2U, Inc. Beats Expectations in a Busy Quarter for New DGPs

2U Inc. (TWOU 4.17%) announced better-than-expected second-quarter 2018 results late Thursday, detailing a particularly busy quarter for new domestic graduate-program announcements. 2U also increased its full-year financial guidance.

Still, shares of the online education platform company fell almost 6% on Friday. So let's have a seat to learn what 2U accomplished over the past few months, and whether the pullback is merited.

2U results: The raw numbers

DATA SOURCE: 2U, INC. GAAP = generally accepted accounting principles.

What happened with 2U this quarter?

• On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and acquisition costs, 2U's net loss was $10.3 million, or $0.19 per share, widened from a loss of $5.2 million, or $0.11 per share in the same year-ago period.
• Adjusted EBITDA arrived at a loss of $5.6 million, compared to a $1.5 million adjusted EBITDA loss in last year's second quarter.
• Each of these figures compared favorably to 2U's respective guidance ranges provided in May. It called for revenue of $95.1 million to $96.1 million, a GAAP net loss per share of $0.42 to $0.41, an adjusted net loss per share of $0.22 to $0.21, and an adjusted EBITDA loss of $6.2 million to $5.7 million.
• Recently announced domestic graduate programs (DGPs) include:
  • Two DGPs with Tufts University, including an online Master of Global Business Administration and a suite of online graduate-level degrees.
  • An accredited hybrid Juris Doctor degree with the University of Dayton School of Law.
  • A new MBA program within the previously announced DGP with Pepperdine University.
  • An online Master of Legal Studies degree with American University Washington College of Law.
  • An online Master of Science in Communication Sciences and Disorders degree with Baylor.
  • A 12-year extension of 2U's partnership with Washington University's St. Louis School of Law, including a new LL.M. in Taxation degree.
  • An online Master of Science in Data Science program through the University of Denver.
  • Two DGPs with Fordham University, including a Master of Studies in Law in Compliance, and a suite of specialized management and finance degrees.

IMAGE SOURCE: GETTY IMAGES.

What management had to say

2U co-founder and CEO Chip Paucek stated:

In the three months since our last earnings report, we've announced a total of eight new graduate programs, putting us on pace to complete our 2019 launch cohort this quarter, the earliest in 2U's history. Ten years in, we have a proven and unparalleled track record of delivering for our partners and their students, which continues to drive exceptional momentum in both degree and short course pipeline as well as long-term contract extensions by existing clients.

Looking forward

For the third quarter of 2018, 2U is targeting revenue of $106 million to $107 million, adjusted EBITDA of $4.2 million to $4.8 million, a GAAP net loss per share of $0.20 to $0.19, and an adjusted net loss per share of $0.03 to $0.02. By comparison -- and though we don't usually pay close attention to Wall Street's demands -- consensus estimates predicted a net loss of $0.03 per share on revenue slightly below the bottom end of 2U's outlook.

Finally, 2U once again raised its full-year 2018 outlook to call for revenue of $409.7 million to $412.2 million (up from $406.6 million to $410.6 million before), and an adjusted net loss per share of $0.10 to $0.08 (up from previous guidance for a loss per share of $0.13 to $0.10).

In the end, there was nothing not to like about 2U's latest beat-and-raise performance, so it seems strange to see the stock down nearly 6% on Friday in response. That said, investors should keep in mind that 2U stock had climbed more than 60% in the year leading up to this report, likely leaving traders tempted to take some profits off the table despite its positive momentum.