TWOU - Earnings call 3 2023

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Operator

Thank you for standing by. At this time, I would like to welcome everyone to the 2U, Inc.

Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now hand today's call over to Steve Virostek. Please go ahead, sir.

Stephen Virostek

good Earnings and Conference and Third to Tamica, XXXX Quarter Call. you, afternoon, welcome everyone, XU's Thank

Joining me our on Paucek, our the call this and and afternoon CEO; Paul Lalljie, Chief Officer. Co-Founder Financial are Chip

prepared our remarks, questions. Following take we'll

in risks, call the or factors statements update the uncertainties release no in forward-looking plans Please ended on filings results and duty Any Commission, analysis to are the to Form and statements Statements housekeeping and and operating press and have industry documents described today, our will in webcast portfolio XXXX, to may I'd refer changes release learners plans our Securities our statements. actual The available our other will regarding on subject and platform risks, implementation Investor be materially of that objectives them. and results, First, a reflect for with include and future today. annual of to such statements available earnings Relations partners, our we assumptions. this and earnings cause operations, information the are strategic of laws, made matters. the items. uncertainties to year website, on differ and a those on These risk management regulations made presentation replay and including made including to call cover management SEC the like our as December for strategy forward-looking the during few trends university our for XX-K Exchange activities, slide and report of forth set XX, for financial anticipated realignment other agency and plan, from later and for our this assumptions guidance

considered isolation GAAP are during today's be measures as results. or non-GAAP in supplemental substitute not useful XU's believe measures, discuss addition, we from measures performance. financial addition should as call, a in to for These of In which and non-GAAP will we

and Investor You can GAAP non-GAAP page the on of in these reconciliations find press our our with measures, additional including Relations disclosures regarding comparable release results earnings website.

hand that, So me Chip. let with call the to

Christopher Paucek

and million. our Thanks, third $XXX.X $XX.X degree our did the afternoon, quarter not These of million of everyone. and came given at some results adjusted coding higher-priced with for weaker demand EBITDA our continued meet Steve, softness in camps expectations, boot enrollment programs. in in good Revenue

number we we a more Paul We to and that right strengthen and believe balance working our about we will return to also gives need future. our moment. That going sheet in in are on in profitable which to are that ability it the of talk things confidence see a the said, growth know did in diligently, us direction,

grew million a Degree remains year-over-year, in trailing increase, implementing marketing volume to organic and XX already contracts and targeting Our return we've for signed over also Exec the launches over new XX% ed we're key pipeline degree indicators of to continue a business marketing our increased next these business. programs. From improve standpoint, leading in for strong, We've half of total QX prospects to and edX $XX of framework generated. Learner since our up spend $X XX% leads new at to our marketing continued of mid-XXXX. by grew the XX-month on platform end million the factor from X lead year.

enterprise is it based business, a on strong XX% current pipeline, to believe up I poised Lastly, to than more next performance year. growth and in quarter. our see we the enterprise continue in double solid And

degree starting our segment. with So results in the let's on detail, move more and unpack

have where some this to can't these market standpoint, from agree reasons. for and work The partners difficult standpoint to from we a or part programs to the make the with to we are to become our from over due makes our last with pricing exit relationship we As we on degree other to our discussed health term. debt fee. adjustments as changed earnings whether that years has of a our for for to overall We factors, strategy programs performing a will management, more improve portfolio degree involves other the Where platform sense of long rotating of a programs call, their consider run improve or the program programs refer certain mutually factors. standpoint, out partner financial to exiting partner portfolio not rotation

believe is that university as decision forward. key affordability the But rests success partner. we going to with that the degree entirely pricing know, example, a For you is segment's program

balance is programs on impact the our It cash our connection strengthen programs look that of So are fourth degree served of agreed and show platform the best the use -- a they've fourth longer programs term quarter certain and of programs in allows and sheet helping portfolio portfolio, transition interest mutually us wanted certain programs in out will us where in we the and the from to couple role with reallocate in client transactions company, to students quarter, transition quarter programs of future that we the with also the our allows a agreed in mutually in generate USC. invest One, a was a well of these out the two, points quarter, transitioning programs strategy. to $XX ultimately, to thank portfolio had fee the particular of with agreed areas. thinking third ensuring million. life and in in portfolio resulted when lens. results no to We resources in highlight can up the the to the through remaining Paul of have degree exit pay in our management. to XU for it out in experience; university that we revenue build transition. Early approximately to This believe will of exiting with our but million to at company. hard result the those USC the us the transition, in taken dig we've related we into also This significant In our these in seamless long-term revenue that challenged. agreed in outlook. I management through we to every about near are we're school our growth align hyper-focused how in $XX

of management, portfolio. months, to performance sales you same-store it's leading key We of volume. helpful you remained programs similar a While submitted year. the that over management, And application to current volume because the of submitted the indicator degree comparison. A why on some our wanted XX-day to entire portfolio these give for application color the performance remaining I look at portfolio in the subject activities higher to we're engaging few across whether prior has think portfolio, the be in might degree case. softness the show not over independent is XX% wondering than past portfolio, is of the for the

translate We starting forward. expect with high that cohort gives to will XXXX the revenue going growth the us This increased January enrollment degree confidence following. with profile the segment this of in

strong. our the In current portfolio profitability of remains addition,

lower-cost many profitable the the the is health day, So not at degrees, about positive indeed of of lead. enables current portfolio. to portfolio to for management we're the will just we're market portfolio story segment future. But growth the the the degrees. drive leader competitive of that degree overall share and attributes that an because deliver transitioning well believe do has degree which and We're and our to business Flex more profitably underlying OPM and building us positioned we revenue so We're in affordable on the end of model, in the

As be share which and need. to our our have for with a desirable which to some for shorter University launching tiered marketing over up flex, It product also be XX you of We're demand for on allows as of model and programs, to in strong. these XX incredibly XX, degrees previous over half a we've of XX% our for a overall service to contracts of can revenue from and XXXX, over degrees contract, signed are target see million degrees steady exited enhanced a more through they plus revenue universities and $XXX a portfolio believe state model will reminder, being been degrees new management. earnings share the placement obtain revenue in what the XU. services partners of based Flex XX% revenue generate can flex continues for these allows release. our at partners. Most stack the We core replace than can selecting of

makeup to $XX,XXX, Our with than will model of the aggregating allowing we is about The model new We're programs. market of degree the our programs our less demand business. degree Flex degrees full believe price average tuition degree significant competitive alter meet radically pricing. that is XX% Flex us

degree clients, XXXX have rate flex our just interest for Based at signings to demand We this continue launches beginning. will university similar also think new expect current that from anticipate this is the as of XXXX. degree number on we a and

So management what's in return from new significant segment growth cash the the transactions, these the confidence the we current period degree complicate portfolio, segment, to as of portfolio demand really to sum health generated may while Flex and that solid can happening up results, us the XXXX. current for programs enter the give

was of is due [ pre-pandemic camp very, strong. very Crete in segment. XXXX both now coating, which This the ]. business impacted to QX enrollment our softness on Old in after significant enrollment and at boot the in that Coding challenges lines disappointing. bottom Moving levels some presented to underperformance was top running

like in boot the noncoding However, offerings camp growth. showed cyber business

other Turning side the of to [indiscernible].

taking QX, growing Across Also, products student in which intelligence are is it business artificial business we the believe a and student as up compelling of drive this These completion performance in we're all success market which are XX% business Cred, Our committed scale outcomes. and making performed only organic positive at due given really as outcomes. at look possible. organic cohort-based to But rates the nicely key and profitable the to Executive strong aspects in to Alt programs, product retention that in leads growth platform soon a part to QX fantastic the hard this and Education creates cash of coding, year-over-year. continue high in line. all of the XX% cohort-based flow are

I it wanted to note over to a regulatory on turn I Paul, quick provide matters. Before

universities and revenue strongly We third vocal continue given to other parties. model sharing the the from will support believe for continue, that particularly

we education. With over listen discuss to to for driving things believe that, third-party and in to innovation, results see affordability in more arrangements I'll importance the access they'll the stakeholders, regulators their of As hand Paul higher detail.

Paul Lalljie

Thanks, good everyone. afternoon, and Chip,

the million. Overall, our the to of of quarter revenue from totaled trailing segment strategy, $XXX.X flow quarter enrollment we totaled of basis we for the Adjusted XXXX. students, During will of a progress totaled XX% XX%, credential revenue drive the our enrollment make programs. while for the third was Due on a quarter from margin and free and with XX-month degree universities million, and third million benefits which degree declines was million. continued quarter, for adjusted our decrease a $XX.X EBITDA $XXX.X camps third the of to boot quarter platform shareholders. Revenue $XX.X implementing cash in million, continued believe coding Operating unlevered quarter $XXX.X higher-priced $XX.X expense softness alternative in challenging. million,

However, there indicators bright cash spots drive taking free results leading this are are and we to quarter's and some flow. profitability significant and key actions in

taken and are items: the softness million $XX expense to of camp business Our in cost the ongoing for management management boot by $XX.X quarter impacted operating outlook are our approximately and year of million. portfolio reduce actions X quarter $XX.X that expected results by in million, this

cash on due steady objectives, align away expenditure rotating like our portfolio longer where expense These that taking our degree with starting are degree platform scratch. our provider. earnings involves with we programs programs from our better no we with ability business align degree call, profiles and strategy, programs reach have of expect more degrees. Many lower cash the marketing. programs and we're They to capital favorable strategy our another last As to so replace platform we're lower our requirements programs over these to our planned discussed than Flex our part degree are operational, that offerings them already edX quickly marketing generation from state of that given XX-plus for leverage launches XXXX flow from

of it I Before agreed account in management helpful flexibility scheduled for on strengthens when and would Please its to us our agreement us financial mind our impact. expectations provides When results we and a near-term pay and partners cash and university which program, a areas. more months. From XX and our partner of are management in to a signed. I overview balance and our with our programs be occur the discuss the the in flow recognize is detail, Actual fee, the an for you generates we I our as the discontinue these next growth agreement to cash agrees invest portfolio as revenue to payments give thought our sheet that to move we portfolio XX cash to how over quarter standpoint, year. dynamics new launch keep in for the results the discussion

XXXX. look implementation new Now revenue which a enrollment for driven essentially Average flat from our million, offerings at camp of ago. with of average framework Credential quarter. decreased totaled XX% a segment our lower from decrease of marketing Degree when year for X% Revenue continued revenue X%, million, handful to priced was down $XX.X mix this FCE. this as led university coding. X% a programs $XXX.X a mutually of in our our increase softness that by increased closer results impact courses. our our was are million our revenue due FCE compared was in segment in in largest on included year-over-year, primary the strong the and the in Partially the degree our a our XX% the per activities for management the million, of Exec primarily and Remember $XX.X quarter portfolio basis. of $XXX.X in FCE quarter offering, ed year-over-year per of from Alternative Revenue This performance of boot mid-XXXX. Revenue year-over-year per million third to agreed or our clients. exec ad FCE revenue equivalent, to And increased increase enrollment. in revenue boot degree XX% segment average XX%, portfolio management than camps. from driver was offsetting Degree intelligence artificial a full reflecting course decreased decrease exit quarter FCEs a with shift our we strength vertical, of the revenue $XXX.X

a discussion for Now of expenses. operating

totaled of a in in count expense a charges. In Credential quarter have offset decrease of noncash paid million in $XX due a across our the by operating remaining third reduced the Alternative was ago and OpEx. the in of This third with mainly not reflects quarter. year, XX% driven expense impairment year the decrease resulting quarter, improving focus savings, the to charge $X million segment, in Alternative business $XX.X corresponding last EBITDA The personnel-related personnel segment. the by partially million $XXX.X costs quarter, marketing cash increase and Credential and $X.X XX% million a For million, on our a did million a of annual in decrease $XXX,XXX this million primarily we compared $XX of and quarter, flow. continued charge head $X.X and of restructuring approximately including increase in we by

million million compared previously January expense in quarter was degree issued Net XXXX quarter our Reflecting $XX.X XXXX. quarter profitability notes I margin million the $XX.X as EBITDA million operating million, to quarter as expense the totaled of the our and of $X.X quarter of interest the to revenue for $XX.X of to higher of compared drivers EBITDA Adjusted compared in the third the third our in to Turning segment XXXX. XXXX. in a $XX.X in $XXX.X mentioned revolver. from Adjusted convertible and measures. for our well XX% XX% was margin loss third million a

million million increased loss EBITDA segment, the from For prior Alternative $XX.X in the of XX% year. adjusted Credential $XX

statement. balance the and to cash turn I'll flow sheet Next,

payments said which paid exception $XX activities timing XX $XX.X from trailing of university free academic million October of quarter manage equivalents XXXX, executed quarter the partner, payments flow of XX quarter months payment the September XX next to management delayed to million due delayed to ended calendar used million of of of cash second portfolio primarily we revolving in cash of which our $XX.X a lower of includes the and our XX As end follows end quarter, the the typically million, We unlevered at XXXX, our the the $XX.X partners million expenditures. receipt second the a increased working the facility, million of the includes Cash due programs as $XX university from and million which of reflecting our as partners. From part approximately million expected $XX.X Accounts cash We are over of $XX October. of from from which, decrease university management was $XXX.X months. receivable with months XX, with activities, a discussed, earlier, Chip a the adjusted to XXXX. million management the from and profitability the approximately related portfolio one flow of the higher USC to I made to to generate perspective, our credit delivered cash of $XX.X collected through million reminder, $XX.X are from XX, capital to ending to a portfolio improvement XXXX, months. an XX cash capital ending XX September compared for over payment

of discussion and liquidity I are mention financial evaluating situation. want to we constantly I turn Before our guidance. a that to

refinance successful intend our this effort, our outcome active a As convertible our near so, maturity discussions balance profile. do the term. with and holders in to continue we've part of in notes, been note to We to optimize sheet improve targeting

with the When few timing as working margin expected this can We our our totals $XXX closing, $XX on At generating cash rising discussion have XXXX outstanding. to may indicators Adjusted year We XXXX, cash leading $XX million. now and while the $XXX confident points mid-XXXX. in million. stock-based right XX a for the we're point $XXX $XX full begin the perspective, the we particularly to million million portfolio we from EBITDA growth we're recognize on our strong generate to coding from of up million our aid complexity range reflecting I us $XXX From With in approximately that million, goal the we now compensation, already enrollments portfolio for that demand some million term. boot a range CapEx additional and management. in will XX% guidance of profitable Q&A session. But million adjusted education our $XX we segment, XXXX. cash a a EBITDA degree camp the the of of continued our back combined results. and management that In key regarding are to XX%. A portfolio million $XXX decisions portfolio in enterprise to our year-on-year and degree to for we robust expectations. our in and approximately operator creating the call the path. And flow introduce softness is of anticipate to discussed of executed hand expect a is will shares million activities are for to to offering, by of Now management range, of the more October expected achieving note expect growth revenue midpoint near robust in that pipeline now executive

Operator

Goldman Instructions] Sachs. Tong first Your line is George the of of [Operator question from

Keen Fai Tong

program compare strategy, streams? shutdowns as out portfolio the your your future general, fees from part with revenue these programs capital in of invested initial and degree transitioning much how You're management do foregone of

Paul Lalljie

of things George, a couple here.

is a starting perspective. to way is used program cost that as where had think the with partners number at look revenue to ending cover going fees often a discussion the projection And as would mutually I capitalized production have as is may near-term that program. the what it of it of as is part that the any our we agree point be. Oftentimes, well on begin that revenue from to

Christopher Paucek

way down. that we the be is down I are the degree doesn't guess that if And much it more think I I the about feel it add from a get in this very to standpoint will rotation transactions positive we'll shut like sell Yes, what's for George, happening the comp paid think we're wants we like platform. business. to And do very and doing affordable What [indiscernible] business the would these this would on you effectively is shut about think now. stores better is to is that Chip. things

Operator

of from next Your Needham. the question is MacDonald Ryan line with

Ryan MacDonald

you more on the of what bit a clicking this just the double sort what of other direct-to-consumer sort of we've some weakness a especially boot in in the on might [indiscernible]. just education confused business Alt just see explain cyclicality Can to seen Maybe driving as think be the Cred Maybe there, and those on and players sort going on comment loss camps. some I bit by little segments. in some maybe starting be tailwinds counter of might little

Christopher Paucek

question. fair very focused entirely It Very, coding. was on

all ed, up. were not did haven't Exec ultimately data, of And cyber that that -- we those folks. to it many So the but well camp out launched rolled launched, boot we AI just

itself was. coding in coding where that to market, I'm by that, the So is and think sure And the AI. some influenced is we jobs problem related

better. the it, build but camps us. the business of is and to it the for we that the were story fact It's move boot up. quarter other have just So ahead and own us, definitely surprised

Operator

[Operator Baer of Morgan Josh Instructions] Your with the next question line Stanley. is from

Josh Baer

program more on management couple the activity. A

confirm to straight when to comes pretty in, drop it that EBITDA? wanted does Just revenue much

Paul Lalljie

-- Josh, taken as example, for of is cost do associated things. of Depending a that capitalized then couple to it. P&L are It so that part the have with on acceleration. costs we depends that the

time. period the not we with XXX%. will, of it's upfront have we a but you than higher are payment normal, it, fees that would up that margins, an if amortize flow-through associated Sometimes whether But is signed long that over we have other it's

Operator

question George is from Tong? [Operator Instructions] Your next

Keen Fai Tong

Thanks Just the for follow-up. a opportunity. quick

be mix you a in your degree management, what of think So in, to pruned program in have? to to program you overall would much you're of need portfolio with the programs? comfortable number say do How get programs order inning will rightsizing of of

Christopher Paucek

been very George, late innings. the it's Yes, in process. we're active a

like the right call So cash, we're about term call sheet, the done The feel the right for long balance feeling call the business. for we've the and good right how market's and portfolio it's for thrilled pipeline. The the the changed this, substantially results standpoint done the honestly, of we're very health that XX over existing strong. is with the new we've pretty from years of

You part programs bit priced, have a or because is on the really some market that that incredible we're but that's we're first give color are occupy COVID but certain of certainly why idea And trying to year-on-year the higher key. since brands, our affordability sales little same-store of you time before the growth. a seeing

So do mid-single is but we McDonald's we -- there Ryan to do some countercyclicality is question. And Ryan to and do digits appear, you'll note think also it's we answer think is starting McTadd affordability pretty today. that notion that key think whole to

an that. And volume take opportunity we sheer term. also so long just in in. take while I rotation, business, the that never degree this I to the think to like programs guess certainly anything bringing seen We've of late the really innings, would new highlight we're positive is

about about XXXX many revenue state. in exist And talking million you're So these programs the already. is of you're what's at talking of steady great XX-plus $XXX

So revenue bring very we can launched with them little get and in J-curve.

one that is just compared So than started different it to ago. a business it's the we years it's a

Paul Lalljie

types the seen forma that portfolio And indicate pro charge the align we portfolio, those strategy. for were bit those is portfolio because one little should is they that our we to grow if our for expected of the to of digits the year. the ability we've a leading mid-single Because basically market programs outlook, [indiscernible], with indicators this to management, and that next programs probably, of programs we've tuition all have, and us in degree fit the because well add And right? seen average

Operator

next MacDonald. is question Ryan the from line of Your

Ryan MacDonald

program All next versus How launching that again in for the plan the from management towards here. up of XX from is an was again. the around to about perspective second strengthening XX let a I as utilized think the follow-up degree for to those sheet, year how maybe going versus Yes, much Thanks you and budget and will? question, of for really potentially investment programs on right. me was we launches, already contemplated going generated cash much the XX if balance portfolio the be sort of just your

Paul Lalljie

Ryan, couple So of things. a

in had year. the I think on we earlier given XX

we large expect did a number. So very

takeover. driver one It it launch comes us our also we cheaper a that's that the of -- the Flex here we're this I is we large think school. programs I next to and and percentage degree a than do key takeovers model. cheaper lot allows much because have It us launching year, you from has particular point We It to say not faster. would what from allows to average is initial for to that -- and flex degree initial flow $XXX had it that lower It demand the we build between a scratch. had has don't that and one school cash mentioned. demand. have a because a it's of have means mentioned million $X million infrastructure that you is much now

Operator

Baer. question Your the is Josh line from of next

Josh Baer

make Okay. I sure... just want to

Christopher Paucek

Josh, here, questions. the with the about chairs musical Sorry

You want ensure that going... to

Josh Baer

wanted I the straight from portfolio worries. no activity. sure to the management had like revenue this I Yes, make year just of amount

revenue come So there XX sure right in more like from to from QX the well? any And could the like that to future as $XX activities. wanted million guest management that potential flow make portfolio Was best in the Is cash QX. the way about then think in half? just first

Paul Lalljie

Yes.

the a within year. million amount dollar is half because impact actual had first revenue we than XXXX impact in cash in the period. higher higher net the little the the So of cash about the $X.X about includes Josh, and The is $XXX revenue a recognized million

had represents deals quarter, revenue that included. additional USC the signed in to in fourth the million the quarter the but So already expected be the are fourth $XX

from cash the the deals to recognized. that essentially, it that's is the than the $XX So higher we the additional already million XX, and up signed which million, expect, revenue adds $XXX

Josh Baer

the and to track? monitor was quarter, there mean positive? still to it negative we Okay. to the the Alternative take coding flip will just each that, margins wanted the that some on Alternative Credentials. like in in of know really expectation are on continuing check like I what I kind of quarter, And would have that Got sort hear just a I from as profitable it. business? Like impacts definitely Credentials

Paul Lalljie

couple So no. Josh, things. is short a of The answer

committed for seen this profitable. remarks, takes prepared a growth on from not business our as segment, simply year, in the positive to that his the we on margins possible, to segment, as of make to of Because segment. can Credential come that expect be Why And are business there. the business Alternative the have is rest next to do of are expect Alternative Chip We way? rightsizing it say enterprise weakness first revenue we would the mentioned say equation year, and I side with I get the this half we structure track the it here. of the we But soon enterprise the than higher because the doing cost the Credential in the as year the as whatever flow-through

it to with a the our this. rightsizing hit that's objective. So headwinds possible. as commitment this do we getting coating profitable We some quickly enrollments and recognized and as are made committed to we We

Christopher Paucek

we not interesting brought The used is we and to. flow the also coding thing it were finding lead Yes. about in way we're converting

the of it unfortunately. was definitely So quarter, the story

Operator

Meuler Baird. question of next line the with Your Instructions] is from [Operator Jeff

Jeffrey Meuler

a sense exited, is in the the sense XXXX are on the being layering revenue so any EBITDA think for pro grow over call have forma us to excluding of what the operating you of, we it, fees programs as that make-whole Can growth? give and of start we

Paul Lalljie

million the roughly So we we're otherwise we revenue done year, received point we think whether or as $XXX marketing is jumping we're next we're from from the it's of perspective, EBITDA, because around would programs. a end not get is the with perspective into associated takeout next is When it's programs we we've the it's perspective, we're revenue the as perspective, net thing that as a off whether that cost recognizing operating associated revenue anymore, September. a these overhead operations exit well at as is with from that those the think revenue whether of considering have year, that from from that. The considering an considering that we of as here a cost the university Jeff,

And give it your on year. jumping reduction creates just and less incur into end taken probably on million we've is cost maybe cost that based EBITDA $XX that $XX going not the out again the million between based we this will think So a next to EBITDA numbers, we that and year with I at up probably the the end rough the off of point forward. from of

Christopher Paucek

any there questions more the are in Operator, queue?

Operator

At no the current time, there questions. further are

Christopher Paucek

Okay. Seeing you a have if much. so Thank you And We please there's us Relations. no follow-ups, you in give today. thank for other us joining questions. call Investor

Operator

you Thank call. today's for concludes This joining.

your may lines. You now disconnect

2U (TWOUQ) 9 Nov 232023 Q3 Earnings call transcript