Q3 2020 2U Inc Earnings Call
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Ladies and gentlemen, this is your operator for today's call. Your call is scheduled to begin momentarily until that time, you give me some musical thank you for your patience to not just.
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At this time all participant lines are in listen only mode. After the speakers presentation. There will be a question answer session to ask a question and session you in your press Star one on your telephone keypad.
Chris This is from an operator, please press star zero and now like to turn your conference over to your speaker today Mr.
Our Kankan. Please go ahead Sir.
Thank you operator good.
Turning to everyone and welcome to to use third quarter 2020 earnings conference call.
I'm, Ken Golf SVP of Investor Relations at two years, and I'd like to start by saying that the appropriate amount of excitement for this to be my first time reading the disclosure is on one of our goals.
I'm also joined by our CEO and Paul Lalji or.
Following chip and all his prepared remarks, we will take questions.
Our Investor Relations website, Investor Doctor you Dotcom as our earnings press release, and slide presentation as well as a simultaneous webcast of this call.
A webcast replay of this call will be made available for the next 90 days.
Statements made on this call include forward looking statements regarding our financial and operating results.
The continued impact of COVID-19, pandemic, new educational offerings student and University demand and other matters.
These statements are subject to risks uncertainties and assumptions.
Forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them.
Please refer to the earnings press release and the risk factors are described in the documents, we file with the security and Exchange Commission, including our annual report on form 10-K for the year ended December 31st 2019, and our most recent quarterly report on form 10-Q for information on risks uncertainties. Some.
Options 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 as supplemental measures of 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 <unk>.
Yes.
Thanks, Ken.
To start I hope, everyone listening is doing well and staying safe.
Turning to our business to you had an excellent quarter.
It's crystal clear that our offerings are exactly what students and universities.
And for providing significant to sidle benefit.
It's apparent in the demand, we're seeing and in our results.
We delivered revenue of 201.1 million.
Which is growth of 31% all organic.
Adjusted EBITDA crossed into positive territory coming in at 3.7 million.
Cash flow is approaching breakeven on a trailing four quarter basis, and our balance sheet is in a net positive cash position for the first time since early 2019.
Enrollment trends in the third quarter were favorable and we expect that trend to continue.
We're clearly delivering products that meet the diverse needs of lifelong learners and we believe the impact of COVID-19 accelerated demand across our three primary products.
Sure of course is boot camps and degrees and.
And all of this is reflected in our reintroduced guidance.
Now, let's take a step back so I can offer you a few perspectives on the business.
I'm very proud of what to you was accomplished in 2020.
12, and a half years ago, we started with a vision for where higher education was headed.
And because of the strategic choices and investments. We've made since then to you is now uniquely positioned to meet the needs of our partners and lifelong learners at a moment when the value and demand for online education has never been greater.
We believe the impact of these choices and investments, particularly our move into alternative credentials can now be seen in the strength of our third quarter results.
The value of non degree educational offerings was clear to adult learners, even before the COVID-19 outbreak.
In a survey from research firms Strada, the majority of respondents saw themselves as more attractive job candidates and reported personal and subjected benefits from earning non degree credentials that go beyond labor market returns.
That sentiment among.
Among both learners and employers is also reflected in the findings of our recently released report called the future of work is here, which is linked to the earnings presentation.
We first saw the strategic and growth potential in this segment of the market for years ago before acquiring the short course business.
And our acquisition of the boot camp business five quarters ago further demonstrated our commitment to expanding non degree offerings.
Today those deals are bearing fruit.
We believe that to use alternative credential segment generates more annual revenue then any of the other move and alternative credential providers based anywhere outside of China.
These non degree offerings serve directly as an onramp to degrees.
A way to supplement existing degree offerings.
And an avenue for current degree holders to upscale or reschedule.
They are a natural complement to not a replacement for our degree business.
In fact in today's challenging economy, a degree clearly helps lead to job stability.
Just look at the Bureau of Labor statistics unemployment numbers over 2020, which consistently show that individuals with only a high school diploma or at work at rates at more than double those with a college degree.
As we said before the career curriculum continuum is not a linear concept, but rather an expression reflection of the breadth of educational offerings adult learners need and want at various career and life stages.
So to use portfolio tell the story and not for the whole is greater than the sum of its parts.
And the impact from Covidien, the economy is only making our portfolio of offerings more valuable.
We're seeing growing interest from new and existing partners in launching not just alternative credentialing grad programs, but also online undergrad degrees, which is by far the largest part of the addressable higher education market and an area that has become a hot for to you.
Our LSC and University of London Undergrad degree offerings have officially expanded again with the addition of two signature degrees.
Bfc in finance.
And it'd be I see in mathematics and economics.
And the first LSC undergrad cohorts successfully launched in August with the upcoming fall cohort expected to come in well above our initial targets.
We talked about early indicators over the past few quarters, which are now beginning to translate into current period results.
These leading indicators demonstrate the counter cyclical attributes of this market and we believe will drive upside to future performance.
And given the long cycle nature of the Green business.
We expect the positive momentum should be sustainable going forward.
As the business grows we've also improved our enterprise wide operational efficiency and increased our liquidity.
The degree business is now nicely profitable on an EBITDA basis with strong cohort margins.
This enhanced profitability is the result of a more measured cadence of program launches and an increased focus on driving scale and tech enabled efficiencies.
As we invest in launching profitable offerings across our portfolio of products.
We remain focused on delivering continued margin expansion and driving toward positive cash generation.
Looking at the market landscape today, the real challenge and opportunity for universities is not finding an online program manager to launch a degree.
It's finding a true digital transformation partner in order to better serve adult learners, who at all stages in ages of life are searching for high quality online education offerings differentiated by length or cost certificate or degree Standalone are stackable.
Because of the strategic choices and investments to you made over the past 12, and a half years, we've become the digital transformation partner of choice to more than 75, great nonprofit universities around the world.
Through our scalable platform comprehensive tech enabled capabilities and market relevant product strategy across the career curriculum continuum.
To you is helping drive and enable the digital transformation of the great nonprofit University.
And through it all to use evolved and become more nimble and innovative we're.
We're offering universities co investment opportunities supporting our partners campus operations and launching innovative new products like our new artificial intelligence offering with Columbia University School of engineering.
Another exciting example look to use innovation is our tech boot camp for credit announcement last week with Netflix and Norfolk State University.
We're happy to team up with an iconic company like Netflix and one of the nation's most respected HBC use to help increase lack representation and career pathway intact.
So as they like to say Norfolk state hold the green and gold.
There's never been a more important and exciting time to be in Ed Tech and to you is meeting the moment and doing our part to help drive the digital transformation and sustainability of higher education.
We are powering more relevant high quality blended affordable and accessible degrees in alternative credentials that meet society's critical needs now.
Now I'll turn it over to Paul to take you through our results and discuss expectations for the year.
Thanks, Jeff and good afternoon, everyone.
A year ago, we set about improving operational efficiency.
Sharpening the way, we allocate capital across the portfolio and boosting our liquidity position.
Steadily reported progress in particular, we highlighted optimism and leading indicators for the past two quarters.
You've seen from today's earnings report.
We have delivered organic revenue growth of 31%.
Significantly improved profitability.
Reduce the use of cash in a trailing 12 month basis, I, almost $90 million and now boasts the balance sheet.
Net cash position.
These are extraordinary results.
Extraordinary team.
Now have the foundation to continue this progression.
This afternoon I'll go over our results for the quarter discuss steps weve taken to strengthen our balance sheet further.
And provide some color on our annual guidance.
Starting with results for the quarter.
Revenue for the quarter totaled $201.1 million is.
31% increase from the third quarter of last year.
This represents all organic growth since we acquired trilogy more than a year ago.
That 31% increase represents a 13% acceleration from last quarters organic growth.
Grad segment revenue was $122 million up 18% over last year and the four point acceleration from last quarter.
Growth was driven by a 17% increase in full course equivalents.
Our proxy for enrollment.
The nation, we saw encouraging trends across vertical areas and launch cohorts.
Revenue in the alternative credential segment totaled $79.1 million up 57% over last year and in line with the increase in EPS <unk>.
This was driven by a 60% growth in short course revenue.
We continue to see extremely strong demand for this product.
Camp revenue grew 54% year over year, reflecting several new offerings and strong uptake across subjects.
All leading to high enrollment.
Now, let's take a look at cost and expenses.
Operating expenses for the quarter totaled $247 million up 13% from last year.
The increase was driven primarily by personnel and personnel related expenses across categories.
Curriculum and teaching expenses grew 41% from last year, driven by the growth in alternative prudential's revenue.
Marketing and sales expense grew 7% year over year and while there are several puts and takes overall this demonstrates the continued scaling of our marketing infrastructure.
Efficient online advertising spend.
Net loss for the quarter totaled $52.6 million compared to $141.1 million a year ago.
Adjusted EBITDA totaled $3.7 million, a significant improvement from the $10.7 million of adjusted EBITDA loss that we reported in the third quarter of last year.
This impressive EBITDA improvement is primarily the result of strong revenue growth.
And improved operational efficiency.
Now for a discussion of the balance sheet.
We ended the quarter with cash balance of $499.6 million up.
Up from $213 million at the end of last quarter.
This increase was primarily driven by the inclusion of $300 million from our August follow on offering.
We also had $15.5 million and capital expenditures, while operating cash flow was essentially flat.
Unlevered free cash flow was a use on a trailing 12 month basis and the amount of $9.9 million is 34.3 million dollar improvement from the June quarter.
This performance was primarily driven by a 37.5 million dollar improvement in cash from operating activities.
<unk> is $6.2 million decrease in capital expenditures.
And on top of the improvement to Unlevered free cash flow. We also reduced our trailing 12 month cash interest payments.
$5.2 million versus last quarter.
In early August we issued 6.8 million shares in a follow on offering for net proceeds of approximately $300 million.
To further improve our financial flexibility.
And put us in a net cash position.
Now for some color on our guidance.
As you've seen in our announcement today, we have reintroduced guidance for fiscal year 2020.
Specifically, we expect revenue to range between 760 and $775 million a growth of 34% at the midpoint now.
Net loss is expected to range between 225 and $210 million.
We also expect adjusted EBITDA to range from $7 million to $14 million.
In addition, we expect capital expenditures for the year to be approximately $80 million.
Weighted average shares outstanding to be just above 67 million.
Our results this quarter and the leading indicators provide visibility for the rest of the year and give us the optimism to reintroduce guidance at this time.
However.
We take the opportunity to share the principles that will inform our approach to guidance from now on.
We believe that it's important for us to set expectations for the business, both internally and externally.
And it's important for management to have the flexibility to make decisions.
In fact, the business both in the near term and in the long term.
Annual guidance with quarterly updates if necessary meets these objectives.
We have begun this practice of giving annual guidance starting today.
To state the obvious annual guidance for fiscal year, 2020, effectively implies fourth quarter guidance.
However, we felt it was important to start now.
Also outline our plan for guidance going forward.
We expect to provide guidance for fiscal year 2021, when we report our fourth quarter results next year.
In closing, let me remind you that this quarter, we delivered organic revenue growth of 31%.
While adjusted EBITDA totaled $3.7 million.
<unk> through introduce guidance, which has revenue growth continuing and we expect to be adjusted EBITDA positive for the full year.
On all accounts.
Extraordinary results and the validation of our strong market position.
We continue to keep our University partners at the center.
Sued and outcomes as our North star.
I look forward to updating you next quarter.
That.
I'd like to hand, the call back to chip.
Thanks, Paul since March when all of higher education was forced online we've been reminded in so many different ways to delivering high quality online education is complicated expensive and requires an integrated approach to technology pedagogy and support for students and faculty.
Capabilities investment and integrated approach or whats set to you apart.
And the quality the offerings and experiences we power across the career curriculum continuum is a major reason why I'm excited about the forthcoming release of our inaugural transparency report.
As you've heard me say during our Investor day earlier. This year, we believe higher education must redefined itself to better serve society is critical needs.
Our transparency report will help to demonstrate how to you is clearly helping our partners deliver on this promise.
Time and parents students and policymakers are all asking more of higher education, and calling for greater transparency about the quality and outcomes that delivers we're proud to be at the forefront of defining what quality looks like online while answering this call and with that we'd be happy to take your questions.
And at this time, if you do have any questions. You can press Star then one on your telephone keypad again. This star one ill start with our fresh question. That's on the line from the line of Steven showed in from William Blair.
Hey, Thanks, good to see strong growth in each segment I think you talked about sustainable momentum going forward. So I wanted to ask.
About the underlying factors driving the acceleration is especially on the full degree side and what that could mean <unk> percent growth rates looking at a 2021 is I would think you'd have increasing visibility there.
Yes, so yeah, we do think that the economic impact.
From the pandemic is proving that our business is.
Cyclical and we do think that it is causing people to on the group under the Green boot camp side really.
Seek out career opportunities to improve and prove their their long term futures and we're seeing increased demand across all three categories. Those in particular as you know are a bit longer term. So.
We're starting to see that in current period results and were pretty a pretty pleased about what it means for the business.
Got it and I mean, as we think about me see the acceleration there over the last couple of quarters.
Now with the enrollment trends that you've seen a trend I mean, I guess is it you know I guess, how should we think about the growth trajectory right at least early in the year.
Steven This is Paul here I don't know.
Thanks, I mean, I think we as we've said in the past and we continue to to reiterate we expect to see.
Growth trends continue I think last quarter, we talked about organic growth increase.
Increasing to the point that we expect to see continued now.
What does that mean if.
If we look at the 31% year over year growth that we see this year I think page 12 of Ken's beautiful investor presentation, that's on the web site.
You would see the sequential growth on a year over year basis, the third quarter of last year was a 17% year over year growth and that's somewhat.
Widen that 30% to 31% that you see here this year. So to some extent you have to look at it on a holistic basis, what's the organic growth on a full year basis, and we expect to see that to continue into next year, particularly to trends we've been seeing in the last two quarters, we expect to see that continue but I want to make sure that the quantum is as appropriate but the bottom line is.
The trend is expected to continue and most importantly, if we back the onion in two thirds of the business when a student enrolls they stay in the system for an average of two and a half years.
So we know what we're going to see that increase a lift as we go through the next couple of quarters and in in a third of the business, which is the alternative credential business. It's been extremely strong in the last two quarters. We expect that to continue we have you know weve launched more subjects in the boot camp business Weve built.
More courses in the short course side of the house and we expect that to continue next year because a lot of this is more topical areas and we are seeing the demand for that we don't expect that to slow in the near term.
Got it that's really helpful. And then a follow up it seems like since has been very poor banking with its decision to invest in permanent hybrid Barney options within the undergraduate programs. What do you see I guess in terms of other universities starting to consider investing in this way in a more structural hybrid offerings at Fannie and could that be a big opportunity for two years.
Over the next few years.
Yes, even we think we think its a huge opportunity. We did go out of our way to mentioned that undergrad is a place that we definitely think there's a lot of runway for the company and.
You know that there's no doubt that that's been impacted by.
By the fact that you know COVID-19 forced everybody go online removed a bit of the sort of a challenge overnight and we're in many different conversations that look and feel like what we're doing with Simmons. So now.
Now, it's obviously higher Ed is moves at a pace that is not the same as business and but.
But I, but I'd tell you. It's it's been it's been a really great series of conversations and a great number of opportunities for the company now with that said, we're we're really focused on making sure that we maintain a thoughtful cadence of a longer term opportunities that you know we're balancing the agenda for.
You know long term growth and you can see now we're back to some pretty heady growth numbers, and we're making sure that we're being thoughtful about how we invest and how we drive towards free cash and all the commitments that we.
We've made in terms of portfolio management looking at margin and the return on invested capital for each of the options that we have but there's no question that undergrad is is strong and you can see we did mention that we already have two more additional LSC degrees.
Got it thanks, and congrats on the solid results.
Do you have more questions on the line for next question. It comes from the line of Arvind Ramnani from Piper Center.
Huh [laughter] things you know.
I wanted to kind of really ask about the kind of the demand environment. You know what has been the appetite for you know assays to sign up to you.
And then how does that how does the pipeline private any look over the next 12 to 18 months.
Our do you mean demand from University partners, Yes.
It's been very strong you know there's no question that the that the effects from the pandemic have had even a stronger increase in.
Conversations related to our full investment model from schools given this.
This is a really tough time and schools need to drive high quality options, they need to drive high quality online options.
And you know, there's a ton of conversations and there's a ton of opportunity where being measured in how we deploy ourselves, but we're pretty excited about it.
Yeah, and I didn't mean, it think of the kind of the market opportunity you know.
Kind of beginning of 2020 versus now you don't have it in sort of reaffirmed that market opportunity and tencent whatever they tend to get that Oh here, just like you know and you think off.
So you can see that but I'd from from undergrad or kind of how the new segments of the market that you think are kind.
Kind of moving to the work with the do you.
There's no doubt we've we've never had the kind of undergrad conversations we're having right now.
But just as an example to get to these results.
The you know, we we had more than 50, new boot camp launches. This year, we just didnt announce them all.
You're talking about a pretty incredible expansion of the alternative credential segment, both on shore courses and boot camps.
With demand across the entire partner base.
And that's how you get to that kind of.
Ah I popping growth numbers for that particular segment that segment is now the largest provider of alternative credentials in the country. You know we believe so.
45, New short courses launched 50, plus boot camps launched and then you get to undergrad and obviously, that's a long term opportunity for the degree business.
We've also seen.
An acceleration in demand for many of the programs that we've been running for years and years seen hitting all time highs on a variety of programs and these recent cohorts where people are clearly looking to re skilling upscale themselves in.
Tricky economic times, you know we started the company in 2008, and what we thought was the worst economy, we'd ever see and it got increasingly better over a long time period, but you know in small ways over a very long time period is difficult to see the impacts.
The overall sort of macro I can tell you today, we feel pretty strongly that we're seeing just how counter cyclical that part of the business is and we do think it gives us a great opportunity for driving growth on the degree side as well.
Great that's perfect I'll get back in queue.
And we do have more questions on the line. Our next question comes from the line of Rishi Jaluria from D.A. Davidson.
Hey, guys chip all Ken Thanks, so much for taking my questions nice to see some continued solid results. There's just two for me first I wanted to start maybe by thinking about your your your multiple growth drivers that you have and.
Do you think about wanting to capitalize on the opportunities you have any alternative credential segment would get smarter and trilogy, while at the same time, not making sure that you're not taking your eye off the ball, but the core graduate opportunity.
Yeah, I mean, we see it's all portfolio strategy. This is balancing our long term investment opportunities.
And you know, we're putting everything through the lens that we told you you know well over a year ago. We told everybody were going to do this.
And we've done it and we've continued to demonstrate I think quarter after quarter that we're focused on it and granted coated through a massive curve ball at the planet and its been complicated, but I have to say you.
You know it's created you know.
A need for existing partners a need for existing programs to be fully online to be operationally. You know, we really did mention that just how efficient. The company has been operating on a remote basis, how strong the employees are delivering for the partners you know 31% organic growth.
And it's really across the whole portfolio and that makes me very proud because you know we intentionally went down this path in a way that clearly was not obvious to the rest of the world, but it was pretty obvious to us at the time that.
Turning credentials are here to stay and they're meaningful there are meaningful opportunities for people to reschedule themselves, if you're getting a boot camp in data science or web.
Web development, you know you see great opportunities for high quality jobs, and then in our in our degree business. I mean, you have certain degrees like our public health programs. Just I mean really just incredible growth why because people are obviously focused on trying to deliver at a time a need for the world and see opportunities in that so.
You know, we really like what we're how we are as to how we've established ourselves across the selection of opportunities for people to create lifelong learning and the universities themselves need partners to do this you know is this isn't really like online program management that doesn't even make sense anymore. This is about.
Sort of digital transformation for the great non profit University and we think that we are at that you know the center of all of that and have pretty incredible positioning for the next several years.
All right great that that that's helpful.
Just on the topic of alternative credentials.
You know it looks like we saw you know.
Nice strength in both sides of the business I want to drill down on the 34% growth you saw on the boot camp side of the business.
I think really impressive, especially given the trilogy wasn't largely.
Person business have you transition online can you talk a little bit about you know that that transition online you know how how it's been so far and I think more importantly, how should we be thinking about the boot camp business going forward and you know with potential reopening then even post pandemic is is there an opportunity to potentially even accelerate.
I'd now that you've got this fully online version of it and then you know the ability to bring back the in person instruction for those that need it. Thanks.
Well I think you could see the growth was pretty heady. So we're focused on quality and growth and I'm pleased to tell you. The net promoter scores are up like it's clear that these programs are meeting the demand in the marketplace, they're delivering for people in the marketplace and.
Delivering high quality long term outcomes, where people, most importantly, which will be.
You know that will be overtime, what matters the most.
So you know we're going online with the boot camp business, obviously was stressful when we were doing it taking everything our mine, but it's been fantastic expanding our geography.
And it's.
We didn't we didn't expect to have to go that fast.
But it's been a significant win for most importantly, the students but also for the company.
All right great. That's helpful. Thank you so much.
Our next question on line comes from the line of Brad Zelnick from Credit Suisse.
Hi, its Bob an entre Brad Congrats shipping Paul and the impressive results one for chip in a follow up can chip, there's always been discussion in the industry as it relates to the various business models for opium how is the financial strain on educational institutions that are in Cove. It changed to discuss as all I imagine there will be a greater interest in there.
Revenue share model, but curious to hear your perspective, and how and understand how customers and perspective customers are thinking about it.
Yes, there's definitely been a you know increased interest in the investment model. It's never been more important you know people don't talk enough about the revenue share gets quite a bit of attention, but the investment that goes in to create the business doesn't get enough attention. It is real investment and.
It's significant and at this time, you know you're talking about schools needing it even more due to the <unk> really intense economic impacts from cobot. So you know we're being thoughtful in our deployment.
But you know if you look at the programs that Weve delivered for people you know our partners are very happy right now and why you know right when they need it. The most these programs it's almost a rush to quality, it's like people are.
Focused on what works and who's been doing this for a while you know it's not it's not like higher Ed just invented the Internet. This week, we've been doing this for 12 and a half years and we've gotten really good at it so.
And the investment model over time there's.
There's no doubt that we are seeing an increase now with that said you know we're focused on also driving the company's financial goals and that segment a measured cadence allows really profitability to grow substantially in current periods over time, and we think that's really important for this for this could become.
Nobody at this stage of life. So we've got these great growth levers, we've got really high quality deployments going out we have new opportunities in undergrad, but they're all body being put through this portfolio strategy and this balancing of our investment opportunities that Fortunately the old credit segment has a different investment pro.
Vile then the degree segment. So we are able to sort of put them together nicely and create the long term sort of portfolio effect to the company that's.
It's also clear that all the partners are interested in talking about all the different opportunities. So creates a lot of cross selling opportunities for the company.
So that's very healthy you know pretty excited pretty excited about where we are right now.
Got it and just as a follow up how should we think about the potential change in administration and the impact that could have to to you and just education as a whole.
We started the company in 2008, we have been through Democratic administrations Republican administrations and been very successful in both.
I feel very confident that we will be successful working with.
Any administration and have done you don't have a whole team.
That has worked on that for now many years done it in my opinion quite well quite effectively spent a fair amount of time, you know working or the <unk>.
The various constituents.
That's good too and teams and feel really comfortable with our ability to deliver what it is.
No a very transparent model that is innovative that creates the right kind of investment characteristics for schools right when they need it the most.
And really you know are very comfortable telling you that whoever wins, we feel.
To be on very strong footing.
Thanks, Congrats again.
And our next question comes from the line of Ryan Macdonald from Needham.
Hi, everyone. Thanks for taking my questions. Congrats on an excellent quarter chip first one for you you know given that we've seen a surgeon positive covert cases throughout the fall and then on campuses and in residential programs can you give us a sense of how University partners are beginning to think about the spring semester are the conversations that you're having.
With these universities still reactionary in nature, you know looking to find a temporary solution for the spring or is it more strategic and sort of longer term. Thanks.
That's a great question, Ryan I think I think the reason that we do in my opinion. The reason that we're seeing such an increase in the longer term undergrad discussion is that people are thinking a much more strategically.
The narrative around higher education.
I personally think it's been frustrating I think you know with higher Ed has had to do and been able to do during this time period I think has been more impressive than not and I would tell you that people are starting to think about their long term future. You know, we said at Investor day at the very beginning of this crisis that we thought higher education needed be blended and connected we didnt say.
Online.
And the reality is blended in connected means that your threading the campus experience with.
Hi quality options for people to be more flexible and be more innovative and be more accessible.
And so we're seeing that we're seeing that reflected in our partner set in a way that is quite impressive.
Now is everybody moving at the same pace no you have schools like citizens that with Simmons University did on the timeline. They did it is quite incredible and then you have schools like LLC that we're ahead of the curve and you know we're launching an online program. The students in it right now because they had decided to do online undergrad, you know a year and a half ago. So but this stuff takes time.
And so we're seeing a real opportunities for us to deploy a higher quality online undergrad offerings, but we're going to do it at a pace that makes sense for the company and to the partners because we need to also make sure that everything we do is really good.
Excellent and then as a follow up you know graduated program enrollments have obviously been very strong for the fall cohorts can you discuss what you're starting to see in terms of top of the funnel and an application volumes coming in for for the spring launches next year.
You know Ryan we're a.
More and more just up leveling the conversation you know from the the funnel discussion were what we can tell you is we've seen great leading indicators, we made that clear in the script.
Feel like we are seeing growth across all three segments and you're starting to see that translate into current results and having been a public CEO for what will be going on seven years I can tell you that you know I'm perfectly comfortable being able to let the results speak for themselves.
And you know overtime, it will come and as it comes people will get it more.
And what we're telling you is we are seeing.
Leading indicators that are that are very positive and you know now Fortunately you know we're able to talk about the current period and you can see that organic growth and sequential growth going up.
In each of these core segments and so it's not just talking about what might happen in the future. What we believe might happen, it's talking about what's happening right now.
So.
We like our odds of continued momentum.
Excellent congrats again.
And our next question comes from a line of Jeff Silber from BMO capital markets.
Thanks, So much I'll keep my first question at a high level then.
Yes, there's obviously a lot going on in the AD Tech space. These days.
Considering your experience in this industry, where do you see this space going over the next few years and what is to use role in that.
So Jeff we are you know, we do think that the notion of.
What what even an online program manager means is.
You know, it's probably been obvious what that definition is anymore.
There are many companies that operate in the space today that that you could consider one could consider online program managers.
And you know what we're focused on is.
The digital transformation of the Great University and you know it really is a comprehensive product strategy for these schools too.
To meet the needs of the learner in places where they might have a greater challenges doing that on their own or supporting them in ways that make them stronger.
And you know I do think it's you know hopefully this earnings period does start to show to everybody.
That you know why we went down the path we did on the two acquisitions we did.
Our gets smarter acquisition and our trilogy acquisitions were both strategic.
And they were about being a more comprehensive solution to the great University and the great nonprofit University.
So are we.
You know, we think we're really well positioned for that reason and there will be you know continued opportunities both organically and.
Organically for us to drive new opportunities for digital transformation for schools.
Okay I appreciate that.
And my follow up is actually for Paul I mean, you would do you set the bogey of reaching adjusted EBITDA positivity by the third quarter you got there I just want to confirm this is something you think is sustainable going forward I know that business model has changed from a seasonality perspective, but would it make sense to see you having.
Adjusted EBITDA positive on a quarterly basis going forward. Thanks.
Yeah, So Jeff our objective was not to cut expenses to get to EBITDA profitability. Our objective was to reengineer some of our processes internally look at the way, we operate and how do we operate more efficiently.
I think that's what the team has done so what you're seeing here today.
It is a manifestation of a lot of hard work internally to make sure we can build on the liver.
The service that the students in the University partners expect from Us.
Do it cheaper better faster. This is not meant to be crossover in the third quarter and then in Q1 of next year go back down we expect to maintain profitability from here on out.
Our guidance calls for EBITDA profitability in a full year basis to be positive and also we expect to be positive you know first quarter is our told this quarter in terms of expenses.
We are projecting to maintain profitability through that period.
Okay, that's very clear thanks, so much.
Our next question comes the line of Brent Ti from Jefferies.
Thanks Chip can you update us on the number of partnerships in the quarter did you add any any new ones I think last quarter. You had two was was there any update to what.
In this current quarter.
So Brent we haven't been we don't update each individual program level or at this point, we don't we don't announce every new launch.
So you know became fairly clear to us that people didn't understand just how many upsells, we were going after and landing in our boot camp business is one example, so during this period of something something about 50, I think it was 54.
Those are individual new programs at each school that are meaningful and so at this stage of the game, we're we're pretty big company and there's a lot of activity Uh huh.
You know, we announced sevens because you know it's pretty unusual that you take a full university online in such a short period and begin even working with.
And receiving.
Financial benefits from the campus program. So it's.
You know, we're really trying to manage the portfolio the business has changed quite a bit and so.
Each individual announcement or you will see us continue to have some.
Some meaningful announcements over the quarter and.
We're excited about some of them, but you know like the Netflix Norfolk State announcement was our first HBC you.
Something that we not only I think is a really important opportunity in terms of the world needing HPC used to do.
To drive high quality options for black.
Americans.
But on top of that we also it's something that we promised our employees that we were going to go after and really believed it was important internally. So I guess I'd tell you that you're going to keep seeing them, but we're not.
You know, we're adding all kinds of stuff we added Colombia, we added for artificial intelligence. We've added something on the order of 45 short course partnerships with schools on a whole variety of different topics and of course, we're continuing to add grad programs.
Those grant programs come at a slower pace than our boot camps and our share of course is because they have a larger investment profile.
Okay. That's helpful color and Paul just on the sustained.
EBITDA <unk> what were the biggest sources of leverage for.
Sustained profitability, how would you bucket and.
Go after kind of the bigger the bigger pieces, where you're excited that that gives you that confidence that you can keep sustaining.
So Brent there are a couple of things marketing infrastructure that we've put in place.
As a highly scalable infrastructure more programs, we add to it.
Leverage we generate from that so that is one area that we're seeing tremendous leveraging.
Second happens to be in our technology platform. Our technology platform also I describe it as platform as a service.
As as we keep adding things to it.
Lowering the fixed cost per unit.
End up generating more operating leverage off of that as we go forward and then there are some of our student facing organizations that are becoming more and more efficient over time as we use technology to help in some of the delivery of services that we have to just.
The nation. So it's across the board student facing a technology and marketing infrastructure. Those are three areas would probably marketing leading the way in technology. Following closely the bottom line is it is it is.
The real real proof and the thought into putting is 31% topline growth and 13% cost increase in the quarter.
I think you're going to continue to see that divergence of topline growth on both an expense as we go through the passage of time.
Like the diversions. Thank you.
And that was our last question that we have for right now.
Alright, thanks, everybody for joining us today I just want to wish a very happy birthday to my executive assistant Sandra Bailey for all her incredible hard work. Thank you Sandra and we will see everybody else out on the road.
And this does conclude todays call you may now disconnect because one of them.