2U, Inc. Reports Results for Third Quarter 2019

LANHAM, Md., Nov. 12, 2019 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the third quarter ended September 30, 2019 and updated its guidance for full-year 2019.

Results for Third Quarter 2019 Compared to Third Quarter 2018

• Revenue increased 44% to $153.8 million
• Graduate Program Segment revenue increased 15% to $103.4 million
• Alternative Credential Segment revenue increased 192% to $50.4 million, including $29.2 million in revenue from the Trilogy acquisition completed in May 2019
• Net loss increased $131.2 million to $141.1 million, or $(2.23) per share

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

• Adjusted net loss increased $25.6 million to $26.2 million, or $(0.41) per share
• Adjusted EBITDA loss increased to $10.7 million

"Our strong topline growth and recent pipeline wins, bolstered by the success of our strategic M&A, validate our position as a leader in the digital transformation of higher education," Co-Founder and Chief Executive Officer Christopher "Chip" Paucek said. "2U's expanding portfolio of 72 top tier universities and over 300 offerings are testaments to the ongoing strength of our partnership model and to the quality of the student outcomes we deliver."

Chief Financial Officer Paul Lalljie commented, "I chose to join 2U because of its mission and unique position as a leader in the education technology market. I feel good about our performance this quarter, and I am confident about the guidance we provided. As we continue to invest in the quality of our solutions, we want to take a closer look at improving the efficiency of our operations. With disciplined cost management and focused execution behind working capital initiatives, we expect to drive improved cash flow progression company-wide. Additionally, we will accelerate our integration of the Trilogy acquisition."

Discussion of Third Quarter 2019 Results

Revenue totaled $153.8 million, a 44% increase from $107.0 million in the third quarter of 2018. Graduate Program Segment revenue grew 15% to $103.4 million driven by a 25% increase in full course equivalent enrollments, partially offset by an 8% decrease in average revenue per full course equivalent enrollment. Alternative Credential Segment revenue increased 192% to $50.4 million, driven by full course equivalent enrollments of 14,729.

Costs and expenses totaled $288.8 million, a 143% increase from $118.8 million in the third quarter of 2018. This $169.9 million increase was driven by a $70.4 million non-cash impairment of goodwill related to the carrying value of the boot camp business acquired in 2019 within the company's Alternative Credential Segment, $9.1 million in acquisition-related transaction, integration, and organizational restructuring-related costs, and $59.9 million of incremental operating costs resulting from the acquisition of Trilogy. The remainder is primarily attributable to increases in costs related to direct marketing, personnel, and curriculum and teaching. These cost increases are due to new offerings and growth in existing offerings, increased depreciation and amortization expense associated with implementing new features and capabilities in the company's platform, and content for the company's offerings. For a further discussion of the non-cash impairment of goodwill, see Note 4 to the company's unaudited financial statements included in its periodic report on Form 10-Q for the quarter ended September 30, 2019.

As of September 30, 2019, the company's cash and cash equivalents totaled $154.1 million, a decrease of $64.6 million from $218.7 million as of June 30, 2019, and a decrease of $295.7 million from $449.8 million as of December 31, 2018. The $64.6 million decrease from June 30, 2019 was primarily driven by a use of cash from operations of $37.7 million and additions of amortizable intangible assets related to content and technology of $18.5 million. As of September 30, 2019, the company reported outstanding long-term debt of $253.5 million principally related to its term loan facility maturing in May 2024.

Business Outlook for Fiscal Year 2019

The company updated its full year 2019 guidance measures provided on July 30, 2019:

• Revenue to range from $570.0 million to $575.0 million, or growth of 38% to 40%
• Net loss to range from $238.8 million to $232.8 million, or $(3.89) to $(3.79) per share
• Adjusted net loss to range from $78.5 million to $72.5 million
• Adjusted EBITDA loss to range from $28.0 million to $22.0 million
• Weighted-average shares of common stock outstanding of 61.4 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), 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, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, impairment charges, and stock-based compensation expense. 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, 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, 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), 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

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 300 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 170,000 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 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 technological 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 Get Educated International Proprietary Limited, or GetSmarter, and 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 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; and
• potential changes in regulations applicable to the company or its university clients.

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 2U's 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 2U's Quarterly Report on Form 10-Q for the quarter ended September 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: Glenda Felden, 2U, Inc., media@2U.com

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SOURCE 2U, Inc.