Feb 12, 2021
Operator
Ladies and gentlemen, thank you for standing by and welcome to the 2U’s 4Q 2020 Earnings Report Call. At this time all participants are in a listen-only mode.
I’d now turn the conference over to Mr. Ken Goff, SVP of Investor Relations.
Thank you. Please go ahead, sir.
Ken Goff
Thank you, operator. Good afternoon everyone and welcome to 2U’s full year and fourth quarter 2020 earnings conference call.
I’m Ken Goff, Senior Vice President of Investor Relations at 2U. I’m joined by Chip Paucek, our Co-Founder and CEO and Paul Lalljie our CFO.
Following Chip and Paul’s prepared remarks, we will take questions. Our Investor Relations website investor.2U.com has our earnings press release and slide presentation as well as a simultaneous webcast of this call.
Chip Paucek
Thanks Ken. I want to start this call by first thanking my fellow 2U’s all around the world.
2020 presented us all with unprecedented complexities and our global team rose to the challenge again and again to deliver on behalf of our partners, their students and each other. Through it all, their hard work, resilience, empathy and humor was truly inspiring and has made 2U a stronger and better company.
That strength is clearly reflected in the financial and operational results we delivered for the year. We grew revenue by 35% to $775 million and we achieved EBITDA profitability for the year coming in at $16.1 million.
We set out at the beginning of 2020 with four key financial priorities for the business. Drive strong revenue growth, deliver margin improvements, improve operational efficiency and drive toward positive free cash.
We outperformed expectations across all of these important measures all while staying hyper focused on quality and most importantly student outcomes and we enter 2021 in a position of strength and with the momentum for another great year of performance and positive societal impact.
Paul Lalljie
Thanks Chip and good afternoon, everyone. As you’ve seen from our press release we reported a solid fourth quarter tapping off a record year of revenue under return to positive EBITDA all while investing for sustainable growth.
Today I’d like to start with a discussion of our performance both for the quarter and the year. Then I’ll provide an update on our balance sheet and conclude with our outlook for 2021.
Now turning to our performance for the quarter. Revenue totaled $215.3 million up 32% from a year ago.
The Degree Segment revenue totaled $130.5 million growth of 21%. This increase was driven by higher student demand and improved retention rates.
Revenue in the Alternative Credential Segment totaled $84.8 million growth of 54%. This includes $52.8 million from Trilogy which grew 59% while short course revenue grew 47%.
Growth in this segment was driven by new launches and improved marketing efficiency. Revenue for the year totaled $774.5 million an increase of 35% or $200 million over 2019.
On an organic basis this represents growth of 21%. Last year, we refined our processes and delivered new offerings along the career curriculum continuum and invested in our platform to meet changing needs of learners.
It’s the structural changes that position us to deliver sustainable growth in future. To put this into perspective for 2020, we enrolled approximately 99,000 new students on behalf of our partners, representing growth of 45% while this contributed to our 2020 performance.
These new students will also drive revenue in the future as enrolled students complete their programs. In the Degree Segment for example, students typically take more than two years to graduate.
Total Full Course Equivalent enrollment or FCEs came in at 80,650. FCE growth accelerated due to strong performance in our mature graduate programs in undergraduate and in our reskilling and upskilling courses.
Now let’s take a look at our cost and expenses. Operating expense for the quarter totaled $245.3 million, a 20% increase from the fourth quarter of last year and compares to revenue growth of 32%.
On a sequential basis operating expenses for the quarter decreased one percentage point due to seasonally lower spend. In particular, we tend to reduce marketing spend in the holiday season when it’s less efficient.
This growth an 8% sequential decline in marketing and sales. On a year-over-year basis marketing and sales expense grew 13% showing substantial leverage relative to revenue growth.
Operator
and our first question comes from Jeff Meuler with Baird.
Jeff Meuler
As one of old timers as you’re changing your methodology wanted to ask about the cohort margin change. Obviously not overly concerning with your 2021 profitability being what is it, but just curious are the scaled program margins roughly stable.
Like how much of the improvement is being driven by fewer launches that are in there first two to three years just any perspective on that?
Paul Lalljie
This is Paul here. Let me probably start out with this one here.
Look I think we managed the business very differently. When we think of investments whether it is marketing spend or anything like that.
We spend across the portfolio and we are guided by objective data on things like ROIC, things like the efficiency of that spend. Given that type of management methodology, managing a portfolio in a portfolio basis.
It therefore meant that looking at cohort margin defeats that overall comprehensive purpose. At the same time the cohort margin was very, very applicable when we were focused on launching programs that would then get to certain margin profile later.
So we are somewhat substantiating the margin profile of the consolidated business and the segment at that point in time. Today we have great margins as you’ve seen, we’ve improved I would say more than 600 basis points on a year-over-year basis based on what we were trying to project here from $16.1 million to a midpoint of $55 million in 2021.
And at the same time, the Degree Segment business is delivering 10 plus double-digit margins for 2020 and we expect that to continue. So what does this all mean?
If we look at the actual numbers for 2020, we would see that the most recent cohort performed much better in past years and that has two contributing factors. Number one, we launched a lower number of programs.
But number two, we found cheaper better ways of launching programs and we talked about it all year with things like Studio in a Box and all the various other ways we found to launching programs cheaper. If we look at the next cohort that is about 300 basis points better than we were expecting or that we have seen in the past and I think the one that you’re really interested is in the mature cohort.
And in that cohort, the margins there are better than our long-term targets that we provided at Analysts Day last year. So essentially we can provide the color and the context that says, the cohort margin analysis is well for the numbers that we have for 2020.
Where we believe it is not relevant is the focus on that as an indicator of health. What we want to do is focus on the overall and consolidated adjusted EBITDA margin.
The cash flow profile of the business and on the overall trajectory of the top line growth and Chip, I don’t know if there’s anything you’d add to that.
Chip Paucek
Jeff as a fellow old timer. I wanted to give them, they look good and I guess I would say.
But Paul’s right we’ve completely transformed the business in the last three years and they aren’t helpful to investors in understanding the business and you need to judge on the whole.
Jeff Meuler
Fair enough and the whole looks good. Just any more commentary on the Degree Segment revenue per FCE.
I’m guessing its mix driven and maybe LSE ramping is having an outsized impact, if that’s expected to be the largest program by enrollment. But any additional comments on revenue per FCE and particularly curious how you view the profitability potential of some of the lower cost programs?
Paul Lalljie
So Jeff again I’ll probably kick it off and Chip will chime in. but if we think of the growth in FCE in the Grad Segment the main contributor to that growth is the undergraduate both the LSE program and Simmons.
When we think of the long-term profile of undergraduate, we view it in the same ROIC benchmark that we use for the graduate program. We believe we can get to the same types of steady state margin.
And as you know very well, marketing spend is a key component of the ROIC analysis and the overall profile of these programs. When we think of marketing spend for undergraduate there are couple of things that factor into it.
I mean the duration matters, right. You acquire a student.
They stay in a for a longer period of time than it is for a graduate program and then, of course the cost of those two programs are also different and then the third factor, that we managed the programs and the way we launch the programs. We’ve obviously found the ways to do this cheaper, better, faster and those are things that we’ll – those are continuous improvement that we’ll go through.
Chip Paucek
Yes and Jeff what I would add is, we really like what we see so far. The Morehouse program.
We announced it a week ago, haven’t even started paid marketing and it has the fastest start of interest that we’ve really ever seen as a company. So we’re tapping into a fundamental shift.
There’s no doubt that what you see here is, when you think about where online education will go. No one says today, I’m going to online shopping.
They’re just going shopping and that’s one of the ways they do it and it’s clear that overtime, this digital transformation imperative is going to very real and we feel like we’re the market leader right now entering the largest segment. We really like what we see and as Paul mentioned in his prepared remarks.
LSE will be our largest program by enrollment, this calendar year. So very pleased with our undergrad right now and like the opportunity we have for the company.
Jeff Meuler
I hear you. Congrats to both of you and all of the 2U’s.
Thanks.
Operator
And our next question comes from Stephen Sheldon with William Blair.
Q –Stephen Sheldon
First congrats on the undergrad announcement with Morehouse. It sounds like you could expect more undergraduate announcement.
But curious how those conversations are going with universities and what factors or outcomes they’re thinking about when making these decisions.
Chip Paucek
So somebody might mind muting. So Sheldon appreciate the question.
This is Chip. I would say go ahead.
Q –Stephen Sheldon
I’m just kind of curios as they think about expanding, what they really think about it, gaining enrollment share driving, higher quality offerings, increasing scale and then using that to potentially drive down the tuition cost and then from 2U’s perspective would consider this one of the bigger growth drivers potentially over the next two years.
Chip Paucek
Yes, it is a must have. This is a place where we definitely seen a change post COVID.
You have institutions transform themselves. They need to transform themselves and we are a partner of choice to over 75 great non-profit universities doing really high quality work and I have been surprised that the number of undergrad conversations that we’re now in and we’re being careful to make sure that we align the long-term goals of the company setting up really good line up of program opportunities for the next couple of years.
Morehouse, David Thomas is transforming the college and if you look at the opportunity ahead for Morehouse and for 2U behind it. We think that’s a pretty critical program for the world both for black men, for men of color.
You heard me say the 3 million black men have some college credit and unfortunately many of those have college credit and some debt associated with it and haven’t completed and we think we can really move the dial. We think it’s an important program not just for the business opportunity more importantly for those individuals and Morehouse has just an incredible track record.
I mean its 154 years and Dr. Martin Luther King went to Morehouse and the quality is there.
So we’re just very proud of that relationship and I will tell you. I was really overwhelmed by the response in the first week.
Both from potential prospects who were giving our counselors just incredible stories of what Morehouse means to them and for our employees. This might have been the most important announcement we’ve ever had.
I don’t know if that’s an overstatement. So our employees – the response was so high that we asked for volunteers across the organization to work over the weekend unexpected and we had something on the order of 65 counselors volunteer to be able to reach out to prospects immediately given the response and spent the entire past weekend just getting through the initial queue of folks that were interested.
So really strong and you’ll continue to hear more about undergrad. I will tell you, 2U it did take us a long time to launch our first degree program in the marketplace.
But we did have a groundbreaking program a long time ago called Semester Online that I really do think set the stage for high quality online undergrad operations and our approach to grad education with an incredibly high touch, high completion rate has set us up well for a really great run here with the exception of additional mental health components for undergrad students. We feel like we’re really well set up as the market leader to do something big here.
So pretty excited about it.
Q –Stephen Sheldon
That’s great and really appreciate the detail. Maybe as a follow-up here for Paul.
Clearly it seems you’re starting to see some of the positive margin characteristics and the model show it through both in the quarter and in your guidance. So curios if you could maybe talk in – I think you talked a little bit before but just more qualitatively about some of the moving pieces of within the guidance in particular between the maturing degree program and some of the efficiency initiatives over the last year including things like Studio in a Box and on the marketing side.
And if there’s a way to roughly frame the program launch investments you’ve assumed in 2021 relative to prior year. So I guess just qualitatively as you think about those three factors in the guidance.
Paul Lalljie
So a couple of things. When we think of the mature programs that is about how can we spend our marketing dollars efficiently?
Whether it’s direct marketing or organic marketing. One of the things that we’ve been doing is developing our organic market engine and that is been helping us in becoming more efficient on an overall basis.
When it comes to the way we serve the students. Our students facing organization.
I think you recall last year and continuing 2019 and continuing into 2020. We started by first of all making sure we’re organized appropriately so that we can efficiently serve the student.
We call it delighting the student every step of the way. And I think we’re beginning to see some of the benefits off that.
And then when it comes to launching new programs which is where Studio in a Box falls in and then some of the things that we’re doing in our learning and development we’re finding ways to do these things in a more manner. And all of that has led to the overall schematic of managing the business with overall revenue and overall EBITDA margins.
Which makes launch cadence total number of programs launched less relevant because we’re going to commit to our EBITDA target? To say this in a very less than sophisticated way.
The objective of ours is to ensure that we can launch. The dollars that it used cost us to launch one program, we are going to try and see if we can one and a half or two program or one and three quarters programs.
We’re not saying dollar amount and in that way, we develop muscle memory and a scaling. That then by the time we get to 2022, I mean we have an engine that is just delivering more and more efficient scale in the business.
So that is the overall framework around which we’re looking at this.
Q –Stephen Sheldon
Got it. Makes a lot of sense.
Congrats on the results.
Operator
And our next question comes from Ryan MacDonald with Needham.
Q –Ryan MacDonald
As we look at the undergrad market opportunity. Can you talk about what we should think about for the launch cadence in terms of – your lead time needed to go from sort of announcement to for students enrolled.
With LSE, it was your first sort of array into the space and you took a bit more time to get that going. But then with Simmons it was sort of rapid fire, getting things ready quickly for an unusual fall.
How should we think about as we think about the undergrad opportunity sort of unfolding in 2021 and 2022? How that launch cadence looks?
Thanks.
Chip Paucek
Thanks Ryan. This is Chip.
We’ve gotten away from thinking about cadence. It’s a vestige of the past from the standpoint in the same point, the DGP was.
The reason for that is, we’re trying and succeeding in getting better and faster at improving our launches and I think you can see that in the case of an expectation of Morehouse to actually serve students this calendar year even though we just announced it. That has been a key focus of Mark Chernis, our Chief Operating Officer and a broader team of folks including Ebony Lee who runs our Degree business that’s a key focus and the reason is, if we can keep driving higher quality programs and get them rolling faster, that’s better for our schools, better for our students.
So and the thing about undergrad is. It is an exciting opportunity.
You will see more and but right now like LSE. It went well enough that LSE took it from one data science base degree to every degree that LSE has in its portfolio including an undergraduate program in Economics from the London School of Economics at a price point that is affordable for the world and we’re seeing demand from that.
So it’s less about cadence and more about fitting them into a broader portfolio of activity that drives the kind of results that the company needs to see on a consolidated basis. And one other data point for you, is we’re getting to a scale.
We just passed 300,000 students across our programs. Those are actual students and passed14 million total sign ups over our history and we’re thinking across product set, across the career curriculum continuum more and more as a company.
So just pretty excited about where the company sits today. I do think we’ve done some really hard work to transform the business over the last three years and we’re seeing the fruits of that.
Q –Ryan MacDonald
Excellent and when we think about with the existing grad programs sort of on the platform already. Obviously we saw some really health enrollments in the fall.
But can you talk about what you’re starting to see as we get into the spring here in terms of application growth and then enrollment growth for some of the spring 2021 cohorts. Is there still a knock on effect I guess from the sort of increased shift online that we’ve seen over the last year?
Chip Paucek
I want to say, we believe that clearly online is now part of people’s consideration set in a way that was not before, for everybody in the world, in every way and so that will benefit us on some level and it’s clear that the economic impact of COVID continues to emphasize people’s need to rescale and upscale themselves across all three of our product sets. We do think we’ve provided some strong guidance for this year, 20% at the midpoint and when you’re approaching a $1 billion in revenue, that’s no small number.
So we feel like the grad segment will continue to drive really positive results for us go forward and we’re seeing that in some of our oldest programs, we’re seeing that in some of the newer programs like the undergrad programs and excited to see pipeline just continue to be super strong. There’s an acceleration of adoption.
We anticipate that this will continue throughout the calendar year and as we get into 2022.
Q –Ryan MacDonald
Excellent. Congrats again.
Operator
And our next question comes from Brett Knoblauch with Berenberg Capital.
Q –Brett Knoblauch
Maybe the first one for Chip. You mentioned you were seeing better retention across your offerings.
Can you maybe go into a bit a more detail on that?
Chip Paucek
So we’ve got a student engagement team that we actually over the last two years one of the things we did sort of inside the house, we aligned teams in a way that’s had a huge impact on our performance and working with the students directly under Brad Adams leadership. We have seen an improvement in retention.
It’s kind of the one number that rules them all. When it goes up it’s really most importantly good for the world.
Students who graduate, it’s good for society and it’s good for 2U because it obviously drives the revenue that we see through our system. So if we look at second semester retention per degree it’s up about a full point, which is a really meaningful number for us.
So credit to our team. They did all this during a time of personal strain with regard to COVID.
As we all know COVID’s been hard on the world and so to see us improve these drivers during this kind of time makes me incredibly proud.
Q –Brett Knoblauch
Got you and then maybe one on for Paul on the margin profile is of the steady margin. If you’re implying I guess the degree of segment margin was 10% for the year that’s kind of implying Q4 segment margin that was north of 20%.
Should we expect year-over-year improvement there every quarter in 2021?
Paul Lalljie
So couple of things, Q4 was indeed greater than 20% and it was about 22%. But keep in mind there’s a huge seasonal impact.
Marketing spend is generally not that efficient in the holiday season. So we generally cut back in the marketing spend particularly in a holiday season so that has a seasonal impact.
I think what you can expect is that, you should see sequential increase including seasonal impact. So if you look at the trends that we had in 2020, 5.5% close to 5% in the second quarter and then I think it was 8% in the third quarter.
You should generally see some uplift in a sequential basis. If you look at that trending from 2020 into 2021.
What you’re not going to see a sequential trend off of 22%.
Q –Brett Knoblauch
Yes, I wasn’t implying that. But thanks and then maybe if I could add one more.
You talked about ability to more quickly than you could before to what extent is that a function of the overall macro environment obviously education is a bit countercyclical so more people are going to back to get their degree. It is that factoring and how quickly you can announce and launch a program?
Chip Paucek
No, we’re really not talking about macro there Brett. We’re talking about us.
We over a long time period of growing the company. We have focus now over the last two years on driving efficiency.
We have absolutely gotten more efficient. We’re seeing the benefits of scale.
I think one of the reasons we emphasized some of the scale points in the prepared remarks is people because our brand is behind the scenes. You don’t see people with awareness of the scale of 2U today.
And we’re definitely seeing the benefits of that. So we’re just getting more efficient.
We’re getting better at launching these programs. What I believe is higher quality level.
So this is not about doing them in a way that’s lower quality. It’s about doing something that is equal or higher quality.
So an example of that, we did do something across the programs that have clinical placements called the VFX, a Virtual Field Experience for students that can actually engage virtually before they go into a clinical setting to do their first session with an actual patient, in a clinical setting like a social work program and by doing this virtually. Number one you’re driving improvements and efficiency for the company.
You’re driving innovation into the industry -- students better because they get to work with actors in a program before they go out and deal with somebody who returned from the war with PTSD. You’re talking about like good for the world, good for efficiency and just better for the student experience.
So it’s that kind of innovation that can help us drive programs up more quickly at we think a higher quality level and that has been key focus over the last two years.
Q –Brett Knoblauch
Perfect, thanks so much guys. Really appreciate it.
Operator
And our next question comes from Josh Baer with Morgan Stanley.
Q –Josh Baer
You’ve been talking about the ability to say yes to more business and that may look like a bit of different business model verse history. I’m just wondering how did that type of business contribute to the outperformance this quarter.
Paul Lalljie
Josh, that phrase was coined probably I think it was second quarter earnings announcement. And that was on the heels of the Simmons announcement by way of example.
I mean I think if you look at our quarterly results for the fourth quarter here and the full year. That was a contributor I in the fourth quarter.
So I think is more a statement that speaks the structure and the form of what we do. It is the hybrid model that was applied to the Simmons program and at the same time.
We’re keeping in mind. We’re using as our North Star.
Our long-term margin profile and our revenue growth when we make these decisions. These decisions are not being made to fill a launch cadence number or it’s not being made to do things for a particular short-term nature.
It is large in nature.
Chip Paucek
Yes one thing I would add Josh is, in terms of the way we think about the business. It’s serving these partners and their students as effectively as possible.
Saying yes to them means having more opportunities to say yes, having more deployments at an existing partner. Whether that the deepening the relationship with alternative credentials.
We have many partners now that offer all three distinct products across the board. We have many partners that have stepped up from one type of product like a degree program two Alt Cred, either a boot camp or short courses.
And then in some cases like Simmons or other cases across our grad potential we’re deepening the relationship by offering services to their campus students in a meaningful way. It’s important to note we don’t think broader deployment in terms of our solution going to all of Higher Ed.
It’s not the way our business works and it’s also not something today. We’re focused on trying to drive improvements in the existing business in a meaningful way and I think you’re seeing some of the fruit to that.
So Simmons is a fantastic relationship and one that did contribute and one that we expect to continue to grow overtime and I think you’ll see more things like that Simmons relationship.
Q –Josh Baer
That’s great on like thinking about comments like the newest cohort has better margins than in prior years or trying to be able to launch more products with the same dollar. Is that kind of suggesting a different shape to the J curve like a different longer term economics and those type of partnerships?
Chip Paucek
Yes one interesting thing as we call it internally our J curve project. So we’re absolutely focused on trying to change the J curve.
Different products do have different capital requirements. One of the things that has really improved the overall business is that we have flexibility to launch programs that really answer a societal need.
You take our Diversity short course with Northwestern from Alvin Tillery who’s a nationally respected expert. It’s done extremely well.
It’s being bought pretty heavily by the enterprise unit and that is a very different J curve than building a new nursing program with a university or building a new physical therapy program with the university. So we’re seeing the improvements coming in the J curve and it’s a pretty critical step forward for the company to be able to drive to free cash flow and we’re making real progress on that and we do still expect to see that crossover this calendar year.
Q –Josh Baer
Great, thank you.
Operator
And our next question comes from Brent Thill with Jefferies.
Q –Brent Thill
Chip, you have many great growth engines. If you had to prioritize two main commitments for 2021 that you’d like to achieve.
How would you articulate those two priors from what you said?
Chip Paucek
We like the balanced portfolio. We think operating across the career curriculum continuum is really important and one of the reasons Paul emphasized third of our revenue now comes from Alt Cred.
We’re the largest provider of non-profit Alternative Credentials in the country. That segment is large than any of the moot providers as an example.
So we do think that’s a really important priority for the company. Undergrad is new and we’re being careful about how we slot in and keeping our grad business and rolling and seeing positive enrollments from older programs is important.
So it has been Brent a transformation of the company over the last let’s say three years. 2U looks fundamentally different than it at our IPO and certainly even than it did when we first acquired GetSmarter which candidly has been a homerun.
Honestly, we saw where the market was going. We saw where Edtech was going and really are seeing the benefits of that today.
There’s no question. We transformed the business to stay ahead of market demand and now we’re positioned in multi-trillion dollar market to drive the future of Higher Ed.
I don’t think that’s an overstatement.
Q –Brent Thill
Great, thank you.
Operator
And our next question comes from Tom Singlehurst with Citi.
Q –Tom Singlehurst
Good evening, guys, I’m Tom here from Citi. Hearing your voices, congrats on the quarter.
I had a couple of questions. The first one actually on LSE and international reality LSE been a fantastic success, I mean you can see that in the expansion of the mandate.
I suppose the question is it’s obviously a big opportunity in undergraduate, but it doesn’t signal a bigger opportunity in international as well. I don’t know you’ve got that footprint, but is that going to save much emphasis going forward?
That was the first question.
Chip Paucek
I think both Baconey and IMD should tell you something. We do think that either you’re talking about as you know two of the best brands in Europe.
LSE is certainly is one of the best brands in UK and we do think that this is a worldwide story. We also are excited about growth engine that we think, we found to localize short courses into different language and we think that provides a significantly lower CapEx way of achieving growth in the short course business and are excited about that.
So Tom, you’ll hear more and more about international opportunities overtime.
Q –Tom Singlehurst
That’s very exciting. And then the second question is obviously so Edtech just more broadly and education is an area that’s just getting more and more focus in terms of investor interest and capital flowing into the space professional I mean perhaps especially so.
I suppose the question is, should we worry about more competition if there are sort of more better capitalized companies out there sort of aiming for the same market or do you see that as just an indication and a validation of what you’re doing?
Chip Paucek
Honestly what’s interesting is over the last several years we haven’t seen a significant increase in the number of competitors and we’ve seen certainly some in OPM got the other direction and I would say, we welcome people coming into the space. We think it’s really good for the Edtech market.
It’s certainly lonely out here in these in the public Edtech hills and we do think that what’s unusual is for the percent of GDP that goes to education; it is very strange that they’re this small number of large companies that are public. So we think it’s good.
We think it’s good for the valuation of 2U. we think it’s good for the market overall and I do think, we’re to scale that we don’t think anybody is quite close to in the non-profit university world and welcome, people coming in.
we think that our scale will allow us to compete really successfully and I think we’re seeing that in our marketing efficiency. We’re seeing in demand in the pipeline.
But our leadership position is one of excited to see more and more people come into the space and as they do, they’ll have to prove quality, they’ll have to prove scale and we welcome the opportunity to continue to prove ourselves.
Q –Tom Singlehurst
That’s amazing. Thanks guys and congrats again on the quarter.
Operator
Your next question comes from Arvind Ramnani with Piper Sandler.
Q –Arvind Ramnani
I had a broader level question. And I wanted to ask you about your priorities as you think about the next two or three years.
You certainly had some surprises in 2019 and, 2020 was very unique across many different vectors. But with the business foundation at a really good place.
Can you give us some color about how you’re thinking about the business over the next two or three years?
Chip Paucek
Yes, Arv. So I would say we have come out I do think we came out of the fire of 2019 molded like Valyrian Steel, so forgive the Games of Thrones’ reference.
We feel in a much stronger position today than it was back in 2019 and in terms of the priorities for the company. There is no question that financially driving to a balanced point of view on the rule of 40 driving to free cash flow is critical.
We said that a couple of years ago to be clear over the last year and a half. Let’s say six quarters.
Everything we said, we told you we were going to do, we’ve done and we continue to expect to be able to achieve that and at the same time, helping our universities drive high quality options for students across their careers and lifetimes meaning to learner where the learner is and driving really high quality student outcomes while doing that because at the end of the day, that’s really all that matters in our business. If the student wins, the university wins then 2U wins and that is really important.
It’s pithy but it’s important. It is the real story behind the way we run the business.
So I do think that the upskilling opportunity is significant and I think you’re seeing that in our results today. You’re seeing that in our short course business and of course our legacy degree business with undergrad as a growth lever.
You just need to be able to meet the student where the student is and drive high quality auctions for working adults and I think, we’re really well positioned to do that.
Q –Arvind Ramnani
Great. You all have been pretty thoughtful about how you’re growing and so who you partner with and all of that.
But as you kind of look at the next couple of years. Are there any gaining factors that prevent you from growing faster?
So the investment that need to be made either from a technology side or from sales, marketing side like what’s going to prevent you from seeing even faster growth over the next couple of years?
Chip Paucek
Arv, we want to grow smart not just fast and that’s been a key focus for the company over the last three years and I think as I’ve said a couple of times on this call. We’re starting to see the benefits of it.
We’ve continued to invest in each of 2U OS operating system that we provide to our schools to power this experience that certainly includes marketing, it includes everything from privacy to accessibility to core technology under the leadership of our CTO, James Kenigsberg. So this is about a balanced agenda of ensuring that we’re creating a long-term sustainable engine of social mobility that is what this story is about.
So we’re excited to continue to prove it in the marketplace. I do think we’ve made some real headway her in terms of showing the sustainability of this business.
Q –Arvind Ramnani
Great, thank you very much and good luck for the year.
Operator
And I would now like to turn the conference back over to Mr. Chip Paucek for closing remarks.
Chip Paucek
Okay, thank everyone for joining us today. Before I go I would like to offer birthday wishes to a few folks.
First of all to my alma mater George Washington University for their 200th birthday and then to our Chief Operating Officer, Mark Chernis and to our CFO, Paul Lalljie. One turned greater than 50 and one turned hasn’t quite made it to 50 and I will let you have fun, guessing who that is.
Thanks everybody. We’ll see out on the road.
Operator
And that does conclude today’s call. Thank you for your participation.
You may now disconnect.