2U, Inc. Reports Results for Full-Year and Fourth Quarter 2020
LANHAM, Md., Feb. 11, 2021 /PRNewswire/ -- 2U, Inc. (Nasdaq: TWOU), a global leader in education technology, today reported financial and operating results for the full-year and fourth quarter ended December 31, 2020.
Results for Full-Year 2020 Compared to Full-Year 2019
-- Revenue increased 35% to $774.5 million
-- Degree Program Segment revenue increased 17% to $486.7 million
-- Alternative Credential Segment revenue increased 83% to $287.8 million
-- Net loss improved $18.7 million to $216.5 million, or $3.22 per share
-- Total cash balance increased to $518.9 million
Non-GAAP Results for Full-Year 2020 Compared to Full-Year 2019
-- Adjusted EBITDA improved by $40.0 million to $16.1 million
-- Adjusted net loss improved by $8.1 million to $63.7 million, or $0.97
per share
Results for Fourth Quarter 2020 Compared to Fourth Quarter 2019
-- Revenue increased 32% to $215.3 million
-- Degree Program Segment revenue increased 21% to $130.5 million
-- Alternative Credential Segment revenue increased 54% to $84.8 million
-- Net loss improved $6.9 million to $37.7 million, or $0.52 per share
Non-GAAP Results for Fourth Quarter 2020 Compared to Fourth Quarter 2019
-- Adjusted EBITDA improved by $13.8 million to $18.8 million
-- Adjusted net loss improved by $7.1 million to $4.0 million, or $0.06 per
share
"In the face of the unprecedented challenges 2020 presented for our society and the economy globally, 2U delivered excellent results that I believe are a testament to the underlying strength of our business and the value our shared success model continues to deliver for our partners and students," Co-Founder and Chief Executive Officer, Christopher "Chip" Paucek said. "2U's unmatched scale and the quality, diversity, and breadth of our growing portfolio of degree and non-degree offerings from great nonprofit universities around the world has solidified our position as the digital transformation partner of choice in edtech, and we believe sets us on a clear path forward for strong, profitable growth in 2021 and beyond."
"We executed on our commitment to balance strong revenue growth with margin improvements while driving towards free cash flow and greatly increasing our liquidity and financial flexibility throughout the year," said Chief Financial Officer, Paul Lalljie. "We believe we are well positioned to continue to grow profitably, invest for the future, and drive sustainable value for our shareholders. Our guidance for 2021 reflects confidence in our ability to maintain strong growth while making significant improvements in profitability."
Discussion of 2020 Results
Revenue for the year totaled $774.5 million, a 35% increase from $574.7 million in 2019. This increase was driven by a 17% increase in Degree Program Segment revenue to $486.7 million and an 83% increase in Alternative Credential Segment revenue to $287.8 million. The increase in revenue from the Alternative Credential Segment included incremental revenue of $95.6 million from Trilogy, which was acquired in May 2019.
Revenue for the fourth quarter totaled $215.3 million, a 32% increase from $163.2 million in the fourth quarter of 2019. Degree Program Segment revenue grew 21% to $130.5 million, primarily driven by a 40% increase in full course equivalent ("FCE") enrollments. Alternative Credential Segment revenue grew 54% to $84.8 million, driven by a 52% increase in FCE enrollments.
Costs and expenses for the year totaled $953.5 million, a 16% increase from 2019. The increase in costs was primarily driven by increased expense from the addition of Trilogy, higher personnel and personnel-related expenses, curriculum and teaching costs, and depreciation and amortization expense. These increases were partially offset by savings related to efficiency initiatives and COVID-19 related savings, particularly from travel and related expense.
Costs and expenses for the fourth quarter totaled $245.3 million, a 20% increase from $204.5 million in the fourth quarter of 2019. The increase in costs was primarily driven by higher personnel and personnel-related expenses, curriculum and teaching costs, and depreciation and amortization expense. These increases were partially offset by savings related to efficiency initiatives and COVID-19 related savings, particularly from travel and related expense.
As of December 31, 2020, the company's cash, cash equivalents and restricted cash totaled $518.9 million, an increase of $329.0 million from $189.9 million as of December 31, 2019.
Business Outlook for Fiscal Year 2021
The company provided guidance for the full-year 2021 for the following metrics:
-- Revenue to range from $910.0 million to $945.0 million, or growth of 17%
to 22%
-- Net loss to range from $185.0 million to $165.0 million
-- Adjusted EBITDA to range from $45.0 million to $65.0 million
Segment Name Change
As of the date of this earnings release, the company has changed the name of its Graduate Program Segment to Degree Program Segment because this segment now includes undergraduate degree programs.
Non-GAAP Measures
To provide investors and others with additional information regarding 2U's results, the company has disclosed the following non-GAAP financial measures: adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share. The company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The company defines adjusted EBITDA (loss) as net income or net loss, as applicable, before net interest income (expense), foreign currency gains or losses, taxes, depreciation and amortization expense, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense. The company defines unlevered free cash flow as net cash provided by (used in) operating activities, less capital expenditures, payments to university clients, certain non-ordinary cash payments, and cash interest payments on debt. The company defines adjusted net income (loss) as net income or net loss, as applicable, before foreign currency gains or losses, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by diluted weighted-average shares of common stock outstanding for periods that result in adjusted net income, and basic weighted-average shares outstanding for periods that result in an adjusted net loss. Some of the adjustments described in the definitions of adjusted EBITDA (loss), unlevered free cash flow, and adjusted net income (loss) may not be applicable in any given reporting period and they may vary from period to period.
The company's management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, to understand cash that is generated by or available for operational expenses and investment in the business after capital expenditures, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate the company's financial performance. Management believes these non-GAAP financial measures reflect the company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the company's business as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the company's operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
The use of adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share measures has certain limitations, as they do not reflect all items of income and expense that affect the company's operations. The company compensates for these limitations by reconciling the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review the company's financial information in its entirety and not rely on a single financial measure.
Conference Call Information
What: 2U, Inc.'s fourth quarter and full-
year 2020 financial results conference
call
When:
Thursday, February 11, 2021
Time:
4:30 p.m. ET
Live Call:
(833) 900-2243
Conference ID #: 5949476
Webcast:
investor.2U.com
About 2U, Inc. (Nasdaq: TWOU)
Eliminating the back row in higher education is not just a metaphor--it's our mission. For more than a decade, 2U, Inc., a global leader in education technology, has been a trusted partner and brand steward of great universities. We build, deliver, and support more than 500 digital and in-person educational offerings, including undergraduate and graduate degrees, professional certificates, Trilogy-powered boot camps, and GetSmarter short courses. Together with our partners, 2U has positively transformed the lives of more than 300,000 students and lifelong learners. To learn more, visit 2U.com. #NoBackRow
Cautionary Language Concerning Forward-Looking Statements
This press release contains forward-looking statements regarding 2U, Inc.'s future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this press release, including statements regarding future results of operations and financial position of 2U, including financial targets, business strategy, and plans and objectives for future operations, are forward-looking statements. 2U has based these forward-looking statements largely on its estimates of its financial results and its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs as of the date of this press release. The company undertakes no obligation to update these statements as a result of new information or future events. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from the results predicted, including, but not limited to:
-- trends in the higher education market and the market for online
education, and expectations for growth in those markets;
-- the acceptance, adoption and growth of online learning by colleges and
universities, faculty, students, employers, accreditors and state and
federal licensing bodies;
-- the impact of competition on the company's industry and innovations by
competitors;
-- the company's ability to comply with evolving regulations and legal
obligations related to data privacy, data protection and information
security;
-- the company's expectations about the potential benefits of its
cloud-based software-as-a-service technology and technology-enabled
services to university clients and students;
-- the company's dependence on third parties to provide certain
technological services or components used in its platform;
-- the company's expectations about the predictability, visibility and
recurring nature of its business model;
-- the company's ability to meet the anticipated launch dates of its degree
programs, short courses and boot camps;
-- the company's ability to acquire new university clients and expand its
degree programs, short courses and boot camps with existing university
clients;
-- the company's ability to successfully integrate the operations of its
acquisitions, including Trilogy, to achieve the expected benefits of its
acquisitions and manage, expand and grow the combined company;
-- the company's ability to refinance its indebtedness on attractive terms,
if at all, to better align with its focus on profitability;
-- the company's ability to service its substantial indebtedness and comply
with the covenants and conversion obligations contained in the indenture
governing its convertible senior notes and the credit agreement
governing its revolving credit facility;
-- the company's ability to generate sufficient future operating cash flows
from recent acquisitions to ensure related goodwill is not impaired;
-- the company's ability to execute its growth strategy in the
international, undergraduate and non-degree alternative markets;
-- the company's ability to continue to recruit prospective students for
its offerings;
-- the company's ability to maintain or increase student retention rates in
its degree programs;
-- the company's ability to attract, hire and retain qualified employees;
-- the company's expectations about the scalability of its cloud-based
platform;
-- potential changes in regulations applicable to the company or its
university clients;
-- the company's expectations regarding the amount of time its cash
balances and other available financial resources will be sufficient to
fund its operations;
-- the impact and cost of stockholder activism;
-- the impact of any natural disasters or public health emergencies, such
as the coronavirus disease 2019 ("COVID-19") pandemic;
-- the company's expectations regarding the effect of the capped call
transactions and regarding actions of the option counterparties and/or
their respective affiliates; and
-- other factors beyond the company's control.
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, 2019, and other SEC filings. 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: Ken Goff, 2U, Inc., investorinfo@2U.com
Media Contact: Glenda Felden, 2U, Inc., media@2U.com
2U, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31, December 31,
2020 2019
---
(unaudited)
Assets
Current assets
Cash and cash equivalents $
500,629 $
170,593
Restricted cash 18,237 19,276
Accounts receivable, net 46,663 33,655
Prepaid expenses and other assets 39,353 37,424
Total current assets 604,882 260,948
Property and equipment, net 52,734 57,643
Right-of-use assets 60,785 43,401
Goodwill 415,830 418,350
Amortizable intangible assets, net 312,770 333,075
Other assets, non-current 97,263 73,413
Total assets $
1,544,264 $
1,186,830
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued expenses $
130,674 $
87,266
Deferred revenue 75,493 48,833
Lease liability 10,024 7,320
Other current liabilities 21,178 12,535
Total current liabilities 237,369 155,954
Long-term debt 273,173 246,620
Deferred tax liabilities, net 2,810 5,133
Lease liability, non-current 83,228 66,974
Other liabilities, non-current 6,694 899
Total liabilities 603,274 475,580
Stockholders' equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued -
Common stock, $0.001 par value, 200,000,000 shares authorized, 72,451,521 shares issued 72 63
and outstanding as of December 31, 2020; 63,569,109 shares issued and outstanding as of
December 31, 2019
Additional paid-in capital 1,646,574 1,197,379
Accumulated deficit (695,872) (479,388)
Accumulated other comprehensive loss (9,784) (6,804)
Total stockholders' equity 940,990 711,250
Total liabilities and stockholders' equity $
1,544,264 $
1,186,830
2U, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Three Months Ended December 31, Year Ended December 31,
---
2020 2019 2020 2019
---
(unaudited) (unaudited)
Revenue $
215,294 $
163,178 $
774,533 $
574,671
Costs and expenses
Curriculum and teaching 31,081 21,925 107,968 63,270
Servicing and support 32,488 27,372 125,851 98,890
Technology and content development 42,909 35,504 155,949 115,473
Marketing and sales 92,550 82,164 390,174 342,395
General and administrative 46,319 37,549 173,526 131,020
Impairment charge - 70,379
Total costs and expenses 245,347 204,514 953,468 821,427
Loss from operations (30,053) (41,336) (178,935) (246,756)
Interest income (26) 713 1,354 5,800
Interest expense (7,742) (5,289) (27,317) (13,419)
Loss on debt extinguishment - (11,671)
Other income (expense), net 230 386 (1,429) (707)
Loss before income taxes (37,591) (45,526) (217,998) (255,082)
Income tax (expense) benefit (66) 942 1,514 19,860
Net loss $
(37,657) $
(44,584) $
(216,484) $
(235,222)
Net loss per share, basic and diluted $
(0.52) $
(0.70) $
(3.22) $
(3.83)
Weighted-average shares of common stock outstanding, 72,228,308 63,481,130 67,142,976 61,393,666
basic and diluted
Other comprehensive income (loss)
Foreign currency translation adjustments, net of tax of $0 10,064 5,695 (2,980) 1,710
for all periods presented
Comprehensive loss $
(27,593) $
(38,889) $
(219,464) $
(233,512)
2U, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
2020 2019 2018
---
(unaudited)
Cash flows from operating activities
Net loss $
(216,484) $
(235,222) $
(38,330)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Non-cash interest expense 16,267 1,153 108
Depreciation and amortization expense 96,469 69,843 32,785
Stock-based compensation expense 82,042 51,504 31,410
Non-cash lease expense 15,153 11,725
Provision for credit losses 4,642 1,425
Impairment charge - 70,379
Loss on debt extinguishment 11,671
Changes in operating assets and liabilities, net of assets and liabilities acquired:
Accounts receivable, net (17,877) 11,949 (18,497)
Payments to university clients 1,889 (21,675) (11,322)
Prepaid expenses and other assets (28,267) (6,845) (4,932)
Accounts payable and accrued expenses 11,322 17,081 4,724
Accrued compensation and related benefits 30,637 (5,539) 4,046
Deferred revenue 26,061 10,014 1,527
Other liabilities, net (5,364) (29,748) (6,351)
Other 1,443 1,982 1,712
Net cash provided by (used in) operating activities 29,604 (51,974) (3,120)
Cash flows from investing activities
Purchase of a business, net of cash acquired (949) (388,004)
Additions of amortizable intangible assets (62,784) (64,923) (65,190)
Purchases of property and equipment (6,517) (13,421) (11,996)
Purchase of investments - (10,000) (25,000)
Proceeds from maturities of investments - 25,000
Advances made to university clients - (400) (300)
Advances repaid by university clients 925 350 25
Net cash used in investing activities (69,325) (451,398) (102,461)
Cash flows from financing activities
Proceeds from issuance of common stock, net of offering costs 299,796 330,901
Proceeds from debt 371,681 244,724
Payments on debt (250,837)
Purchases of capped calls in connection with issuance of convertible senior notes (50,540)
Prepayment premium on extinguishment of senior secured term loan facility (2,528)
Payment of debt issuance costs (3,419) (1,953)
Tax withholding payments associated with settlement of restricted stock units (4,784) (2,574) (3,451)
Proceeds from exercise of stock options 4,177 3,119 7,366
Proceeds from employee stock purchase plan share purchases 3,960 3,382 3,121
Payments for acquisition of amortizable intangible assets - (2,180) (4,900)
Net cash provided by financing activities 367,506 244,518 333,037
Effect of exchange rate changes on cash 1,212 (1,049) (1,054)
Net increase (decrease) in cash, cash equivalents and restricted cash 328,997 (259,903) 226,402
Cash, cash equivalents and restricted cash, beginning of period 189,869 449,772 223,370
Cash, cash equivalents and restricted cash, end of period $
518,866 $
189,869 $
449,772
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA (loss) to net loss for each of the periods indicated:
Three Months Ended
Year Ended
December 31,
December 31,
---
2020 2019 2020 2019
---
(in thousands, except share and per share amounts)
Net loss $
(37,657) $
(44,584) $
(216,484) $
(235,222)
Stock-based compensation expense 18,080 15,418 82,042 51,504
Foreign currency (gain) loss (230) (386) 1,429 707
Amortization of acquired intangible assets 10,385 10,834 42,442 28,697
Income tax benefit on amortization of acquired intangible (271) (403) (1,328) (1,568)
assets
Acquisition-related income tax expense (benefit) - 298 (17,460)
Loss on debt extinguishment - 11,671
Impairment charge - 70,379
Other* 5,662 7,672 16,497 31,084
Adjusted net loss (4,031) (11,151) (63,731) (71,879)
Net interest expense 7,768 4,576 25,963 7,619
Income tax expense (benefit) 337 (837) (186) (832)
Depreciation and amortization expense 14,678 12,370 54,027 41,146
Adjusted EBITDA (loss) $
18,752 $
4,958 $
16,073 $
(23,946)
Net loss per share, basic and diluted $
(0.52) $
(0.70) $
(3.22) $
(3.83)
Adjusted net loss per share, basic and diluted $
(0.06) $
(0.18) $
(0.97) $
(1.17)
Weighted-average shares of common stock outstanding, 72,228,308 63,481,130 67,142,976 61,393,666
basic and diluted
* Includes (i)
transaction
and
integration
costs of
$0.8 million
and $1.1
million in
the three
months ended
December 31,
2020 and
2019,
respectively
and $2.3
million and
$8.0 million
for the
years ended
December 31,
2020 and
2019,
respectively,
(ii)
restructuring-
related
costs of
$3.7 million
and $3.7
million in
the three
months ended
December 31,
2020 and
2019,
respectively
and $6.8
million and
$10.8
million for
the years
ended
December 31,
2020 and
2019,
respectively,
(iii)
stockholder
activism and
litigation-
related
costs of
$1.2 million
and $1.0
million in
the three
months ended
December 31,
2020 and
2019,
respectively
and $7.4
million and
$1.0 million
for the
years ended
December 31,
2020 and
2019,
respectively,
and (iv)
deferred
revenue fair
value
adjustments
of $1.9
million and
$11.2
million in
the three
months and
year ended
December 31,
2019,
respectively.
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of unlevered free cash flow to net cash provided by (used in) operating activities for each of the twelve-month periods indicated:
Twelve Months Ended
December 31, September 30, June 30, March 31,
2020 2020 2020 2020
---
(in thousands)
Net cash provided by (used in) operating activities $
29,604 $
26,829 $
(10,669) $
(29,309)
Additions to amortizable intangible assets (62,784) (60,723) (64,990) (67,161)
Purchases of property and equipment (6,517) (7,627) (9,536) (12,693)
Payments on acquisition of amortizable intangible assets - (897) (897) (897)
Payments to university clients 5,800 4,100 7,500 14,925
Non-ordinary cash payments* 19,379 17,153 17,874 19,544
Free cash flow (14,518) (21,165) (60,718) (75,591)
Cash interest payments on debt 10,785 11,270 16,475 17,064
Unlevered free cash flow $
(3,733) $
(9,895) $
(44,243) $
(58,527)
Includes
transaction,
integration,
restructuring-
related,
stockholder
activism,
and
litigation-
related
* costs.
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA guidance to net loss guidance, at the midpoint of the
ranges provided by the company, for the period indicated:
Year Ending
December 31, 2021
(in millions)
Net loss $
(175.0)
Stock-based compensation expense 107.0
Foreign currency (gain) loss -
Amortization of acquired intangible assets 40.0
Income tax benefit on amortization of acquired intangible assets -
Other -
Adjusted net loss (28.0)
Net interest expense 30.0
Income tax benefit (4.5)
Depreciation and amortization expense 57.5
Adjusted EBITDA $
55.0
2U, Inc.
Key Financial Performance Metrics
(unaudited)
Full Course Equivalent Enrollments
Degree Program Segment
The following table presents the FCE enrollments and average revenue per FCE enrollment in the company's Degree Program Segment for the last eight quarters.
Q4 '20 Q3 '20 Q2 '20 Q1 '20 Q4 '19 Q3 '19 Q2 '19 Q1 '19
---
Degree Program Segment FCE 58,425 47,842 46,142 45,734 41,704 40,910 39,180 39,512
enrollments
Degree Program Segment average $
2,234 $
2,551 $
2,507 $
2,590 $
2,595 $
2,527 $
2,588 $
2,637
revenue per FCE enrollment
Alternative Credential Segment
The following table presents the FCE enrollments and average revenue per FCE enrollment in the company's Alternative Credential Segment for the last eight quarters.
Q4 '20 Q3 '20 Q2 '20 Q1 '20 Q4 '19 Q3 '19 Q2 '19 Q1 '19
---
Alternative Credential Segment FCE 22,190 23,067 20,435 15,141 14,639 14,729 12,662 9,128
enrollments
Alternative Credential Segment average $
3,821 $
3,426 $
3,279 $
3,766 $
3,883 $
3,825 $
2,955 $
1,979
revenue per FCE enrollment*
* The Trilogy
acquisition
was
completed
on May 22,
2019.
Average
revenue per
FCE
enrollment
for the
company's
Alternative
Credential
Segment
includes
$3.3
million,
$6.0
million and
$1.9
million of
purchase
accounting
adjustments
for the
second,
third and
fourth
quarters of
2019,
respectively.
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SOURCE 2U, Inc.
