Q3 2021 2U Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the two U S third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question Dan to answer session to ask a question. During this session you will need to press star one.
One on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to Mr. Ken <unk> Senior Vice President Investor Relations. Thank you. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to to use third quarter 2021 earnings conference call.
Ken Gough Investor relations or to you I'm joined by Chip <unk>, our co founder and CEO and Paul <unk> our CFO.
Following chip and Paul's prepared remarks, we will take questions.
Our Investor Relations website, Investor Doc to your Dot Com 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 the COVID-19 pandemic.
Our pending acquisition of IDEXX, including the expected closing date new.
New educational offerings student and 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 or duty to update them.
Please refer to the earnings press release and the risk factors described in the documents we file with the security Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2020, and our most recent quarterly report on Form 10-Q for information on risks uncertainties and assumptions.
<unk> 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 <unk> 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, the call over to Jim.
Thanks, Ken before I get into my normal discussion of results I want to start by sharing some exciting news related to the <unk> acquisition.
I'm thrilled to report that we received the necessary approvals from the Massachusetts Attorney General and the Massachusetts Supreme Court.
We're now in the final stages of the closed process, which we expect to wrap up in the middle of this month I'll.
I'll come back to what <unk> means for us in a moment, but let me first touch on some of the highlights from our third quarter results.
Revenue grew 16% year over year strong growth against last year's comps.
The degree segment was particularly robust driven by undergrad and licensure programs with revenue growth of 21% and segment margins of 22%.
And adjusted EBITDA grew to $14 7 million a.
A margin of 6% and an improvement of $11 million over the year ago quarter.
All in all great results that we believe demonstrate the underlying strength of our model and.
And while we're while we're at it look at the product announcements since our last earnings call, we announced deals with both new and existing partners, including.
And online Masters in social work degree with Howard University, a top 25 ranked school social work.
A deal with the University of Miami Herbert business School to power its current online MBA and create a new track the online advanced MBA for students, who want a faster more affordable option.
An expansion of the Netflix pathways technical boot camps with new H B C. You partners and UC Irvine, one of the nations leading Hispanic serving institutions.
Our new alternative credential client National University of Singapore, one of the world's top computing schools.
And the extension of our partnership with Oxford side business School for six new alternative credential offerings in high demand market relevant business topics.
A nice reflection of the diversity of our product line and the momentum in our business.
Turning back to IDEXX the transaction represents a pivotal moment in <unk> history.
For nearly 14 years, we've led the way in building and defining the O P M sector.
All with a focus on quality access and student outcomes the.
The addition of Addax will effectively transformed to you into the world's most complete online education platform company.
With addax operating as the primary brand for our marketplace educational offerings and services.
Let's dig a little deeper starting with the consumer facing marketplace.
With Addax will become one of the world's most diverse and extensive freedom degree consumer facing marketplaces.
<unk> will have access to over 3500 high quality online education offerings, ranging from thousands of free MOOC courses.
The nearly 200 undergrad and graduate degree programs and everything in between.
Together to you and Addax will deliver learning opportunities from 38 of the top 50 universities in the world as ranked by U S News and a growing list of companies.
At <unk> Dot Org has a truly impressive global consumer reach.
It's a top five education site in the world and a top thousands site globally with the domain authority, that's nearly as strong as Whitehouse Dot Gov, and New York Times Dot Com.
As of the end of the quarter. The IDEXX brand had 41 million registered learners and has drawn 150 million visits from learners. This year alone.
And we believe our combined freedom degree portfolio of content will only further solidify at X dot org as a leading global education platform in destination.
We know from survey data that learners on the IDEXX platform have similar career motivations and demographics as those that enroll into you powered programs.
And we've learned that many of the learners, who are coming to IDEXX dot org to search for and enroll in moves enrolling online degree and non degree offerings powered by to you at a higher rate than leads we generate from other channels.
We believe this overlap and learners will be a key driver in the marketing cost benefits, we expect to achieve with this transaction.
It is a direct replacement for leads we currently pay for and will drive new revenue production at a lower CAC.
Bringing in even more high intent learners to add X Dot award will be a strategic priority for us.
We plan to leverage to use unmatched marketing capabilities expertise and scale to amplify and extend at X is brand and global reach which we believe will ultimately allow us to more efficiently and effectively attract larger numbers of new learners, while reducing our CAC and marketing.
Marketing spend with third parties.
We expect this to be a powerful new lever for the company and driving profitable growth and margin improvement across our business.
But becoming an education platform company is about more than just having a global marketplace.
It's about marrying that marketplace with a complementary and scalable set of tech enabled services core.
Core capabilities like student support our career engagement and clinical placement networks as well as program specific marketing and lead nurturing.
All of which we believe will solidify to use position as the digital transformation partner of choice to great nonprofit universities.
As an example, we will be able to offer partners a traditional full service bundle or a lighter option similar to what <unk> has been providing for its lower price degrees.
We'll also be able to effectively build moocs micro bachelors and micromanages leveraging to use massive libraries of course content.
That unlocks additional value for our partners, while creating more affordable pathways for learning on IDEXX.
We're bullish on our ability to continue delivering more lower cost high quality online degree and non degree offerings to the market.
It's amazing what a non Argo wall and the IDEXX team have built a true global brand with global impact reaching.
Reaching that kind of scale and impact organically is pretty remarkable and we're honored and excited to come together and unlock the opportunities ahead.
Now, let's talk about enterprise, a revenue stream with exciting growth.
Whether through direct sales of our channel partners.
Whether through direct sales or our channel partners, we're seeing real traction and demand from enterprises for our structured offerings.
Together with IDEXX, we can now provide enterprise customers with an even more expansive and relevant mix of structured and self paced technical and nontechnical libraries to reskill and upskill their workforce.
We believe the breadth quality and flexibility of our expanding portfolio of subscription offerings is a winning combination for growth in the enterprise market.
Before I turn it over to Paul let's talk more about the landscape in our performance.
Much attention and speculation has been paid to the overall AD tech market in the last several weeks.
We grew revenue by 16% in the quarter off a large base and performed strongly on the bottom line once again, demonstrating the underlying strength of our model and our continued operational discipline and focus on profitable growth.
Faced with near term volatility in lead generation expenses, which we told you to expect.
We stayed focused on our profitable growth strategy, expanding our EBITDA margin, while maintaining strong revenue growth.
As we look ahead, we believe that Covid has fundamentally changed the landscape and that long term demand for online education and training will only grow.
And we are extremely well positioned for the future.
Our focus on driving profitable growth.
Which we've delivered on over a multiyear period.
Extends beyond just marketing we have many examples throughout the business of how we're using our scale to drive profitability and impact.
One example, our data science and student engagement teams created a construct that should drive 25% better efficiency in our student engagement using our proprietary scoring system that will allow our counselors to focus calls on people who need them.
This has a virtuous effect on the business first it's better for the prospective students, creating a more seamless experience with fewer but more value added interactions.
Second it creates a better employee experience, allowing our team to have more impactful conversations which is what drives that team.
Third it creates a much more efficient staffing operation.
We piloted this in 2020, one it worked brilliantly and it's now rolling out system wide.
We believe it initiatives like this are working and will continue to positively impact the business.
Overall, we're demonstrating scale and increased efficiency.
Revenue per employee increased our margins have continued to improve and we believe addax, who will have a significant long term impact on driving further margin improvement.
In closing, let me leave you with a few additional thoughts on IDEXX.
As a global <unk>.
Rand and platform <unk> will create a flywheel effect in our business, which we believe will significantly impact our largest expense line over time, helping build an even more sustainable and durable business.
We're effectively becoming addax and education platform company with a comprehensive set of products and services and one of the most diverse marketplaces for online education under one roof and brand.
We now have an opportunity to build stronger connections with learners around the world to.
To create more accessible and affordable pathways into higher education.
And to further solidify at acts as the trusted brand of choice for life's learning journey.
It will take us some time to fully realize this transformational impact, but it's inspiring.
And we think it'll become clear very soon that the combination is off to a phenomenal start.
And now Paul will take you through the current results.
Thanks, Chip and good afternoon, everyone. Our third quarter results reflect the resilience of our business model and our ability to adapt to changing market conditions.
Third quarter revenue grew 16% year over year to $232 $4 million with the degree segment up 21% and alternative credentials up 7%.
Operating expense for the quarter totaled $275 9 million, an increase of 12% over the third quarter of 2020, primarily to support revenue growth.
Adjusted EBITDA for the quarter totaled $14 7 million a.
A margin of 6%, while unlevered free cash flow on a trailing 12 month basis was a modest use of $5 2 million.
In a nutshell, we reported a strong strong results on the top and bottom line.
These results are especially good given the digital marketing environment as well as tougher comparisons to the year ago quarter.
We remain disciplined and focused on executing against our strategic goals, especially the progress, we're making to drive profitable growth.
As we look forward the annex acquisition should close soon and we expect it to be a game changer in terms of our marketing position.
Growth prospects and the overall economics of the business.
I'd like to start with a discussion of our results for the quarter.
Then I'll provide an update on our balance sheet free cash flow and.
<unk> cash position, followed by our financial outlook for the remainder of 2021.
Now for a closer look at revenue.
Third quarter revenue was $232 $4 million up 16% from the third quarter of last year.
Full course equivalent our Ftes totaled 78000, an increase of 10% on a year over year basis, while revenue per FTE was up 5%.
Revenue in the degree segment grew 21% compared to the same period last year.
This represents the seventh straight quarter of revenue growth.
Ftes for the quarter increased 21% while revenue per FTE remained relatively flat.
Total ftes reflect the growth in our scaling programs, particularly licensure based programs.
Revenue per FTE reflects the program mix and seasonality in undergraduate.
In particular, a small percentage of on the graduate students at than summer classes impacting both the FTE count and revenue per FTE.
We expected and planned for both the seasonal effect in Ftes and the revenue per FTE in the third quarter, given the timing of the undergraduate academic calendar.
When thinking about the trends in Ftes and revenue per FTE for the degree segment.
Keep in mind that we launched the Simmons hybrid on the graduate program in the fourth quarter of last year.
Which means that we will lap the impact of this program launch next quarter.
Revenue in the alternative credential segment grew 7% on a year over year basis, driven by a 22% increase in revenue per FTE, partially offset by a 12% decline in ftes.
Growth in this segment was driven by a 20% increase in boot camp revenue.
Offset by a 10% decline in short course revenue.
On last quarter's earnings call, we talked about an environment of elevated digital marketing costs across the business and in particular in the alternative credential segment.
This trend continued for much of the third quarter.
In response, we reduced marketing spend at the beginning of the quarter.
While in the latter part of the third quarter, we saw a significant improvement in demand as well as a gradual improvement in cost per lead.
As a result, we increased our marketing spend to take advantage of this more favorable environment and we will continue to manage spend dynamically with.
With the goal of optimizing return on investment.
As a reminder.
Alternative credentials grew 57% in the third quarter of last year with bootcamp growing 54% and short course growing 60%.
As the pandemic and stay at home orders pulled forward demand from this year into last year.
And while cost per lead is an important input.
What really matters is cost per enrollment, which is also a function of how well we convert leads that we generate.
To that end, we have implemented several strategies to drive higher quality leads and to improve conversion.
We continuously adjust our channel mix focusing on more efficient verticals and we have introduced technologies to automate and streamline more of our digital marketing processes.
The result.
Despite the increase in cost per lead and the degree segment, we only experienced a low single digit increase in cost per enrollment this quarter.
We believe that recent stabilization in cost per lead and effective mitigation strategies are strong positive indicators for the business.
And of course, we will soon have the massive user base and organic traffic of ethics as consumer marketplace, which we believe will have a significant positive impact on our ability to generate enrollment efficiently.
Turning now to costs and expenses.
Operating expense for the quarter totaled $275 9 million.
Up 12% from last year.
This increase was driven by an 18% increase in marketing and sales expense to drive revenue growth.
G&A increased 13% year over year to $49 $7 million or 21% of revenue.
Of the $5 $7 million increase $4 $8 million was noncash.
And related to changes, we made to our Denver office lease as we continued to manage our real estate footprint.
Excluding this one time impact G&A this quarter would have been 19% of revenue a continuation of the better operating leverage that we've been experiencing over the past quarters.
Importantly over the next five years, we expect to see net savings of $5 million from this real estate position, primarily from sublease income and reduce frame.
Adjusted EBITDA for the quarter totaled $14 $7 million.
A margin of 6% and up almost threefold from the third quarter of 2020.
We continue to focus on driving profitable growth and.
And this strong bottom line performance reflects the steps we have taken to drive operational efficiencies.
Moving onto segment margins.
Margins in the degree segment came in at 22% for the quarter up 14 percentage points from the same period last year.
Segment loss in the alternative credential segment came in at 22% for the quarter compared to 8% for the same period last year.
Given by higher marketing spend, particularly in the latter half of the third quarter.
This spend in the third quarter is expected to drive enrollment in the fourth quarter.
Net loss for the quarter totaled $60 1 million.
This number was impacted by the Denver lease expense I mentioned earlier, as well as $1 $7 million and costs related to the <unk> acquisition.
Net interest expense in the quarter was $16 5 million, an increase of $9 $6 million driven by the term loan b associated with financing the <unk> acquisition.
Headcount at the end of the quarter totaled 3746.
Compared to 3735 from the year ago quarter.
Turning now to the balance sheet and cash flow statement.
At the end of the September quarter, cash and cash equivalents totaled 951 $3 million down.
Down from $971 $3 million in the June quarter, reflecting the use of net working capital.
Our accounts receivable balance totaled $95 4 million.
Down $6 million from the end of the previous quarter.
Revenue came in at $97 million down.
Down $13 $3 million from the second quarter, primarily driven by seasonality.
This quarter operating cash flow was a net use of less than $1 million, we spent $18 $3 million in capital expenditures and ended the quarter with a cash balance of $951 $3 million.
On Levered free cash flow was a use of $5 $2 million in trailing 12 month basis.
This reflects the reversal of the working capital trend that we saw over the last four quarters, primarily driven by reduced revenue growth against a flat expense base.
As we near the closing of the <unk> acquisition and enter a new fiscal year, where the first quarter is our tallest expense quarter to be conservative we amended our term loan agreement to raise an additional $100 million.
The incremental borrowings have similar terms and conditions to the existing terminal.
And has an original issue discount of 2%.
I'll now turn to guidance and some context for how we're thinking about the coming quarter.
The underlying strength of our business as clear as we navigate near term volatility in the current phase of the pandemic.
We believe the drivers of our long term prospects are fundamentally unchanged on our performance and expectations for 2021 shows the resilience of our business model across operating environment.
And we expect the addition of Fedex that take our model and our prospects to the next level.
As we would normally update our full year 2021 guidance on this call. We thought it would be helpful to do so based on an assumed at X closing date.
So that you will have a clearer picture of the estimated starting points for 2022 metrics.
For the full year, we are now expecting revenue to range from $935 million to $955 million.
This assumes the addition of extra the remainder of 2021, which we expect to contribute at least $4 million of incremental revenue recognized on a net basis.
This represents growth of 22% at the midpoint of the guidance range.
Adjusted EBITDA is expected to range from $60 million to $70 million.
A margin of 7% at the midpoint of the adjusted EBITDA and revenue ranges.
Our EBITDA range assumes dilution of approximately $5 million from the <unk> operations in 2021.
The assumptions for <unk> contribution to the stub period, including <unk>.
Accounting adjustments and closing impacts and as such they are not reflective.
Of go forward run rates, we will provide more information on revenue and EBITDA run rates when we provide our 2022 guidance.
We expect capital expenditures to be approximately $80 million and weighted average shares outstanding to be approximately $74 6 million shares.
To conclude let me emphasize that we grew top line, 16% in the quarter.
With headwinds from the digital marketing environment and extremely high year over year comparisons.
Our topline is especially good when combined with the $14 7 million of EBITDA, we delivered in the quarter.
We expect to close out 2021 with momentum.
And enter 2022 from a position of strength, particularly with <unk> as a part of our organization.
We are excited about the opportunities ahead of us and look forward to delivering on those opportunities for the benefit of all of our stakeholders.
And with that we'll open the call for questions operator.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please standby will be compile the Q&A roster.
Your first question comes from the line of Ryan Macdonald with Needham.
Alright, Thanks for taking my questions and thanks for the additional color on at X as you approach to close here.
So there's a tremendous amount.
Of opportunity for us to help our University partners transfer that content to free content to offer more access for learners and that just creates a bigger flywheel across the business because of the overlap from a learner to prospect basis like were highly confident in that overlap.
We have an obviously close this yet so we're not operating together, but we like our odds of having of impact reasonably quickly as we come together in terms of what the marketplace will do to drive opportunities into into what were historically to your programs and vice versa.
There's been a significant amount of interest on the two you side to expand X products across the to your portfolio. So examples of that we think micro masters and micro bachelors are both wildly attractive from the standpoint of creating new options for people to gain a.
<unk> that will help them in their careers currently and simultaneously gain access at a 20 or 25% difference in cost to the future master's or bachelor's program that might help them succeed even further so it it creates a good outcome for the learner immediately.
And also creates a new funnel.
For us to offer programs downstream.
The <unk> community is is interested in the services that we provide the tech enabled services, we provide and we'll talk all about this in more detail at the time of the clothes.
So you know we do like what we see in terms of the efficiencies it will drive.
We did a ton of diligence on the acquisition, including looking at the the the direct overlap of of people in terms of the learner base and we think you know will it'll take some time to see the full impact, which I know is whatever what he wants to knows how quickly.
But as you know and I'll turn it over to Paul but.
We do really like what we see sitting here today [noise].
Yeah, Ryan I mean, I think a couple of things our objective is to start recognizing some of the benefits that we expect to see in the sales and marketing and sales line. You know, we said that we expected $40 million to $60 million over in in in two years time.
On an annual basis for us, we're gonna try and do that as picky as we can but as we sit here today will probably update you on timing of how soon we can we can recognize some of those but our objective would be to do this as quickly as we can because we believe in the strategic objectives. We believe on the outcomes that we can have here and we recognize.
This is the winning formula for Us and that's that's it that's what resulted enough doing this acquisition and the only other comment that I would make Ryan is you kind of have to think about it a bit it in.
In reverse from what you said.
We're not integrating addax into to you, but it's really the other way around.
X really becomes our Google and to you becomes alphabet I mean, we will put at X front and center into all activity and have for the first time ever one unified place, where we can both offer new programs to the audience and drive more high quality law.
Learning how it comes across all of our disciplines in particular in cases, where someone made it may not be directly obvious what exactly the person is looking for in terms of their future. They may they may want to look across discipline and it's that kind of opportunity. We really never had before so you could think about it is you know the reason that we said this in.
The prepared remarks, you know becoming add X is the <unk> brand.
And that experience really does become front and center for the entire company.
That's helpful color Chirp and then Paul for my follow up <unk> I really wanted to ask you about some of the current dynamics, we're seeing in enrollments and particularly in the undergrad side of the market, you'll undergrads Ah Ah relatively early innings opportunity for to you and so I'd be curious with with the challenges that universities are seeing or in your University Park.
Winners are seeing with on campus enrollments does this altering the conversation at all for online programs for undergrad students in does that is that creating a nice opportunity in the pipeline here for Ya. Thanks.
Yeah, I mean, there's no question that what we're talking about you know, there's obviously been a lot of news related to what you know what's been reported and what the fundamentals are for various businesses and I think what people might be forgetting in this case is that you're talking about a massive transition overtime from what was purely a campus based <unk>.
<unk> to a high quality online experience.
You know we've been doing this for 14 years, but most people haven't N E. Digital transformation is still in very early innings. So we are seeing excellent growth in our undergraduate programs and really like the odds of having more opportunities to do that over the next 24 months you know when you start thinking.
[noise] about what people might have thought as are sort of program cadence back in the day.
What we're looking at more than double next year, what we did this year.
Uhm, there's a lot of opportunity in the space overall, and we are certainly as excited about undergrad as we were prior to all of these recently reported results.
[noise], Thanks, I'll hop back into him.
Your next question comes from the line of Steven Sheldon with William Blair.
Hey, guys and congrats on the results I guess first I just wanted to ask if you'd chair anything about how Ed acts performed.
You know what you think about the last few quarters and then I guess at the end of the fourth quarter have they continued to grow in any differences and what day they have been seen in and cross between their different businesses.
Steven Paul here, there are a couple of things I mean, I think we continues to see performance and the last in the last quarter. So after we had made the announcement the challenge for US is that we had to go through this conversion process. This audit of converting them into.
Some extent adopting the standards of a for profit organization AFC six O six I don't want to bore you with the accounting pieces of it but the basic pieces hairs that when you when you eat pasta to break it apart and get back to the fundamentals. The business continues to be strong and I think it points to the strength of.
The brand on it points to the strength of the marketplace that they have but we'll have more color on that when we get into our first fourth quarter results are first part of next year. Because then we'd have a good indication of how the numbers are comparing on a on a an a for profit basis, which.
Frankly, we just they just went through that audit and they completed that on Friday of last week.
Okay that that would help that football and I get great great to hear that you've been able to offset some of the increased cost per weight on the marketing side with an enrollment efficiency, but I guess just looking out over the next few years marketing efficiency you should get a boost from addax. So how much room do you have you know to to increase enrollment efficiency on top of that and could you potentially C.
I guess, if efficiency improvement in both marketing and the enrollment process as we think about the next few years.
Well I guess I would say you know the the the project that we talked about in the prepared remarks related to suit engagement has been pretty incredible to see that is a significant improvement and also one that has direct cost benefit.
One of the things we're excited about four at X is the opportunity for us to offer some of the some of the services. We provide that X has not been able to historically provide to its university partners. In one of those is you know students port one is lead nurturing to answer this question directly uhm and so you know we do like our.
Being able to when you think about what's happening Sheldon it's like we're marrying the best overall engine on a per program level at scale really nobody's anywhere near our level of scale. If you think about that from a degree point of view.
To an overall marketplace, where for the first time will be able to drive.
Folks to the top level of the marketplace and offer them opportunities to change their lives in a whole variety of different ways. So you're talking about just a <unk>. It's a game changer in terms of both marketing efficiency and expanded reach around the world.
L. S. C. Undergrad has been fascinating for to you. It's our largest program now bye enrollment and it's it is a worldwide program and the reality is at X has you know hundred 50 million visitors a year and you know many of those are from other parts of the world that we can offer programs like that too at a very low cough.
<unk> that program is already you know, it's it's it's Ah it's incredibly high quality.
At a lower price and.
You know, we think that that's a worldwide opportunity for us.
We just haven't had this kind of overall platform to work from in the past and so the combination of the two is that we do think this is industry redefining and it is certainly transformational for both what was to you and what was addax uhm.
You know the the number of opportunities to offer people affordable pathways into something that is going to change their life and you know the reality is to use programs are all extremely high quality. So I think you bring those two together and it's it's quite a story.
[noise] got it. Thank you very much look forward to the closest.
Your next question comes from the line of Jeff's out there with BMO capital markets.
So much wanted to know if we can drill down a bit into your different business segment made me talk about the degree performance undergrad versa. <unk> and then also for both degree and alternative credentials talk about what's happening in the U S versus outside of the U S.
So just let me let me start off here and then chip enjoying in one of the things that we said last quarter is that you know once we build up momentum into degree business that momentum tends to continue for a period of time I think what we're seeing here is to continue.
New Asian of that momentum, particularly and and the degree business. It's a 21% overall year over year growth and if we should bifurcate that our undergraduate businesses, whether it is simmons or L. S. C continues to perform well and led the way in terms of drive.
<unk> of your your growth.
As we get into <unk> I think we all saw an environment and a digital marketing environment, particularly in the summer months that did have some impact across the business on on demand and unconventional and we saw those that environment improve as we got into the latter part.
Of the third quarter.
So as we go forward as we extrapolate and go forward, we do expect our business to continue to perform particularly the Dewey side of the equation because we have seen that recovery. However, the impact of the summer months will have some impact on what we see going forward. When we reported results last quarter, we talked about cost per lead across.
The board, increasing 45%, 70%, 25% in the in the <unk> in the short course and in the boot camp business.
Those same numbers those same corresponding increases today sit around 24%, 33% and 12% for the degree sure of course in boot camp business. So we have seen an improvement and we expect that to translate into favourable performance for us as we go forward, especially with some of the marketing strategies that we've put in place.
In terms of the alternative Prudential side of the house the marketing cycle is much shorter.
So what we expect to see as we go forward, we expect to see improvement and year over year performance, particularly in short course business as we as we get into the fourth quarter and then next year, we expect to see better performance as we go forward. So the bottom line is if we if we bifurcate degree and an alternative credentials we <unk>.
Check the alternative credential business to perform better as we go forward, we have seen improvement in the digital marketing environment and in particular as we close at X.
And integrate into the <unk> marketplace and platform. We will then see more favorable trends in the alternative Prudential space in a shorter period of time.
<unk> I don't know if you would add anything to that I mean, I think you've covered we've you know we we Jeff we like what we see an undergrad right now it's new for US right. So, but it's it's it's working and licensure. The reason we noted that is that you know the world needs more nurses and physician assistants and speech therapists and you know we've got.
Today, a proprietary uhm.
Clinical placement network that that we think is we do think builds the Motorola company in a meaningful way just like everyone else you know when Covid hit shorter term credentials, obviously got a big boost so there were tough comps in old cred.
But if you look at some of the things we've announced in all Cred you know the.
The Netflix pathways or an example of something that's meaningful that you know we we do think that's a replicable model across other enterprises enterprise overall, Jeff is is new for to you. It's the fastest growing part of the company, it's really working and we like what it means for the next couple of years. So you know one other example that you.
Wouldn't see anywhere as we started doing much shorter form short courses that are that are called springs, we're doing technology tracks in the boot camp business for people that have that have already received a certain amount of technology training, where we can offer them additional training to get them instead of from you know.
Point, a to point b, you're getting them from point B to C. D. You know you're you're taking them further in what they need.
We're pretty diversified company at this stage. So we think some of the read throughs from the rest of the world just really don't make much sense.
Alright, and actually the second part of my question I don't have the lawn question was just talking about U S versus international again, if we can have colored my segment that would be really helpful.
You know, Jeff in terms of or degree business, London's Could've economics as a program continues to do well and it has favorable international presence. If you if we look forward to the X axis.
<unk> I mean, I I think it's 50% of their traffic comes from that an international environment. So uhm it bodes well for US as we go forward and presents a huge opportunity for us in terms of our alternative Prudential business, particularly our short course business. It has.
Large international presence and you know quite frankly, we saw that digital marketing environment not just in the U S, but globally and that did impact us as we reported the third quarter here a decline 10% decline in the short course business. However, we do see improvements in that environment also and and we expect to see.
See that improve particularly starting with the fourth quarter and going into 2022.
Alright, that's really helpful. Thanks, so much.
Your next question comes from the line of <unk> with Morgan Stanley.
Alright. Thank you for your time this has been it off for Josh Uhm.
You said a quick question have completion rates trying to cross degrees boot camps on short courses and then just a follow up to that do you think the option to make higher wages, having higher wages have an impact as far as people choosing work over school and how long do you think that will last for.
So you know what's interesting about the overall dynamics because of our diversification.
The you know you have some puts and takes and you know clearly in a full economy.
A traditional higher education is more counter cyclical.
It's interesting about to you because we now offer so many upskilling and Reskilling products.
That are critical for people to succeed or get retrained to succeed.
And you know we think that that is a global trend that is not only picking up steam but he's getting quite critical for employers and the time of a great resignation, you know you've got pretty dire need by employers to get you know their employees ready for what the the need is for the business and.
Then you've got.
Other aspects of the pandemic, where we see where we do C. O C things like you know tailwinds like in nursing and in teaching. So you know you you put it together part of the reason that over the last five years. We we really have diversified the company is we want to be the most comprehensive.
<unk> of education platform on planet Earth, and we think that this addax acquisition.
Is you know for US is the game changer to get there you know we've already got today over 190 high quality degree programs and you marry that too <unk>.
A worldwide prospect base with new programs like micro Masters and and my.
<unk> <unk> micro bachelors, and we think it's a big opportunity in terms of retention uhm.
You know, we overall had been holding pretty steady.
You know if you look at retention historically it to you <unk>.
Using better and better data, we've driven graduation rates up over a decade.
Substantially I actually don't have don't know exactly what that number is in front of me today, but I would tell you that you know, helping students succeed and and sort of finish their programs as critical to the business because if if somebody takes a program.
And leaves that program quickly, we do very very poorly I think that's one of the under appreciated aspects of the shared success revenue share model is that students need to graduate you know they need to stay in the programs for us to do well and I don't think people realize that so we are squarely focused and not not just doing well.
For the world, but also driving the business. It too you retention is kind of one the one number that rules them all so.
Overall, feeling feeling pretty steady about it.
Got it and then how does the Guild partnership tracking and then what will be how will I'd ask and it's business offering fit into that partnership.
Were you know we see Guild is a great growth opportunity from a channel partner perspective today, we are offering we're excited to see the morehouse undergraduate degree rollout as an opportunity for target and Walmart employees.
You know, we've seen all kinds of opportunity for technical retraining. The the boot camps in particular have started pretty hot with Guild. So.
And it's early days, we really just got implemented so we think guild creates a strong opportunity for the company over the next couple of years.
Awesome. Thank you so much.
You know our next question comes from the line of Georgetown with Goldman Sachs.
Hi, Thanks, good afternoon.
So too wanted to dive deeper into your you'll be management strategy as as you think about the normalization of the <unk> cost how how are you planning to approach investing and delete flow to drive further growth acceleration over the next call at two to four quarters.
Well George I mean, I know, we we we've cedex quite a bit but hard to overstate just how large the opportunity is from an organic perspective.
To you today is operating at a scale in on the marketing side that the rest of the space is not I do think we have an unmatched capability there on a per program level.
And then you know as I said, you marry that to an incredibly large base.
Of of folks that we now have really proven to ourselves through a bunch of diligence are highly relevant.
Two other opportunities and will actually end up converting.
At higher rates than we've seen in most of our you know paid marketing channels. So you know <unk> we.
We think it's a game changer for to you from that point of view.
Got it and then as we look at your degree program business can you talk a little bit about the undergrad opportunity separately from the ground opportunity and and where do you see potential for either domestic or international growth. That's.
<unk> to what you've already built.
We we do like the pipeline of undergraduate programs that we see ahead of US you know as I noted in in the comments earlier were.
From a program perspective, we're looking at more than double what we did this past year, where you know we've got much better at watching them with greater efficiency and a lower cache footprint and we do think that undergrads part of the story there's.
You know very significant worldwide demand for affordable high quality online offerings and that goes for undergrad as well so.
I know, there's been quite a bit of commentary in the space overall about undergrad enrollment and <unk> you know, we're certainly not seeing that.
Got it very helpful. Thank you.
Your next question is from Fred half my ear with Macquarie.
Hey, Thank you you know I wanted to ask about the alternative credential segment, where you know <unk> S. T. D's were slower as you were navigating the higher marketing costs environments. It looks like the average revenue per F. C. He actually climbed to a high this quarter, that's something interesting to see when some of the others and Ed Tech It I'm talking about competition to that also.
Some higher wages you know people are spending more to you. Instead. So what are the dynamics that you think are driving this trend in and it was there anything in terms of the mix of programs to call out here.
So Fred I mean, first and foremost mixes what's driving the revenue for F. C. E. As you know to boot camp business is much higher revenue than the short course, and we had more of the boot camp enrollment. Then we then we had of the short course enrollment in the quarter, giving you rise to.
Higher revenue for F. C E. So the bottom line is it's mix and the thing that I will caution is that going forward, we should expect noise and that number we should expect volatility in that number because mixed flips and changes and as we said a number of times, we manage a business as a portfolio if we have a bed.
Or opportunity on one side of the equation will spend then that opportunity. So I think we're fortunate to have an an increase in revenue for F C. But at the same time, it's the overall picture that we tried to manage as we go forward.
Of course that does make sense and then you know I don't want to beat any dead horses on enrollment data, but you know within some of the enrollment data perhaps chip. This would be a question for you. It was looking like more technical and specifically computer science, our I T focused graduate degrees were actually showing significant growth I was wondering are you see.
<unk> any of that play out within say mix of your portfolio or in terms of leave that you're seeing and then generally like is is there any sort of a trend that you're seeing with respect to the you know the ongoing great great resignation as you've called out with the job seekers looking to either upscale or reschedule or perhaps into more technical areas. Thanks.
<unk>.
We think the affordable at <unk> degrees in those disciplines will be another substantial opportunity that we really haven't talked about at all in terms of our degree business. We continue to to believe strongly in the license your programs.
You know R. M B A's have done a better than than than clearly others might might be showing.
We feel like our degree business. If you look at what it's gonna deliver this calendar year, we think it's pretty impressive at our size. So it.
It's a credit to Ebony Lee and her team overall doing a great job managing that overall business for us and one that.
We're very excited about what it means for next year, you know we have a good read through.
21% of growth on them.
Really big base, there's certainly no one else in the platform business as close so I would say.
You know we're.
You know we're leaning in on the degree side.
You know our next question.
Your next question comes from the line at Brent sale.
Hi, This is David on for <unk>. Thanks for taking the question I guess, an AD acts you know hopefully joined the portfolio in the next couple of weeks can you discuss how you think they'll fit in the competitive landscaping and maybe have a differentiate from some other vendors who recently went public in the space and then maybe secondarily on that you know how you're thinking about.
The opportunity and in the consumer side, but it's the enterprise side. Thanks.
You know I would say, it's really about the combination of the two of us coming together to create what is really by far the most comprehensive free to degree.
Online education platform.
There really is an unmatched offering set.
It's early days in the enterprise business, but one that we are investing in an excited about <unk>.
38 out of the top 50 University partners in the world. According to U S News.
Quite quite an impressive portfolio.
And have to you group of universities that are very excited about offering new options that X brings to the table. So.
You know, we we are we're pretty bullish on getting this done and coming together and really going forward, representing addax to the world more than to you.
Got it thanks guys.
At this time there are no further questions ladies and gentlemen. This does conclude today's conference call. Thank you for participating you may now disconnect.
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