2U, Inc. revenue jumped on 43.6% and EBITDA Margin showed almost no change
02/25/2019 • About 2U, Inc. (
$TWOU) • By InTwits
2U, Inc. reported FY2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- 2U, Inc. is a fast growth stock: FY2018 revenue growth was 43.6%, 5 year revenue CAGR was 37.7% at FY2018 ROIC -8.4%
- The company operates at negative EBITDA Margin: -3.3%
- 2U, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for FY2014-FY2018 was 7.7% while average EBITDA Margin was -6.6% for the sames years
- 2U, Inc. has low CAPEX intensity: 5 year average CAPEX/Revenue was 4.5%. At the same time it's a lot of higher than industry average of 7.4%.
- CAPEX is quite volatile: $12m in FY2018, $27m in FY2017, $8m in FY2016, $4m in FY2015, $4m in FY2014
- In the last 5 years the company invested considerably less than D&A: $55m vs. $75m. In FY2018 this situation was still the same: CAPEX was 12 while D&A was 33
- The company has unprofitable business model: ROIC is -8.4%
- It operates with medium-size leverage: Net Debt/EBITDA is 1.9x while industry average is -2.2x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue jumped on 43.6%. Revenue growth showed slowdown in FY18Q4 - it was 32.8% YoY. Revenue growth was accelerating on average by 2.5 pp per annum in the last 5 years. EBITDA Margin showed almost no change in FY2018. EBITDA Margin followed a growing trend at 4.3 pp per annum in the last 5 years.
Gross Margin increased slightly on 1.4 pp from 82.3% to 83.7% in FY2018. Gross Margin followed a growing trend at 2.0 pp per annum in the last 5 years. SG&A as a % of Revenue decreased slightly on 0.66 pp from 74.5% to 73.8% in FY2018. SG&A as a % of Revenue declined at -1.7 pp per annum in the last 5 years. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in FY2018. During FY2014-FY2018 SBC as a % of Revenue topped in FY2015 at 8.3% and was declining since that time.
Net Income margin increased slightly on 0.95 pp from -10.3% to -9.3% in FY2018. Net Income margin stuck to a growing trend at 4.2 pp per annum in the last 5 years.
Investments (CAPEX, working capital and M&A)
In FY2018 the company had CAPEX/Revenue of 2.9%. CAPEX/Revenue showed almost no change from FY2015 to FY2018. It's average level of CAPEX/Revenue for the last three years was 5.4%.
Accounts receivable as a % of Revenue increased on 3.0 pp from 4.9% to 7.9% in FY2018. Accounts payable as a % of Revenue decreased on 3.4 pp from 44.6% to 41.1% in FY2018.
Return on investment
The company operates at negative ROIC (-8.4%) and ROE (-7.0%). ROIC increased slightly on 1.7 pp from -10.2% to -8.4% in FY2018. ROE increased on 3.1 pp from -10.1% to -7.0% in FY2018. ROIC pursued a growing trend in FY2014-FY2018.
Leverage (Debt)
The company has no debt. Cash surged on 101%.
Management team
Christopher J Paucek "Chip" is a the company's CEO. Christopher J Paucek "Chip" is a founder and has spent 7 years with the company. CEO total compensation was
$16,923,643 in FY2018 which included
$541,250 salary. The company's CFO Catherine A Graham has spent 7 years with the company.
2.2% of the company is owned by insiders. Insider ownership didn't change in 2018.
Financial and operational results
FY ended 11/30/-0001
2U, Inc. ($TWOU) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 110.2 | 150.2 | 205.9 | 286.8 | 411.8 | 43.6% |
| Gross Profit | 83.4 | 118.1 | 164.9 | 236.0 | 344.6 | 46.0% |
| SG&A | 88.6 | 117.0 | 152.6 | 213.6 | 304.0 | 42.3% |
| EBITDA | -22.3 | -18.9 | -11.3 | -10.5 | -13.8 | |
| EBIT | -27.9 | -26.1 | -21.0 | -30.1 | -46.5 | |
| Interest expence | 1.2 | 0.6 | 0.0 | 0.1 | 0.1 | 24.1% |
| Net Income | -29.0 | -26.7 | -20.7 | -29.4 | -38.3 | |
| Stock Based Compensation | 7.5 | 12.5 | 15.8 | 21.9 | 31.4 | 43.2% |
Balance Sheet
|
|---|
| Cash | 86.9 | 183.7 | 168.7 | 223.4 | 449.8 | 101.4% |
| Accounts Receivable | 0.4 | 1.0 | 7.9 | 14.2 | 32.6 | 130.3% |
| Accounts Payable | 2.3 | 4.5 | 3.7 | 22.6 | 27.6 | 22.2% |
| Short Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
| Long Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |
Cash flow
|
|---|
| Capex | 3.8 | 4.1 | 7.6 | 27.3 | 12.0 | -56.1% |
| Acquisitions | | | | 97.1 | | |
Ratios
|
|---|
| Revenue growth | 32.6% | 36.2% | 37.1% | 39.3% | 43.6% | |
| EBITDA growth | -5.8% | -15.4% | -40.2% | -6.8% | 30.8% | |
|
|---|
| Gross Margin | 75.6% | 78.7% | 80.1% | 82.3% | 83.7% | 1.4% |
| EBITDA Margin | -20.2% | -12.6% | -5.5% | -3.7% | -3.3% | 0.3% |
| EBIT Margin | -25.3% | -17.4% | -10.2% | -10.5% | -11.3% | -0.8% |
| SG&A, % of revenue | 80.4% | 77.9% | 74.1% | 74.5% | 73.8% | -0.7% |
| SBC, % of revenue | 6.8% | 8.3% | 7.7% | 7.6% | 7.6% | -0.0% |
| Net Income Margin | -26.3% | -17.8% | -10.0% | -10.3% | -9.3% | 1.0% |
| CAPEX, % of revenue | 3.4% | 2.7% | 3.7% | 9.5% | 2.9% | -6.6% |
|
|---|
| ROIC | -59.3% | -18.4% | -10.8% | -10.2% | -8.4% | 1.7% |
| ROE | | -18.8% | -10.6% | -10.1% | -7.0% | 3.1% |
People
|
|---|
| Insider ownership | 2.2% | 2.2% | 2.2% | 2.2% | 2.2% | 0.0% |
| Employees | 708 | 905 | 1,119 | 1,808 | | |
| Revenue/Employee, th. $ | 156 | 166 | 184 | 159 | | |
2U, Inc. ($TWOU) key quoterly financial indicators
| mln. $ | FY18Q1 | FY18Q2 | FY18Q3 | FY18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 92 | 97 | 107 | 115 | | 42.4% | 49.9% | 52.3% | 32.8% |
| EBITDA | -9 | -15 | -3 | 13 | | -66,592.3% | | | 100.7% |
| Net Income | -15 | -18 | -10 | 5 | | | | | 849.3% |
Balance Sheet
|
|---|
| Cash | 182 | 489 | 442 | 450 | | 27.4% | 1,205.8% | 118.5% | 101.4% |
| Short Term Debt | 0 | 0 | 0 | 0 | | | | | |
| Long Term Debt | 0 | 0 | 0 | 0 | | | | | |
Ratios
|
|---|
| Gross Margin | 83.5% | 82.2% | 84.5% | 84.3% | | 0.3% | 3.0% | 2.9% | -0.2% |
| EBITDA Margin | -9.4% | -14.9% | -3.0% | 11.0% | | -9.4% | -4.2% | 11.0% | 3.7% |
| Net Income Margin | -16.1% | -18.8% | -9.3% | 4.2% | | -10.8% | -0.7% | 11.7% | 3.6% |
Peers in Application Software
Below we provide 2U, Inc. benchmarking against other companies in Application Software industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| nFusz Inc ($FUSZ) | | | | | 433.3% |
| CloudCommerce Inc ($CLWD) | | -38.1% | 247.6% | 40.9% | 301.1% |
| Seven Stars Cloud Group, Inc. ($SSC) | | 134.7% | 663.8% | 310.3% | 161.7% |
| Aurora Mobile Limited ($JG) | | | | 304.9% | 150.8% |
| Intelligent Systems Corporation ($INS) | | 14.2% | 71.0% | 12.2% | 119.0% |
| |
|---|
| Median (151 companies) | -43.3% | 13.5% | 13.6% | 14.8% | 15.2% |
|---|
| 2U, Inc. ($TWOU) | | 36.2% | 37.1% | 39.3% | 43.6% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Skkynet Cloud Systems Inc ($SKKY) | 99.7% | 97.4% | 98.0% | 97.6% | 96.5% |
| hopTo Inc ($HPTO) | 91.8% | 87.8% | 95.9% | 98.2% | 95.4% |
| Aware, Inc. ($AWRE) | 75.4% | 87.2% | 90.3% | 94.6% | 92.3% |
| Alteryx, Inc. ($AYX) | 77.5% | 80.5% | 81.3% | 83.4% | 91.0% |
| Aspen Technology, Inc. ($AZPN) | 86.5% | 88.7% | 89.7% | 90.2% | 89.9% |
| |
|---|
| Median (150 companies) | 62.8% | 61.7% | 63.8% | 64.4% | 65.7% |
|---|
| 2U, Inc. ($TWOU) | 75.6% | 78.7% | 80.1% | 82.3% | 83.7% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Aspen Technology, Inc. ($AZPN) | 34.5% | 42.2% | 46.0% | 45.2% | 43.3% |
| ANSYS, Inc. ($ANSS) | 45.9% | 45.8% | 45.1% | 41.9% | 41.4% |
| Paycom Software, Inc. ($PAYC) | 15.1% | 19.5% | 35.1% | 34.4% | 35.9% |
| j2 Global, Inc. ($JCOM) | 41.6% | 40.6% | 41.7% | 36.5% | 35.7% |
| Adobe Inc. ($ADBE) | 17.5% | 25.9% | 31.2% | 34.2% | 35.3% |
| |
|---|
| Median (152 companies) | -10.1% | -9.4% | -4.7% | -3.9% | -3.2% |
|---|
| 2U, Inc. ($TWOU) | -20.2% | -12.6% | -5.5% | -3.7% | -3.3% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| TimefireVR Inc ($TFVR) | 0.0% | 350.5% | 4.3% | | 1,021.9% |
| MGT Capital Investments Inc ($MGTI) | 0.0% | 36.5% | 221.4% | 129.8% | 344.5% |
| Integrated Ventures Inc ($INTV) | | | | | 199.9% |
| ShotSpotter, Inc. ($SSTI) | | 18.3% | 28.9% | 27.1% | 24.3% |
| Ellie Mae, Inc. ($ELLI) | 12.3% | 20.6% | 16.7% | 21.1% | 19.4% |
| |
|---|
| Median (153 companies) | 2.8% | 2.7% | 2.9% | 2.3% | 2.4% |
|---|
| 2U, Inc. ($TWOU) | 3.4% | 2.7% | 3.7% | 9.5% | 2.9% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| InsPro Technologies Corp ($ITCC) | -558.9% | | | | 127.4% |
| Manhattan Associates, Inc. ($MANH) | 64.8% | 78.7% | 99.3% | 102.5% | 80.9% |
| Intuit Inc. ($INTU) | 34.2% | 23.7% | 52.1% | 72.6% | 66.8% |
| Aspen Technology, Inc. ($AZPN) | 133.4% | | | | 58.1% |
| Paycom Software, Inc. ($PAYC) | 16.7% | 30.5% | 75.4% | 51.1% | 47.5% |
| |
|---|
| Median (179 companies) | -14.2% | -11.2% | -9.2% | -11.8% | -10.4% |
|---|
| 2U, Inc. ($TWOU) | -59.3% | -18.4% | -10.8% | -10.2% | -8.4% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Upland Software, Inc. ($UPLD) | | | 16.4x | 115.6x | 16.7x |
| Nuance Communications, Inc. ($NUAN) | 7.9x | 5.7x | 5.3x | 7.1x | 15.2x |
| Asure Software Inc ($ASUR) | 3.4x | 4.5x | 3.6x | 9.5x | 14.5x |
| SS&C Technologies Holdings, Inc. ($SSNC) | 1.7x | 7.3x | 4.6x | 3.1x | 8.5x |
| Avaya Holdings Corp. ($AVYA) | | | | | 7.4x |
| |
|---|
| Median (70 companies) | -1.4x | -1.0x | -0.9x | -0.8x | -0.7x |
|---|
