2U Previews Q1 Revenue Growth of 43.6%

April 24, 2020 | Volume 51, Number 9

Online program management and short-course provider 2U (Lanham, MD) in April said it expects to report total revenue in the first quarter increased 43.6% to $175.5 million. Earlier this year when presenting 2019 financial results, the company said first-quarter revenue was expected to be between $170 million and $180 million, up 39% to 47%.

Broken down, the preliminary estimates are for Graduate Program segment revenue to grow 14% to $118.5 million, driven by a 16% increase in full-course equivalent enrollment, partially offset by a 2% decrease in average revenue per full-course equivalent enrollment.

Alternative Credential segment revenue is expected to increase 216% to $57 million, driven by full-course equivalent enrollment of 3,529 and $35.4 million in revenue from Trilogy, acquired I May 2019.

The adjusted EBITDA loss is expected to increase to -$4.3 million from -$3.2 million in the same quarter last year.

"Our first quarter results demonstrate the strength that we started the year with and the resilience of our business, even in light of the COVID-19 pandemic," said 2U founder and CEO Christopher Paucek.

2U-powered educational offerings remained up and running and continue to enroll new students. Despite uncertainties from the COVID-9 pandemic, Paucek said the global demand for online post-secondary career-curriculum education offerings is accelerating and 2U should benefit from that.

The company expects to report cash, cash equivalents and restricted cash of $157.5 million as of March 31, and total indebtedness of $254.1 million, principally related to the company's term loan facility maturing in May 2024.

2U will report first-quarter results on April 30.

2U also said it intends to offer and sell $330 million aggregate principal amount of 2.25% convertible senior notes due 2025 in a private offering to qualified institutional buyers. 2U bumped up the size of the original offering ($300 million) granted the initial purchasers of the notes a 13-day option to purchase up to an additional $50 million (up from $45 million) aggregate principal amount of notes. The sale of the notes to the initial purchasers is expected to settle on April 23, 2020.

The notes will bear interest at a rate of 2.25% per year, payable semi-annually in arrears on May 1 and November 1 of each year, beginning Nov. 1, 2020. The notes will mature on May 1, 2025.

Response to COVID-19

Immediate steps the company has taken include:

  • Shifted all bootcamp offerings and other campus-based experiences from physical classrooms to online.
  • Modified course production capability into a "Studio in a Box" approach, which allows faculty to record asynchronous content directly in their home or office with virtual assistance from a 2U course designer. This allowed all current launches to remain on schedule across the business.
  • Through No Back Row PRO, provided training to its university partners' campus-based faculty on best practices for successful online teaching.
  • Offered new solutions for existing and new clients, including 2UOS Essential and Plus.
  • Begun developing new solutions to enable continuity and success for existing and new university partners' on-campus and online efforts this fall.

Like other companies operating in the education space, 2U management withdrew its previous guidance for the year .The company had projected full-year revenue between $725 million and $750 million, up 26% to 30%.

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