Exhibit 99.1
2U, Inc. Reports Third Quarter 2016 Financial Results
· Revenue Growth of 40 Percent, Year Over Year
· Net Loss Margin Improvement of Nine Percentage Points, Year Over Year
· Adjusted EBITDA Loss Margin Improvement of Eight Percentage Points, Year Over Year
LANDOVER, Md., November 3, 2016 /PRNewswire/ — 2U, Inc. (NASDAQ: TWOU), today reported financial and operating results for the third quarter ended September 30, 2016.
Third Quarter 2016 Results
· Revenue was $52.0 million, an increase of 40 percent from $37.1 million in the third quarter of 2015.
· Net loss was $(6.8) million, or $(0.14) per share, compared to $(8.2) million, or $(0.20) per share, in the third quarter of 2015.
· Adjusted net loss was $(2.7) million, or $(0.06) per share, compared to an adjusted net loss of $(4.9) million, or $(0.12) per share, in the third quarter of 2015.
· Adjusted EBITDA loss was $(0.2) million, compared to an adjusted EBITDA loss of $(2.9) million in the third quarter of 2015.
“Once again 2U delivered strong financial performance in the third quarter of 2016. Revenue for Q3 was $52 million, an increase of 40% year over year,” said Chip Paucek, 2U’s CEO and co-founder. “We have now announced two new programs, including a new university partner in a new region as well as an existing partner launching a new program with us. Given the state of the new program pipeline, we are increasing our 2017 launch target from nine to 10 new programs. We will discuss our long-term growth strategy in detail during our Investor Day on November 15th.”
Recent Program Related Developments
2U recently announced that is has partnered with:
· University of Dayton to deliver MBA@Dayton, which includes two online offerings: a general MBA and an advanced standing MBA for individuals with more than 10 years of work experience or an undergraduate degree in business.
· University of Southern California’s Jimmy Iovine and Andre Young Academy for Arts, Technology and Business Innovation for Design@USC, a new online master of science in integrated design, business and technology.
Financial Outlook
Based on information available as of today, 2U is issuing the following guidance for fourth quarter and full year of 2016.
(in millions, except per share amounts) | | 4Q 2016 | | FY 2016 |
Revenue | | $56.0 — $56.4 | | $204.5 — $204.9 |
Net Loss | | $(3.5) — $(3.1) | | $(21.9) — $(21.5) |
Net Loss per Share | | $(.07) — $(0.6) | | $(0.47) — $(0.46) |
Weighted-Average Shares of Common Stock | | 47.5 | | 46.7 |
Adjusted Net Income (Loss) | | $1.1 — $1.5 | | $(5.8) — $(5.4) |
Adjusted Net Income (Loss) per Share (1) | | $0.02 — $0.03 | | $(0.13) — $(0.12) |
Adjusted EBITDA | | $3.8 — $4.2 | | $3.8 — $4.2 |
Stock-Based Compensation Expense | | $4.3- $4.5 | | $15.8 — $16.1 |
(1) The company intends to use expected weighted-average shares of common stock outstanding for the calculation of adjusted net income (loss) per share until it expects to achieve net income in any period.
While its 2016 budget cycle is not complete, 2U is providing a preliminary view into 2017 based on its early expectations:
· 2017 revenue is expected to increase by 30% to 31% over 2016.
· Revenue distribution across the 2017 quarters is expected to be similar to 2016.
· 2017 net loss margin is expected to be between (12)% and (10)%.
· 2017 adjusted EBITDA margin is expected to be between 2.5% and 3.5%.
· Normal cost seasonality is expected across the 2017 quarters. In second quarter, we typically incur a disproportionate amount of annual costs that reduce our earnings measures. Conversely, we typically reduce our marketing costs during the year-end holiday period, which increases earnings measures in the fourth quarter.
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, 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, attributable to holders of common stock before stock-based compensation expense. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by weighted-average common shares outstanding.
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, please see the reconciliation tables on the last page of this press release under the heading “Reconciliation of Non-GAAP Measures.” 2U urges investors to review these reconciliations and not to rely on any single financial measure to evaluate the company’s business.
Conference Call Information
What: | 2U, Inc.’s third quarter 2016 financial results conference call |
| |
When: | Thursday, November 3, 2016 |
| |
Time: | 5 p.m. ET |
| |
Live Call: | (877) 359-9508 |
| |
Webcast: | investor.2U.com |
About 2U, Inc. (NASDAQ: TWOU)
2U partners with leading colleges and universities to deliver the world’s best online degree programs so students everywhere can reach their full potential. Our Platform, a fusion of cloud-based software-as-a-service technology and technology-enabled services, provides schools with the comprehensive operating infrastructure they need to attract, enroll, educate, support and graduate students globally. Blending live face-to-face classes, dynamic course content and real-world learning experiences, 2U’s No Back Row® approach ensures that every qualified student can experience the highest quality university education for the most successful outcome.
To learn more, go to 2U.com. Be sure to follow us on LinkedIn (http://www.linkedin.com/company/2u), Twitter (http://twitter.com/2Uinc) and Facebook (http://www.facebook.com/2u).
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, our failure to attract new colleges and universities as clients; our failure to acquire qualified students for our clients’ programs; failure of clients’ students to remain enrolled in their programs; loss, or material underperformance, of any one client; our ability to compete against current and future competitors; disruption to, or failure of, our Platform; and data privacy or security breaches. 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, 2015 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, Vice President, Investor Relations, 2U, Inc., egoodwin@2u.com
Media Contact: Shirley Chow, Director of Public Relations, 2U, Inc., schow@2u.com
2U, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands, except share and per share amounts)
| | September 30,
2016 | | December 31,
2015 | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 156,927 | | $ | 183,729 | |
Accounts receivable, net | | 20,974 | | 975 | |
Advance to clients | | 938 | | 1,508 | |
Prepaid expenses and other assets | | 7,085 | | 6,695 | |
Total current assets | | 185,924 | | 192,907 | |
Property and equipment, net | | 7,818 | | 3,621 | |
Capitalized technology and content development costs, net | | 29,428 | | 22,628 | |
Advance to clients, non-current | | 1,350 | | 1,042 | |
Prepaid expenses, non-current | | 6,974 | | 7,099 | |
Other non-current assets | | 3,079 | | 3,744 | |
Total assets | | $ | 234,573 | | $ | 231,041 | |
Liabilities and stockholders’ equity | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 4,756 | | $ | 4,544 | |
Accrued compensation and related benefits | | 13,791 | | 13,405 | |
Accrued expenses and other liabilities | | 16,453 | | 12,039 | |
Deferred revenue | | 3,030 | | 2,609 | |
Total current liabilities | | 38,030 | | 32,597 | |
Non-current liabilities | | 3,858 | | 2,655 | |
Total liabilities | | 41,888 | | 35,252 | |
Stockholders’ equity: | | | | | |
Preferred stock, $0.001 par value, 5,000,000 shares authorized, 0 shares issued and outstanding as of September 30, 2016 and December 31, 2015 | | — | | — | |
Common stock, $0.001 par value, 200,000,000 shares authorized, 47,048,654 shares issued and outstanding as of September 30, 2016; 45,776,455 shares issued and outstanding as of December 31, 2015 | | 47 | | 46 | |
Additional paid-in capital | | 366,694 | | 351,324 | |
Accumulated deficit | | (174,056 | ) | (155,581 | ) |
Total stockholders’ equity | | 192,685 | | 195,789 | |
Total liabilities and stockholders’ equity | | $ | 234,573 | | $ | 231,041 | |
2U, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except share and per share amounts)
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
Revenue | | $ | 51,960 | | $ | 37,092 | | $ | 148,514 | | $ | 106,942 | |
Costs and expenses: | | | | | | | | | |
Servicing and support | | 10,351 | | 7,845 | | 30,123 | | 23,299 | |
Technology and content development | | 8,670 | | 7,082 | | 24,787 | | 19,682 | |
Program marketing and sales | | 28,165 | | 21,567 | | 79,304 | | 62,680 | |
General and administrative | | 11,569 | | 8,477 | | 32,960 | | 24,059 | |
Total costs and expenses | | 58,755 | | 44,971 | | 167,174 | | 129,720 | |
Loss from operations | | (6,795 | ) | (7,879 | ) | (18,660 | ) | (22,778 | ) |
Other income (expense): | | | | | | | | | |
Interest expense | | — | | (127 | ) | (35 | ) | (379 | ) |
Interest income | | 37 | | 21 | | 220 | | 74 | |
Other | | — | | (250 | ) | — | | (250 | ) |
Total other income (expense) | | 37 | | (356 | ) | 185 | | (555 | ) |
Loss before income taxes | | (6,758 | ) | (8,235 | ) | (18,475 | ) | (23,333 | ) |
Income tax expense | | — | | — | | — | | — | |
Net loss | | $ | (6,758 | ) | $ | (8,235 | ) | $ | (18,475 | ) | $ | (23,333 | ) |
Net loss per share, basic and diluted | | $ | (0.14 | ) | $ | (0.20 | ) | $ | (0.40 | ) | $ | (0.56 | ) |
Weighted-average shares of common stock outstanding, basic and diluted | | 46,903,628 | | 41,645,894 | | 46,453,480 | | 41,331,481 | |
2U, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
| | Nine Months Ended
September 30, | |
| | 2016 | | 2015 | |
Cash flows from operating activities | | | | | |
Net loss | | $ | (18,475 | ) | $ | (23,333 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | |
Depreciation and amortization | | 7,060 | | 5,288 | |
Stock-based compensation expense | | 11,593 | | 9,217 | |
Changes in operating assets and liabilities: | | | | | |
Increase in accounts receivable, net | | (19,999 | ) | (12,338 | ) |
Decrease (increase) in advance to clients | | 262 | | (875 | ) |
Increase in prepaid expenses and other current assets | | (507 | ) | (1,910 | ) |
Increase in accounts payable | | 212 | | 2,037 | |
Increase in accrued compensation and related benefits | | 386 | | 2,443 | |
Increase in accrued expenses and other liabilities | | 4,139 | | 2,356 | |
Increase in deferred revenue | | 421 | | 1,912 | |
Decrease (increase) in payments to clients | | 1,320 | | (854 | ) |
Increase in other assets and other liabilities, net | | (834 | ) | (6,810 | ) |
Other | | — | | 250 | |
Net cash used in operating activities | | (14,422 | ) | (22,617 | ) |
Cash flows from investing activities | | | | | |
Purchases of property and equipment | | (3,665 | ) | (974 | ) |
Capitalized technology and content development cost expenditures | | (12,351 | ) | (9,113 | ) |
Other | | (142 | ) | (250 | ) |
Net cash used in investing activities | | (16,158 | ) | (10,337 | ) |
Cash flows from financing activities | | | | | |
Proceeds from exercise of stock options | | 4,324 | | 4,322 | |
Proceeds from issuance of common stock, net of offering costs | | — | | 117,463 | |
Other | | (546 | ) | (436 | ) |
Net cash provided by financing activities | | 3,778 | | 121,349 | |
Net (decrease) increase in cash and cash equivalents | | (26,802 | ) | 88,395 | |
Cash and cash equivalents, beginning of period | | 183,729 | | 86,929 | |
Cash and cash equivalents, end of period | | $ | 156,927 | | $ | 175,324 | |
Supplemental disclosure of non-cash investing and financing activities | | | | | |
Accrued capital expenditures | | $ | 2,250 | | $ | 361 | |
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
September 30, | | Nine Months Ended
September 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
| | (in thousands) | |
Net loss | | $ | (6,758 | ) | $ | (8,235 | ) | $ | (18,475 | ) | $ | (23,333 | ) |
Adjustments: | | | | | | | | | |
Stock-based compensation expense | | 4,073 | | 3,302 | | 11,593 | | 9,217 | |
Total adjustments | | 4,073 | | 3,302 | | 11,593 | | 9,217 | |
Adjusted net loss | | $ | (2,685 | ) | $ | (4,933 | ) | $ | (6,882 | ) | $ | (14,116 | ) |
The following table presents a reconciliation of net loss to adjusted EBITDA (loss) for each of the periods indicated:
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
| | (in thousands) | |
Net loss | | $ | (6,758 | ) | $ | (8,235 | ) | $ | (18,475 | ) | $ | (23,333 | ) |
Adjustments: | | | | | | | | | |
Interest expense | | — | | 127 | | 35 | | 379 | |
Interest income | | (37 | ) | (21 | ) | (220 | ) | (74 | ) |
Depreciation and amortization expense | | 2,534 | | 1,898 | | 7,060 | | 5,288 | |
Stock-based compensation expense | | 4,073 | | 3,302 | | 11,593 | | 9,217 | |
Total adjustments | | 6,570 | | 5,306 | | 18,468 | | 14,810 | |
Adjusted EBITDA (loss) | | $ | (188 | ) | $ | (2,929 | ) | $ | (7 | ) | $ | (8,523 | ) |
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:
| | Year Ended
December 31, 2016 | |
| | $ | | $/Share | |
| | (in thousands, except per share amounts) | |
Net loss | | $ | (21,700 | ) | $ | (0.46 | ) |
Stock-based compensation expense | | 15,950 | | 0.34 | |
Adjusted net loss | | (5,750 | ) | (0.12 | ) |
Net interest income (expense) | | — | | — | |
Depreciation and amortization expense | | 9,750 | | 0.21 | |
Adjusted EBITDA (loss) | | $ | 4,000 | | $ | 0.09 | |
Projected weighted-average shares of common stock outstanding, basic and diluted | | | | 46,708 | |
Key Financial Performance Metrics
(unaudited)
Platform Revenue Retention Rate
The following table sets forth our platform revenue retention rate for the periods presented, as well as the number of programs included in the platform revenue retention rate calculation.
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, | |
| | 2016 | | 2015 | | 2016 | | 2015 | |
Platform revenue retention rate | | 134.2 | % | 118.3 | % | 124.4 | % | 121.0 | % |
Number of programs included in comparison (1) | | 15 | | 11 | | 12 | | 9 | |
(1) Reflects the number of programs operating both in the reported period and in the prior year comparative period.
Full Course Equivalent Enrollments
The following table sets forth the full course equivalent enrollments and average revenue per full course equivalent enrollment in our clients’ programs for the last eight quarters.
| | Q4 ‘14 | | Q1 ‘15 | | Q2 ‘15 | | Q3 ‘15 | | Q4 ‘15 | | Q1 ‘16 | | Q2 ‘16 | | Q3 ‘16 | |
Full course equivalent enrollments in our clients’ programs | | 11,505 | | 13,093 | | 13,557 | | 13,840 | | 16,530 | | 17,709 | | 18,823 | | 19,126 | |
Average revenue per full course equivalent enrollment in our clients’ programs | | $ | 2,673 | | $ | 2,644 | | $ | 2,599 | | $ | 2,680 | | $ | 2,617 | | $ | 2,679 | | $ | 2,609 | | $ | 2,717 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
