2U, Inc. Reports Third Quarter 2018 Financial Results

LANHAM, Md., Nov. 5, 2018 /PRNewswire/ -- 2U, Inc. TWOU, a global leader in education technology, today reported financial and operating results for the third quarter ended September 30, 2018.

Third Quarter 2018 Results

• Revenue was $107.0 million, an increase of 52% from $70.3 million in the third quarter of 2017.
• Net loss was $(9.9) million, or $(0.17) per share, compared to $(14.7) million, or $(0.30) per share, in the third quarter of 2017.
• Adjusted net loss was $(0.7) million, or $(0.01) per share, compared to $(7.4) million, or $(0.15) per share, in the third quarter of 2017.
• Adjusted EBITDA was $4.7 million, compared to an adjusted EBITDA loss of $(3.7) million in the third quarter of 2017.

"Strong year-over-year growth combined with our stepped-up program launch targets for 2019, 2020 and 2021, have put 2U on the path to $1.0 billion in revenue, which we expect to hit in a little over three years," Co-Founder and CEO Christopher "Chip" Paucek said. "Higher education is fully embracing the power of online, and 2U's size, scale and track record put us in the pole position to seize new growth opportunities and further solidify our market leadership globally."

Program Developments

2U recently announced the following:

• November 5, 2018: A 15-year contract extension with Simmons University through 2039.
• November 5, 2018: An expansion of a partnership with Yale University to launch three business-focused online short courses with the Yale School of Management.
• October 29, 2018: An expansion of a partnership with the George Washington University to deliver a portfolio of online short courses across various professional disciplines.
• August 13, 2018: A DGP with Vanderbilt University School of Engineering to deliver Engineering@Vanderbilt, comprised of two online graduate degrees in computer science and engineering management.

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for fourth quarter and full-year of 2018. This guidance assumes foreign exchange rates as of September 30, 2018, including 14.14 for the U.S. dollar/South African rand and 0.7675 for the U.S. dollar/British pound.

Note that in both the Graduate Program and Short Course businesses, marketing activities are typically reduced during the year-end holiday period resulting in increased fourth quarter margins in that quarter; fourth quarter margins therefore should not be viewed as a run rate for the first quarter of the following year.

While its budget cycle is not complete, 2U is providing a preliminary view into full-year and first-quarter 2019 based on its early expectations. The Company expects:

• revenue to increase by 32.5% to 33.9% over 2018, with approximately 22% of full-year revenue recognized in the first quarter,
• net loss margin to be between (14.1)% and (13.5)% for the full-year and between (19.4)% and (19.0)% for the first quarter,
• adjusted net loss margin to be between (4.5)% and (4.0)% for the full-year and between (10.1)% and (9.8)% for the first quarter, and
• adjusted EBITDA margin to be between 2.0% and 2.5% for the full-year and between (4.0)% and (3.6)% for the first quarter.

The year-over-year margin declines being forecasted for 2019 are primarily the result of added investments the Company expects to make in ramping up marketing spend to take advantage of additional opportunities to acquire profitable enrollments and meet the demands of scale. 2U expects that the full-year margin declines will have a disproportionate impact on results in the first half of the year.

In second quarter of each year, the Company typically incurs a disproportionate amount of annual costs that reduces its earnings measures. Conversely, it typically reduces its marketing costs during each year-end holiday period, which increases earnings measures in the fourth quarter.

For more information regarding the guidance and preview above, the Company's management team strongly encourages stockholders and other interested parties to listen to the Company's third quarter 2018 financial results conference call or review the transcript thereof. Both can be found on the Company's investor relations website at investor.2u.com.

Non-GAAP Measures

To supplement the Company's consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles ("GAAP"), we use adjusted EBITDA, adjusted EBITDA margin, adjusted net income (loss) and adjusted net income (loss) per share, which are non-GAAP financial measures.

We define adjusted EBITDA as net income or net loss, as applicable, before net interest income (expense), taxes, depreciation and amortization, foreign currency gains or losses, acquisition-related gains or losses and stock-based compensation expense. Some or all of these items may not be applicable in any given reporting period. Adjusted EBITDA margin represents adjusted EBITDA as a percentage of revenue.

We define adjusted net income (loss) as net income or net loss, as applicable, before foreign currency gains or losses, acquisition-related gains or losses and stock-based compensation expense. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by diluted weighted-average shares of common stock outstanding for periods which result in adjusted net income, and basic weighted-average shares outstanding for periods which result in an adjusted net loss.

The principal limitation of these non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in the Company's financial statements. These non-GAAP measures are key metrics Company management uses to compare the Company's performance to that of prior periods for trend analyses and for budgeting and planning purposes. These measures also provide useful information to investors and analysts relating to 2U's financial condition and results of operations. These financial measures are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these financial measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

For more information on 2U's non-GAAP financial measures and reconciliations of such measures to the nearest GAAP measures, see the reconciliation tables on the last page of this press release under the heading "Reconciliation of Non-GAAP Measures." 2U urges investors to review these reconciliations and not to rely on any single financial measure to evaluate the Company's business.

Conference Call Information

About 2U, Inc. 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 achieve desired 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, 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 Greenberg, 2U, Inc., mgreenberg@2u.com

2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)

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

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

2U, Inc.
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 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:

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.

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 five quarters, since the acquisition of GetSmarter on July 1, 2017.

SOURCE 2U, Inc.