In a recent financial disclosure, 2U, a leading online education platform company, revealed its third-quarter (Q3) results for the period ending September 30, 2023, sending shockwaves through the financial markets as its stock experienced a significant decline.
At the time of this publication, 2U Inc stock (TWOU) has witnessed a decline.
2U Inc
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2U Q3 2023 Financial Results:
Revenue for the quarter totaled $229.7 million, marking a 1% decrease from the third quarter of 2022, where revenue stood at $232.2 million. Within this, the Degree Program Segment exhibited stagnant growth, with $25.8 million attributed to portfolio management activities related to the negotiated exit of specific degree programs. However, these activities, which generally lead to revenue recognition over 12 to 24 months, impacted FCE enrollments, resulting in a 21% decrease. The average revenue per full course equivalent (“FCE”) enrollment saw a 26% increase, primarily driven by the acceleration of fees from portfolio management activities. Meanwhile, the Alternative Credential Segment experienced a $2.9 million decrease, primarily due to lower enrollments in coding boot camp offerings, partially offset by an 18% growth in FCE enrollments in executive education offerings.
Costs and Expenses:
In a notable contrast, costs and expenses for the quarter saw a substantial 24% decrease, totaling $256.6 million compared to $336.5 million in the third quarter of 2022. The prior year’s costs included $79.5 million of non-cash impairment charges in the Alternative Credential Segment, which were absent this quarter. The reduction was mainly driven by a $9.0 million decrease in personnel-related expenses, albeit offset by a $3.7 million increase in paid marketing costs and a $2.5 million increase in restructuring charges.
Financial Position:
As of September 30, 2023, 2U reported a decline in cash, cash equivalents, and restricted cash, totaling $53.9 million, down $128.7 million from $182.6 million as of December 31, 2022. This reduction was attributed to a $187.0 million term loan repayment and the January 2023 refinancing. Cash flows indicated $17.5 million used in operations, $36.6 million in investing activities, and $73.5 million in financing activities. Adjusted unlevered free cash flow for the twelve months ending September 30, 2023, was $31.9 million compared to $11.7 million for the twelve months ending June 30, 2023.
Business Outlook:
The company revised its guidance, forecasting revenue to range from $965 million to $990 million, reflecting a 1.5% growth at the midpoint. Net loss is expected to range from $250 million to $240 million, with adjusted EBITDA projected to range from $165 million to $175 million, representing a 36% growth at the midpoint.
Based on executed and anticipated portfolio management activities in the fourth quarter of 2023, 2U expects cash from portfolio management to be approximately $145 million over the next 12 to 24 months. The company believes this influx of cash will enable flexibility in launching new programs, investing in growth areas, and strengthening the overall balance sheet. Furthermore, a 12% reduction in headcount during the third quarter is anticipated to yield an annualized cost savings of $55 million.
In response to impending maturities and to fortify its balance sheet, 2U is actively engaged in discussions with noteholders to refinance its convertible notes. The company aims to secure a successful transaction in the near term, demonstrating its commitment to financial stability and resilience in the face of market challenges.
