May 6, 2018
Operator
Good day, ladies and gentlemen, and welcome to the 2U Inc. 2018 First Quarter Earnings Call.
[Operator Instructions] I would now like to turn the conference over to Mr. Eddie Goodwin, Vice President of Investor Relations.
You may begin.
Ed Goodwin
Thank you, operator. Good afternoon, everyone, and welcome to 2U's First Quarter 2018 Earnings Conference Call.
By now, you should have received a copy of the earnings release for the company's first quarter 2018 results. If you have not, a copy is available on our website, investor.
2u.com. Before we begin, I want to let you know that we now have a deck that accompanies our earnings call, which you can find on our Investor site.
We'll be referencing some of the slides during this call, so I encourage you to access the deck. The recorded webcast of this call will be available in the Investor Relations section of our website.
Also, we routinely post announcements and information on our website, which we encourage you to access and make use of. Today's speakers are Chip Paucek, CEO and Co-Founder; 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, 2017, 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 tables attached to our press release.
Before I turn the call over to Chip, I want to quickly address why the 8-K filings containing our earnings release occurred 12 minutes earlier today. There was a technical error in our system, which resulted in our earnings release being posted to our website earlier.
As soon as we realized that this occurred, we made the decision to file immediately. With that clarification, I would now like to turn the call over to Chip.
Christopher Paucek
Thanks, Eddie. 2U is creating a strong sustainable business for our shareholders and for our University partners.
We're eliminating the back row and higher education now worldwide, and this team loves it. Let's start with our recent results.
Another excellent quarter. Revenue for Q1 was $92.3 million, up 42% improvement year-over-year.
GAAP performance on the top line was driven by results in our Grad segments that were in line with our expectation and another strong quarter for the short course segment with $11.7 million in revenue. With 3 quarters of short course operating history under our belt, we have enough confidence in the short course business to raise full year revenue guidance significantly by over $8 million.
This represents an increase in our expected revenue growth rate of almost 3 percentage points compared to our previous guidance. At the midpoint of the new range, we expect year-over-year revenue growth of over 42%.
The short course business is thriving as part of 2U. We've rebranded the GetSmarter headquarters to 2U Cape Town, and are finding a great benefit in working more closely together.
We're opening up new market channels for short courses, which resulted for a time this quarter in GetSmarter being the fastest-growing advertiser on the major social media platform. In addition, our grad program partners continue to express interest in offering short courses and you can see that in the Rice announcement we'll talk about more in a minute.
Shifting to our graduate program segment. Revenue growth was 24% for the first quarter.
This is right where we expected it to be and is consistent with what we previously told you. Visibility into 2018 and beyond is increasing because all 2018 programs are actively marketing.
So we're beginning to get a really good idea of what the rest of the year will look like. One example, Harvard Business Analytics with 69 students is off to an incredible start, especially given that it's a new credential for the school.
Overall, we remain confident in our grad program segment revenue growth for 2018, and that growth rate accelerating into 2019 and 2020. Cathy will give you some more detail later in the call.
But thinking of our longer-term perspective, as we told you at Investor Day, we have to continue driving new pipeline. Let me say here, pipeline is excellent.
We recently told the world that the Baylor University became our 33rd partner with 3 initial DGPs, Education@Baylor, a Doctor of Education in Learning and Organizational Change; MPH@Baylor, a Master of Public Health with a specialization in Community Health; and MSW@Baylor, a Master of Social Work. Note, this 3 from the GETGO with a great new University, and this partnership is our MPV strategy at work.
We now have 3 excellent partners in Texas offering programs in 5 critical verticals: education, social work, public health, data science and business. We also have 2 new announcements for you today: one for grad and one for short courses.
First, one of our newer grad partners, Pepperdine University, has already signed up for a third DGP. The Graziadio Business School will launch Business@Pepperdine, offering a suite of business and management degrees.
And as I mentioned earlier, Rice University became the second existing graduate program client to sign up for short courses. So for those of you keeping score, we've now announced 7 of our 16 launches targeted for 2019.
We're pacing well ahead of last year on announcements and that's on a higher target. But even more are coming, and it's pretty fast and furious.
I'm very pleased. Other companies in this space might like to argue they can compete, but our business model is robust for our partners and in turn for 2U.
No other companies in the space invest like 2U. No one builds the scale like 2U.
No one has a comprehensive approach to quality like 2U. We do a ton of work for our schools that others in the space simply don't and often can't do.
And you don't need to take my word for it. Our clients are saying it.
At Investor Day, Kent Syverud, the Chancellor of Syracuse University, stated his strong belief that Syracuse received significant value from the investments we make with the portion of the rev share, the 2U takes, providing world-class technology support and care in areas that the university shouldn't really be focused on. And in doing so, we drive incredible student outcomes.
But financial sustainability is also critical. Our long-term relationships, which are really like partnership expressed through a revenue share, are producing a powerful business model for our partners that they simply can't find elsewhere.
A new fact for you. Inception, the March 31, 2018, our partners on their site only have earned $623 million from 2U powered programs.
$623 million, but it's not just a revenue story. It also drives surplus to the school.
Now you've heard that from Kent at Syracuse at Investor Day last year. You've also heard about this in the past from people like Dean Marilyn Flynn at USC Social Work.
Two additional partners have graciously allowed me to discuss their surplus with you. First the iSchool at Berkeley, the incredible Dean AnnaLee Saxenian has built datascience@berkeley into one of the most successful programs in the entire UC system.
5 years ago, we started on this journey with Anna. Notably, this is one of the most selective programs in our entire portfolio.
Yet it's been producing a surplus for the iSchool since 2015. In fact, the program hit breakeven in year 2, and has been operating at a surplus that they expect will generate over $20 million over the contract term.
On top of that, similar to USC with nursing, the iSchool is getting ready to launch a new program, a master of cybersecurity, next week. It doesn't exist on campus and is being built entirely from scratch with this surplus.
Second, let's look at Simmons College, another partner who started in 2013. Let me read you a prepared statement from their amazing President Helen Drinan, "Simmons made a strategic move in 2012 when we signed 2U to deliver our Master of Science in Nursing program online.
We had neither the funding, nor the expertise to grow this program online. But we knew what we were looking for in an Online Program Manager after our prior failed attempt.
In 4 years, our online graduate revenues have outpaced our campus-based graduate revenues, and are now the largest new source of revenue for the college. We closed our FY '17 fiscal year with over $65 million in revenue from our @Simmons program with 2U, and recognized a surplus of over $9 million.
While our financial arrangement with 2U is a shared revenue model, it is also a shared success model." I love that quote.
Shared success indeed. It all starts with student outcomes, but University sustainability is important, too.
When the student wins, the University wins, and then we win. On that note, let me past it to Cathy for financial highlights and discussion.
Take it away, Cathy.
Catherine Graham
Thanks, Chip. 2018 kicked off with a strong first quarter.
Revenue came in nicely ahead of guidance driving better-than-expected adjusted EBITDA loss and adjusted net loss. At $92.3 million, first quarter revenue exceeded the prior year period by 42%.
And our graduate program segment year-over-year revenue growth was 24% for the quarter with the remainder of the growth coming from the addition of short course revenue. As we told you previously, with respect to graduate program revenue growth, we expect year-over-year revenue growth rates to bottom out in the first half of this year before reaccelerating in the second half to get to our 30% annual target.
Remember, that in the last 2 years, we've gone from 6 launches to 14. Fewer of those programs were MPV than in our current launch schedule, and a larger portion of our launch schedules in the past 2 years have been back half heavy.
As it takes time for program revenue to scale, these factors have pulled down early 2018 growth rates, but not our long-term growth rate expectations. Graduate program revenue growth continues to be driven by an increase in full course equivalent.
For the first quarter, FCE showed a year-over-year increase of 25%, in line with our expectations. This FCE growth was slightly offset by a 40 basis point decrease in average revenue per FCE.
Reiterating what we told you last quarter and following the pattern I just described for revenue, you can expect to see reacceleration in graduate program FCE growth during the second half of this year. In our short course segment, we had over 6,000 short course FCEs in the first quarter, which because of course start timing was about 11% below the number of FCEs in the fourth quarter of 2017.
However, the percentage of FCEs offered at the U.S. and U.K.
universities once again increased, resulting in a sequential increase in average revenue per FCE, to $1,954, 10% higher than in the prior quarter. You should expect to see average revenue per short course FCE continue to trend up over time, as higher-priced U.S.
and U.K. University courses drive an increasing majority of this segment's revenue.
Before we turn to our earnings measures, I want to remind you of what we've said previously about our expected margin patterns for 2018. As we're investing in launching and scaling graduate programs earlier in the year, and continuing to launch new courses and increase the number of presentations in our short course business throughout the year, we expect our 2018 margin patterns to vary significantly from prior years.
We also expect meaningful differences in our margins between the first and second half of the year, which should allow us to maintain a full year margin at the adjusted EBITDA level that is reasonably consistent with 2017. As expected, a $14.9 million first quarter net loss widened year-over-year by $11.4 million and the corresponding margin declined by almost 11 percentage points.
Note also that net loss for the quarter was at the low end of our guidance due to higher-than-expected stock-based compensation expense. This was primarily due to the acceleration or revaluing of equity grant related to the negotiated departures of certain employees.
After net adjustments of $8.7 million, first quarter net loss was $6.1 million or 7% of revenue. This represented a $6.6 million and 7 percentage point year-over-year decline to adjusted net income and adjusted net income margin, respectively.
After a further net adjustment of $4.6 million, first quarter adjusted EBITDA loss was $1.5 million or 2% of revenue. This represented a $5.4 million decline in adjusted EBITDA loss and an 8 percentage points widening in adjusted EBITDA loss margin over the prior year period.
From a balance sheet perspective, we ended first quarter with $182.1 million in cash. Our balance sheet also had $40.3 million in receivables balances, reflecting the timing of first quarter graduate program start where a significant number of the related payments are due after quarter end.
Now looking forward, we're expecting revenue of between $95.1 million and $96.1 million for the second quarter and $406.6 million and $410.6 million for the full year. At their midpoints these ranges imply year-over-year growth of 47% for the quarter and 42% for the year.
As you can see, we've significantly increased our expectations for full year revenue from previous guidance. Higher-than-expected enrollments in new short courses have led us to increase the number of times we expect to offer these courses over the remainder of the year.
Additional enrollments expected from these new presentations are the primary driver of the increase. Based on our current second quarter expectations and the additional visibility we now have into our expanded short course presentation later in the year, we've updated the disclosure in our earnings release for how revenue will be distributed across the year.
Of second half 2018 revenue, we now expect that approximately 48% will be recognized in the third quarter. Looking at earnings measures, we expect the net loss of between $22.1 million and $22.6 million for the second quarter and between $46.6 million and $44.7 million for the full year.
Note that we've updated our expectations for full year net loss from our last guidance to forecast a larger net loss, due primarily to an increase in expected stock-based compensation expense. In addition to the increased stock base compensation expense we recognized in the first quarter, we are now forecasting additional expense related primarily to grant increases for certain members of management, including our CEO, to get them to competitive level.
These changes were effective with the annual grants we made at the April 1 start of our plan year, and so increased our expense expectations for the remaining quarters of 2018. However, as this increase still result in stock-based compensation expense of only 8% of expected revenue, we believe that our expense remains very reasonable relative to the similar high-growth companies we surveyed.
We now expect adjusted net loss of between $11.6 million and $11.1 million for the second quarter, and between $7.2 million and $5.3 million for the full year. We also expect an adjusted EBITDA loss of between $6.2 million and $5.7 million for the second quarter, and positive adjusted EBITDA of between $16.1 million and $18 million for the full year.
With respect to all of our earnings measures expectations, I want to reiterate that as a result of having a few more months of visibility into our short course segment, we've made some updates to our margin distribution expectations, which will help you with our current thinking on the later 2018 quarters. We've provided this color in the financial outlook section of our earnings release, and I encourage you to read it carefully in order to understand how we now believe 2018 will unfold.
And finally, as the last point on our forward-looking expectations, I want to remind you that we remain in the early stages of integrating and scaling what is still relatively early stage short course segment. As we've said previously, in 2018, we expect our short course financial results to remain highly sensitive to the performance of new courses in their first or second presentation.
By definition, early presentations of new courses have the least certainty around student enrollment and, therefore, revenue and margins. Please give us some time to see how these early presentations perform and don't immediately assume that revenue and margin results will come in at the top end of their ranges.
But after a great quarter and a significant uptick in revenue expectations, we'll be ashamed to end on a cautionary note. We continue to be very excited about how both our graduate program and short course segments are shaping up for 2018.
We're very pleased with how our graduate program segment is tracking, and we like the pipeline and launch cadence we're seeing. Further, the fact that we're comfortable in significantly raising our full year revenue expectations based on the short course outlook, only further reinforces our belief that the GetSmarter acquisition is creating real value for the combined company.
Chip?
Christopher Paucek
Thanks, Cathy. Our international reach and scale came into clearer focus in 2017.
2U now has 8 offices spread across 3 continents and a global portfolio of 32 University partners. Our expanded global presence enables us to better serve our University partners, leveraging the talents of a more diverse workforce with rich and varied cultural experiences and worldviews.
And our presence across time zones enables us to support students on their schedules. You'll see more from us over time on the worldwide opportunity and how that impacts our team.
Also note, in my annual letter, I talked about planting seeds for undergrad. Seeds take some time to grow, but we do think that opportunity is large.
More on that in future quarters. With the 2U Cape Town rebranding, no back ropes stands around the globe.
I'm super excited about it. This business is changing people's lives.
And with that, we'll take your questions.
Operator
Thank you. [Operator Instructions] The first question comes from the line of Michael Nemeroff of Crédit Suisse.
Your line is open.
Michael Nemeroff
Thanks for taking my questions guys. Congratulations on another fantastic quarter.
Two questions really. One for Chip and then a follow-up for Cathy, if I may.
Chip, the DGP programs rolling along nicely. And obviously, you've had this early success and actually better-than-early success with GetSmarter.
Could you maybe talk about how you're planning to cross promote between the 2? And what steps you're taking now?
And how that's looking over the next couple of years? And then for Cathy, the only real nitpick that I can see, the cash flow came in a little bit lower than expected, how should we think about that seasonality for the remainder of the year?
And then also just one nitpick on the amortization of intangible assets that increased materially quarter-over-quarter. What are your expectations there for the full year?
Christopher Paucek
Thanks, Michael. So I would say, believe it or not, we're really still very early in the sort of cross opportunities for the combined entity.
You know 2U Cape Town now, as we're referring to GetSmarter, has a tremendous amount of opportunity within our portfolio and vice versa. You're seeing that - you're seeing the initial sign on pipeline where we now have not just Berkeley but we have Rice, and we've been very pleased by the level of interest from the original GetSmarter partners on the degree side.
So that's going on. And then separately, you have a pretty incredible team of people in Cape Town now working really directly with an incredible team of people that I've come to love over the years here in the states and in Hong Kong.
So that integration is allowing us to do things like become one of the fastest-growing advertisers on a particular social media platform. But what was not happening yet, really interestingly, is a tremendous amount of cross-selling opportunities on - in terms of the marketing funnel, where we do believe there is a tremendous amount of value.
So from my perspective it's early days, which makes the results candidly more impressive. So we feel like we've got a bit of a tiger by the tail here and love it, and are now just trying to figure out how to continue to do things better.
And I'll pass it to Cathy.
Catherine Graham
Sure. So, Michael, on the cash flow item, I think, the big thing to remember is that we did finalize, so we worked transaction in which we acquired that code during this - during the first quarter.
So a big change in the cash flow is related to that, that's why it will come in a little bit light. As far as amortization of intangible assets, we have been doing more around websites and other things like that, which we classify as owning domain names and the like as - with intangibles, and that's why you've seen a slight step-up there.
Also, there were certain things that you saw depreciation step-up and the like. Remember that we put our Brooklyn facility into service at the very end of 2017.
And so if you compare anything sequentially to the fourth quarter, you're going to see a pretty significant step-up in those items.
Michael Nemeroff
That's helpful. Chip, any particular comments you can give us.
As you read out some comments on the DGP leadership, I'm curious what the - some of the people that lead the universities of the short courses are at - are they of the same mind as the DGP people?
Christopher Paucek
I think, GetSmarter did an incredible job building their original portfolio clients. And we found - we had our partner symposium where we brought them altogether, and for the first time we had both groups there, and the reaction was just really strong.
That's not a public event, it's an event for our partners. And if you look at sort of just the way that everybody's working together, very exciting stuff.
So there's no question that there is interest in our graduate program segment even from the historical South African clients. So there's still a lot going on.
Pipeline is lovely.
Michael Nemeroff
Thanks for taking my question. Congrats guys.
Operator
Thank you. Next question is from the line of Tom Singlehurst of Citi.
Your line is open.
Thomas Singlehurst
Good evening, Chip. Good evening, Catherine.
It's Tom here from Citi in London. Yes, I had a couple of questions about international, given I'm sitting here in London.
First one is just, I mean, I know it's very early days, but I was just wondering whether there is anything you could tell us about sort of the relatives start-up costs of IGPs, relative to DGP? Is there anything now that you started the price set with the ECL that you can tell us about as I say the relative start-up cost of building those programs?
And then secondly, I suppose it's conceptual question. I think, obviously, it's encouraging that the sort of adjusted EBITDA guidance for the full year is being somewhat lifted.
But I'm just sort of thinking about it quite perfectly. I mean would you be willing to sacrifice EBITDA for the full year, if you could get - if you could squeeze in an extra couple of programs - program launches or at least start to build out this program launches in 2019, 2020?
I'm just trying to work out how we should think about you guys the tethering the growth opportunity and the margin.
Christopher Paucek
So - no problem, Tom. So I'd say, first, it is early days.
We were very thoughtful going into the U.K. It took us a while when we announced that we had hired Lord David Willetts who we love.
It was 2 years before we actually ended up - actually entering an arrangement. So we were thoughtful and patient about it.
It is early in those days. And I understand you have particular interest in it.
And we do think the worldwide opportunity is very significant. And we don't think there is sort of fundamentally anything different from a demand standpoint.
We think this notion of why should you pick up your life, quit your job and move to - attend a great school is relevant worldwide. With that said, obviously, in entering a new market, just like in entering a new vertical, there will be challenges that we have to.
And therefore, expenses and we just - we don't have enough of a frame yet to give good guidance on it. But I do really see substantial demand not just from schools in the U.K.
from elsewhere. And so we are excited about applying what has worked very well in the United States, 2 different parts of the world when we think it can build a great student outcome and then a great business.
So TBD, it's a little early. But we understand why you're asking question and know that over time we're going to be able to provide additional guidance there.
From standpoint of EBITDA and pipeline, we have not made any decisions to increase our cadence from the 16 that we promised. We feel very strongly about the 16, and we feel like our pacing shows just - if you compare it to last year, we are way ahead of last year.
And last year, we're way ahead of the year before. So that all bodes well.
We feel like, historically, we've been sort of pace at an opportunity level that means we weren't more passing up opportunities. The reality is things are moving faster.
I would definitely not go towards the notion of - we heard some people talk about land grab at times. And we don't see it that way.
We feel like when we enter a particular market or a particular vertical, we've proven to ourselves that we can come into that market or vertical and do really well, so - and higher ed doesn't operate in the context of a land grab. So with that said, it is moving faster.
And so we haven't made any decisions to pick up our pace. But we're certainly at least now excited to see that the opportunity is there.
Thomas Singlehurst
Thank you.
Christopher Paucek
Thanks Tom.
Operator
Thank you. And next question comes from the line of George Tong of Goldman Sachs.
Your line is open.
George Tong
Hi, thanks. Good afternoon.
In the quarter, you saw better-than-expected performance in your short course business. And you plan to increase the number of short course presentations for the remainder of the year.
What incremental costs are needed to expand these courses? And what are the implications for margins?
Catherine Graham
So let me sort of take that in 2 pieces. The nice thing about the short course business and expanding the number of presentations is that the costs that you expand are largely variable.
They are - you already have all of the content built. You already have most of the infrastructure there.
So it really is on delivering the program. It is really about things like you have to pay the tutors to teach additional sections.
The offsetting factor is that large opportunity comes with a bit of an upfront investment in marketing costs. And so we are sort of eating away a lot of the short-term margin on those things by investing in marketing to drive those.
So we really don't see - we are planning on any significant margin expansion in that business because we want to use the dollars that are being generated on the top line to continue to market.
George Tong
Got it. Very helpful.
And then as a follow-up, your earlier graduate degree programs have obviously seen significant growth and success with respect to enrollments and revenues per program. Looking ahead, you have a very strong pipeline of new programs.
Can you discuss how average enrollments and revenues per program at your newer launches are performing? And how they compare with your earlier launches?
Christopher Paucek
Yes. So today, we feel like the sort of general guidance or perspective we've given on what to expect at steady-state for program, is still consistent.
The notion of $16 million at steady-state on average and mid-30s margin we feel like is consistent. We think you can get little bit of a view of it when you start looking at the initial cohort press releases and you see programs starting, they all started different sizes, new verticals started small, and it takes us time to build that competency and then we launched more MPV, they do better.
The sort of enrollment curve is convex and not concave. So it sort of gets going faster but also steady-state's faster.
So all of that, we generally feel like is the - correct. Now over time, as we add more and more programs, we feel like sort of perspective that people should move too gradually is just believing what we're telling you, just on our growth rates, and so on and so forth.
And a little bit less on a per program basis only because we have a lot of them over time. But we feel pretty strongly.
Right now, what we've told you is still good. So we like what we see.
We're being very scientific about the ones we're going after. And we feel like they are - they're performing.
So and you can kind of see it in our cohort margins, too, by the way. So you can see the historical numbers.
You obviously can't see the current but you can see the current ones with the cohort press releases. So we thought to give you enough to be able to get a sense that we're right on.
Catherine Graham
And George, I want to go back quickly to your first question and just add something, and this is sort of a longer-term statement, which is - we want to be able to deliver to you guys a better view of expectations of what longer-term steady-state margins will look like in that short course business. But we want you to understand that where we are today with that is we are still in the stages of integration.
We are still getting our arms around applying our marketing capabilities to that market. And looking at all - trying to put in place all of the things that we can do to drive that business.
And so as we get through that and start to be able to see what the impacts are, we will be coming back to you guys with a better view of longer-term steady-state margin.
Christopher Paucek
For short courses.
Catherine Graham
Yes, for short courses.
George Tong
Very helpful, thank you.
Operator
Thank you. And next question comes from the line of Monika Garg of KeyBanc Capital Markets.
Your line is open.
Jason Celino
Hey guys, thanks for taking my question. This is actually Jason Celino on for Monica.
I kind of want to ask about your Baylor program. The education program is set to start in about 3 months, which is in a whole lot of time.
I know it's an MPV - but kind of what's you're kind of confidence in finding demand for this program?
Christopher Paucek
We don't launch program unless we have confidence. So that's a fairly obvious statement.
But - so all programs that we've gone out and negotiated, we feel confident that will be able to generate positive results, long term, clearly, for the school and that is an MPV vertical that we currently do a lot of work in. So it was - in that case, they were sort of ready to go.
I've said historically for those that have been with us for a while that slotting programs is one of the more complicated things that we have. I think it's pretty rare that you find a company that operates in a market where they're actual good - the actual good that they're transacting, in our case, we're offering degrees to the world for the grad program segment.
Like 70 or 80 people have to vote in order for us to get each of these relationships. I mean, in some cases, it's 20 with a smaller faculty.
But most of the time, there's a faculty vote. So getting the slotting done on all of these is always complicated.
And in that case, the Baylor program was ready to go. One other note I would make about Baylor is Texas.
Our program selection algorithm does say, there is regional bias to higher, something we've really learned over the years and been able to work to our favor once we figure it out. It's very difficult in the early years to figure out what's going on because of the way the marketing works.
But ultimately, that is a place where we've been historically underrepresented in Texas, and it's big. So thinking a little bit like the Electoral College when there a lot of people in a particular area, it matters tremendously.
And so we love the opportunity that Baylor present.
Jason Celino
Okay. Great.
That's awesome color. And then kind of thinking about the GetSmarter business a little bit.
So previously we've talked about growth higher than the core DGP growth, let's call it maybe mid-30%. I know with your comments, are you kind of reiterating that view?
Or how should we kind of think about it?
Catherine Graham
So I think if you look at the fact that you could pretty much figure out what our revenue split was and is between the 2, and you look at the fact that we said we basically put a step-up in - of north of $8 million in our revenue line and attribute it almost entirely to the short course business. You will have to conclude that at least for 2018, the growth rate on that side is higher because we're giving you a growth rate in that 42%, overall.
And have said that, 30% is the core business. So almost by definition, you have to believe there's a higher revenue growth rate in the short courses.
Jason Celino
And that's kind of how we should think about the - it on the years going forward to? Or is this just a function...
Catherine Graham
Yes. No, I think you should think of that for some period to come.
However, you do have to make your judgment about the law of large numbers.
Jason Celino
Okay. Great.
I appreciate it. And then kind of last question around short courses.
You are seeing some pretty good strength in some of the programs that you've kind of chosen. I mean can you kind of talk about what type of the - what types of programs they are?
Give us some characteristics of kind of what makes them kind of good programs?
Christopher Paucek
We're not going to get into per course detail. There's so many.
And over time, there's going to be a lot more. So historically, there have been technology-related courses.
There have been sort of emerging technology-related courses. There have been skill-based courses.
And we're pretty confident that there are opportunities to sell all of them. So - but we are thrilled with the growth of the short course segment.
It's - it is heavy.
Jason Celino
Okay, great. Yeah, I really appreciate it.
Thanks for taking my questions.
Christopher Paucek
Okay.
Operator
Thank you. Our next question comes from the line of Michael Tarkan of Compass Point.
Your line is open.
Michael Tarkan
Thank you for taking my questions. Just on a competitive front and maybe sort of when you're going to market and talking with new school partners.
Are you hearing more questions around people asking about fee for service? Or are they generally comfortable with the overall rev share model?
Christopher Paucek
Yes. So I guess, I would say overall fee for service has existed through not only the entire history of 2U but before 2U.
And so we definitely hear questions about it today. And I would argue to you that, I think, I can make a very compelling argument about why the long-term revenue share aligns our interests together as clients - with our client, but regardless of whether it is a fee for service or revenue share, the key question it really comes down to for the University is what value are you getting for that fee for service, or what value are you getting for that revenue share?
And so I our pipeline is excellent for a reason. We are able to prove that our value is really strong, and it is getting stronger.
The portfolio of tech and service that we provide our clients is better than it used to be. And we just have a tremendous amount of data to share with them about all aspects of it.
We are in the process of rebranding our stack as 2U OS for a reason. It's a really comprehensive approach to building quality.
And the reason we gave some color on the surplus is, specifically, that whether your revenue share or fee for service, there is no moral superiority to it. It is fundamentally, are you good?
Are you delivering? And some of the newer folks are going to have to figure that out, and it's not easy, it took us a long time to get really, really good.
And guess what, we're really good. So I love Helen Drinan's quote about shared success.
Not just shared revenue. And I think that is really the way we approach it.
If you read our manifesto on our website, we feel like we understand our clients. And that we appreciate them in a way that is built into the fabric of the culture of the company.
So net-net, we really like where we stand.
Michael Tarkan
Understood. And just a follow-up to that, the USC MPA program and the Pepperdine business that you announced today, were those competitive wins that you won from other entities?
Or were those in-house programs?
Christopher Paucek
So I'm not going to get into any individual deal. I think it's sort of - let them speak for themselves.
I will tell you that it is becoming more common for us to have wins directly from other business providers, whether they are sort of traditional OPM or fee for service, and even some of the newer providers. So - and then I say a notable - really a notable sort of increase also is there is a good number of people that had tried it on their own.
So if you look at Helen statement about - her having a negative experience prior with OPM, you could talk to some of our schools about the challenges of running programs on their own, that's definitely picked up. So in the older days, if somebody had something running on-campus, sorry, an online program that they were running on their own already, we were not able to secure those.
And today, we're able to, even in some cases where the university has a good number of students in it. So without wanting to get into the specifics around each individual deal, I will tell you that we are definitely winning deals from competitors.
That is a more common thing.
Michael Tarkan
Thank you, that's helpful.
Operator
Thank you. Your next question is from the line of Brian Schwartz of Oppenheimer.
Your line is open.
Brian Schwartz
Yeah, hi. Thanks for taking my questions this afternoon.
Chip, I want to bring you back to the short courses discussion. It sounds like the traction on that business in the quarter was quite better than you expected at the start of the quarter.
So 2 questions related to that. First question, is just really from the industry perspective, I know it's early.
But are you seeing any changes in sales cycle here with the shorter learning offering? Universities may be looking for a faster ROI, finding that attractive.
And then the second question, the follow-up is just on 2U specifically. What are you doing as a company internally to increase your investment or capitalize on the momentum here that you have in the short course segment?
Christopher Paucek
Okay. Thanks, Brian.
So first, I would say, from the standpoint of faster ROI I'm not sure if that's the way I would present the short course side. It is clear that we've operated for a really long time on, if you think about the certification continuum on the side of sort of heavily certified long really intense programs that are - that have higher tuition and are very selective.
And what GetSmarter does offer us now as we embed them into our company as sort of 2U Cape Town is the opportunity to provide skills attainment with an open enrollment program with sort of newer credentials worldwide. And so we don't feel like this is an - or, we feel like it's an - and.
We're seeing continued strength than in some ways more strength related to our degree business. And then we are experimenting with newer forms of credentials, not even just in short courses, but like you take our Harvard Business Analytics Program.
That is a certificate program that is new credential for Harvard, and it is doing great. And you can see what Harvard has posted on its own if you'd like to dig into it a little bit more.
So when I say doing great, I don't just mean enrollment. I mean the school is very, very happy with quality of the program.
So now from a financial perspective, for us, it is faster. So if you think about the interesting thing about the marketing challenge on the side of a degree program where we're using machine learning to effectively predict future enrollment and then drive a marketing decision today, we believe that that is something that is becoming a bit of a sense of a motto around the company.
And it's very difficult for people to do. Well, when you apply it to something that has a shorter enrollment cycle, we're seeing pretty fantastic results.
And we are definitely sort of jumping in on that side, using our marketing horsepower from what is historically been 2U on the short courses. And then the second part was...
Catherine Graham
That was the increase in investment.
Christopher Paucek
Oh, thank you, yes. So - you've probably seen some notices, Brian, about new hires we've made.
We are continuing to invest in sort of not only people may be not always a person that would be sort of an announcement to the investor base. But across the entire company, was in the office last week and on Monday, we had 48 new hires, this is just one example.
We're hiring incredible number of people to drive quality. And then from standpoint of infrastructure, you just take the learn - the code acquisition from our relationship with WeWork to be an indication of the kind of thing we're doing.
But even other pieces of that, that wouldn't be things that you would know about that our clients are super excited about that you'll hear us rolling out as we rebrand into 2U OS over the next couple of months. So there is continued investment going into the core.
Brian Schwartz
Thank you. And last question from me, just continuing on the short course segment momentum here.
I want to ask you about the competitive landscape. So specifically, just on the short courses side, just wondering if you're seeing any pure plays in the market that you're even able to displace because you have both GDP and short courses.
Or is it still just an immature market out there where you're seeing mainly Greenfield and kind of replacing on-premise learning?
Christopher Paucek
Yes. I mean.
I feel like people have to sort of take a step back and just think about the perspective of just how massive global higher education is. It's so big.
So not necessarily we'd say, Brian, that it's immature market but more this type of offering, there is ample room for a lot of people. And while we are gaining some competitive winds at times with regards to a particular deal that we may want, this is more just about helping great schools worldwide, make the transition to the online environment and then thrive in that environment.
And we've been doing this a long time. We're getting really good at it.
So I feel extremely confident that whether it be a short course or a grad program that we are the best choice but, of course, I feel that way, I'm the CEO. So I think our results prove it.
Brian Schwartz
So if I could just sneak one more question for Cathy. Because you did have a comment in your introductory comments, not exactly sure the wording, but something about expect, maybe not expecting as much upside in the raise in bids that we're so accustomed to hear in 2U.
I'm just wondering if that is messaging that you're just trying to create some awareness that we should be expecting more of a meet and greet in terms of as we think about forecasting the model here in the future?
Catherine Graham
So I'm not exactly sure what you're referring to. We really haven't changed our guidance stands.
What I did do was to reiterate that we did not expect to see significant margin expansion at the adjusted EBITDA level for this year. And a big part of that Brian is tying back to your question about reinvesting to take advantage of momentum.
Though we are driving the top line, we are not looking to use that to expand margins tremendously in the short run because we're reinvesting those. So the biggest sort of thing I would reinforce to you is that - is that please look for us to maintain those kinds of margins that are similar.
You need to kind of remember that, as we've said before, this is a business where like Amazon we're adding tabs. And as we're getting performance in one, we're using those dollars to add new tab.
And so that's really where we're headed.
Brian Schwartz
That's clear. Thanks again for clearing that up for me, Cathy, I appreciate it.
Operator
Thank you. Your next question comes from the line of Kerry Rice of Needham.
Your line is open.
Christian Rice
Thanks a lot. One on the comment around the increased frequency of the short courses.
I don't know if that you can clarify. Was that related to U.S.
and Berkeley or is that more globally? And it sounds like given that most of this has already created content.
So it's pretty quick to, once that decision is made, to do it more frequently, you can roll that out quite often. If it's a 6-week course, you might be able to do it a few times in the quarter, both in parallel and serially.
So may be comments on that? And then Chip you may have already kind of answered this or may be clarification, the integration of the Learn.co technology, you said it should be 2U OS should be up and running in a couple of months.
I was just hoping you could give an update on that integration.
Christopher Paucek
Okay. So on the first question, I would just correct that a little bit.
So when we talk about - we think about presentations for the GetSmarter short courses as they become part of 2U, we believe that Amy Johnson and her team in Cape Town have done a fantastic job creating courses that are of high quality. And they're working now more closely with us on a variety of best practices to increase the number of presentations that are offered in concert with their partners.
So more presentations does mean that we have more students in the program. So that's a win.
With regard to Learn.co, my founding CTO, James Kenigsberg, is leading the charge, and we don't have a date to announce with regard to when we'll be operating on the new platform, but it's something that I talk about with him almost every day. So our clients are very excited about it.
We did premier it at our 2U symposium to rave reviews. So something that you'll hear about and see more of over the next 6 to 9 months.
But it's well underway.
Christian Rice
Maybe a couple of clarifications or follow-ups. Cathy, is there - can you give us a backlog and LTV to TCA, LTR to TCA?
Christopher Paucek
I can do it, if you'd like, how about that, Kerry? Backlog is $351 million, LTR to TCA was $3.1 million.
Operator
Thank you. Our next question comes from the line of Sarah Hindlian of Macquarie.
Your line is open.
Unidentified Analyst
Hi. This is Fred Hatamayer [ph] on for Sarah Hindlian.
So I'd actually like to ask a question about how you're seeing the breadth of your student pipeline trending? Since - I've been noting more of my 20-something-year-old peers with high level of education are pursuing advance degrees online, such as one friend actually who holds both an undergraduate and graduate degree from the top 5 University who's presently taking online classes for a professional degree to add to their skill set while they're working at a research hospital.
Would you be able to characterize whether your potential student pipeline has been consistent in demographic breadth? Or have you been seeing anything to suggest broadening uptick of online degree programs?
Christopher Paucek
Well, I mean, we do think that we're a little bit in the sort of - in the same way that electric cars are in the early stage of their life cycle. Online education, we think, is in the process of much broader adoption.
Not led just by millennial, as you might have sort of inferred from your question, but older people like me, they've also decided this is the way to go, I've since graduated. But - so the average age of our students in graduate programs that we run online is higher than the campus.
And I think that that is more of an indication of the fact that the convenience factor is massive for people that need that convenience. I would also note that you'll see more from us over time about the diversity in our programs.
We feel like that's something that we have not highlighted, that is a huge win for our University partners and for the world, frankly. So - but, I guess, that's - we'll put more out about that over time.
Unidentified Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Corey Greendale of First Analysis.
Your line is open.
Corey Greendale
Thanks. Hey, thanks for taking my questions.
So actually, Chip, you talked about a number of things that I'd like to follow-up on, but I'll limit the questions to a few. First of all, in terms of as you talk about the algorithms, how much of your, how do you want me to talk about this, pipeline or opportunities today, how much of that consist of you approaching a partner potential partner and saying, we really think there should be a program in this field in Texas?
And you'd be the perfect university to do it versus you being called in 2 opportunities?
Christopher Paucek
More is us going out and being sort of surgical. That's not new.
Inbound is more relevant now, I think in part, because we are - we've delivered. And it's a very collegial world in higher ed, and so people talk about it.
And I think the same will be the case with competitors, as people - people have to prove it over time. So we have - so inbound is more relevant now.
Corey Greendale
Okay. And then on the competitive front - I know you don't want to comment on individual deals, but I just want to verify for the Baylor and the Graziadio programs where the terms consistent with your historical terms and just if there is a - provided with a different model that they're already working with?
Does that affect the conversation around contract terms or the time it takes to get that done?
Christopher Paucek
Yes. So we - I think we've pretty well established that something was out of normal terms, we would have to tell you.
So all of the deals that we've announced are within the normal range, on share in length. So we feel like we're able today to deliver the pipeline that we need.
And that's part of the reasons that we were excited to give you a little bit more color on what's going on financially for our partners because there can be quite a bit of noise out there at times about what the sort of this model does or that model does, and I can't speak for everybody in the world of online education but I can certainly speak for 2U that our partners are doing really well. And it all starts with - if you look at Helen Drinan as an example at Simmons, I was focusing on the revenues and the surplus.
But board pass rate for the Simmons nursing program is 92.85%. So that's well above the national average for campus programs.
So ultimately, it starts to student outcomes, but we do think it's important that financially our partners do really well. So when a deal is with somebody else, could that impact some aspects of the deal?
Sure. But not in a way that we think would be something that we would need to disclose to you.
Corey Greendale
And if that ever change?
Christopher Paucek
And if that ever change, we would tell you.
Corey Greendale
So good. We'll keep that in mind.
And then I just have one last quick one on the short course business, given that that's - so the whole concept is somewhat newer, is there that it may make sense to do more testing around kind of pricing elasticity on that going to some part and saying, hey, let's try to set a higher price or lower price, higher volume approach?
Christopher Paucek
So I would say, very impressed I am, I should say. I am very impressed with our marketing team, our data analytics team.
The research that they have done and how that has impacting our view of the marketability of any of our programs. So prices always a real discussion.
And you could talk about that with a DGP or you can talk about that with a short course. It is certainly earlier days in the short course business.
So we are learning more and more about what we think is possible.
Corey Greendale
Great, thanks for the comment.
Operator
Thank you. Our next question comes from the line of Alex Paris of Barrington Research.
Your line is open.
Christopher Howe
Good evening. This is Chris Howe sitting in for Alex Paris.
I had a question just on what we're seeing in the environment from 4 profits trying to spin-off and moving to the OPM space. And perhaps encroach on your arena?
Will their service offerings change in any way, the breadth and depth of the 2U offering as much as you'd be able to share?
Christopher Paucek
So in general, I feel like the folks moving into our space, we've had people moving into our space for what is now over 10 years. So while - I do want to sound like I take competition that I think of them, we think it's trivial.
We're always looking at our service offering and our tech offering. And our job is to be the best.
So we try to make it better and better every year. And I feel like we're doing that.
I feel like our job for our clients is to continue to deliver quality. Now many of the folks that might be converting operate in a bit of a different market, people don't apply to Berkeley and Strayer at the same time, so that's a factor.
And in general, we think competition, overall in the space, is positive thing, not a negative thing, because the biggest issue we still have is preconceived notions of online education. So as more high-quality brands - and even sort of broad more mainstream brands come into the space like the Perdue and Capital One relationship, we see that as generally more of a positive than a negative.
Christopher Howe
Okay. And then I had one last one.
I guess, can you provide some color on just what you're seeing as far as potential and new verticals at the new school? Any pressure as far as discovering programs that can achieve meaningful scale?
Or would you say the runway out there more than offsets that? And we should consider the market as strong as it's ever been, and I guess...
Christopher Paucek
It's definitely - definitely the latter, and I would say there are just great examples of it, whether it'd be our Doctor of Physical Therapy, the Yale Physician Assistant program, the Harvard Business Analytics certificates, those are all different, and we really like all 3. And we think that because of our scale, our quality, our clinical placement, just as an example, our placement agencies under contract is now over 34,000.
Get ready for veterinarian, pharmacy and the MD and dentistry and programs that you wouldn't expect to be done online. We're ready for them.
And we think that there is ample opportunity for us to continue to increase the number of verticals we play in. Now we happen to be in a run of MPV, which will have a really nice impact on our revenue growth going into '19 and '20.
But we're playing long ball here. So we're focused on not just MPV.
We happen to be in run of MPV, candidly, because of how many we launched in '16 and '17 that were new articles, we launched a whole bunch. So just 2016, as an example, there's only one MPV program in the entire year.
So when you launched a new vertical, over time, we expect there to be a bunch of programs in that vertical. So by definition you get more MPV, but we're certainly not done with verticals.
And I will end the call with just the notion of selling seeds in undergrad.
Christopher Howe
Congrats on the quarter. Thank you, Chip.
Christopher Paucek
Thank you.
Operator
Thank you. And our next question is come from the line of Jeff Silber of BMO.
Your line is open.
Henry Chien
Hey, guys, good afternoon. It's Henry Chien calling in for Jeff.
I was curious about some of the comments you made on the marketing side. It sounded like that you're becoming - since you're very good at the marketing process, just wondering if you could share a little bit more detail around that.
Are you able to get enrollments faster and get students faster? Are you able to scale that more efficiently, just any color you can provide there would be great?
Christopher Paucek
I think, overall, I guess, that's a pretty broad question. So I would say, I would argue that sort of overall ecosystem that we operate now is at scale.
And we're seeing real benefit from that. The quality of the people that we're able to hire, the quality of the growth of those people, whether it will be or some of the folks that are sort of running the, Brian Lane, the folks that are running the opportunity for the company are just doing a tremendous job.
So we are certainly getting better.
Henry Chien
Got it. Okay.
And from your - from the University side, are you University still, at least from your sense, looking for kind of the bundled solutions that you offer? Is there any chance of unbundling?
Christopher Paucek
Well, I mean, I think I said that earlier, the notion of bundling or unbundling, this is not new. Candidly, there are parts of their fee-for-service providers that we use in various parts of our current bundle when we choose to work.
If we think something improves the student life cycle, we're all over it. I think our pipeline proves that we're unconcerned about the impact of it to whether we're able to achieve the kind of things we're achieving.
So it's a big, big market. And our pipeline pacing has never looked like this.
So I think the sort of scoreboards speaks for itself.
Henry Chien
Got it. Okay, thanks so much.
Operator
Thank you. And at this time, there are no further questions.
I'd like to turn the call back over to Mr. Chip Paucek, CEO, for closing remarks.
Christopher Paucek
Okay. Thank you, everyone.
We'll see you out on the road. I'd also like to give shout out to co-General Counsel for his excellent use of arrows.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program.
You may now disconnect. Everyone, have a great day.