Q1 2022 2U Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q U incorporated first quarter 2022 earnings call.
All participants are in a listen only mode. Later, we will conduct a question and answer session.
A question during the session you will need to press star one on your telephone you can't you should require any assistance. Please.
<unk> you touched on telephone I would now like to hand, the conference over to your house and Indian Brownstein Deputy General Counsel. Thank you. Please go ahead.
Thank you operator.
Good afternoon, everyone and welcome to first quarter 2022 earnings Conference call.
On the call this afternoon.
Co founder and CEO and Paul <unk>, our CFO .
Chip and Paul's prepared remarks, we will take questions, our Investor Relations website Investor <unk> Com had their earnings press release, and slide presentation as well as a simultaneous webcast.
A webcast replay of the call made available for the next 90 days.
Statements made on this call may include forward looking statements regarding our financial and operating results. The continued impact of the COVID-19, pandemic plans and objectives of management for future operations, Yeah integration of annex 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 plan or duty to update them.
Please refer to the earnings press release and to the risk factors described in the documents, we filed with the SEC, including our annual report on Form 10-K for the year ended December 31 2021.
For information on risks uncertainties and assumptions that may cause our 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 chip.
Thank you Lillian welcome everyone to our first quarter 2022 earnings call, let's get straight to the results for the quarter and our guide we had a strong first quarter as we expected we.
We delivered $253 3 million in revenue, a 9% year over year increase over Q1, 2021, and adjusted EBITDA totaled $12 $3 million.
Our guidance, which Paul will talk about in more detail later on the call.
We're keeping our 2022 revenue guide in line with what we said in February and we're increasing our adjusted EBITDA guidance, which is now expected to range from $80 million to $90 million.
This represents growth of 28% at the midpoint and a $5 million increase to our previous guide.
So overall, we're pleased with our Q1 results and how things are shaping up for the rest of the year.
To be clear the macro environment continues to remain complicated due to the ongoing impacts of COVID-19, the strong labor market and some overall softness in education traffic and demand.
People are also returning to normal life and that has some impact but I'm pleased to say, we're holding our own nicely all while we continue to transform to you to a platform company.
We believe our free to degree product portfolio with Ed acts as our consumer brand is just what the market needs.
Higher education like so many industries is becoming consumer centric.
Dynamic only accelerated by Covid and.
And we believe that the company to best understand the learner centric shift and can offer students the education and skills. They want when they need it throughout their working lives will win.
We've been working on integrating addax since we closed in November and I wanted to take a moment to give you some details.
<unk> is now the most comprehensive freedom degree marketplace of educational offerings worldwide.
If you go to <unk> Dot org today, not only will you see thousands of open courses, you'll now find an unmatched portfolio of all to use offerings across degrees boot camps, and executive education available to learners everywhere in the world, It's pretty incredible and the first time in <unk> history, where all of our program offerings can be found.
In one place.
We're off to a great start on <unk>, but we have much more to do.
We see six keys to unlocking the full potential of <unk> dot org and cementing it as the preferred destination of choice for learners across the globe.
Those six are number one traffic.
Number two our Seo and content publishing.
Number three portfolio marketing versus single product marketing.
Number four product evolution with stackable credentials.
Number five white label opportunities and revenue model flexibility.
And number six new international channels and enterprise expansion.
We're making some good progress across all of these dimensions and I'll hit on some with a few comments.
We grew learners this quarter to $44 million, primarily with greater feo efforts right out of the gate post close as Seo and content publishing have been a core focus of our team.
It's going unbelievably, well and we're already seeing it bear some pretty compelling fruit.
For example, if you type executive education into Google.
<unk> is a top organic search result for that term often in the top five.
Go ahead and try it.
You can do the same for online boot camps and online Masters degrees.
Although these offerings have been on <unk> dot org for only a few months they already rank on page one of Google's organic search returns and in many cases in the top five this is a big deal. It means not just monetizing the existing traffic, but creating better and better lead flow everyday organic traction on Google is a key driver.
<unk> of our business.
You'll see us actively continue to publish new content on a disciplined basis, a career basis and a learning opportunity basis, all of which should continue to significantly improve organic search results across a variety of categories.
It's early but these SCO efforts are already creating some really great traction for to use products and partners.
We're seeing run rates of 500000 leads per year coming to the to your prospect forms on X in 2022.
This represents nearly 10% of our lead volume companywide.
With no additional marketing cost involved.
And better we expect to be able to triple this amount over the next 18 months.
The reality is a tiny fraction of the AD X traffic or even seeing the two new products, we have much much wood to chop.
University of London, and LSC Undergrad are an example of a two you'd agree benefiting from this new lead flow.
LSC undergrad is a global brand a high quality experience and a very affordable degree roughly $26000 learners.
Learners are coming from all over the globe.
We're seeing significant traction from IDEXX.
Over Q1 alone <unk> already represents 20% of our lead volume and our largest non paid channel for this degree.
And those leads are submitting applications at a 30 plus percent better rate than leads from our paid channels that is huge.
The implications for this across our business is significant particularly as we create more affordable pathways for people and improve our products fit with IDEXX.
On new products and stackable credentials. This takes time, but we're also making considerable progress we love the micro Masters and micro bachelors programs we.
We have 30, plus micro masters in negotiation with our University partner base.
These will create quality career focused options for our learners saving them tuition dollars in the process.
Each micro Masters offers nine to 12 credits for free to the learner stacking in the full Masters program. If the learner wants to move ahead with their studies.
Now before I turn it over to Paul I want to add a quick comment on both the enterprise channel and our University pipeline and partners.
The enterprise channel continues to grow quickly.
We saw almost 70% growth in revenue from enterprise in Q1 compared to the previous quarter.
We've integrated all activity under the IDEXX for business brand and we're seeing a lot of interest and traction in the market because of the breadth and diversity of <unk> offerings.
On the University side, we continue to see growing demand from new and existing clients were on a bit of a role now.
I'm happy to announce our newest degree with the University of North Carolina at Chapel Hill.
UMC is launching a new school of data science in a new degree program a masters in data science. This will launch in 2023.
We love this opportunity with one of our flagship clients.
Overall partners are excited about the opportunity that <unk> brings to the table as a digital transformation partner and a platform for serving adult learners worldwide.
As a testament to the central role Great universities play and the two new vision, we're excited to announce the launch of to use first University leadership Council.
The Council comprises 15 presidents and provosts from our partners, who will help guide us in our mission to unlock human potential through high quality affordable online higher education.
Members include Allen Garber Provost of Harvard University, Cynthia Barnhart Provost of MIP, and Wayne Fredrick President of Howard University. Among other incredible leaders. The full council can be viewed at <unk> dot or take time to check it out.
Now I'll turn it over to Paul to get into the financials.
Thanks, Jeff and good afternoon, everyone.
We reported solid top line performance with strong adjusted EBITDA and cash flow performance, which is particularly noteworthy considering that the first quarter is typically a higher expense quarter and the quarter with the highest use of cash and we did this while diligently prioritizing executing execution.
And integration of Fedex.
Revenue grew 9% to 250 to $3 $2 million over the first quarter of 2021.
We saw growth across the portfolio.
Green program segment grew 6% and the alternative credential segment grew 15% all on a year over year basis, while IDEXX contributed $10 9 million.
Expense for the quarter totaled $364 $7 million, including $18 3 million of operating expense from Nx.
And $58 8 million of noncash impairment charges related to certain of our acquired intangibles and goodwill assets.
Adjusted EBIT for the quarter totaled $12 3 million margin of 5%.
While free cash flow used on a trailing 12 month basis came in at $34 1 million.
In summary, we reported solid top line performance in a difficult marketing environment and exceeded our expectations on adjusted EBITDA and cash flows.
After a discussion of results for the quarter I will provide an update on the balance sheet and cash flow statement, and then conclude with some thoughts on our financial outlook for 2022.
Taking a closer look at our results.
Revenue for the quarter totaled $253 $3 million.
Up 9% from a year ago.
Driven by 5% increase in full course equivalent enrollments are sce's, which came in at 85000 for the quarter.
Ftes increased 6% on a sequential basis.
And the degree program segment revenue in the first quarter totaled $154 2 million growth of 6% from the first quarter of 2021.
This increase was driven by higher student enrollment.
A 4% increase in Ftes and at $2 $7 million contribution from FX.
Revenue from the alternative credential segment totaled $99 1 million growth of 15% from the first quarter of last year, driven by higher student enrollment and 8% increase in FTE.
This increase includes 3% growth in revenue from our boot camps.
9% growth in exact AD revenue and.
And then $8 $2 million contribution from edits.
Now, let's take a closer look at costs and expenses.
Operating expense for the quarter totaled $364 $7 million.
Up from 206 to $9 6 million in the first quarter of 2021.
This increase includes $18 $3 million of operating expense from Nx.
And the $58 $8 million noncash impairment charge.
Let me spend a few moments on the noncash impairment charge.
Following the decline in our stock price during the first quarter, we determined that a triggering event had occurred.
And consequently performed an interim impairment review.
Which led to a write down of $30 million of trade name and $28 $8 million write down of goodwill.
Personnel and personnel related expense, our largest expense line item.
$5 $5 million for the quarter to $124 $5 million, but ex contributing $7 million.
Moving onto profitability.
Net loss for the quarter totaled $125 8 million, an increase of $82 million from the first quarter of last year, reflecting.
Reflecting the $58 8 million of noncash impairment charge.
$6 million and higher interest expense and $18 $3 million of additional operating expense from IDEXX.
Adjusted EBITDA totaled $12 $3 million per quarter.
Adjusted EBITDA margin in the degree degree program segment was 23% for the quarter, a six point improvement over the first quarter of 2021, showing the inherent profitability of the degree segment business model.
Adjusted EBITDA margin in the alternative credential segment was a loss of 24% compared to a loss of 14% in the first quarter of 2021, driven by an $18 million impact from FX expenses.
Now for a discussion of the balance sheet and cash flow statement.
We ended the quarter with cash and cash equivalents of $233 6 million a decrease of $16 $3 million from year end 2021.
Our accounts receivable balance totaled $77 9 million.
Up $10 $6 million from the end of the previous quarter.
Fluctuations in our accounts receivable balance reflect the timing of payments from our University partners, which often matches the academic calendar.
Unlevered free cash flow usage on a trailing 12 month basis was $34 1 million compared.
Compared to a net use of $33 $9 million at the end of 2021.
Now for a discussion of guidance.
Our priorities for 2022.
Turnaround unlocking the value of Fedex.
Continued investment in our degree program segment.
And improve the profitability and the alternative credential segment.
We are affirming our revenue guidance for fiscal year 2022.
We expect revenue to range from $1.05 billion.
$109 billion.
Representing growth of 13% at the midpoint.
We are increasing our adjusted EBITDA guidance, which is now expected to range from 80 million to $90 million representing growth of 28% at the midpoint.
In addition, we expect capital expenditures to be approximately $80 million and weighted average shares outstanding to be approximately $78 million.
Let me provide some color on our expectation for the quarterly progression of our revenue for the remainder of the year.
On our last earnings call, we shared that we expect a challenging and unpredictable marketing environment.
While we have seen that we still expect to see revenue growth accelerate in the second half of the year and.
And we expect flat to moderate to modest growth in the second quarter on a sequential basis.
That concludes our first quarter results showed resilience in enrollment and revenue.
And we are proud of our team are going above and beyond to deliver these results by focusing on disciplined execution along with integrating nx.
And with that let me hand, the call back to Jim.
Thanks, Paul before we turn to questions I want to spend a minute talking about the first set of Gallup results that were released last week from our recent survey of nearly 4000 boot camp graduate.
The findings are compelling and a clear reflection of the career enhancing value our boot camps can deliver.
Gallup found that one year. After graduation, the median salary for all bootcamp graduate survey was $11000 higher than what they said they were earning while they attended the boot camp.
<unk> also found that the median bootcamp graduate who work full time during and after the boot camp offset 59% of what their boot camp program cost them in the first year after graduation.
We hear a lot of talk in higher education about ROI and this is what great ROI looks like and we're delivering this ROI at an unmatched level of scale 48000 boot camp graduates to date across 50 plus partners in.
In the coming weeks Gallup will releasing more data about our boot camps, including the career satisfaction of graduates and the impact of boot camps on creating equitable pathways for historically underrepresented learners to enter careers in stem so keep an eye out.
We know that our boot camps can deliver life changing outcomes, which is a big reason why we're expanding our access partnerships across the United States and overseas. These are public private collaborations with workforce agencies at the state and local level nonprofit partners, where funding is provided directly by the government or philanthropic support which allowed the <unk>.
Boot camps to be offered at even more affordable prices and in some cases for free.
We currently have access partnerships up and running with the following University partners. The University of Birmingham University of Central Florida University of Denver University of Kansas University of North Carolina Chapel Hill University of Oregon University of Texas at San Antonio The University of Texas at Austin, and the University of Utah with more than.
The pipeline, we believe these public private collaborations can and will be an effective and scalable way to help local communities across the country meet the growing demand for skilled tech workers and that is a winning proposition for us all.
Now, let's open it up to Q&A.
And as a reminder to ask a question you will need to press star one on your telephone to enjoy a question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Stephen Sheldon from William Blair. Steven Your line is open.
Hey, Thank you.
First I wanted to ask on the marketing side.
Have you seen any changes in your efficiency to fill cohorts and programs across businesses.
A lot of education peers in the industry are talking about students pursuing work right now given where wages are im curious, if thats, making it harder or costlier to fill the programs that to use supports or if any headwinds there are starting to be offset by some of the positive market efficiencies you talked about from IDEXX.
Hey, Steven.
We.
We did plan for inflation in our budget to marketing costs that was baked into our plan. So we felt pretty ready for it.
There's no question that you do see some impacts to the business in our labor costs are increasing.
It makes it more competitive to hire people, we are seeing some wage pressure.
And on the marketing side.
We've actually seen more stability.
To be clear so volatility has definitely gone down since Q1.
So we feel like it's less volatile right now than it was in Q1.
And given that we baked increases into the budget, we're working through them.
Now it's also clear that.
The degree business has always has always been and always will be somewhat counter cyclical. So you can argue that right now when you're at full employment is a harder time for the degree business just conceptually, but we also took that into account. So we feel comfortable right now.
With how things are going in of course.
The need for Reskilling and Upskilling is significant.
And the need for companies to continue to prepare their workforce significant.
You might have seen the chief Learning Officer survey that showed great growth ahead for enterprise and we mentioned in the call that.
We saw 70% quarter on quarter.
So ultimately.
We feel that were.
We've got it pretty pretty well covered.
Got it that's helpful. And then did want to ask about the enterprise traction.
Just be great. Ian it was great to see the great to get some more detail on what's driving that between what you got from that ex the assets you already had and the benefit of the Guild partnership I guess, what are you seeing across those different channels of engagement with enterprise customers.
Really strong demand for boot camps in particular.
There's no question that technology training is a huge part of this.
And so we're seeing strong demand for boot camps across.
Our our own enterprise activity and our Guild partnership Exec.
Executive Ed is we do think the enterprise channel is critical to that product line in particular.
And so pretty major uptake from a whole bunch of different clients, we decided to not get into listing clients are listing wins into the earnings earnings call just simply for competitive reasons, but.
But 70% quarter on quarter sequential non trivial so.
We're obviously a lot bigger than most people in the space. So the enterprise number.
Historically was doing really well, but hadn't hadn't registered it's definitively starting to matter.
And we'll provide more and more clarity on the channel strategy over time, you might have heard me comment that.
That we've now integrated all enterprise activity under the extra business brand.
And that's definitely been a win.
So part of the really the joy of this overall.
Transaction is that it is impacting pretty much all parts of to use so that's a good example.
Great. Thank you.
For our next question, we have George Tong from Goldman Sachs. George Your line is open.
Hi, Thanks, good afternoon.
Last quarter, you had mentioned.
Hi.
Seeing some delays with implementations and new program launches can you provide an update there and the progress for some of those programs to get re accredited and timelines with some administration changes and how they are approaching a relaunch or new launch of those programs in 2023.
Yes, we feel like we feel like we're on track right now with the expected program launches for this calendar year and we're feeling you heard me mentioned that we feel like we're on a bit of a role.
Our feeling.
Definitely an improvement in.
The pipeline and what next year and the year after looks like it's actually quite interesting is because some of the types of programs that we run take a long time to get through the process. We're actually building a nice queue of programs for 2023 and believe it or not 2024, which I know investors tend to.
B.
<unk> be surprised at universities do work in five year planning, so sometimes 10 year planning and so we feel like we're building a queue of particularly licensure programs, which we've done very well with.
For the outer years.
And we're definitely seeing more growth from existing partners. So.
You heard me mentioned University of North Carolina Chapel Hill, the institutional.
Programs that we built there.
Sure.
Clearly, we have gotten off to a slower start there and it's really starting to come along so.
Im very excited that we now have our first relationship four degrees in Australia.
With University of Sydney that has a significant relationship in University of Sydney for for the.
U S folks on the call University of Sydney is one of by far the most prestigious schools in all of Australia.
So we think thats a significant opportunity.
<unk> is clearly helping with existing partners.
The transition to a platform company is meaningful.
You heard us mentioned.
The impact on the LSE Undergrad program.
That is a perfect.
Truly a perfect program for the <unk> overall platform.
And you'll see us do many more programs like that.
From the standpoint of.
Creating really affordable options for people worldwide to to unlock their potential.
And what we're seeing is.
<unk> will be a weapon in our ability to not only hold the costs, but to bring the cost down over time, one of the misnomer in the entire OPM spaces.
Because you're sharing revenue people think that you're interested in higher prices and that's just ridiculous.
We actually have the entire burden of the marketing expense and the expense of finding the right students for the right program and we don't make the admissions decisions. So ultimately these are not inelastic goods as the price goes up conversion goes down and it's really really good for the world to have more affordability. It's also really good for our.
<unk>.
So youll see us continue to have more and more affordable programs over time.
So <unk> is definitely having a real impact on our ability to generate new pipeline opportunities.
Got it very helpful.
And then secondly, with lead Gen costs, we've certainly seen increases over the past year.
Cost to acquire leads can you talk about how those costs have evolved in both the degree program side of the business and then also the alternative credential side of the business.
George Let me start off on chip to join in after.
We planned we budgeted.
Inflation and cost per leads across our business for 2022, and we are still seeing cost at that inflated level level. However, it is.
Seeing some some stability and we are seeing some more predictable.
Cost as we as we go through periods, but generally it is still in play and we have maintained that.
And at the levels that we have in our budget in fact, just a little bit below our budget in the first quarter.
Yes.
George.
Now that we're starting to give more color on <unk>.
There's many reasons why we did it but clearly.
Organic organic search is just a huge huge important part of our it's a lever for our business and you can now just go do it on your own look and go on Google and type in the search terms that are relevant and what youll see a few overtime is offer more and more opportunities more specific.
Content marketing.
With the incredible domain authority of Fedex.
That will allow us to just open the doors to more people to further their goals I mean, the best driver of organic is it is it is a huge part of our future from the standpoint of driving greater affordability, because we can obviously use it to pull the cost there.
But.
But we have seen some stability I would also say maybe just to add to this to the first question. It's also important that one of the things that we find curious at times is people have read throughs from other AD tech companies that honestly have very little to do with our business or very little similarity to our business from a product standpoint.
<unk>.
From our.
From our standpoint, we had built in what we thought was a reasonable amount of inflation into the marketing costs.
And we obviously spent a lot of capital to do something that we think long term.
We'll really combat that in a significant way youre talking about a top five education website worldwide.
And probably most importantly, one that unlocks people's potentials. So three courses are great for the world and they also create an incredible marketplace opportunities.
Very helpful.
Thank you.
Our next question, we have Ryan Macdonald from Needham Ryan Your line is open.
Hi, Jeff and Paul Congrats on a nice quarter here.
Maybe a question for both of you.
I really like the the comment about the 30 plus negotiations on the micro Masters program.
You kind of walk us through.
As your existing partners look to adopt those.
What the process is in terms of launching those those programs in.
What maybe impact that would have on sort of the profit.
Profit margins or the adjusted EBITDA outlook as we see today.
Yeah, Hey, Ryan so that.
We love the micro Masters Thats, why we specifically call them out stackable credentials are a big part of the future youre, creating just incredible opportunities for people to unlock their potential to get.
Certificate that they can use to improve their current sort of job prospects and then if they want to continue you have got this credit load that comes off youre, creating a pathway of people into a degree program now with fascinating is they take.
While they take time like where this has been done at X to date, you've just got incredible results. So you take the supply chain micro Masters and you look at the impact that it's had that it has had historically on the on campus supply chain Masters.
They used to run a small cohort and they effectively doubled it because of the of the micro Masters impact now, we don't expect things to double nor need them to double to have a huge impact. If you. If you were able to generate an opportunity to have a 10% lift or something like that into our program. You are talking about a huge economic opportunity.
But most importantly, youre driving affordability for the winter.
So you are talking about.
No.
The reason, we love them. So much is there they are an excellent alternative credential for somebody to improve their life.
And then if they want to continue their studies.
Wanted to sort of take the next step even if they want to take it down the road.
<unk> got this ability to drive a 10000 dollar cost difference into the Masters program, you're talking about material cost savings. So.
Those will take time as the one bummer.
Everything takes time so the reason we put it in the 30 plus is that.
Our University partners are really excited about them. So we're going to have a whole bunch of them.
Are they going to have an impact on this calendar year financially no.
We're hoping to get a couple of them launched this year.
Should they next year absolutely.
Yes.
Excellent and then maybe as a follow up just as a clarification, obviously you called out the tight labor market and sort of the impact that that is seemingly having sort of bleeding into undergraduate enrollments in stopping programs really to enter the labor force et cetera. As you look at the guidance that you set for the full year are you essentially assuming no <unk>.
<unk> and sort of this or change to the current labor market dynamics.
When you think about that top line.
Well.
First of all.
Once again, if we're talking about read throughs from other companies.
We have three undergrad programs to date and we're about to announce our fourth we have 187 masters programs to be clear.
So it is a very different.
It's a different construct now.
There's no question that.
That graduate degrees.
Are more interesting to people when they are looking for jobs, that's not new.
But.
We've had a really strong economy for a couple of years now so.
We expected it.
Over time, if the economy does.
Take a step back is that good for our degree business sure but were operating.
In this current environment and we feel like we're prepared for it.
We also have the you have got some tailwind from that.
The boot camps are doing incredibly well from in the enterprise channel and there's a reason.
The reason that we included the Gallup research.
I understand why we want to talk about things like that.
The marketing levels in our EBIT levels, but like at the end of the day. This business is about producing results for human beings.
And when you look at the results of the boot camp business.
Like the ROI immediately is there.
And people go into tech and obviously do do well over time, and what I feel like as everyone else in the boot camp space is doing very small numbers. So if youre going to do this at scale those types of results are impressive.
We do think that that has some tailwind aspect to it.
And I guess I should have also mentioned that.
Something that because of the <unk> has become a lot more important to you.
We are now.
<unk> all kinds of different corporate partners to create content on <unk> and it's going very well. So in Q1 alone we had.
New products from IBM, Google The Linux Foundation math works and <unk>.
And those types of programs are very attractive to people in this current labor market.
And we expect to do more of it and that's part of the reason that we're seeing the kind of growth in enterprise, we're seeing so.
We see that as a tailwind.
And chip I mean at the end of the day, we have multiple approaches to hitting the numbers that we have.
In this economy that we're in here employers are doing more to keep their employees. So all the trend is one approach. The degree segment is another approach as we think of some of the things we talked about Fedex Micro Masters. It's multiple approach and then at the end of the day. We also have the ability to deliver stronger EBITDA, depending on how we see variable expenses go.
To support revenue.
Thought it was interesting like if you look at the rest of the space you've got people seen weakness in <unk>.
Consumer offset by enterprise.
And we thought our consumer.
Held its own and.
Of course, we want a bigger enterprise business.
It is ryan starting to get meaningful.
But net net we saw growth in our degree business I think a lot of others did not.
Very helpful color. Thanks, a lot.
For our next question, we have Josh Baer from Morgan Stanley Josh Your line is open.
Great. Thanks for the question.
Paul wanted to revisit some of the commentary on free cash flow and just.
If you could help walk through again free cash flow burn and then timing for free cash flow breakeven that would be helpful and just to make sure. We know is it unlevered or levered free cash flow operating free cash flow just any details on the <unk>.
Trajectory on free cash flow side.
Hey, Josh So I think.
If we look back at the first quarter and when we provided numbers, we had $80 million of EBITDA $80 million of Capex expecting a neutral net working capital a year.
That would have given us.
<unk>.
Somewhat of a net neutral.
Free cash flow and then when we look at it on a levered basis with debt payments included in it which is about between $45 and $50 million. We would we were expecting about a $50 million use of cash on a full year basis on a levered basis.
After our first quarter results, our tallest expense quarter.
<unk> cash usage for the quarter, we only burned $16 million.
Look back at our plan at the beginning of the year, we were probably expecting somewhere between $25 million $40 million of use of cash in the first quarter. We ended up spending about $60 million of cash in the quarter net cash and we also ended up and delivering more EBITDA, which we pass through to the guidance. So.
All of this means that as we sit here today, we now have $85 million of EBITDA expected for the year, we have $80 million of Capex, which is probably on the conservative side of things, but take it for what it's what it's worth that's five to positive $5 million for the year and then we have $45 50 million.
Of interest payment.
Net net it ended the year, we should be expecting to be.
Use of cash of about $40 million on a levered basis now all of this is dependent on how the next three quarters unfold.
I think what we've demonstrated in the first quarter is that we have a plan that have multiple ways of hitting the top line and delivering on the bottom line, but most importantly, we have variable expense of the model that says if return on investment is not there on the marketing spend you will see that drop to the bottom line and also we're finding ways.
Yeah.
Mark <unk> and the operating teams are finding more and more ways to deliver revenue at lower cost. So we are optimistic on the on the adjusted EBITDA side of equation and we're hoping that we can see favorable marketing conditions to help us deliver revenue.
Okay, Great. That's helpful. And then I wanted to ask one I think the number of registered learners, if im right moved up about a $1 million quarter over quarter.
Just wanted to get your take on that.
Are you happy with that level is that the right level going forward, how should we think about that.
We still we still firmly believe that it's first of all it was a $2 million increase Josh and very almost no marketing to be clear. So I think if you compare and the contrast that across the industry.
We are.
We're pretty full right now from the standpoint of digesting what is a very significant transformation.
Not just an acquisition and so we're not in the process yet spur.
Spending marketing dollars on X or the portfolio of Addax. So it was really just organic and SCO and theres a lot of blocking and tackling. So when I said, we have a lot of wood to chop like we have a lot of work to do.
But it's actually.
Starting to work so we will pick up the pace of the.
The Warner acquisition and.
Particularly.
The.
We're starting to see the.
The benefits of doing so.
What's interesting about one of the items that I listed on <unk> that we didn't talk about it on this call, but you can only talk about so much.
Is one of the keys one of the six keys is portfolio marketing versus product marketing.
Every product historically for to you. If you think about how profound what's happened is every single program.
Has its own marketing funnel and we're trying to find somebody at that one moment. It is the right person that can get in and we don't make the decision that is interested in attending.
University of California, Berkeley data science right now.
That's what we do and that his heart.
If you're talking to somebody that might want an MBA, but it doesn't know what type of MBA.
Even better example, what if youre talking to somebody in <unk>.
Counseling discipline, we have many different counseling programs and they get very specific so do you want marriage and family do you want clinical psychology, you want social work do you want speech therapy.
There's many different types, we never been able to market to those people without being as specific as that individual program. So the idea of this portfolio marketing. We think is really relevant and we think will drive the number of learners into the system because ultimately starting with free is an excellent way to introduce people to tops.
And to drive interested learners into different types of programs. So we fully believe long term in the free expression. So.
I would also tell you like unifying registration across the entire <unk> system, I know that sounds <unk>, but like as.
As we start to do things like that start to offer applications across addax start to offer all conversion across Alex right. Now you click on a card and you go outside the site like none of that's optimal so it's very early days and we're already talking about 10% of our lead flow. So.
We do think that Youre looking at.
Really a very significant change to the way, we think about marketing over the next three years.
And.
That's one of the reasons why we're being careful about how much marketing dollars, we put behind X. Today now each individual program is kind of operating at the efficient frontier of that program. So theres a lot of belief here based on what we're seeing that the bottom quartile of that degree spend could be spent better.
If we look at it from a quarterly perspective. It is it is basically the production and marketing spend we had in the fourth quarter productive marketing spend that we had in the fourth quarter and also.
The beginning of a lot of the academic.
Calendar for some of our classes. So we were and this is something that we were expecting something that we were projecting and it basically represents prior period marketing spend that we had projected. It also has some seasonal impact. It is it is the.
Beginning of presentations, particularly in some of our exact Ed.
Horses and.
It's basically across the board if you look at both the degree segment Fcs increased.
As well as the alternative credential, it's both of them now keep in mind that.
Some of the increases also has to do with contribution from <unk>.
Masters, which is in the degree segment, although it's minimal I wanted to make sure I call that out and then in the alternative credential segment. We did not include any of their ftes in that particular segment. So that is purely organic increase in the alternative credential segment.
Okay. That's really helpful. Thanks for pointing that out and my follow up on I hate to switch to a regulatory issue, but you know I think a number of us have been waiting for this J ill report on OPM, which I believe just came out earlier today.
Read every single page of it but it looks like.
They are recommending just providing clearer instructions to auditors and colleges about the OPM arrangements that the schools are involved with I am not sure. If you had a chance to look at it but I'm. Just curious if you have you have your thoughts around the report okay. Great alright, thanks, any thoughts would be pretty accurate.
So we reviewed the report and we're very supportive of the <unk> recommendation. So number one we've led the industry in transparency, we put out transparency reports for multiple years.
We've always complied with the rules regarding incentive compensation whenever our University partners have been asked for information about how we can compensate employees. When they have had any kind of audit we happily provided it and the reality is as the OPM industry continues to grow.
Come in even more vital part of the higher Ed ecosystem. So.
Jeff Greater transparency and continued oversight will actually ensure that the industry as a whole is serving the best interest of students and of course universities.
Then also taxpayers so.
We've worked with both Democratic and Republican administrations from the beginning.
In a constructive way.
And we continue to actively engage not just the department of education, but members of both sides of the aisle on what an appropriate regulatory landscape for this increasingly important segment looks like so.
We thought it was a positive.
Okay I appreciate the color. Thanks, so much.
And for our last question will have Brent Thill from Jefferies. Brent Your line is open.
Thanks, Hi, guys. This is David Lafitte gone for Brian . Thanks for taking the questions I wanted to touch on the adjusted EBITDA guidance increase I think the midpoint is up $5 million I know last quarter, you called out 30 to 40 million of a headwind from FX.
I'm just curious does this is this coming from core to your side of IDEXX side or is it all a bit of a combination of both.
I think I think it's a combination of both right. So let me start with a couple of numbers here.
If you look at the <unk> numbers.
We provided at the beginning of the year, we said roughly around $35 million.
If you look at the run rate that we have the first quarter numbers produce about $7 million I think it was $10 $9 million of revenue and $18 $3 million of expenses.
It's about seven new run rate that is $28 million run rate and we expect the next three quarters to be better than the first quarter. So that says <unk> is going to burn less than we had anticipated at the beginning of the year. So thats one bit of contribution. The second one is if we look at the personnel and personnel related expenses I said that that increased about $5 million.
$124 million per year.
But I also said that <unk> contributed $7 million.
That $1 24, which means that overall there is savings on the personnel and personnel related expenses I'm, a little more cautious on that one because while we firstly on Brazil first unrelated expense shows and savings.
Given the environment that we're in now given the macro environment given the great resignation, we do expect that.
The wage component of personnel and personnel related expense may put some pressure on that number as we get through the back half of the year, but overall I go back to <unk>.
Our ability to use technology.
And our.
Human capital extremely well as an organization to deliver revenue cheaper and faster and I think we'll continue to see operating leverage as we go through time and the 85% is simply a representation of operating leverage across the board not any one particular thing.
Great. That's really helpful color, thanks for that and.
The second question.
You were talking about the enterprise side and apologies if I missed this I got I got pulled in with the operator.
But can you put any color on how many enterprises you guys are in today or just maybe your penetration within the enterprise or your ability to cross sell over time.
Or maybe just color on the growth rate and I think I think you said, 70% quarter over quarter, but maybe how that compares to some other quarters to help put that into context. It would be really helpful. I appreciate it.
Yes, I guess.
We're very aware that this is a segment that is keenly of interest to the investor community and.
Effectively what's happened is that <unk> has opened a ton of doors.
Basically.
Guild, obviously exposes us to new enterprises.
But.
We're at a point where.
We're.
We're aware that the.
As we give greater detail to the street throughout this calendar year, you'll hear more and more from us on.
But the segment overall look sorry, what this line of business looks like how it fits across products I mean, what's interesting is it is across all of the two new products today, you know what I'm, saying.
That's real.
<unk>.
But we're not at a stage, yet where we can give you a tremendous amount of additional detail. It is seven.
70% sequential growth.
Right now.
60% year on year.
Great really appreciate it thanks.
There are no further questions at this time I'll hand, it back over to chip Childs.
For closing remark.
Thank you everybody I guess, that's it and that's all we will look forward to talking to everybody throughout the quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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