Q4 2023 2U Inc Earnings Call

Please wait the conference will begin shortly.

[music].

Thank you for standing by and welcome to <unk>, Inc. Fourth quarter 2023 earnings call.

We'd now like to walk them, Steve Roth Tech investors.

Senior Vice President of Investor Relations to begin the call Steve over to you.

Thank you Mandy and good afternoon, everyone welcome to <unk> fourth quarter of 2023 earnings Conference call. Joining me on the call. This afternoon are Paul <unk>, Chief Executive Officer, and Matt Norton Chief Financial Officer.

We will share our prepared remarks, followed by questions, but first I'd like to cover a few housekeeping items. Our earnings press release and slide presentation are available on the Investor Relations website and a replay of this webcast will be made available later today.

Commentary made on this call will include forward looking statements regarding our financial and operating results plans and objectives of management for future operations, including our performance improvement initiatives plans and ability to refinance our debt anticipated trends for learners and University partners changes in law.

Laws regulations and agency guidance for our industry and other matters. These statements are subject to risks uncertainties and assumptions.

Any forward looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them.

Please refer to the earnings press release and the risk factors described in the documents filed with the Securities and Exchange Commission, including 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 such statements and.

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 GAAP results.

You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release on the Investor Relations page of our website with that let me hand, the call to Paul Thank.

Thank you, Steve and good afternoon, everyone.

I step into the CEO role with immense pride and a sense of profound responsibility.

Over the past four years I've been privileged to witness firsthand, how we impact lives with the educational offerings we power.

Now it's time to sharpen our focus on fundamentals to develop financial resilience, while continuing to deliver on our mission.

And the last two months I've delved into the intricacies of to your view.

Viewing our operations through a new lens and with the broader remit identifying our strengths and recognizing opportunities for further improvement.

I will share some of my observations acknowledging that we are in the early stages of this journey.

So are you as a distinctive leadership position in the education sector backed by a robust network of University partners.

Extensive global reach and the team.

Whose industry acumen is unmatched.

The topline growth that we've enjoyed in the past has been no flu.

We have been we have consistently worked to ensure alignment between market needs and our offerings now we need to focus on refining our business model to ensure we are not just delivering the most in demand offerings, but doing so efficiently.

My immediate focus has been to strengthen bonds with our internal teams and external partners engaging in meaningful conversations to set a new course and move to executed quickly quickly.

We've embraced transparency and accountability delineating our business into two distinct lines with each dedicated leadership to.

To ensure full accountability.

But before I get into the details. The most important thing we want you to hear from US today is that we know we need to improve our performance and to do it quickly.

We must increase our EBITDA margin in order to generate stronger cash flows.

This will support our plan to extend our debt maturities in the short term and achieve our long term goal of profitable revenue growth. Therefore, we need to adopt a shrink to grow mindset and take the necessary measures to date to set ourselves up for success long term.

We started 2024 with a clear sense of our objectives, which I'll walk you through today.

But before we talk about where we're going let's first look at how we got here.

In 2023, we took some initial steps to reduce costs.

To make our marketing strategy is more efficient.

The year. These improvements resulted in $90 million of savings on a run rate basis.

We also introduced <unk>.

Our new lower price degree offerings re imagine our content delivery process for further efficiency and added some key members to our management team.

These actions are crucial for our future success.

In addition to these accomplishments 2023 provided many takeaways that should inform our path forward.

While it's not helpful to Monday morning quarterback I believe our organizational structure and strategic alignment will allow us to respond more quickly to market demands going forward.

And I want to reiterate that our approach to growth, we will not compromise our profitability.

We're committed to making the best strategic decisions for the business and where the practice radical transparency in explaining these physicians and their impact on the business.

We won't dwell in the past, we will carry forward our strengths, but recognize that change is necessary at this juncture.

As my leadership team has heard me say repeatedly we will be doing a lot of things differently.

Now for a discussion of where we're going we plan to focus on three areas product cash.

An organization to drive profitable growth.

Increase EBITDA margins and cash flows and shift towards a more cost efficient model.

I'll now add some color to each of these areas starting with product.

We have refined our approach to selecting degree programs by adopting a more rigorous criteria that prioritizes profitability and aligns with the proven strengths of our marketing and operational strategies.

Operator: The conference will begin shortly. Thank you for watching.

Operator: Thanks for standing by, and welcome to the 2EU Inc. Fourth Quarter 2023 Earnings Call. I would now like to welcome Steve Vorostek, Senior Vice President of Investor Relations, to begin the call. Steve, over to you. Thank you, Mandeep, and good afternoon, everyone.

As a result, we are revisit revising our launch cadence to 60 programs for 2024.

Our new degrees do we expect to sign in 2024 and the launch in 2025, we are focusing on licensure and stem verticals.

Our new framework is designed to ensure chosen programs and bodied essential characteristics of success, including competitive pricing.

Strong organic appeal and minimal capital requirements.

All of which should result in strong contribution margins and cash flows.

This focus will enhance our overall portfolio and aligns with our commitment to deliver high quality and market relevant education.

For alternative credentials, we plan to improve the delivery model with a focus on efficiency.

Stephen A. Virostek: Welcome to 2U's fourth quarter 2023 earnings conference call. Joining me on the call this afternoon are Paul Lalljie, Chief Executive Officer, and Matt Norton, Chief Financial Officer. We will share our prepared remarks and follow them with questions. But first, I'd like to cover a few housekeeping items.

We will consider adding a synchronous a non cohort based learning options to give learners the flexibility they desire.

We will align program start dates and content creation cadence to leverage resources more effectively.

Stephen A. Virostek: Our earnings, press release, and slide presentation are available on the Investor Relations website, and a replay of this webcast will be made available. Commentary made on this call will include forward-looking statements regarding our financial and operating results, plans and objectives of management for future operations, including our performance improvement initiatives, plans and ability to refinance our debt, anticipated trends for learners and university partners, changes in laws, regulations, and agency guidance for our industry and other partners. These statements are subject to risks, uncertainties, and assumptions.

We believe these efforts will drive efficiency in the business and help us expand our reach.

Next cash.

We will continue to prioritize marketing effectiveness.

Our first step was to set and maintain high hurdle rates for paid marketing.

Now we will work in utilizing AI and automation to increase the number of leads generated and ultimately convert it.

Progress will be measured by an increase in conversion rates across key marketing channels.

We have also identified several areas for potential improvement.

For example in light of the new organizational structure.

Stephen A. Virostek: Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them. Please refer to the earnings press release and the risk factors described in the documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, and other FTC clients, for information on risks, uncertainties, and assumptions that may cause our actual results to differ materially from those set forth. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of. Thank you for joining us. Thank you. Thank you. These non-GAAP measures should be considered an addition to, and not as a substitute for, or isolation from, GAAP measures.

We will review all functions to eliminate redundant cost and will automate repeatable back office processes, and consider outsourcing or offshoring where appropriate.

Our operational improvements will be geared towards reducing fixed cost and.

Ensuring flexibility and scalability.

We believe these efforts will result in a business that can consistently generate sufficient cash to fund operations and will support the discussions with our lenders to reach a resolution on extending our debt maturities.

Moving onto organization.

At an organizational level we.

Now have a structure that reflects our focus on alignment accountability and efficiency.

There are eight business leaders, who will report to me, including ahead of marketing two lines of business heads.

Paul S. Lalljie: You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results, of all. With that, let me hand the call over to Steve. Thank you, Steve, and good afternoon, everyone. I step into the CEO role with immense pride and a sense of profound responsibility. Over the past four years, I've been privileged to witness firsthand how we impact lives with the educational offerings we power. Now it's time to sharpen our focus on fundamentals, to develop financial resilience while continuing to deliver on our mission. In the last two months... I've delved into the intricacies of cheese.

Ahead of technology, and three G&A function leads.

Our aim is to foster strategic alignment across the company guided by our culture of curiosity.

We will rely on objective data to make decisions.

<unk> high caliber talent and embraced radical transparency.

Our strategy based on these three objectives.

Help us pursue a shrink to grow grow approach in the short term and with a clear vision of the future of the company.

It is important to note that the initiatives. We are discussing today are just the beginning we will continue to evolve and develop.

Our plan for the long term over the coming months.

Paul S. Lalljie: Viewing our operations through a new lens and with a broader remit, identifying our strengths and recognizing opportunities for further improvement. Today, I will share some of my observations, acknowledging that we are in the early stages of this journey. To you has a distinctive leadership position in the education sector, backed by a robust network of university partners, a global reach, and a team whose industry acumen is unmatched. The top-line growth that we've enjoyed in the past has been no fluke. We have consistently worked to ensure alignment between market needs and our own.

Before I turn things over to Matt I want to briefly discuss our results for the year.

Our revenue for 2023 was approximately $946 million with an adjusted EBITDA of around $170 million.

It is worth noting that $88 million of this revenue came from existing.

From exiting certain degree programs our portfolio management.

We do not expect to have additional portfolio management activities in 2024.

We are optimistic about our D green business and expect enrollment to grow this year by single digits looking at the current portfolio.

Paul S. Lalljie: Now we need to focus on refining our business model to ensure we are not just delivering the most in-demand offerings but doing so efficiently. My immediate focus has been to strengthen bonds with our internal team and external partners, engaging in meaningful conversations to set the new course and move to execute it quickly. We've embraced transparency and accountability, delineating our business into two distinct lines, and each with dedicated leadership, to ensure full accountability. Thank you.

We also expect that our 2024 launches will generate up to $100 million in revenue at steady state, which is between two five to three and a half years from launch.

We expect our executive education business to continue its strong growth.

While we will continue to managed coding boot camp business reflect the current demand levels.

We anticipate that coding boot camp environmental continued to remain in its current state throughout 2024.

Furthermore, we expect our enterprise business, which includes both executive education and boot camps to continue its strong growth.

Paul S. Lalljie: But before I get into the details, the most important thing we want you to hear from us today is that we know we need to improve our performance and to do it quickly. We must increase our even margin in order to generate stronger cash flow. This will support our plan to extend our debt maturities in the short term and achieve our long-term goal of profitable revenue growth. Therefore, we need to adopt a shrink to grow mindset and take the necessary measures today to set ourselves up for success in the long run. We start in 2024 with a clearer sense of our objectives, which I'll walk you through today. But before we talk about where we're going, let's first look at how we got here.

However, it is a lumpy business and were setting realistic expectations at the outset of the year.

To summarize I'd like to emphasize the important points, we discussed today.

We are committed to facing our current challenges head on.

We are taking bold steps to reduce expenses and improve our performance quickly in order to extend our debt maturity as soon as possible.

So to all of our stakeholders partners employees equity holders and debtholders.

We are embarking on a 12 quarter journey to reset and enhance our operations.

And we need your support in this journey, we are committed to earning that support quickly and I believe that we will become a stronger company.

Paul S. Lalljie: In 2023, we took some initial steps to reduce costs and to make our marketing strategies more efficient throughout the year. These improvements resulted in $90 million of savings and a run rate of. We also introduced four new lower-priced degree offers, reimagined our content delivery process for further efficiency, and added some team members to our management team. These actions are crucial for our future success. In addition to these accomplishments, 2023 provided many takeaways that should inform our path forward.

With that let me turn the call over to Matt.

Thanks, Paul and good afternoon, everyone before walking through the results I'd like to say, how honored I am to step into Paul choose to lead the World class Finance team that he built and to work with Paul and the entire team even more closely I'm, making to you the resilient and sustainable company. We know it can be well we have a lot to do ahead of us I'm confident that the operating plan that Paul mentioned.

Which is rapidly progressing all set us up to fix the balance sheet and deliver profitable growth in the future.

Matt, Let's get started I'll begin by walking through our fourth quarter and 2020.

Paul S. Lalljie: While it's not helpful to Monday morning quarterbacks, I believe our organizational structure and strategic alignment will allow us to respond more quickly to market demands going forward. And I want to reiterate that our approach to growth will not compromise our profitability, we are committed to making the best strategic decisions for the business, and we will practice radical transparency in explaining these decisions and their impact on the company. We wouldn't dwell in the past. We will carry forward our strengths but recognize that change is necessary at this juncture. As my leadership team has heard me say repeatedly, we'll be doing a lot of things differently. Now for a discussion of where we're going. We plan to focus on three areas, product, cash, and organization, to drive profitability, increase EBITDA margins and cash flows, and shift towards a more cost-efficient model. I'll now add some color to each of these areas, starting with product.

We are experiencing technical difficulties and will resume momentarily.

We have a switch here.

Okay.

Yes.

Audio is back.

Just wanted to confirm speakers.

Yes.

Where did we drop.

Yeah.

Roughly about 15% to 20 seconds, just as you're beginning your.

Apparently we were having some technical difficulties, so I'm going to start over apologies. If this is duplicative for anybody.

Paul S. Lalljie: We have refined our approach to selecting degree programs by adopting a more rigorous criteria that prioritizes profitability and aligns with the proven strengths of our marketing and operational strategy. As a result, we are revising our launch cadence to 60 programs for 2024. In our new degrees, which we expect to sign in 2024 and launch in 2025, we are focusing on licensure and STEM virtues. Our new framework is designed to ensure children's programs embody the essential characteristics of success, including competitive pricing.

Thanks, Paul and good afternoon, everyone before walking through the results I'd like to say, how honored I am to step into Paul's shoes to lead the world class Finance team that he built and to work with Paul and the entire team even more closely I'm, making to you the resilient and sustainable company that we know it can be while we have a lot to do ahead of us I'm confident that the operating plan that Paul mentioned.

<unk>, which is rapidly progressing will set us up to fix the balance sheet and deliver profitable growth in the future with that let's get started I'll begin by walking through our fourth quarter and 2023 full year results then I'll discuss our outlook for 2024, along with some key assumptions underlying our expectations starting with revenue in Q4, we generated.

Paul S. Lalljie: Strong organic appeal and minimal capital requirements, all of which should result in strong contribution margins in cash flow. This focus will enhance our overall portfolio in alliance with our commitment to deliver high quality and market-relevant education. For Alternative Credentials, we plan to improve the delivery model with a focus on impatience. We will consider adding asynchronous and non-cohort-based learning options to give learners the flexibility they desire.

Total revenue of $255 $7 million up 8% from $236 million a year ago. This increase was driven by 19% growth in the degree segment, partially offset by a 7% decline in off credit the growth and the degree segment included $54 6 million of revenue recognized from portfolio management activities in the quarter.

Note that this is approximately $25 million less than we expected at the time of our Q3 call as we decided not to move forward with certain portfolio management opportunities given that we were able to make the necessary course corrections in those programs, while continuing to run them.

Paul S. Lalljie: We will align program start dates and content creation cadence to leverage resources more effectively. I believe these efforts will drive efficiency in the business and help us expand our reach. Max Cash

All cred revenue in the fourth quarter was impacted by similar factors to those we experienced in the third quarter continued softness in boot camps, particularly coding and we saw continued strength in our exec Ed offerings, driven by particularly strong performance in our AI offerings, a trend that has continued into 2024.

Paul S. Lalljie: We will continue to prioritize marketing effectiveness. For example, our first step was to set and maintain high burden rates for paid markets. Now we will work on utilizing AI and automation to increase the number of leads generated and ultimately converted. Progress will be measured by an increase in conversion rates across key marketing channels. We have also identified several areas for potential improvement, for example, in light of the new organizational structure. We will review all functions to eliminate redundant costs and will automate repeatable back-office processes, and consider outsourcing or offshoring where appropriate.

Looking at the full year revenue was $946 million.

2% decline from $963 1 million in 2022.

This degree segment revenue of $561 million decreased $10 $6 million or 2% when compared with the prior year and included $88 million of portfolio management related revenue in 2023, our portfolio management activities introduce complexities when comparing year over year performed.

Within our degree segment to gain a better perspective on the segment's performance, we recommend evaluating the segment excluding the impact of portfolio management. This analysis reveals that our current portfolio of programs generated $389 $9 million in revenue, which is a 9% decrease compared to the full year of 2022.

Paul S. Lalljie: Our operational improvements will be geared towards reducing fixed costs while ensuring flexibility and scalability. We believe these efforts will result in a business that can consistently generate sufficient cash to fund operations and will support the discussions with our lenders to reach a resolution on extending our debt security. Moving on, At an organizational level, we now have a structure that reflects our focus on alignment, accountability, and efficiency. There are eight business leaders who report to me, including a head of marketing, two lines of business heads, a head of technology, and three GMA function leaders.

The primary factor behind this decline is a high number of graduates from some of our larger programs that were launched during the pandemic, which surpassed the number of new student enrollments in these programs. However, as I'll discuss more when we get into our outlook. We are observing positive trends in key leading indicators, especially in new student enrollment we anticipate.

These trends to start positively impacting our revenue in the latter part of this year and continue into 2025 <unk>.

Alt credit segment revenue of $384 9 million decreased $6 6 million for the year or 2% over 2022, driven by similar factors that we saw in Q3.

Paul S. Lalljie: Our aim is to foster strategic alignment across the company, guided by a culture of curiosity. We rely on objective data to make decisions. Prioritize high-caliber talent and embrace radical transformation. Our strategy, based on these three objectives..., will help us pursue a shrink to grow approach in the short term and with a clear vision of the future of the company. It is important to note that the initiatives we are discussing today are just the beginning. We will continue to evolve and develop. I will plan for the long term over the coming months. But before I turn things over to Matt, I want to briefly discuss our results for the year. Our revenue for 2023 is approximately $946 million, with an adjusted EBITDA of around $170 million. It is worth noting that $80 million of this revenue came from existing, or from Exiting Certain Degree Programs or Portfolio Management. We do not expect to have additional portfolio management activities in 2021.

Moving on to operating expenses in 2023, we took initial steps towards optimizing our cost structure, focusing on marketing activities on more efficient spend and eliminating $90 million of run rate costs Youll see the impact of these actions in our results operating expense for the fourth quarter, excluding a $62 $8 million noncash impair.

I'm in charge was $215 4 million.

A 7% decrease over Q4 of 2022.

This decrease was primarily driven by a $27 $2 million decrease in personnel and personnel related expense, which included a $13 $8 million decrease in stock compensation expense.

We also saw continued improvement in our marketing and sales expense for the fourth quarter as a percent of revenue marketing and sales declined to 31% from 34% in the prior year period. During the quarter. We also recorded $13 7 million in restructuring charges.

Regarding the impairment charge as a result of our stock price performance in the quarter and refinement of our long term financial projections, we determined an interim impairment assessment was necessary. This evaluation led to a $62 8 million dollar reduction of goodwill.

Paul S. Lalljie: We are optimistic about our degree and expect enrollment to grow this year by single digits, looking at the current portfolio. We also expect that our 2024 launches will generate up to $100 million in revenue at steady state, which is between two and a half to three and a half years from launch. We expect our executive education business to continue its strong growth, while we will continue to manage the coding bootcamp business. Select the current demand level. We anticipate that the Coding Bootcamp environment will continue to remain in its current state throughout 2020.

For the full year operating expense, excluding noncash impairment charges was $974 9 million, a decrease of $108 $1 million or 10% over 2022.

Turning now to our profitability measures net loss for the quarter totaled $42 $4 million compared to $11 $8 million in the fourth quarter of 2022, reflecting the revenue and operating expense drivers I mentioned previously.

Adjusted EBITDA for the quarter increased 54% to $90 2 million a.

The margin of 35%. This was largely driven by the same factors that I mentioned earlier portfolio management revenue of $54 $6 million flowing mostly to the bottom line and the benefit of our cost optimization activities executed throughout the year.

Paul S. Lalljie: Furthermore, we expect our enterprise business, which includes both executive education and boot camps, to continue its strong work. However, it is a lumpy business, and we're setting realistic expectations at the outset of the year. To summarize, I'd like to emphasize the important points we discussed.

Fourth quarter adjusted EBITDA also benefited from the seasonal decline in marketing spend which is a typical pattern for our business.

Net loss for the year totaled $317 6 million compared to $322 2 million in 2022, and adjusted EBITDA for the year was $170 8 million an improvement of 37% over 2022 looking.

Paul S. Lalljie: We are committed to facing our current challenges head-on. We are taking bold steps to reduce expenses and improve our performance quickly in order to extend our debt maturity as soon as possible to all of our stakeholders, partners, employees, equity holders, and debt holders. We are embarking on a 12-quarter journey to reset and enhance our operations, and we need your support on this journey.

Looking at profitability by segment degree segment, adjusted EBITDA was $90 $7 million for the quarter, a margin of 56% compared to a margin of 44% in the fourth quarter of 2022.

The Alt credit segment, adjusted EBITDA loss was $553000 compared with a loss of $2 1 million in the fourth quarter of 2022 for.

Matt Norton: We are committed to earning that support quickly, and I believe that we will become a stronger company. With that, I will turn the call over to Matt.

For the full year degree segment adjusted EBITDA was $214 7 million a margin of 38% compared to a margin of 32% in 2022 for the Alt credit segment adjusted EBITDA loss was $43 9 million.

Matt Norton: Thanks, Paul, and good afternoon, everyone. Before walking through the results, I'd like to say how honored I am to step into Paul's shoes to lead the world-class science team that he built and to work with Paul and the entire team even more closely on making 2U the resilient and sustainable company we know it can be. Well, we have a lot to do ahead of us, but I'm confident that the operating plan that Paul mentioned, which is rapidly progressing, will set us up to fix the balance sheet and deliver profitable growth. And with that, let's get started. I'll begin by walking through our fourth quarter in 2020. We are experiencing technical difficulties and will resume momentarily. I'll have you switch over here.

Compared with a loss of $55 $6 million in 2022.

Now, let's turn to the balance sheet and cash flow statement.

We ended the year with cash and cash equivalents of $73 4 million <unk>.

Including a $40 million drawdown of our revolver, which was needed to manage fluctuations in working capital. We delivered adjusted Unlevered free cash flow of $45 $2 million for the 12 months ending December 31, 2023, compared to $31 $9 million for the 12 months ending September 32023 from a liquid.

Operator: The audio is back. I just want to confirm, speakers. Yeah. Where did we drop it? Bob. Roughly about 15 to 20 seconds.

These standpoint I want to highlight that in late January we entered into a receivables factoring arrangement to sell up to $86 $2 million of receivables related to our portfolio management activities. We've already sold $75 $9 million of these receivables for proceeds of $66 $7 million. We've also kicked off working.

Capital improvement initiatives to further enhance liquidity.

When combined with the approximately $73 $4 million, we had in cash on hand at the end of Q4. These actions should put us in a strong liquidity position to operate the business going forward.

Matt Norton: This is your beginning, your Thanks, Paul, and good afternoon, everyone. Before walking through the results, I'd like to say how honored I am to step into Paul's shoes to lead the world-class finance team that he built and to work with Paul and the entire team even more closely on making 2U the resilient and sustainable company that we know it can be. While we have a lot to do ahead of us, I'm confident that the operating plan that Paul mentioned, which is rapidly progressing, will set us up to fix the balance sheet and deliver profitable growth in the future. With that, let's get started.

Before I discuss our outlook as you may have seen in our press release today, we expect to have a going concern qualification in our upcoming 10-K due to potential impending maturities of our term loan. We expect to continue to have a constructive dialogue with our lenders to find the best solution to position to move for the long term also we are in active discussions with our term.

Loan lenders to reduce our recurring revenue covenant in exchange for paying down a portion of the term loan we expect to enter into an amendment to our credit agreement, reflecting these changes in the coming weeks and I want to reiterate that we are taking aggressive action to optimize cash and enhanced liquidity. We're laser focused on addressing our balance sheet and are confident that we can resolve our debt.

Charities in the near term, we look forward to providing updates as appropriate.

Now turning to our financial outlook. Please note that we are adjusting our guidance practices to give guidance for the first quarter and full year 2020 for our guidance for the first quarter calls for revenue to range from $195 million to $198 million for the year, we expect revenue to range from $805 million to 815.

Matt Norton: I'll begin by walking through our fourth quarter and 2023 full-year results. Then I'll discuss our outlook for 2024, along with some key assumptions underlying our expectations, starting with revenue. In Q4, we generated total revenue of $255.7 million, up 8% from $236 million a year ago. This increase was driven by 19% growth in the degree segment, partially offset by a 7% decline in off-cred.

Million.

We expect adjusted EBITDA for the first quarter to range from $10 million $12 million and from $120 million to $125 million for the year.

I now want to provide some insight into the assumptions underlying our outlook the composition and pace of the business and ongoing trends in the education industry. This should help you better understand how we're viewing the future and our go forward plan first at this time our outlook does not take into account the impact of the operating plan that Paul mentioned, which is rapidly progressing.

Matt Norton: The growth in the degree segment included $54.6 million of revenue recognized from portfolio management activities in the quarter. However, note that this was approximately $25 million less than we expected at the time of our Q3 call, as we decided not to move forward with certain portfolio management opportunities, given that we were able to make the necessary course corrections in those programs while continuing to run them. All credit revenue in the fourth quarter was impacted by similar factors to those we experienced in the third quarter, including continued softness in boot camps, particularly coding.

Early in 2024 and building on the initial actions we took last year as Paul mentioned, we began digging into our business to identify areas for cost optimization and operational improvement across the board that process is still underway and we expect to have a fulsome plan ready to implement early in the second quarter, our guidance could change materially depending upon the <unk>.

Outcome of that plan, but again, it's not included in what we've shared today.

Matt Norton: And we saw continued strength in our executive ed offerings, driven by particularly strong performance in our AI offerings, a trend that has continued into 2024. Looking at the full year, revenue was $946 million, a 2% decline from $963.1 million in 2022. Of this, degree segment revenue of $561 million decreased $10.6 million, or 2%, when compared with the prior year, and included $88 million of portfolio management-related revenue. In 2023, our portfolio management activities will introduce complexities when comparing year-over-year performance within our degree segment. To gain a better perspective on the segment's performance, we recommend evaluating the segment excluding the impactor portfolio.

<unk>.

To help you bridge, our first quarter and full year guidance, we expect Alt credit revenue to be more heavily weighted towards the back half of the year with a larger number of executive courses occurring later in the year and enterprise deals executed in the first half of the year delivering revenue later in the year on the degree side I wanted to quickly remind you of the typical economics of.

The segment most of the revenue in a given period will come from marketing dollars spent seven to 12 months prior and new programs typically contribute very little revenue in the early operating quarters, given that dynamic and given that most of our revenue from the degree segment. This year will come from existing programs at this time, we have visibility into well over <unk>.

The percent of revenue for the year, but on top of that 39 of the new programs. We expense expect to launch in 2024, our takeovers from another provider with students currently enrolled as a result, we have better visibility into the revenue impact. These programs will have once students enrolled later in the year all of this gives us confidence in the degree.

Matt Norton: This analysis reveals that our current portfolio of programs generated $389.9 million in revenue, which is a 9% decrease compared to the whole year of 2022. The primary factor behind this decline is a high number of graduates from some of our larger programs that were launched during the pandemic, which surpassed the number of new student enrollments in these programs. However, as I'll discuss more when we get into our outlook, we are observing positive trends and key leading indicators, especially in new student enrollment. We anticipate these trends to start positively impacting our revenue in the latter part of this year and continue into 2025. Alt-Cred segment revenue of $384.9 million decreased $6.6 million for the year, or 2% over 2022, driven by similar factors as we saw in Q3.

Segments trajectory for the year.

It's also important to keep in mind. These degrees segment dynamics when thinking about our Q1, EBIT expectations, which at the midpoint of our current ranges reflect some EBITDA margin of around 6% given.

Given that our expected new degree launches are backend weighted in the year, we have already begun spending marketing dollars to find students for these programs.

Adjusted EBITDA in Q1, more specifically, we expect to spend $23 million on new program launches in 2024 with $5 million of that coming in Q1, but with no corresponding revenue. However, we expect to get the revenue and EBIT benefits from those students later in 2024 and more so into 2025.

Matt Norton: Moving on to operations, in 2023, we took initial steps towards optimizing our call structure, focusing our marketing activities on more efficient spend, and eliminating $90 million of run rate costs. You'll see the impact of these actions in our results. Operating expense for the fourth quarter, excluding a $62.8 million non-cash impairment charge, was $215.4 million, a 7% decrease over Q4 of 2022. This decrease was primarily driven by a $27.2 million decrease in personnel and personnel-related expenses, which included a $13.8 million decrease in stock compensation. We also saw continued improvement in our marketing and sales expenses for the fourth quarter. As a percent of revenue, marketing and sales declined to 31% from 34% in the prior year period.

So Q1 is typically our highest quarter from a marketing spend standpoint, as we spend defined students for already operating programs. One third of our annual marketing expense is typically incurred in the first quarter of the year. This also impacts EBITDA in Q1 again with an expected increase in revenue and EBITDA as students progress through their classes throughout the year.

Year, we also expect the cost optimization activities completed and currently underway have an increasing benefit as we proceed throughout the year. We expect that all of this will cause EBITDA to increase throughout the year with approximately 70% of our full year EBITDA generated in the second half of the year finally.

Our 2020 for full year expectations are underpinned by a mix shift in our business for the first time, we expect Alt credit revenue to comprise around half of our consolidated revenue on the Alt credit side. We expect this to be driven by continued growth in our exec and offerings in the enterprise channel, partially offset by continued declines in boot camps on the.

Matt Norton: During the quarter, we also recorded $13.7 million in restructuring charges. Regarding the impairment charge, as a result of our stock price performance in the quarter and refinement of our long-term financial projections, we determined that an interim impairment assessment was necessary. This evaluation led to a $62.8 million reduction in goodwill.

A degree side, we expect 2020 for revenue to be largely driven by the trends we have discussed on this call.

Matt Norton: For the full year, operating expense, excluding non-cash impairment charges, was $974.9 million, a decrease of $108.1 million, or 10% over 2022. Turning now to our profitability measures, net loss for the quarter totaled $42.4 million compared to $11.8 million in the fourth quarter of 2022. Reflecting the revenue and operating expense drivers I mentioned previously, adjusted EBITDA for the quarter increased 54% to $90.2 million, a margin This was largely driven by the same factors that I mentioned earlier, with portfolio management revenue of $54.6 million going mostly to the bottom line and the benefit of our cost optimization activities executed throughout the year. Fourth quarter adjusted EBITDA also benefited from the seasonal decline in marketing spend, which is a typical pattern for our business. Net loss for the year totaled $317.6 million compared to $322.2 million in 2022.

24 revenue does not tell the full story of the degree segment. When you look at the current portfolio. Excluding programs. We no longer operate we anticipate total enrollments in these programs to increase approximately 3% year over year, and we expect new enrollments in these programs to increase approximately 11% year over year and as is typical in the degree.

Segment, we expect these enrollments to only modestly impact revenue in 2024 with expected revenue growth of the current portfolio just over 1% due largely to much of the enrollment being backend weighted in the year, but importantly, based on these trends and the 60 new programs. We expect to launch in 2024, we do expect to see increasing growth in <unk>.

Thousand 25 and thereafter.

To be clear, we believe that what we're seeing in the degree segment is not unique to disproportionately impacting to you. It is indicative of larger trends in the industry. While fewer students are learning online today than during the height of the pandemic. There are more students taking classes online now than pre pandemic in 2019 as discussed earlier, that's why the.

Matt Norton: And adjusted EBITDA for the year was $170.8 million, an improvement of 37% over 2022. Looking at profitability by segment, degree segment adjusted EBITDA was $90.7 million for the quarter, a margin of 56% compared to a margin of 44% in the fourth quarter of 2022. For the alt-cred segment, adjusted EBITDA losses were $553,000 compared with a loss of $2.1 million in the fourth quarter of 2022. For the full year, the Greece segment adjusted EBITDA was $214.7 million, a margin of 38%, compared to a margin of 32% in 2022. For the Alfred segment, the adjusted EBITDA loss was $43.9 million, compared with a loss of $55.6 million in 2022.

Current degree portfolio declined 9% year over year as the pandemic enrollment rolled off but if you compare the degree portfolio today to 2019, you'll see that Sce's grew approximately 21% overall, we think the demand for online education is beginning to improve and the key leading indicators, we're seeing corroborate that story.

To conclude we are laser focused on taking action to position the company for long term success, we're approaching the future with renewed financial discipline to build an even stronger business that will thrive well into the future and deliver value to all of our stakeholders and with that let me hand, the call back to the operator to begin the Q&A session.

The floor is now open for your questions to ask a question. This time simply press the star followed by the number one on your telephone keypad.

Matt Norton: Now let's turn to the balance sheet and cash flow. We ended the year with cash and cash equivalents of $73.4 million, including a $40 million drawdown of our revolver, which was needed to manage fluctuations in working capital. We delivered adjusted, unlevered free cash flows of $45.2 million for the 12-month ending December 31, 2023, compared to $31.9 million for the 12-month ending September 30, 2021. From a liquidity standpoint, I want to highlight that in late January, we entered into a receivables factoring arrangement to sell up to $86.2 million of receivables related to our portfolio management activities. We have already sold $75.9 million of these receivables for a total of $66.7 million.

Again to ask a question at this time simply press the star followed by the number one on your telephone keypad.

We will now take a moment to compile a roster.

Our first question comes from the line of Ryan Macdonald with Needham. Please go ahead.

Ryan Macdonald: Alright, Thanks for taking my questions. Paul I appreciate the focus on product organization and cash in.

The outlined strategy I appreciate the color there as we think about.

These these new initiatives and then sort of the focus that you are sort of in the process of evaluating with the business.

Matt Norton: We have also kicked off working capital improvement initiatives to further enhance liquidity. When combined with the approximately $73.4 million we had in cash on hand at the end of Q4, these actions should put us in a strong liquidity position to operate the business going forward. Before I discuss our outlook, as you may have seen in our press release today, we expect to have a going concern qualification in our upcoming 10-K through the potential and pending maturities of our term loans. We expect to continue to have a constructive dialogue with our lenders to find the best solution to position 2U for the long term. Also, we are in active discussions with our term loan lenders to reduce our recurring revenue covenant in exchange for paying down a portion of the term loan.

I know it is not included in the guidance, but how should we think about the potential timeline for sort of these changes to start to have an impact on the profitability and can you speak to at all to what you think the potential Magnus magnitude of or quantification of what level of cost savings can be generated from from some of these newer initiatives.

Thanks.

Hey, Ryan that was pretty choppy on our end.

Let us.

Give us a minute to talk to the operator here to see what's going on and we're not we we had trouble hearing you apologies okay. Okay.

Okay.

Matt Norton: We expect to enter into an amendment to our credit agreement reflecting these changes in the coming weeks. And I want to reiterate that we are taking aggressive action to optimize cash and enhance liquidity. We are laser-focused on addressing our balance sheet and are confident that we can resolve our debt maturities in the near term.

Our first question comes from the line of Ryan Needham.

Ryan Macdonald with Needham. Please go ahead with the SEC.

Operator, please hold on we can't hear you.

Matt Norton: We look forward to providing updates as appropriate. Now, turning to our financial outlook. Please note that we are adjusting our guidance practices to give guidance for the first quarter and full year 2020. Our guidance for the first quarter calls for revenue to range from $195 million to $198 million. For the year, we expect revenue to range from $805 million to $815 million. We expect adjusted EBITDA for the first quarter to range from $10 million to $12 million, and from $120 million to $125 million for the year.

Okay.

Ryan Macdonald: Okay.

Yes.

Matt Norton: I now want to provide some insight into the assumptions underlying our outlook, the composition and pace of the business, and ongoing trends in the education industry. This should help you better understand how we're viewing the future and our go-forward plan. First, at this time, our outlet does not take into account the impact of the operating plan that Paul mentioned, which is rapidly progressing. Early in 2024, and building on the initial actions we took last year, as Paul mentioned, we began digging into our business to identify areas for cost optimization and operational improvement across the board. That process is still underway, and we expect to have a wholesome plan ready to implement early in the second quarter. Our guidance could change materially depending upon the outcome of that plan, but again, it's not included in what we've shared today to help you bridge our first quarter and full year guys.

Okay.

Ladies and gentlemen.

We are currently experiencing technical difficulties and will resume momentarily.

Okay.

Yes, Ryan are you there.

Yes, I'm here can you hear me.

Matt Norton: We expect Alt-PREG revenue to be more heavily rated towards the back half of the year, with a larger number of Exec Ed courses occurring later in the year, and enterprise deals executed in the first half of the year delivering revenue later in the year. On the degree side, I wanted to quickly remind you of the typical economics of the segment. Most of the revenue in a given period will come from marketing dollars spent 7 to 12 months prior, and new programs typically contribute very little revenue in their early operating quarters.

Yes could you repeat the question for US please and we apologize for that we have to dial in again to get a good connection.

Yes, no no no worries at all yes.

Paul I can appreciate the sort of the increased focus here, our product organization and cash in and appreciate some of the new initiatives that you're sort of evaluating kind of going through right now and while I understand it's not included in the guidance I was hoping you could maybe give us a sense of maybe the timeframe for which some of these initiatives.

Come to fruition and start to.

It kind of have benefits on generating more cash profitability and to the extent as youre evaluating it now can you quantify.

At all at this point, what maybe some of these changes can do in terms of generating more EBITDA and cash flow.

Matt Norton: Given that dynamic, and given that most of our revenue from the degree segment this year will come from existing programs, at this time, we have visibility into well over 50% of revenue for the year. But, on top of that, 39 of the new programs we expect to launch in 2024 are takeovers from another provider with students currently enrolled. As a result, we have better visibility into the revenue impact these programs will have once students enroll later in the year.

Alright, Thank you, Brian So a couple of things first and foremost.

Our path forward is a shrink to grow strategy I think we have to focus on.

How do we.

Deliver all of our offerings more efficiently.

Whether it is from a launch perspective, whether it is from.

Alternative credential the way, we provide synchronous and asynchronous offerings.

Matt Norton: All this gives us confidence in the degree segment's trajectory for the year. It's also important to keep in mind these degree segment dynamics when thinking about our 2.1 EBITDA expectations, which, at the midpoint of our current ranges, reflects an EBITDA margin of around 6%. Given that our expected new degree launches are back-end wages in the year, we have already begun spending marketing dollars to find students for these programs, with Justin Iveda and Q1. More specifically, we expect to spend $23 million on new program launches in 2024, with $5 million of that coming in Q1, but with no corresponding revenue. However, we expect to get the revenue and EBITDA benefits from those students later in 2024 and more so into 2025. Also, Q1 is typically our highest quarter from a marketing spend standpoint, as we spend to find students for already operating programs. One-third of our annual marketing expense is typically incurred in the first quarter of the year.

The way we offer.

And what of an automated and more efficient.

Service that a student from an entire lifecycle prospectus. So that has that is first and foremost from a product point of view, but I think underlying all of this is the organizational structure.

We have delineated the organization into two lines of business, where we have full responsibilities Andrew harmless, leading the degree business and Aaron Mccolloch, leading the alternative credential business and that provides the appropriate focus that allows us to use objective data to let us drive decisions across the business.

Yes.

In a in a more efficient manner. It allows us to respond quicker to market changes and it allows us to focus on that student journey in a more customized fashion for each of the businesses.

When we think of what we're doing on the student side of the equation. We're looking at it from a pre enrollment perspective, where we can add software or technology to that pre enrollment process and from an app post enrollment process to ensure that we are increasing conversion to ensure that we're using technology to provide a better served.

Matt Norton: This also impacts EBITDA and G1, again, with an expected increase in revenue and EBITDA as students progress through their classes throughout the year. We also expect the cost optimization activities completed and currently underway to have an increasing benefit as we proceed throughout the year. We expect that all of this will cause EBITDA to increase throughout the year, with approximately 70% of our four-year EBITDA generated in the second half of the year.

And at the same time maintain or improve the completion rates that we're very proud of and we have industry, leading completion rates. What does all of this means at the end of the day.

When we aligned the organization it means that we will.

Find redundancies and costs and we will be able to automate some of the repeatable processes that we have the way. We're viewing this is that over the next probably a month or two we'll be able to have a very good plan that we can then execute against.

Matt Norton: The 2024 full-year expectations are underpinned by a mixed shift in our business. For the first time, we expect Alt-Cred revenue to comprise around half of our consolidated revenue. On the Alt-Cred side, we expect this to be driven by continued growth in our executive ed offerings and the enterprise channel, partially offset by continued declines in boot camp. On the degree side, we expect 2024 revenue to be largely driven by the trends we have discussed on this call. The 2024 revenue does not tell the full story of the degree segment.

The way the journey for me, it's a 12 quarter journey that we're trying to focus on where we want to be able until.

<unk> reset in the first few quarters, and then be able to deliver against that as we get into the middle of that plan.

Quantifying this making putting putting a size to anthem is not something that I think would be responsible at this point in time, but at the end of the day.

We believe it can materially change the plan that we have the guidance that we're providing today for example, and it'll be something that can.

Matt Norton: When you look at the current portfolio, excluding programs we no longer operate, we anticipate total enrollment in these programs to increase approximately 3% year over year, and we expect new enrollments in these programs to increase approximately 11% year over year. And as is typical in the degree segment, we expect these enrollments to only modestly impact revenue in 2024, with expected revenue growth of the current portfolio just over 1%, due largely to much of the enrollment being back-end-weighted in the year. But importantly, based on these trends and the 16 new programs we expect to launch in 2024, we do expect to see increasing growth in 2025 and thereafter. To be clear, we believe that what we're seeing in the degree segment is not unique to or disproportionately impacting on you. This is indicative of larger trends in the industry. While fewer students are learning online today than during the height of the pandemic, there are more students taking classes online now than before the pandemic in 2019.

At the end of the day, it's a step back a little bit we need the shrink to grow so that we can support the balance sheet that we have so that we can be in a position to negotiate and extend the maturities.

The upcoming maturities that we have and to ensure that we have a financially resilient company going forward.

We get to the next quarter, we should be able to provide more details and context on that Matt I don't know if I missed anything that you would add.

I think thats generally right I mean, I think when I think about the plan. There is certainly some more low hanging fruit and then there is certainly some longer term items.

Items that are going to take a bit more time too.

Two.

To implement and realize the benefit up right. We've we've already implemented $90 million of cost savings in 2023, and we'll get the full benefit of those as we progress through 2024 I think.

I mentioned working capital initiatives in my script.

We've kicked off a lot of that already so for example, and that's obviously managing receipt of receivables and payables in an efficient way, but we're also taking a hard look at all third party spend.

Across the board, both labor and non labor with an eye towards what's really critical to the business based on where we want to go.

Matt Norton: As discussed earlier, that's why the current degree portfolio declined 9% year over year as the pandemic enrollment rolled off. But if you compare the degree portfolio today to 2019, you'll see that FCUs grew approximately 21%. Overall, we think that demand for online education is beginning to improve, and the key leading indicators we're seeing corroborate that story. To conclude, we are laser-focused on taking action to position the company for long-term success. We are approaching the future with renewed financial discipline to build an even stronger business that will thrive well into the future and deliver value to all of our stakeholders. And with that, I will hand the call back to the operator to begin the Q&A session. The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad.

And so I think some of those some of those shorter putts youll see.

In the results and the much closer term, whereas some of the longer term initiatives will take time to flow through.

Makes sense I appreciate the color there maybe just a follow up on it.

Obviously, you are taking steps to sort of share of the balance sheet and sort of improve liquidity, but you mentioned the going concern just curious like as you're trying to balance sort of near term needs for sort of longer term sustainability can you can you talk about sort of higher sort of messaging this with with clients.

Your partner University partners to sort of ensure sort of stability across the portfolio longer term.

Sort of how youre working with them despite the going concern.

Yes, we have great relationships with our partners Andrew <unk>, the new President of degree Hu <unk> I think you know he is in frequent contact with them and they understand what the going concern means.

For us and I think at a high level, we reiterate our relatively strong liquidity position given.

Operator: Again, to ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our robot. Our first question comes from the line of Ryan MacDonald with Needham. Please go ahead. Thanks for taking my questions. Paul, I appreciate the focus on product organization and cash and sort of the outline strategy. I appreciate the color there.

Not only $73 $4 million in cash at the end of Q4, but also the receivables factoring that we just engaged in.

That those items along with the working capital initiatives, we have underway really give us strong foundation to operate the business going forward and most importantly to them.

To give them the level of services and quality that they've come to expect from us.

Thanks for taking my questions.

Our next question comes from the line of George Tong with Goldman Sachs. Please go ahead.

Talked about undertaking comprehensive performance improvement actions, including some cost control actions can you elaborate a little bit more on some of these cost controls where would you expect them to come out of and how much in savings would you expect these actions to generate.

Yes, so George.

A couple of obvious things when we when we referred to a shrink to grow strategy. If we look at the launch cadence that we had for 2024, we were expecting to launch.

<unk> programs this year.

Operator: As you think about, you know, these new initiatives and sort of the focus that you're sort of in the process of evaluating with the business, you know, I know it's not included in the guidance, but how should we think about, you know, the potential timeline for sort of these changes to start to have an impact on profitability, and can you speak at all to, you know, what you think the potential magnitude of or quantification of what level of cost savings Hey Ryan, that was pretty choppy on our end, let us, give us a minute to talk to the operator here to see what's going on. We're not, we have trouble hearing you, apologies. Our first question comes from the line of Ryan Needham. Ryan MacDonald with G-DOM, please go ahead.

As we sit here today, we signed 81, Andrew 81 programs and but we are we are choosing to launch 60 of those programs in calendar year 2024.

As we as we look across the organization. We are looking at places that we can use technology to help us to be more efficient we're looking at third party spend.

Ryan Macdonald: We're looking at organizations partners, who can help us to be more efficient whether it is.

Helping in some of our marketing processes some of our technology processes. So at the end of the day. It's it's.

Ryan Macdonald: We did we took a comprehensive look at all of our offerings and we're looking at them from a very fundamental perspective, we're looking at.

Operator: Operator, please hold on, we can't hear you. Ladies and gentlemen, we are currently experiencing technical difficulties and will resume momentarily. Yes, uh, Ryan, are you there? Step up here, can you hear me?

Gross margins.

Our contribution margins revenue less the cost.

Operator: Yeah, could you repeat the question for us please? We apologize for that. We have to dial in again to get a good connection. Yeah, no, no, no worries at all.

Acquired at that revenue and we're making sure that we have the appropriate hurdle rates, we're making sure we're doing that efficiently and then we're looking at the backend of that we're looking at the cost to deliver that service and how do we deliver that service, but at the end of the day, some very low hanging fruits, we talked about the launches no 60 launches will deliberate.

Operator: Yeah, so, you know, Paul, I can appreciate the sort of increased focus here on product organization and cash and appreciate some of the new initiatives that you're sort of evaluating and going through right now. And while I understand it's not included sort of in the guidance, I was hoping you could maybe give us a sense of maybe the timeframe for which some of these initiatives will kind of come to fruition and start to kind of have benefits for generating more cash profitability. And, you know, to the extent that you're evaluating, and now can you quantify, you know, at all, at this point, what maybe some of these changes can do in terms of generating more easy cash flow? All right, thank you, Ryan.

The $100 million at steady state, that's two and a half to three and a half years from Nathan launch.

We have Ah.

Cheaper ways of launching offerings with particularly with a third party partner that we're partnering with for those launches on content development, we're looking at ways to <unk>.

Paul S. Lalljie: So a couple of things. First and foremost, our path forward is a shrink to growth strategy. I think we have to focus on how we deliver all of our offerings more efficiently, whether it is from a launch perspective, whether it is from an alternative credential, the way we provide synchronous and asynchronous offerings, the way we offer somewhat of an automated and more efficient service to the student from an entire life cycle perspective. So that is first and foremost from a product point of view. But I think underlying all of this is the organizational structure.

<unk> and improve our.

If you think of the leads that we get we have an extremely awesome marketplace right. When you think about X, but at the end of the day, while we get we see large volumes, how do we increase conversion on those volumes and.

I think microcar be white and his team and we've got some really smart people on our marketing team.

Paul S. Lalljie: You know, we've delineated the organization into two lines of business where we have full responsibilities, Andrew Hermelin leading the degree business, and Aaron McCulloch leading the alternative credential business. And that provides the appropriate focus that allows us to use objective data to help us drive decisions across the business in a more efficient manner. It allows us to respond quicker to market changes, and it allows us to focus on that student journey in a more customized fashion for each of the businesses. When we think of what we're doing on the student side of the equation, we're looking at it from a pre-enrollment perspective where we can add software or technology to that pre-enrollment process, and from a post-enrollment process to ensure that we're increasing conversion, to We have industry-leading completion rates. But what does all of this mean, at the end of the day?

But how can we help automate some of those processes to make it more efficient and so those are those are three or four areas George that I think.

Can yield material entre.

Contribution in the near term, if we do them right and do them quickly.

Got it that's helpful. You also mentioned working with lenders to extend your debt maturities based on your conversations what targets do your lenders want to see you achieve in order to successfully negotiate and extend those maturities.

Hey, George this is Matt Yeah, So we can't really get into detail around specific conversations with lenders.

But I would say that we've always had a constructive relationship with our lenders and an open and ongoing dialogue.

They are keenly awaiting.

The operating plan that we've discussed on this call.

At which point, we will engage in further or more detailed discussions or negotiations with them.

So I think to give any more detail around targets or expectations.

Paul S. Lalljie: When we align the organization, it means that we will find redundancies in cost, and we will be able to automate some of the repeatable processes that we have. Probably in a month or two, we'll be able to have a very good plan that we can then execute against. The way that the journey for me is a 12 quarter journey that we're trying to focus on, where we want to be able to reset in the first few quarters and then be able to deliver against that as we get into the middle of that plan. Quantifying this, putting aside it, is not something that I think would be responsible at this point in time. But at the end of the day, we believe it can materially change the plan that we have, the guidance that we're providing today, for example. And it'll be something that can, at the end of the day, be a step back a little bit.

Wouldn't be prudent at this time.

Got it thank you.

Again the floor is now open for your questions to ask a question simply press the star followed by the number one on your telephone keypad.

Our next question comes from the line of Josh Baer with Morgan Stanley. Please go ahead.

Great. Thanks for the question.

And congrats on the new the new roles.

Wanted to clarify a couple things as far as the organization bucket.

Bucket and cost savings and what's new versus what.

<unk> has previously been discussed so when talking about the new organizational structure.

Are you, making incremental changes or more referring to some of the announcements around.

Ryan Macdonald: The C suite changes earlier I guess in November and then the.

Paul S. Lalljie: We need the shrink to grow so that we can support the balance sheet that we have, so that we can be in a position to negotiate and extend the maturities, the upcoming maturities that we have, and to ensure that we have a financially resilient company going forward. Now, by the time we get to the next quarter, we should be able to provide more details and context on that. Matt, I don't know if I missed anything that you would add to that. No, I think that's generally right.

The leadership hires and the structural changes in early January or is there anything new.

So.

This is Paul here a couple of things.

The $90 million that we referred to.

Refers to the events that we had in the October timeframe and then in January late January December of December 'twenty three early January at some of the.

Matt Norton: I mean, when I think about the plan, there's certainly some more low-hanging fruit, and then there's certainly some longer-term items that are going to take a bit more time to implement and realize the benefit of, right? We've already implemented 90 million cost savings in 2023, and we'll get the full benefit of those as we progress through 2024. I mentioned working capital initiatives in my script, and we've kicked off a lot of that already. So, for example, that's obviously managing receivables and payables in an efficient way, but we're also taking a hard look at all third-party spend across the board, both labor and non-labor, with an eye towards what's really critical to the business based on where we want to go. And so I think some of those shorter pucks you'll see in the results in the much closer term, whereas some of the longer-term initiatives will take time. Thanks guys, I appreciate the color there.

Organizational refinements that we put in place both of those resulted in two activities. One was probably 51 was $40 million and thats the $90 million that we expect on a run rate basis as we get into the back half of this year, we'll start to see those benefits.

Ryan Macdonald: As we go forward I mean.

As we continue.

Look at our offerings and look at our delivery methodologies, we will continue to refine the organization eliminated.

<unk> and as we look at how do we optimize.

One of the things we talked about is how do we look at the cadence of some of our alternative credential offerings, whether it start times, whether it is content and see how we can we can bring those together.

So as to benefit from resources anymore.

Have any fashion. So those are a couple of them, but to answer your question very specifically, it's the January events Sunday October events.

Ryan Macdonald: That makes up the 90 and we will continue to have some more refinements in the organization as we go through the year.

Operator: Maybe this is just a follow-up. Obviously, you're taking steps to sort of shore up the battle sheet. You mentioned the going concern. Just curious, as you're trying to balance near-term needs for longer-term sustainability, can you talk about how you're messaging this with clients and your university partners to ensure stability across the portfolio longer-term and how you're working with them despite the going concern? Yeah, we have great relationships with our partners. Andrew Hermelin, the new president of Degree, who I think you know, he is in frequent contact with them And I think at a high level, we reiterate our relatively strong liquidity position, given not only $73.4 million in cash at the end of Q4, but also the receivables factoring that we just engaged in, and that those items, along with the working capital initiatives we have underway, really give us a strong foundation to operate the business going forward and, most importantly to them, to give them the level of services and quality that they've come to expect. Thank Our next question comes from a line by George Tong with Bolton Sachs. Please go ahead.

Okay. That's clear Thanks, and then you mentioned there are a couple or some degree programs that you actually did not go through with the termination.

What.

What was the profile of some of those degree programs that you thought you wanted to terminate but are still running and what were the changes that you've made to make them I guess more profitable.

Yeah. So so we can touch on this at a high level. So one thing we've said with respect to portfolio management is.

There are a number of reasons why we might begin discussions with the partner around portfolio management, one would be high debt to earnings for example, we've been trying to shift our portfolio to lower cost offerings.

That half.

Better debt to earnings measures.

And so one example is we've been able to work with some of our partners to explain the impact to them and to us of higher tuition and what lower tuition means both for the financial results of the program, but also for that student outcomes.

And yes, they've been amenable for working with us to.

I think we lost you.

Ladies and gentlemen, we are experiencing technical difficulties and will resume momentarily.

Operator: We talked about undertaking comprehensive performance improvement actions, including some cost control actions. Can you elaborate a little bit more on some of these cost controls, where would you expect them to come from, and how much in savings would you expect these actions to generate?

Hi, I'm on the backup phone here can you hear us.

Yes, I'm not sure.

What happened to the mainline we were just talking.

Paul S. Lalljie: When we refer to a shrink to grow strategy, if we look at the launch cadence that we had for 2024, we were expected to launch 80 programs this year. I think, Andrew, as we sit here today, we've signed 81 programs. And, but we are choosing to launch 60 of those programs in calendar year 2020. Um, as we look across the organization, we are looking at places that we can use technology to help us to be more efficient. We're looking at third-party spend. We're looking at organizational partners who can help us to be more efficient, whether it is helping in some of our marketing processes or some of our technology processes.

We are able to hear you Sir if EQ. Please continue.

Yes.

Okay sure.

Sure.

I think our mainline went out again, so my apologies yet again.

Josh I don't know how much you heard but again I'll start from the beginning.

So when thinking about portfolio management right.

Ryan Macdonald: I think it was our Q3 call or the prior call. We highlighted some of the reasons, we might engage in portfolio management, one of which was programs with a high debt to earnings ratio right.

We've been trying to focus the portfolio and steer the portfolio really more towards programs that are lower cost.

Paul S. Lalljie: So at the end of the day, we took a comprehensive look at all of our offerings, and we're looking at them from a very fundamental perspective. We're looking at... those margins, or contribution margins, revenue less the cost to acquire that revenue. And, you know, we are making sure that we have the appropriate hurdle rates. We're making sure we're doing that efficiently. And then we're looking at the back end of that. We're looking at the cost to deliver that service, and how do we deliver that service. But at the end of the day, there are some very low-hanging fruits.

That has a much much better debt to earnings ratio.

And some of the programs that I mentioned on the call we've been able to have those discussions with the partners.

They were willing to align their tuition around really what what we thought and what they ended up thinking made sense from a debt turning standpoint.

So that it works for both sides.

Got it.

And then.

Glasgow I'm sorry. Furthermore, no. This is about today hopefully you could hear that.

Yes, no loud and clear.

Last question with the discussion on.

Paul S. Lalljie: We talked about the launches. You know, those 60 launches will deliver at least $100 million in steady state. That's two and a half to three and a half years from the date of launch.

The new organization and having the dedicated segment leaders.

Paul S. Lalljie: We have cheaper ways of launching offerings, particularly with a third-party partner that we're partnering with for those launches and content development. We're looking at ways to automate and improve our... If you think of the leads that we get, we have an extremely awesome marketplace, right, when you think of edX. But at the end of the day, while we get, we see large volumes; how do we increase conversion on those volumes?

The purpose of those changes and highlighting those changes is.

Looks like we're going to this is what's needed to make better quicker decisions and ultimately drive that the profitability that we need.

Or is there any element of it that like look we can run these segments separately and to kind of have that.

<unk> out there.

They don't need to be.

Ryan Macdonald: Ron R. R together under the same roof.

Matt Norton: And, you know, I think Michael Kirby-Weiss and his team, we've got some really smart people on our marketing team, but how can we help automate some of those processes to make them more efficient? And so those are three or four areas, George, that I think can yield material contribution in their term if we do them right and do them correctly. We also mentioned working with lenders to extend your debt maturity. Based on your conversations, what targets do your lenders want to see you achieve in order to successfully negotiate and extend those maturities? Hey George, this is Matt.

So Josh this is Paul here at the end of the day focus is 90% of success, we need to make sure that we have full accountability across the organization.

And with with Andrew and Aaron leading these organization there'll be accountable for these businesses from a top line all the way through to the bottom line.

To date, one of the reasons why we love the portfolio that we have the assets that we have is because we have a marketing organization that still runs on a horizontal perspective. So that you can do things like portfolio based marketing. So that you can allocate resources, meaning marketing dollars across multiple channels.

And if we if we think of what's going on in India alternative credential business for example.

Matt Norton: Yeah, so we can't really get into detail on specific conversations with lenders, but I would say that we've always had a constructive relationship with our lenders and an open and ongoing dialogue. And they are keenly awaiting the operating plan that we discussed on this call, at which point we'll engage in further or more detailed discussions or negotiations. So, I think to give any more detail around targets or expectations wouldn't be prudent. I brought it up.

<unk>.

Coating has been a headwind for us, but if you if you think of coding as as a as a search term. It is it is there is still tremendous demand for coating coding boot camp may not have the same level of demand.

What we were able to do there is to pivot very easily into our courses that are AI related or coding related and we can benefit from those demand because those are our executive Ed type courses, we can do those things with the level of the economy with one person being accountable for the alternative credential segment.

Operator: Thank you. Again, the floor is now open to your questions. To ask a question, simply press the star followed by the number 1 on your telephone keypad.

Versus having them.

Ryan Macdonald: Together in one organization and allocating resources across multiple multiple segments versus just within one segment. So.

Operator: Our next question comes from a line from Josh Baer with Morgan Stanley; please go ahead. Great, thanks for the question, and congrats on the new roles. Wanted to clarify a couple things as far as the organization bucket and cost savings and what's new versus what's previously been discussed. So when talking about the new organizational structure, are you making incremental changes or more referring to some of the announcements around the C-suite changes earlier, I guess in November, and then the leadership hires and the structural changes in early January? Or is there anything new? So, this is Paul here.

By the end of the day. It is it is a different way of running the business.

One is good are one is that we believe that this one is the most efficient way to do this to date given the resources that we have given the demand environment that we're in and given our maniacal focus on delivering profitable growth into the future.

Yeah.

Our next question comes from the line of Steven Pollack with Baird. Please go ahead.

Yes. Thank you this is Stephen Polygon project.

Can you quantify what the reduction in cash receipts are from the programs that you decided to move forward with that were originally you sort of a carrier for portfolio management actions and then you had talked about the new enrollment.

Paul S. Lalljie: A couple of things. The $90 million that we referred to refers to the events that we had in the October timeframe, and then in late January, December 23, and early January, some of the organizational refinements that we put in place. Both of those resulted in two activities. One was probably $50 million, and one was $40 million, and that's the $90 million that we expect on a run rate basis.

Guidance, just any qualitative metrics that you provide as far as kind of what you're seeing.

Demand reconversion perspective that gives you confidence.

Yes, So let me, let me start off and Matt Matt will jump in on the enrollment piece of this here but.

And our last and I think it was Q3 Q3 call.

Paul S. Lalljie: As we get into the second half of this year, we'll start to see those benefits as we go forward. I mean, as we continue to look at our offerings and look at our delivery methodologies, we will continue to refine the organization and eliminate redundancies. And as we look at how we optimize, one of the things we talked about was how we look at the cadence of some of our alternative credential offerings, whether it's start times, whether it is content, and see how we can bring those together with the benefit of resources in a more timely fashion. So those are a couple of them, but to answer your question very specifically, it's the January events and the October events that make up the 90, and we will continue to have some more refinements in the organization as we go through the year.

We were expecting I think it was $49 million in the fourth quarter from portfolio management.

Which we did not.

We did not have in this quarter, so said differently. The 945 full year numbers excludes portfolio management.

In the fourth quarter.

And it also.

The.

EBIT a number of $1 70 was achieved despite not having that approximately $40 million of portfolio management revenue.

Yes, and from an enrollment standpoint.

It really is what we said in the script.

The current portfolio, we're seeing new enrollment increase year over year looking at 2024 by about 11% and that's really driven by.

A lot of the key leading indicators we've mentioned pre prior calls so I think right I think last quarter, we talked about submit volume increasing.

Paul S. Lalljie: Okay, that's clear, thanks. And then you mentioned there are a couple of degree programs that you actually did not go through with the termination. What was the profile of some of those degree programs that you thought you wanted to terminate but are still running, and what were the changes that you made to make them, I guess, more possible?

And we've continued to see that in the fourth quarter with submit volume.

Applicator the number of application submissions up 12% period over period.

That's a key leading indicator to enrolment, which as everybody knows is that a key leading indicator to revenue.

So really across the board across all the key leading indicators.

Matt Norton: Yeah, so we can touch on this at a high level. So one thing we've said with respect to portfolio management is, You know, there are a number of reasons why we might begin discussions with a partner around portfolio management. One would be high debt-to-earnings, for example.

They're trending and they're in the right direction and Matt probably the most important thing is Eric This is Matt.

Our.

<unk> that is based on leading indicators that we expect the degree business has a unique sales cycle, which Matt described eloquently in his script, but basically we are seeing the things that are occurring right now in the degree business, 50% of revenue in 2024 is now visible to us and we will start to see our fall cycle.

Operator: You know, we've been trying to shift our portfolio to lower-cost offerings that have better debt-to-earnings measures. And so one example is we've been able to work with some of our partners to explain the impact to them and to us of higher tuition and what lower tuition means both for the financial results of the program but also for that student output. And, you know, they've been amenable to us. But I think we've lost you.

As we go through the next few months.

I appreciate the color. Thank you.

Speaker Change: I would now like to turn the call over to.

Steve Brass stack for closing remarks.

I just want to thank everybody for joining us on today's earnings call. If you have follow up questions. Please call or E mail at Investor Relations. Thanks, So much.

Yeah.

This concludes today's call you may now disconnect.

Operator: Ladies and gentlemen, we are experiencing technical difficulties and will resume momentarily. Hey, I'm on the backup phone here. Can you hear us? Yeah, I'm not sure. What happened to the main line?

Please wait the conference will begin shortly.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: [music].

Okay.

Yes.

Operator: We were just talking. We are able to hear you, sir, if you could please continue. Okay, sure. Okay, I think our main line went out again, so my apologies yet again.

Okay.

Okay.

Sure.

Understood.

Okay.

Okay.

Okay.

Speaker Change: Okay.

[music].

Matt Norton: Josh, I don't know how much you heard, but again, I'll start from the beginning. So when thinking about portfolio management, I think it was our Q3 call or the prior call, we highlighted some of the reasons we might engage in portfolio management, one of which was programs with a high debt-to-earnings ratio. We've been trying to focus the portfolio and steer the portfolio really more towards programs that are lower cost, that have a much better debt-to-earnings ratio. In some of the programs that I mentioned on the call, we've been able to have those discussions with the partners. And they were willing to align their tuition around what we thought and what they ended up thinking made sense from the debt-to-earnings standpoint, so that it works for both. And then last... Oh, I'm sorry.

Thanks.

Okay.

Okay.

Speaker Change: Okay.

Okay.

Okay.

Okay.

Yeah.

Okay.

Yes.

Okay.

Okay.

Hi.

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Okay.

Peter.

Okay.

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Okay.

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Okay.

Okay.

Yeah.

Okay.

Yes.

Yeah.

Okay.

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[music].

Okay.

Operator: Was there more? No, I was just about to say, hopefully, you could hear that. Yeah. Yeah. No, loud and clear.

Yes.

Speaker Change: Sure.

Yes.

Okay.

Okay.

Paul S. Lalljie: Last question. With the discussion about kind of the new organization and having the dedicated segment leaders, just wanted to ask if... You know, the purpose of those changes and highlighting those changes seems like we're going to, this is what's needed to make better, quicker decisions and ultimately drive that profitability that we need. Or is there any element of it that like, look, we can run these segments separately and kind of have that idea out there that they don't need to be run or, you know, together under the same roof? So Josh, this is Paul here.

Yes.

Sure.

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Okay.

Speaker Change: Okay.

Yes.

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Yes.

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Yes.

Okay.

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Speaker Change: Okay.

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Okay.

Speaker Change: Yeah.

Okay.

Sure.

Speaker Change: Yeah.

Okay.

Paul S. Lalljie: Look, at the end of the day, focus is 90% of success; we need to make sure that we have full accountability across the organization. And with Andrew and Aaron leading the organization, they will be accountable for these businesses from the top line all the way through to the bottom line. At the end of the day, one of the reasons why we love the portfolio that we have, the assets that we have, is because we have a marketing organization that still runs on a horizontal perspective, so that you can do things like portfolio-based marketing, so that you can allocate resources, meaning marketing dollars, across multiple channels. And, you know, if we think of what's going on in the alternative credential business, for example, Coding has been a headwind for us.

Speaker Change: Okay.

Paul S. Lalljie: But if you think of coding as a search term, there is still tremendous demand for coding. However, coding boot camps may not have the same level of demand. So what we were able to do there is to pivot very easily into our courses that are AI-related or coding-related, and we can benefit from the demand for those because those are our executive ed type courses. We can do those things with the level of autonomy with one person being accountable for the alternative credential segment versus having them together in one organization and allocating resources across multiple segments versus just within one segment. So, at the end of the day, it is a different way of running the business. It's not that one is better or one is worse.

Operator: We believe that this is the most efficient way to do this today given the resources that we have, given the demand environment that we're in, and given our maniacal focus on delivering profitable growth into the future. Our next question comes from the line of Stephen Pollack with Baird. Please go ahead.

Operator: Yeah, thank you. This is Stephen Paul. I apologize to Jeff.

Operator: Can you quantify what the reduction in cash receipts is from the programs that you decided to move forward with that were originally sort of Canada for Portfolio Management Actions? And then you talked about the new enrollments within guidance. Just any qualitative metrics you can provide as far as kind of what you're seeing from a demand or from a personal perspective that gives you confidence? Yeah, so let me start off, and Matt, Matt will jump in on the enrollment piece of this here. But on our last, in the I think it was Q3, Q3 call, we were expecting $49 million in the fourth quarter from portfolio management, which we did not, we did not have in this quarter. So said differently, the 945 full-year numbers exclude portfolio management in the fourth quarter. And also, the EBITDA number of 170 was achieved despite not having that approximately $40 million of portfolio management revenue.

Paul S. Lalljie: Yeah, and from an enrollment standpoint, you know, it really is what we said in the script, you know, that current portfolio, we're seeing new enrollment increase year over year, looking at 2024 by about 11%. And that's really driven by, you know, a lot of the key leading indicators we've mentioned in previous calls. So I think, right, I think last quarter we talked about submit volume increasing. And, you know, we've continued to see that in the fourth quarter with submit volumes of applications, the number of application submissions up 12% period over period. And, you know, that's a key leading indicator for enrollment, which, as everybody knows, is a key leading indicator for revenue. So really, across the board, across all the key leading indicators, you know they're trending in the right direction.

Paul S. Lalljie: And Matt, probably the most important thing is here that this is not a conversation that is based on leading indicators that we expect. The degree business has a unique sales cycle, which Matt described eloquently in his script, but basically, we are seeing the things that are occurring right now in the degree business. 50% of revenue in 2024 is now visible to us, and you'll start to see our fall cycle as we go through the next few months.

Paul S. Lalljie: I appreciate it all, thank you. I would now like to turn the call over to Steve Virostek for closing remarks. I just want to thank everybody for joining us on today's earnings call. If you have follow-up questions, please call me or email Investor Relations. Thanks so much. This concludes today's call; you may now disconnect.