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2U, Inc. Reports Third-Quarter 2015 Financial Results

The following excerpt is from the company's SEC filing.

Revenue increased 31 percent year-over-year

LANDOVER, Md., October 26, 2015 /PRNewswire/ 2U, Inc. (NASDAQ: TWOU),

today reported financial and operating results for the quarter ended September 30, 2015. 2U is a leading provider of cloud-based software-as-a-service technology fused with technology-enabled services that enables leading nonprofit colleges and universities to deliver their high-quality degree programs online.

Third-Quarter 2015 Results

Revenue was $37.1 million, an increase of 31 percent from $28.4 million in the third quarter of 2014.

Net loss attributable to hol ders of common stock was $(8.2) million, or $(0.20) per share, compared to $(7.3) million, or $(0.18) per share, in the third quarter of 2014.

Adjusted net loss was $(4.9) million, or $(0.12) per share compared to $(5.1) million, or $(0.13) per pro forma share, in the third quarter of 2014.

Adjusted EBITDA loss was $(2.9) million, compared to a loss of $(3.4) million in the third quarter of 2014.

This quarter, we have once again exceeded our previously stated guidance across all of our financial measures, said Chip Paucek, 2Us chief executive officer and co-founder. After a strong third quarter, we now expect year-over-year revenue growth for full year will be approximately 35 percent. We also expect that the fourth quarter, typically our seasonally strongest earnings period, will be the first adjusted-EBITDA positive quarter in 2Us history.

We have always believed there would be a strong correlation between the outcomes we deliver and our financial success. Our focus on outcomes is our competitive advantage, said Paucek. In the process of driving outcomes, were creating what we believe is a great business, with a sustainable business model. We are pleased to work with some of the best universities in the world to deliver the best possible outcomes for those universities, their students, and 2U.

Recent Program Related Developments

Today, 2U announced two new programs and a contract extension:

2U will launch a new Master of Counseling for Mental Health program with current partner New York University. This program marks the fourth in a multi-program commitment between 2U and NYU.

2U will launch a new Master of Health Informatics program with current partner George Washington University. HealthInformatics@GW will be the third GWU program supported by 2U.

2U has signed a contract extension with Georgetown University for an additional five years, creating a 17-year initial term between 2U and Georgetown.

With these announcements, the number of degree verticals in which we have more than one program is now seven, we have another new, high-potential vertical that we believe has multiple program opportunities, and our clients have extended the initial terms in three of our first five contracts, said Paucek.

OTHER DEVELOPMENTS

2U also today announced two significant milestones:

From inception through September 30, 2015, 2U has hosted more than 200,000 live classes for its clients programs. Students who participated in these live classes come from all 50 U.S. states and the District of Columbia as well as from more than 60 countries.

In October 2015, 2Us programs passed $1 billion in inception-to-date, attrition-adjusted bookings created for university clients. Attrition-adjusted bookings are the estimated tuition and fees that 2U expects students will produce for its university clients by the time they graduate or leave their programs.

Live classes are an important differentiator of 2U programs, said Paucek. They are a key driver of successful student outcomes and a critical part of the quality education we enable our universities to deliver.

We believe that student success leads to university success. University success leads to our success.

This belief is now becoming reality.

At a time when higher education is under pressure, we have created an estimated $1 billion in attrition-adjusted tuition bookings for our clients.

Financial Outlook

Based on information available as of today, 2U is issuing the following guidance for fourth quarter and full year of 2015 and providing an initial look at 2016.

(in millions, except per share amounts)

4Q 2015

FY 2015

$41.7-$42.1

$148.6 -$149.0

Adjusted Net Loss

$(1.6)-$(1.3)

$(15.7)-$(15.4)

Adjusted Net Loss per Share of Common Stock

$(0.04)-$(0.03)

$(0.37)-$(0.36)

Weighted-Average Shares of Common Stock

Adjusted EBITDA (Loss)

$0.7-$1.0

$(7.8)-$(7.5)

Stock-Based Compensation Expense

$3.4-$3.6

$12.6-$12.9

2U had expected to enter into a transaction in the third quarter to allow it to vacate certain facilities as it seeks appropriate space to support its growth. The Company had planned to recognize a non-cash charge of approximately $1.5 million related to this transaction during the third quarter, and had built this charge into its third-quarter guidance. However, as the

transaction was not completed within the expected time frame, no charge was recognized. 2U now expects to recognize this non-cash charge in the fourth quarter, and the charge is incorporated into fourth-quarter guidance.

Note that cost seasonality in the fourth quarter typically improves margins in that quarter; fourth-quarter margins therefore should not be viewed as a run rate for the first quarter of the following year.

While its 2016 budget...


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