2U Inc. (NASDAQ:TWOU) announced stronger-than-expected first-quarter 2017 results on Thursday after the market closed, punctuated by strong revenue growth, a promising acquisition, and improving margins as the online higher-education specialist continues its march toward sustained profitability.

Let's open our notebooks, then, to learn what drove 2U's business as it kicked off the new year and what investors can expect from the company going forward.

Student working on a laptop

IMAGE SOURCE: GETTY IMAGES.

2U results: The raw numbers

Metric

Q1 2017

Q1 2016

Year-Over-Year Growth

Revenue

$64.8 million

$47.4 million

36.7%

GAAP net income (loss)

($3.4 million)

($3.4 million)

N/A

GAAP earnings (loss) per share

($0.07)

($0.07)

N/A

Data source: 2U Inc. 

What happened with 2U this quarter?

  • On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and acquisition costs, 2U generated net income of $0.5 million, or $0.01 per share, up from $0.2 million, or breakeven on a per-share basis in the same year-ago period.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 73.9% year over year, to $3.9 million.
  • By comparison, 2U's latest guidance called for lower revenue $63.6 million to $64 million, adjusted EBITDA of $2.9 million to $3.2 million, a GAAP net loss per share of $0.09 to $0.08, and adjusted net income of roughly breakeven to a penny per share.
  • Subsequent to the end of the quarter, it agreed to acquire premium online short course specialist GetSmarter for $103 million, plus a potential earn-out payment of up to $20 million in cash. GetSmarter accelerates two key opportunities for 2U: international and non-degree alternative expansion.
  • Recently announced domestic graduate programs (DGPs) for launch in 2018 include:
    • A master of business administration degree with the University of Denver for MBA@Denver
    • A master of social work degree with the University of Denver for MBA@Denver 
    • A doctor of physical therapy degree with the University of Southern California Division of Biokinesiology and Physical Therapy through the new DPT@USC platform

What management had to say

2U co-founder and CEO Chip Paucek stated:

We once again produced strong financial performance in the first quarter of 2017, showing significant revenue growth as well as margin improvement in each of our earnings measures. Our business now has a sizable, and increasing, number of domestic graduate programs operating at positive margins. This enables us to invest in accelerating our program launch cadence to drive future revenue growth while continuing to improve total company margins. Earlier this year, we confirmed our new domestic graduate program launch targets, which would result in more than tripling our total launched DGPs by the end of 2020. As of today, we have slotted five of the 13 new DGPs we expect to launch in 2018.

Looking forward

For the second quarter of 2017, 2U expects revenue of $64 million to $64.4 million, a GAAP net loss of $11.4 million to $10.9 million (equating to a loss per share of $0.24 to $0.23), and an adjusted net loss of $5.8 million to $5.4 million (equating to an adjusted net loss per share of $0.12 to $0.11). 2U also anticipates an adjusted EBITDA loss for the quarter of $2.1 million to $1.7 million.

As such, 2U increased its full-year 2017 guidance to call for revenue of $269.4 million to $270.9 million (up from $267.6 million to $269.8 million previously), a GAAP net loss per share of $0.56 to $0.52 (up from guidance for a per-share loss of $0.58 to $0.53 previously), and an adjusted net loss per share of $0.13 to $0.10 (compared to guidance for an adjusted loss of $0.15 to $0.11 previously). Note that these ranges exclude any contributions from the impending acquisition of GetSmarter, which is expected to close in the third quarter of this year.

2U stock is still up more than 42% year to date as of this writing, thanks to a combination of its equally strong third- and fourth-quarter 2016 reports in November and February, respectively. With that in mind, I think patient long-term investors should be more than pleased with 2U's latest quarter.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends 2U. The Motley Fool has a disclosure policy.