2U Inc. Q1 2023 Earnings Call
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[music]. Good afternoon, My name is Rob and I'll be your conference operator today at this.
Time, I would like to welcome everyone to the <unk>, Inc. First quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question again press the star one. Thank you Steve <unk> head of Investor Relations you May begin your conference.
Thank you Rob and good afternoon, everyone welcome to to use first quarter 2023 earnings Conference call. Joining me on the call. This afternoon are chip <unk>, our co founder and CEO and Paul <unk>, Our Chief Financial Officer. Following our prepared remarks, we will take your questions.
Our earnings release.
Slide presentation are available on the Investor Relations website, and a replay of the webcast will be made available later today.
Statements made on this call may include forward looking statements regarding our financial and operating results plans and objectives of management for future operations, including our strategic realignment plan. The implementation of our platform strategy anticipated trends for learners and University partners changes in law.
Laws regulations and agency guidance for our industry and other matters. These.
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 to the risk factors described in the documents filed with the Securities and Exchange Commission.
<unk> our annual report on Form 10-K for the year ended December 31, 2022, and other SEC filings.
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 to use performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our 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.
And with that I'll turn the call to chip. Thank you, Steve we had a great Q1, notably we reached positive levered free cash flow for the first time will tell you all about it shortly but before we get into the business. Let me spend a few minutes on a topic, that's clearly overshadowing the fundamentals and the strong performance of the company. There is some confusion about what.
Going on in the regulatory environment, and I'd like to try to clear that up.
As framing for you forget the civics lesson, but the order of priority goes law regulation guidance.
It comes from Congress regulation as the executive branch implementing those laws and guidance is meant to be additional color or commentary related to the regulation.
Our Dear colleague letter, which you'll hear me talk about coming up as a form of guidance they come out for many different agencies on many different topics and.
February 15th the Department of Education May two separate and largely unrelated announcements there were applicable to our industry.
Firstly announced a significantly expanded interpretation of who the department can regulate as a close third party servicer under the higher Education Act Secondly announced a review of the 2011 bundled services Dear colleague letter I feel like we need to explain both because some folks have been conflating the two.
First let's talk third party servicer, which has nothing to do with revenue sharing under bundled services through a dear colleague letter, which as a reminder guidance the department announced a brand new significantly expanded interpretation of the definition of a third party servicer under the higher Education Act to provide some context for you a third party servicer of spin.
Typically defined by the higher Education Act and the department's regulations as entities that manage an institution's titled for financial aid programs, either manually or through automated processing.
The safeguard federal funds third party Servicers are subject to extensive requirements governing the management of title for loan and grant programs.
And in February 15th Dear colleague letter, the Department announced a new and much broader interpretation of the definition of a third party servicer. It would cover a wide variety of entities to support an institution's educational programs, including hospitals Police Department as publishers study abroad programs high schools and online program.
<unk>, even though these entities have no plausible connection to the administration of title for financial aid.
The Department originally set the compliance dated May one 2023 and invited the public to submit written comments, which of course, we did.
Following very critical comments from the entire space and the American Council of Education on February 28, the department postpone the effective date to September one 2023.
By the conclusion of the comment period on March 30. The Department had received over 1000 comments from students educational institutions nonprofit associations and service providers to colleges and universities. The vast majority of these comments in fact around 99% were against the department's expanded view of a third party servicer many of the <unk>.
<unk> announced the letters expansive new interpretation as contrary to law complain the letter would disrupt educational institutions and their third party contractors and emphasized the <unk> of the September one effective date.
So many others, we disagree with the department's new definition of third party Servicers, we firmly believe the department's actions contradict the higher Education Act and their longstanding interpretation of it and also violate the rulemaking requirements under the law as a result, we filed a lawsuit against the department in early April asking the court to declare this guidance unlawful.
Unenforceable, we urge the board to reject the department's actions to revise the law and claims sweeping powers, which are not authorized by Congress. We then filed a request for a preliminary injunction on April 7th asking the court to stay the effective date of the Dear colleague letter pending the outcome of the litigation.
Then on April one the department through a blog post announced that they decided to revise the dear colleague letter and delay its effective date to six months. Following the release of some updated version whenever that may be now.
Now a couple of points for you to note about the third party servicer guidance in our lawsuit.
First during the department of Education was not a decision we made lightly.
As with any business, we have to take calculated risks and measure potential benefits versus those risk.
And this will also it was no different we obviously consulted our internal and external constituencies, including our board and it was something we thought through quite meaningfully at the end of the day, we recognize the importance of being a leader in this industry and we recognize the need to protect our shareholders and shareholder value and to ensure that we're able to continue to deliver for universities.
And their students each of which is critically important here. This meant pushing back against the department when it overstepped its legal authority.
Second I want to reiterate that we're not alone in our views. The department's actions here University has spoken out against the department's actions and in that spirit, we have not seen any negative impact to our pipeline or anything like that since we filed the suit in fact, the suite has been very well received by our clients. So far so good.
It's important to reiterate that we agree with the department stated goals of additional transparency in our space and reducing the cost of tuition and correspondingly student debt. We just disagree with the department's means for achieving these goals. We welcome the opportunity to collaborate with the department to find ways to move those goes goes forward in a manner consistent with law.
Now moving on to bundle services people confuse the department's third party servicer guidance with the department's announcements that is reviewing the bundled services rule essentially in its announcement. The department stated, it's reviewing the benefits and disadvantages of revenue sharing arrangements that have been the norm for many institutions for more than two decades the.
<unk> did not issue any new guidance with respect to bundled services.
Guidance written back in 2011, and a dear colleague letter makes it clear that the higher Education Act permits revenue sharing agreements, where a third party is providing recruiting services as part of a bundle of services to the institution. This understanding which is consist consistent with the department's position since 1992 spanning five <unk>.
<unk> administrations serves as the foundation for our degree business model as well as the foundation for the rest of the industry.
The department invited the public to submit written comments on bundled services and those written comments overwhelmingly supported the current guidance overall the department received 268 comments and over 90% supported keeping the bundled services rule in its current form this is good.
A couple of important points for you to note about bundled services first I've seen many articles conflating. The department's review of bundled services with its new third party servicer guidance, which is entirely inaccurate.
Fact is the department has not made any changes to the 2011 and bundled services to your colleague letter they only announced they'd be reviewing it.
Second for the first time since <unk> was founded in 2008, we're seeing universities speak out loudly about the benefits of revenue sharing this is huge universities that become very animated and concerned about any changes that might be made.
Rather than trying to summarize all of the Amazing letters University submitted let me share a quote from Grover Gilmore Dean Emeritus of the school applied Social Sciences and case Western Reserve University. He addressed this fact in his comments quote tuition revenue sharing is a good business model for the University hero.
Quote to you shares and interest in attracting qualified candidates who can complete the program as a full service partner is in the interest of every area in the business model for marketing to online content support and to student support to ensure that students are served very well with bundled services marketing success in the revenue generated are tied directly.
To the enrollment and eventual graduation of students.
From our point of view related to bundled services, it's really good to see the department listening to the actual stakeholders that matter for whom these relationships are critical this is a big deal.
Now, notably our velocity of client signings for our new flex model are accelerating indicating not only our clients desires for these revenue sharing models in the current climate, but their confidence in both the immediate and longer term future of revenue sharing.
Okay enough with regulatory now, let's move on to the first quarter results and accomplishments junior delivered a solid start to 2023 with strong EBIT growth and positive free cash flow. Our results are driven by our best in class Nx platform and execution of our platform strategy.
Our core focus remains profitability and sustainable cash flow, while driving strong student outcomes to this end I'm pleased to report a new milestone for the company, we generated positive adjusted free cash flow of $10 million for the 12 months ended March 31, 2023. This metric is inclusive of our interest payments.
And it's something we've never done before.
We delivered adjusted EBITDA growth of 146% versus the prior year.
We continue to leverage the domain authority of that acts to drive organic leads and marketing efficiency.
During the quarter at X generated 40%, 41% of organic leads up from 37% in the fourth quarter.
We announced the new metric at Investor day to encompass the full breadth of the annex to your portfolio of activity. This metric is the learner prospect. This quarter, we generated over 3 million new learner prospects, which includes all expressions of interest across our open course degree boot camp and executive education offerings.
This brings our total to 76 million across our platform.
Our marketing and sales expense was 42% of revenue in the quarter, a full 10 percentage points lower than the first quarter of 2022.
More importantly, while expense was down meaningfully our total number of leads increased by 7%.
To understand why revenue declined 6% versus the prior year remember, we transitioned to our new marketing framework in mid 2022. So this was expected revenue is an output rather than an input to our model.
The enterprise business continued to cook with strong revenue growth at 57%.
We have enormous runway here at <unk> has best in class content portfolio is highly relevant for every level of the organization from entry level workers to the C suite.
Our competitive differentiators are meaningful in this huge and growing market annual learning and development spend is 360 billion globally.
We had a great quarter on what we call content velocity, we're rapidly, adding new higher education offerings with four flex degrees, one full degree and 33, new professional certificates added this quarter we.
We just signed an additional flex degree with Arcadia University, our partner since 2019 to launch their Doctor of Education program.
As mentioned our pipeline of opportunities is strong with substantial interest in our flex degree model in both the U S and abroad, notably the U K is a hotbed of degree activity as these universities cope with lower enrollments following Brexit.
But we've seen increasing interest in this model in the U S. Also.
Together with our partners this quarter, we launched over 130, new annex courses from 50 unique institutions, we welcomed many new members, including Southern Methodist University Tel Aviv University Wesleyan University, the University of Cape Town, Lufthansa and others.
This morning, we announced a new partnership with Deepak Chopra, the internationally recognized author and leader in global will be to create open courses and executive education programs and topics ranging from consciousness to integrated medicine areas Choper as defined over the course of its decades long career as an international figure and wellbeing.
This partnership underscores that Alex is not only a platform with content and programs from the worlds top universities, but also a hub for influential mines and thought leaders.
All of this exceptional content requires a superior platform and learner experience with this in mind, we're committed to continuously advancing the IDEXX platform with innovative ways to deliver value to learners, we built and will soon launch two new tools that leverage generative AI.
The first is the ability for learners to instantly obtain a concise summary of the video lecture a more convenient and efficient way to access evaluate and reinforced the educational content.
Second is a learner help center, which leverages the capabilities of chat GPT to efficiently answer questions about courses the platform policies and purchasing.
We believe this feature can expedite the pre course selection process for learners as well as improve the service experience. We have an exciting number of AI related projects on the roadmap for the remainder of 2023 and beyond.
In conclusion, we're off to a really good start in 2023, as we execute the platform strategy and drive greater profitability and cash flow our solid performance for the quarter led us to increase our adjusted EBITDA outlook for the full year now Paul will take you through the additional detail take it away Paul Thanks, Jeff and good afternoon, everyone.
One in the first quarter, we continued to deliver on our goals with a particularly strong performance in adjusted EBITDA and cash flow we.
We delivered adjusted EBITDA of $30 2 million, a 146% increase from the first quarter of last year.
Adjusted Unlevered free cash flow on a trailing 12 month basis was $58 5 million compared to $11 $5 million at the end of 2022.
And for the first time, we delivered positive adjusted Levered free cash flow, which came in at $10 $4 million.
We're proud of these results, particularly since our first quarter is typically a higher expense quarter and the quarter was the highest use of cash.
And we did this while continuing the implementation of our platform strategy and.
And perhaps more importantly, we were able to outperform on adjusted EBITDA and cash flows while continuing to navigate a tricky macro economic environment to deliver the top line.
Before delving into the specifics of our financial performance I'd like to provide you some context.
As you saw in our press release, our Q1 results represents a calculated an intentional decision to prioritize long term profitability over immediate revenue growth.
This strategic shift is supported by our marketing framework overhaul, enabling us to allocate resources more efficiently and effectively.
As a result, we are attracting students at a reduced cost while also enhancing our capacity for innovation and delivering superior outcome.
This transformation bolsters, our business model paving the way for sustained value creation, we expect to see growth in revenue and increased profitability as we approach the mid year point, marking one year since the implementing since implementing these changes.
I'll now move on to a more detailed discussion of our results for the quarter and then I'll provide an update on our balance sheet and cash flow, including with some thoughts on our outlook for the year.
Taking a closer look at revenue.
Revenue for the quarter totaled $238 5 million a decline of 6% from a year ago, driven by a 9% decrease in full course equivalent enrollments our ftes.
Which came in at 77000 for the quarter FTE.
Ftes were relatively unchanged on a sequential basis.
Revenue from the alternative credential segment totaled $98 million.
A decline of 1% from the first quarter of last year, driven by lower student enrollment in 3% decrease in Fcs.
This decrease was driven by a 24% decrease in <unk>.
Revenue.
Offset by a 16% decrease in revenue from our Booth count.
In the first quarter enterprise revenue grew 57% on a year over year basis of $13 1 million.
And the degree program segment revenue in the first quarter totaled $145 million, a decrease of 9% from the first quarter of 2022.
This decrease was driven by lower student enrollment and 11% decrease in FTE.
Now, let's take a look at cost and expenses.
Operating expense decreased $106 million when compared to the first quarter of last year.
Operating expense for the first quarter of last year included $58 $8 million goodwill impairment charge without that impairment charge operating expense for the first quarter of 2023 decreased $47 2 million to $258 7 million.
This decrease reflects the realization of savings from our 2022, our strategic realignment plan and marketing efficiencies from our platform strategy.
In particular, they had marketing decreased $19 3 million in personnel and personnel related expenses decreased $19 6 million.
Marketing and sales as a percent of revenue came in at 42% for the quarter a decline of 10 percentage points on a year over year basis.
This decrease was largely driven by a decrease in paid marketing costs.
Without noncash items, such as stock based compensation and depreciation and amortization marketing and sales as a percent of revenue came in at 39% for the quarter.
Stock based compensation expense for the quarter totaled $14 6 million down $9 9 million or <unk> 40.
40% from the first quarter of 2022, primarily due to head count reductions.
We ended the quarter with headcount of 3377 compared to 3806 to nine in the first quarter of last year.
Moving onto profitability.
Net loss for the quarter totaled $54 1 million an.
An improvement of $71 7 million.
On the first quarter of last year, reflecting lower operating expense I just mentioned.
Partly offset by a $16 $7 million charge recorded to reflect the modification expense and the extinguishment loss associated with our January 2023 debt refinancing.
In addition, we recorded $4 $1 million and higher interest expense.
Adjusted EBITDA totaled $30 2 million for the quarter a margin of 13%.
Adjusted EBITDA margin and a degree segment was 34% for the quarter and 11 percentage point improvement over the first quarter of 2022.
Knowing the inherent profitability of the degree segment business model.
Adjusted EBITDA margin in the alternative credential segment was a loss of 17% compared to a loss of 24% in the first quarter of 2022, driven by lower operating expense.
To remind everyone we expect.
To be adjusted EBITDA positive on a full year basis in the alternative credential segment.
The first quarter is normally our highest marketing spend quarter and we expect the spend to decrease as we progress through the remainder of the year.
Now for a discussion of the balance sheet and cash flow statement.
We ended the quarter with cash with total cash and cash equivalents of $109 3 million.
A decrease of $73 3 million from year end 2022.
Primarily reflecting the impact of a $187 million debt Paydown and the January 2023 refinancing.
Our accounts receivable balance totaled $72 8 million.
Up $10 million from the end of the previous quarter.
Fluctuations in our accounts receivable balance reflects the timing of payments from our University partners, which often matches the academic calendar.
Now for a discussion of guidance.
We are affirming our revenue guidance for 2023.
We expect revenue to range from $985 million to $995 million.
We are increasing our adjusted EBITDA guidance to reflect the over performance in the first quarter, while maintaining our outlook for the remainder of the year.
We now expect adjusted EBITDA to range from $157 million to $163 million representing growth of 28% at the midpoint.
As discussed last year, our priority continues to be delivering strong adjusted EBITDA growth and sustainable cash flow.
Revenue continues to be an output to our model.
Concerning revenue pacing for 2023, as we've said a number last earnings call revenue in the second half is expected to return to growth.
In particular, we expect second half revenue to be about 10%, it's 10% higher than the first half of 2023.
We are seeing green shoots ended the green business as we teach out our COVID-19 enrollment and expect to see enrollments from our first quarter marketing spend.
We also have several new enterprise and social enterprise opportunities that we've announced to have an impact.
In addition for 2023, we expect stock based compensation to be $58 million capital expenditures to be approximately $60 million and weighted average shares outstanding to be approximately.
82 million shares.
To conclude.
Our first quarter results showed strong bottom line performance on a number of great wins that we believe will deliver topline growth in the future.
And with that I'll turn it back over to chip today to you is reaching more than 76 million people worldwide with accessible affordable high quality education, and one of the world's most powerful online learning platforms, we're leveraging our track record for delivering strong student outcomes to facilitate economic and social mobility at scale and with the outstanding.
Support of our 250 University and corporate partners, we're ensuring that all people have the opportunity to fuel their ambition.
And with that we will open it up to Q&A.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
First question comes from the line of George Tong from Goldman Sachs. Your line is open.
Hi, Thanks, good afternoon.
The free cash flow for the quarter, our adjusted Levered free cash flow turned positive it sounds like that was an outperformance versus internal expectations can you elaborate on what drove the upside how much of it was revenue driven coming in better than expected how much of it was more prudent cost management and how would you expect those trends to progress over the course of the year.
Year in other words can be upside from <unk> persist moving through the rest of 2023.
George So a couple of things.
If you look at the cash flow statement.
In the press release, I think Youll see a couple of things we saw a positive contribution from working capital and that comes from.
Obviously collections as well as payables.
A lot of what we do on the on the change in working capital side of things has to do with the matching up of the academic calendar. That's point number one point number two.
We are seeing the flow through of the 2022 strategic initiatives that is contributing to the EBIT side of the equation EBITDA is up significantly.
$32 million this quarter, we expect to EBIT as it continues to be the main driver of free cash flow as we get through the rest of the year the.
Only X factor that we see as we go through in a year that will contribute to a fluctuation would be the change in networking capital and that has to do with the academic calendar I think you noticed very well third quarter, we tend to have that mismatch in the academic calendar. So we expect net working capital.
But we expect EBIT to be high enough to make up for that use second quarter of 2023, we do expect that we will have EBITDA contributing but not perhaps maybe not contributing enough to make it a positive $10 million, but closer to zero and then as we get into the fourth quarter, we expect that to be positive. So.
Overall for the full year, we expect to be positive and we expect some fluctuations that primarily has to do with changes in networking capital.
Revenue is contributing obviously flowing through to EBITDA and then the strategic plan.
Of course marketing the marketing contributions the marketing spend is a contributor to the EBITDA number also.
Okay got it that's helpful context around free cash flow and maybe digging in a little bit more on the revenue and the expense side of things how are those <unk>.
Trends progressing versus your internal plan are you finding that the efficiencies of organic.
Paid is starting to improve in line with your expectations as you as you migrate from from paint organic.
Yeah.
So George a couple of things. The short answer is yes, we are seeing green shoots as I mentioned in my prepared remarks.
And the degree side and we're also seeing.
Higher contributions of organic leads to the overall marketing framework that we have now keep in mind that we expected. We planned we budgeted for the first half of this year to ramp up into the back half of the year simply because we made the changes.
Third quarter of last year that in fourth quarter. We generally don't have a lot of our marketing spend and marketing activities. So this was our first full quarter do we expect to see the benefits of this as we get to the back half of the year.
You've seen all the announcements we've had we've had a number of new partners that added us that we added in the first.
Quarter of this year that we expect to contribute as we get to the back half of the year also chip I don't know if you'd add anything to that George the only thing I would add as you might've seen 41% organic up from 37 in the fourth quarter.
We're converting off at X, what you would expect us to be converting so it's becoming a meaningful contributor on the consumer bootcamp side and the consumer <unk> side.
We also think it does become a pretty solid lever over time to generate interest in the enterprise channel because people that took.
Exec Ed in particular, it has such a high completion rate Super high quality Super high.
Satisfaction. So if you took one of the small cohorts in the Exec Ed course, what about taking your team through it.
We think that's a big opportunity so.
Continue to find continuing to find ways to leverage the IDEXX platform into various parts of the business.
It doesn't have as big of an impact on the historical degrees, yet, but that's because Seo takes time to ramp and I would tell you like the <unk>.
Disruptive we price degrees, it's pretty impressive.
The cohort or cohort four.
Bu MBA program in the fall it probably will be the biggest cohort we've ever had and that's all generated off of organic on IDEXX if.
If you look at the U T. The University of Texas Austin.
Master of artificial intelligence.
It's the extreme of this it is going to be very large and thats. All once you get off at X. So.
So we're pretty pleased right now we feel really good progress being made.
Got it very helpful. Thank you.
Your next question comes from the line of Ryan Macdonald from Needham <unk> Company. Your line is open.
Hi, Thanks, I'm, taking my questions and congrats on a nice quarter here of chip.
Touching on the regulatory environment, obviously TPS.
Right.
Bundled services exception, obviously, creating a lot of distraction.
Right now and sort of uncertainty, but it sounds like that you're still making really strong progress in terms of demand and converting some of these flex degree pipeline can you just talk about.
How your how the how the conversations with these prospective University partners are going in.
Whether that is impacting at all sort of ability to to sign new degree programs or new partnerships.
Yes, Thank you Ryan.
Obviously didn't.
Pursue.
The action that we did with against the department for any reason related to our pipeline or anything like that we certainly didn't expect.
Candidly did not expect it to be.
As strongly positive as it's been from the standpoint of the sentiment related to it.
We felt like it was important to do it as a leader in the space, we felt like we had to.
And we will continue to stand by that because we do believe that.
We're in the right on this but.
With a unit from a university partner standpoint, I would tell you that really since we since we announced it.
It's been an excellent response.
If anything.
<unk> has been accelerating so it has not only not put a damper on anyone's interest in wanting to do a longer term revenue sharing.
Opportunity, but at GFS GSV I know.
We saw you there multiple times.
There were five we did at GSV that we're really at the show like live at the show.
That were not expected and so that was obviously after we had done.
After we had filed so we feel very strongly our universities want us to stay I think that's the most meaningful.
One of the positives of doing it.
Is it has animated the space in a meaningful fashion.
And then on bundled services I will tell you that's unrelated to GPS.
For 15 years now we've wanted University partners to make.
Stronger statements about the importance of these models.
And these are risk averse institutions.
And for a long time it seemed like there was no reason to make statements related to these models.
And that area is definitely over the universities are super active right now as they should be.
This is a very important business model.
Universities are going through a tremendous amount of diligence.
And negotiation to come to a conclusion on relationships that take a long time to form. So these are not Willy nilly decisions, there well thought through and clearly universities want this business model as part of their toolkit.
Build and transform themselves and do high quality online education, So we've definitely seen an acceleration.
There is no hesitation for folks to enter into revenue.
Revenue sharing relationships and I think it's important to remember that on TPS. It was 99% of the comments were positive and on bundled services it was 90%.
Part of the reason that we went through what we went through in the prepared remarks.
It is not because we really want to spend our time talking about regulatory affairs I would candidly much rather spend my time talking about the 33 professional search we launched in the quarter, but we thought it was important because people are definitely confusing the two.
Obviously, we're pursuing and continuing litigation so we're not going to we're not going to talk about the litigation itself, but that's on its course and we're.
We feel like we're on a good course, and then on the side of bundled it's been incredible to see the response from the University partners and from my standpoint, its about time, because these are really important programs in models.
Producing nurses and social workers and physician assistance and.
This kind of training is critical for the country and it's all being done under the bundled services models. So we're thrilled to see the support from the space.
No that's super helpful color Chip I really appreciate it maybe just as a follow up I wanted to ask about sort of the <unk> platform and sort of you sort of emerging potential there is a strong distribution channel for new content partnerships.
Youre, obviously generating more and more organic leads there and obviously, they're going to get quite a bit of traffic in terms of new learners.
Are you starting to leverage that to drive new content partnerships and relationships that can sort of create that flywheel of interesting new content continues to bring new learners to the platform and.
We thought the content velocity was notable we keep increasing it.
We are having great success, bringing in new University partners like it's great to see like Tel Aviv University.
Incredible University in a region, where we need more content. We're excited to see it. We are excited to see University of Cape town, a place where we've done tremendous activity on the short course side on the exact head side for years and have an incredible team in Cape town. So they were particularly excited to see University.
Cape Town sign up and.
You might have noticed.
We launched the thing called try its very very small short.
Short sample courses that people can try one of the biggest obstacles to getting somebody over the hump to really change their life in a coding program as an example, or in a cyber program is distress around starting and so giving somebody an opportunity to start and we just launched them and we're really seeing people.
Start them try it and then jump into a full program and that as a big impact to the business no marketing cost, but it has a bigger impact of the world because people need.
The OECD estimates of $1 1 billion jobs are going to be transformed by technology in the next decade, well by the way that's that came out before chat GPT you think it slowed down no I think it has increased quite a bit here. So.
All of that kind of training platform. We think is huge and we do think that.
Platforms of the future of education, and so we're really happy to see.
Our transformation and to see how it is being responded to.
The content velocity across all of the categories has picked up to a point where now we're in the process of figuring out what new Exec Ed courses were going to do because enterprise is doing so well so.
Lockdown right on the content side Ryan.
So I appreciate the color I'll hop back in.
Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open.
Hey, Thank you and nice work in the quarter.
In the first year in all credit it seems like there has been a big ramp in launches. This year. So just curious if that was a notable factor at all.
Step back and profitability this quarter or was it mostly just about normal seasonality and it sounds like you're still confident about being positive in all credit for the full year. So just given what youre seeing recently curious if you're more or less confident about that now than you would have been a few months back.
So Stephen a couple of things.
Boot camp grew 16% on a year over year basis in the first quarter.
The first quarter is generally where we would spend.
And particularly.
At a higher rate than we would for the rest of the year and.
Based on our internal calculus here.
We are just as confident about more confident on the.
All year alternative credential being positive on a full year basis and that has to do with the growth that we're expecting in the back half of the year.
Both on enterprise and social enterprise in the back half of the year. So the short answer is we are still positive on being.
On olive garden being a contributor on a full year basis on EBITDA and secondly, based on the performance of boot camp based underperformance of enterprise, particularly social enterprise, we feel good as we head into the back half of the year here.
Great.
Helpful and then.
I appreciate all the regulatory and it gets to the guidance commentary and encouraging to see the department of education kind of walking back into positioning but.
But with at least some remaining uncertainty out there hasnt.
As unfortunately have to think about that way is it is it impacting how youre running the business at all especially in terms of where you're allocating capital structure, new programs as planned to launch or even things like.
Trying to reduce your total exposure to title for funding given given that uncertainty I guess, how do you think about it.
Absolutely not.
We have over a multi year period half a decade worked hard to have a lower title four percentage. So none of that is relevant to the current.
Either TPS or bundled.
Certainly not to the lawsuit so it's not really impacting the way we run the business look we are as a company. We are concerned about affordability. We are concerned about debt to income ratios, we have been for years.
So.
It's not just important for the world, but it's also good for our business to have lower tuition prices as Steve and you probably know what most folks didn't win certainly not.
Something thats made it out enough into the practices, we offered lower revenue share for.
For lower tuition. So this is something that is really good for the company.
So it is having no impact on running the business I mean, I will tell you I am surprised to see that.
I feel like we've had an acceleration of university revenue sharing interest.
That that has surprised me.
Great. Thank you.
And your next question comes from the line of Josh Baer from Morgan Stanley . Your line is open.
Great. Thanks for the question when you start thinking about lifelong learning platform.
Platform strategy, the potential lifetime value of a student.
I mean with that in mind.
What keeps a learner on Fedex to your platform from a competitive differentiation standpoint, like how do you think about the competitive environment.
Over time, and the and the potential overlap of learners with some other platforms yes.
Yes, so Josh we think that the quality of the content.
Literally 30.
I think eight of the best 50 universities on the planet.
On the executive side, which we're excited to rollout the executive education subscription, we think that that will that that's a real.
<unk>.
The small cohort very high quality.
Very high NPS very high completion rate.
One of the things that I do think is.
Relevant about the entire positioning of the company is at X springs outcomes at scale.
Just interested potential.
Potential.
Learners you've got.
Folks that are completing and driving really high quality.
Opportunities to fuel their ambition to get that next job or to get that promotion or to make themselves a better human because theres a lot of courses that can inspire people. So.
Continuing to pull that content velocity and just.
Light up that flywheel I mean, I do think it's pretty notable how much we've sped up our ability to bring in new content.
So.
It's all very high quality stuff and I think that's differentiated the service stack underneath it that originally came from to you as part of the story no question.
So embedding that into <unk> meaningful career engagement that we have to support that we have.
Are all meaningful contributors to people completing.
And then I would say the boot camp business itself.
Is.
It's doing this at a scale that no. One else is like we just passed 70000 graduates from those programs and there is a huge need for that from not just enterprises, but from governments local governments and federal governments are our relationship with the U K Department of education is doing really really well.
So we feel we feel like that's another indicator of the power of the platform.
One other thing that I would say is we did announce at Investor day. The subscriptions that are coming in we do think that that's a way to drive deeper engagement.
Longer term with the customer.
But I think it's fair to say that the average revenue per user for the <unk> platform is going to be substantially higher than anybody else in this space.
Because of the combination of that exit to you.
Thanks, Chip and a quick one on an enterprise still seeing that rapid growth, 57% in the quarter I think.
It grew eight 6% for the full year 22, any sense for what the growth rate was in Q4.
And.
In Q4, it was in excess of 180%.
And we expect that we get as we get to that full year 2023, it should see parallel.
Nearly 6% thereabouts on a full year basis.
We have a quite a bit of that we have quite a bit of back half opportunity in the enterprise channel.
Okay.
Anything to call out for that like has that stepped down in Q1 of concern or just like still off a small base.
The numbers can move around.
No.
I think I think Q1 of 2022 was a step up and then Q1 of 2023 was somewhat mirroring that as we get through the rest of this year you would see the momentum build up some of the announcements we've made some of the social impact programs are going to be launched in the back half of the year. That's the types of contributors that we're seeing here.
This is still early innings, I mean is 30 million a quarter. It was just.
Just on the $50 million last year or so.
It is probably just something to do with numbers and the lumpiness of it.
Got it alright. Thanks.
Your next question comes from the line of Jeff Mueller from Baird. Your line is open.
Yes. Thank you.
Green shoots in the degree business.
I thought you would have thought you would.
Yeah.
Thanks, Ron.
The second derivative on the year over year looks a little bit better, but I don't know exactly what you're talking about.
Is it new enrollment trends.
Yes.
We are starting to see an improvement in both the retention rate and in the new student enrollment rate as you know in that business. It takes time, if it goes up it takes time to show it if it goes down it takes time to show it.
So it makes us.
Pretty pleased about what 2024 could look like.
Definitely seeing signs of life in the degree channel and that's been a top channel for a couple of years, but think about it it makes sense.
The world is not quite as friendly as it was three years ago.
So.
We should see these turn that way and we're starting to see it.
Yes.
And then I know, it's usually a mix factor but.
Average revenue per FTE, and the greed was up and I know the disruptive really price degrees have been doing really well so.
What was driving that.
What programs are particularly strong in terms of growth or just what's on our revenue per FTE of degrees.
It was probably just a mix.
Response.
<unk> programs. So you can think of the verticals that we add.
The programs that we have there and the degree segment we had more.
Things like the licensure vertical and those sent to contribute.
Greater revenue per FTE, if you will.
So it was just the mix of it.
Okay. Thank you.
Your next question comes from the line of Brett <unk> from Cantor Fitzgerald. Your line is open.
Thanks for taking my question.
Two for me.
When you look at it.
Full year revenue guide can you just break out what we should be expecting in the back half from the degree and the AC side.
What do you expect to ramp up more to drive that kind of 10% growth outperformance in the second half versus first half.
I'm not sure I follow that but let me make sure I am.
I'm going to.
Paraphrasing and then respond.
The back half of 2023, we're expecting alternative credentials to lead the growth.
We would expect to see in the back half of the year.
Particularly within alternative credentials, we were expecting enterprise and social enterprise to be the leaders of it and then we expect bootcamp to be a contributor that.
Boot camp in the last couple of quarters have been a.
A key contributor to growth this quarter grew 16% one six so we expect that to be a contributor as we look at it on an overall.
Back half of the year perspective.
Yeah.
It hit it on the head.
And then second question I guess.
Yes.
Yeah.
<unk> has issued new guidance on February 15th chairs are down call. It 50%. So obviously theres a lot of uncertainty.
And what's going to happen and not so much on the TPS side, but I think more on the bundled services side can you just give us any type of confidence in.
What happened to a worst case scenario bundled services get back in June .
Current well off of ability by working your contracts with universities.
So we do not feel the need to rework any contracts at this point and we are not reworking any contracts at this point if that's a statement of what we think but we're not going to speculate on what the regulators will decide to do we.
And it's been for years and so we do feel like there is a reason in industry was built on this and I guess, Brad I would say, while we of course modeled every scenario as you would expect us to as you would expect us to do.
This company is Super resilient, we've been doing this 15 years and we're going to keep doing it for a long time and so.
We are.
Larger number of signings than we've ever had in that exact model and I do think that that's pretty meaningful from a statement standpoint.
I would agree Chris.
Yes.
Your next question comes from the line of Fred <unk> from Macquarie. Your line is open.
Hey, Thank you very much.
Firstly, it's great to hear that you're integrating generate of AI capabilities into the platform right now for summarization and personalized kind of like tutoring enquiring I wanted to ask with respect to the bootcamp segments of your more technically focused boot camps, where do you see potentially either the ongoing technical.
Layoffs in the broader tech industry, especially among <unk> companies and also the competency of some of the generate of AI platforms out there at generating code, how do you see that potentially impacting those more technical boot camps.
We have we have some we chose to not.
Talk too much about what's in development and rather just focus about what's actually coming out like right away.
But we do have some pretty cool.
Product changes to announce related to our.
Boot camp business and our processor business.
We're going to save for the time period in which we actually can fully announced them.
Transformative technology Fred.
Fred I would joke with you that the chat GPT is answering all these questions not me, but we do think it is like meaningful.
And we think that this will have a really big impact on the quality of learning. We're excited about what it can do inside the system.
And clearly.
The needs for technology training go deep are big in vast and our worldwide. So we're certainly seeing that on the enterprise side, where we've got a tremendous amount of activity around boot camps I will save the additional chat GPT focused.
Product enhancements for a later date to not steal my own Thunder the two that we referenced.
What was amazing about it is just how.
How our team reacted very quickly and to see how transformative transformative it could be this quickly is exciting to the company, we think that theres all kinds of opportunity.
To drive efficiency to drive better conversion on the business side.
By using the technology upfront, we think that's a huge opportunity so theres more to come.
Thank you.
Our next question comes sorry. Your final question comes from the line of Arvin Romani from Piper Sandler Your line is open.
Okay.
Fitting me in.
I just wanted to ask about the.
No.
Substantial progress you're making on the kind of the partnership center the new wins.
The backdrop of this regulatory framework.
I Gotta salespeople or I don't know chip if youre involved with the sales process itself directly but does that come up and sort of questions I guess.
Or is it not like a big big topic.
Yes.
Closing some of these deals.
So I am very pleased to tell you that while I am likely involved at various moments, we have an incredible team working with our partners and potential partners Andrew.
Andrew harm Lynn.
Is it in a programs.
Nathan Greenough, who runs the sort of active partner solicitation Andrew has been here 15 years Nathan has been here for almost 10.
Ken Lowe origin.
Who works with the current partners to drive New program growth Ken has been here 13, and a half years. So these people know our system incredibly well are very effective at selling to the University partners, mainly because it's so consultative one of the things that gets odd about this discussion is these universities.
Our smart they know what they're doing and they really put us through a tremendous amount of effort.
And work to really show them the value of doing a longer term relationships. So of course. This comes up I do think RV. It is notable.
At this point the universities are much more concerned about driving high quality new program growth and when you look at our flex model at 35%.
One of the great values is like why is the revenue share important as we're launching programs with them that they would not be able to launch without us.
Even in cases, where they could launch programs without us.
I don't believe you can do what we can do $4, 35% in that comprehensive bundle of services for anywhere near that price our scale really matters in the university see that.
So there they are in a good run rate now we've got certainly gone through periods, where there were more questions around the model. We've been doing this a long time. So the model was not as understood in.
In the early days of the company's history.
And it's not a new model now there are thousands of schools doing this.
And doing it with good reason so.
What I Love is you can finally see.
Them, saying why you can see it in the letters that were written we chose that particular quote for the prepared remarks for.
For the first time, we could have chosen it from 100 different quotes that we had of people supporting the model. So it's clear that they certainly ask about it.
But I think we have good answers, we feel very strongly that the statute supports.
This model.
And we're just driving hard at it and so far so good.
Perfect and then.
If you didn't have this.
Sort of regulatory kind of pushback or this is kind of back and forth.
Kind of do you think revenue growth.
I've been hired.
In other words is this having some impact or you feel like Hey, you know people are sort of moving forward.
Regardless of what's happening from a regulatory perspective, and then just a follow up on that is also like are they going to get like some hey, This is done and let's move on or is this going to be like.
Just like messy for some period of time, yes.
So it's not having impact on revenue, it's really not relevant to the revenue creation.
The only place it might have an impact.
What I, just said as new signings and it seems like it's having the opposite effect there so.
It's not relevant to revenue generation you heard us mentioned revenue.
The way, we're thinking about revenue is not thinking about revenue, we are thinking about profitability and cash flow and driving long term sustainable profitability and cash flow and showing growth in that metric.
We do think we will get back to revenue growth.
But right now that's just not the focus of our management team or me.
We want to continue to drive high quality student outcomes, and we want to build a long term sustainable profitable cash flow positive business.
Candidly gets to positive EPS. So I'm also proud of some of the other components that we're really bringing down over time, so 146% EBIT growth is nontrivial.
In terms of what happens next.
We as we said in the prepared remarks, I think people are conflating. The two things. They are very different most of the time when people are talking about the impact to our business.
Candidly they are talking about what we did on TPS, but conflating it with the potential impact of bundled services bundled services as a review and the department is doing what we think it should be doing which is listening to a lot of comments and I got to tell you. The comments are allowed and they are on our side for good reason.
The model works.
Got shared success.
We don't get number one we don't control the input we don't admit students we don't give them. Their degree we don't have anything to do with accreditation all these types of things.
But more importantly, if we bring in a student.
And that student drops out semester, one that's a disaster for <unk> financially, we only do well as the student has success and if the student graduates then that turns into a positive outcome for the company because it really is a shared success model. So we think the model drives innovation in higher Ed 25.
<unk> of all new online programs fail, but this is not easy this is.
Not easy even for a company that's been doing it for 15 years and is a leader in this space building. These programs is hard finding of clinical placement for somebody in Oklahoma.
Attending a program out of Texas, or Georgia or D C.
Handle there.
To deliver babies in the midwifery program like these things are hard.
And I think we're doing it in a way that is super high quality and that gets responded to by the clients. So next steps in the process. We obviously will continue to.
We're not going to comment on the active litigation as far as things stand on TPS yesterday. The case was stayed pending the department's issuance of.
Whenever the updated Dear colleague letter comes out that's good and two you agree and the court agreed with to use request to set an expedited briefing schedule to begin after that occurs so that's that's on its own track and as far as bundled goes we think that overall the space being as animated as it is.
<unk> is very positive so I certainly can't control how this affects our share price.
But we are thinking long term and we are making real progress on our platform strategy. So we hope that resonates with this community.
Perfect and just a last question here just moving on from this regulatory topic.
Just on the business side.
And on some things.
Well I am going to be competing more with like classic Master class.
But some of the recent announcements overtime I mean, obviously not in the next two to three months back when I look at look at <unk> over the next couple of years like really become pushing up against like a master class type of offering.
We just think the power of the platform is the content velocity people.
Plenty of opportunity for us to have not just great University content I mean, no one asked us anything about the loot times account content, but that got a pretty big reaction at the ASU GSV show because people were surprised by it. So we thought that that was an example of new content that will be.
<unk> demand.
That is needed by the world.
That you wouldn't have typically seen you certainly wouldn't have seen out of to you, but even out of addax theres been now an increase an acceleration in that kind of content, Mike Dombroski out in.
And Mac down at on the <unk> side are doing a great job, bringing in a bunch of new content.
And obviously Deepak Chopra, we were excited to announce that today, we do think it means that X is not just a platform from the worlds top universities. It also can be a hub for influential mines and thought leaders and that kind of content is in demand not just by consumers, but also by enterprises.
I think you should expect to see more of that kind of content over time.
Perfect. Thank you very much.
And Mr. <unk> I turn the call back over to you for some final closing remarks I just wanted to thank everybody for joining US today. If you have follow up questions. Please give me a call or send an email to investor info at <unk> Dot com.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
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