2U Inc. (TWOU +0.00%) announced brilliant third-quarter 2018 results on Monday after the market closed, exceeding expectations yet again and improving its full-year earnings guidance for the third time in as many reports.
Similar to last quarter's initial post-earnings drop in August, though, shares of the online education platform leader are down around 10% in after-hours trading as of this writing. So, let's turn some digital pages to get a better idea of what drove 2U over the past few months, and what investors should be watching in the coming quarters.
2U results: The raw numbers
| Metric |
Q3 2018 |
Q3 2017 |
Growth (YOY) |
|---|---|---|---|
|
Revenue |
$107 million |
$70.3 million |
52.2% |
|
GAAP net income (loss) |
($9.9 million) |
($14.7 million) | N/A |
|
GAAP earnings (loss) per share |
($0.17) |
($0.30) |
N/A |
DATA SOURCE: 2U, INC. GAAP = generally accepted accounting principles. YOY = year over year.
What happened with 2U this quarter?
- On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and acquisition expenses, 2U incurred a net loss of $688,000, or $0.01 per share, narrowed from a loss of $0.15 per share in the same year-ago period.
- Both the top and bottom lines compared favorably to 2U's latest guidance, which called for revenue of $106 million to $107 million, a wider GAAP net loss per share of $0.20 to $0.19, and a wider adjusted net loss per share of $0.03 to $0.02.
- Adjusted EBITDA was $4.7 million, near the high end of guidance for a range of $4.2 million to $4.8 million, and swinging from a loss of $3.7 million in last year's third quarter.
- In August, 2U announced a new domestic graduate program (DGP) with the Vanderbilt University School of Engineering for two online graduate degrees in computer science and engineering management.
- Partnership and contract highlights in Q3 include:
- An expanded partnership with George Washington University for a portfolio of online short courses across various disciplines.
- An expanded partnership with Yale University's School of Management for three business-focused online short courses.
- A 15-year contract extension with Simmons University through 2039.
IMAGE SOURCE: GETTY IMAGES.
What management had to say
2U co-founder and CEO Chip Paucek commented on the quarter:
Strong year-over-year growth combined with our stepped-up program launch targets for 2019, 2020 and 2021, have put 2U on the path to $1.0 billion in revenue, which we expect to hit in a little over three years. Higher education is fully embracing the power of online, and 2U's size, scale and track record put us in the pole position to seize new growth opportunities and further solidify our market leadership globally.
Looking forward
For the fourth quarter of 2018, 2U expects revenue in the range of $114.4 million to $115.3 million. That should translate to adjusted EBITDA of $19.8 million to $20.4 million, a GAAP net loss per share of $0.04 to $0.05, and adjusted net income per share of $0.20 to $0.21.
As such, 2U now expects full-year 2018 revenue of $411 million to $411.9 million (narrowed to the high end of its old $409.7 million to $412.2 million range), and an adjusted net loss per share of $0.09 to $0.08 (narrowed from a per-share loss range of $0.10 to $0.08 before).
Finally, with the caveat that its budget cycle still isn't complete, 2U offered preliminary guidance for full-year 2019 revenue to increase 32.5% to 33.9% over 2018. Based on the midpoint of its new 2018 outlook, that should mean full-year 2019 revenue of roughly $548 million -- which, incidentally, is exactly in line with Wall Street's consensus estimates. On the bottom line, 2U expects a 2019 adjusted net loss margin of between 4.5% and 4% for the full year, and a positive adjusted EBITDA margin of between 2% and 2.5%.
All things considered, this quarter was as strong as any a 2U investor could have hoped to see. Further, the company offered encouraging forward guidance that effectively validates its continued near-term momentum, its enviable list of long-term partnerships, and its impressive long-term growth potential. And I think patient shareholders should be more than pleased with the company's position today.
