Q2 2020 2U Inc Earnings Call

Ladies and gentlemen, thank you see operator to these countries are scheduled to begin momentarily until that time, you might will again be pretty simple. Thank you for your patience I get ladies and gentlemen diversity operators to eat quite frankly scheduled to begin momentarily until that time no. One should again be placed untold thinking.

For your patience.

[music].

Ladies and gentlemen, thank you for standing by and welcome to take you Inc. second quarter 2020 earnings call at this time, Oh participants and no listen only mode. After the speakers presentation, there will be a question and answer session.

Good question during this session you'll need to fresh sorry, the number one on your telephone if you require any further assistance. Please press star.

I know my behind the conference over two years Speaker today I'd get to me as a VP Investor relations. Thank you. Please go ahead.

Thank you operator, good afternoon, everyone and welcome to choose second quarter 2020 earnings conference call on the call me, a chip Catholic our CEO and Paul Lalji our CFO.

Following chip impulse prepared remarks, we'll take questions. This call's being simultaneously webcast on our website, where you can find or press release, which is issued after the close of market as well as out our earnings presentation.

Cast replay of this call will be available for the next 90 days on our company website under the Investor Relations like.

Statements made on this call include forward looking statements regarding our financial and operating results continued impact of the Kobin 19 pandemic, new educational offerings student 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 were duty to update.

Please refer to the earnings press release and the risk factors described in the documents we filed with the Securities Exchange Commission, including our annual report on form 10-K for the year ended December 31st 2019, and her most recent quarterly report on form 10-Q information or wrist.

Certainties and assumptions that may cause actual results to differ materially from those set forth in such deep.

In addition, during today's call you'll discover discuss non-GAAP financial measure measures, which we believe are useful for supplemental measures of twos performance.

Non-GAAP measures should be considered in addition to and not as a substitute for more in isolation from GAAP results.

You can find additional disclosures regarding non-GAAP measures, including reconciliations with comparable GAAP results.

Earnings Press release handle me Investor Relations page of our website with that let me hand, it over to Jeff.

Thanks, Ed.

As we talked about halfway mark at the year. It's now clear the 2020 will be in both our personal and professional lives. Unlike any other we've ever experienced.

Whether it's the effects of cold it or the impact of the black lives mattered movement, what confronting profound changes challenges and opportunities as a society.

For Q you. These new norms of only served to reinforce the importance of our mission the value of our business model and our company's capacity to help universities meet societies. Most critical needs I'll come back of these important issues and speak directly to the impact of the black lives matter movement on to you, but since this is an earnings call offs I'll start by highlighting our results.

We're very pleased about our progression over the past.

After 2020 with a goal amazingly strong revenue growth and delivering margin improvement throughout the year, while driving towards 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 Bob.

And improved unless unlevered free cash flow.

We did so in an uncertain environment, demonstrating the strength and resiliency of our business model.

Revenue grew 35% year over year 282.7 million organic growth accelerated three points, 18% driven by an increase in short course enrollments as people begin to re skill and upscale and this environment.

On the bottom line, we came in well above our plan for adjusted EBITDA was 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 Bottomline outperformance was driven by increased efficiencies in the business as well as lower cost due to cobot 19, Paul will go into this in more detail in a moment.

Turning back to the business environment and the impact of Cobot, It's now unmistakably clear that a structural changes happening in higher education.

As the survey we released earlier this week demonstrated on the prospective students side, we're seeing a demonstrable share shift toward online and away from campus based 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 overtime for to you.

We're also beginning to see the counter cyclical impacted the worsening economy result in more people deciding to further their education. All of these factors that 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 hypothesize 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 ask them, how cobot 19 is impacting their decision, making and choices between online and campus based offerings.

The last dataset from the survey came out of the feel less than 10 days ago, and the findings were clear and powerful.

More than 50% of prospects, regardless of discipline said, the cobot made them much more likely to choose an online degree over a campus program I think about that more than half prospects are much more likely to consider online.

Now that number when all the we have to 73%. When you include responding to also said it made the 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 coded they would have not considered an online program.

So these are altogether, new converts to exploring our mine.

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 reject 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 partner programs.

Our oldest most well established programs are expecting record cohorts for the fall semester.

Hi, quality and student outcomes matter.

We also like the leading indicators were seeing in our first undergrad offerings.

Classes started 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 help a 110 countries.

This shows the powering global reach of high quality online education, and our world class portfolio.

We 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.

Diversity is need to embrace hybrid arm on 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 a 90 minutes of nonstop video conference luxury as a substitute for the full classroom experience it wasnt 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 pure curations content that are 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 discipline positions to you 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 Amherst College.

In one of the world's best small Liberal Arts colleges decides to embrace our mine that's a clear sign of seismic change and smart leadership.

We expect more deployments like Amherst 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 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 21 and 2022.

Our newly expanded Sevens University partnership is worth calling out specifically.

The overall Simmons relationship as material for to you.

In addition to our existing graduate offerings will now support the entire undergraduate institution, both on campus and online a notable first for to you.

This expanded relationship begins when fall 2020 classes resume fully online due to coated and includes our digital build out of over 300 existing undergraduate courses using studio and Abbas.

Going forward will support Simmons campus based programs and receive a revenue share there as well.

And beginning in 2001 Simmons will begin on the portfolio a fully online degrees across in demand disciplined stay currently offer on campus, which will be priced below the campus offerings a.

A powerful example of how our scale in our shared Rep. Our shared success revenue model can help bend the cost curve of higher education.

It's series diversity announcing that will be completely online. This fall to you is committed to support a 2020 technology access fund.

The onetime fund will help ensure the tech access is not a bit barrier for the incoming freshman class, which includes one of the largest percentages of Pell eligible and first generation College students in the schools history.

These young women thought they'd be attending a physical campus in September but now they're experience will be online.

These resources will be used for the technology, they need including laptops in 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 is worth a reminder, that changes in the Grad segment take time to show up on our results because of the roughly three year student lifecycle from prospects to graduate.

So this growth would have a bigger financial impact on 2021 and beyond.

Turning to alternative credentials.

Universities, the can meet the critical needs of society with accessible affordable and relevant offerings will thrive we are uniquely position 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 lot next and indigenous learners as well as women, who have all been disproportionately impacted by coded and traditionally underrepresented intact.

You can expect to see more from us here over time.

Hi, quality education, more accessible and affordable for historically marginalized communities is one of the ways. We believe our business can meet societies critical needs.

2020, it's been a stark reminder, to all of us of the unpredictability of life and business.

We're truly fortunate that to you and 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 continued to deliver high quality outcomes optimize capital allocation drive towards positive free cash flow and maintain strong revenue growth. We believe this strategy will further strengthen our business and reinforce our position.

And 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.

Thanks, Chip and good afternoon, everyone.

Our second quarter results demonstrate the momentum worse, we're experiencing as we continue to execute against our objective.

It is delivering strong topline 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 or financial flexibility.

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.

35% increase from $135.5 million in the second quarter of last year.

We are cry acquired trilogy on May 22nd 2019.

During the year over year comparison of results.

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 quarter.

Representing a three point acceleration of organic revenue growth and continuing the trend from last quarter.

Right segment revenue grew 14%.

Over the second quarter last year.

This increase was driven by an 18% increase in full course equivalent.

And partially offset by a 3% decline in revenue per se.

We expect revenue for FC to continue to decline going forward as enrollment in our newer programs and let's see in 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.

Fees increased 61% year over year lot of revenue per FC increased 11%.

Primarily driven by strong growth in F sees an only having a partial quarter results from trilogy last year.

Short course revenue increased 37% than a year over year basis is 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 on their off a very strong start.

Boot camp delivered $36.6 million in revenue for the quarter.

Our on our last conference call. We mentioned that we were beginning to experience a dip in conversion rates as shelter in place orders first 50 thing.

In response, we move what had been an on ground product to a fully online offering.

Well this into perspective.

At the beginning of this year, we expected 88% of our revenue to come from our on ground offering.

Okay.

Not only do we expect all of our revenue to come from online.

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 and managing costs.

Operational efficiencies.

We're starting to see the benefits of those initiatives.

It is also important to note that pandemic has resulted in lower operating costs.

Including travel than traveling related costs.

Regardless of how long the pandemic laugh.

Our 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 overtime.

Net loss totaled $6 million to $6.2 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 last year.

Also an increase in net loss included $11.7 million.

Loss on debt extinguishment, resulting from the repayment of our terminal.

Adjusted EBITDA loss for the quarter was $2.1 million, an improvement of $12.9 million from last year.

The 2.2 million dollar improvement from the first quarter.

This improvement is a validation of the objectives, we set out at the beginning of the year.

Reflects greater operational efficiency and puts us on track to achieve positive the 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.

$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 month was $44.2 million, a 14.3 million dollar improvement from the March quarter.

That's free cash flow performance was primarily driven by 12.9 million dollar improvement in adjusted EBITDA, which we've already discussed and they 5.3 million dollar decrease in capital expenditures.

We also remained focus on prudently managing networking capital.

Which improved $1 million from the March quarter.

We benefited from a 7.2 million dollar increase in deferred revenue.

Driven by growth in our alternative credential segment.

Where payments tend to come in at the beginning of course, our boot camp.

In addition, we benefited from a 4.4 million dollar increase.

And accrued expenses.

Accounts payable increased $3.8 million bought prepaid expenses increased $3.5 million this quarter.

Accounts receivable totaled $71.6 million down $3.8 million from last quarter.

Selecting an emphasis on collection.

As is the case every year, we expect the 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.

Interest rates of LIBOR, plus 375 basis points.

Im covenants, we do not expect to constrain.

The execution of our business plan.

Now for some color and how we're thinking about the back half the year.

As you've heard from chip.

My earlier remarks.

We have seen significant improvements 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.

Increase in the second half of this year.

In addition, we expect to deliver positive EBIT 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 were experiencing.

Demonstrate that we have the right solutions.

The future of online education.

Hey, future did is only accelerating in the current environment.

This fundamental change in higher education is driving increased demand from partners and student.

Resulting in strong organic revenue growth.

As this change plays out we will continue to sharpen our execution and drive towards 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.

Thanks, Paul to use gay important work by helping higher education meet the critical need to society I want to close by addressing one of the most pressing issues for our society systemic racism.

George Floyd turned into a seminal moments for two you over the years, we strive to attend build a diverse company leadership team and board the protests happening in America and the Black lives matter movement reverberated reverberated in important ways to you.

As the impact at the moment unfold 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 of world through our products.

Our announcement. This morning are the launch of Northwesterns, 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 that is grappling with how to develop more inclusive leaders and foster greater diversity in equity professors Hillary'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 know that building a truly diverse equitable and inclusive to you 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 QNX.

Okay. As a reminder to ask a question really depressed hard they did number went on your child of Sally.

Your question fast Accountants, and your first question.

From the line, Yes, right Hill from Jefferies. Your line.

Good afternoon curious if you could give us more detail and I would draw the out performance and on particularly in the short course gross and also on EBITDA. Thank you.

Well I guess I would say upfront sure courses were definitely seeing record enrollment clearly people are re skilling in this environment. You know, 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.

The there's a very long cycle on the degree, but you know what we're seeing.

In the business you know, we honestly never seen before on the degree side many of our older programs at historical highs at this point in their lifecycle of that various cohort.

On the short course side 30, great new courses that are doing really well and I would say what were 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 get smarter. 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.

The 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 even aside.

You know we are certainly getting more efficient this has been a big part of our focus over the past year.

Maybe I can pass it over to Paul to to address.

Yes, thanks, Thanks chip.

A couple of things to start off with into even aside you know in that and the third quarter of 2019.

One of the things that we stated up front is that we were embarking on this.

Several several sets of cost savings initiatives I think what we're seeing now is is the efficiency and some of those initiatives coming to fruition. Our student success teams. Our technology organization, we're truly seem to scalability in those organization and we will continue to see that as we go forward on those initiatives.

Then.

Now I would also seed that that.

Lack of travel the coven environment, you know, we have savings of perhaps about for four or $5 million around there.

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 cash flow positive we set that out very explicitly at the end of of 2019 and we're continuing to me.

Such forward on that path or Chief operating officer, Mark fairness.

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 even aside of the equation.

Great. Thank you.

Your next question.

From the line asked Tom Singlehurst from Citi. Your line is now.

Hey, Chip high cool. Thank you for taking your question that Tom have come from Citi and in London.

A couple of questions the first.

Okay, I can listen to think <unk>.

<unk>.

On the big student student enrollment and is it counter cyclical debates and clearly you've seen a very big uptick in.

In the short course isn't you attribute gotten caught C.

So this sort of re skilling upscaling.

Well, that's it from them the sales cycle to graduate programs.

Yeah, he written by 'cause it kind of like that.

You know were so we really feel or that you know what's interesting about to use 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 to you.

As you know covering education, it's it's generally counter cyclical but the question was are we specifically and we really there was a very difficult trend to seize that there was a gradual headwind peering over a very long time period.

And it is clear as plain today, we are counter cyclical like across the entire business. So.

We have seen it across all three products and I think what's exciting is you know we're now a sizable scalable platform.

Across a whole bunch of different relevant offerings that will allow us to meet the increase demand.

So we really like what this means for the next couple of years.

Okay. That's fine kit. The second thing is yeah, when we will be lumpy hook up three months ago.

You know at that point get something like a lot of the one thing today was done sort of helping existing partners because obviously since then you.

Being very much in the from <unk>, how did it in a number of new problems.

A number of new partners and and could you to helping with some of this sort of some.

Blended on on learning on campus stuff I suppose I was just.

Interested in the competitive landscape to that I mean, there you'd be a you'd be a union.

That's it.

Fitting in with.

Refocusing on emphasis on a single.

What's the what's the key differentiator for two years the platform and thank you.

No I mean, I think our to U.S.. So comprehensive and offers a you know I think the most comprehensive platform for great University to do this really well and the the you know the the value proposition. We offer is now even more compelling whether that be in something like bring 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 there 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.

Hello proposes that because there is there a pump flakes head between the the number of additional partnerships you can add and.

The the progress towards EBITDA and free cash flow breakeven.

Tom You know a couple of things I think last quarter I had a similar question and my response was it's it's not about saying, yes. It's how we say, yes, I think we can find a way to balance the two objective and that is what we're seeing right. We're seeing that our platform is scalable.

Ah we do have efficiency into business. It is not a an expense base, where every part of that you add you have to.

Add incremental expenses in the same fashion and their various ways and different models of doing. This so I think you will you will find that our our Simmons example, or I'm. Hearst example, they're all very very different in the way. We said, yes, I think that we'll continue to 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 I think that that framework will inform us.

In all times it will inform us in times when their tremendous opportunities for us in times when they are scarcity of opportunities. It's that framework that becomes our Northstar and I think we can balance the too as we move forward, particularly because we have a strong relationship with each of our partners. We are well respected in the space and.

Things that we provide is a very very high quality, we balanced 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 it does require us to balance that as we go forward and we will continue to do that.

For the sake said well thank you very much.

Thank you for your next question.

Seven don't line its Ryan Macdonald from Needham Your line is now open.

Hi, good afternoon chip and Paul Thanks for taking my questions. I guess first just thinking about the sustainability of of the demand that you're seeing obviously, there's there's some benefit from coverage here, but if we sort of start to see things reverse and then potentially get a vaccine back half year, how sustainable do you think that the trends that you're currently seeing you know.

For the back half our.

You know Ryan we think the share shift is real you know when you surveyed the students and you talk about this we do think that there's a sustainability of this demand than you know 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 their incredible there really.

Good and you don't have to take my word on it. The Gallup survey, we did showed that you know.

Across the board almost every single metric.

You know showed that you could be better than the campus. So I think quality online will win I.

I think what's happening here is the adoption curves just been pulled forward.

So you see it on our share shifts survey you can also see it in what is try to put out today I'm not sure if you've seen that that's work will look.

You know I think what's happening is we do think theres, a little bit of a rush the 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 you know when it's across the portfolio right. Now. So you know, we're we're seeing some things that weve not seen before.

So we're trying to be thoughtful in how we think about.

What when we're ready to call it but I have to tell you. It's it's it's impressive.

Interesting and then as a follow up to that you know as the recent Chloe five survey data results really showed you know willingness from universities that we're already working with a partner to increase the reliance so I guess as we're preparing for a fall when there's a cup in your question of how much on campus learning there will be.

I was there anything you're doing with your existing Grad partners to help moved their on campus version of their programs online with two you during this interim period.

Yes, so we're much more active with her current partners in terms of helping them in a whole variety of ways and I do think you know we talked about Simmons in the call and it was sort of worth really highlighting just how bold with Simmons is doing in an extraordinary short period of time to really transformed fully the institution, but.

If you if you take to U.S. plus.

We've got a whole bunch of partners that are now sort of embracing the online format for their campus space program and that's been a big part of what we've been working on as a team you know we're being careful in our choices.

But its you know 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 a it's.

So what's happening right now so we're.

You know we're doing everything we can to support the partner base and I think we're getting really really good response from.

The university's because of it.

Got it 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. Thanks.

It doesn't increase than a year over year growth at 18% that we saw in the second quarter.

We can expect that number to be higher number in the back half a year and it is also a sequential increase if if if from one where to look at it.

Back half of the year versus front half a year. So it's it's both.

Thank you.

Thank you for your next question.

I'm doing if Stephen Sheldon from William Blair. Your line is now open.

Hi, Thanks.

I guess first 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 the university's need to look for new revenue sources and need ways to differentiate drive demand with students and potentially lower overall enrollment environment over the next few years I guess just wondering what are you seeing there.

Well, we've definitely seen really significant increase on the short course side and do things that the alternative credentials are here to stay and it does certainly validate our move.

Into both a 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 continue to expand new revenue opportunities I think you know when coven first broke some people were positing that that this would cause a companies like us to have a harder time because universities, we're going to do it all themselves and I think that 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 of everybody worrying about you know just as a human being worrying about what was going I went 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 overtime as we announced.

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.

Got it and that's helpful and then on the student the record soon demand trends, you're seeing is there anyway to quantify or or frame how much of an increase even seen over on some of those metrics you talked about like regeneration applications enrollments as we think about the fall.

[laughter].

Yes, I would say.

You know we tried to give some characterization of what we think the second half looks like.

Paul you want to jump in here.

Yeah, Yeah, Steven look we are seeing 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 demand that we're seeing is across the board and then and demand as you know undergrad business. It takes a while before the gestation period.

As a seven 810, sometimes 12 month to get the point of enrollment. So I mean I was wondering if things that we're trying to do is to be measured right. We're not we're not going to call. It before we see something goes through a 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.

Happening in the short course side of business.

We had tremendous success and the second part of it from the short course business, we expect that to continue in the back half for the year, what do we think of that business and we think of.

Tends to have the.

Below the summer months, a little bit into into the fourth quarter with the pandemic, we're not seeing that right instead of instead of Europe being in vacation. We are seeing folks that are more active when it comes so participating in online education. So I think they they also.

Turn to credential business, which is shorter than we have more visibility into it.

We are seeing.

Got better efficiency and better conversion of our marketing dollars in that space and it's kinda already for us the calls with specificity things in the undergrad business being measured and being prudent as probably.

Yes for every one as we move forward here, particularly in an environment that we're in here today.

Makes sense, thank you and congrats on the results.

Thank you.

Thank you for your next question.

The line. This is Jeff Miller from Baird. Your line is open.

Yeah. Thank you. Good afternoon, I think there was a comment about a shorter time to cash flow positive in each degree that.

We'll be launching so.

I guess I'm 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 for timelines around that would be interested thanks.

I think it's too early Jeff, we're you know and a bit too detailed I would say what's important is 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 you know if you look at the.

If you look at the cash flows over the last three quarters, you did I think thats, a particularly impressive slide in the earnings deck and something that we definitively our 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.

Okay, and then there was kind of a common in the prepared remarks about university is doing taking him in a thoughtful and high quality way is maybe different from the scrambled solution 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 indoor maybe where you don't want to play there.

You know 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 in talks about how we're actually helping the course build what we're actually doing in more detailed in the course built so I.

I was very very pleased to see it and you know.

Fair to say that we are still laser focused on driving the business.

It.

Has the.

Has revenue share associated with it and then offering that to 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.

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 really good run over the next two three years.

Sure since I want thank you.

Thank you for your next question.

From a different some blindness, Brad Zelnick from credit Suisse. Your line is open.

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 distance education. How are you prioritizing all the investments internally and and what would cause you to lean and and invest further into the opportunity.

Well, Brad I, you know I think.

Our measured commentary shouldn't be in any way indicate that were not leaning in and investing in the opportunity. If you think about what we actually did over the last four months.

It you know I'm thrilled with 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 employ more and more broadly.

Right. When you know candidly, we didn't do it as a cobot 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 Kobin or our studio operations would be entirely shuttered. So you can apply that kind of logic to the broader portfolios.

Do you think.

You know I wouldn't want you to believed that we weren't leaning in it's a matter of how many large scale deployments we take in.

And on what timeline and how we roll them out and Unfortunately as you heard me mentioned, we have a situation, where we will be able to increase them over the next couple of years from where we are today.

And at about if I, 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 ways to do things better in cheaper and faster than we have more capital to.

To deploy and new opportunities. So by no means our 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 and doing things more efficiently in studio in a box is a prime example of that.

Thank you 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.

We are seeing a larger pipeline of students we are seeing larger pipeline of universities and we are seeing large pipeline of course.

And if you remember this was a challenge shortly after acquiring get smarter. It's a really good story. So we announced one this morning, that's incredible opportunity for companies and for individuals to learn.

Diversity equity and inclusion and how to be a diverse equitable and inclusive compete.

So how state a couple of weeks ago on the boot camp side, our Upsells are up sell rate on the camps 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.

The sort of Weve, even taking the risk it 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 teams done a great job.

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

Thanks, Brad Thanks, Fred.

Thank you guys were retuned to Collin time, I'll turn the call back to King for closing remarks.

So I wanted to take a brief moment to thank our information technology team, who is kept to you are running and not only running but really performing and outperforming.

Have a particular shout out to our vice president of information technology and infrastructure, Dan Berman, who celebrated his tenure to you anniversary today. Thank you Dan. Thank you for your team and we will see everyone out on the road.

Thank you very much and ladies and gentlemen. This concludes today's conference call. Thank you Oh, sorry, joining you may now disconnect.

[music].