TWOU - Earnings call transcript Q2 2018

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Operator

Good day, ladies and gentlemen, and welcome to 2U Second Quarter 2018 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Ed Goodwin, Vice President of Investor Relations. Sir, you may begin.

Ed Goodwin

Thank you, operator. welcome Second and Conference XXXX everyone, Call. afternoon, to Quarter XU Earnings Good should copy received release now, have By you a company's quarter for second of XXXX results. the earnings the

on use which not, post information copy make webcast have access announcements Today's this be section and Investor will we on are to Christopher in call investor.Xu.com. and Also, of you If our of is available website. encourage The speakers our you a of. Paucek, and recorded the Relations website, and CEO; available our Cathy website, we routinely CFO. Graham, Chip co-founder;

our forward-looking [Audio of management today's company's future the includes, statements forward-looking not make future are During results market expectations company's events operations. not forward-looking these statements actual could by conform this provided to undertake those on filed to historical other the annual our Chip. attached changes operating is measures directly of Gap] from the described materially Gap] outcome and to are this for in rather as I discussed financial information to, law, are and unknown beliefs the facts and press to Gap] expectations. current Gap] would call statements ended based it or Form [Audio Risk required of in now update in results, available our any the are future regarding call communications. over statements update information on Non-GAAP contained turn not Except plans may tables based measures like currently statements. publicly to call in most for differ [Audio the other XX, we [Audio to financial the year comparable [Audio on risks [Audio we as is XU's and than the GAAP Gap] on during conditions is financial or forward-looking limited to that Gap] statements public in anticipated today. to section of with guidance uncertainties and Also, risks but and results reconciled These results the statements, made to call, our these and Factors but December including policy objectives This the subject SEC. the All XXXX, and reports release. report by call the is

Christopher Chip Paucek

by with we was Gap]. on raise year win, improvement mobility. million, sustainable of of that shared had XU driven a Revenue outperformance line that's Thanks, and $XX.X that's revenue $XX.X the win. top skeptic is We're At our year-over-year. revenue XX% revenue. wins, social for short one this in [Audio our the and expect When another outstanding love. one guiding Gap] course students segment [Audio Eddie. it engine Gap] I of million. with doing Don't by university us the long-term win, We over This was QX to full how a we quarter year-over-year $X creating [Audio performance new let million range, growth principles model. a The the the leading of quarter. is success

in moment. through we about. happening. this in the was we FCE to full year. of XX%. told walk the for regards business and reacceleration FCE XX%, expect for Last has to year-over-year the the quarter, segment, additional details the revenue give growth the is that quarter, that to growth swing point FCE XX% beginning to grad Cathy grad turned the year. and low will jumping be a the around For The Gap] corner. growth the be [Audio you reaccelerated expect you is you This pattern It in some

confident the we're and why next about pipeline. over Let's years, reacceleration the talk few enrollments in

First, enrollments. the all and into cycle their had were Most fall class for starts have the launched deep XXXX application first in starts. DGPs of

So scale. we now will have high visibility into how XXXX the we believe cohort

program, XX a came new of physical more students. size [Indiscernible] the out start As MSW at Gap] gate Fordham for exciting with the Gap] an first example, [Audio vertical, [Audio the first $XXX,XXX is at [Audio our Gap] therapy Even particularly program.

and XXX not That XXX. the cohort the the close. largest to we of first it's away have expect classes cohort While started, far history students, and yet first is be XU, in not around

the let's make of that On programs year. up total history. third operating cohort Gap] the But launch the Gap] might our the than total be XX be the end by of less Gap] forget XXXX new [Audio whole, not XX [Audio [Audio will this

believe about the reaching We away programs? most [Audio from what time. them years still things Gap] steady-state take of enrollments. are These So

program Subsequent state enrollments. in typically X first takes typically achieve vertical steady The programs years X X to our a to to X projected years. take

X a that our single out program Gap] [Audio two financial is we three Gap] Gap] them Gap] programs. growth for to how of state a oldest enrollment So DGP steady do Remember [Audio [Audio second. term or as a mature basics Street. [Audio have quickly Gap] growth reaching The degree. expected? enrollment for of a offerings. degree some offerings. not we XX necessarily And programs of we're But get start still as expecting back where [Audio in

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revenue DGP. For to Gap] XXXX, just for with can't and [Audio second X over growth our to partners. mature [Audio DGP and new of degree. drive enrollment Since partner, to own [Audio quality more Gap] look at an growth [Audio offerings Gap] is started We has programs. existing portfolio DGPs our Adding time Gap] activity drive each its important

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Operator

Yes, you. hear I can

Christopher Chip Paucek

Okay.

had it win, is with a love. outstanding sustainable another win, long-term one skeptic a by for in this of hear let social over. of improvement you success revenue This $XX.X The now the revenue outperformance course we're me. engine raise new million, I midpoint growth When I line was segment performance of a can on you XX% is the QX quarter win. but Revenue our year doing the by million know top year-over-year. short mobility. one and a year-over-year the I we leading XX%. and Don't quarter. driven students $X At principles with ago, that's shared So creating going wins, XU full million. was us that We're we to guiding start that $XX.X range, We that's expect university the of guidance moment model. told how revenue. over to the

Last quarter, FCE For growth the growth turned the has segment, XX%. grad year-over-year corner. was FCE

for the reacceleration in expect swing to in and in expect Cathy point the you grad walk additional low XX% that revenue indeed be be give regards to The told around This you year. FCE some beginning to business you a details about. full is to for is will It through the and moment. we We we quarter, happening. the pattern of the growth reaccelerated year. the this XX%, the jumping

few next why in about reacceleration talk enrollments the we're over pipeline. and years, confident Let's the

fall XXXX we're their starts, First, class starts. DGPs have in launched first enrollments. the and into Most of deep for application had the all cycle

believe -- So now scale. into how have will cohort the we high visibility XXXX we now we

the physical with DPT@USC, at exciting therapy start first an vertical, out size our XX $XXX,XXX the cohort at example, program. That's As an for more in program, new students. of tuition. first is Fordham excellent came the a gate particularly Even MSW

XXX While not yes, expect students, far classes yet around largest and XXX. history first the it's and XU, we be cohort of is That have not cohort to away in the close. the started, first

XXXX in that end forget cohort that than the total our history. best the XX might be will of whole, by launch these programs of not year. But make operating be XX X/X DGPs up the On this the new the less let's

So what believe steady away still reaching other We These XX about things the from enrollments. are time. of take state years most them programs?

enrollments. to X programs projected The takes to Subsequent to a first years take typically X in typically program X our steady vertical achieve state X years.

get reaching Remember as a programs So programs The for DGP back term get expecting second. is still of XX DGPs these financial have Street. is a our a is a do DGP growth state not enrollment X expected? for basics that mature A or necessarily This some X quickly growth have as let's we aren't not of single or offerings. to oldest of we enrollment X degree. How new. offerings. Well, we're degree that steady programs. in out X

own our quality partner, in has X with example, and started of DGP XXXX. our For for since portfolio its Each DGP Georgetown, partners. its to drive activity second growth things

newer is in DGPs enrollment look an over to tool at and programs. growth degree. X for @WashULaw, can't time XXXX. Take offerings just new more for launched Adding which existing to both mature us drive important You

about bunch in a S. degree underperformed really its of hurt. Mexico, largest the at expectations. The Currency M. initially there's attorneys non-U. offering issues the X Brazil citizens. for LL. was time While foreign an at markets, things and brilliant DGP targeted it,

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and first all, some you. Rossier of be USC. us allow obvious our market mature wouldn't Additionally, this of partner, happened responsive has but examples new in offerings evolve Two to the at our the to in It School demands to most be at for Education programs.

has years, in market with now we offerings. a to added a the response Education, vast enrollments longer offering sizable of Doctor and of years more degree demand, resilient our program initial you first than tuition. the Today, the portion seven of of enrollments school, happening really is knowing. majority But EdD become Masters before. came and teaching sustainable of higher from in, XX in at the continues For degree without it a was hood under Rossier to This any partner ever grow. the

over order talk back to of about time, a women want learned their students to Georgetown babies. program. to of but the graduate. the with have What that delivery segment go let's wants work in and market in there's deliver doesn't Midwifery to Midwifery assist we XX babies to necessarily that Now

offering with Georgetown it. degree worked all Investors specifically to are of approach, portfolio to investors just the Offerings story to of a consider need part that more We penetrate DGP, an whole which of we business overall is not DGPs. the a in for a of will a So our DGPs. highest portfolio, more, powerful, health. whole few creates not long-term This need women's believe launch the part job. market even important single revenue company. graduate we a drive the And consider our resilient, the just aggregate the using

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past, the in said look XX DGPs when we target reached today, million of at four million across steady that had slightly programs the operating those of long-term most for average state, revenue our model. at we revenue state. than across As our least programs our on not so Today, at steady actually portfolio in portfolio around years average better is than higher the with XX we history,

that, higher today. reiterate million me than XX Let

with we're we've reason we our XXXX was XXXX. XX second announced now cohort. confident only pipeline. the We're our program seven three The eight. the for reacceleration slots programs years math, previous That To On in months few announced programs last help ago. our over months, next call, one eight the in away for the three from filling is had the

the been. August very process than in of Our of partnerships pipeline simply our signing The deep is coming now XXXX. programs soon. And XXth stronger for team XXXX, is ever is cohort XXXX slotted. The in new it's program is nearly

of we at our year, new will programs least Next XX MPV. expect be

Now programs in remember, programs faster you'll new ramp verticals. these enrollments than

the program target around to options. to we There's So left growth the X,XXX XX,XXX programs. somewhere verticals. identifies But run. of We important there important of To of of the updated But in what the lot number years that year. the represents, that is per of XXX to and XX,XXX XXXX thousands DGP It's a college a obviously will revenue stage, United and conferrals are over long-term XXX the our room universities lot to recently contributor early believe cohort part States, Department set Ed to in the days. be an come. there's acceleration

to at be And were scaling Signing programs. in we don't is that's and clear, a XXXX, want anyone the U.S. to conferred a Now doctorates not quality there record it thing, of all is. better has roughly than sign track scaling In masters this by XXX,XXX enrollments degrees important universities. program space. XU

revenue similar all this eight contract relationships XX,XXX for a of for share deans market our their state, roughly indeed for scaling, economic are and share XX to scale at across need making digits, X.X and percentage our same large are XX,XXX education with our each XU long a any without to done XX We've implies But happy. folks. market. ranges target with steady distinct signed universities, schools, domestic own and big an graduate partners accounting and we growth conferrals, extended a Graduate Our at single are in and programs oldest-standing now graduate we the our have not piece terms. really length. clearly faculty. And capture do programs standard within to terms, conferrals We've is business. at huge, time That's of XX for

up next Our even until with partner yes, contract chose come doesn't to XX XU. XXXX. distinct schools term XXXX,

agenda. isn't business. have the your want about revenue percentages. place share about go they clear those For choosing a talk delivering to when immediately is OPM like a on to about of simply promises. people our an negatively Most university, It's Revenue

There service for scale, model, quality? the new. our invest which driving existed for our me current clear. fee It driving It's partners. programs moral iteration creating scale? make value value is isn't What for university entire comes by this contractor promoted like revenue superiority all the partner? real are surplus quality Are fees, model, it's share service. bears, whether heavily for It's fee history. drive no to And a and about per our or dollar. in has many value. so Are you We to down any your you the creates Fee general Let to it's you party.

of the fees even scale enrollments. some with And

verticals. of general the and are opposite. contracts the them contractor our and These success. risk to world-class clearly, shared impacting in messy, competitors. other of over of addition, MBA. this a shifts just past, earlier examples given often don't there's we're In winning program have record in Do-it-yourself from We've pipeline. by you model this call. programs benefit taking business. scale, this model, the multiple over, created in track I leverage a The programs, complicated models our digital opinion, we not cost take marketing like And program the one We're the university. today, the is Syracuse do-it-yourself or they our no another When quickly. new Quite shop

operating MSW over. was we Fordham it own their took program online before

winning Take the Business contracts we're first And XXX cohort. from more be at Pepperdine Graziadio University. School the in there'll Now, students competitors.

X OPM and the arrangement general they by terminated gave revenue Pepperdine powered general had OPM. by us the traditional share powered Before traditional contractor the X X the MBA model. program and contractor, relationships, XU, Pepperdine

model great from outcomes Our students. delivers [more]

extends the reach mission the model of Our university. and

model Our institution. sustainable it makes a more

the beginning Our model segment XU. FCE is organic reaccelerate. works. The is powering to growth growth graduate engine

existing is XXXX we're a nearly but There's ahead extend add run, programs. strong room partners enrollments continue happy. is XXXX of new our way and pipeline on progress. most They student locked, are the Pipeline contracts importantly, are excellent. across to portfolio. New and to lot

else Our not is is Everything simply revenue share noise. that question. on in

existing shorter will in cost is that provides short engine moment. the new is and institutions. another This opened a course students. The increased to growth in more business. market for alternative also that course massive real with has a and segment discuss lower a Cathy duration on. Moving Short door a partners stickiness

in online business Some news there'll expanded the short others. with And for We've many courses you. deliver of Masters-level to Dayton partnership our and be management. University

will the single a education and the as management love service. obviously the we this In market. a year our global you a university laser-focused higher business. trillion with acquisition, is One course we GetSmarter creating portfolio our quality powerful, well. give enter that market, most chance remain of We to now approach to of do sustainable in, on Some experience the X.X

successful past capital to Now this raise that with our a we're May, capture position in out and opportunity. go

in revenue, move that, the We choosy. fine on ourselves we will will over make flexibility to be and the on Cathy Graham. necessary we've investments to CFO, with $X billion next path in to I lady And the But GetSmarter. to XU quickly pink, the turn given keep it a our yes,

Cathy Graham

year XU's second measures. of in nicely quarter exceeded strong financial revenue At Chip. graduate quarter. was the growth of period the our for quarter, XX% with short million, in revenue coming $XX.X revenue. earnings contributing ahead from program prior Revenue guidance, of addition of course the to the our you, the by trend growth remainder performance In in the performance Thank second continued better-than-expected came XX%. segment, year-over-year

As in program and quarter, to rates slightly -- in be continues We by growth in to this we of the growth Both revenue full in graduate see year-over-year to believe graduate quarter expecting to a half significant in half and course year. that bottom out up the the driven program Sequentially, equivalent. of second course program short increase we've the reacceleration the picked expect now an XXXX. second more graduate this been of we've first revenue occurred said growth year. first previously, bottom rates

told quarter. higher points decrease expected, as upwards accounting the of at FCE, percentage largest program was to high inflating second of of due a had factors. impact average was couple a artificially X per a offset which, driven in comparison showing first growth turned The per XX%, against we XXXX the the FCE by FCE. time, more growth quarter, than increase primarily than As point for in revenue the average revenue we the percentage FCE This two quarter, in by an graduate half as the decline adjustments X year-over-year onetime you

expect has I Additionally, credit in This these and emergence of we we half course more growth Reiterating significant what our year. second of our second short last courses quarter, a described program courses. $X,XXX. revenue mix. following we sequential number graduate FCE for second the per reacceleration higher and the with the had even an course the contains pattern X,XXX to to In moved types XX% see in FCE during the lower program include more count quarter short FCEs quarter of segment, a of previously capstone increase, an at programs you average in told mix revenue,

drive still should an short increasing U.S. over U.K. university to see revenue as FCE of revenue. segment's You this trend expect for bit up majority course courses a average higher-priced more time, and

second $X.X by recognized This million million including XX.X% related quarter tax of This second a than million, to onetime to quarter our was net basis the year-over-year the was measures. benefit of point $X earnings meaningfully points. XX primarily tax $XX.X At revenue. represented million expected, corresponding acquisition or and a Turning widened percentage loss $XX.X we margin second million, X.X expansion in in of net better $X.X point EBITDA loss loss reduction CritiqueIt. respectively. period. with because net our loss benefit, and million, $X quarter of declined revenue. the margin, adjusted quarter million year-over-year acquisition-related by and adjustments After was represented for adjusted million we adjusted balance increase year addition EBITDA income of the or $X.X a our adjusted in a second EBITDA income net $X.X adjusted million and funds May sheet a in ended margin of to raised X.X% adjustment further of From the a adjusted million, XXXX After This perspective, loss $X.X prior net offering. cash, follow-on over reflecting X.X percentage $XXX.X net

the in second of quarter balances, million also timing appropriately reflecting sheet $XX class graduate balance receivables program Our had starts.

midpoints, revenue million the expecting between $XXX.X year. million of XX% we million quarter forward, and ranges $XXX imply of full third $XXX.X for growth and these are looking the the the million year-over-year $XXX for quarter for and Now their At from XX% and year.

you our of the the As full we've increased million. from by for revenue can expectations see, year $X.X previous for ranges, guidance midpoint at

short are new Continued primary higher-than-expected enrollments increase. the in the driver of courses

FCE and As business passed in program growth, demonstrated expect reaccelerate. core has graduate significant growth our by the sequential that point increase its we low year-over-year has started the to

around the we're more XX% of at for we year. year. a revenue However, are rate We and kick-start change mix the we for XX%. happened turn larger to FCE, the admit impact year-over-year the changes XXXX XXXX. the per a expect decisions per expecting FCE produce in of But programs, seeing said the revenue come gradually based segment segment potential that the a revenue for now portfolio, and some some expect in to for few of growth enabled at come XXXX, FCE our to has average year-over-year anticipated expectation the around occasionally growth start happens, for the path to are bit larger slightly with, program we but average to We in lower high this seeing for still of graduate than now now of XX% that allocation cohort on time given XXXX lower period XX% growth prior between anticipate spend we impact combined a that revenue as a we

growth However, for this of expectations revenue strong. our view remains segment XXXX

Analytics, Harvard out XXXX this cohort and of confidence we DPT, XXXX increases cohort XXXX Health. in expected in our set programs UNC program strong what [indiscernible] first including and between still our at confirming the Public starts are expectation, and EdD the graduate USC Baylor students XX% We Initial launch XXX in in Day. year-over-year XX%. October Investor growth We expect revenue interest

ahead growth we low by being of for the new This of XXXX, new expected spurred course like given timing, a in courses course and the revenue heavy heavy to get XXXX side. a start over what weighting we growth year's revenue short base. But rates see all us Additionally, on we XXXX. caution are now not you

expect revenue growth our least more to are segment expect We we stability this a point time year-over-year Please us of for before now to to much. give you XX%. business get too be able that at course say XXXX to short

like we point short the over Before growth year revenue I'd of indicate that for segment. the less revenue, XXXX acquire than out off implied course for we rate to move times GetSmarter. that subject also revenue revenue likely XXX% expectations short X to full about course XXXX this spent a This means of XXXX short course

Now looking at earnings measures.

loss and net We XX.X between we've onetime and the expectations expect and XX.X expect quarter a an the third million X.X full XX and quarter of between for year. the between full our of reflect between guidance related from adjusted net million Note full third improved for to for for X.X last the income in to we We million million acquisition of year the XX.X X.X our million the now our loss year. second million and for recognized and net tax loss quarter X.X benefit CritiqueIt. million million that

for operating a you is July what and while as to owned we courses the as X.X X, and still that scaling million last integrating I year. want remind also business and short guidance, segment. positive We XX.X been adjusted year, a and are between the and early relatively we've stage of of full the And X.X on EBITDA million million between expect for point for million XX.X quarter finally,

courses student initial at into for By results see business. come As results the course their next, we new don't to of around and and and definition, of this expect course of therefore, the are some enrollment the least the courses disclaimer perform the assume of our top financial getting early of immediately revenue arms we performance and around ranges. footprint and our revenue the remain time least in year, to end will That Please presentations. those previously, us aside, remainder margin that starts give their these of to margin certainty we presentations in new highly presentations sensitive margin. timing short the have said how and

getting margin. marketing business we're come, much work some the EBITDA our synergies the real from and and test short just can we really clearly done throughout steady this we run, integration can to segment While state we'll enough capture point course for growth be be long to how in to to appropriate that be time driven the investing have in convinced opportunities produce where adjusted can

all despite So us, about significant perform. the for such we're continues disclaimers getting how with not of a business company appropriate that our ahead pleased of really managing are to growth,

this have opportunities our model, business what and forward. target terms of and keep strong underlying a in able the our growth Chip? to visibility, market large benefit we indicate signs of the engine on graduate With pushing We All high we're market a that capturing very especially we lots left room run. business, seeing. program like be should continue to

Christopher Chip Paucek

opportunity. I'm more Inc. well. And our what big of our great educational university partners. for solution students. chart for XU with the aside, Bulls is to programs decisions company. progress. And questions. turn could over XU-powered our Cathy. for we continue and of system and mobility. courses. We're it it's digital to stronger XU, will pleased don't in more XXX the going the offerings world very a now say, a Thanks, best bears That offerings XX education forget more social graduate about, it's operating to outcomes midst a partner The over to consolidated a power of in means portfolio We complete across universities and And the guide short is

Operator

Hindlian line from question Macquarie. [Operator of comes Sarah from Instructions] the And our first

Sarah Hindlian

point love than and sooner a turning seeing familiar, of period this question we're or like is been out then, education of for bears of you think you. appropriate little drive in It calling Chip, use. addressing a to and anything market sort a where bit some really FCEs a name right And has I'm hounded for to categorization. sounds or worth an you're quite now that that but your if of know certainly, seems by and there's could to be are is time, what if be particular expected, that there's wondering I'd stock that

Christopher Chip Paucek

yes, turn Well, FCEs Sarah. the Thanks, did corner.

momentum -- this what from in expected. and the to But is we shows expect to going good about told This be the in is we pleased feel the do business. XX%. what XX% are core We certainly, it up XXs We the to it quarter you expect. in

we pretty to the largest the is it what's that starts. on clearly company give enrollment we're it's is anywhere going the obviously, near a precursor cohort. stunning, cohort FCE. size. and we close. important, The There's the cohort the about start XXXX XXXX and in although of it history a see, happy been Now, was we've is Enrollment And that happy not where the candidly, with in did people got very that and, never making news progress

opportunity, as long the it's opportunity, As far is growth not This the go, term. a a And focused on bears a leader. story. honestly, market it's big and This short-term a we're play. we're worldwide the and

drive down. long-term delivering and worldwide, on we're a slowing sustainable business focused high-quality outcomes student we're that So not

Operator

Garg our the from question line KeyBanc. from comes next And of Monika

Monika Garg

shared from decided or programs [Audio of you the the from won you kind XU you, competitors? to great share Maybe ones from either winning a universities competition. Gap] could XU, they it's the for you comments you've Chip, universities move gave example when to with

Christopher Chip Paucek

Like it's gain I going in Interestingly, stage at graduate in -- a the appreciate the really education point. talking this said that about direction we're time. like a I've share everything over So about feel I What of this isn't interestingly, this cars space, in early are question. not electric that is you're days. historically, like you're like talking existence -- if

secular change, large you are should, life, The The great. quit attend like, move up grad like your a your [Indiscernible] outcomes Well, to job school? about and talking approved. is model You're pick strong.

you prop think I better. is is argue but the can experience not only the value better,

with and partners comprehensive and for expect So we this conferrals point that long-term a the this to big we're of relevant. powering school of we decade this outcome. that technology our we I steady at human a that or sort notion touch, that XUOS, with emphasized is a think the XX,XXX reason state as drive we to share system a more that it's to a And call the solution isn't get XX,XXX

improving we of tell we by it's that and education of this consider online. high-quality go early So about preconceived will schools like most talking you're online fellow think days, having you travelers, notions I

think school brilliantly. the happen We to like by right don't have We model. mean, we number at is of to our that's strategy Now me, you the signing. think the I believe working is look our evidenced We think model MPV our proof. model.

starting that come or contracts are happened of late competitors. so And were that certainly, thing, program, like either I us we a sort them we emphasize the and see to is notion the from But we themselves of running again, to and is ultimately, when has would what now from schools as do of once This scale power equality. it, a regardless we it competition, of it. we becoming

that, school comparable. you do to And invest So the both. close we it's I just to is anybody being don't not that invest. And do big, think And it's have to just good. system heavily in we being about

about position. feel we good really net-net, competitive our So

keep XUOS of just like WeWork consistent we drive with things keep been the our improving has basis, deal, our student technology, so to phenomenal operating CritiqueIt a the system acquisition a improving body. which mobility. doing We And hit social for on

now going over all literally that XU are a to planet So powered students have programs the in WeWork. you

Monika Garg

couple example, for Then, at to Masters online comparable prices Like, than Chip, of a MBA iMBA their Illinois but universities we online comparable seeing bring has are of University on-campus ones. new lower lower on-campus price. program the now

this of the of you So online of pricing the How do thinking university partners programs? impact are could pricing programs? online the how think

Christopher Chip Paucek

people the days to market clearly, early models different many evolution. And in be it's the going of there's approaching So market.

majority are campus percentage, Now are of than There exceptions. than campus tell notable this, higher. across the speaking, are, at programs either plenty priced other across priced the some vast generally and campus programs I higher are as you, will the online tuition. online priced board, campus lower of on An programs or tuition equal there board, tuition. data words, tuition In out of there's actually, at

You obviously made just one.

sustainability. own, entity either not happen outside on kind. that model we a by long-term or sufficiently provides campus Now an being by that of runs it think provides its We this to the subsidized program some program think

we so And do our indeed model. like

there's own where I our has has that the being notion that program is our a think, based model. you that, other market. a And it. the And the do we going cost we we And I a and the Certificate tell overemphasize priced is would about example strongly model degree. are, continued evolve And Business feel reemphasize by the all of on what to on our Now, tend been its people of I to will you pricing that time, extraordinarily it's regardless, received But well can revenue for of do course about. they over that Analytics time, today, share. a system research Harvard between lot think that campus pricing the Monika, XU exists good deliver that a of thing note, underneath over short only

to to school, the strongly the a only for long-term correct, deep to revenue for would school we of value we its creates program. It's But we sustainability not share ultimately, ourselves school spend a to my I tell that not been I with creates in equal create huge that consumer. share but share our when able And not been that indeed that we've there the building a we've the think way So, -- equal surplus. that, it able doing is to also are It's reasonably we're prove is surplus. my of place. dig never where money. believe

largest the impact board opportunity ultimately, are room to costs and education. a huge individual the on So we're two the the costs graduate And student cost. having and

don't company data continue verticals, to a spectrum time, evolves, like that in of across being placement just the our parts we suite, not things inside like leader. are clinical over that company that Now, with We accessibility, will people the about. of but pricing this different also marketing all security, normally individual think we odds talk these of be as the a the horsepower market entire company

down competition be multiple our the will as we strong. competitive space out you super like feel position As enters the road, look and years

Operator

line from Oppenheimer. Schwartz And the Brian from our next of question comes

Brian Schwartz

potential want to wanted I if I'm starting to competition. business could at anything the activity from you DGP And I experience the GetSmarter. looking you here cross-selling interest a to revenue Chip, or wondering synergies switch ed? with like for bundling any about topic any at among is about if GetSmarter that away doing higher the offerings ask you're the partners for looking program are X at also, talk internally then the And there potential the platform. you levels seeing

Christopher Chip Paucek

side we'll launching. funnel Yes, same along on is the from vertical where so to too about or of the And these that -- we're you it's good be in have that that, I'd to to we an opportunity point, courses is with is that we're We this DGPs. was these clear term. it. there going think strategy a -- every interesting. longer that's of, We But the has and crossover, board announcement that's past, we're to real at quality bundling some line able interesting in We did looking -- many in very think remarks smart [indiscernible] It's prepared a little question, We're service. across share be difficult at there's in course the courses of to when say, early do that large where for an DGPs point many marketing that interesting share. clearly, not cases, there think subject a willing experience it a marketing. really never will candidly, not people and we're it's them. which area announce at our tell value. you example we cases, tells do that just the still don't it's pretty offering that, But launch we're and we courses. of to the days be short But the we're is the And synergy, that, find a do that to certainly universities that do finding think

Brian Schwartz

thinking had the $X.X philosophy the of you about the I looks buybacks? and your cash quarter, sheet. how follow-up on you're that. you capital X that almost investment, priorities was M&A, organic using uses of balance growth how through on think between just It about the cash during you around then the really of the got And raise maybe like billion Can cash now talk and the

Christopher Chip Paucek

that student was in campus, our faculty. big already using ourselves grade to our the were in to bundle. the and a value about our our a We also to online technology improve wanted core the said part of and improve it. schools. to we will to continue ability evolve to the book So a was we obviously, be There And think was give as component that we the in prepared There the part we remarks, prop flexible. was it actual announcement, win latest for learning students particular, want experience. CritiqueIt, do that, team of

able were the from Ashley incredible Bradford part TechDev pretty to CritiqueIt, and people, team. team become our of

able type to example pursue. we flexibility the that be just did a it's the of of thing want to good So

the next Now, at to ourselves looking give clearly, we going the GetSmarter. also things option are of like

see, will terms it high at in that GetSmarter, almost point, create think create what will is, in But reality to [indiscernible] be I unfair need opportunity. the because worldwide, opportunity the we're we're of shareholders. believe bar is do not company we we choosy We value growth. and that this we the does in for the we think doing this because big, that capture position

need it's the is, and down. not we growth. So we're slowing don't worldwide reality story, But a

has with a do where how we're to don't strategic spent someone thinking while about same do at a That's of CorpDev not working certain assigned been of budget has deals. sort we that to us have Now, money have in be the M&A and time, partnerships, we it. number

evaluate I continue will high I'm bar Cathy kidding, well. And bar. will a So to each on we basis, have option. have extraordinarily high will a go-forward clearly an as

Operator

from And line question of the from Tong our Goldman next comes Sachs. George

begin. may You

George Tong

you discuss Based looking courses into You've ahead, XXXX? indicated this changes cheaper of that this will can toward mix your continue average whether credit in revenue moderate you part expect due year and per trend courses. FCE to on pipeline to lower

Cathy Graham

down. you in heavier like it whether on of credit that through expect capstones George, per And And cycles back if FCE lower look tends and or sort cycle you've to programs would launching, seen not. we average work based we courses, up are are emergence, so go continue. to those go what and historically, revenue

And percentage you it in talked over significantly really each past whether about up about single tell, way talked to points this of quarter we expect a least sort the at -- of the of of fact pretty look of go to couple we we've not probably in that case, more moved quarter. of what a sort As sort the next never not a can We quarters. is or what the course over is need in at couple it then much In much exceptionally stay, mix-related. is happening XXXX.

XX% is, the be in for XXXX. We've not, perspective, So core thing to it our XX% to the our from what impact that growth is does rate business. reconfirmed expected

at as into look as models can we So I think those that you far things our building us expect. what

Christopher Chip Paucek

because like The and quarters add, there past it's And only it's is this George, a gone thing also quite I about quarters case, are didn't it's gone past this, it is the up reality there big in where think is, bit. that down either are not. where make Chip, would we I deal

So...

George Tong

are revenue your And you in year discuss up newer year speed sustain programs down can need trends? slow other compare then to class sizes or follow-up, programs? enrollments as new program your such your that in earlier words, In one one of to pace enrollments with launches how changing broadly growth you the a

Christopher Chip Paucek

get say don't Here's we you, for reason. individual into would a what is It's I tricky. programs to

outperformed that. would critical But in we're experience a question, lot no was that be there's the experience market, selection long pretty of we grading expectations, our that a term. And programs average. is story we of lot at that like Candidly, while the has of our Fordham really we in big. I vertical. thought and the an about part have of programs thought it feel our a talking going of are getting to we better clearly, We we say -- have

a geography the we both vertical, experience. and have the lot So of

big. be and thought. so than -- vertical, we're bigger was start pretty excited programs in then But the And about the vertical. it the we we going thought the like other of It's to

you if sure add want do that's not -- to anything? I'm So

Cathy Graham

Yes.

add to on that said, Let of about think you you eye tend see we've should an programs. things just more and backwards one scale the me MPV when than programs comparing is keep that, as quickly first

-- vertical if got in ones first vertical or their a programs first win, program. third you've cohort, the so to a comparing And really almost, programs you're to fourth older that are by that in programs now were definition, second, the

those to have larger expect would first and cohort. see You follow-on

Christopher Chip Paucek

our I add, And, XU. the time, in the would investors. I going on same a our for investors business these pretty our it's and if And explain interesting We're we're At transparent benefit strategically the about guess, business. what's to partners doing the them important of to please is thing doing company. for to not do and we calls, these we're clearly,

of based And long-term we're important our going in York. opportunity. what so told going buys, is amount the there go New I that, growth York, or is exciting reason big Tennessee Colorado programs to to on tremendous we've to But a have regional that you in about that launch doesn't something mean not strategy. New And in in as clearly, that's incredibly aren't that

any to exciting. particular too from it's also. about across got any point you is, Fordham enrollment now. our I we think that the you averages. our sort particular at excited disappointed and is But number we're strategically, somebody we number right out important giving wants do like choices remember, in portfolio. to a that particular see that reality And opportunities So We're not thing the long pretty of think or Vanderbilt term excited you super just about get

Operator

And our Jeff Silber the from next Markets. question BMO line Capital of comes from

Jeff Silber

margin think minutes, believe, expansion. just growth -- going there's how opportunities you I wondering at the if is last talked I fact you're was company address some growth versus you on whether years, a appropriate next in for over the given the Chip, few conference, all about the at few the your quote margin for could a was expansion profile looking conversations internal and that quarter, business. I that a

Christopher Chip Paucek

Jeff. you, Thank

the state to asked So business. was a as In when is, example, you growth not this the in opportunities guys LTR-TCA no is that quarter. number leaving reality this a definitely steady But our that talk generate to use been X.X. stage that's the we And high-quality believe It's a an company's reality don't an take this table quarter, X.XX. run life, talk long-term bit, because the use of at quite are each life. right get that ratio, is, we for at do about our point metric about enrollments we've that's story. we And it it. there's the We really this to we about to that advantage we partners. the company's excellent it should target internal think of is question the that, our those And on We opportunities. marketing we discussing this call

actually efficient. think gotten marketing problem. has Our for the there to opportunities invest. that us portfolio to marketing don't are ample We more efficiency across We continue have a

expansion been quite a that at we've is margin for it's us question real that ourselves asking clear point. bit. So this a And question

certainly know up. where we where talk have we've lot And the to as Anything we plans, Now evaluate we will add, like this be, made quarter. will of working you'd decisions obviously, about and we're on a let investor once will Cathy? community bunch a end we to we about

Cathy Graham

No.

I right. said think it you

Jeff Silber

actually, for Okay, you, Cathy, one's on thing. margin also the great. And, this

the you you can is reach, that adjusted your in it Since about think I around EBITDA remarks, you're possible steady a eventually [indiscernible]? and courses state short some numbers CFO, put talked that margins. real to seeing said,

Cathy Graham

the reason is And in remarks. is the yet. The reason that prepared I answer the not stated

give see see We by are shared we've that, time to we share, through to and able falls where time to test integration is. or But margin that get of synergies. as mean, marketing able lien, test through can that to to give meaningful that need so getting we on we you we keep to and verticals. to -- through get some will that that a a And impact where and could are are develops absolutely that -- a guys be point through marketing I our whether different updated the and just we across number how of think not done out. to enough that get that And there that what go share programs be number

Christopher Chip Paucek

a the I But on is say, step road. that would

starting to the of a get that We are line now the real confident this bottom is just business from not the line. standpoint but top

putting in, number. worth point giving a that even you we're felt we so a And we're it where not was at though

Cathy Graham

the point course this segment will expect by for I And out we adjusted will that short XXXX. be EBITDA-positive way, that do

Christopher Chip Paucek

closer. we going XX-quarter Jeff, tell of getting quite it. feel if like what not you I We're if to have I something we now record we would going say yet, -- is track something, we're telling you. know to We're there but know we're

Operator

of from comes Suisse. question Brad Credit next line from the Zelnick our And

Unidentified Analyst

It's in about you launches Bob Can [ph] MPVs guys and we think here program between into Brad. just of for verticals mix how for should some the and beyond? thoughts provide XXXX new new

Christopher Chip Paucek

the program so notably all the not -- current one program -- far one Dayton, conferrals. this JD XXXX by new of lineup is next is Well, Yes. The this into haven't is the in which almost the is with largest MPV. entry But that cohort we a actually, program -- verticals XXth the announced one yet.

I'd vertical done is clearly, we've what new So lot say, here's of a that, expansion.

XX verticals. of the like at If you look five cohorts, the six were new

verticals, new you we that than definition, lot MPV when clearly means you per of vertical programs And more add so And add programs. a expected. by added have we can

So MPV-type can And we programs by than MPV there definition, run verticals. new exciting XXXX an there from are standpoint. more is are pretty

verticals. And term the at believe in same total in do long XX. past the Now the the terms time, numbers number pretty of are given of you real. the early we're we've We're still at in we expectation

and tend a discussion of not programs. in clinical of But So that There's largest MBAs, to lot that our have these done And that in are activity the haven't verticals yet. yet. portion around examples deep licensure. that experiences of just MBA a our leave business love there's have we ultimately, programs we the bunch we touched been some

We will do veterinary.

do the will MD. We

will do pharmacy. We

will We do dentistry.

good of And go real. We all to are will of them. this they happen be all believe way. programs perfect that do those sort We setup a all We very -- they for will XU. have think

doing what that percentage portfolio So have in an we're really a MPV, really good happens clearly, programs And to And one. those verticals. that an of it's different our these client those it across is clients program certainly is at at existing it we're verticals. because increasing well simply is easier see getting new than launch our a

we in the So you And do in have amount like it. the something of we're mix we terms you XXXX, exact of that to we cadence, give cannot yet given XXXX. getting not you XXXX. given But will XXXX, the we've

Unidentified Analyst

just -- following up. then And and

guys into far? previously you've insights courses. provide Can channels performing that's for so You some how new and mentioned short entering that what marketing learned just you're you some

Christopher Chip Paucek

content testing to tend how in give courses marketing efficient everything that do operate team we short And we to at large interest don't amount channels. -- mean the that I degree we that business checks And marketing. need don't get programs. constantly do. to Google. we almost We entire these whether experiment is because to It the continually drive not about be all competition And What talk marketing. individual to with road of large, creation an simply our programs, we by a is, it by think doing to individual about not our we have do or about as just map it's organic we're not tend to frontier definition, programs our channels,

not So, that we individual to innovating are by the channels, side. talk going about I'm ultimately, but on continually definition,

Operator

from the line And question from Point. Michael our Tarkan Compass of next comes

Michael Tarkan

a Fordham program back getting little Just the bit. to

those of organically? -- over growth programs, have I'm of that You coming the Work is Is in out not vertical but -- term? see bigger other it getting of a 'XX. MPV? of necessarily guess, expect the right sort and ones near coming Work you developing one is Social one the Social Can on 'XX other in we that level gate, ones I the the X one lot wondering to from

Christopher Chip Paucek

Social conferrals. Yes. Work by large Well, is

that part, you are that have we the be conferrals in conferrals. entirely really Part by of still bit, of programs. there are shocking. programs said shortage we that of Work, past these in the available, smaller are a So large by shouldn't fewer is Nursing. MBA MBAs, we some like And there a this the that reason have because programs lot quite spectrum huge and across Social

when outcomes a just couldn't now. he's as perspective, They an was like my youngest, speech problem, just had So problem he's when to was therefore, one. find therapist from XX a difficult son, He example, a hearing -- X, he had an he and was now that's speech Annapolis, my -- it and, really find Maryland. in

conferrals, is by And not there's reality while not big programs. the speech is, enough so

shortage. the love we filling idea that so And of

like We've to remember, do the We in we it's sort also And Mike, geographic exciting New particular discipline. the of best New is the it's for market Texas of best that have It's markets it, has have single are fact tell that, XU. Colorado, getting Ultimately, now I Fordham's XXX value accepted, I of California, Work the that country not and telling remember, and is, the about market would you York New market to as these that the Social you -- number, good are students in X Fordham and we're York. much you, love as the appreciate the I country. -- York. vertical. I got the can range. caution an now But, do that inherent thrilled

York New We California. have and

want don't get away with every we Work start. having to program carried kind Social of So that

a a The other love we working in I have And is thing talented the This factor. wave, is people go running in announcement this up not lead work. because of at and that this happen. tremendous lead the the it's actual a a past, you're the doesn't time to haven't you I doing challenges don't the take of cohort super lot the so, are fully, almost a to people bunch, having slotted and there These having about going things funnel. that's get And But that by it's about. is These a MPV, fully about lot time times, are of interesting it we happens. that start a of the and not ton one doing like program hard. and number terms to also of something don't inherently means a time. scaling even have company smaller time and if marketing our through talk of talked in is way,

ability gave time to larger we've program, number. this been us and long have working a the for So a

that are Now, a is inherently you finally, correct factor share that's useful.

good was size Harvard had UNC MPV will Business did our that does notable of the that. Health out happening, excited program, she a vertical operating. one That but that one we vertical, that terms what's program. pretty her that only see we're only couple the So mention faster, of Program, in were Cathy about second in them and were programs enough did you scale other the not a that called Baylor in program like, that there prepared was remarks, Public Analytics

cohort. to a value pretty of turning lot be there, and it's out So exciting

Michael Tarkan

appreciate on the acquire any I on changes marketing cost in channel. context to cost? Just the there are around a noticing an acquisition changes front. the all marketing any you And the student in basis, student? that Are underlying

Christopher Chip Paucek

inherently Yes. our current of periods LTR-TCA acquisition, financial mean, related our ratio. student shows embedded revenues. in expenses I it's future statement to And clearly,

of entire are get your click in that of something greater a discussion, is not less. kind irrelevant we've that's not there, more effective one Mike. able company. So history as scale, discussion, our example an we And dealt Google be inflation we as to

is Google substantially years. click large that of the clearly as improved through has gone couple strategy the the positive And has with drives of channels, marketing have efficiency. regardless, relationship Our last over late, direction. companies a actually, our But working we're what MPV that inflation

marketing we don't today, a have issue. efficiency So,

Michael Tarkan

any I'm front? then just undergraduate update quickly, on assuming the last but And no,

Christopher Chip Paucek

Not on this call.

Operator

further have to back would for Chip And like it at time. looks questions like Paucek closing remarks. to no we this the I turn call

Christopher Chip Paucek

these out you, Sandra Thank I'd forward who deliver call, like Sarah you our for Wood. assistants to your in on excellent look the seeing we Take support everyone. us of not road. you care, Thank everybody. earnings to Muntzing, Lisa And easy. helping calls. Bailey It's all thank powered and this

Operator

today's Ladies and and all have a gentlemen, great day. thank This conclude may participating you you Everyone, conference. in program, for the disconnect. does

2U (TWOUQ) 4 Aug 182018 Q2 Earnings call transcript