of between 5.2% and 5.7%
for the second half of the year; and
-- adjusted EBITDA (loss) margin of between (4.5)% and (3.9)% for the first
half of the year and adjusted EBITDA margin of between 10.9% and 11.3%
for the second half of the year.
Note that cost seasonality in the second and fourth quarters typically reduces margins in the first half of each year and improves margins in the second half of each year, so second-half margins should not be viewed as being a run rate for the first half of the following year.
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 fourth quarter and full-
year 2017 financial results conference
call
When: Monday, February 26, 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 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, 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, 2016 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.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31, December 31,
2017 2016
---- ----
(unaudited)
Assets
Current assets
Cash and cash equivalents $223,370 $168,730
Accounts receivable, net 14,174 7,860
Prepaid expenses and other assets 10,509 8,108
------ -----
Total current assets 248,053 184,698
Property and equipment, net 49,055 15,596
Goodwill 71,988 -
Amortizable intangible assets, net 90,761 34,131
Prepaid expenses and other assets, non-
current 22,205 9,895
------ -----
Total assets $482,062 $244,320
======== ========
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $22,629 $14,724
Accrued compensation and related benefits 19,017 16,491
Deferred revenue 7,024 3,137
Other current liabilities 9,330 6,717
----- -----
Total current liabilities 58,000 41,069
Non-current lease-related liabilities 22,573 7,620
Deferred government grant obligations 3,500 -
Deferred tax liabilities, net 10,087 -
Other non-current liabilities 70 394
--- ---
Total liabilities 94,230 49,083
------ ------
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,
52,505,856 shares issued and outstanding
as of December 31, 2017; 47,151,635
shares issued and outstanding as of
December 31, 2016 53 47
Additional paid-in capital 588,289 371,455
Accumulated deficit (205,836) (176,265)
Accumulated other comprehensive income 5,326 -
----- ---
Total stockholders' equity 387,832 195,237
------- -------
Total liabilities and stockholders'
equity $482,062 $244,320
======== ========
2U, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(unaudited) (unaudited)
Revenue $86,678 $57,350 $286,752 $205,864
Costs and expenses
Curriculum and teaching 4,817 - 6,609 -
Servicing and support 13,445 10,859 50,767 40,982
Technology and content
development 12,846 8,496 45,926 33,283
Marketing and sales 37,700 27,306 150,923 106,610
General and administrative 17,844 13,061 62,665 46,021
------ ------ ------ ------
Total costs and expenses 86,652 59,722 316,890 226,896
------ ------ ------- -------
Income (loss) from
operations 26 (2,372) (30,138) (21,032)
Interest income 104 163 371 383
Interest expense (50) - (87) (35)
Other income (expense),
net 106 - (866) -
Income (loss) before
income taxes 186 (2,209) (30,720) (20,684)
Income tax benefit 323 - 1,297 -
--- --- ----- ---
Net income (loss) $509 $(2,209) $(29,423) $(20,684)
Net loss per share, basic $0.01 $(0.05) $(0.60) $(0.44)
===== ====== ====== ======
Net loss per share,
diluted $0.01 $(0.05) $(0.60) $(0.44)
===== ====== ====== ======
Weighted-average shares
of common stock
outstanding, basic 52,330,067 47,075,167 49,062,611 46,609,751
========== ========== ========== ==========
Weighted-average shares
of common stock
outstanding, diluted 56,593,108 47,075,167 49,062,611 46,609,751
========== ========== ========== ==========
Other comprehensive loss
Foreign currency
translation adjustments,
net of tax of $0 for all
periods presented 8,943 - 5,326 -
----- --- ----- ---
Comprehensive income
(loss) $9,452 $(2,209) $(24,097) $(20,684)
====== ======= ======== ========
2U, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
-----------------------
2017 2016
---- ----
(unaudited)
Cash flows from operating activities
Net loss $(29,423) $(20,684)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 19,624 9,750
Stock-based compensation expense 21,930 15,823
Charge related to execution of new
lease agreement - -
Changes in operating assets and
liabilities:
Increase in accounts receivable, net (5,634) (6,885)
Decrease (increase) in prepaid expenses
and other assets 1,549 (1,090)
Increase (decrease) in accounts payable
and accrued expenses 3,504 (2,459)
Increase in accrued compensation and
related benefits 2,504 3,086
Increase in deferred revenue 1,661 528
(Increase) decrease in payments to
university clients (13,239) 2,234
Increase (decrease) in other
liabilities, net 4,763 4,907
Other 867 -
--- ---
Net cash provided by (used in)
operating activities 8,106 5,210
Cash flows from investing activities
Purchase of a business, net of cash
acquired (97,102) -
Purchases of property and equipment (27,316) (7,648)
Additions of amortizable intangible
assets (23,823) (16,728)
Advances made to university clients (1,950) -
Advances repaid by university clients 817 -
Other - (142)
Net cash used in investing activities (149,374) (24,518)
Cash flows from financing activities
Proceeds from issuance of common stock,
net of offering costs 189,463 -
Proceeds from exercise of stock options 6,615 4,859
Proceeds from debt 3,500 -
Payments on debt (1,517) -
Tax withholding payments associated
with settlement of restricted stock
units (1,309) (378)
Other - (172)
--- ----
Net cash provided by financing
activities 196,752 4,309
Effect of exchange rate changes on cash (844) -
---- ---
Net increase (decrease) in cash and
cash equivalents 54,640 (14,999)
Cash and cash equivalents, beginning of
period 168,730 183,729
------- -------
Cash and cash equivalents, end of
period $223,370 $168,730
======== ========
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of net income (loss) to adjusted net income (loss) for each of the periods indicated:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands, except share and per share amounts)
Net income (loss) $509 $(2,209) $(29,423) $(20,684)
Adjustments:
Foreign currency (gain) loss (106) - 866 -
Amortization of acquired intangible assets 1,416 - 3,014 -
Income tax benefit on amortization of
acquired intangible assets (333) - (708) -
Stock-based compensation expense 6,393 4,230 21,930 15,823
----- ----- ------ ------
Total adjustments 7,370 4,230 25,102 15,823
----- ----- ------ ------
Adjusted net income (loss) $7,879 $2,021 $(4,321) $(4,861)
====== ====== ======= =======
Net income (loss) per share, basic and
diluted (1) $0.01 $(0.05) $(0.60) $(0.44)
===== ====== ====== ======
Adjusted net income (loss) per share,
basic (1) $0.15 $0.04 $(0.09) $(0.10)
===== ===== ====== ======
Adjusted net income (loss) per share,
diluted (1) $0.14 $0.04 $(0.09) $(0.10)
===== ===== ====== ======
Weighted-average shares of common stock
outstanding, basic 52,330,067 47,075,167 49,062,611 46,609,751
========== ========== ========== ==========
Weighted-average shares of common stock
outstanding, diluted 56,593,108 50,843,497 49,062,611 46,609,751
--------------------------------------- ========== ========== ========== ==========
(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
outstanding for periods which
result in net loss and/or
adjusted net loss.
The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated:
Three Months Ended Year Ended
December 31, December 31,
------------ ------------
2017 2016 2017 2016
---- ---- ---- ----
(in thousands)
Net income (loss) $509 $(2,209) $(29,423) $(20,684)
Adjustments:
Interest income (104) (163) (371) (383)
Interest expense 50 - 87 35
Foreign currency (gain)
loss (106) - 866 -
Depreciation and
amortization expense 6,306 2,690 19,624 9,750
Income tax benefit (323) - (1,297) -
Stock-based compensation
expense 6,393 4,230 21,930 15,823
----- ----- ------ ------
Total adjustments 12,216 6,757 40,839 25,225
------ ----- ------ ------
Adjusted EBITDA $12,725 $4,548 $11,416 $4,541
======= ====== ======= ======
2U, Inc.
Graduate Program Segment Profitability Margin by Launch Cohort
(unaudited)
The following table presents Graduate Program Segment profitability by launch cohort as a percentage of the applicable launch cohort revenue, or Graduate Program Segment profitability margin, for the year ended December 31, 2017. We provide segment profitability information in connection with our segment financial reporting. Graduate program launch cohorts are grouped by the length of time since program launch, as of December 31, 2017. Because we incur graduate program marketing and sales expenses prior to generating the revenue related to those expenses, graduate programs typically show losses for several years prior to reaching profitability. Our measure of Graduate Program Segment profitability margin by launch cohort applies our measure of Graduate Program Segment profitability margin on a launch cohort basis. Our measure of Graduate Program Segment profitability margin is 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.
Launch Cohort Profitability Margin
------------- --------------------
Less than 2 Years(1) (400)%
2-3 Years(2) 14%
3-4 Years(3) 25%
Greater than 4 Years(4) 39%
Total Segment Margin 5%
--------------------
(1) Includes programs launched in
2017 and 2016 and expenses
incurred in connection with
programs not launched as of
December 31, 2017.
(2) Includes programs launched in
2015.
(3) Includes programs launched in
2014.
(4) Includes all programs
launched prior to 2014.
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:
Three Months Ending Year Ending
March 31, 2018 December 31, 2018
-------------- -----------------
$ $/Share $ $/Share
--- ------- --- -------
(in thousands, except per share amounts)
Net loss $(14,700) $(0.28) $(43,875) $(0.82)
Foreign currency loss - - - -
Amortization of acquired intangible
assets 1,575 0.03 6,300 0.12
Income tax benefit on amortization
of acquired intangible assets (275) - (1,100) (0.02)
Stock-based compensation expense 6,300 0.12 32,025 0.60
----- ---- ------ ----
Adjusted net loss (7,100) (0.13) (6,650) (0.12)
Net interest income (50) * (200) *
Depreciation and amortization
expense 5,050 * 23,000 *
Income tax benefit - * - *
--- --- --- ---
Adjusted EBITDA (loss) $(2,100) $ * $16,150 $ *
======= === === ======= === ===
Projected weighted-average shares
of common stock outstanding, basic 52,754 53,465
* Not provided.
2U, Inc.
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.
Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 '17
------ ------ ------ ------ ------ ------ ------ ------
Graduate Program full
course equivalent
enrollments 17,709 18,823 19,126 21,686 23,857 23,903 24,062 27,082
Graduate Program
average revenue per
full course equivalent
enrollment $2,679 $2,609 $2,717 $2,645 $2,717 $2,719 $2,740 $2,758
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 two quarters, since the acquisition of
GetSmarter on July 1, 2017.
Q3 '17 Q4 '17
------ ------
Short
Course
full
course
equivalent
enrollments 4,079 6,751
Short
Course
average
revenue
per full
course
equivalent
enrollment* $1,232 $1,777
* The calculation of short course
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.
