2U, Inc. Reports Results for Fourth Quarter and Full-Year 2019

LANHAM, Md., Feb. 6, 2020 /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, 2019.

Results for Fourth Quarter 2019 Compared to Fourth Quarter 2018

    --  Revenue increased 42% to $163.2 million
    --  Graduate Program Segment revenue increased 12% to $108.2 million
    --  Alternative Credential Segment revenue increased 202% to $54.9 million,
        including $33.2 million in revenue from Trilogy, acquired in May 2019
    --  Net loss was $44.6 million, or $(0.70) per share, compared to net income
        of $4.8 million, or $0.08 per share, in the fourth quarter of 2018

Non-GAAP Results for Fourth Quarter 2019 Compared to Fourth Quarter 2018

    --  Adjusted net loss was $11.2 million, or $(0.18) per share, compared to
        adjusted net income of $13.7 million, or $0.23 per share, in the fourth
        quarter of 2018
    --  Adjusted EBITDA was $5.0 million, compared to $20.1 million in the
        fourth quarter of 2018

Results for Full-Year 2019 Compared to Full-Year 2018

    --  Revenue increased 40% to $574.7 million
    --  Graduate Program Segment revenue increased 20% to $417.2 million
    --  Alternative Credential Segment revenue increased 148% to $157.5 million,
        including $74.3 million in revenue from Trilogy, acquired in May 2019
    --  Net loss increased $196.9 million to $235.2 million or $(3.83) per share

Non-GAAP Results for Full-Year 2019 Compared to Full-Year 2018

    --  Adjusted net loss increased $68.4 million to $71.9 million or $(1.17)
        per share
    --  Adjusted EBITDA loss was $23.9 million, compared to adjusted EBITDA of
        $17.7 million in 2018

"Over the past year, with the addition of our boot camp and undergraduate offerings, we have opened up significant new market segments, more than doubled our client base, and now deliver a portfolio of over 400 career-relevant, high-quality product offerings," Co-Founder and Chief Executive Officer Christopher "Chip" Paucek said. "Our recent expansion of 2U's relationship with the University of London and the London School of Economics and Political Science is a testament to the strength of our partnerships and will allow us to power a compelling mix of seven bachelor's degrees from two of the world's most recognized and respected institutions."

Chief Financial Officer Paul Lalljie commented, "We closed out 2019 with strong results, and enter 2020 with excellent momentum. The business is on pace to deliver industry-leading growth for the year, with revenue expected to grow by 26-30% and adjusted EBITDA expected to turn positive in the third quarter. We remain focused on improving operational efficiency and accelerating our path to profitability and positive free cash flow."

Discussion of Fourth Quarter 2019 Results

Revenue totaled $163.2 million, a 42% increase from $115.1 million in the fourth quarter of 2018. Graduate Program Segment revenue grew 12% to $108.2 million, driven by a 20% increase in full course equivalent enrollments, partially offset by a 7% decrease in average revenue per full course equivalent enrollment. Alternative Credential Segment revenue increased 202% to $54.9 million, driven by full course equivalent enrollments of 14,639.

Costs and expenses totaled $204.5 million, an 83% increase from $111.8 million in the fourth quarter of 2018. This $92.7 million increase was primarily driven by $55.1 million of incremental operating costs related to Trilogy and $5.8 million in transaction, integration, restructuring-related and shareholder activism costs. The remainder of the cost increase was primarily attributable to direct marketing, personnel, and curriculum and teaching costs.

As of December 31, 2019, the company's cash, cash equivalents and restricted cash totaled $189.9 million, a decrease of $259.9 million from $449.8 million as of December 31, 2018. The $259.9 million decrease from December 31, 2018 was primarily driven by $388.0 million to acquire Trilogy, capital expenditures of $80.5 million and cash used in operating activities of $52.0 million, partially offset by borrowings under the company's term loan facility of $244.7 million and a $25.0 million inflow from the maturity of a certificate of deposit. As of December 31, 2019, the company had approximately $254.5 million of indebtedness on a consolidated basis, principally related to the company's term loan facility maturing in May 2024.

Business Outlook for Fiscal Year 2020

First Quarter 2020

    --  Revenue to range from $170.0 million to $180.0 million, or growth of 39%
        to 47%
    --  Net loss to range from $70.0 million to $60.0 million
    --  Adjusted net loss to range from $36.0 million to $26.0 million
    --  Adjusted EBITDA (loss) to range from $(18.0) million to $(8.0) million

Full-Year 2020

    --  Revenue to range from $725.0 million to $750.0 million, or growth of 26%
        to 30%
    --  Net loss to range from $220.0 million to $200.0 million
    --  Adjusted net loss to range from $90.0 million to $70.0 million
    --  Adjusted EBITDA (loss) to range from $(5.0) million to $10.0 million

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, shareholder activism costs, impairment charges, and stock-based compensation expense. The company defines unlevered free cash flow as net cash from operating activities, less capital expenditures and excluding 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, shareholder activism costs, impairment charges, 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 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 have 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 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



     What:        2U, Inc.'s fourth quarter and full-year
                    2019 financial results conference call



     When:      
     Thursday, February 6, 2020



     Time:      
     4:30 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 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 400 digital and in-person educational offerings, including 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 200,000 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 our 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, or SaaS, technology and
        technology-enabled services to university clients and students;
    --  the company's dependence on third parties to provide certain services or
        components used in its platform;
    --  the company's ability to meet the anticipated launch dates of its
        educational offerings;
    --  the company's expectations about the predictability, visibility and
        recurring nature of its business model;
    --  the company's ability to acquire new university clients and expand its
        offerings with existing university clients;
    --  its ability to successfully integrate the operations of its
        acquisitions, including Trilogy Education Services, Inc., or Trilogy,
        achieve the expected benefits of its acquisitions and manage, expand and
        grow the combined company;
    --  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 company's ability to service its substantial indebtedness and comply
        with the financial and other restrictive covenants contained in the
        credit agreement governing its senior secured term loan facility;
    --  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 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 acquire prospective students for
        its offerings;
    --  the company's ability to affect or increase student retention in its
        graduate programs;
    --  the company's ability to attract, hire and retain qualified employees;
    --  the company's expectations about the scalability of its cloud-based
        platform;
    --  the company's expectations regarding future expenses in relation to
        future revenue;
    --  potential changes in regulations applicable to the company or its
        university clients; and
    --  the impact and cost of stockholder activism.

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, 2018 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., egoodwin@2U.com

Media Contact: Glenda Felden, 2U, Inc., media@2U.com


                                                                                                            
              
                2U, Inc.

                                                                                                          
       
                Consolidated Balance Sheets

                                                                                                       
     
         (in thousands, except share and per share amounts)




                                                                                                                                                                  December 31,                 December 31,

                                                                                                                                                                          2019                          2018

                                                                                                                                                                                                        ---

                                                                                                                                                                  (unaudited)



              
                Assets



              
                Current assets



              Cash and cash equivalents                                                                                                                                         $
        170,593                          $
      449,772



              Restricted cash                                                                                                                                          19,276



              Investments                                                                                                                                                   -                                  25,000



              Accounts receivable, net                                                                                                                                 33,655                                   32,636



              Prepaid expenses and other assets                                                                                                                        37,424                                   14,272




              Total current assets                                                                                                                                    260,948                                  521,680



              
                Property and equipment, net                                                                                                                 57,643                                   52,299



              
                Right-of-use assets                                                                                                                         43,401



              
                Goodwill                                                                                                                                   418,350                                   61,852



              
                Amortizable intangible assets, net                                                                                                         333,075                                  136,605



              
                University payments and other assets, non-current                                                                                           73,413                                   34,918



              
                Total assets                                                                                                                                       $
        1,186,830                          $
      807,354




              
                Liabilities and stockholders' equity



              
                Current liabilities



              Accounts payable and accrued expenses                                                                                                                              $
        65,381                           $
      27,647



              Accrued compensation and related benefits                                                                                                                21,885                                   23,001



              Deferred revenue                                                                                                                                         48,833                                    8,345



              Lease liability                                                                                                                                           7,320



              Other current liabilities                                                                                                                                12,535                                    9,487




              Total current liabilities                                                                                                                               155,954                                   68,480



              
                Long-term debt                                                                                                                             246,620                                    3,500



              
                Deferred tax liabilities, net                                                                                                                5,133                                    6,949



              
                Lease liability, non-current                                                                                                                66,974



              
                Other liabilities, non-current                                                                                                                 899                                   23,416



              
                Total liabilities                                                                                                                          475,580                                  102,345




              
                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, 63,569,109 shares issued                                                                      63                                       58
      and outstanding as of December 31, 2019; 57,968,493 shares issued and outstanding as
      of December 31, 2018



              Additional paid-in capital                                                                                                                            1,197,379                                  957,631



              Accumulated deficit                                                                                                                                   (479,388)                               (244,166)



              Accumulated other comprehensive loss                                                                                                                    (6,804)                                 (8,514)



              
                Total stockholders' equity                                                                                                                 711,250                                  705,009




              
                Total liabilities and stockholders' equity                                                                                                         $
        1,186,830                          $
      807,354


                                                                                                                 
              
                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,


                                                                                                  2019                                        2018                                            2019                  2018

                                                                                                                                                                                                                  ---

                                                                                                     
           
                (unaudited)                                            (unaudited)



              
                Revenue                                                                     $
             163,178                                                      $
              115,095                         $
        574,671     $
        411,769



              
                Costs and expenses



              Curriculum and teaching                                                          21,925                                         6,625                                                       63,270                   23,290



              Servicing and support                                                            27,372                                        18,087                                                       98,890                   67,203



              Technology and content development                                               35,504                                        18,376                                                      115,473                   63,812



              Marketing and sales                                                              82,164                                        49,033                                                      342,395                  221,015



              General and administrative                                                       37,549                                        19,666                                                      131,020                   82,989



              Impairment charge                                                                     -                                                                                                   70,379




              
                Total costs and expenses                                           204,514                                       111,787                                                      821,427                  458,309




              
                Income (loss) from operations                                     (41,336)                                        3,308                                                    (246,756)                (46,540)



              Interest income                                                                     713                                         2,120                                                        5,800                    5,173



              Interest expense                                                                (5,289)                                         (27)                                                    (13,419)                   (108)



              Other income (expense), net                                                         386                                         (229)                                                       (707)                 (1,722)




              
                Income (loss) before income taxes                                 (45,526)                                        5,172                                                    (255,082)                (43,197)



              
                Income tax (expense) benefit                                           942                                         (340)                                                      19,860                    4,867




              
                Net income (loss)                                                          $
             (44,584)                                                       $
              4,832                       $
        (235,222)   $
        (38,330)




              
                Net income (loss) per share, basic                                           $
             (0.70)                                                        $
              0.08                          $
        (3.83)     $
        (0.69)




              
                Net income (loss) per share, diluted                                         $
             (0.70)                                                        $
              0.08                          $
        (3.83)     $
        (0.69)




              
                Weighted-average shares of common stock                         63,481,130                                    57,924,666                                                   61,393,666               55,833,492
      outstanding, basic




              
                Weighted-average shares of common stock                         63,481,130                                    60,666,682                                                   61,393,666               55,833,492
      outstanding, diluted




              
                Other comprehensive income (loss)



              Foreign currency translation adjustments, net of tax of                           5,695                                       (1,513)                                                       1,710                 (13,840)
                                                                       $0 for all periods presented




              
                Comprehensive income (loss)                                                $
             (38,889)                                                       $
              3,319                       $
        (233,512)   $
        (52,170)


                                                                                                       
        
                2U, Inc.

                                                                                                  
     
         Consolidated Statements of Cash Flows

                                                                                                     
       
                (in thousands)




                                                                                                                                                  
            
          Year Ended December 31,


                                                                                                                                                  2019                                   2018            2017

                                                                                                                                                                                                        ---

                                                                                                                                           (unaudited)



              
                Cash flows from operating activities



              
                Net loss                                                                                                                   $
        (235,222)                          $
       (38,330)             $
        (29,423)



              Adjustments to reconcile net loss to net cash (used in) provided by
      operating activities:



              Depreciation and amortization expense                                                                                            69,843                                   32,785                    19,624



              Stock-based compensation expense                                                                                                 51,504                                   31,410                    21,930



              Non-cash lease expense                                                                                                           11,725



              Bad debt expense                                                                                                                  1,425



              Impairment charge                                                                                                                70,379



              Changes in operating assets and liabilities:



              Accounts receivable, net                                                                                                         11,949                                 (18,497)                  (5,634)



              Partner payments                                                                                                               (21,675)                                (11,322)                 (13,239)



              Prepaid expenses and other assets                                                                                               (6,845)                                 (4,932)                    1,549



              Accounts payable and accrued expenses                                                                                            17,081                                    4,724                     3,504



              Accrued compensation and related benefits                                                                                       (5,539)                                   4,046                     2,504



              Deferred revenue                                                                                                                 10,014                                    1,527                     1,661



              Other liabilities, net                                                                                                         (28,595)                                 (6,243)                    4,763



              Other                                                                                                                             1,982                                    1,712                       867




              
                Net cash (used in) provided by operating activities                                                               (51,974)                                 (3,120)                    8,106



              
                Cash flows from investing activities



              Purchase of a business, net of cash acquired                                                                                  (388,004)                                                         (97,102)



              Additions of amortizable intangible assets                                                                                     (64,923)                                (65,190)                 (23,823)



              Purchases of property and equipment                                                                                            (13,421)                                (11,996)                 (27,316)



              Purchase of investments                                                                                                        (10,000)                                (25,000)



              Proceeds from maturities of investments                                                                                          25,000



              Advances made to university clients                                                                                               (400)                                   (300)                  (1,950)



              Advances repaid by university clients                                                                                               350                                       25                       817




              
                Net cash used in investing activities                                                                            (451,398)                               (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 debt                                                                                                              244,724                                                             3,500



              Payments on debt                                                                                                                      -                                                          (1,517)



              Payment of debt issuance costs                                                                                                  (1,953)



              Tax withholding payments associated with settlement of restricted stock                                                         (2,574)                                 (3,451)                  (1,309)
      units



              Proceeds from exercise of stock options                                                                                           3,119                                    7,366                     6,615



              Proceeds from employee stock purchase plan share purchases                                                                        3,382                                    3,121



              Payments for acquisition of amortizable intangible assets                                                                       (2,180)                                 (4,900)




              
                Net cash provided by financing activities                                                                          244,518                                  333,037                   196,752



              
                Effect of exchange rate changes on cash                                                                            (1,049)                                 (1,054)                    (844)




              
                Net (decrease) increase in cash, cash equivalents and restricted cash                                            (259,903)                                 226,402                    54,640



              
                Cash, cash equivalents and restricted cash, beginning of period                                                    449,772                                  223,370                   168,730



              
                Cash, cash equivalents and restricted cash, end of period                                                                    $
        189,869                            $
       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,


                                                                                                                               2019                                2018                       2019                               2018



                                                                                                                                        
              
                (in thousands, except share and per share amounts)



              Net income (loss)                                                                                                      $
              (44,584)                                          $
              4,832                 $
        (235,222)   $
       (38,330)



              Adjustments:



              Foreign currency (gain) loss                                                                                   (386)                                             229                                             707              1,722



              Amortization of acquired intangible assets                                                                    10,834                                            1,422                                          28,697              6,145



              Income tax benefit on amortization of acquired                                                                 (403)                                           (390)                                        (1,568)           (1,684)
      intangible assets



              Acquisition-related income tax expense (benefit)                                                                 298                                              214                                        (17,460)           (2,773)



              Deferred revenue fair value adjustment                                                                         1,896                                                                                          11,175



              Transaction costs                                                                                                320                                                                                           4,786



              Integration costs                                                                                                762                                                                                           3,255



              Restructuring-related costs                                                                                    3,652                                                                                          10,826



              Shareholder activism costs                                                                                     1,042                                                                                           1,042



              Impairment charge                                                                                                                                                                                            70,379



              Stock-based compensation expense                                                                              15,418                                            7,346                                          51,504             31,410




              Total adjustments                                                                                             33,433                                            8,821                                         163,343             34,820




              Adjusted net income (loss)                                                                                             $
              (11,151)                                         $
              13,653                  $
        (71,879)    $
       (3,510)




              Net income (loss) per share, basic                                                                                       $
              (0.70)                                           $
              0.08                    $
        (3.83)     $
       (0.69)




              Net income (loss) per share, diluted                                                                                     $
              (0.70)                                           $
              0.08                    $
        (3.83)     $
       (0.69)




              Adjusted net income (loss) per share, basic                                                                              $
              (0.18)                                           $
              0.24                    $
        (1.17)     $
       (0.06)




              Adjusted net income (loss) per share, diluted                                                                            $
              (0.18)                                           $
              0.23                    $
        (1.17)     $
       (0.06)




              Weighted-average shares of common stock                                                                   63,481,130                                       57,924,666                                      61,393,666         55,833,492
      outstanding, basic




              Weighted-average shares of common stock                                                                   63,481,130                                       60,666,682                                      61,393,666         55,833,492
      outstanding, diluted


                                                                                                                                                                  
              
                2U, Inc.

                                                                                                                                                     
              
                Reconciliation of Non-GAAP Measures

                                                                                                                                                                 
              
                (unaudited)





            The following table presents a reconciliation of unlevered free cash flow to net cash used in operating activities for each of the trailing 12 month periods indicated:




                                                                                                                                                                               
              
                Trailing 12 Months Ended


                                                                                                                                                  Q1 '19                                                  Q2 '19                            Q3 '19     Q4 '19



                                                                                                                                                                                    
              
                (in thousands)



            Net cash used in operating activities                                                                                                         $
              (16,816)                                                 $
     (30,867)                   $
     (62,738)    $
     (51,974)



            Additions to amortizable intangible assets                                                                                         (56,955)                                      (57,581)                                       (64,427)             (64,923)



            Purchases of property and equipment                                                                                                (13,304)                                      (15,011)                                       (15,279)             (13,421)



            Payments on acquisition of amortizable intangible                                                                                   (6,183)                                       (6,183)                                       (1,283)              (2,180)
      assets



            Partner payments                                                                                                                     19,985                                         24,710                                         26,450                26,100



            Non-ordinary cash payments*                                                                                                                                                         4,022                                         11,008                13,989




            Free cash flow                                                                                                                     (73,273)                                      (80,910)                                      (106,269)              (92,409)



            Cash interest payments on debt                                                                                                                                                      1,877                                          7,128                12,147




            Unlevered free cash flow                                                                                                                      $
              (73,273)                                                 $
     (79,033)                   $
     (99,141)    $
     (80,262)


     ____________


                 * Non-ordinary cash payments include
                    transaction, integration,
                    restructuring-related and
                    shareholder activism costs, and
                    therefore reflect the timing of the
                    cash payments rather than the timing
                    of the expense recognized in the
                    Consolidated Statements of Operations
                    and Comprehensive Loss.


                                                                                                                       
              
                2U, Inc.

                                                                                                         
              
                Reconciliation of Non-GAAP Measures

                                                                                                                     
              
                (unaudited)





     The following table presents a reconciliation of net income (loss) to adjusted EBITDA (loss) for each of the periods indicated:




                                                                                                                          Three Months Ended                          
      
             Year Ended

                                                                                                     
              
                December 31,                            
      
             December 31,


                                                                                                    2019                                2018                    2019                  2018



                                                                                                                             
              
                (in thousands)



     Net income (loss)                                                                                    $
              (44,584)                                      $
      4,832                 $
       (235,222)   $
        (38,330)



     Adjustments:



     Interest income                                                                              (713)                                      (2,120)                            (5,800)              (5,173)



     Interest expense                                                                             5,289                                            27                             13,419                   108



     Foreign currency (gain) loss                                                                 (386)                                          229                                707                 1,722



     Income tax (benefit) expense                                                                 (942)                                          340                           (19,860)              (4,867)



     Depreciation and amortization expense                                                       23,204                                         9,403                             69,843                32,785



     Deferred revenue fair value adjustment                                                       1,896                                                                          11,175



     Transaction costs                                                                              320                                                                           4,786



     Integration costs                                                                              762                                                                           3,255



     Restructuring-related costs                                                                  3,652                                                                          10,826



     Shareholder activism costs                                                                   1,042                                                                           1,042



     Impairment charge                                                                                                                                                          70,379



     Stock-based compensation expense                                                            15,418                                         7,346                             51,504                31,410




     Total adjustments                                                                           49,542                                        15,225                            211,276                55,985




     Adjusted EBITDA (loss)                                                                                  $
              4,958                                      $
      20,057                  $
       (23,946)     $
        17,655


                                                                                                                                                                                      
              
                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 Ending                                                                               Year Ending

                                                                                                                                                                             March 31, 2020                                                                               December 31, 2020


                                                                                                                                  
              
                $                        
              
                $/Share                  
              
                $                        
              
                $/Share



                                                                                                                                                                                          
              
                (in millions, except per share amounts)



              Net loss                                                                                                                                       $
              (65.0)                                                                                $
              (1.02)                                                 $
     (210.0)      $
     (3.27)



              Adjustments:



              Amortization of acquired intangible assets                                                                                              11.7                                                                   0.18                                                                                51.8                      0.80



              Income tax benefit on amortization of acquired                                                                                         (0.5)                                                                (0.01)                                                                              (1.8)                   (0.03)
      intangible assets



              Stock-based compensation expense                                                                                                        22.8                                                                   0.36                                                                                80.0                      1.25




              Adjusted net loss                                                                                                                     (31.0)                                                                (0.49)                                                                             (80.0)                   (1.25)



              Interest income                                                                                                                        (0.3)                                                                     *                                                                              (0.7)                        *



              Interest expense                                                                                                                         5.5                                                                      *                                                                               22.2                         *



              Income tax expense (benefit)                                                                                                                                                                                     *                                                                               60.4                         *



              Depreciation and amortization expense                                                                                                   12.8                                                                      *                                                                                0.6                         *




              Adjusted EBITDA (loss)                                                                                                                         $
              (13.0)                                                                            *                                                               $
     2.5               *




              Projected weighted-average shares of common stock                                                                                                                                              63.6                                                                                                     64.2
      outstanding, basic


              __________


                          *                Not provided.


                                                                                                                                                                                                                                   
             
                2U, Inc.

                                                                                                                                                                                                                            
     
            Key Business and 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 the company's Graduate Program Segment for the last eight quarters.




                                                                                                                Q1 '18                                               Q2 '18                                       Q3 '18        Q4 '18                                      Q1 '19    Q2 '19           Q3 '19        Q4 '19




              Graduate Program Segment full                                                                    29,770                                 30,548                                                 32,665                                            34,695                 39,512                 39,180                 40,910     41,704
      course equivalent enrollments



              Graduate Program Segment                                                                                  $
              2,706                                               $
              2,658                                          $
              2,747                         $
     2,792                      $
     2,637        $
     2,588   $
     2,527 $
     2,595
      average revenue per full course
      equivalent enrollment









              
                
                  Alternative Credential Segment





              The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in the company's Alternative Credential Segment for the last eight quarters.




                                                                                                                Q1 '18                                               Q2 '18                                       Q3 '18        Q4 '18                                      Q1 '19    Q2 '19           Q3 '19        Q4 '19




              Alternative Credential Segment                                                                    6,002                                  8,222                                                  8,937                                             9,041                  9,128                 12,662                 14,729     14,639
      full course equivalent
      enrollments



              Alternative Credential Segment                                                                            $
              1,954                                               $
              1,972                                          $
              1,930                         $
     2,015                      $
     1,979        $
     2,955   $
     3,825 $
     3,883
      average revenue per full course
      equivalent enrollment*


              _____________


                          *              The Trilogy acquisition,
                                          completed on May 22, 2019, is
                                          fully incorporated in the
                                          company's results from that
                                          date forward. Average revenue
                                          per full course equivalent
                                          enrollment for the company's
                                          Alternative Credential Segment
                                          includes $3.3 million, $6.0
                                          million and $1.9 million of
                                          purchase accounting adjustments
                                          for the second, third and
                                          fourth quarters of 2019,
                                          respectively.

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SOURCE 2U, Inc.