2U, Inc. Reports Fourth Quarter and Full-Year 2018 Financial Results
LANHAM, Md., Feb. 25, 2019 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the fourth quarter and full-year ended December 31, 2018.
Fourth Quarter 2018 Results
-- Revenue was $115.1 million, an increase of 33% from $86.7 million in the
fourth quarter of 2017.
-- Net income was $4.8 million, or $0.08 per share, compared to $0.5
million, or $0.01 per share, in the fourth quarter of 2017.
-- Adjusted net income was $13.7 million, or $0.23 per share, compared to
$7.9 million, or $0.14 per share, in the fourth quarter of 2017.
-- Adjusted EBITDA was $20.1 million, compared to $12.7 million in the
fourth quarter of 2017.
Full-Year 2018 Results
-- Revenue was $411.8 million, an increase of 44% from $286.8 million in
2017.
-- Net loss was $(38.3) million, or $(0.69) per share, compared to $(29.4)
million, or $(0.60) per share, in 2017.
-- Adjusted net loss was $(3.5) million, or $(0.06) per share, compared to
$(4.3) million, or $(0.09) per share, in 2017.
-- Adjusted EBITDA was $17.7 million, compared to $11.4 million in 2017.
"The strength and resilience of 2U's business is clear from our 2018 fourth quarter and full-year results, and reflects the continued expansion and increasing diversity of our degree and short course portfolios, both domestically and internationally," Co-Founder and CEO Christopher "Chip" Paucek said. "Our commitment to investing in sustained growth not only sets 2U apart in the education technology industry, but will allow us to better meet the evolving needs of our partners and the marketplace."
Recent Developments
2U recently announced the following:
-- February 21, 2019: An expanded partnership with Syracuse University to
launch no fewer than 10 new online short courses across various
professional disciplines.
-- February 11, 2019: A new Graduate Program with EGADE Business School at
Tecnológico de Monterrey, Mexico -- the #1 ranked business school in
Latin America by Eduniversal -- to deliver an online MBA. EGADE MBA
Online is 2U's first full graduate program in Latin America.
-- February 7, 2019: An expansion of The We Company "Global Access"
membership benefit to cover active faculty teaching 2U-powered degree
programs and lead convenors for 2U's short course portfolio.
-- February 6, 2019: A strategic partnership with Keypath Education to
expand the scope of services 2U offers to university partners by
supporting smaller or lower-tuition degree programs.
-- February 6, 2019: A new collaboration with LinkedIn, including
complimentary access to LinkedIn Premium Career for students in
2U-powered degree programs, LinkedIn hosted best-practice workshops for
2U's university clients, and a focus on insights about career pathways
to help measure outcomes.
-- February 4, 2019: A new partnership with Kellogg School of Management at
Northwestern University to deliver two online, business-focused short
courses.
-- January 9, 2019: A new Graduate Program with Tufts University School of
Medicine to deliver two online graduate degrees: MHI@Tufts, a Master of
Health Informatics and Analytics, and MPH@Tufts, a Master of Public
Health.
-- December 10, 2018: 2U announced that Alexis Maybank, co-founder and
first CEO of Gilt Groupe and chair of Girls Who Code, would join its
Board of Directors. Maybank became 2U's twelfth board member, and with
her appointment, 2U's board is 50 percent diverse, including two white
women, two black women, and two men of color.
Financial Outlook
Based on information available as of today, 2U is issuing the following guidance for first quarter and full-year of 2019. This guidance assumes foreign exchange rates as of December 31, 2018 for the U.S. dollar/South African rand and the U.S. dollar/British pound.
1Q 2019
FY 2019
(in millions, except per share
amounts)
Revenue
$121.5 - $122.1
$546.6 - $550.8
Net loss
$(22.0) - $(21.6)
$(80.2) - $(77.8)
Net loss per share
$(0.38) - $(0.37)
$(1.37) - $(1.33)
Adjusted net loss
$(10.8) - $(10.4)
$(21.8) - $(19.4)
Adjusted net loss per share
$(0.19) - $(0.18)
$(0.37) - $(0.33)
Weighted-average shares of common stock outstanding, basic 58.2 58.7
Adjusted EBITDA (loss)
$(4.6) - $(4.2)
$11.8 - $14.2
Stock-based compensation expense
$10.0 - $10.2
$53.7 - $54.1
2U expects that of 2019 revenue, 45% to 46% should be recognized in the first half of the year. Of second half 2019 revenue, 2U now expects to see a similar distribution of revenue between quarters as it saw in 2018. Further, it expects to experience meaningful margin variability between periods driven by revenue growth combined with cost seasonality. For full-year 2019, 2U expects its earnings and loss measures to be distributed according to the following parameters:
-- net loss margin of between (23.4)% and (22.9)% for the first half of the
year,
-- adjusted net loss margin of between (12.6)% and (12.1)% for the first
half of the year; third quarter adjusted net loss and fourth quarter
adjusted net income somewhat more skewed than in the comparable 2018
periods, and
-- adjusted EBITDA (loss) margin of between (6.9)% and (6.5)% for the first
half of the year; similar distribution of adjusted EBITDA in the third
and fourth quarter as in the comparable 2018 periods.
Note that 2U's previously announced intention to increase marketing spend in the first half of 2019 is reflected in this guidance and has the effect of driving larger expected loss measures in the first and second quarters than would be expected based on typical performance patterns. Further 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 expense, 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 2018 financial results conference call
When:
Monday, February 25, 2019
Time:
5 p.m. ET
Live
Call:
(877) 359-9508
Webcast:
investor.2U.com
About 2U, Inc. (Nasdaq: TWOU)
Eliminating the back row in higher education is more than just a metaphor, it's our mission. For more than a decade, 2U, Inc., a global leader in education technology, has been improving lives by powering world-class digital education. As a trusted partner and brand steward of great universities, we build, deliver, and support online graduate programs and certificates for working adults. Our industry-leading short courses, offered by GetSmarter, are designed to equip lifelong learners with in-demand career skills. To learn more, visit 2U.com. #NoBackRow
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, or 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 platform; 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 attract, hire and retain qualified employees; our expectations about the scalability of our cloud-based platform; 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 Forman, 2U, Inc., mforman@2U.com
2U, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31, December 31,
2018 2017
(unaudited)
Assets
Current assets
Cash and cash equivalents $
449,772 $
223,370
Investments 25,000
Accounts receivable, net 32,636 14,174
Prepaid expenses and other assets 14,272 10,509
Total current assets 521,680 248,053
Property and equipment, net 52,299 49,055
Goodwill 61,852 71,988
Amortizable intangible assets, net 136,605 90,761
University payments and other assets, non-current 34,918 22,205
Total assets $
807,354 $
482,062
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $
27,647 $
22,629
Accrued compensation and related benefits 23,001 19,017
Deferred revenue 8,345 7,024
Other current liabilities 9,487 9,330
Total current liabilities 68,480 58,000
Deferred government grant obligations 3,500 3,500
Deferred tax liabilities, net 6,949 10,087
Lease-related and other liabilities, non-current 23,416 22,643
Total liabilities 102,345 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, 57,968,493 shares issued 58 53
and outstanding as of December 31, 2018; 52,505,856 shares issued and outstanding as
of December 31, 2017
Additional paid-in capital 957,631 588,289
Accumulated deficit (244,166) (205,836)
Accumulated other comprehensive income (loss) (8,514) 5,326
Total stockholders' equity 705,009 387,832
Total liabilities and stockholders' equity $
807,354 $
482,062
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,
2018 2017 2018 2017
(unaudited) (unaudited)
Revenue $
115,095 $
86,678 $
411,769 $
286,752
Costs and expenses
Curriculum and teaching 6,625 4,817 23,290 6,609
Servicing and support 18,087 13,445 67,203 50,767
Technology and content development 18,376 12,846 63,812 45,926
Marketing and sales 49,033 37,700 221,015 150,923
General and administrative 19,666 17,844 82,989 62,665
Total costs and expenses 111,787 86,652 458,309 316,890
Income (loss) from operations 3,308 26 (46,540) (30,138)
Interest income 2,120 104 5,173 371
Interest expense (27) (50) (108) (87)
Other income (expense), net (229) 106 (1,722) (866)
Income (loss) before income taxes 5,172 186 (43,197) (30,720)
Income tax (expense) benefit (340) 323 4,867 1,297
Net income (loss) $
4,832 $
509 $
(38,330) $
(29,423)
Net income (loss) per share, basic $
0.08 $
0.01 $
(0.69) $
(0.60)
Net income (loss) per share, diluted $
0.08 $
0.01 $
(0.69) $
(0.60)
Weighted-average shares of common stock outstanding, basic 57,924,666 52,330,067 55,833,492 49,062,611
Weighted-average shares of common stock outstanding, diluted 60,666,682 56,593,108 55,833,492 49,062,611
Other comprehensive income (loss)
Foreign currency translation adjustments, net (1,513) 8,943 (13,840) 5,326
of tax of $0 for all periods presented
Comprehensive income (loss) $
3,319 $
9,452 $
(52,170) $
(24,097)
2U, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2018 2017
(unaudited)
Cash flows from operating activities
Net loss $
(38,330) $
(29,423)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization expense 32,785 19,624
Stock-based compensation expense 31,410 21,930
Changes in operating assets and liabilities:
Accounts receivable, net (18,497) (5,634)
Prepaid expenses and other assets (4,932) 1,549
Accounts payable and accrued expenses 4,724 3,504
Accrued compensation and related benefits 4,046 2,504
Deferred revenue 1,527 1,661
Payments to university clients (11,322) (13,239)
Other liabilities, net (6,243) 4,763
Other 1,712 867
Net cash (used in) provided by operating activities (3,120) 8,106
Cash flows from investing activities
Purchase of a business, net of cash acquired (97,102)
Purchases of property and equipment (11,996) (27,316)
Additions of amortizable intangible assets (65,190) (23,823)
Purchase of investments (25,000)
Advances made to university clients (300) (1,950)
Advances repaid by university clients 25 817
Net cash used in investing activities (102,461) (149,374)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs 330,901 189,463
Proceeds from exercise of stock options 7,366 6,615
Proceeds from Employee Stock Purchase Plan share purchases 3,121
Proceeds from debt 3,500
Payments on debt (1,517)
Tax withholding payments associated with settlement of restricted stock units (3,451) (1,309)
Payments for acquisition of amortizable intangible assets (4,900)
Net cash provided by financing activities 333,037 196,752
Effect of exchange rate changes on cash (1,054) (844)
Net increase in cash and cash equivalents 226,402 54,640
Cash and cash equivalents, beginning of period 223,370 168,730
Cash and cash equivalents, end of period $
449,772 $
223,370
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,
2018 2017 2018 2017
(in thousands, except share and per share amounts)
Net income (loss) $
4,832 $
509 $
(38,330) $
(29,423)
Adjustments:
Foreign currency (gain) loss 229 (106) 1,722 866
Amortization of acquired intangible assets 1,422 1,416 6,145 3,014
Income tax benefit on amortization of acquired intangible assets (390) (333) (1,684) (708)
Acquisition-related tax benefit 214 (2,773)
Stock-based compensation expense 7,346 6,393 31,410 21,930
Total adjustments 8,821 7,370 34,820 25,102
Adjusted net income (loss) $
13,653 $
7,879 $
(3,510) $
(4,321)
Net income (loss) per share, basic (1) $
0.08 $
0.01 $
(0.69) $
(0.60)
Net income (loss) per share, diluted (1) $
0.08 $
0.01 $
(0.69) $
(0.60)
Adjusted net income (loss) per share, basic (1) $
0.24 $
0.15 $
(0.06) $
(0.09)
Adjusted net income (loss) per share, diluted (1) $
0.23 $
0.14 $
(0.06) $
(0.09)
Weighted-average shares of common stock outstanding, basic 57,924,666 52,330,067 55,833,492 49,062,611
Weighted-average shares of common stock outstanding, diluted 60,666,682 56,593,108 55,833,492 49,062,611
____________________
(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 income (loss) to adjusted EBITDA for each of the periods indicated:
Three Months Ended Year Ended
December 31, December 31,
2018 2017 2018 2017
(in thousands)
Net income (loss) $
4,832 $
509 $
(38,330) $
(29,423)
Adjustments:
Interest income (2,120) (104) (5,173) (371)
Interest expense 27 50 108 87
Foreign currency loss (gain) 229 (106) 1,722 866
Depreciation and amortization expense 9,403 6,306 32,785 19,624
Income tax expense (benefit) 340 (323) (4,867) (1,297)
Stock-based compensation expense 7,346 6,393 31,410 21,930
Total adjustments 15,225 12,216 55,985 40,839
Adjusted EBITDA $
20,057 $
12,725 $
17,655 $
11,416
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, 2018. 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,
2018. 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 is net income or net
loss, as applicable, before net
interest income (expense), taxes,
depreciation and amortization
expense, foreign currency gains or
losses, acquisition-related gains
or losses and stock-based
compensation expense. We define
segment profitability margin as
segment profitability as a
percentage of the respective
segment's revenue. Some or all of
these items may not be applicable
in any given reporting period.
Launch Cohort
Graduate Program Segment Profitability Margin
---
Less than 2 Years (1) (199)
%
2-3 Years (2) (8)
%
3-4 Years (3) 25
%
Greater than 4 Years (4) 42
%
Total 5
%
____________________
(1) Includes programs launched in 2018 and 2017
and expenses incurred in connection with
programs not launched as of December 31,
2018.
(2) Includes programs launched in 2016.
(3) Includes programs launched in 2015.
(4) Includes all programs launched prior to 2015.
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, 2019 December 31, 2019
$
$/Share
$
$/Share
(in thousands, except per share amounts)
Net loss $
(21,850) $
(0.38) $
(79,050) $
(1.35)
Foreign currency loss
Amortization of acquired intangible assets 1,600 0.03 6,400 0.11
Income tax benefit on amortization of acquired intangible assets (425) (0.01) (1,750) (0.03)
Stock-based compensation expense 10,100 0.18 53,825 0.92
Adjusted net loss (10,575) (0.18) (20,575) (0.35)
Net interest income (1,575) * (3,900) *
Depreciation and amortization expense 8,275 * 36,675 *
Income tax (benefit) expense (500) * 800 *
Adjusted EBITDA (loss) $
(4,375)
$
* $
13,000
$
*
Projected weighted-average shares of common stock outstanding, basic 58,160 58,685
____________________
* 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 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18
Graduate Program full course equivalent 23,857 23,903 24,062 27,082 29,770 30,548 32,665 34,695
enrollments
Graduate Program average revenue per full $
2,717 $
2,719 $
2,740 $
2,758 $
2,706 $
2,658 $
2,747 $
2,792
course equivalent enrollment
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 six quarters, since the acquisition of GetSmarter on July 1, 2017.
Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18
Short Course full course equivalent 4,079 6,751
enrollments
6,002 8,222 8,937 9,041
Short Course average revenue per full $
1,232 $
1,777
course equivalent enrollment*
$
1,954 $
1,972 $
1,930 $
2,015
____________________
* 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.
