Aug 5, 2016
Operator
Good afternoon. My name is Casey and I will be your conference operator today.
At this time, I would like to welcome everyone to the 2U, Inc. Second Quarter 2016 Earnings Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
[Operator instructions] Thank you. Ed Goodwin, Senior Director of Investor Relations, you may begin your conference.
Ed Goodwin
Thank you, operator. Good afternoon, everyone, and welcome to 2U's second quarter 2016 earnings conference call.
By now, you should have received a copy of the earnings release for the Company's second quarter 2016 results. If you've not, a copy is available on our Web-site, investor.2U.com.
The recorded Webcast of this call will be available in the Investor Relations section of our Web-site. Also, we routinely post announcements and information on our Web-site, which we encourage you to access and make use of.
Today's speakers are; Chip Paucek, CEO and Co-Founder; Susan Cates, 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 Factors section of the Company's annual report on Form 10-K for the year ended December 31, 2015 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 in 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. Our recently published 2016 Impact Report shows the tremendous value we are creating for students in our partner programs.
We've said from inception that there will be a long-term correlation between student outcomes and our financial results. Well, we were right.
Universities win when students win, 2U wins when universities win. We had another great quarter.
Once again, 2U has exceeded its previously stated guidance for all financial measures. Revenue for Q2 was $49.1 million, an increase of 39% year-over-year.
Adjusted EBITDA loss was $2.1 million, an improvement of approximately 7 percentage points in margin over the second quarter of last year. And as Cathy wilt talk about later in the call, we are increasing our guidance on the top line and for all of our earnings measures, clearly remaining on the path to adjusted EBITDA profitability for full-year 2016.
Our revenue model is highly predictable and the marketing efficiencies from our Multiple Program Vertical strategy continue to improve our bottom line. For these reasons, we expect to maintain margin improvement as we step up the pace of our launch schedule beginning with nine expected new programs in 2017 and then at least 12 in 2018.
Our pipeline is incredibly strong. We're now currently marketing all six programs in the 2016 launch cohort.
As of this call, we have announced 8 of the 21 new programs we expect to launch in 2017 and 2018. This ratio is on pace with where we were at this time in 2015, even though we've increased the number.
Remember, we've moved away from using our earnings calls as the primary method for announcing new programs. So while we're not making any program announcements in this call, expect some news coming soon.
With our increased launch cadence, we expect to maintain revenue growth above 30% for the foreseeable future. So let me put that into perspective for you.
Even at $1 billion in revenue, 2U would still only command a fraction of the $80 billion U.S. graduate education market, itself only a portion of the $555 billion total U.S.
higher education market, all of which is dwarfed by the international higher education market. We believe we currently have the unique opportunity to become a very large company simply by deploying capital into our core business.
I firmly believe we have the team, the platform and the strategy to capture that opportunity. While we remain focused on U.S.
graduate education, I've mentioned in the past that we believe 2U is ultimately a worldwide story. We're now having more active conversations in other parts of the world.
As such, we've taken some thoughtful steps in that direction. I'm thrilled to announce that Lord David Willetts is signed on as 2U's strategic advisor to the CEO.
Lord Willetts was the minister of universities and science for four years in the U.K. We expect him to aid us in our international strategy, elevate our profile and increase our credibility in Europe and in other parts of the world.
We greatly value his insights and perspectives as we enter new stages of our growth and expand our footprint internationally. I'd like all stakeholders to have the same conviction that I have in our ability to execute our overall strategy.
So I'm excited to announce that we'll hold our first 2U Investor Day on November 15 in New York City to discuss our strategy for growth and shed more light on how we plan to execute. That day I want you to spend time with the team that's delivered 10 straight [indiscernible].
I want you to better understand the vertical landscape, particularly less familiar verticals like public health and speech pathology. We'll demonstrate how our unified bundle of technology and services allows 2U to enter and scale in verticals better than universities operating independently or with another online program manager.
I want you to see the value we're creating for our university partners and their students. We'll hear from deans about why they chose 2U and about the impact our programs are having on their institutions.
We'll speak to students about why they chose to attend graduate school online and about the impact these programs are having on their lives. I want you to experience the unified bundle of technology and services that will support our growth.
We'll spend a lot more time on this during Investor Day, but now Susan is going to highlight some of the incredible work done over the past few years by our tech and data analytics teams to prepare us for that growth. Susan?
Susan Cates
Thanks Chip. In 2012, we offered four programs through three universities, one of which [indiscernible].
That year we did not launch any new programs, but instead focused on building good [bone] [ph]. We improved our platform, systems and organization in preparation for scale.
Following that pause in 2012, we have launched or have scheduled to launch 20 new programs by the end of this year. But as Chip said earlier, we plan to launch at least 21 new programs over the next two years, taking us up to 45.
Put another way, we intend to launch more programs in the next two years than we did in the previous four. So to paraphrase Marshall Goldsmith, what got us here, won't get us there, and unlike in 2012, we don't need to pause to be ready for the next step function in program launches.
One of the reasons we don't need to pause is that our CTO, James Kenigsberg, and his team has taken our market leading SaaS platform and made it even more efficient and interoperable. Core to these enhancements is something we call [Central Park] [ph], which unifies our suite of applications and better automate the stand-up of tech infrastructure for new programs.
It's hard to overstate the streamlining impact Central Park will have for us. It allows pieces of the process that used to take weeks to be completed in seconds.
Central Park has a graphic interface that allows a non-tech-oriented team member to stand-up a program Web-site, online application, online campus and even [indiscernible] server with Amazon Web Services. It makes launching large portions of a new program extremely simple from a technology perspective, letting us scale more quickly and efficiently, and allowing our coding teams to focus on more complicated integration and product enhancements that have longer-term value.
While we are improving the platform to allow for increased speed, we are also getting substantially better at collecting and using data to enhance the decisions we make and the work that we do. As we speed up our program growth, continued improvements in data collection and management system, state of standardization in warehousing and predictive models in reporting will increase the value we deliver to our partners and our shareholders.
As a former school partner, I was aware of the strength 2U had in data tech and analytics and the marketing function, but I didn't fully appreciate what 2U had developed the capacity to do across the student lifecycle and more broadly across the business between the data tech and analytics and insights team. A recent project from our central data tech team led by [Matt Delaney] [ph] [indiscernible] data set we call Time Machine, a consolidated view of the full speed and journey from prospect to post-graduation.
Time Machine allows 2U to step through every micro transaction with an individual, from their first visit to any 2U property to their ultimate graduation and every step in between. This type of data provides us the platform for analysis to better understand the effects of our interactions and to continue to improve our speed and experiences, from focusing on our highest-quality prospects to targeting risk points for speed and retention.
I'm very excited about what we can do with this to be more efficient as a business and to have even more impact on student outcomes. Insightful use of data is core to making 2U a great business for many years to come.
One piece of the 2U Platform where we are using data to produce a better experience for our partners and their students is in the placement services function. As a reminder, many of our verticals, including nursing, social work and education, require local in-person instruction with a qualified provider as a requirement for graduation.
2U has a team of placement specialists headed by Jessica Wang who builds relationships with sites coast to coast and around the world so they can match each student with the right faculty approved supervisor and experience. This entire structure is scaled nicely.
As a data point for you, in the first half of this year alone, the Placement team secured 13% of the nearly 30,000 total placements since 2U was founded eight years ago. This tech enabled service has become a core competency of 2U opening the door to verticals with minimal exposure to online learning such as speech pathology, school counselling and physician assistance.
Local in-person instruction is critical to the learning experience in these verticals. Quality matters and quality at scale is both challenging and expensive We are ready for growth and the work our teams are doing to get better every day remains the essential reason why.
I'm really looking forward to sharing more with you in November and to introducing each one of our truly outstanding teams. I look forward to seeing you on Investor Day.
Now I'll turn it over to Cathy to take you through the financials.
Cathy Graham
Thanks Susan. 2U's trend of strong financial performance continued in the second quarter.
Revenue came in nicely ahead of guidance, and that along with both continuing efficiencies and the shift of some expected Q2 costs to the second half of the year produced higher than anticipated earnings measures. At $49.1 million, second quarter revenue exceeded the comparable 2015 period by 39%.
Revenue growth was once again driven primarily by an increase in full course equivalents. Compared to the prior year period, second quarter FCEs increased by 39% while average revenue per FCE changed by only an immaterial amount.
FCE increases were generated across our program base, but as our business model projects, the largest increases were some programs in their first three to four years of operation. As we expand our program portfolio with additional launches at new and existing university partners, our revenue base continues to rapidly diversify.
Our earnings measures, net loss, adjusted net loss and adjusted EBITDA loss, each showed year-over-year dollar and margin improvement. At $8.3 million, second quarter net loss improved by $1.3 million and net loss margin improved by 10 percentage points to 17%.
On a per-share basis, net loss improved $0.18 from $0.23 in the prior year period. This was despite a 5.1 million increase in weighted average shares outstanding driven by our September 2015 follow-on offering and to a lesser extent the exercise for vesting of stock-based compensation related shares.
After adjusting for $4 million in non-cash stock-based compensation expense, second quarter adjusted net loss was $4.4 million or 9% of revenue. This represented a $1.4 million and 7 percentage point year-over-year improvement to adjusted net loss and adjusted net loss margin respectively, and on a per-share basis improved to $0.09 from $0.14 in the prior year period.
Note that while stock-based compensation expense did not show a substantial year-over-year increase in the second quarter, this was primarily because the second quarter of 2015 included a large one-time grant of common stock. We do expect to see more typical year-over-year stock-based compensation expense increases resume and continue through the first quarter of 2018.
At that time, the first grants made under an annual grant framework instituted prior to our March 2014 IPO will have completed their four year vesting cycle and stock compensation expense increases should moderate. After a further net adjustment of $2.3 million consisting of depreciation and amortization expense, offset slightly by an immaterial amount of net interest income, second quarter adjusted EBITDA loss was $2.1 million or 4% of revenue.
This represented a $1.9 million and 7 percentage point year-over-year improvement to adjusted EBITDA loss and adjusted EBITDA loss margin respectively. The results we achieved for adjusted EBITDA loss and our other earnings measures were above our expectations and guidance for the quarter.
While revenue over-performance was a contributor, operating efficiency and the deferral of certain costs to later in the year were also drivers. Notably, we continue to work through a major ERP installation that because of timeline shifts made earlier this year has had lower than expected implementation costs in the first half of 2016.
These costs are now weighted more heavily towards the second half of the year. From a balance sheet perspective, we ended the second quarter with $188.3 million in cash and no outstanding debt.
We will continue to use cash for technology, content and other infrastructure investments in the support of program and corporate growth. Particularly in the second half of 2016 and the first half of 2017, cash use will include creating or expanding workplaces of our Maryland headquarters in New York and in Denver.
Given our current cash position and projected usage, we believe that we are fully funded to increase our expected program launch schedule from the six programs this year to nine in 2017 and 12 or more in 2018 while maintaining progress towards steady-state margins. Now looking forward, we've provided guidance for the third quarter, and as our business continues to perform, we are raising our guidance for full-year 2016.
On the top line, we are now expecting revenue of between $49.9 and $50.4 million for the third quarter and $201.6 million and $202.6 million for the full year. At their midpoints, these ranges imply 35% year-over-year growth for both the third quarter and for the full year.
Note that we are seeing a slight shift in revenue from the third quarter to the fourth based on course enrollment distributions across late summer and fall class starts, but we are still increasing our guidance for the second half of the year overall. Looking at earnings measures for the third quarter, we now expect a net loss of between $9 million and $8.6 million and an adjusted net loss of between $4.6 million and $4.2 million.
Looking at the midpoint of these ranges as a percentage of the midpoint of our revenue guidance, it implies improvement of 5% and 4% in net loss and adjusted net loss margins respectively over the third quarter of 2015. Adjusted EBITDA loss for the third quarter is now expected to be between $2 million and $1.6 million.
At the midpoint of this and our third quarter revenue range, this implies a 4% adjusted EBITDA loss margin, 4 percentage points better than our margin in the prior year period. Looking at full-year earnings measures expectations, we continue to expect adjusted EBITDA positive results for 2016 along with a significant margin improvement in all our earnings measures.
For net loss and adjusted net loss, we are now expecting ranges of $24.6 million to $23.7 million and $8.1 million to $7.2 million respectively. Taking the midpoint of these ranges as a percentage of the midpoint of our 2016 revenue guidance, it implies 6 percentage point improvement in both net loss and adjusted net loss margins over full-year 2015.
We're now expecting a positive adjusted EBITDA of between $1.7 million and $2.6 million for the full-year, which at the midpoint of this and our full-year revenue range implies a 1% adjusted EBITDA margin. This represents a 5 percentage point improvement over the adjusted EBITDA loss margin for 2015.
Now with third quarter and full-year guidance, you also have implied fourth quarter guidance. I 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 period.
Our margins increase during that period, so fourth quarter margins should not be viewed as a run rate going into the early quarters of 2017. I also want to reiterate two things I said earlier.
We have shifted a small amount of revenue expectation from the third quarter to the fourth as well as shifting certain implementation costs from the second quarter to the second half of the year. While this had the effect of producing second quarter adjusted EBITDA and other earnings measure results that were above our guidance, we have still been able to increase our full-year expectations by even more.
However, when looking at the third and fourth quarters specifically, some of these cost shifts will now offset some of the non-marketing efficiency gains we might otherwise have expected to see. For the longer-term, I want to reiterate that we do not expect to see our margins improve at the same rate post adjusted EBITDA breakeven as they did approaching breakeven.
We have consistently said that at this point we would begin accelerating our launch schedule and we've already announced new program launch targets through 2018 that demonstrate that intent. While we still expect to move towards steady-state margins, the additional investments associated with having more programs in their early years of operation will lower the trajectory towards those targets.
We expect the corresponding benefit will be an extended period of continued high growth and continue to believe that balancing sustained growth with a steady path to long-term profitability target is a smart and prudent way to run this business. But enough with the cautionary note, you know not to get ahead of us.
We had another great quarter and are pleased that we can continue guiding to strong operating and financial expectations. The business continues to develop well and prove out the economic lifecycles and targets we set forth earlier in our journey.
It's great to see what we expected to happen actually come to [pass] [ph]. With that, let me turn things back over to Chip for his closing remarks.
Chip Paucek
Thanks Cathy. As I mentioned earlier, we recently released our 2016 Impact Report which highlights the impact our programs have on students, faculty and universities.
If you haven't seen it, I highly encourage you to take the time to read through it. It's critical to the Company.
Something else notable happened this quarter. UC Berkeley requires all online professional Master's degree programs to report annually on the state of their program to the University's Graduate Council.
This year, Dean Anno Saxenian and the High School at Berkeley published the report. Anno is truly leading Rio and profound change at Berkeley.
So what's included in this Berkeley report? [Indiscernible], everything, application and admission stats, student demographic breakdowns, net promoter scores, insight to school financials from the last year.
It also includes powerful color commentary on the school's strategic partnership with us which of course I love. Perhaps my favorite line is, 'MIDS is arguably the most successful online degree on the UC Berkeley campus, perhaps in the entire UC system'.
Given that this is Berkeley talking to its faculty, I couldn't love that more. A close second is this quote about our partnership, 'we've been very happy with our partnership with 2U.
We cannot sustain a program at this scale without their expertise in marketing, content production, student support, tech support and operation. They own a large share of program revenue but they provide significant value for the money.'
This report is a true example of the impact 2U is making on our partners every day. And with that, I am open to receive your questions.
Operator
[Operator Instructions] Your first question comes from the line of Michael Nemeroff from Credit Suisse. Your line is open.
Michael Nemeroff
Congratulations on another good quarter. Chip, I was going to ask you about the Berkeley study but you kind of went through it at the end.
So I was looking on some of the websites and NYU in particular. It looks as if they've closed off the applications for some of the newer programs that you guys are launching there.
How should we look into it and can you maybe give us a sneak peek of what those enrolments are going to look like when the September class starts? And then I have a follow up for Cathy please.
Chip Paucek
So there is no applications closed off, so I'm not sure exactly what you're referring to there, but the programs, we do have six programs for this year, they are all in marketing. So in other words, the programs, this is actually news on this call, but all six of the programs that we are launching are actually now marketing for prospective students.
And remember our job is to find the right student, not any student. So we obviously can't go into enrolment specifics per program, but the advent of the program selection algorithm several years ago led us to an ability to better select programs that really fit our model, which is a model of quality at scale.
So we do need to make sure that we find the right programs and we are pretty excited about the way these six have started. We like what they look like today.
And you heard Susan mention that placement allows us to go to some programs in new verticals that would typically be hard for online education. So speech pathology and school counselling are two that NYU launched and they are both really great so far.
So we like them. One note, you might be referring to its submit deadlines.
Michael Nemeroff
Yes, that's what I was referring to, Chip. Sorry about it.
It was, the application deadlines had passed.
Chip Paucek
Got it. No problem.
Every one of our program goes through – for each cohort there are stages, so these are actually really comprehensive applications, not an easy process purposefully because students need to have the same sort of responsibility set and quality of the on-campus students. So they go through a process and there is always some missed deadline.
And from that standpoint, of course 2U does have a really good perspective as to what those cohorts are going to look like, and I guess the commentary I would give you is that we're pleased right now with the six that we have.
Michael Nemeroff
Is it going to look as good maybe as the 2015 cohort which obviously were pretty strong?
Chip Paucek
It's really early, so it would be really tough for me to give even color on it. It is early.
I mean these programs, one difference between 2015 and 2016 that's really quite different, just based on – I've always told you guys that the pipeline is sort of something that we have quite a bit of visibility into, but the slotting of them is always a little tricky. So this year they just happened to all slot at the end of the year.
We only had one launch at the beginning of the year. So they are all Q3 or Q4 first cohorts, and you don't get real size particularly in a first vertical, you get one intake and in the first vertical where we don't have a big portfolio of existing prospects, it takes longer as you know to build up.
So I can tell you we do like the way they look right now in terms of how they look against the model as a cohort but it's just too early for us to say how they are compared to 2015.
Michael Nemeroff
That's helpful, Chip. And then for Cathy, in the past you've given us the percent of revenues from the [core four] [ph], I was wondering if you could give us that.
And then also if I look on at the CapEx this quarter, it was quite a bit lower than what I was expecting. I was expecting also a pretty large number for the facility buildout.
I was just wondering if you could help us square that.
Cathy Graham
So let me take the first one first. We actually stopped giving that data last quarter, Michael, on the core four.
We had given that data for a couple of years post-IPO for the singular reason that when we went public in the prior year, about 97% of our revenue had come from the core four and concentration of revenue was certainly a question that you guys were legitimately asking about. In two years, that's dropped to 50%-ish, and so at this point, I guess we think you should believe us.
So leave it at that. As for the CapEx, you will actually see a very significant step up in CapEx related to buildout in the third quarter and probably even more so in the fourth quarter.
The building here has been in demo but not really in construction yet, but it's about to get there. So you will see a really significant step-up in third, fourth and first quarter of 2017.
Operator
Your next question comes from the line of Andre Benjamin from Goldman Sachs. Your line is open.
Andre Benjamin
So I guess as I think about the top 20 to 25 subjects, I apologize for the background noise here, are there any areas that you think are a bit more challenging for you to pursue this from a technological perspective? I guess medical doctor is one that comes to mind, but I'd be interested in your thoughts on any additional.
And if there are, is that something that you are actively investing to improve your technology or improve awareness with the people in that vertical to bridge that gap?
Chip Paucek
What's nice about going into new vertical is we do tend to have innovation that can really ultimately spread across the rest of the portfolio. That happened inception to date, we've seen that happen.
I will tell you that we do think long-term it's something like [indiscernible] place. We will ultimately have success.
It's just a complicated process in that case just like PA, Yale PA where accreditation is a longer process and it's a complicated program because there's many clinical placements, different types of rotations, very excited about where that is, Andre, so I'm happy to talk about that as well. But ultimately, we think in graduate education, this form of graduate education you can really start to make a good argument and it's just better.
It's a great use case for somebody to not pick up their life, quit their job and move to attend a grad school presuming that that high-quality student isn't giving up any quality, and that's really where we come to the table is we're starting to approve that we can not only get quality at scale but not have the student have to sacrifice anything. And when you factor in the fact that the largest cost to graduate education tends to be the opportunity cost of not having a job, you put all that together, and that's part of the reason we think the use case will really apply broadly within grad education whereas undergrad, we said, you guys you will see us do international grad before we do U.S.
undergrad. Very different value proposition, very different use case, particularly at the elite level which is where we play.
So do I think long-term that we will work in all large disciplines of graduate education? Of course we do.
If you had asked me several years ago, I would not have expected that we would have an offering underway for the JD for instance and that's also in its own process and certainly not done yet, but we like where it is. So ultimately those are the types of opportunities we think are really great for 2U.
Andre Benjamin
I guess my one follow-up would be, I know you can't give away all your secrets but to the degree that you can talk about new marketing innovations, I know you've had a lot of success finding new ways to fill the pipeline and end up spending less money to do so than you expected.
Chip Paucek
It's a tough one. So I can't tell you that we do continue to see strong innovation from what I think is [indiscernible].
I think it's fair to say it's the best overall marketing team in higher education. I clearly can't validate that anywhere and I'm the CEO, so of course I'm going to tell you that, but the reality is I believe it.
So it's great team and they continue to innovate and we are seeing the efficiency and the MPV strategy has really worked exceptionally well across the portfolio, but I can't get into the individual tactics, just it's two in the leads.
Operator
Your next question comes from the line of Michael Tarkan from Compass Point. Your line is open.
Michael Tarkan
Chip, one of the things that the Berkeley report talked about was campus scaffold. They alluded to the fact that on-campus students were sort of interested in the online content.
Can you just give us an update as to where that stands out demand as shaping up for your content as it relates to the campus?
Chip Paucek
The primary reason for campus scaffold is less sort of revenue and growth opportunity and more doing right by our partners that they make the transformation to the digital world. And the idea of blurring the line between the online and the on-campus student we think is phenomenal strategically, and that's really what campus scaffold was about.
And you are correct that in various ways across various partnerships, either the marketing component of campus scaffold or the technology component of campus scaffold or both are being deployed and it really comes down to sort of how fast that individual school is making a transition, how much assistance they want on their campus program. We're happy to do it because we take the word partner very seriously.
I think that that is a pretty critical basic tenet of 2U is that while we are the subservient partner, we do believe that these are partnerships. When they do well, we do well.
So just one example, interestingly, in my MBA program, you can now – I mean you guys all know I'm in the Chapel Hill MBA program. I'm blissfully getting close finally and I could not say that certainly when we IPOed, but I'm damn close to getting there.
But I am able now to take on-campus courses if I choose and there are weekend courses available for the executive MBA program that were applied. So just a good example like on a very real way of how that really does change my life in a big way, it's very personal for me.
So that kind of innovation, that cross-pollination which we are seeing happen in various ways across the portfolio is a big deal. One other really cool thing for me right now is I'm enrolled in two of our cross program courses.
So I'm actually for an elective taking a GW Public Health course and a WashULaw course. And so my General Counsel and Deputy General Counsel are probably not as excited about me being in my law course because now I can pepper them with questions.
But my point is that kind of innovation also is pretty interesting. So, all of that work long-term we think will really benefit the broader acceptance of online education.
Michael Tarkan
That's helpful. And then just a follow-up or actually separately, [indiscernible] education has new state authorization rules that they have proposed.
I was just wondering sort of how you guys look at those, whether there's any impact or just kind of any thoughts on that?
Chip Paucek
So we did really establish 2U with the full knowledge and our belief at the time when we started, we are very sensitive to any sort of – if there is a line somewhere that's being drawn, we are very careful to stay far away from it. These are the best brands in the world.
We have to be very sensitive to not just regulatory but accreditation, the way a university like a USC would want to approach this particular topic, which is we're going to follow everything and follow it carefully. So we set up a system for all state authorizations from day one where we won't even market any state unless it has been deemed 'green', which means our excellent compliance team led by Denis Ryan and [Mariota Watts] [ph] have sort of established a relationship there and gotten it approved so that we can begin marketing.
So the point being, if over time those regulations become less challenging, certainly that wouldn't be a bad thing for us, it would be a good thing, but in a currently pretty challenging set of regulations, we are doing really well there. So it wouldn't have an impact if it stayed this way at all.
We're in just sort of normal course of business.
Operator
Your next question comes from Jeff Silber from BMO Capital Markets. Your line is open.
Jeffrey Silber
Wanted to go back to the cohort of programs that you are going to be opening up over the next few months or so, you had mentioned that this is a fairly sizable bunch, probably the most compressed I think in your Company's history. Can you talk a little bit about marketing students, but I'm just wondering what other challenges there are in terms of making sure that these programs go off without any hitches.
Chip Paucek
So part of the reason that maybe we should say this more definitively the next time we give that kind of commentary is that the important thing about the marketing, the marketing is definitively not starting until the program is ready to go. So that means that be expect those six programs to launch when we told you they would because we would start marketing the program for a specified launch date and you could find that on all the various websites for the program.
So pretty important for us that we actually think that that is a little sort of piece of news on this call that they all are on schedule, they all are happening. The 8 of the 21 for 2017 and 2018, one of the other sort of interesting things about the way the academic calendar works, like if you look back at last year, we didn't announce any new ones in the summer either last year, because the summer is a very quiet period for the University.
So we've got quite a few coming and we like sort of how that's all laying out. But Jeff, one of the reasons that students spent some time on some things that you might think are a bit more in the leads, both Central Park and Time Machine, Central Park specifically is a pretty big deal.
So every program launched in the past really required a significantly larger sort of tech time and therefore tech burden to do what I would argue as the basics of the program. And now those great coders can be focused on something that's going to drive more innovation or better efficiency.
And so we think Central Park was worth telling you about to give you the kind of increased confidence that we have that we are not only on track but that we are actually scaling nicely. And one other little data point is that 13% of the total placements, 13% of 30,000 placements being done in the first half of this year, that was another one that we thought was sort of indicative of our ability to show scale is happening and efficiency is happening.
So right now we feel honestly incredibly confident that we're launching everything on time. That's actually not a risk for us.
Jeffrey Silber
Okay, that's good to hear. Just one minor question, I guess this is for you, Cathy.
You mentioned the increased spend dealing with the ERP implementation. Can you just remind us which line item on the income statement we'll see that?
Cathy Graham
So you will see that go through G&A and it's really a shift of dollars into the back half of the year.
Jeffrey Silber
Okay, thanks for clarifying that.
Operator
Your next question comes from the line of Corey Greendale from First Analysis. Your line is open.
Corey Greendale
So I just had a few quick questions on sort of the topics, just actually just following up on that last one, Cathy, is the shift only into Q4 or [indiscernible] some of the costs get shifted into 2017 as well?
Cathy Graham
They are shifted from Q2 into Q3 and Q4, and you'll remember we shifted some costs from 1Q as well. But potentially it's also a slight amount into the first quarter of 2017, but we do expect some into Q3, more into Q4.
Corey Greendale
Okay, and [indiscernible] I'm asking is that you still expect, and I totally get the message that you're not going to see big huge [indiscernible] margin expansion, but do you expect to see higher EBITDA in 2017 than in 2016?
Cathy Graham
The answer would be yes, and once we decide to use that additional money for something else [indiscernible].
Corey Greendale
Okay, fine. And then this is slightly [indiscernible] but just to [indiscernible] expectations, Chip, you talked about 30% plus revenue growth for the foreseeable future, you understand obviously the Q4 guidance would be a little bit below 30% growth.
So, [indiscernible] mean on an annual basis and there may still [indiscernible] quarterly variations that are 125 to 13%, is that correct?
Chip Paucek
Sure.
Cathy Graham
And let me just give you a little color on that, which is obviously a lot of the quarterly variation, as we've said many times, has to do with two things. One is what is the academic calendar look like as we recognize revenue from the of classes to the left, and then the second is what does the launch calendar look like.
So that will move things on a quarter to quarter basis, but on a year-over-year basis doesn't have much impact.
Corey Greendale
Okay. Do you have [any idea to] [ph] the current LTR and GPA ratio you could share?
Chip Paucek
Yes, 3.1 [indiscernible].
Corey Greendale
And then I knew you don't comment on individual programs, but I'll try again [indiscernible] can you give any sort of directional commentary on how the [indiscernible] enterprise program is going?
Chip Paucek
I mean, as we said when we launched them into enterprise, we would launch it and test it, and unfortunately it's still very early because of the nature of an enterprise program. What you are doing is you are effectively bundling a larger number of programs into the cost structure of one from different disciplines.
And so we've now launched three of the five that are in that, or not launched yet but we've marketed launch, the marketing launch of three of the five, and the two of the five that we haven't even started marketing yet. So it's still sort of early and that's part of the reason that we haven't launched other enterprises programs.
We're not going to launch anything else with enterprise until we are highly confident that we like it.
Operator
Your next question comes from the line of Ben McFadden from Pacific Crest Securities. Your line is open.
Ben McFadden
Chip, I wanted to start with a question on the hiring of Lord Willetts, maybe you could talk to us about this international opportunity? It sounds like you've been in some conversations, but I'm curious as to whether you feel like you've reached an inflection where these conversations are getting more serious or whether this hiring was just part of the evolution as you start to look more and more at the international opportunity?
Chip Paucek
I think you could argue that – I'm going to say, yes, it's kind of both. I mean we have had more serious conversations, but that's not really what this is about.
This is about strategically positioning us the right way. He's awesome, very happy to have him involved, can help us here honestly not just in Europe or in Asia, and so brings a tremendous amount of perspective, and as I said, credibility to the table in a way that's super-useful to the business overall.
With that said, we do expect over time that the international opportunity will get real, and just in terms of pipeline overall, pipeline overall is really strong. And so I would argue, I thought maybe somebody would have already asked me a question about pipeline because normally there is a bit of an obsession over it and I understand why, pipeline right now, I'll tell you, people have asked me for a couple of years, what's your biggest challenge and I always say preconceived notions of our own education are terrible and they are still not good, but we do think it's starting to get better and we think where we are starting to see that is the universities themselves.
We're now proving that quality and scale are real and because of that we've definitely seen an increase of interest from the types of partners that we would want to talk to. So that's a real and exciting for us.
David can help us in both cases. So it's reasonable to expect international partnership downstream.
Ben McFadden
Great. And then a question for Cathy, just as I look at this platform revenue retention rate, it looks like that's the highest you've seen since 2013 and you've talked in the past about how the 2015 cohort is off to such a fast start.
So just first I wanted to ask whether you're still seeing that extremely fast growth out of that 2015 cohort or above-average growth. And as a follow-up, as we think about the 30% revenue growth guidance or target, what does the platform revenue retention rate typically have to stay at to achieve that goal?
Cathy Graham
So on the 2015 cohort, the answer is yes, we've seen the kind of performance that we've talked about in the past with you continuing. Those are programs, that is a cohort that's in large part because as you would expect has a higher number of second, third and fourth programs.
Those come out of the gate faster and so they scale faster, and that performance has continued on track to what we would expect for the 2015 cohort. So we wouldn't tell you anything has changed of our perception of that.
The platform revenue retention rate, it's going to be hard to use all of that on a quarter over quarter basis, because a lot of what you will see on a quarter over quarter basis, like the revenue growth rate itself, is going to be dependent on academic calendars and on launch schedules. So you are probably looking at keeping – if we are maintaining sort of 30% annual growth, you will have quarters that go anywhere from say 120% to 130% plus, 135% but it will vary from quarter to quarter for exactly the same reasons that our quarterly revenue growth will vary.
Operator
Your next question comes from the line of Jeff Meuler with Baird. Your line is open.
Jeffrey Meuler
As you talk more about and explore the international opportunity, can you just maybe talk through how you think about how it aligns with some of the I guess cornerstones that have been elementary to your success, I'm thinking how does the program selection algorithm function, do you think that the international markets are going to get the same regional affiliation for brands, are you able to or do you need to build a placement network, just some of those factors?
Chip Paucek
It's a great question, Jeff. So we're going to be extraordinarily careful in our choices.
That's part of it is that you are not going to see us go and launch some large number for international programs quickly. That's just not part of the plans.
And the reason for that is we're going to be very thoughtful and careful. On one hand, we do really believe based on what we've seen out of our partnership with [indiscernible] that a lot of the same issues or opportunities are there, in other words that people want this kind of education.
When they are presented with high quality option, it's real. I think we've been pretty candid with all of you that the program selection algorithm is the U.S.
data set. So it's not directly relevant but it will be as we expand over time into different territories.
Placement is another one where we are now up to 60 countries with placement in those countries, because of the programs we have here that have placements internationally. But it goes without saying that if we did a program or placement was necessary in international territory, we would have a larger build there.
The reality is we'll be very judicious in our choices for what our first international programs will be. So we've told you for a while we were going to take a step.
It is reasonable to see Dave Willetts as an indicator of that step, but we also don't want you to think that it means that all of a sudden we're doing a bunch of international. We're not.
We are going to be pretty careful. And the primary reason for that is honestly the U.S.
pipeline is so darn good, it's really good. So it's better than it was, it's better than it was when I talked to you last time, really.
Even in a quarter it's gotten better. So we're going to be careful.
Jeffrey Meuler
Got it. And then have you started slotting for 2017, and just at a high-level, should we assume they are more evenly balanced throughout the calendar year?
Chip Paucek
We would love to have things in general more evenly balanced. It would make our lives easier on calls like this by the way.
But ultimately we are the subservient part. Remember, it's not our program, it's their program.
So you think about the launching of a program, and we don't talk about it often, but launching these we've really never had one not launch on time, and the fact is it's harder. The schools have to staff up and change their DNA in a bunch of different ways.
So from that perspective, very excited that we are on track fully for the six we have. Next year, we have not issued a launch schedule yet.
We will and not too far in the future. If you look at our behavior over the last year, we did have a bunch of announcements at the end of the year, some of which were for programs that were coming quite soon, because for a variety of approval reasons, you might have something that the time between announcements and launch is short, and then for some you could have it where it's like a Yale where it's really long.
But I am extremely confident in the overall pipeline and in the commitment we've made for nine and at least 12.
Jeffrey Meuler
Got the message. Thank you guys.
Operator
Your next question comes from the line of Kerry Rice with Needham. Your line is open.
Kerry Rice
Maybe a philosophical question, I don't know if there is a right or wrong answer, but just your thoughts, when you think about launching a program in a vertical that already exists versus maybe launching a new vertical, is there one that gets a higher priority than the other, just your thoughts there. And then as you highlight Central Park, it sounds like you can gain a lot of efficiencies there, and how much do you view that impacting EBITDA or profitability of the Company and just that scale and efficiency that that provides?
And then just a couple of follow-ups to that.
Chip Paucek
So, the first one I would say is – I was thinking of the second one. So I know where I was going with that, Kerry, sorry.
So when we select a new vertical, very candidly, we now have this program selection algorithm and that's a big factor. And so I could joke and say that it's what [Harsha and Matt] [ph] tell me to launch.
But the reality is the program selection algorithm is really useful from the standpoint of knowing where to go. Now if that was the only factor, then it would just be the data, and it's not.
It's on the other side, it's the partner ready to lean in and make these students equal to the campus students and do all the things associated with that. So it is a combination of the market opportunity which has to be real and the leadership on the other side.
And when I say that, I am not saying that because we have partners listening to this call, which we do, that's the truth. So when you have a dean like Doug Shackelford at the B-School of Chapel Hill who will do all of the things that make this go, that's a really big deal.
Now with that said, I think Investor Day will be super-helpful to this particular question. That's really, we feel like we want you to meet the team and we want you to meet some of the partners and that will all be really useful but we're going to get into much more detail on the vertical landscape, like how we think about it, how many we feel like there are that we can target, how many programs [indiscernible].
So I think that will be a really useful meeting for you. Cathy, now you can answer the question.
Cathy Graham
I'll take the second one. In asking about efficiencies generated out of things like Central Park, the answer is, we indeed do expect efficiencies out of Central Park.
We expect efficiencies out of a lot of the initiatives that we're doing in technology, in business process, in data analytics. The question is can that vastly improve our margins?
Probably not in the long run. But could it improve the trajectory?
It could if we chose not to send those on something else. And what we have always said is we're going to take the profits that we can generate from having more mature programs that are throwing off cash, from the efficiencies that we can gain from MPV strategy and others things like that, and we're going to take some proportion of those and invest them in the business.
So what I would say is that you shouldn't get ahead of us on the margins because our intention is to take those dollars and use them to improve the bundle, service offering bundle that we are providing, improve our ability to monitor and track outcomes and to maintain our top line revenue growth. So all of those things will be critical uses of funds for us and we want to drive efficiencies in order to build a better business.
Kerry Rice
That's helpful. Thanks for both of those.
Just the follow-ups, more housekeeping, you talked about the strength of the 2015 cohort, and you know at year-end the Maryland I think MBA program was top six or so. If you can't say what that program is now out of the top 10, can you say directionally maybe is that continuing to move up the list there?
And then the second thing, which I don't know if you're disclosing anymore, is the profitability of the top four on EBITDA basis. I think it was around 27% I think you had highlighted last quarter or maybe end of year.
Has that continued to move up, if you can't disclose it specifically?
Chip Paucek
I think the program you are specifically referring to Kerry is the Syracuse MBA.
Kerry Rice
Yes. I'm sorry, you're right.
Chip Paucek
So we will at the end of the year do a top 10 again. That's why – we're doing it – I mean we didn't do a top 10 until we did the top 10 simply because we didn't have enough programs for it to be that relevant.
Now we have a broader assortment of programs. So I think as you see changes in the top 10, it will certainly give you additional insights into the business.
That program is doing great. Ken Kavajecz is the Dean, he's awesome, he has a great team and it's really scaling.
So that's all I can say about it.
Cathy Graham
So, to your other question, we also in that, that is a piece of data we will provide once a year and at the risk of sounding like a broken record, the reason we don't do it quarterly is a similar kind of thing which we would be shifting programs quarterly between buckets and it would be difficult on comparability, and depending on when things started and things like that, you could wind up with very different results if you try to do those things quarterly.
Chip Paucek
I mean just consider that programs don't even have the same number of starts, you have some with five, some with three, some with four.
Cathy Graham
Right. So you really need to do it on a full-year basis.
Doing it on a quarterly basis doesn't actually – could cause more problems and more confusion for you guys than it's worth. What I could say is there is really no material – we would expect no material change to those buckets for anything that's going to impact your analysis.
Operator
Your next question comes from the line of Brian Schwartz with Oppenheimer. Your line is open.
Brian Schwartz
I've got one question [indiscernible]. Chip, I'm going to ask you a pipeline question so you don't feel left out on the call here, and actually the question I wanted to ask you is, maybe if you consider things in aggregate, so not from an individual basis but in aggregate, as you look at your pipeline and maybe that can be a read-through here in terms of market trends, I just wanted to ask you what you're seeing in aggregate in terms of commitment duration as well as pricing out there, if it's just within the ballpark of what you've seen historically, or any comments that you can make in terms of how pricing and duration is trending in the market?
Chip Paucek
The duration, no change whatsoever. We do feel very strongly that for a 2U partner to be successful program on the 2U side, we do need that length, that 10 year plus length for it to be something that makes sense for us.
And so we've been able to maintain that structure, and as I mentioned, pipeline doing as well as it's doing, we do have good leverage there. Now at the same time, pricing, we think it's really critical.
We're happy with where it is, no changes there, and I think it's important to note that it's not like I'm trying to optimize it up for our size. And the reason I'm not, even though we have gotten more leverage over the year, sure we have, but I need my partners to be really successful, that's what I want.
I want them to be really successful, not just the 2U side. And the reality is, if we can make mid-30s adjusted EBITDA margins at this current structure and the school can do really well, that's a win-win.
And so one of the reasons we did love that Berkeley report is just the general comments around the value is great. That's what this is about.
This is a partnership, a long-term partnership to do something great expressed through revenue share. So ultimately, the alignment of interest is there, so we like it.
We do think in aggregate a little bit more today in terms of new program selection. So something that has changed is we do have to look at what we have today before we go and sign a program.
In other words, it is relevant what else we are already running for a couple of reasons. One is so that we can be smart about the market opportunity for that new program, and two is, so we can be smart for 2U about how it balances the agenda of making sure that we're driving everybody's program positively.
So we do think a lot about the balance of where we see them, where we plant the flags. That's become something that's more important because we now have more programs.
Good news is there is a lot of programs and there is a lot of articles. So you guys will hear about that intensely November 15th.
Operator
There are no further questions at this time. Chip Paucek, I turn the call back over to you.
Chip Paucek
So I will end the call with that and ask for all of you to stay tuned and attend our November 15th Investor Day. It will be an excellent day.
And with that, as I always sign off, [#NoBackGrowth] [ph], we will talk to you all out on the road shortly.
Operator
This concludes today's conference call. You may now disconnect.