2U Inc (TWOU) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the 2U Incorporated third-quarter 2015 earnings call.

(Operator instructions)

As a reminder, this conference call may be recorded.

I would now like to turn the conference over to Ed Goodwin, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, operator.

Good afternoon, everyone. And welcome to 2U's third-quarter 2015 earnings conference call. By now, you should have received a copy of the earnings release for the Company's third-quarter 2015 results. If you have not, a copy is available to you on our website, Investors. 2U.com.

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; Jim Shelton, Chief Impact Officer; and Cathy Graham, CFO. We've a lot to share this quarter, as well as a message directly from one of our University partners, so we expect our prepared remarks to be a bit longer than usual. Of course, we will reserve ample time for Q&A.

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, 2014, and other reports filed with the SEC.

All information provided in this call is as of today. Except as required by law, we undertake no obligation to update publicly any forward-looking statements made on this call, to conform to statements or actual results or changes in our expectations. Also, it is 2U's policy not to update our financial guidance, other than in public communications. Non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our Press Release.

I would now like to turn the call over to Chip.

Thanks, Ed.

I co-founded 2U in 2008 with a small team of incredible people on a mission to fundamentally transform higher education. A lofty, bold ambition way back in 2008, for a small venture-backed Company, transforming higher education. 2U partners with top colleges and universities to build, what we believe, are the world's best online degree programs. We provide a combination of SaaS technology and tech-enabled services, to allow the best brands in the world to create great digital versions of themselves.

The universities of the caliber 2U works with are among the best in the world. Berkeley, Northwestern, Georgetown, Yale, UNC Chapel Hill, Simmons, Syracuse are world-class institutions, hundreds of years in the making, with world-class faculty, with networks that have lasted longer than companies ever do. These are the most enduring organizations in our entire culture.

Take Coca-Cola, one of the best-known brands in the world. Coke was founded in 1886. What about Georgetown and UNC Chapel Hill, both founded in 1789. They have 100 years on Coke while delivering high-quality educations, and changing people's lives in the process. Creating networks that cross barriers in a way you simply don't see elsewhere.

But how is in an institution like Georgetown or UNC Chapel Hill or Yale deal with the disruptive power of the Internet? How do they adapt? How do they bring the best of what they have to offer to our current on-demand culture? The story of 2U is a story about technology, infrastructure and people, which we provide in a bundled approach over a decade-long agreement. But, it is much more.

It is the story of institutional will. Regular universities are asking themselves, is it possible to give online students an experience that's as good, or even better, than the campus students? Can we end the segregation of the online student?

Can we offer the same degree as the on campus, with no asterisk, and make them full members of the community, with the same rights and responsibilities as the campus student. Can we do all that and preserve the quality and reputation we've built over generations? Our partners are proving, the answers to these questions is a resounding yes.

A degree is the best ticket to a better life. As a first-generation college student, I say it proudly with passion. Attending George Washington University utterly change my life. It's a big part of what made me who I am today.

My world was opened. I was exposed to people that I'd have never been exposed to otherwise. I met my wife there. I created some of the most formative relationships of my life. I loved, I laughed, I learned. It rock my world, totally. Outcomes matter, networks matter, great universities matter, degrees matter.

But the question one has to ask is, why do you have to fit yourself around a degree? Why should it not fit around you. Why can't it be more flexible, more nimble more modern?

Why should you have to pick up your life, quit your job and move, to attend a top business school? Or, a nursing school or any school? If you could harness what the great schools have to offer: the faculty, the network, the experience, the degree, with the power of great technology, you can create something profound. You could change the world.

Now, we had skeptics, then. And, we have them now. A basic tenet of the incredible culture at 2U is that we don't let the skeptic win. We lean towards yes. We drive the opportunity with passion.

Online education has been riddled with snake oil. Most of the history of online education is one that's focused on profits, at the expense of outcome. That is why preconceived notions of online education are horrible. It hasn't been very good. It hasn't delivered. But that has changed.

2U convinced it's Board in the early days, there would be a long-term correlation between our financial success and student outcome. Our business model is pretty simple. We share tuition revenues, typically in the low- to mid-60%, coming due to 2U over a minimum of a decade.

Student success leads to University success. University success leads to 2U's success. So how are we doing? Let's let the facts speak for themselves.

Student success: we've had over 17,000 students enroll in our client's programs, 17,260 to be exact. That's over 17,000 lives changed in 50 states, the District of Columbia and over 60 countries worldwide. We just surpassed over 200,000 live classes, 201,527 to be exact. With an average class size of only 11.8, super intimate. That is a ton of relationships built.

Student success leads to University success. Today, we are very proud to announce that our partners have just passed an estimated $1 billion in attrition-adjusted bookings inception to date. Yes, that was with the B.

So, in a time of questioning the future of higher education, our schools are improving their brands in this century, scaling their programs on a global basis, while creating an estimated incremental billion in tuition bookings. That's not too shabby. How does this translate for 2U?

This bold little idea is turning into a powerhouse. We have created a long-term, sustainable business model with the kind of run rate that you dream of as an entrepreneur. We have become a market leader in a huge sector of the economy dealing with massive secular change.

We provide the educational Platform. We think of that as a capital P, with a bundle of tech and service that allows great schools to unleash the power of their brands in the century. If the 1800s were about Cambridge and Oxford and the 1900s were about the US Ivy League, the schools that do it this way in this century will win. The use-case is too obvious, too flexible and too damn good.

2U has shown it has the best, most comprehensive solution, one that's difficult to replicate. The market is massive, so there'll be plenty of room for competitors. And, universities are built on shared governance, without a single point of view.

So, there will indeed be plenty that try it themselves. But, we're proving that when universities partner with us, they win. So, we win. We provide a comprehensive approach. Think of it as a partnership expressed through a revenue share. It's working really well.

So, let's get down to some brass tacks. Since IPO, we've consistently exceeded our guidance across all of our financial measures. And I'm proud to say, the third quarter is no different. Cathy will get those details on another [beaten rate].

Our guidance for Q4 is notable. We expect the fourth quarter will be the first adjusted EBITDA profitable quarter for 2U in its history.

In our preview of 2016, we expect to continue on the path to profitability, even while launching six programs. Our loss is decelerating faster than even we expected. And, we are not walking away from our commitment to be adjusted EBITDA profitable in 2017.

Why? All of our launch cohorts are successful. They are tracking with, or better than, the model of an economic lifecycle of a typical program. Our first core programs, launched between 2009 and 2011, are called the core four. We expect this year, the core four will see adjusted EBITDA margins in the high 20s, this year.

But, we're not a one-trick pony. So, how about the next cohort? We're now comfortable saying that we believe our 2013 launch cohort will be adjusted EBITDA positive for the full year of 2015. This is earlier than we would have predicted.

Our 2014 launch cohort, while too early to discuss specifics, is progressing right in line with our financial model. Let me remind you, these two cohorts launched before the advent of the 2U proprietary program selection algorithm. It was, in some ways, the era where you were truly thrilled to be give the opportunity to launch the program, but did not have the data to be strategic in our selections. We simply did our best.

Well guess what? We like what we see. What about the next cohort, the 2015 launch cohort? It gets even more interesting here.

Beginning with this cohort, new programs have been graded using our algorithms for both expected long-term scale potential, and for expected profitability margin. Early evidence suggests they are better. It is working now, but will our business last for the long haul? Will our partners simply move it all in-house? We provide a strong comprehensive approach that others in the state don't. And, our partners know it and they love it.

Our partners do the things you'd want them to do. We are not a university. We never will be. This is their accreditation, their faculty, their admissions decisions, their financial aid, their degree. We do the things they are not as good at: technology, operational efficiency, placement, marketing. And, we do them really well.

Are we a SaaS technology company? Yes. Our products would not be known to the audience, but it's the comprehensive technology bundles that makes each school great. Online campus has the student hub. Force application system, port authority for passing data, air traffic control for monitoring live sessions. I could go on, but I wont.

Are we an education company? Probably, yes. We offer high-quality services including student support, admission support, and we've even made 24,071 clinical placements in sites around the world.

Are we a for-profit university? Absolutely not. People don't apply to Berkeley and Strayer at the same time, and they certainly aren't applying to 2U.

So, why don't our partners do it all themselves? Because it is hard. The pieces are complicated enough, but glue that makes it all work, that's even tougher.

One of our Deans told me way back, the year he reviewed the competition, before signing our deal. And he found them to be competent. They told me they could bring me online, and I believed them. You told me you can make me great in the 21st century, and I believed you. What would you buy?

That is a special sauce for 2U. We do everything we can to make them great.

So, are all of these one-and-done deals? Heck no. We had already extended our UNC contract. And, I'm very proud today to announce that Georgetown University has agreed to extend it's original contract for 2U by an additional five years, creating a 17-year relationship with 2U. Now, three of our first five relationships have delivered large extensions of our contract. So, will programs continue to sign up?

I will let Jim Shelton answer that one.

Thanks, Chip.

2U has done an incredible job today, to building great partnerships with their students, faculty and universities as well. I feel fortunate because there are very few times you get more excited about something when you get close up, than when you were farther away. I've now taken responsibility for building on that track record and taking it to another level.

Pipeline announcements won't always align up with quarterly calls. But, I do have two new program announcements today. I'm pleased to announce that 2U will be working with NYU on a fourth program, Master of Counseling for Mental Health.

This is our second program in this vertical. While we do not have a launch date locked down yet, the contract is signed. NYU is a multi-program commitment, and this is the next program in that excellent relationship. I hope that you'll also note that this is now the seventh vertical where we deploy at least two programs, up from only one vertical at the time of our IPO.

I'm also pleased to announce that 2U will be working with GW in a key new vertical, Health Informatics. Health Informatics is a burgeoning new field driven by the unprecedented increase in new healthcare data. Basically, data science for healthcare. We have loved everything we have seen from the data science vertical to date.

The new program, Health Informatics at GW, is the third GW degree program supported by 2U. As you can see, demand from new and existing partners continues to accelerate. We now have eight programs announced that will launch in the next couple of years. You can expect more announcements on new programs in the current multi-program verticals, and new high-potential verticals, as we progress through the next quarter and into 2016.

Now, one of the things that most attracted me to 2U is the core belief that it's success as a Company is tied to outcomes. I'd put that commitment to quality and outcomes up against any program in the world, online or on campus. But, we're trying to take it further.

We believe our focus on outcomes is a competitive advantage, a moat if you will. But what if, in the process of building a great Company and supporting great institutions, we can also improve higher-education itself? This may sound audacious, but we believe it is not only achievable, but strategic. Because when we are successful, we will also have reaffirmed the value of the best higher education has to offer.

We've built a framework that will guide our work going forward. And, that we believe may also serve as a guide for all types of higher education, online and on campus. We call it Straight A's, and in future calls, you will hear a lot more about it.

It's important to remember, Chip's story is not unique. Great universities transform people's lives. And they, in turn, love them and support them because of it.

With that, I would like to pass the baton to our fantastic CFO, Cathy Graham.

Thanks, Jim.

While this quarter's financial results largely speak for themselves, I would like to cover a few points before turning to more interesting topics: guidance for the rest of 2015, an early look at expectations for 2016 and some additional detail on our business model.

At $37.1 million, third-quarter revenue exceeded the comparable 2014 period by 31%. Revenue growth was once again driven, primarily, by an increase in full-course equivalents. Compared to the prior year period, third quarter FCE's increased by 33%, offset slightly by a 2% decline in average revenue per FCE.

In this quarter, both revenue growth and the decline in average revenue per FCE were impacted by an adjustment to a rebate reserve we carry, for an old initiative that was discontinued several years ago. But, it still applies to a limited number of students who enrolled in one program between 2009 and 2011. If these students graduate, and meet specific work requirements after graduation, we rebate a portion of their tuition.

Each September, these students have to certify that they remain eligible for future rebates. We reduce our reserves for students who don't re-certify, which has the effect of increasing third-quarter revenue.

This quarter, the amount we took into revenue was significantly less than in the 2014 period, resulting in lower year-over-year growth and a decline in average revenue per FCE. If we remove the rebate reserve adjustment from revenue in each year, third quarter revenue growth would have been 34%, and average revenue per FCE would have increased by 1% year over year. The balance of this reserve has been significantly reduced in recent years. So, we don't expect future adjustments to have a meaningful impact on financial metric comparisons.

FCE increases were generated across our program portfolio, further diversifying our revenue base. In third quarter, 57% of FCE's and 62% of revenue came from the four programs in our first launch cohort. By comparison, in the third quarter of 2014, the first launch cohort contributed 77% of FCE's and 82% of revenue.

79% of our third-quarter revenue was generated by our four largest clients. With these clients, we operate eight programs under separate long-term contracts that launched between 2009 and 2014. Further, we have also announced two additional programs with these clients for launch after 2015.

At $2.9 million, third-quarter adjusted EBITDA loss showed a 13% improvement over the prior-year period, and was $2.6 million better than the midpoint of our third-quarter guidance. Of this over-performance however, approximately $1.5 million was related to a non-cash charge we had planned to recognize, related to expanding and consolidating office space. Because of a change in building ownership, the transaction is taking longer than we expected. But, we now hope to execute it in the fourth quarter. We have shifted the expected $1.5 million non-cash expense into our fourth-quarter guidance.

Not excluded from our adjusted earnings measures is $250,000 in other expense, related to an investment we made in an early-stage entity, to test an international marketing channel. We regularly test new marketing channels. And, it is not unusual for us to commit similar amounts to similar tests.

Operationally, we consider this test expense to be no different than those for other marketing tests. But, because this was structured as an investment, we're treating it differently for accounting purposes. Given uncertainty around determining the marketing benefit, and the lack of basis for imputing value to the investment, we are expensing the full amount immediately, but through other expense rather than program marketing and sales expense.

From a balance sheet perspective, we ended the third quarter with $175.3 million in cash, including the net proceeds of our recent follow-on offering. We make significant operating and capital investments in the early years of a program's life. So, we expect to reach adjusted EBITDA profitability in 2017.

We will still need to deploy additional cash for technology, content and other infrastructure investments, to support program and corporate growth. Given our current cash position, we believe we should be able to meaningfully increased our annual program launch schedule in 2017, and beyond, while maintaining progress towards steady-state margins.

Continuing to look forward, as our business continues to perform, we're raising our expectations for the rest of 2015. We now expect revenue to be between $41.7 million and $42.1 million for the fourth quarter, and are increasing our full-year guidance to be between $148.6 million and $149 million. At the midpoint of these ranges, that's a year-over-year growth of 36% for the quarter and 35% for the year. We now believe that the fourth quarter will be the first adjusted EBITDA positive quarter in 2U's history.

We expect adjusted EBITDA to be between $700,000 and $1 million for the fourth quarter. Some of you may have higher numbers in your existing models, so please remember that we have shifted an expected $1.5 million non-cash office space charge from third quarter to fourth. This is simply a timing shift and does not impact our full-year guidance.

Fourth-quarter guidance implies an adjusted EBITDA loss of between $7.8 million and $7.5 million for the year. At the midpoint of the range, we are expecting 2015 to a show an adjusted EBITDA loss improvement of 48% over 2014.

Just as a reminder, we reduce our marketing activities during the year-end holiday period, so our fourth-quarter margins typically increase. Fourth-quarter margins should not be viewed as a run rate, going into the early quarters of 2016.

As we approach year end, we would also like to give you a first look at 2016. As we haven't completed our budget cycle, this is a preliminary view that we will update with more specific guidance at a later date. We currently expect year-over-year revenue growth for 2016 to be between 30% and 32%.

We also expect the pattern of revenue distribution across the 2016 quarters will be similar to what we saw in 2015. We also currently expect a 2016 adjusted EBITDA loss margin of 2% to 1%, an improvement from the approximately 5% we're guiding to for 2015. This implies a somewhat more modest improvement than we are seeing in 2015, because of expanding our 2016 launch schedule to six programs. And, maybe more importantly, because meaningfully stepping up our launch schedule in 2017 will push additional launch costs into 2016.

While the additional launches will benefit revenue growth and profitability in future periods, in the first year, accelerating our launch schedule increases our expense base while producing relatively little incremental revenue.

As usual, we expect the cost seasonality will impact the distribution of our earnings measures across the 2016 quarters. In second quarter, we typically incur a disproportionate amount of annual costs that reduce our earnings measures, related to meetings, training graduations and other periodic events. Conversely, we typically reduce our marketing costs in the year-end holiday period, which increases earnings measures in the fourth quarter.

Finally, I think a quick refresher on the expected economic lifecycle of a typical program may be useful to eliminate any confusion. I will also give you some metrics on our first and second launch program cohorts, to show how we're tracking against that lifecycle.

Let's start by talking about first programs in a degree vertical, like first social work or first business. On the top line, we earn revenue by taking a percentage of tuition and fees, paid by students to the school. Typically in the low- to mid-60% range. We get paid as students take classes through the life of their programs. And on average, expect students to be in their programs for more than two years. If a program starts classes on day one of year one, we start to incur costs 6 to 9 months ahead of the first class start.

So what do we spend our money on? We configure our SaaS technology for the program and integrate our technology with the schools. We also work with faculty to create content for the program. Together, these efforts typically cost about $2 million, much of which is capitalized. And, we incur these costs from about 6 to 9 months prior to launch, to about 18 months after.

Our other significant investment is in program marketing and sales. We also typically begin our marketing efforts 6 to 9 months prior to program launch. It's a lengthy process.

Students make a long and expensive commitment to these programs, so they don't apply on a lark. And, we have to find not just any student, but the right student. Across our program portfolio, it usually takes about seven months from the time we first connect with a perspective student, until they enroll in a program. Since we don't see revenue until they enroll and start taking classes, there's typically quite a lack between the time we start spending and the time we start generating revenue.

So, for our first program, our cumulative net-negative cash investment is typically in the range of $10 million, before we get to adjusted EBITDA and cash flow breakeven. We expect to reach that point around the end of year three, or beginning of year four, after program launch. We then expect to recover our investment as the program gets to steady-state enrollment, which we expect should average in the range of 300 to 500 new students per year. Generally by year five or year six. If we're launching a second, third or fourth program in a vertical, however, our cumulative net-negative cash investment usually falls by about half. More in the range of $5 million.

Why? It doesn't change our typical revenue share range. What or how we spend on technology and content development, or what we expect for eventual steady-state enrollment. But, it does change the cost and timing of student acquisition. Because offering additional choices increases the number of students from the existing program marketing efforts, that will enroll in one of the programs, our marketing becomes more efficient and cost-effective.

Further, because we can leverage an existing marketing funnel when we launch an additional program in a vertical, enrollment and therefore revenue tends to scale faster than in first programs. This combination of faster revenue scaling and lower student acquisition costs significantly lowers the cost of launching additional programs in a degree vertical. It also helps these additional programs to reach breakeven and steady-state faster than for first programs, typically, by about a year.

Let me make sure that a few points are clear. First, the roughly $5 million to $10 million in cumulative net-negative cash flow we refer to is not an upfront investment with additional negative cash flows expected. It is the total cash investment we expect to make to get a program to breakeven.

Second, these investments create significant revenue backlog for us before a program reaches breakeven. For a cohort of students, and there are typically four new student cohorts per year, attrition usually becomes quite low and predictable after they get to their second term.

So, at any point in time, there is significant future revenue that we expect to receive over the next couple of years, related to existing students, not ones we have yet to find. As of the end of the year the third quarter, we estimate our revenue backlog, that is attrition adjusted revenue we expect to get from already enrolled students, was $206 million.

And third, our contracts typically have 10 to 15 year initial terms. So, we have a very long time to monetize these programs. We believe our client relationships are good. But further, the nature of our services create high switching costs. And the majority of our contracts have non-renewal penalties, or similar teach-out provisions, that provide for significant low-cost revenue at the end of a final contract term.

We believe that the large majority of our clients will continue with us for multiple contract terms. Remember that three of our early contracts have already extended their initial terms, before reaching renewal. But, if a client decides not to renew, we would quickly eliminate our marketing costs. And, we'd expect our margins to increase significantly in the last years of the service period.

So, how are our programs performing against the lifecycle we expect? Turns out, they're mostly doing well. Our first launch cohort is made up of four programs that been operating for between four and 6 1/2 years.

They are at, or getting close to, the age where we would expect them to reach maturity. In their most recent academic terms, this launch cohort averaged approximately 1,000 total enrolled students per program. And for full year 2015, we expect this first launch cohort to have a high 20% adjusted EBITDA margin, on a fully-allocated basis.

We have said our target for long-term corporate steady-state adjusted EBITDA margin is in the mid 30%. But with first programs in a degree vertical somewhat lower, and subsequent programs somewhat higher. As the first launch cohort hits all first programs, it is approaching the steady-state margins we expect.

So, was our experience with the first launch cohort indicative of the future? The data is starting to say that, portfolio-wide, it is. Our 2013 launch cohort is made up of five programs that have now been operating to the 2 to 3 year range. And, you will remember that pre-IPO, we wrote off our investment in one of these, because we concluded it was unlikely to scale.

So, it's happened faster than our models would've predicted for a typical launch cohort, we now expect the 2013 launch cohort to be fully allocated, adjusted EBITDA positive in the mid-single digits for full year 2015. This is being achieved with total student populations for the cohorts scaling within the range we would expect. Two years after each programs launch, and including the program we've already identified as small, this cohort averaged approximately 375 total enrolled students per program.

And, while it's too soon to discuss specifics for our 2014 launch cohort, an early look indicates that it's scaling enrollments and moving through the program economic lifecycle as we typically expect, given it's number and mix of programs. Also remember that the 2013 and 2014 programs were all selected before we developed our program selection algorithm.

While the 2015 and future programs will inevitably have a mix of tuition levels, enrollment potentials and other characteristics, we believe that by applying the algorithms insights, we're increasing the odds of success for the current and future launch cohorts.

So, with that additional color on our model, I'd like to turn things back to Chip for his closing remarks.

Thanks, Cathy.

You all know I like to end my calls with a story about impact, which is really what matters. I've never shared a story about our university impact. I told Dean Marilyn Flynn of the fantastic USC School of Social Work about some of the challenges of explaining 2U to our various constituencies. She really wanted to talk to you, so I asked her to record a message. I'd really like you to listen to this. The recording is unscripted and unedited. These are Marilyn's words and she's uniquely qualified to speak on the subject matter.

When Chip asked me if I would be interested in speaking with all of you in the investor community, about 2U and my experience with 2U, I immediately said that I would be happy to do so. I think I understand this firm as well as anybody possibly could. I was almost the first academic program to sign up with this Company. And, we have worked together for five years.

During that period, in fact, within the first year and a half or so, I literally doubled the enrollment in our Masters of Social Work program. And at the present time, that enrollment is about, it exceeds 2,000. We started from an enrollment of about 600.

So, the rapid scaling that we went through was something that was completely unique in the history of social work education. It was further completely unique in the sense of the type of partnership that we had with 2U.

This was not a typical vendor relationship, in which the University simply writes a contract with someone. It wasn't a joint venture in the sense that you would technically think of it in the investor community. But, it was certainly a joint venture in the shared risks that we both had, in our shared fate if it failed. But, in another very fundamental sense, in our shared interests in maintaining excellence.

My school has always been among the top-ranked in all schools of social work. And, I belong to a top-ranked global research institution. And for both of those reasons, I have never undertaken any kind of distance education, or online education, effort. Simply because, all of the other available options that were presented to me were from companies whose products were so much more inferior. Whose capacity for imagination was so much less. Whose genuine interest in promoting the best kind of education was so much lower, in some cases not evident.

So from the beginning of course, for 2U, I understood perfectly, this was a profit-making venture. For us, it was a venture in transforming the nature of education at the highest possible level. And after five years, I absolutely can say with confidence that we have the gold standard in online education in my field, in the United States. In fact, anywhere in the world. We have been able to accomplish that standard, I think, not because we haven't had any problems and not because some of the courses that we have offered have been difficult to manage. But because, we've had this shared view of what needed to be accomplished.

So, I am tremendously impressed with the value that 2U has brought to my program, to the field of social work education and to the concept of online education itself. I'm extremely proud to be associated with them. If there's ever anything that is proposed by the Company, that I feel in any way undermines the quality of what we represent as an institution, as a school or in the field of professional social work, we always discuss this.

We always discuss how everything that we can do will contribute to quality, to the highest possible quality. And, I would say I feel consistently supported in that objective and extremely proud to recommend the Company to you. But also, to my colleagues.

The experience for me, of course, has generated a positive revenue flow. We've had consistent high demand for our programs, even throughout a recession, one of the deepest recessions in the history of the country. We've had consistently high demand even though the number of competitors in my field has grown steadily.

We've had consistently high demand even though we've have the second-highest tuition in the United States for my program. And, the only way that I can account for that is that we have the best online program that anybody has to offer. I really don't have any other explanation for it.

We've been extremely cautious in encouraging people to enroll. Yet, the Company has worked with me very carefully, so that we can ensure that people who participate can do so in a way that is manageable for them, financially.

So, that we have one of the best, if not the best, retention rates in our program. So in short, it's been a responsible, a socially responsible program. It's been an institutionally responsive program. And for our students it's been, for some of them, the best educational experience that they've ever had.

We have letters. I had one just yesterday. And, not just from the students that talk about the quality of their education and their pleasure, their satisfaction, but from employers, which is equally impressive. So, I really don't know any other aspect to discuss, in trying to explain the strength of this Company. But I think, as I said before, I'm the best person in the United States to talk about this Company. And what you've heard from me is something I think you can rely on.

Well, you can see Marilyn Flynn is certainly not living in the back row. We're extremely proud to work with her and the USC School of Social Work. And with that, we're open to receive your questions.

(Operator Instructions)

Our first question comes from the line of Michael Nemeroff with Credit Suisse, your line is open.

Hi, thanks for taking my questions and nice job on the quarter. Chip, following up on Marilyn's remarks, clearly, one satisfied customer. The events over the last couple of weeks, has that been uniformly what you're hearing from existing partner schools? And then, alternatively, are the conversations changing with potential partner schools as a result of some of the things that been written about you lately?

No, honestly. We're really proud of the portfolio right now, in terms of how they feel about us. You obviously can see that we just extended the Georgetown relationship by five years. That doesn't happen as a -- that's not a surprise. That's a long process of talking to them and they're a great partner as well. We chose Marilyn simply because many of the folks on the call know that that is a very large program. And, people ask a lot of questions about it. We thought her words were particularly insightful, she's worked with us five years.

What I would say in terms of the pipeline, really it's stronger. Part of the reason that we went out and raised more capital is the opportunity has expanded in front of the Company to grow more programs, both within the existing partner suite as well as planting new flags in great regions where we want to expand. So, the reality is the notion of what others are saying out there in the marketplace is just really not that important, given that the partners know what we are delivering for them every day. Michael, we don't talk about the financial impact a lot. But the reality is, $1 billion in attrition adjusted tuition is a nontrivial number. We are generating a great mission for these schools, and a great business.

Following up on that one, some of the questions that I receive from investors is around how you determine what the economics of these agreements are. Just remind us, how open are you with your schools, about how much you're going to make, how much they're going to make? And, how you determine which programs to go into based, and which ones you think are going to scale, and why?

Well, in the early days, we were just so blessed to get what we got, because these are all pretty incredible institutions at the level that we are playing in. Today, we are very data-driven about the process. And, we're very able to be very strategic in our selections. And, the idea is to plant flags in great regions and really grow in each region. And therefore, grow on a US-wide basis, and really worldwide, 60 countries. The sales process itself is very Open Kimono. We show them our side, we show them their side. You don't sign a 10-year agreement, or plus, on a lark. It's a long, thoughtful process. There's a lot of people involved. So, everybody around the table knows what they're getting into.

We're not shy about it. We show them everything. We think it's really important that, long term, their satisfaction, their happiness in these arrangements, matters more than anything else. We can sit here and talk about switching costs and talk about all the various reasons why it would be hard for somebody to end a two-year arrangement. But the most important thing is, why are they entering them in the first place? Are we going to build something that helps them create the future of their institution? Regardless of what those out there are saying, we're definitively doing that.

If you talk to people across our portfolio, they're really happy. We just did an event last week at The Economist in New York City, where Jim Shelton was on a panel with two of our partners Anna Saxenian from Berkeley and Lucas Swineford from Yale. And, it was a public setting. And, to hear them talk so strongly about 2U, it's pretty awesome. It's not something were surprised by. So, the notion of reporting what's happening in a partner program without ever having spoken to us or the partner program, is a little silly.

So, one last question on the programs that have been announced, but haven't launched. There aren't any launch dates associated -- I think said there's eight of them, at this point in time. Previously, I think you were pretty explicit about when you thought these programs would launch, in terms of the timing. Is there anything -- what should we read into that?

Yes, a very good question. So, last year at this time, we had four announced programs. And now, at this time this year, we have eight. They are clearly not all for 2016 and the reason that we haven't put launch dates behind them is that, candidly, it's important that investors know that we're expecting several other announcements here in the very near future, that allow us to -- once we have them all together, figure out the best slotting for a variety of reasons. Each of these is complicated. There are a variety of approvals, and then there's also just some business goals for the Company that allow us to think about what when we're slotting them.

I think those new announcements will become clear over the very near future. We were excited to be able to announce two today. Frankly, one of those two literally was just signed today, interestingly. This morning. So, we were able to get that one in. But, our timing of our contracts don't link up to earnings calls. That's not what they're about. They are not about the investors. They are about driving partners for the programs. So, important to note that we'll give clarity as we have it, about when we're expecting which programs to launch.

I lied, this is the last one. The Yale program announcement, how has -- I know the financial impact of this is expected to be pretty low, because it's a relatively small program. But, what has that done for the Company in terms of your ability to talk to other Ivy League schools? Or, real top-tier, top 5, top 10 schools. Has it changed at all since that announcement?

Yes. I would say first it's important note that 2U doesn't really launch anything that, over time, we believe is going to be small. We're trying to find great programs that we can scale over time. And we think both medicine and law, while there is a series of real legitimate complications with accreditation on both of those disciplines, they're both disciplines that we think the use case over time will win out. And as, ultimately, you prove that you can be great in those disciplines. We think, long-term, there's a ton of potential. You take physician assistant, just that in general is a massive job shortage right now. There's a serious need for that discipline.

Yale has had a positive impact, in terms of what people view of online. Simply because, you can't argue that there's some higher level of higher Ed. It's really, obviously, the highest level. But I'll tell you, it's not like Northwestern and Berkeley and Wash U, and Chapel Hill and Georgetown are chopped liver. We had already been playing in a very strong arena. And, while we're extremely proud of Yale, we're also thrilled that we have one of the best schools of social work in the country, and one of the best schools in nursing in the country and so on and so forth.

It is had a net positive affect. But I think, if you look at the [math hit] overall -- NYU just signed for the largest program announcement in our history. And today, Jim was able to announce the fourth program there. So, we think the pipeline is really not an issue for the Company, which is part of the reason [final] offering.

Thanks for much for taking my questions.

Thanks, Michael.

Our next question comes from the line of Andre Benjamin with Goldman Sachs. Your line is open.

Thank you, good evening.

Hey, Andre.

My first question, I was wondering if you can confirm that terms of the extension with Georgetown was the same as your current contract? And, is there any reason why all of your initial partners are re-upping now, so early? And, are you looking to do the same with others?

Yes, number one, I can't discuss any individual contract specifically. Because it would be not only a violation of my agreement, it would be bad for my partners. It's very important that you know that that's real. What I would say is that, the revenue share under that arrangement has stayed the same. We clearly did give them some consideration. The reason we're going back to our original partners is, those that have been around the Company for a long time know that we originally had a business model where we did not believe we were going to be launching multiple programs in each vertical.

So, even at the time of our IPO, we only had one vertical with two programs in it. Everything else was one vertical. If you go back to the earliest program and you looked at a timeline of our programs, it's not just a continuum of time. It's a continuum of exclusivity. So, the earliest arrangements were most exclusive, and you can think of the ones today as almost non-exclusive. So, we've had to go back to work with those original partners, to deal with that. And in that process, we've been able to come to a conclusion that extensions of these agreements were possible. Because, frankly, they're really happy with the Company.

So, given that we were going back and sort of reopening it, and given that this was something that was important to the Company, we were able to get these included. And now, out of our first five contracts, we now have three of those five where we have extended them. In doing so, we have been able to unlock exclusivity, which allows us to pursue the MPV strategy. Which, as you know, has been critical to the long-term value of the Company. And, we expect that to continue.

Thanks. And then, as similar to how you report the pre-2013 FCEs in revenue, I did not know if you would be able to start giving us some color on 2013 cohort. And, specifically, what do you think is pushing you to get profitability faster than expected? Is it more that they're scaling larger and their enrollment totals are higher? Or, is it that you've actually been able to get better spending levels and leverage out of what you're spending.

What I would say first is -- by the way, one logistical note for everyone on the call. As we said in the early part of the call, we're going to extend this call through to that 6:30 PM time, just to make sure we've got enough time for your Q&A.

So Andre, the reality is, we thought we gave quite a bit more info and color about cohorts on this call, than we had previously. So, Cathy just gave you quite a bit of financial data, thinking about what the average enrollment of these programs looks like. What I would give you in terms of why that 2013 cohort is profitable today, there's no question that we now have MPV. And, it significantly improves the efficiency of the Company on our single largest expense, which is marketing to students. So we do think that all aspects of MPV -- the programs scale faster. So instead of, a second program scales much more quickly than a first program. And, frankly, it's a lot less expensive to launch it. So, the net-negative cash impact of a second program goes from $10 million for a first program over the first four years, to $5 million. It's a big difference, on average. Anything you want to add, Cathy?

Yes. Let me just follow that, Andre, and say I totally agree with Chip. It is about program mix. That was the 2013 launch cohort. It was the first cohort in which we had an MPV program. And, it is an MPV program that was very successful and scaled very quickly. So, the combination of putting that in, getting scale on the Company in general, which helps in allocated costs across all of our cohorts, is really driving that for 2013.

Thank you, I'll get back in queue.

Thanks, Andre.

Thank you. Our next question comes from the line of Michael Tarkan with Compass Point. Your line is open.

Thanks for taking my questions. Just regarding 2016, Cathy, I think that you mentioned that the recent raise now gives you the ability to accelerate launches in 2017 and beyond. And that some of those expenses are going to hit in 2016. Anyway you can quantify what that delta is, or anything around that?

This is Chip, Michael. We haven't yet. We're not yet at a point where we're willing to guide to a particular number for 2017. It's pretty clear that we're talking about an order of magnitude increase. We're not talking about six going to seven.

So, when I think about this, Michael, I agree with Chip. It is hard for us to give you orders of magnitude this early, considering we're not even through our 2016 budget cycle. But, effectively, we looked at a step up to six programs in 2016, and absorbing costs of 2017 programs that will fall into 2016 pre-launch. And, even in doing so, we were able to keep our expectations for where adjusted EBITDA is going to be for 2016 in the same place, even while absorbing those additional costs.

It's the high-class [project of] the Company. We're in quite a bit of demand from the existing partner base. And, there's a lot of new partners now that we are in process with. So, that's a good thing, obviously.

Understood, and just so I'm clear. I think, Chip, you just mentioned that you're at least 6 right now. When you talk about meaningfully accelerating in 2017 and beyond, we're not just talking about one additional program per year, this is step function up again, most likely.

That's correct. And that is part of the reason that, as Cathy mentioned, the 2016 guide is where it is.

Understood. I guess, switching gears on the competitive front. I know one of your competitors is in the process of losing a big contract with the University of Florida. And, I know that's undergrad and slightly different. But, I'm curious if you're hearing or seeing any changes, competitively? Whether it's new entrants or existing players, any kind of thoughts there?

Yes, I would say we feel very strongly that our overall solution, this combination of technology and service, is very strong. And, we continue to make it better. So we talked a little bit about it on previous calls, with adding new technology to the overall bundle, adding new services to the overall bundle like our Campus Scaffold. And frankly, in terms of the others, how they do or don't do, what I can tell you is, you've got to live up to your promises. When you bring in these new schools, you've got to make sure that you're being thoughtful and careful about what your expectations are. And, making sure everybody agrees with it. You've got to set the overall plan for the business in a place that accomplishes the mission of the University, and is very achievable.

I feel like we've done a really good job doing that. Part of the reason we wanted you to hear Marilyn is, it's easy to have me talk about it. You think, well of course, you're the CEO. You're saying this stuff. But my clients will say it. And, they say it pretty loudly. So with regard to the competition, I've got to tell you, I feel like we're further ahead than we were two quarters ago, or three quarters ago. We like where the Company is. And, I continue to push everybody here. We're certainly not resting on our laurels. I'll tell you that much, this Company's moving.

All right, and then the last for me. An addressable market question. You've guys have historically talked around about a $3 billion top-line number, with I think around 180 programs. Does that include anything internationally? And if not, any thoughts about how that opportunity could look, and when we could see an international relationship for you guys? Thanks.

It's important to remind you that we do have one. We have a dual degree with Monterrey Tec and Wash U Law. Monterrey Tec is one of the best schools in all of Latin America. But in terms of a full degree program, we definitively believe that's in our future, internationally. Part of the reason for the small investment that you saw us make this quarter, that Cathy commented on, is international marketing. We are continuing to put chips down there. We do believe that's a very much part of our future.

And, if you look at our client base -- if you start getting to the student base, you can see that the student base is global. Now, we're going to be conservative. You're not going to see us launching nearly as many internationally as you will see us launch here. Why? The, use case here is unbelievably obvious. If you're a great school and you're thinking about going online, you can make your degree more flexible for people that don't want to quit their jobs to achieve their goals. It's a big deal. So, we've got a lot of runway in the US. So, it's taking some reasonable but conservative steps, on a go-forward basis, to expand internationally, we think is the call.

Thank you.

Thank you. Our next question comes from the line of Corey Greendale with First Analysis. Your line is open.

Hey, good afternoon. Thanks for sticking around longer. A few questions. First of all, Cathy, can you give us the latest LTR to TCA ratio you're seeing?

Sure. It actually is staying above the 3 mark, and is continuing to trend in the direction of that 3.2. So, we're very pleased.

Okay.

I would say, Corey, that's a big part of what's driving the efficiency of something like the 2013 cohort.

Yes, I understood. Second question I had is, I realize you just gave 2016. But in thinking about 2017, should we be thinking that, given the maturation of 2015, 2016 cohorts and the accelerated introductions in 2017 that you can -- you're aiming to maintain 30% plus revenue growth in 2017?

Yes, we didn't say that but we probably should have. We firmly believe we can maintain 30% plus percent revenue growth for the foreseeable future. We feel very strongly about that. If anything, more strongly about it than we did at the time of IPO, and we felt pretty strongly at the time of IPO. The primary reason for that is the MPV strategy allows us to launch more programs in verticals. So, as you think about the opportunity going from, at the time of IPO, 30 verticals with two programs. And we've said recently, 60 verticals with three. The reality is, that three is probably a conservative number.

There's a lot of opportunity on a regional basis for these great programs. It's a big opportunity. And I would also note, I know some have been asking questions about whether we've just done the good ones already. It's a little crazy. The number of programs out there that we haven't touched yet, that are really big. We haven't done engineering at all. Just that as a discipline is massive. Computer science, there's a whole bunch of them that we haven't done. So, we think it's a great opportunity for long-term. If your long on [few year], it's a long journey and we're still in the second inning, folks.

I appreciate that, and since you brought that up, if you don't mind, I'd like to ask you a couple of the questions that I've been getting most frequently, recently. One of them is to that point. A couple of people have said, if you look at Department of Education data at the number of verticals, it looks like you start getting down to some relatively small populations before you hit 60 verticals. I suspect you're looking at it a little differently, than that data. But, could you just address that point?

Yes. I'd say what's interesting about the 2013 and 2014 cohorts is that there are programs in those cohorts that, by no means, do we have the -- we didn't have the algorithms to select. The reality is we like what we see. We're working on MPV of those programs. And, those were not programs that we specifically targeted using the algorithm. So, as I mentioned, there's a lot of verticals left, that we haven't touched. Some of the biggest are still there.

So, we do think that, before you get to green field -- and what we love like Health Informatics is an example of a green field that we think has really strong demand long-term. So, the notion of existing verticals where you can clearly look at it and identify that it's good sized. MPV in current verticals where we're just getting to scratch the surface, if you look at it. The first public health second program is in our Simmons enterprise model. That is a good example of a discipline that will get very large. And, we firmly believe that we will do many of them, because our first one is doing extremely well. So, you want to add something, Cathy?

Yes. Specifically, Corey, when you look at the number of verticals that we could address, when you use the program selection algorithm and when you've got the experience that we've got over the last 18 months about how multiple program verticals work. And, if you get the marketing efficiency you get, even in tangential verticals. It actually allows us to group up things that, in the data, might look small. But, we now believe can be run as sizable verticals in their own right.

Yes, that was my understanding or my assumption. Another one I've been getting a fair amount is questions about acceptance rates at your university partners, given that they are elite universities and whether that narrows the funnel on dualing. I think I read that the MBA at UNC has a 39% acceptance rate. Some have pointed to the Yale acceptance rate of 3%. Can you address what is the typical acceptance rate in your program?

I will tell you strongly, no matter how much investors want to talk about it, we'll never talk specifically about our partners acceptance rates, because it's not our place. What I will tell you is, it is a little insane to broadly infer something from a campus program to an online program. Because, by definition, there's only a certain number of seats on a campus program. There's an unlimited number of seats in the online program, as long as you don't dumb down the brand by admitting students that wouldn't be in the campus program.

Inherently, my marketing team's job is to find great students worldwide, that indeed are interested in attending, and can get in, and want to experience it that way. And, frankly, can afford it. So, that's our job, to grow the partner programs without hurting the brand. So, I think the notion of analyzing something about what's happening on campus, the person doing that would have no idea what the requirements are of that program. So what I always say is, we will not dumb down the school's brand in any way, by changing your admissions requirements. But your admissions process, of course we're going to have to change. Because, the program's going get a lot bigger when you go online. Is that helpful?

It's very helpful, I appreciate it. Just one last one for me, if I could. Because this question may come up and I'm trying to it address it proactively. Looking at the individual client data in the queue, it looks like one of your clients, the revenue declined from the year ago period. I don't know if you want to talk about individual clients, but anything you can say to address that if the question comes up?

One of our clients went through a period where it actually put a halt on certain programs, and has since re-launched those programs and allowed them to move forward, for a variety of reasons that absolutely have nothing to do with us. So, we do expect that to revert the other direction.

Okay, I appreciate it, thank you.

No problem.

Thank you. Our next question comes from the line of Jeff Meuler with Baird. Your line is open.

Yes, thank you. You talked quite a bit about program lifecycle and program scaling. I guess, and you also talk about pre-IPO writing off the investment in one of the programs. Is there a typical inflection point? Or, at what point would you guys concede that a program's not going to scale?

So I'm not sure that we can give you a typical, since we've basically seen one. We were probably able to determine that relatively early, like within the first year of the program's life year, or so of the program's life. But I'm not sure that that would be typical for everything, because we just haven't seen any other examples of that. I will note that there's good things that come out of everything. Seeing that program not scale was the impetus for us developing the program selection algorithm, which we think is going to make it much, much better for us to select programs going forward.

And then, the second thing out of that was, we learned how to run programs on a small program operating model. So that we can minimize the costs in those programs, run them at the size that we think is optimal for them. And, have them not lose us money. (multiple speakers)

It's obviously a portfolio approach. And I would expect some programs, depending upon what verticals they are in, or what partners they're with, to scale more slowly. It sounds like the programs that are maybe in year one, you guys remain confident in scaling toward the 300 to 500 new enrollments per year plus?

Yes. So if you're looking at the -- we talked about an average total enrollment of about 375, not new enrollment, but total enrollment in the 2013, at the end of their second year. So that's a pretty good idea of where the trajectory is for those programs, when you're talking about, probably, a three- to five-year maturing cycle on those. When you look at the ones that we've done now in the 2015 timeframe, as Chip said, our early indications on those is that they're going to be a very strong program.

Okay. And then, can you just confirm the follow on second, third, fourth programs that you've been signing with? Some of the university partners that, on average, their revenue share is materially similar to the first programs that you guys are signing with university partners?

Yes.

Okay, thank you.

No problem.

Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open.

Thank you so much. I have got a couple questions about the first five programs that you've mentioned a few times. I think you've renewed three of the five. Of the two that have not been renewed yet, can you just remind us when they expire? And, are those both exclusive contracts as you have describing beforehand? And, are there any other contracts with exclusivity besides those two?

So I would tell you the first two are -- the two you're referring to are our two programs at USC. I believe the social work program has five years left, is that right? And then, education a little less than four?

No. Education is 2018 and social work its 2019.

2019. And of those two, it's important to note that USC has recently signed with us for a new 10-year term, for the nursing program, which will be run out of the same school. It's just literally run out of the school of social work. So, that is a 10-year deal, exactly like the first deal with that school. So, I think that says quite a bit about what USC is thinking, given that the social work school will run the nursing program. So we think that says quite a bit. We're obviously in a continual dialogue with our clients. And, that's no different here in terms of the first school, the education school. And, we really don't have anything else to say about that, at this point.

And Jeff, forgive me. I misspoke. It's 2020 on the social work school.

I appreciate that. And I'm sorry. On the exclusivity, are there any other exclusive contracts still out there, besides these two, with USC?

Not fully exclusive. As I said, there's no such thing having exclusivity. I know we like to think of it is black and white, and there's a lot of shades of gray. But our first contracts were, you can think of as much more exclusive than our later contracts. Our most recent contracts, obviously, the least exclusive. There may be something, regionally, that we've given somebody because we really believe in the region anyway. But, the early ones are the ones you can think of as more exclusive.

Important to note that, even on our USC arrangement, while we have not extended the social work contract, we have launched a second social work program with Simmons. It's important to note that, even in that case, we now have only one school where we do not have the ability to launch a second program. And that is our first contract, the education contract.

Got it, thank you. That's helpful. And just a quick question on the table, that Corey referred to. Client A, it looks like in doing the math, the revenues have been relatively stable. Is there a little bit of color you can give us on that? Thanks.

Yes. So if you'll remember in my comments, I referred to a rebate reserve. We make an adjustment to in the third quarter of every year. That is actually within client A. And so, last year, in making that adjustment, we've brought a significant amount of revenue back into revenue for that client, while this year it was significantly less. So, if you were to strip those out, you'd actually see revenue growth in that client.

Okay, that's very helpful. Thanks so much.

Thank you. Our next question comes from the line of Ben McFadden with Pacific Crest Securities. Your line is open.

Hey guys, thanks for taking my call. I wanted to ask the first question around seasonality. You talked about how, with your programs diversifying, that the model will start to get less and less seasonal, relative to how you have been in the past. I wanted to drill down a little bit on new customer. Or, excuse me, new school acquisition. Where are you seeing new students most likely to enroll? Is it still around that autumn period, Q1? Or has it shifted with the diversifying of your start dates as well?

So, we still would typically see our largest enrollment periods being in January, and in the September/October timeframe. Some of that has to do with traditional student preference. But, some of it also has to do with when schools offer the cohorts. So, you'll have your largest grouping of cohort launches in those time frames. Otherwise, they wind up a little bit spaced out, depending on the different schools' academic calendars. For example, January is the only month where every program has a launch date. And then, the next would be that September/October timeframe.

Great. And, I wanted to return to this competitive conversation around the University of Florida, that contract being canceled. I think one of the primary reasons given was around the marketing component. Can you talk to us about why the marketing component might be so difficult to pull off? And exactly, where 2U might have competitive advantages around that specific segment of your solution?

Oh Ben, that's an eight-year story. Marketing these university brands at the high level is a bit like, at the elite schools, finding a needle in a haystack. You have to find the right student, not just any student. And so, we've gotten really good at it. And we've, over time, deployed -- it's not just about talent, which our marketing team here I think is the best higher-ed marketing shop in the country. But, it's also about understanding how to leverage the spend to drive the right outcome. And, drive it on the marginal efficiency to 2U and our partners. Just making sure that you're spending the money wisely.

If you don't predict enrollment early in the process when somebody becomes a prospect, you'll spend a ton of money on things that don't work. So it's very difficult to do. And, I've got to tell you, we weren't very good at it in 2009. Whereas, we launched the programs and the degrees, the actual experience the students had was great pretty early on. It's gotten a lot better, but it was pretty good out of the gate.

It took us a long time to get the marketing right and a lot of key personnel. My CMO came from Capital One, where he had $0.5 billion marketing budget, doing intense data-driven marketing of credit cards. And the reality is, it's all about really, really smart use of data. And I think our competitors aren't really there. That's, obviously, good for us. On the other hand, we do think that right now it would be better for everybody if everybody was doing well. Because, preconceived notions of online education are my Company's biggest problem.

So, we'd rather have everybody in the space do well. It's very, very large market. So, we want more positivity around online programs. But I can tell you, the marketing, you go to look at teach.com, or any of our sites, they are very smartly designed. And, our team spends dollars to get the right outcome for our partners. I, obviously, can't comment on what the other guys do, but I know they are not us.

Great, and then lastly, I just wanted to ask a housekeeping question around the 2016 guide, Cathy. You gave the range of 30% to 32% growth, but can you help us understand how you're thinking about price per Full Course Equivalent?

We generally expect price for FCE to be relatively flat, from period to period. Ben, it may move a little bit, depending on what programs we launch and what time frames. But, we don't expect to see any sort of material movement at all.

Great, thanks a lot.

Thank you. Our next question comes from the line of Michael Huang with Needham & Company. Your line is open.

Thanks very much, and sorry for making this call go even longer. But a couple questions here. I certainly appreciate the comment around the satisfaction of your partners. And, it's consistent with our checks. Clearly, there's a potential to do, I think in your script you mentioned multiple renewals with many of your programs. Are there any programs that you're working with today where, you can foresee that they may not renew, given how they're trending? I'm trying to get a sense, right now, on whether or not there are any who might not be going the way that you would want.

You know, not today. Certainly, it's always possible. I can't predict the future. But no, we feel strongly about the overall portfolio. We feel like we have got a group of real happy customers. So, let me give you a short answer.

Perfect. And then my final question here is, can you talk about the progress that you're making around blurring the lines between online and on-campus students? Obviously, there has been some investor questions around whether or not on-campus students and their perceptions of online degrees. It might be forcing some schools to perhaps scale down their enrollment targets. Is that a credible headwind to the enrollment story, here? And, are there things that you're doing here to address that? Thanks very much.

Yes, I would say it has been a credible headwind, from the moment we started the Company until today. It is blowing lower, using the headwind. It is less of a headwind today than it was in 2008. The program that you just heard from Marilyn on, the students effectively had a sit in when we launched it way back in the day, because they were so upset about it. And obviously, at this point, it's become an extremely positive story. But it doesn't start that way. And the reason for that is, people worry that you are going to hurt this thing that they have bled for, and that they care about deeply. Why? Because most of online education isn't very good.

So, until you experience it with the combination of live, with a real network of people with physical placements in the field. And so, I'd say, you look at the advancement of some of the partners, it's pretty awesome what's happening across the portfolio. The GW School of Public Health allowing it's campus students to use the platform to take online classes. You've got the Chapel Hill program, MBA UNC offering what they call MBA for life, where a student that has taken the program can come back at any point and take a campus class, or take an online class, for literally the rest of their life. So, you've got all of this really wonderful blurring of lines. And we think, long-term, that is a big deal for the Company.

But I would never make light of the headwinds. I think one of the reasons you are probably getting the question is, some of the stories around when we launched the Yale program. Honestly, it really was no different than what we've experienced everywhere else. It's just that it was Yale, so it got immediately more attention. And I would also say, because it was physician assistant, where those are disciplines like law, where there's even more sensitivities. We do see that when we launch a program. We're getting much better at addressing it, and it typically involves sharing as much information as possible with the student body and the alums, and the faculty. Just to make everybody more comfortable, that this form of online education is great.

Thanks so much.

Thank you. Our next question comes from the line of Brian Schwartz with Oppenheimer. Your line is open.

Yes, hi. Thank you. I just have one question here this afternoon. Cathy, I just wanted to ask you a question on the sensitivity of your adjusted EBITDA margin guidance for 2016, that you put out here today. I'm just trying to understand when you base that initial target, because you're talking about a significant step up here, in programs, in 2017. Are you basing that target where you are assuming that the high end of your range, of your step up? I'm trying to understand the sensitivity.

Could there be a high-class problem here? Where we come back in 90 days and you've seen all this acceleration and demand in program starts. And then, you need to revise your guidance that you've put out here for 2016. Again, three months from now? So, just trying to get a little more granular color into how you're thinking about setting that initial target that you gave on the adjusted EBITDA margins for next year. Thanks.

So, Brian, I think you should assume that we have been pretty thoughtful about trying to make sure that we don't come back to you and tell you that we're going to do more in 2017. And, therefore, we're going to pull back on that guidance. By nature of the fact that we aren't even to 2016 and we haven't even announced our launch calendar for 2016, being a little bit vague. But, we have certainly thought through what happens if we of certain acceleration scenarios in 2017. And, we've built that into what we're telling you.

Thank you.

I'm showing no further questions at this time. I'd like to turn the call back to Management for closing remarks.

Thank you, everyone. Thanks for joining us for this call. We continue to be very proud of delivering outcomes across this portfolio that make our clients proud, and deliver changed lives for the students in the program. You all know the Back Row, and I'm glad that we're all here stepping out of it. You guys have a great afternoon, or evening, and we'll talk soon.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day.