As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 7/30/19  2U, Inc.                          8-K:2,9     7/30/19    2:433K                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                      HTML     20K 
 2: EX-99.1     Miscellaneous Exhibit                               HTML    243K 

Exhibit 99.1

 

 

2U, Inc. Reports Second Quarter 2019 Financial Results

 

LANHAM, Md. — July 30, 2019 — 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the second quarter ended June 30, 2019.

 

Second Quarter 2019 Results

 

·                  Revenue was $135.5 million, an increase of 39% from $97.4 million in the second quarter of 2018, despite the $3.3 million unfavorable impact from a deferred revenue fair value purchase accounting adjustment in the second quarter of 2019.

·                  Net loss was $(28.0) million, or $(0.46) per share, compared to $(18.3) million, or $(0.33) per share, in the second quarter of 2018.

·                  Adjusted net loss was $(25.8) million, or $(0.43) per share, compared to $(10.3) million, or $(0.19) per share, in the second quarter of 2018.

·                  Adjusted EBITDA loss was $(15.0) million, compared to $(5.6) million in the second quarter of 2018.

 

“With the close of our Trilogy acquisition, 2U’s business is evolving to better meet marketplace demand and the transforming needs of our university partners and lifelong learners,” Co-Founder and CEO Christopher “Chip” Paucek said. “As we deliver our full portfolio of educational offerings to new and existing partners, we are also setting 2U on a defined path to profitability by tempering short-term growth projections and leveraging our scale to drive greater operational efficiencies across the business.”

 

Recent Developments

 

2U recently announced the following:

 

·                  July 30, 2019: 2U today announced a 10-year contract extension with the University of Cape Town to deliver new short courses across the university.

·                  July 30, 2019: 2U today announced a new partnership with Butler University to deliver a Trilogy-powered data analytics boot camp.

·                  July 29, 2019: A new partnership with the University of Texas at San Antonio to deliver a Trilogy-powered coding boot camp.

·                  July 18, 2019: A new partnership with Johns Hopkins Whiting School of Engineering to deliver a Trilogy-powered coding boot camp.

·                  July 2, 2019: A new partnership with the University of Manchester to deliver a Trilogy-powered coding boot camp.

·                  June 26, 2019: A new partnership with the University of Adelaide to deliver a Trilogy-powered coding boot camp.

·                  June 21, 2019: 2U was named a top workplace by The Washington Post for the fifth consecutive year.

·                  June 13, 2019: A new partnership with the University of Birmingham to deliver a Trilogy-powered coding boot camp. It is the first coding boot camp in the UK to be offered by a university.

·                  June 3, 2019: 2U announced Ebony Lee would join the company as its managing director for graduate programs to oversee the execution and growth of the graduate program business.

·                  May 22, 2019: The completion of 2U’s acquisition of Trilogy Education Services, Inc., a workforce accelerator that empowers the world’s leading universities to prepare professionals for high-growth careers in the digital economy. The combined company will expand 2U’s offerings across the career curriculum continuum.

·                  May 16, 2019: A new partnership with the University of Western Australia to deliver a Trilogy-powered coding boot camp.

·                  May 14, 2019: A new partnership with the University of Connecticut School of Engineering to deliver a Trilogy-powered coding boot camp.

·                  May 8, 2019: An expansion of a partnership with UC Davis Graduate School of Management to deliver two online short courses in leadership and strategic negotiations.

 

 

Financial Outlook

 

Based on information available as of today, 2U is issuing the following guidance for the third quarter and full-year of 2019. This guidance assumes foreign currency exchange rates as of June 30, 2019 remain constant, including the U.S. dollar/South African rand and the U.S. dollar/British pound.

 

		3Q 2019		FY 2019
		(in millions, except per share amounts)
Revenue		$147.6 - $152.6		$565.7 - $575.7
Net loss		$(69.3) - $(66.3)		$(157.5) - $(151.5)
Net loss per share		$(1.10) - $(1.05)		$(2.57) - $(2.47)
Adjusted net loss		$(33.8) - $(30.8)		$(76.9) - $(70.9)
Adjusted net loss per share		$(0.53) - $(0.49)		$(1.25) - $(1.16)
Weighted-average shares of common stock outstanding, basic		63.2		61.3
Adjusted EBITDA (loss)		$(18.4) - $(15.4)		$(28.0) - $(22.0)
Stock-based compensation expense		$18.9 - $19.9		$56.0 - $58.0

 

The revenue reflected in this guidance includes a deferred revenue fair value purchase accounting adjustment related to the Trilogy acquisition. Adding back revenue eliminated as a part of purchase accounting, our revenue guidance ranges would be $153.6 million to $158.6 million and $576.9 million to $586.9 million for the third quarter and full year, respectively.

 

In giving third quarter and full-year guidance, the Company’s expectations for the fourth quarter are implied. Note that the cost seasonality driven by reduced marketing spend during the holiday period in the fourth quarter typically improves margins in that quarter; fourth quarter margins therefore should not be viewed as a run rate for the first quarter of the following year.

 

 

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 the acquisition of Trilogy and 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, 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;

·                  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, short courses and boot camps;

·                  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, short courses and boot camps with existing university clients;

·                  our ability to successfully integrate the operations of Get Educated International Proprietary Limited, or GetSmarter, and Trilogy Education Services, Inc., or Trilogy, achieve the expected benefits of the acquisitions and manage, expand and grow the combined company;

·                  our ability to service our substantial indebtedness and comply with the financial and other restrictive covenants contained in the credit agreement governing our senior secured term loan facility;

·                  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, short courses and boot camps;

·                  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, 2018, as amended and supplemented by risks and uncertainties under the heading “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 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.

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:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
		(in thousands, except share and per share amounts)
Net loss		$	(27,972	)	$	(18,347	)	$	(49,526	)	$	(33,218	)
Adjustments:
Foreign currency loss		13			825			383			1,220
Amortization of acquired intangible assets		5,341			1,597			6,767			3,277
Income tax benefit on amortization of acquired intangible assets		(381		)	(438		)	(772		)	(898		)
Acquisition-related income tax benefit		(19,262		)	(2,987		)	(19,262		)	(2,987		)
Deferred revenue fair value adjustment		3,352			—			3,352			—
Transaction costs		3,093			—			5,024			—
Stock-based compensation expense		9,967			9,009			19,551			16,131
Total adjustments		2,123			8,006			15,043			16,743
Adjusted net loss		$	(25,849	)	$	(10,341	)	$	(34,483	)	$	(16,475	)
Net loss per share, basic and diluted (1)		$	(0.46	)	$	(0.33	)	$	(0.83	)	$	(0.62	)
Adjusted net loss per share, basic and diluted (1)		$	(0.43	)	$	(0.19	)	$	(0.58	)	$	(0.31	)
Weighted-average shares of common stock outstanding, basic and diluted		60,516,662			54,981,192			59,334,246			53,840,582

 

(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 loss to adjusted EBITDA (loss) for each of the periods indicated:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
		(in thousands)
Net loss		$	(27,972	)	$	(18,347	)	$	(49,526	)	$	(33,218	)
Adjustments:
Interest income		(1,814		)	(912		)	(4,163		)	(1,254		)
Interest expense		2,424			27			2,479			54
Foreign currency loss		13			825			383			1,220
Depreciation and amortization expense		14,653			7,408			24,351			14,783
Income tax benefit		(18,691		)	(3,565		)	(19,632		)	(4,793		)
Deferred revenue fair value adjustment		3,352			—			3,352			—
Transaction costs		3,093			—			5,024			—
Stock-based compensation expense		9,967			9,009			19,551			16,131
Total adjustments		12,997			12,792			31,345			26,141
Adjusted EBITDA (loss)		$	(14,975	)	$	(5,555	)	$	(18,181	)	$	(7,077	)

 

 

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 (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 September 30, 2019						Year Ending December 31, 2019
		$			$/Share			$			$/Share
		(in thousands, except per share amounts)
Net loss		$	(67,800	)	$	(1.07	)	$	(154,450	)	$	(2.52	)
Foreign currency loss		—			—			375			0.01
Amortization of acquired intangible assets		10,550			0.17			27,875			0.45
Income tax benefit on amortization of acquired intangible assets		(425		)	(0.01		)	(1,650		)	(0.03		)
Acquisition-related income tax benefit		—			—			(19,275		)	(0.31		)
Transaction costs		—			—			5,025			0.08
Deferred revenue fair value adjustment		5,925			0.09			11,150			0.18
Stock-based compensation expense		19,450			0.31			57,025			0.93
Adjusted net loss		(32,300		)	(0.51		)	(73,925		)	(1.21		)
Interest income		(800		)	*			(5,350		)	*
Interest expense		5,725			*			13,925			*
Depreciation and amortization expense		10,150			*			39,125			*
Income tax expense		350			*			1,175			*
Adjusted EBITDA (loss)		$	(16,875	)	$	*		$	(25,050	)	$	*
Projected weighted-average shares of common stock outstanding, basic					63,225						61,300

 

*                                         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.

 

		Q3 ‘17			Q4 ‘17			Q1 ‘18			Q2 ‘18			Q3 ‘18			Q4 ‘18			Q1 ‘19			Q2 ‘19
Graduate Program Segment full course equivalent enrollments		24,062			27,082			29,770			30,548			32,665			34,695			39,512			39,180
Graduate Program Segment average revenue per full course equivalent enrollment		$	2,740		$	2,758		$	2,706		$	2,658		$	2,747		$	2,792		$	2,637		$	2,588

 

Alternative Credential Segment

 

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

 

		Q3 ‘17*			Q4 ‘17			Q1 ‘18			Q2 ‘18			Q3 ‘18			Q4 ‘18			Q1 ‘19			Q2 ‘19**
Alternative Credential Segment full course equivalent enrollments		4,079			6,751			6,002			8,222			8,937			9,041			9,128			12,662
Alternative Credential Segment average revenue per full course equivalent enrollment		$	1,232		$	1,777		$	1,954		$	1,972		$	1,930		$	2,015		$	1,979		$	2,955

 

*                                         We acquired GetSmarter on July 1, 2017 and GetSmarter’s results of operations are included in our results from the date of acquisition. As such, GetSmarter will impact the full course equivalent enrollment measures for our Alternative Credential Segment from the acquisition date forward. The calculation of the Alternative Credential Segment’s 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 a deferred revenue fair value purchase accounting adjustment recorded as part of the acquisition of GetSmarter.

**                                  We acquired Trilogy on May 22, 2019 and Trilogy’s results of operations are included in our results from the date of acquisition. As such, Trilogy will impact the full course equivalent enrollment measures for our Alternative Credential Segment from the acquisition date forward. The calculation of the Alternative Credential Segment’s average revenue per full course equivalent enrollment includes $3.3 million of revenue that was excluded from the results of operations in the second quarter of 2019, due to a deferred revenue fair value purchase accounting adjustment recorded as part of the acquisition of Trilogy.