Aug 8, 2015
Operator
Good day, ladies and gentlemen, and welcome to the 2U Incorporated Second Quarter Earnings Call. [Operator instructions] As a reminder, today's conference may be recorded.
I would like to introduce your host for today's conference, Mr. Ed Goodwin, Senior Director of IR.
Mr. Goodwin, please go ahead.
Ed Goodwin
Thank you, Operator. Good afternoon, everyone, and welcome to 2U's Second Quarter 2015 Earnings Conference Call.
By now you should have received a copy of the earnings release for the Company's second quarter 2015 results. If you have not, a copy is available to you on our website, investor.2U.com.
The recorded webcast of this call will be available in the IR section of our website. Also, we routinely post announcements and information on our website, which we encourage you to access and use.
Today's speakers are Chip Paucek, CEO and Co-Founder, Rob Cohen, President and COO, and Cathy Graham, CFO. During today's call, we may make forward-looking statements, including statements regarding the Company's future financial and operating results, future market conditions, and the plans and objectives of management for future operations.
These forward-looking statements are not historical facts, but rather are based on our current expectations and beliefs, and are based on information currently available to us. The outcome of the events described in these forward-looking statements is subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results anticipated by these forward-looking statements.
This includes, but is not limited to, those risks contained in the Risk Factor section of the Company's Annual Report on Form 10-K for the year ended December 31, 2014, and other reports filed with the SEC. All information provided in this call is as of today.
Except as required by law, we undertake no obligation to update publicly any forward-looking statements made on this call to conform to statements or actual results or changes in our expectations. Also, it is 2U's policy not to update our financial guidance other than public communications.
Non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release. I would now like to turn the call over to Chip.
Chip Paucek
Thanks, Ed. Why do universities exist?
To understand our business, you must know the answer to this question. Mission drives universities, the mission of education.
The evolution of higher education is a series of step functions in the advancement of that mission. In the Middle Ages, communities of learners banded together to form the world's first universities, iconic buildings, brick paths, intimate classrooms, larger-than-life professors.
They began here. Among the first movers were Oxford and Cambridge, who were the leaders of higher education throughout the 19 century.
The scientific revolution spurred the next evolution in higher education, leading to the creation of the research university. Among the first movers were Harvard and Yale, who were the leaders of higher education throughout the 20th century.
The next step function is upon us in the 21 century. Universities will advance their mission by increasing access to education through technology.
The first movers will become leaders in higher education. In fact, they already are.
In order to do this, universities must modernize by adding great digital versions of themselves to adapt to the changing demands and pressures of students and employers. The iconic building becomes a well-designed learning management system.
The brick paths become a complex web of back-end infrastructure. The intimate classrooms become live video with no back row.
The larger-than-life professors are now connected through a device held in the palm of your hand. Doing this is time-consuming and requires significant resources.
But, helping universities develop great digital versions of themselves is our business, and allows our partners to advance their mission by increasing access to education through technology. I'm very pleased to report that, for the sixth consecutive quarter as a public company, 2U has again exceeded its previously stated guidance for all financial measures.
Building on these strong results, we're increasing our revenue expectations for full-year 2015. The midpoint of our new guidance range now implies 34% revenue growth over 2014.
We're also improving our adjusted EBITDA loss guidance, further solidifying our path to profitability. At the midpoint of our guidance, we now expect that adjusted EBITDA loss will improve by about 42% year-over-year.
To be clear, we believe 2U is at the early stage of a long-term journey as the market leader in a massive industry undergoing disruptive innovation. In leading this charge, we're working with great institutions willing to take on that challenge.
We have a number of significant announcements today. First, I'm terribly excited to announce a new partnership with New York University, the largest upfront multiple program commitment in our history.
The first three standalone programs with NYU, through its Steinhardt School of Culture, Education, and Human Development, are three new verticals for 2U. These programs are a Master of Science in Communicative Sciences and Disorders, which allows graduates to pursue careers as speech language pathologists, a Master of Arts in Counseling and Guidance, with a concentration in school counseling and bilingual school counseling, which prepares graduates for careers as school counselors, and an advanced clinical Doctoral Degree in Occupational Therapy, which trains graduates for careers as OT educators, administrators, policymakers, or practitioners in schools and health facilities.
NYU is one of the largest private universities in the United States, with more than 40,000 students across 18 schools and colleges. Its mission is to be a top quality international center of scholarship, teaching, and research, and it continues to thrive as an academic powerhouse at a global level.
Simply put, it's an awesome university. We're honored that Provost David McLaughlin, CFO Marty Dorph, and Dean Dom Brewer have put their faith in us.
I'd like to note that this is the second time Dean Brewer's been our partner, first at USC, now at NYU. We know how fantastic he is, and we're pleased he's choosing to work with us again as Dean of Steinhardt.
His team, including Vice Dean Ted Magder, has proven that they'll be excellent partners. We appreciate the confidence, and we won't let you down, Dom and Ted.
All of these programs rely heavily on 2U's unique clinical placement platform and network. 2U's connected universities with more than 18,000 contracted placement agencies around the world, and this strength in placement services is one of our competitive advantages.
It's clearly becoming a [protective moat]. We believe placement allows 2U to support degrees that other competitors can't touch, and we continue to look for more of these complicated but excellent opportunities.
I'm thrilled to make a second big announcement today. Our longest-standing partner, the University of Southern California, is opening a new Department of Nursing in order to launch an online Master of Science in Nursing program with us.
You've heard us announce numerous new programs over the last several years, each one representing an important milestone in the evolution of the Company. This particular deal with USC is significant on several levels.
First, it demonstrates how much faith our largest partner has in us. USC has been with 2U since the beginning, and is now doubling down on this partnership through a long-term contract for a third program.
In 2008, most people hadn't realized that the higher education landscape was changing. Partnering with us took real vision.
USC realized it. At the USC School of Social Work, Dean Marilyn Flynn shared our vision and went all-in with us.
Today, the School of Social Work is the largest school of social work in the country, as roughly 5% of the nation's annual Master's Degree conferrals for social work are Trojans. Dean Flynn is the type of leader that innovates and moves institutions forward.
It's no surprise to me, certainly, that USC's new Department of Nursing will be housed in the USC School of Social Work. We believe nurses with advanced practice degrees will remain in high demand for many years, and as one of the premiere schools in the country, USC's decision to enter the nursing vertical with 2U will have a large impact on the field.
Creating a new department to address this demand with an online program is the ultimate endorsement of our efforts, and we thank my dear friend, Dean Marilyn Flynn, and Provost, Michael Quick, for their continued trust. A quick note for you on an existing partnership.
The School of Government at University of North Carolina Chapel Hill has extended their contract with 2U for an additional 10 years. This contract for the Master of Public Administration program now expires in 2032.
While of course we provided UNC with consideration, the revenue share under this agreement remains the same. Dean Mike Smith and his team are all-in, and we're proud to call them our long-term partners.
We'll continue to plant flags with new programs as well, as well as expand our relationships with existing partners to take advantage of the growth opportunities in front of us. They're too large to not seize.
For that reason, we now expect to launch no fewer than six programs in 2016. Even with that accelerated growth, I want to reiterate our commitment to full-year adjusted EBITDA profitability in and through 2017.
As a 40-something entrepreneur, this is not my first rodeo. Maintaining our clear path to profitability is important to me.
With that, I'll turn it over to Rob.
Rob Cohen
Thanks, Jim. I want to share some updates on our current programs and how our university partners are increasing access to education through our technology.
First off, six of our university clients graduated their first cohorts of students this quarter, bringing the total number of 2U enabled programs that have graduates to 10. Graduates from 2U powered programs now hail from all 50 states and 48 countries, and many choose to attend their on-campus commencement ceremonies.
At American University, Emily Hamm, a graduate from the International Relations online program, was chosen to deliver the graduate keynote student address at the School of International Service commencement. Selecting an online student as a representative of the graduate student body highlights that online students are now being treated as equal members of the academic community.
Emily spoke about being a student while serving as a lieutenant in the United States Navy based at NATO headquarters in Brussels, Belgium. She talked about sitting through lectures in 15 countries, reading textbooks and writing papers while on trains, planes, and automobiles, and even submitted an assignment while on a ferry boat crossing the English Channel.
She said, quote, "Conducting my studies online has allowed me to continue serving my country overseas while obtaining a graduate education from one of the top International Relations programs in the world," unquote. Emily and these new graduates are among the 5,482 students who have graduated from 2U-powered programs.
In order to support these students and their aspirations, we must continue enhancing the digital element of great universities, funding opportunities for greater efficiency and scale without sacrificing quality and outcomes. Chip announced that we are increasing the pace of new program launches to at least six per year.
As we move faster and power more programs, we need to continue improving our technical infrastructure, impacting both our student-facing online campus and our back-end. While our SAAS technology is leveraged across each of our partners, we need to continue striving for seamless integration between our systems and our partners.
One of the ways we are addressing this need is through the continued development of our partner integration platform, Port Authority. Port Authority allows us to more efficiently enroll students through an automated process, dramatically reducing the time it takes and the potential for human error.
Port Authority also helps increase our student to support staff ratios without sacrificing service, and enables more timely completion of revenue reconciliation with schools. Additionally, we want to update you on Campus Scaffold.
We are seeing increased interest from our client universities in using our platform with their on-campus students. As an example, this summer, over 50 on-campus students at George Washington University are taking a class using the asynchronous content on our online campus.
Our growth also calls for adding new talent and depth within our leadership team to ensure we're well positioned to deliver the outcomes that our university partners expect from this expanding portfolio of programs. We couldn't have found a more impressive leader to support our growth plans than Jim Shelton, who joined 2U in June as its first Chief Impact Officer.
Jim has incredible depth of experience within the educational industry, and is known for effectively driving innovation and policies that shape learning experiences and educational outcomes for students, something he did with great effect in his most recent role as Deputy Secretary of the US Department of Education. Part of Jim's role is to oversee aspects of our partner program implementation, positioning us to further deepen our partner relationships.
Additionally, he will help ensure we have the team and infrastructure in place to continue to deliver, learn from, and prove our strong outcomes as we accelerate our growth. We are so happy to have Jim on board, and you should all treat his arrival as a positive development in the evolution and the long-term future of our Company.
I'd encourage all of you to read Jim's letter to the education space that he wrote on why he chose 2U. The piece went viral, and I loved it.
We're linking to it in our earnings release, and it is now on our website. Now, I will turn it over to Cathy to take you through the financials.
Cathy Graham
As Chip indicated, we delivered another strong set of financial results in the second quarter. Both revenue and earnings measured showed significant year-over-year growth and exceeded our expectations across the board.
At $35.2 million, second quarter revenue exceeded the comparable 2014 period by 42%. Note that, for the first time, second quarter 2015 revenue increased sequentially over first quarter, a pattern we expect to see continue.
In prior years, we've seen revenue decline in second quarter because our early programs have fewer class days during this quarter than any other. We're now seeing shifting academic calendars in those more mature programs, and newer programs with heavier second quarter loads altering our pattern of revenue distribution.
Revenue growth was once again driven primarily by increases in full course equivalents. Compared to the prior year period, second quarter FCEs increased by 45%, offset slightly by a 2% decline in average revenue per FCE.
Remember that small fluctuations in average revenue per FCE are normal, and largely reflect the varying mix of class schedules across the calendar quarters. They do not indicate any change in our pricing structure.
FCE increases were generated across our program portfolio, further diversifying our revenue drivers and our revenue base. As an indication of how quickly this diversification is happening, in second quarter, 60% of FCEs and 65% of revenue came from the four programs in our first launch cohort.
By comparison, in the second quarter of 2014, the first launch cohort contributed 81% of FCEs and 84% of revenue. Another quarter of FCE growth has also pushed forward the inception-to-date bookings our programs have generated for university partners.
Remember that ITD bookings represents the attrition adjusted total revenue already recognized, or expected to be recognized, by our partners by the time currently enrolled students leave their programs. At the end of the second quarter, ITD bookings had increased to $873 million.
Our second quarter earnings measures also showed significant progress, moving us even further along the path to profitability. At $4 million, our adjusted EBITDA loss showed a 44% improvement over the prior year period and was $2.1 million above the midpoint of our second quarter guidance.
Of this $2.1 million over performance, however, approximately $1.5 million was related to a non-cash charge we had planned to recognize during the quarter, but that did not materialize in the expected timeframe. The charge was related to acquiring additional office space to support our growth and vacating other space as a part of a larger facilities plan.
We are still working through this transaction, and now expect to complete it and recognize the non-cash charge in the third quarter. The $1.5 million charge is incorporated into our third quarter guidance.
Adjusted net loss showed a similar trend, improving by 33% on a dollar basis and 36% on a per-share basis. Outside of shifting the non-cash expense from second to third quarter, over-performance in second quarter earnings was driven by similar factors as in recent quarters.
Higher than expected revenue, headcount and other operating efficiencies, and marketing efficiencies tied to our expanding MPV strategy. From a balance sheet perspective, we ended the second quarter with $88.2 million in cash and no short or long-term debt.
The balance sheet strength provides the foundation for our strategy of driving growth through continued investment in the launch and scaling of new programs. As the business continues to perform, we are raising our expectations for the rest of 2015.
We expect revenue to be between $35.9 million and $36.3 million for the third quarter, reflecting 27% year-over-year growth at the midpoint of the range. For full-year, we are increasing our revenue guidance to between $147.4 million and $148.3 million.
At the midpoint of the range, this now implies year-over-year revenue growth of 34%. Looking at earnings measures, we expect our third quarter adjusted EBITDA loss to be between $5.7 million and $5.3 million.
Remember that, while this is a larger third quarter loss than many of you currently have in your models, it is primarily because we have moved a $1.5 million non-cash lease-related expense from second quarter to third. This is solely a timing of expense item, and will not affect our full-year earnings performance.
For the full-year, we now expect our adjusted EBITDA loss to be between $9 million and $8.1 million. At the midpoint of the range, this implies year-over-year adjusted EBITDA loss improvement of 42%.
Now, with third quarter and full-year guidance, you also have implied fourth quarter expectations showing adjusted EBITDA profitability for that quarter. We want to remind you that we typically experience material cost seasonality in the fourth quarter related to a reduction in our marketing activities during the end-of-year holiday periods.
Our margins increase during that quarter, so fourth quarter margins should not be viewed as a run rate going into the early quarters of 2016. Finally, for those of you maintaining models, I want to emphasize today's announcement that, in 2016, we expect to launch no fewer than six programs, up from our current annual rate of five.
When we spoke last quarter, we told you we were considering accelerating our 2016 launch schedule because we were moving towards profitability at a faster rate than expected, and because of increased demand from existing and potential clients. We are clearly seeing accelerating demand for our services among the leading universities that make up our target markets.
As such, we expect that six annual launches will be our new baseline, with additional step-ups possible as we reach adjusted EBITDA and cash flow positive. Now, back to Chip.
Chip Paucek
Thank you, Cathy. We usually close out our calls with a story of student impact, but today I'm going to change it up a little and talk about a different kind of impact - the significant impact our programs have on faculty in our client universities.
2U works with more than 802 faculty members in the United States and 13 countries. In a survey of our partner program faculty members that we plan to release in the coming weeks, we found that 90% believe, after working with 2U, that the quality of for-credit courses online is better than or equal to the quality of the in-person courses when it comes to delivering the necessary content and meeting learning objectives.
Arriving at this belief is often transformative for faculty. Susan Gallego, an MSW at USC professor, is a 30-year on-campus teaching veteran, but teaching in a healthcare policy course with 2U was her first venture into online education.
Like many of the faculty we work with, she was initially apprehensive about online teaching. Would she connect with students?
Would her message be effective online? Would she have the same impact?
After working with 2U, she's a convert. She says, and these are her words, quote, "If you'd told me back then that I would have been able to connect with my students the way I do now, I would have never believed you.
Nobody could have convinced me, except for this experience. It's been so effective, and it's truly amazing how deep you can get," unquote.
We most often focus on the impact 2U has on students, but it's great to be reminded, these programs also impact the people who teach in them, enriching their professional lives, empowering them to reach students in different ways and in a different medium, and often transforming the way they actually view teaching. Susan is a part of the longstanding tradition of embracing academic freedom, empowering students to think, challenge, and grow.
But, Susan is pushing to make higher education more intimate and acceptable than ever before. She's leading the way.
Susan has jumped into the front row herself. The third shift in higher education is happening.
As the demand for quality student outcomes increases, more universities, more schools, and more faculties are ready to innovate and lead. We will be the premiere partner of choice to create the best digital versions of themselves.
No back row for students, for universities, or for faculty. Outcomes matter more than anything else.
Let's never forget that. And with that, I'll open it up to Q&A.
Operator
Thank you. [Operator instructions] Our first question comes from the line of Michael Nemeroff with Credit Suisse.
Your line is open. Please go ahead.
Mr. Nemeroff your line could be muted.
Michael Nemeroff
I am sorry about that. Can you hear me now.
Chip Paucek
Hey, Michael.
Michael Nemeroff
Yes, sorry about that. Congratulations on a really nice quarter and some really good announcements.
Just to clarify first of all, is NYU an enterprise – it looked like or could have been an enterprise announcement. Is that true, or not?
Chip Paucek
No, it is not an enterprise program. Those are full degree programs.
Michael Nemeroff
Okay. Perfect.
And then, as you increase the number of programs that you're going to launch, I guess the question is how many people do you need to hire for each of the new program launches, and how has it been recruiting and finding people? And I guess you answered my other question, which was on the charge, Cathy, with the space.
How much more space are you going to require over the next year or two for that growth?
Chip Paucek
So, I guess I would say first, every program is different, and they all go at sort of different speeds. And the more that they scale, obviously the more hiring we do for the program.
But, we feel - one thing I want to emphasize more than anything else is we only move ahead with growth when we firmly believe we can deliver the kind of quality that we've delivered historically. And I think, as CEO, that is front and center to make sure that quality stays most important to the Company as we grow.
From the standpoint of attracting people, I'm actually very pleased to say that that's gotten easier over time. It's a pretty incredible group of now 900 people, all aligned on a mission of really transforming higher education.
And while that sounds puffy, if you were in this building or any of our campuses, you would feel it. These people are fundamentally committed to changing higher education long-term, and because of that, we're getting some notoriety with some best places to work, news as of late, which is really good from a recruiting perspective.
We did just announce that we're opening for the first time a Denver office to open up a new market of new people, and we have a good number of 2U people moving out there sort of leading the charge to open that new market for recruiting new employees.
Michael Nemeroff
Thanks, Chip and if I may, just one follow-up on I'm sorry, I think there's an echo, but I apologize. On the competition are you seeing anybody - is there anybody that you're going up against when you're having these discussions with schools?
And then, conversely is how is the take rate or the pricing been? Has there been any deviation in the conversations that you're having with schools over the last couple of months?
Chip Paucek
So, I would say, while we obviously can't talk about individual contract negotiations, broadly speaking, we're very comfortable with our pricing, and we've been able to maintain the consistency that we've delivered in the past. So, I will tell you that, in general, right now we feel like we really have built somewhat of a competitive mode around the Company, and are doing our best to extend that moat by delivering really high quality outcomes and good examples of that are in our clinical placement network.
We really are launching degrees that many other people won't even touch because they're quite complicated. So, occupational therapy and speech therapy, those are both extremely complicated degrees, and we're very ready for them, as our placement team has proven with advanced practice nursing and counseling and social work, that they can deliver.
So, it's typically not a competitive bid process. We don't do RFPs because this is not – we're really not a vendor.
We're much more of a long-term partner. So, you have to really find the university that is interested in doing this at some form of scale and doing it really long-term.
And we feel very fortunate that NYU joined us, and we really are equally excited about our first partner. I don't want to get emotional on you, but USC was our first partner when we were nothing, and so having our first partner actually sign up for another long-term contract just says a tremendous amount, I think, about what the Company has achieved with USC.
Michael Nemeroff
No, that's really helpful, Chip. And I'd be remiss if I didn't ask you about any progress on Yale.
And thanks for taking my questions.
Operator
Thank you and our next question comes from the line of Andre Benjamin with Goldman Sachs. Your line is open.
Please go ahead.
Andre Benjamin
Thank you, good evening. So I wanted to ask you a longer-term question, even though I know you're just really starting to fill out flesh on 2016.
As we run DCFs that go beyond that, you talked about possibility by 2017 as the benchmark that's driving a lot of decisions on pace. Given you've put that long-term goal of mid-30s EBITDA margin out there, how should we think about the pace to reach that margin goal and the tradeoff with growth?
And the reason I ask, and Cathy mentioned the potential for the pace to be increased from six programs to something greater as you improve profitability. So, I'm just trying to think about, once you hit that threshold, how you're thinking about much more profitable from there.
Cathy Graham
So, Andre, you are recalling our conversations and what we've talked about absolutely correctly. So, what we've said in the past, and continue to say, is that we are committed, and have a management team here who believe that companies should be self-sustaining, be cash flow-positive and be able to control their own destinies, and that's what we're aiming for.
Our goals here are to continue a high pace of growth, but once we are in the position where we can control our own destiny, we would likely accelerate our launch schedules, which by definition, given our business model, will reduce the rate or the trajectory at which we move towards steady-state margins. So, it's almost not a question that we can answer today.
We have to see how the programs that we are launching now, and will launch over the next year to two years, are going to play out, as well as what opportunities are in front of us. But, you should expect that we could go towards steady-state margins at a faster rate than we will.
We will continue that march, but we want to keep driving revenue forward and taking advantage of the opportunity in front of us. It's just that large.
Chip Paucek
Yes. Andre, the one thing I would add is high class problem, incredible number of opportunities in front of the Company, tons of verticals we have not yet touched, many with large numbers of individual degrees in them.
And we really do believe that we've got a very unique opportunity, sort of a unique moment in time, great combination of an excellent business model, a great market opportunity, and an incredible team being at the forefront of a massive industry going through pretty significant change, and we're at the front of it. So, we do love the idea of, as you can see with these three new verticals with NYU, continuing to plow that new ground.
Andre Benjamin
And then, the follow-up, are you saying you changed the amount of time it's taking you to get from that initial discussion to an agreement, and then from an agreement to program launch? And are there any efficiencies that are emerging that are allowing you, as that's getting faster, to help think about launching more and more programs in a given year?
Chip Paucek
So, I would say we were not - at the time of IPO, we were comfortable enough with our current pipeline. And while I understand the investor somewhat obsession with pipeline, I've said pretty consistently that it's not been a huge concern to management because we had quite a few programs in some real form of discussion.
And I hope today's announcements at least show that to investors. There are quite a few others that are in real form of contractual negotiation.
It's not so much that the pace has increased from the standpoint of how quickly each of these are, because the reality is these are super-thoughtful conversations with people that are putting a tremendous amount of reputational capital on the line regardless of us putting the financial capital on the line. This is a very important decision that a university doesn't make lightly, and typically goes to the highest level of the university.
That's not something we want to rush. What I will say is we have added to our team the number of people that are out talking to universities.
Maybe back in the older days it was mostly me. And now, with the addition of Jim Shelton, we're building a team there that will allow us to have more of those conversations simultaneously.
So, a little less so that the individual conversations are radically speeding up, and a little more so that we're able to deploy more of those conversations. And the one thing I would say is that signing great schools like NYU and Yale doesn't hurt.
So, the notion of these incredible universities coming and forming these partnerships certainly gives greater comfort to the leaders of the future universities that might be considering us.
Andre Benjamin
Thank you.
Operator
Thank you. And our next question comes from the line of Ben McFadden with Pacific Crest Securities.
Your line is open. Please go ahead.
Ben McFadden
Hey, guys, thanks for taking my questions.
Chip Paucek
Hey, Ben.
Ben McFadden
I just wanted to start with kind of the linearity and seasonality around the model as we start to look at the back half. We have your guide for Q3 and the year, so obviously Q4 as well.
But, maybe you could kind of - as we look at the model, historically speaking, you see a little bit more higher sequential uptick in Q3, and maybe less of an uptick in Q4. Can you help us understand how much of this might be just the ramp that you're seeing in these new cohorts versus is there any type of major shift in start date that you're seeing with some of your existing programs as well, similar to what you saw in Q1 and Q2?
Cathy Graham
So, Ben, a big piece of sort of the Q3 – the change in the step-up between Q2 and Q3, Q3 and Q4, actually has to do with the change that is occurring in Q2. So, we talked a bit about the fact that, as we are adding different programs, we're adding ones that have a heavier Q2 load of classes, and that is tending to smooth out the curve a little from what we have seen when we have smaller number of programs that have fewer days in Q2.
So, that's part of what you're seeing on the historical step-ups there. Beyond that, what you're really seeing is mix.
You are indeed seeing the impact of things that are launching in the beginning of the years versus later in the year, less in this year and more about what was done last year, because remember that launches in the current year provide very, very little of the revenue in this year, but it is more back-ended. As far as the actual profitability in Q4 goes, that's a very, very typical seasonality for us.
In marketing, the reality is that you just don't get the attention of prospective students sort of in that Thanksgiving to after New Year's kind of timeframe. And so, we do cut back on our marketing spend, and therefore it drives much higher margins in the fourth quarter.
Ben McFadden
Great. Makes sense.
And then, I had a question for you, Chip. Just last quarter you launched the – or announced the enterprise model with Simmons, and I was just wondering how much interest have you seen in that model from universities, them coming to you to talk about that since announcing that partnership with Simmons?
Chip Paucek
Quite a bit. It's a very good question.
So, we're going to be thoughtful about how we roll that model out. Simply as we were with our MPV strategy, gradually rolling out these programs and seeing the results before we go hog-wild.
In this particular case, the NYU opportunity offered us really the chance to launch really high quality degrees in spaces that I think others will have challenges launching that give the Company a really incredible head start in verticals that we think are super-important to the world from an outcome standpoint. We're always pretty careful at looking at verticals that we think can deliver a great outcome for the student.
So, back to the enterprise model, we're excited about what we're seeing with Simmons so far. They're really leaning in and helping us work together with a great amount of flexibility to figure it out.
And we have had interest from others. But, as I mentioned in previous calls, we have a lot in the pipeline that weren't enterprise, and we still do.
So, we have a good number of others out there that we're at some real stage of negotiation with. And so, we're going to keep rolling out new degrees as we see fit.
Ben McFadden
Great. Thank you very much.
Operator
Thank you. And our next question comes from the line of Joe Janssen with Barrington Research.
Your line is open. Please go ahead.
Joe Janssen
Yes. Chip, Cathy, congratulations, and thanks for taking my question.
A - Chip Paucek Thanks, Joe.
Joe Janssen
Yes. Let me go to the pipeline.
I won't ask specifics in terms of numbers. But, just interesting, last time I think we chatted, you kind of mentioned the success you had at USC, and the people that were at USC at that time have gone on to other prominent roles at other universities.
And that's kind of been coming to open up more doors. I'm just curious, one, kind of reception you're getting, and two, not so much for the sales cycle question, but are a lot of the pipeline, a lot of the activity, one, do you have the confidence in raising it from five to six new programs every year, but is that confidence coming that people evangelize this for you, or is more of a function of boots on the ground?
Chip Paucek
I'd say it's more the former than the latter, but the latter's relevant. So, as I mentioned, we are upgrading, bringing in more people, and our current university relations team is significantly larger than it ever has been historically.
At the same time, there's no question that movement from our current university partners to other schools has had a very positive impact. You just take Syracuse.
Kent Sevyrud was the Dean of Wash U Law, launching one of the programs that maybe would have the greatest scrutiny in general, the law discipline has not been extraordinarily open to online education. And Kent took a risk and launched it, and we did well together.
And then, he became the Chancellor of Syracuse, and there's no doubt that that made a big difference in terms of our ability to work at Syracuse. But, higher Ed's not about a single leader.
Higher Ed is shared governance, and faculty are critical and so, it's not about convincing one particular person that's why these are longer processes. I think a lot of it for me really comes down to the fact that the Company at this stage has proven that you can drive very high retention rate, high graduation rates, really strong job outcomes.
That probably matters more than anything else. Now, at the same time, it certainly doesn't hurt that our bookings to date, inception-to-date tuition bookings are $873 million.
So, we're getting to a point where you're talking about a very substantial business model behind it all. That's important to both us and our university partners.
Obviously sustainability is critical. So, it's kind of a combination of all the pieces put together.
We're starting to be able to reap the rewards of a lot of hard work, I mean in some ways eight-year overnight success kind of thing. We've been working at it for a long time.
Joe Janssen
Great that's helpful. Well, actually two quick follow-ups.
The announcement on NYU, I might have missed it, but did you announce when you expect those programs maybe to go live? And then the second one, maybe just kind of an update on the corporate channel.
You had the recent announcement with Google and Goldman. Just curious how those are kind of going maybe relative to your original expectations?
Thanks.
Chip Paucek
We really do leave it to our university partners to decide exactly when they're comfortable announcing a launch date for obvious reasons, because all of these have to go through a variety of approvals. In the case of NYU, without question that this is a done deal from the standpoint of us and NYU, and we will certainly give all of you clarity as to all six of the programs that are out there that have not yet launched that we've now announced once we have perfect clarity on them.
But, we really prefer that our university partners lead on that, because it's really not a 2U program. It's an NYU program.
The second piece, we have nothing huge to announce on the corporate partnership side. That shouldn't give you an indication that we don't care about it.
We care about it quite a bit, and we are working on it. We have a senior level executive that's totally focused on it.
So, we think it's a real channel, but, nothing too much to announce today about that except for the fact that we definitively think it's a big part of our future.
Joe Janssen
Great. Thank you.
Operator
Thank you and our next question comes from the line of Michael Tarkan with Compass Point. Your line is open.
Please go ahead.
Michael Tarkan
Thanks for taking my questions. So, just getting back to the potential of accelerating the program launches.
So you're running ahead of profitability now. It looks like you actually generated cash in the quarter.
I'm just kind of curious how we should think about maybe accelerating beyond the six, number one, and to sort of touch on that, but how should we think about you maybe coming back to the market, maybe raising a little bit of extra capital to really expand that offering and accelerate well beyond six per year?
Chip Paucek
Okay so in order, I would say first, just in terms of accelerating, we're very comfortable telling everybody that we feel confident that, from this point forward, we will launch no fewer than six, which is clearly a step up from where we were before. Beyond that, that's about all we're going to say.
We do think there are a lot of opportunities and as Cathy mentioned, as the Company does get to a point where it controls its own destiny. We do think that there's certainly an opportunity out there for us to do more.
But, at this point, we're pretty comfortable sticking to that six. And as far as the second part of the question, honestly, it's just not appropriate for us to comment on anything related to an additional offering.
We're constantly evaluating opportunities, but at this point, we really can't comment on that.
Michael Tarkan
Understood.
Chip Paucek
One additional point, Michael, I should make to everybody is that we feel extremely confident that we are fully funded today. So, our cash balance went up this quarter.
We do feel strongly that we are fully funded.
Michael Tarkan
Got it. Thank you.
And then, Cathy, you've talked historically I think about the margin profile from that first cohort, assuming they've all sort of started at the same time. Just wondering if you have an update on that, sort of where the effective margins are for those four programs, and are they continuing to expand?
Cathy Graham
So, they are expanding, but obviously as they get pretty high on that basis at a bit slower rate, they're not materially different than they were last quarter when we said that they were approaching 30% in the first cohort if you looked at them on that cohort basis, therefore as though they had all launched at the same time in 2009. The other thing I'd remind you is that we always say that, if we're targeting a mid-30s adjusted EBITDA margin, first programs will be somewhat lower than that, second programs, third, fourth program, somewhat higher than that.
And so, if you think about it that way, and the fact that that first cohort has absolutely no second, third, or fourth programs in it, those four programs are really approaching steady-state profitability.
Michael Tarkan
Okay, and thanks. And as a follow-up on that one, on the newer programs that you've been launching, are you seeing a faster track to profitability, even the newer sort of first programs?
Are you seeing those running at higher margins relative to that first cohort?
Cathy Graham
So, the answer is both yes and no, and let me explain. Yes, because in the early days, the reality is you learn lessons as you run companies and you run programs.
We just in general run the launch and scaling of programs today more knowledgably and more efficiently than we did in 2009, 2010. So, from that perspective, the answer is we indeed do see them scaling and getting to profitability faster.
But, we have been through the exercise of essentially adjusting those programs and their financial performance to what we believe it would have looked like had we been running them the way we launch and scale programs today. And when we do that, we actually see our subsequent quarters tracking very closely to what those first four programs look like as a cohort.
So, that gives us a lot of confidence that the predictability of our model, everything's a little different on size or scale, but that, across the portfolio, the predictability of our model is high.
Michael Tarkan
Okay, thank you very much.
Operator
Thank you. And our next question comes from the line of Corey Greendale with First Analysis.
Your line is open. Please go ahead.
Corey Greendale
Hey, good afternoon, everyone.
Chip Paucek
Hi, Corey.
Cathy Graham
Hi, Corey.
Corey Greendale
Hey. So, first of all, congratulations on NYU.
That's a great new partner. First, the quick numbers questions, and then I've got a few questions about the new programs.
The numbers question, Cathy, could you just update us on - and this may not have moved much either, but I think last quarter you talked about the lifetime value relative to acquisition cost number kind of hitting 3.0. Where is that at now?
Cathy Graham
So, what we see today actually is that the ratio it moved above three this quarter, and it's actually approaching our target of 3.2, but I'm going to sort of caveat that by saying that this particular quarter, second quarter, seasonally produces a higher ratio. So, if you think of it as slightly above three, that's probably a better long-term average to look at.
Corey Greendale
Okay. And do you see that continuing to go up as programs mature, or as you start increasing the number of programs you're launching, could you see that dip back down again?
Cathy Graham
It probably will move up and down a little, but we don't expect to see it move all of that much because of the ratio of larger programs to smaller programs. That would be the thing that would influence it in the short run.
But, as they get larger, just it will get to that. The second thing is the ratio of first programs to second programs.
The more second, third, fourth programs that we launch, the more we will move that needle. Of course, you also have to remember that, as we get sort of close to and to our targets, we get to make decisions about whether or not we actually perform at a better than target ratio, or whether we take those dollars and drive growth faster.
So, we have a high class problem there as we get to our target [LTR].
Corey Greendale
Yes, understand. It's a great indication that the business is operating the way that it ought to work on paper, and then you can make the best economic decisions.
So, I had a couple questions on the new programs. So, Chip, I know you've talked about the leverage from the MPV strategy in terms of leveraging your marketing funnel.
Can you talk about whether there's any similar leverage from your ability to place students in clinical rotations, whether you already have the infrastructure set up in California and can leverage that with students in that area for USC, or whether there's an opportunity there for you?
Chip Paucek
Corey, I passed it to Rob. Placement's under Rob, so…
Rob Cohen
Corey, absolutely there's an efficiency. Our placement group's always doing research about the appropriate places for students to do their externships.
So, whether it's hospitals or clinics or doctors' offices, and we can leverage all of the research we've done about where these facilities are in launching these new programs. So, we're not starting from scratch for each program.
It can absolutely leverage the research we've done to launch all of the other programs. In addition, the processes and efficiencies and the technologies we've built easily scale.
For example, the ability to use our geolocation database to match a student to a clinic is the same technology we're going to use when we enter new verticals.
Corey Greendale
Good. So, given the geographic concentration, I would assume that you have more students on the East Coast in the nursing programs that you have right now, and you're going to get more in California.
Do you already have the infrastructure set up to handle all the clinical rotations for a nursing program in California?
Chip Paucek
Yes. So, I would say, of course we continue to build out our network.
That'll be a never-ending process. But, as you know, we're excited about the idea of a West Coast program.
We think that does offer a very substantial opportunity. And while everyone tends to get excited about new logos, and believe me, we're excited about NYU, the fact that we're launching in one of our most important verticals with our first partner that has a really super-strong worldwide brand, we're pretty excited about that particular opportunity.
Corey Greendale
Great. [indiscernible] turn it over.
On the NYU programs, I hear you that these are full degree programs and that they're kind of the first ones in a vertical. Is there any way in which you can leverage your existing funnel just because – it's a school counseling program.
You've got a counseling program with Northwestern. There is some education facets to this, or should we look at this as the same as any first program in a vertical?
Rob Cohen
We really consider these first programs in a vertical, which obviously does impact the short-term, but we think, long-term, you obviously can't have a second and a third without a first.
Corey Greendale
No. Understand.
And then, on the pricing of those programs, will they be priced the same as the on-campus? And can you just give us a sense of what the tuition rates are relative to kind of your average levels at this point?
Rob Cohen
We'll obviously provide that to all of you guys in detail, but they range from $80,000 to $55,000. So, they're all really strong in terms of potential revenue.
But, I think it's really important we remind ourselves that it's all about the outcome, and that's a big part of the reason that we chose these specific programs. We think they offer an excellent outcome to the students that would enroll.
Corey Greendale
Great, and thanks very much.
Operator
Thank you. And our next question comes from the line of Jeff Silber with BMO Capital Markets.
Your line is open. Please go ahead.
Jeff Silber
Thanks so much. I know it's late.
I just wanted to reconfirm something. I'm not sure if I heard this correctly.
But, on the new programs that you just announced, I know you're not going to discuss specific terms, but are they similar in terms of the revenue sharing agreement and the length of your other program?
Chip Paucek
Yes, they are. They are similar terms.
I would say that, in the case of our NYU relationship, it's safe to say it's on the longer side of the range in terms of the length that we've discussed publicly. So, we're, once again, pretty honored that they've chosen to work with us for what is clearly a long-term partnership.
Jeff Silber
Okay, great. I'm sorry, in the guidance – the guidance that you're giving on a revenue basis, what's embedded in changes in revenue per student for the rest of the year?
Cathy Graham
So, we don't report it on a revenue per student basis. We're reporting it on a revenue per – average revenue per FCE basis.
So, on that basis, we're considering that it will remain relatively flat. I'd remind you that really, if you're looking at what the drivers of our revenue are, it's usually 98%-2% one way or the other, or 99%-1% driven by increases in volume rather than any changes in average pricing per FCE, which is really a function of mix.
Jeff Silber
Okay, appreciate the clarification, Cathy. Thank you.
Cathy Graham
You're welcome.
Operator
Thank you. And our next question comes from the line of Geoff Miller with Baird.
Your line is open. Please go ahead.
Geoff Miller
Yes, thank you. The economics of the NYU programs, I know that you're counting them as separate full programs.
But, does your selection algorithm suggest that they all have attractive economics that are comparable to any other full program that you have, or is there something unique about having a program partner that can have three-plus for now, or five-plus at some point, full programs that maybe leads to a slightly different set of standards in terms of what you're looking to accept?
Chip Paucek
There's certainly some benefit to having more than one program with a university partner. But, I think the much more powerful thing going on here is the algorithm itself and the insights from the algorithm led us to an opinion that we would be really smart to continue launching new verticals in combination of excellent university in excellent location.
And it's kind of hard to overstate that combination with NYU and that general region. So, it's a little less about the fact that there are multiple programs.
That is a win from the standpoint of the relationship, which is certainly non-trivial, because this is actually about leadership. I mean, people that sign up for 2U programs, when we talk about this, I feel like people think we're just complimenting our partners.
But, if you were in this business every day, you would understand just how much the leadership perspective matters at a school. There is no single decision-maker.
It's a big deal. And we actually make them go through quite a lot of change, and change is hard.
So, the leadership component's real. But, I would say in the case of NYU, it's just an excellent opportunity to launch what are brand new verticals in a very attractive market.
Geoff Miller
Okay. And then, guessing you don't want to get into specifics in terms of what consideration you gave North Carolina, but if you could just verify that, as you give consideration in the two instances that you did to them, and potentially in future instances, that you can do so in a way that does not change the steady state margin targets?
Cathy Graham
Absolutely. I can confirm that.
Geoff Miller
Okay, thank you.
Operator
Thank you. And our last question comes from the line of Brian Schwartz with Oppenheimer.
Your line is open. Please go ahead.
Brian Schwartz
Yes, hi, thanks for taking my questions. Congratulations on another great quarter.
Chip Paucek
Thanks, Brian.
Brian Schwartz
Two quick follow-ups. This one's probably straightforward, on the new baseline, the six new program announcement, Chip.
I just want to be clear. A year ago when you went public, you promised investors four new programs per year.
Here we are a little over a year. That's grown by 50% now to six new programs, and you're kind of telling us to keep that as a baseline.
Just a quick question here. Is keeping that at a baseline here for the near future, is that more a matter of just bandwidth there for your Company and focus versus any sort of pause that you're seeing in terms of demand?
Chip Paucek
No, not at all. Frankly, this is about just maintaining.
While we're increasing our pace, the most important thing is that we don't let future opportunities take away from the importance of delivering on the current opportunities. This is about quality.
This company is run every day by a group of people that care deeply about driving the right outcome. And we have to make sure, as we continue to scale, that that is top of mind.
Now, I will tell you, there's no doubt in our mind that going from four to six, we'll be able to do that. And the reason that we are signaling that, as we get to profitability, we certainly may be able to step up, is this indication.
I feel like one thing that no one has quite mentioned, this is the first time in our history where a great new university that's a worldwide institution has upfront signed up for multiple degree programs. That's really nontrivial to us.
That's never happened before. So, I think it's safe to say that we're getting - we're sort of getting the ability to win more of these upfront in a way that's important to the future of the Company.
Brian Schwartz
Terrific. And the last question I have, I don't know if this is for you, Chip, or for Rob.
I was just kind of curious about the legacy technology vendors in the space, the legacy print and publishing companies who seem to have - they have a foot in the door in the education - in the [Ed Tac] space, although they're certainly not doing what you guys are doing, or have the breadth of platform capabilities that you have. What I wanted to ask you is they're making a lot of noise out there in the market that they're looking to - they want to transform their businesses from being these legacy print and publishing companies to be modern-day digital media companies, and they want to standardize on SaaS technologies and become cloud companies like the rest of the legacy technology vendors.
I'm just curious, Chip and Rob, if you're seeing any more interest from them in terms of pushing a cloud product into your market segment, whether it's creating awareness, or showing up more as you're reaching out to potential future partners. Thanks.
Chip Paucek
Thanks, Brian. I would say no.
Clearly there is more activity in the space, and we think that that'll continue. And I'm pretty proud of what we've built in terms of being the market leader.
And we think we're unquestionably the market leader today. And we don't intend to slow down.
So, we're continuing to build our competitive capabilities and more and more great technology with our tech dev team. It's pretty clear that placement and support are both huge, and something we're becoming known for.
And even our ability to recruit the best and brightest for these schools, it's really not about finding any student. It's finding the right student.
And that's actually exceptionally difficult, and it's super data-driven. So, there's a ton of people that - and look, it all didn't start this way.
We learned along the way, and the important thing about raising a lot of venture capital is not what you raised. It's what you did with it.
And so, we deployed it and learned how to do this well. I would say that over time, as 4U, 5U and 6U come into the space, people are going to have to prove that they can be as deeply vertical as we are and as committed to quality and scale for each of these individual partners.
And we have not seen anybody that's down that path yet. They'll certainly come, and I would say over time we happen to truly believe that we get much more wind at our back as a company than we do headwinds, any time a great school comes online, because still today without question, the single biggest problem for 2U is preconceived notions of online education, period.
Brian Schwartz
Thank you for taking my questions. End of Q&A
Operator
Thank you. And I'm showing no further questions at this time, and I would like to turn the conference back over to Chip Paucek with any further remarks.
Chip Paucek
That's all we have for you today. We encourage everyone to continue following the Company as we try our best to remove the back row from all of higher education.
Thank you very much for your time. We'll talk to you next quarter.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect.
Everyone have a great day.