2U(TWOU) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial and Operating Results The company reported a revenue decline and net loss in Q1 2024, while focusing on operational optimization and balance sheet strengthening Management Commentary Management highlighted exceeding Q1 2024 expectations, emphasizing ongoing turnaround efforts to optimize operations and strengthen the balance sheet - The company is focusing on optimizing its operating model, cost structure, and balance sheet to capitalize on the strong demand for workforce development driven by generative AI[3] - Management is pursuing operating efficiencies by reducing personnel expenses, rationalizing real estate, and lowering delivery costs to support its turnaround and fix the balance sheet[3] - The company's cash position increased to $137 million, which management believes provides a strong foundation for its performance improvement initiatives[3][6] Q1 2024 Financial Highlights Q1 2024 revenue decreased 17% to $198.4 million, resulting in a $54.6 million net loss and a 43% adjusted EBITDA decline, with cash increasing to $137.4 million Q1 2024 Key Financial Metrics (vs. Q1 2023, in millions) | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenue | $198.4M | $238.5M | -17% | | Net Loss | $54.6M | $54.1M | +0.9% | | Net Loss per Share | $0.65 | $0.68 | -4.4% | | Adjusted EBITDA | $17.3M | $30.2M | -43% | | Adjusted EBITDA Margin | 9% | 13% | -4 p.p. | - Total costs and expenses decreased by 13% to $225.7 million, primarily driven by a $29.5 million reduction in personnel-related expenses and a $5.6 million decrease in paid marketing costs[5] - As of March 31, 2024, cash, cash equivalents, and restricted cash totaled $137.4 million, an increase of $64.0 million from year-end 2023. This includes net proceeds of $74.0 million from a receivables transaction[6] - Total debt as of March 31, 2024, was $906.4 million, which includes $40.0 million in borrowings under the company's revolving credit facility[6] Business Segment Performance Both segments saw revenue declines in Q1 2024, with Degree Programs down 21% to $111.5 million and Alternative Credentials down 11% to $86.8 million Q1 2024 Revenue by Segment (vs. Q1 2023, in millions) | Segment | Q1 2024 Revenue | Q1 2023 Revenue | YoY Change | | :--- | :--- | :--- | :--- | | Degree Program | $111.5M | $140.5M | -21% | | Alternative Credential | $86.8M | $98.0M | -11% | | Total Revenue | $198.4M | $238.5M | -17% | - The decrease in Degree Program Segment revenue was primarily due to certain programs operating in 2023 that are no longer operating in 2024 due to portfolio management activities[4] - In the Alternative Credential Segment, a $21.9 million decrease in boot camp revenue (driven by a 30% drop in FCE enrollments) was partially offset by an $11.0 million increase in executive education revenue (driven by a 32% rise in FCE enrollments)[4] Financial Guidance The company provided its financial outlook for Q2 and the full year 2024, including revenue, net loss, and adjusted EBITDA projections Full-Year 2024 Guidance The company reaffirmed its full-year 2024 revenue guidance of $805-$815 million and adjusted EBITDA of $120-$125 million, updating net loss to $98-$103 million Full-Year 2024 Guidance (in millions) | Metric | Guidance Range | | :--- | :--- | | Revenue | $805M - $815M | | Net Loss | $98M - $103M | | Adjusted EBITDA | $120M - $125M | - The guidance assumes no new portfolio management activities in 2024 and includes $15 million in revenue from 2023 portfolio management activities[8] - Anticipated capital expenditures for the full year are approximately $45 million[9] Second Quarter 2024 Guidance For Q2 2024, 2U projects revenue of $191-$194 million, a net loss of $32.5-$37.5 million, and adjusted EBITDA of $16-$18 million Second Quarter 2024 Guidance (in millions) | Metric | Guidance Range | | :--- | :--- | | Revenue | $191M - $194M | | Net Loss | $32.5M - $37.5M | | Adjusted EBITDA | $16M - $18M | Financial Statements The financial statements provide a detailed overview of the company's balance sheet, income statement, and cash flows for Q1 2024 Condensed Consolidated Balance Sheets As of March 31, 2024, total assets were $1.43 billion and liabilities $1.26 billion, with cash increasing to $124.7 million and accounts receivable decreasing Selected Balance Sheet Items (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $124,728 | $60,689 | | Accounts receivable, net | $67,235 | $115,944 | | Goodwill | $650,008 | $651,498 | | Total Assets | $1,432,937 | $1,459,683 | | Liabilities & Equity | | | | Accounts payable and accrued expenses | $114,000 | $103,378 | | Long-term debt | $898,416 | $896,514 | | Total Liabilities | $1,264,359 | $1,240,638 | | Total Stockholders' Equity | $168,578 | $219,045 | Condensed Consolidated Statements of Operations Q1 2024 revenue decreased to $198.4 million, widening the operating loss to $27.3 million and resulting in a net loss of $54.6 million, or $0.65 per share Q1 Statement of Operations Highlights (in thousands, except per share data) | Account | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | $198,377 | $238,504 | | Total costs and expenses | $225,699 | $258,733 | | Loss from operations | $(27,322) | $(20,229) | | Interest expense | $(19,267) | $(17,957) | | Net loss | $(54,649) | $(54,062) | | Net loss per share, basic and diluted | $(0.65) | $(0.68) | Condensed Consolidated Statements of Cash Flows Q1 2024 operating cash flow significantly improved to $72.2 million, leading to a net cash increase of $64.0 million and ending cash balance of $137.4 million Q1 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $72,249 | $27,478 | | Net cash used in investing activities | $(7,310) | $(11,808) | | Net cash used in financing activities | $(827) | $(89,463) | | Net increase (decrease) in cash | $64,039 | $(73,292) | | Cash at end of period | $137,438 | $109,286 | Non-GAAP Financial Measures This section provides reconciliations for non-GAAP financial measures, including Adjusted EBITDA and Adjusted Free Cash Flow Reconciliation of Adjusted EBITDA Q1 2024 adjusted EBITDA decreased to $17.3 million, resulting in a 9% margin, with key adjustments including stock-based compensation and performance initiative costs Reconciliation of Net Loss to Adjusted EBITDA (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(54,649) | $(54,062) | | Stock-based compensation expense | $5,324 | $14,563 | | Net interest expense | $18,690 | $17,592 | | Depreciation and amortization expense | $16,444 | $20,084 | | Other* | $9,880 | $962 | | Adjusted EBITDA | $17,295 | $30,191 | | Adjusted EBITDA margin | 9% | 13% | Reconciliation of Adjusted EBITDA by Segment In Q1 2024, Degree Program adjusted EBITDA was $32.0 million (29% margin), while Alternative Credential reported a $14.7 million loss (-17% margin) Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2024 Adj. EBITDA | Q1 2023 Adj. EBITDA | Q1 2024 Margin | Q1 2023 Margin | | :--- | :--- | :--- | :--- | :--- | | Degree Program | $31,985 | $47,204 | 29% | 34% | | Alternative Credential | $(14,690) | $(17,013) | (17)% | (17)% | | Consolidated | $17,295 | $30,191 | 9% | 13% | Reconciliation of Adjusted Free Cash Flow For the TTM ending March 31, 2024, adjusted free cash flow was $39.5 million, a positive shift, with adjusted unlevered free cash flow at $102.7 million Adjusted Free Cash Flow (TTM, in thousands) | Metric | TTM Ended Mar 31, 2024 | TTM Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $41,340 | $(3,431) | | Adjusted free cash flow | $39,451 | $(15,759) | | Adjusted unlevered free cash flow | $102,719 | $45,435 | Reconciliation of Guidance to Non-GAAP Measures The company provided Q2 and full-year 2024 guidance reconciliation, projecting a midpoint net loss of $100.5 million to reconcile to $122.5 million adjusted EBITDA for the full year Guidance Reconciliation (Midpoint, in millions) | Metric | Q2 2024 | FY 2024 | | :--- | :--- | :--- | | Net loss | $(35.0) | $(100.5) | | Stock-based compensation expense | $5.0 | $20.0 | | Amortization of acquired intangible assets | $8.0 | $32.5 | | Net interest expense | $16.0 | $70.0 | | Depreciation and amortization expense | $16.0 | $58.0 | | Adjusted EBITDA | $17.0 | $122.5 | Key Operating Metrics This section details key operating metrics, including Full Course Equivalent (FCE) enrollments and average revenue per FCE Full Course Equivalent (FCE) Enrollments Q1 2024 FCE enrollments declined 19% in Degree Programs but increased 13% in Alternative Credentials, while average revenue per FCE decreased in both segments Degree Program Segment FCEs Degree Program FCE enrollments decreased 19% to 44,693 in Q1 2024, with average revenue per FCE slightly declining to $2,496 Degree Program Segment FCE Metrics | Metric | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | FCE enrollments | 44,693 | 55,491 | -19.5% | | Average revenue per FCE | $2,496 | $2,532 | -1.4% | Alternative Credential Segment FCEs Alternative Credential FCE enrollments increased 13.5% to 24,955 in Q1 2024, but average revenue per FCE sharply declined 22% to $3,260 Alternative Credential Segment FCE Metrics | Metric | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | FCE enrollments | 24,955 | 21,990 | +13.5% | | Average revenue per FCE | $3,260 | $4,193 | -22.3% | Supplementary Information This section provides general company information, conference call details, and important forward-looking statements About 2U, Inc. 2U, Inc. operates the global edX online learning platform, partnering with 260 institutions to serve over 86 million learners worldwide - 2U operates the global online learning platform edX, connecting over 86 million people with learning opportunities from 260 partners[15] Conference Call Information The Q1 2024 financial results conference call was scheduled for Thursday, May 2, 2024, at 4:30 p.m. ET - The Q1 2024 earnings conference call was held on May 2, 2024, at 4:30 p.m. ET[14] Forward-Looking Statements This section cautions that forward-looking statements are subject to risks including market trends, competition, regulatory changes, debt management, and strategy execution - The report contains forward-looking statements regarding future business expectations, financial position, and strategy, which are subject to significant risks and uncertainties[16] - Key risks include market trends, competition, regulatory compliance, ability to service substantial indebtedness, and successful execution of growth strategies and performance improvement initiatives[16][18]