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2U Inc (NASDAQ:TWOU)
Q2 2020 Earnings Call
Jul 30, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the 2U Inc. Second Quarter 2020 Earnings Call. [Operator Instructions].

I would now like to hand the conference over to your speaker today Ed Goodwin, SVP, Investor Relations. Thank you. Please go ahead.

Ed Goodwin -- Senior Vice President of Investor Relations

Thank you, operator. Good afternoon everyone and welcome to 2U's second quarter 2020 earnings conference call. On the call, we have Chip Paucek, our CEO; and Paul Lalljie, our CFO. Following Chip and Paul's prepared remarks, we will take questions.

This call is being simultaneously webcast on our website, where you can find our press release, which was issued after the close of the market, as well as our earnings presentation. The webcast replay of this call will be available for the next 90 days on our company website under the Investor Relations link. Statements made on this call include forward-looking statements regarding our financial and operating results, the continued impact of the COVID-19 pandemic, new educational offerings, student and university demand and other matters. These statements are subject to risks, uncertainties and assumptions. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update. Please refer to the earnings press release and the risk factors described in the documents we filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2019 and our most recent quarterly report on Form 10-Q for information on risks, uncertainties and assumptions that may cause actual results to differ materially from those set forth in such statements.

In addition, during today's call, we will discuss non-GAAP financial measures which we believe are useful for supplemental measures of 2U's performance. These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the Investor Relations page of our website.

With that, let me hand it over to Chip.

Christopher Paucek -- Co-Founder and Chief Executive Officer

Thanks, Ed. As we pass the halfway mark of the year, it's now clear that 2020 will be in both our personal and professional lives, unlike any other we've ever experienced. Whether it's the effects of COVID or the impact of the Black Lives Matter movement, we're confronting profound changes, challenges and opportunities as a society. For 2U, these new norms have only served to reinforce the importance of our mission, the value of our business model and our company's capacity to help universities meet society's most critical needs. I'll come back to these important issues and speak directly to the impact of the Black Lives Matter movement on 2U. But since this is an earnings call, I'll start by highlighting our results.

We're very pleased about our progression over the past year. We entered 2020 with a goal of maintaining strong revenue growth and delivering margin improvement throughout the year while driving toward positive free cash flow. We delivered on those priorities thus far and feel great about the remainder of 2020. We posted another quarter of accelerating organic growth with strong bottom line and improved unlevered free cash flow, and we did so in an uncertain environment, demonstrating the strength and resiliency of our business model.

Revenue grew 35% year-over-year to $182.7 million. Organic growth accelerated three points to 18%, driven by an increase in short course enrollments, as people began to reskill and upskill in this environment. On the bottom line, we came in well above our plan for adjusted EBITDA, with a loss of $2.1 million for the quarter. Year-over-year, this is a $12.9 million improvement and importantly, we delivered our third straight quarter of improved unlevered free cash flow. Similar to last quarter, the bottom line outperformance was driven by increased efficiencies in the business, as well as lower costs due to COVID-19. Paul will go into this in more detail in a moment.

Turning back to the business environment and the impact of COVID. It's now unmistakably clear that a structural change is happening in higher education. As the survey we released earlier this week demonstrated, on the prospective student side, we're seeing a demonstrable share shift toward online and away from campus space programs. From the university partner side of the equation, we're seeing a rapid acceleration in our partners' mindset in regards to broader digital transformation across their institutions, which we believe will play out favorably over time for 2U and we're also beginning to see the countercyclical impact of the worsening economy, resulting in more people deciding to further their education. All of these factors have positively affected student demand and university pipeline across our portfolio.

Let's begin with student demand. In late spring, we started to see enrollment pick up in our degree business. We hypothesized that this might be the result of a share shift from prospects choosing online over campus-based programs, but we wanted to dig deeper. So across our portfolio of degree offerings, we surveyed prospects in our funnel. We asked them how COVID-19 is impacting their decision-making and choices between online and campus-based offerings. The last data set from the survey came out of the field less than 10 days ago, and the findings were clear and powerful. More than 50% of prospects, regardless of discipline, said that COVID made them much more likely to choose an online degree over a campus program. Now think about that. More than half of prospects are much more likely to consider online. Now that number went all the way up to 73% when you include respondents who also said it made them more likely to choose online. This was consistent across both graduate and undergraduate prospects.

Another number that struck us. 20% of those surveyed said that absent COVID, they would have not considered an online program. So these are altogether new converts to exploring online. Over the past three months, we've seen unprecedented demand across our entire portfolio of offerings. Across the business, we've seen historic highs with lead generation, submitted applications and enrollments. These are early leading indicators that we rely on to project future growth and we view as solid predictors of future growth. We believe these positive trends are not only about modality but also about the proven quality of our partners' programs. Some of our oldest, most well-established programs are expecting record cohorts for the fall semester. High quality and student outcomes matter.

We also like the leading indicators we're seeing in our first underground offering. Classes start in August, and we expect a stronger start than we initially projected. a few fun facts about the current applicant pool. Applicants range in age from 17 to 59 years old and hailed from 110 countries. This shows the power and global reach of high-quality online education and our world-class portfolio. Expect to hear a lot more about undergrad from us in the near future.

Now let's turn to our partners. University demand is also markedly up. Universities need to embrace hybrid online education for the fall and, more importantly, further into the future, if they want to thrive. There's a big difference between the emergency remote instruction and intentional high-quality online education. During the spring semester, on-campus students experienced what it was like if you rely on 90 minutes of nonstop videoconference lecturing as a substitute for the full classroom experience. It wasn't great. But if done right, online higher education can be as good, if not better, than campus education. To create quality online programs, you need to flip the classroom. Intentional curation of content, better learning design, dynamic live classes, more diverse students, brand affiliation and quality technical design, all improve learning and increase the value of the experience. Our long history of delivering purpose-built online offerings across so many different partners and disciplines positions 2U incredibly well.

Investing in high-quality online education has become mission-critical for universities, and our expertise and capabilities are increasingly indispensable to our partners. We're seeing new partnerships, like our recent deal with Emerson College. When one of the world's best small liberal arts colleges decides to embrace online, that's a clear sign of seismic change and smart leadership. We expect more deployments like Emerson as institutions confront growing uncertainty over the upcoming school year.

Although we're innovating to meet the needs of the marketplace, we also continue to see increasing demand for our traditional revenue share model from both new and existing partners. The profound financial impacts of the pandemic have only made the value of our upfront investment and bundle of services more clear. Our shared success model is alive and well. At the same time, we're being careful and thoughtful in our choices. We're actively working to deploy upfront cash more efficiently and shorten the time to cash flow positive of each degree. We do anticipate an increase in deployments as we move through 2021 and 2022.

Our newly expanded Simmons University partnership is worth calling out specifically. The overall Simmons relationship is material for 2U. In addition to our existing graduate offerings, we'll now support the entire undergraduate institution, both on-campus and online, a notable first for 2U. This expanded relationship begins when fall 2020 classes resume fully online due to COVID and includes our digital build-out of over 300 existing undergraduate courses using Studio in a Box. Going forward, we'll support Simmons campus based programs and receive a revenue share there as well and beginning in '21, Simmons will begin offering a portfolio of fully online degrees across in-demand disciplines they currently offer on-campus, which will be priced below the campus offerings, a powerful example of how our scale and our shared success revenue model can help bend the cost curve of higher education.

With Simmons University announcing that will be completely online this fall, 2U is committed to support a 2020 technology access fund. The onetime fund will help ensure that tech access is not a barrier for the incoming freshman class, which includes one of the largest percentages of Pell-eligible and first generation college students in the school's history. These young women thought they'd be attending a physical campus in September, but now their experience will be online. These resources will be used for the technology they need, including laptops and Internet access to ensure they can participate fully in the high-quality online experience Simmons will offer this fall.

So what does this all mean for the remainder of 2020? In the grad segment, we expect an acceleration in enrollment growth across the portfolio in the back half of the year. It's worth a reminder that changes in the grad segment take time to show up in our results because of the roughly three year student life cycle from prospects to graduate. So this growth would have a bigger financial impact on 2021 and beyond.

Turning to Alternative Credentials; Universities that can meet the critical needs of society with accessible, affordable and relevant offerings will thrive. We are uniquely positioned here. Our short courses are seeing record enrollments. Our boot camps are now really picking up steam after making the transition to being offered 100% online, and we expect this trend to continue. In the wake of this move to online, we're thrilled to see continued improvements in student engagement and satisfaction levels. We're also excited about our recently announced $3 million scholarship fund focused on opening opportunities for black, Latin x and indigenous learners as well as women who have all been disproportionately impacted by COVID and traditionally underrepresented in tech. You can expect to see more from us here over time. Making high-quality education more accessible and affordable for historically marginalized communities is one of the ways we believe our business can meet society's critical needs.

2020 has been a stark reminder to all of us of the unpredictability of life and business. We're truly fortunate that 2U in our business are so well positioned to meet this moment for our employees, our partners, their students and society at large. In the face of this unprecedented share shift, we will remain selective in pursuing new opportunities while we continue to deliver high-quality outcomes, optimize capital allocation, drive toward positive free cash flow and maintain strong revenue growth. We believe this strategy will further strengthen our business and reinforce our position as the industry leader. We like what we see ahead. I'll now hand it over to Paul to talk about our financials and the segments in more detail.

Paul S. Lalljie -- Chief Financial Officer

Thanks Chip, and good afternoon, everyone. Our second quarter results demonstrate the momentum we are experiencing as we continue to execute against our objective, that is delivering strong top line growth while improving our profitability and cash flow with increasing financial flexibility. I'll go over our results for the quarter, discuss steps we've taken to improve our financial flexibility and provide some color on how we're thinking about the rest of the year.

Now for a closer look at results for the quarter. Revenue for the quarter totaled $182.7 million, a 35% increase from $135.5 million in the second quarter of last year. We acquired Trilogy on May 22, 2019, giving us a year-over-year comparison of results with partial financials for the boot camp business. Our organic revenue grew 18% year-over-year, excluding $36.6 million of Trilogy revenue this quarter and $11.9 million from the year ago quarter, representing a three point acceleration of organic revenue growth and continuing the trend from last quarter.

Grad segment revenue grew 14% over the second quarter of last year. This increase was driven by an 18% increase in full course equivalents and partially offset by a 3% decline in revenue per FCE. We expect revenue per FCE to continue to decline going forward as enrollment in our newer programs, LSC and Simmons, becomes a larger percentage of the total. Revenue in the Alternative Credential segment totaled $6 million to $7 million, up 97% from last year. FCEs increased 61% year-over-year, while revenue per FCE increased 11%, primarily driven by strong growth in FCEs and only having a partial quarter of results from Trilogy last year.

Short course revenue increased 37% on a year-over-year basis, a 17 point acceleration from last quarter's growth. There are two primary drivers here: first, increased demand across our existing portfolio of courses; and second, we launched 31 new courses this year, and they're off to a very strong start. Boot camp delivered $36.6 million in revenue for the quarter. On our last conference call, we mentioned that we were beginning to experience a dip in conversion rates as shelter-in-place orders first took effect. In response, we moved what had been an on ground product to a fully online offering. To put this into perspective, at the beginning of this year, we expected 88% of our revenue to come from our on-ground offering. Today, not only do we expect all of our revenue to come from online, but we are seeing student satisfaction and conversion rates trending higher.

Let's take a look at cost and expenses. Total operating expense for the quarter totaled $231.7 million, including $33.8 million of incremental Trilogy operating expense. On an organic basis, operating expense grew 11% against revenue growth of 18%. Curriculum and teaching expense grew 97% over last year. This cost category varies with Alternative Credential revenue, which was also up 97% in the quarter. Marketing and sales expense grew 10% on a year-over-year basis against consolidated revenue growth of 35%. While there are a number of puts and takes, overall, this demonstrates the scaling of our marketing infrastructure and more efficient direct marketing spend. In recent quarters, we've had a renewed focus on managing costs through operational efficiencies. We are starting to see the benefits of those initiatives.

It is also important to note that the pandemic has resulted in lower operating costs, including travel and travel-related costs. Regardless of how long the pandemic lasts or what the new normal looks like, we have a highly variable cost profile and remain focused on driving profitable growth, which should be reflected in our margins over time.

Net loss totaled $66.2 million compared to $28 million from last year. This is due in part to a $19.3 million tax benefit recorded in the second quarter of last year. Also, the increase in net loss included $11.7 million loss on debt extinguishment resulting from the repayment of our term loan. Adjusted EBITDA loss for the quarter was $2.1 million, an improvement of $12.9 million from last year and a $2.2 million improvement from the first quarter. This improvement is a validation of the objectives we set out at the beginning of the year. It reflects greater operational efficiency and puts us on track to achieve positive EBITDA margin next quarter and going forward.

Now for a discussion of the balance sheet. We ended the quarter with a cash balance of $213 million, up $55.5 million from the first quarter. This increase was primarily driven by the net impact of our convertible notes offering and $3.2 million from cash provided by operations, partially offset by capex of $18.5 million. Unlevered free cash flow usage for the trailing 12 months was $44.2 million, a $14.3 million improvement from the March quarter. This free cash flow performance was primarily driven by a $12.9 million improvement in adjusted EBITDA, which we've already discussed, and a $5.3 million decrease in capital expenditures. We also remain focused on prudently managing net working capital, which improved $1 million from the March quarter.

We benefited from a $7.2 million increase in deferred revenue, driven by growth in our Alternative Credential segment, where payments tend to come in at the beginning of a course or boot camp. In addition, we benefited from a $4.4 million increase in accrued expenses. Accounts payable increased $3.8 million, while prepaid expenses increased $3.5 million this quarter. Accounts receivable totaled $71.6 million, down $3.8 million from last quarter, reflecting an emphasis on collection. As is the case every year, we expect a seasonal increase in our accounts receivable balance next quarter due to the timing of the academic calendar.

To further improve our financial flexibility, we've also put in place a $50 million revolver -- revolving credit facility. This facility has a maturity date of December 2023 and an interest rate of LIBOR plus 375 basis points and covenants that we do not expect to constrain the execution of our business plan.

Now for some color on how we're thinking about the back half of the year. As you've heard from Chip and my earlier remarks, we have seen significant improvement in our leading indicators. We saw the impact in our results this quarter, and importantly, we expect this to continue for the rest of the year and into next year. More pointedly, we expect organic revenue growth to increase in the second half of this year and in addition, we expect to deliver positive EBITDA in the third and fourth quarters, resulting in positive EBITDA for the full year.

In conclusion, our strong results this quarter and the momentum that we are experiencing, demonstrate that we have the right solutions for the future of online education, a future that is only accelerating in the current environment. This fundamental change in higher education is driving increased demand from partners and students, resulting in strong organic revenue growth. As this change plays out, we will continue to sharpen our execution and drive toward profitability and improved cash flows. I look forward to updating you further next quarter.

And with that, I'd like to hand the call back to Chip.

Christopher Paucek -- Co-Founder and Chief Executive Officer

Thanks, Paul. 2U is doing important work by helping higher education meet the critical needs of society. I want to close by addressing one of the most pressing issues for our society: Systemic racism. Georgia Floyd turned into a seminal moment for 2U. Over the years, we strive to intend to build a diverse company leadership team and Board. The protests happening in America and the Black Lives Matter movement reverberated in important ways at 2U. As the impact of the moment on foothold inside the company, our leadership team, and I personally, became increasingly aware of how much more we can and must do. It's been an intense journey, but I'm quite bullish about what we can improve on internally and how we can positively impact the world through our product.

Our announcement this morning of the launch of Northwestern's leading diversity, equity and inclusion short course, taught by Professor Alvin Tillery, is a clear and compelling example of this in practice. At a time when every organization is grappling with how to develop more inclusive leaders and foster greater diversity in equity, Professor Tillery's course demonstrates the power of education and our business to help drive much needed progress on this critically important societal issue. For our employees and partners that are listening right now, I want you to know that building a truly diverse, equitable and inclusive 2U will become part of our legacy as a company and my personal legacy as Co-founder and CEO.

And with that, we'll open it up to Q&A.

Questions and Answers:

Operator

[Operator Instructions]. And your first question from the line of Brent Thill from Jefferies. Your line is now open.

Brent Thill -- Jefferies -- Analyst

Good afternoon. Curious if you could give us more detail on what drove the outperformance, particularly in the Short Course growth, and also on EBITDA.

Christopher Paucek -- Co-Founder and Chief Executive Officer

Well, I guess I would say up front, the Short Courses, we're definitely seeing record enrollment. Clearly, people are reskilling in this environment, we're also seeing tremendous momentum in the degree side. But I think, as you know, on the degree side, it takes time to show up as revenue. There's a very long cycle on the degree. But what we're seeing in the business, we've honestly never seen before on the degree side. Many of our older programs are at historical highs at this point in their life cycle of that various cohort.

On the Short Course side, 30 great new courses that are doing really well and I would say what we're most pleased about is not just the growth but the portfolio has become extraordinarily more balanced over the last three years since we entered the space through our acquisition of GetSmarter. So we've had pretty rapid expansion with many different global brands, including the London School of Economics and Oxford, and the types of courses -- three years ago, the courses were more generally sort of disruptive tech courses and what we're seeing today is we're broadening the portfolio, widening the aperture of the model quite significantly with many different types of functional and leadership courses, like you've seen today from Northwestern, with the diversity course. On the EBITDA side, we are certainly getting more efficient. This has been a big part of our focus over the past year and maybe I can pass that over to Paul to address.

Paul S. Lalljie -- Chief Financial Officer

Yes. Thanks, Chip. A couple of things to start off within the EBITDA side. In the third quarter of 2019, one of the things that we stated up front is that we were embarking on this -- several sets of cost savings initiatives. I think what we're seeing now is the efficiency and some of those initiatives coming to fruition. Our student success teams, our technology organization, we are truly seeing the scalability in those organizations, and we will continue to see that as we go forward, and those initiatives pay a dividend.

Now I will also see that the lack of travel, the COVID environment, we have savings of perhaps about $4 million, $5 million around there in the quarter, and maybe 50% of that pertains to travel, 50% for travel-related type expenses. But the rest of it is coming from the cost savings initiative. We are on a mission. The mission is to be EBITDA positive and cash flow positive. We set that out very explicitly at the end of 2019, and we're continuing to march forward on that path. Our Chief Operating Officer, Mark Turnes, is very focused on that and our teams are focused on it, and they've done an incredible job marching in that direction. So that's the contributor on the EBITDA side of the equation.

Brent Thill -- Jefferies -- Analyst

Great. Thank you.

Operator

Your next question from the line of Tom Singlehurst from Citi. Your line is now open.

Thomas Singlehurst -- Citigroup -- Analyst

Hey Chip, they Paul. Thank you for taking the question. It's Tom here from Citi in London. A couple of questions. The first one, I sort of go back on the sort of big student enrollment and it is a countercyclical debate. I mean clearly, you've seen a very big uptick in the short courses, and you attribute that in part to the sort of reskilling and upskilling. Obviously, it's a longer sales cycle for graduate programs. But is it -- is there any risk of cannibalization?

Christopher Paucek -- Co-Founder and Chief Executive Officer

We're -- so we really feel that it's interesting about 2U is we started the company in 2008 and saw an increasing economy bit by bit for 12 years until we got to this moment and arguing the 2U, as you know, covering education, it's generally countercyclical. But the question was, are we specifically and we really -- it was a very difficult trend to see that there was a gradual headwind appearing over a very long time period, and it is clear, as plain as day, we are countercyclical, across the entire business. So we have seen it across all three products and I think what's exciting is we are now a sizable, scalable platform across a whole bunch of different relevant offerings that will allow us to meet the increased demand. So we really like what this means for the next couple of years.

Thomas Singlehurst -- Citigroup -- Analyst

Okay. That's very clear. The second thing is when we last caught up three months ago, at that point, it felt like a lot of the work day-to-day was done sort of helping existing partners. But obviously, since then, you've been very much in the front foot, added a number of new platforms, added a number of new partners and critically helping with some of the sort of blended on learning sort of on-campus stuff. I suppose I'm just interested in the competitive landscape for that. I mean, are you the only player there that's sort of sitting in part with repurposing on-campus learning? Or what's the key differentiator for 2U, the platform there?

Christopher Paucek -- Co-Founder and Chief Executive Officer

I mean, I think our 2UOS is comprehensive and offers, I think, the most comprehensive platform for a great university to do this really well and the value proposition we offer is now even more compelling, whether that be in something like bringing somebody online for fall, like we did with Amherst, or doing the historical model of the shared success where we invest and receive revenue over a really long contract. They're both in demand. Without question, there has been an acceleration of demand on the side of our revenue share opportunities, and we're excited about what that means and there's also been an acceleration in demand for undergrad and so we'll have more to say about that over time.

Thomas Singlehurst -- Citigroup -- Analyst

And for Paul, is there a conflict here between the number of additional partnerships you can add and the progress toward EBITDA and free cash flow breakeven?

Paul S. Lalljie -- Chief Financial Officer

Tom, a couple of things. I think last quarter, I had a similar question and my response was it's not about saying yes. It's how we say yes. I think we can find a way to balance the two objectives, and that is what we're seeing, right? We're seeing that our platform is scalable. We do have efficiency in the business. It is not an expense base where every partner that you add, you have to add incremental expenses in the same fashion and there are various ways and different models of doing this. So I think you will find that our Simmons example or our Amherst example, they're all very, very different in the way we said yes, and I think that will continue to help us to get there.

I think more fundamentally, I think we outlined a framework around which we're going to make investment decisions as we go forward and I think that framework will inform us in all times. It will inform us in times when there are tremendous opportunities. It will inform us in times when there are scarcity of opportunities. It's that framework that becomes our North Star and I think we can balance the two as we move forward, particularly because we have a strong relationship with each of our partners. We are well respected in the space, and the things that we provide is of a very, very high quality. We balance that with our framework. I think we can do both together. But it does require some balancing, which is, I guess, the inherent portion of your question. It does require us to balance that as we go forward, and we will continue to do that.

Thomas Singlehurst -- Citigroup -- Analyst

That was very clear. Well thank you very much.

Operator

Thank you. For your next question, from the line of Ryan MacDonald from Needham. Your line is now open.

Ryan MacDonald -- Needham -- Analyst

I guess first, just thinking about the sustainability of the demand that you're seeing. Obviously, there's some benefit from COVID here. But if we sort of start to see things reverse and potentially get a vaccine back half of the year, how sustainable do you think that the trend that you're currently seeing for the back half are?

Christopher Paucek -- Co-Founder and Chief Executive Officer

Ryan, we think the share shift is real. When you survey the students and you talk about this, we do think that there's a sustainability of this demand and what's happening is you're getting the opportunity to have people even consider it and I will tell you from experience, like I took one of our programs, and they're incredible. They're really good, and you don't have to take my word on it. The Gallup survey we did showed that, across the board, almost every single metric showed that you could be better than the campus. So I think quality online will win. I think what's happening here is the adoption curve has just been pulled forward. So you see it in our share shift survey. You can also see it in what Strata put out today. I'm not sure if you've seen that, but it's worth a look.

I think what's happening is we do think there's a little bit of a rush to quality going on here. It's been really wonderful to see programs that we've run that have this incredible track record of delivering really get recognized and so -- and it's across the portfolio right now. So we're seeing some things that we've not seen before. So we're trying to be thoughtful in how we think about when we're ready to call it. But I have to tell you, it's impressive.

Ryan MacDonald -- Needham -- Analyst

Interesting and as a follow-up to that, the recent CLO five survey data results really showed willingness from universities that we're already working with a partner to increase their reliance. So I guess, as we're preparing for a fall when there's an up in the air question of how much on-campus learning there will be, is there anything you're doing with your existing grad partners to help move their on-campus version of their programs online with 2U during this interim period?

Christopher Paucek -- Co-Founder and Chief Executive Officer

Yes. So we're much more active with our current partners in terms of helping them in a whole variety of ways and I do think -- we talked about Simmons in the call, and it's sort of worth really highlighting just how bold what Simmons is doing in an extraordinarily short period of time to really transform fully the institution. But if you take 2UOS Plus, we've got a whole bunch of partners that are now sort of embracing the online format for their campus-based program and that's been a big part of what we've been working on as a team. We're being careful in our choices, but it's -- we feel very fortunate that we have a lot of opportunities. So how we balance that is key to our progression as a company, but it's pretty remarkable what's happening right now. So we're doing everything we can to support the partner base and I think we're getting really, really good response from the universities because of it.

Ryan MacDonald -- Needham -- Analyst

And clarification for Paul. Paul, you mentioned in the back half you're expecting organic revenue growth to increase. Is that a sequential like or an acceleration from the first half or a year-over-year growth?

Paul S. Lalljie -- Chief Financial Officer

It is an increase in the year-over-year growth to the 18% that we saw in the second quarter. We can expect that number to be a higher number in the back half of the year and it is also a sequential increase if one were to look at it back half of the year versus front half of the year. So it's both.

Ryan MacDonald -- Needham -- Analyst

Thank you.

Operator

Thank you. For your next question from the line of Stephen Sheldon from William Blair. Your line is now open.

Stephen Sheldon -- William Blair -- Analyst

Hi thanks. I guess first, I wanted to get updated thoughts on the concept of stackable credentials and degrees. Are you seeing any early indications that the academic community could accelerate the adoption of these offerings, especially as universities need to look for new revenue sources and need ways to differentiate and drive demand with students in a potentially lower overall enrollment environment over the next few years? I guess, just what are you seeing there?

Christopher Paucek -- Co-Founder and Chief Executive Officer

Well, we've definitely seen a really significant increase on the short course side and do think that the Alternative Credentials are here to stay, and it does certainly validate our move into both short courses and boot camps. Having the full product set is, we think, really compelling for the schools and we've definitely seen an interest in our university partners to continue to expand new revenue opportunities. I think when COVID first broke, some people were positing that this would cause companies like us to have a harder time because universities were going to do it all themselves and I think that, that showed a sort of fundamental lack of understanding that universities are really large, doing many different things, and it's impossible for them to do everything themselves and the reality is demand has picked up pretty significantly since -- once we got through the initial period of everybody worrying about just as a human being, worrying about what was going on with the pandemic, I do think that there's no question that we're going to continue to see more. This is a very significant financial issue for university partners also.

So stackable or not, the credentials themselves are certainly in demand as evidenced by the record numbers that we're seeing. Now we do have a whole variety of things happening across the portfolio that are quite interesting that you'll see over time as we announced. That -- the question, but I would tell you that we love the leadership position we now have in this segment. We think it's really critical to our long-term success.

Stephen Sheldon -- William Blair -- Analyst

Got it. That's helpful and then on the student, the record student demand trends you're seeing, is there any way to quantify or frame how much of an increase you've been seeing overall in some of those metrics? You talked about like lead generation applications, enrollments as we think about the fall.

Christopher Paucek -- Co-Founder and Chief Executive Officer

I guess, I would say, we tried to give some characterization of what we think the second half looks like. Paul, do you want to jump in here?

Paul S. Lalljie -- Chief Financial Officer

Yes. Yes. Stephen, look, we are seeing demand primarily driven by the marketing efficiency that we're seeing in direct marketing spend. But at the end of the day, the demand that we're seeing is across the board and demand, as you know, in the grad business, it takes a while before -- the gestation period is eight -- seven, eight, 10, sometimes 12 months, to get to the point of an enrollment. So I mean, one of the things that we're trying to do is to be measured, right? We're not going to call it before we see something goes through the various stages of the funnel, if you will and at the same time, on the short course side of the business, I think we've been very pointed in what's happening in the short course side of the business. We had tremendous success in the second quarter from the Short Course business.

We expect that to continue in the back half of the year. When we think of that business and we think of -- it tends to have the lull of the summer months and a little bit into the fourth quarter, with the pandemic, we're not seeing that, right? Instead of Europe being in vacation, we're seeing folks that are more active when it comes to participating in online education. So I think the Alternative Credential business, which is short and we have more visibility into it, we are seeing better efficiency and better conversion of our marketing dollars in that space. And it's kind of early for us to call with specificity things in the grad business. Being measured and being prudent is probably best for everyone as we move forward here, particularly in an environment that we're in here today.

Stephen Sheldon -- William Blair -- Analyst

Makes sense. Thank you and congrats on the results.

Paul S. Lalljie -- Chief Financial Officer

Thank you.

Operator

Thank you. For your next question from the line of Jeff Meuler from Baird. Your line is now open.

Jeffrey Meuler -- Robert W. Baird -- Analyst

Yes. Thank you. Good afternoon. I think there was a comment about a shorter time to cash flow positive in each degree that you'll be launching. So I guess, curious as to how you're planning to do that. Like what are you changing in the offering? Or what are you doing more efficiently? And then this might be too early, but to the extent to which you would be willing to put any numbers or time lines around that, would be interested.

Christopher Paucek -- Co-Founder and Chief Executive Officer

I think it's too early, Jeff. We're -- and a bit too detailed. I would say what's important, as you know, that it's a concerted effort on behalf of the company to drive the most successful high-quality programs we can and do them in the most capital-efficient manner and I think you're seeing that in the results. If you look at the cash flows over the last three quarters, I think that's a particularly impressive slide in the earnings deck and something that we definitively are intentionally working on and if you think about the journey we had last year as a public company to today, I do believe we're making good on all of the promises that we pretty strongly put out there about what the company was going to be able to achieve. So how we do it, the playbook on how we're doing it, I think we certainly don't need to advertise to everybody.

Jeffrey Meuler -- Robert W. Baird -- Analyst

Okay. And then there was kind of a comment in the prepared remarks about universities doing a thing in a thoughtful and high-quality way is maybe different from the scrambled solutions that some, I think, could be implementing or have implemented in the past. So as you kind of approach this environment where universities may need more contingency-based solutions, can you just go into where you want to play there and/or maybe where you don't want to play there?

Christopher Paucek -- Co-Founder and Chief Executive Officer

I think we want to play where we're meeting a significant need with a partner that would have interest in more of our offerings. Being in those conversations is important. We like the deployments from the standpoint of assisting the great schools. I mean, today, there was a wonderful story in Forbes about our Amherst deployment that was super positive and talks about how we're actually helping the course build, what we're actually doing in more detail in the course build. So I was very pleased to see it and it's fair to say that we are still laser-focused on driving the business that has a revenue share associated with it and offering that to an increasing set of partners. We've had more demand for that from both existing and new partners and -- but obviously, we have to do that in a way that's balanced with regard to our desire 12 years in to get the company to cash flow positive and forward. Fortunately, we create really strong margin as we go long term. So we -- I feel like we're really set for a reasonably good run over the next two, three years.

Jeffrey Meuler -- Robert W. Baird -- Analyst

Sure seems that way. Thank you.

Operator

Thank you. For your next question from the line of Brad Zelnick from Credit Suisse. Your line is now open.

Brad Zelnick -- Credit Suisse -- Analyst

Fantastic. Thank you so much. Chip, I appreciate and support the decision to focus on cost discipline and profitability. But given what's going on in the world and the increasing need for distanced education, how are you prioritizing all the investments internally? And what would cause you to lean in and invest further into the opportunity?

Christopher Paucek -- Co-Founder and Chief Executive Officer

Well, Brad, I think our measured commentary shouldn't in any way indicate that we're not leaning in and investing in the opportunity. If you think about what we actually did over the last four months, I'm thrilled with our team and I think it's a matter of how we say yes. So Studio in a Box, as an example, is a really innovative approach to being able to deploy more and more broadly, in the right win -- candidly, we didn't do it as a covet response. We did it because we believed it was a way to innovate on building the degree side and obviously, now if we hadn't done it with -- in COVID, our studio operations would be entirely shuttered. So you can apply that kind of logic to the broader portfolio. So I do think -- I wouldn't want you to believe that we weren't leaning in. It's a matter of how many large-scale deployments we take in and on what time line and how we roll them out and fortunately, as you heard me mention, we have a situation where we will be able to increase them over the next couple of years from where we are today.

Paul S. Lalljie -- Chief Financial Officer

And Brad, if I may chime in for a little bit here. A lot of what we're doing, we're talking about operational efficiency. If we can find a way to do things better and cheaper and faster, then we have more capital to deploy and new opportunities. So by no means are we screening opportunities by saying, you know what, we don't have enough money to spend. We are finding ways to do things better. We are focusing on doing things more efficiently, and Studio in a Box is a prime example of that.

Brad Zelnick -- Credit Suisse -- Analyst

Paul and Chip, that makes a lot of sense actually. Maybe if I could follow up with one more on the really nice acceleration in growth that you're seeing in alternative credentials, organically, I might add. Are you seeing a larger pipeline now that more prospective students have free time? And how should we think about the pace of new program launches within this segment?

Christopher Paucek -- Co-Founder and Chief Executive Officer

We are seeing a larger pipeline of students. We are seeing a larger pipeline of universities and we are seeing a large pipeline of courses and if you remember, this was a challenge shortly after acquiring GetSmarter. It's a really good story. So we announced one this morning. That's an incredible opportunity for companies and for individuals to learn diversity, equity and inclusion and how to be a diverse, equitable and inclusive company. We announced Ohio State a couple of weeks ago on the boot camp side. Our upsell rate on the campus is ahead of internal plan in a pretty substantial way. So there is definitely increased demand. I'm most pleased to see our global brands briefing in a large number of high-quality faculty for all kinds of different courses and if you look at the sort of -- we've even taken the risk down substantially on the Short Course portfolio because we've basically taken exposure to disruptive topics that tend to be more hit-driven way down and built a very large number of functional and leadership courses and now are just entering technical short courses. So we feel like we've got a very large runway of more partners, more offerings and really like where that business is going. The team has done a great job.

Brad Zelnick -- Credit Suisse -- Analyst

Awesome. Thank you. It's great to see you firing on all cylinders.

Christopher Paucek -- Co-Founder and Chief Executive Officer

Thanks Brad.

Paul S. Lalljie -- Chief Financial Officer

Thanks Brad.

Operator

And as we're reaching the call on end, I will turn the call back to Chip for closing remarks.

Christopher Paucek -- Co-Founder and Chief Executive Officer

So I wanted to take a brief moment to thank our information technology team who has kept 2U running and not only running but really performing and outperforming and give a particular shout out to our Vice President of Information Technology and Infrastructure, Dan Berman, who celebrated his 10-year 2U anniversary today. Thank you, Dan. Thank you to your team, and we will see everyone out on the road.

Operator

[Operator Closing Remarks].

Duration: 51 minutes

Call participants:

Ed Goodwin -- Senior Vice President of Investor Relations

Christopher Paucek -- Co-Founder and Chief Executive Officer

Paul S. Lalljie -- Chief Financial Officer

Brent Thill -- Jefferies -- Analyst

Thomas Singlehurst -- Citigroup -- Analyst

Ryan MacDonald -- Needham -- Analyst

Stephen Sheldon -- William Blair -- Analyst

Jeffrey Meuler -- Robert W. Baird -- Analyst

Brad Zelnick -- Credit Suisse -- Analyst

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