Good afternoon, everyone, and welcome to 2U, Inc.'s Q3 2022 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, please press star one again. If you should require assistance during the call, please press star followed by zero. As a reminder, today's call is being recorded. At this time, I would like to turn the conference over to Stephen Virostek, Senior Vice President, Investor Relations. Please go ahead. Thank you, and good afternoon, everyone. Welcome to 2U's Q3 2022 earnings conference call. Joining me on the call this afternoon are Chip Paucek, our Co-founder and Chief Executive Officer, and Paul Lalljie, our Chief Financial Officer. 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 live webcast of this call. A replay of the webcast will be made available shortly and will remain available for the next 90 days. Statements made on this call may include forward-looking statements regarding our financial and operating results, plans and objectives of management for future operations, including our strategic realignment plan, the integration of edX and transition to a platform company, anticipated trends for learners and university partners, and other matters. These statements are subject to risks and uncertainties and assumptions. Any forward-looking statements made on this call reflect our analysis as of today, and we have no plans or duty to update them. Please refer to the earnings press release and to the risk factors described in the documents we file with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31st, 2021, and our other SEC filings for information on risks, uncertainties, and assumptions that may cause our actual results to differ materially from those set forth in such statements. In addition, during today's call, we will discuss non-GAAP financial measures, which we believe are useful as supplemental measures of 2U's performance. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. You can find additional disclosures regarding these non-GAAP measures, including reconciliations with comparable GAAP results in our earnings press release and on the investor relations page of our website. With that, let me hand the call over to Chip. Thank you, Steve. We're pleased to report a strong set of results in line with our expectations on the top line and significantly exceeding expectations on the bottom line, with Adjusted EBITDA growing 121% year-over-year. These results reflect the successful execution of our strategic realignment, and most importantly, a winning transition to a platform company under the edX brand. Candidly, all of this despite what's happening in the macro environment. 2U is transitioning most activity to the edX platform, and we're seeing material progress internally and externally on the three things we talked about last quarter. First, we completed our organizational realignment, reducing our expense run rate by $70 million. Second, we implemented a new, more efficient marketing framework reflected in the $18.7 million reduction in variable paid marketing spend from Q2 to Q3. Third, we launched more than 115 new open courses, professional certificates, and micro credentials from 46 unique partners, signed multiple degree programs, and brought six new corporate and university partners to the platform, including UC Riverside and Google Cloud. Total learners on edX also increased to over 46 million. These strategic shifts, combined with the muscle mass, i.e., domain authority of the edX platform, puts us in a strong position to build on our profitability in 2023, bucking the challenging marketing realities that other companies and institutions are experiencing. Let me start with the marketing framework. The steps we took reduced marketing spend by $26.5 million year-over-year and drove down our cost per lead by approximately 30% versus the prior year, resulting in marketing and sales expense as a percent of revenue of roughly 37%. Another important data point for you. As of today, 39% of all organic or free leads generated across the company are from edX. We believe this will be very material to 2023 and to the long-term strategy at play here. Organic leads are very valuable. We typically get over 40% of our students from organic. We expect alternative credentials to benefit the most from this strategy. Why? First, demand is increasing for alternative credentials as learners look for shorter, less expensive options to advance their careers throughout their lifetime. We expect unit economics to improve as a result of this lower cost of acquisition. As a result of that, we believe the alt-cred segment will be profitable next year. The transition to our platform strategy and the execution of our new marketing framework also allows us to deploy marketing dollars more efficiently and more effectively. Here's an example. In executive education, which is part of our alt-cred segment, we reduced spend in Q3 by more than 50% year-over-year, but we still doubled our organic lead flow in that product line. Yes, thanks to the platform, organic leads doubled. Put another way, the number of organic leads we currently get from edX for Exec Ed alone is now larger than the organic leads we get from Google for Exec Ed, and we've only owned edX for 11 months. This type of activity helps us continue to manage down spend in social channels where the spend was less productive, essentially substituting our most expensive channels with free leads from edX and driving down the cost of acquisition overall. This was one of the core parts of our thesis behind the acquisition, and we're starting to see it happen. Why do we not see more revenue growth in the short term? Remember, we chose to eliminate a bunch of less productive spend from our business last quarter, taking a temporary pause in growth to drive better profitability. While the impacts of our platform strategy are nascent in the degree business, our current analysis shows that 10%-15% of enrollments in our MBA programs are edX-registered learners. One of the things this tells us is that pathways between the content on edX already exist today. It also shows us that as we leverage the portfolio of content we have and continue to develop new stackable offerings, we'll position ourselves to better monetize current and new learners while helping them improve their lives and grow their careers. We're finding that leads acquired for 2U products through original 2U channels are up to 3 x more valuable over their lifetime when they become registered learners on edx.org. This is worth mentioning in more detail. 2U has scale. In recent years, we've created over four million new leads annually for original 2U programs. We historically convert 1%-5% of those to various products, from degrees to short courses. What are the other 95%-99% doing? There's a meaningful opportunity to engage and convert those individuals into paid edX learners over their lifetimes. Our platform will be the best at finding, matching, and converting high-intent career advancers, including all of those 2U leads, through meaningful learning pathways that deliver great career outcomes. We expect this will drive revenue at a much lower CAC. As a result of the increased revenue from the 2U-acquired leads, we'll drive more and more content to the edX platform, which in turn we expect will result in more and more learners coming into edX, effectively accelerating our platform flywheel. Which brings me to an update on our pipeline and new flexible offerings. We have a bunch of wins this quarter on the content side, including new pathways, new certificates, new free courses, and new degree offerings, all supported by the platform that not only drive impact but also set us apart from the competition. We continue to have broad and active pipeline discussions for both our full degree bundle as well as an escalating number of conversations on our new flex degrees that we rolled out in July. Our new flexible model for degrees offers a core bundle at 35% and enables partners to select additional elements of our tech and services bundle, including enhanced marketing, support, placement, and content development for incremental rev share on top of the 35% rev share. Importantly, this will not replace our full model. That will remain. The flex model will allow us to continue to aggregate high-quality content on edx.org that we simply couldn't make work in the full model, offering meaningful pathways for learners and driving incremental business. Let me give you an example. We have a new development with one of our oldest partners, the George Washington University Milken Institute School of Public Health. Under Dean Lynn Goldman's leadership, we just signed a brand new doctorate in public health as a new flexible degree offering. This doctorate is a great example of the power of this new model, as it wouldn't be possible in our full degree model. GW will also be offering a new MicroMasters in public health to drive scale and interest in the discipline. The MicroMasters will stack into the existing, very successful, public health masters under the full bundle, which will stack into the new doctorate, ultimately creating a full public health pathway. We have many more of these in negotiation, and we believe the platform strategy overall and things like the flexible model will help us get the degree segment back to growth as we exit 2023. It's also important that the partners that are listening to this call know that in the flex model, we will offer you the same quality of service that made this a world-class company. Original 2U partners see the value and are expanding. The London School of Economics and Political Science just launched its first massive open online course on edX and two MicroBachelors programs, which stack into its undergraduate degrees, also powered by 2U. This is a meaningful part of our product strategy, and we expect to announce more like this soon. A note on the enterprise channel and momentum we're seeing in boot camps. Overall, our edX for Business enterprise unit grew 62% this quarter. Our boot camp product line in particular, which is now rebranded under edX, drives a critical global need and has a significant growth plan ahead for government and business. As one example, this quarter we announced a partnership with the United Kingdom Department for Education, where they will fund 1,200 seats for a fully online skills boot camp in front-end web development. The boot camp is part of the UK government's Skills for Life initiative, focused on investing in lifelong learning and skills training. All boot camp participants will have access to edX's Career Engagement Network, which provides comprehensive career support. It's going very well and was valued at up to GBP 4.8 million. Local and federal governments worldwide are in need of this, and we think that's a huge potential growth area for edX for Business for 2023. Overall, in the face of complex market dynamics, our transition to a platform company and corresponding focus on profitability is showing good signs of success. We delivered record profitability with Adjusted EBITDA of $32.5 million and EBITDA margin of 14%. Our quarterly results increase our confidence in our strategy and our 2022 EBITDA outlook, which Paul will now cover in more detail. Take it away, Paul. Thanks, Chip, and good afternoon, everyone. As Chip mentioned, we delivered a strong quarter. I was particularly pleased with our record Adjusted EBITDA of $32.5 million, reflecting the execution of our platform strategy and our strategic realignment plan. These results give us the confidence to increase our Adjusted EBITDA guidance for the year while positioning us for a strong 2023. Starting with the top line, revenue for the quarter totaled $232.2 million, flat when compared to the Q3 of 2021. Full course equivalent enrollments, or FCEs, came in just over 80,000 for the quarter, reflecting a 3% increase on a year-over-year basis, while average revenue per FCE declined at 5% compared to the Q3 of 2021, primarily driven by mix. Revenue for our degree program segment decreased 7% compared to the Q3 of last year, driven by a 1% decline in FCE enrollments and a 6% decline in average revenue per FCE, reflecting a greater percentage of lower cost edX masters and undergraduate programs. In our alternative credential segment, revenue increased 12% compared to the Q3 of last year, reflecting the inclusion of legacy edX offerings, a 15% increase in FCE enrollments, and an 8% decline in average revenue per FCE. Strong revenue growth in the alternative credential segment was driven by a 17% increase in bootcamp revenue, particularly our web development, cybersecurity, and enterprise offerings. As expected, revenue from our Exec Ed business declined as we implemented the new marketing framework and focused on our more profitable Exec Ed offerings. Now for a discussion of operating expenses. For the Q3, operating expense totaled $336.5 million, up from $275.9 million in the Q3 of 2021. This $60.6 million increase includes $17 million of operating expense related to edX, which was acquired in the fourth quarter of last year, and a non-cash impairment charge of $79.5 million. To elaborate on the non-cash impairment charge, based on the continued decline in our stock price, and as a result, our market capitalization, we determined that a triggering event for an impairment analysis had occurred. This evaluation led to a $50.2 million write-down of certain goodwill assets and a $29.3 million reduction of intangible assets. On our Q2 call, we shared our plans for accelerating our platform strategy centered around edX As part of this strategy, we implemented a higher bar for return on paid marketing spend and began seeing a positive impact this quarter. For example, marketing and sales as a percent of revenue came in at 40.6% for the quarter, a decline of more than 1,000 basis points on a year-over-year basis. This decrease was largely driven by a $26.5 million decrease in paid marketing costs. Without non-cash items, such as stock-based compensation and D&A, marketing and sales as a percent of revenue came in at 37% for the quarter. During the quarter, we recorded $11.6 million of restructuring charges, up $6.2 million compared to the Q3 of last year. These charges included $9.3 million associated with real estate consolidation. On a year-to-date basis, we recorded $29.2 million of restructuring charges. Before I move off of expenses, let me highlight three things. One, in the Q3, we completed the cost takeout actions we discussed last quarter, which we expect to result in operating expense savings of $70 million on an annual basis. Two, we are more efficient in marketing and sales expense. 41% of revenue this quarter versus 48% last quarter. Three, we expect our total restructuring costs to be within our estimates that we outlined last quarter. Turning to our profitability measures. Adjusted EBITDA for the quarter increased $17.8 million to $32.5 million or a 121% improvement when compared to the Q3 of last year. Our Adjusted EBITDA margin increased 760 basis points to 14% compared with the last quarter of last year. This sustainable improvement shows the early benefits of our platform strategy and the strategic realignment. Segment profitability or Adjusted EBITDA for the degree program segment was $44.9 million, a 32.7% margin. When compared to the prior year, segment profitability increased by 36% while the margin increased by 1,040 basis points. For our alternative credential segment loss or Adjusted EBITDA came in at $12.4 million, a $5.8 million dollar improvement compared to the Q3 of 2021. Segment profitability margin of -13% improved by 850 basis points compared to the Q3 of 2021. Now for a discussion of the balance sheet and cash flow statement. We ended the quarter with cash and cash equivalents of $185.2 million, a decrease of $68.8 million from the end of 2021, and $52.6 million sequentially. The year-to-date variance is largely due to CapEx and interest, while the sequential decline primarily reflects higher receivables and lower payables. Our accounts receivable balance of $97.2 million increased $27.3 million from the June 30th quarter. Fluctuations in our accounts receivable balance reflect the seasonal timing of payments from our university partners, which often matches the academic calendar. Accounts payable and accrued expenses of $133.4 million decreased $16.7 million from the June 30th quarter. These networking capital trends drove a use of $1.3 million in unlevered free cash flow as compared with $11.5 million for the trailing 12 months and the June 30th, 2022. We ended the quarter with gross debt of $948.1 million, consisting of $568 million from a secured term loan and $380 million in convertible senior notes. The term loan has a maturity date of December 2024, while the convertible notes will mature in May 2025. On the topic of debt, we are actively evaluating options to opportunistically refinance our term loan. We are making good progress, and we are optimistic in our ability to get a transaction done in the coming quarters, mainly because of the significant EBITDA expansion we saw in the Q3 and are expecting going forward. Now for a discussion of 2022 guidance. Our priorities for the rest of 2022 remain the same. One, increase Adjusted EBITDA. Two, improve free cash flow. Three, continue to transition to a platform company. Today, we are affirming our revenue guidance for 2022, which calls for revenue to exceed $960 million. We are increasing our Adjusted EBITDA guidance to range from $115 million-$117 million, which, at the midpoint, is 5% higher than the midpoint of our prior guidance on a 74% increase on a year-over-year basis. While we're not providing guidance for 2023, we are reiterating our commitment to a target of at least $150 million of Adjusted EBITDA for 2023. Why do we believe this target is achievable? Well, we've completed the cost takeouts in the quarter, reducing our run rate expense. We're seeing strong performance in our new marketing framework, lowering our marketing spend, and we're seeing early success from the edX platform, with 39% of all organic leads coming from the edX platform. In addition, for 2022, we expect capital expenditures to be approximately $70 million and weighted average shares outstanding to be approximately 78 million. To conclude, I'm thrilled with how much we've accomplished in the last three months. We took bold steps. We implemented a new, more efficient marketing framework, eliminated silos, increased agility, and reduced costs, expanded our market presence with new offerings that leverage the power of our edX platform and increase the value of learners over their lifetime. Most importantly, we're proud of delivering record Adjusted EBITDA and margins. Looking forward, 2U is well-positioned to drive more learners and content to the edX platform, delivering profitable revenue growth over time, a truly scalable business. With that, let me hand the call back to the operator for questions. Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile a Q&A roster. Our first question comes from George Tong from Goldman Sachs. Please go ahead, your line is open. Hi. Thanks. Good morning. Good afternoon. You beat on the bottom line against your own expectations. You effectively took out the $70 million of expenses on restructuring. Because of more efficient marketing, you saw a reduction quarter-over-quarter in paid and variable marketing spend. Trying to understand where, in your view, did the upside in profitability come from? Which specific areas of the business surprised you with the upside in terms of cost efficiency, and how would you think about that surprise carrying forward, in its sustainability? George, let me start off here, and Chip will augment a little bit as we go through this. Look, first of all, I think, personnel and personnel-related expense is one of the areas that we saw, an improvement on the cost side of the equation. In terms of the two operating segments, the degree segment, you know, with 32-something% EBITDA margin for the quarter, Adjusted EBITDA margin for the quarter is definitely an area that drove overall EBITDA improvement. In the alternative credential segment, there was significant improvement on the year-over-year basis and on a sequential basis. If we look at this in totality as we go forward, we're gonna see cost efficiencies in three general areas. We're gonna see it in personnel-related expense. We're gonna see it in the variable or paid marketing spend, and we're gonna see it in areas such as real estate and also in areas in terms of leveraging the infrastructure that we have as an organization. The first two are the main areas that you should expect going forward. George, what I would add to that is, you know, the organic lead production for our Exec Ed business and even for our bootcamp business that's coming off the platform is non-trivial. Bootcamp is a huge growth opportunity. We do think we'll get a lot of growth there next year in 2023. You know, you might have noticed we transitioned all the bootcamps to edX, so that allows us to do a bunch of things that we were not able to do before, including offering a variety of alternative credentials across each lead that comes in the door. That's something that it's clear to us that investors don't understand. It's one thing to think about the leads coming off of the edX platform, and it's another to think about the scale and power of the 2U side going into edX. You know, on an individual basis, we've recruited people for a single-point solution over our entire history, and we're really good at it. Ultimately, when they enroll in something, they have a life-changing experience, and that's the most important thing. When they don't enroll, it's a very large percentage of people that ultimately will convert into something else, and historically that's been off of our platform 'cause we didn't have a platform. Now we have a platform to convert those people. That organic lead percentage is something that we'll talk about a lot more over the next year. As we get to what is now going to be a planned March investor day, after we finish our 10-K, we feel like we'll have a lot to talk about how the scale of the platform is working to our benefit to drive down costs. You heard me mention that you'll see it first in alt cred. You know, alt cred, everyone will like it a lot more when it's got a lot lower CAC. Yep, that makes a lot of sense. You're right now pushing forward with your platform strategy. You're seeing the efficiencies with respect to marketing, and your organic leads are coming in stronger than expected. When would you expect that to create a flywheel to help drive re-accelerating revenue growth? Now you're sort of in this phase where you're optimizing margins. When will the story shift back to a growth acceleration once- Yeah, I mean. Once that flywheel starts to spin? You know, last call, we announced, you know, a bunch of things that, you know, it was a very complicated period from the standpoint of reorganizing the entire company, changing the entire marketing framework, and in doing so, clearly taking a pause from growth in order to focus on profitability, which given where the company is and given where the market is overall, I don't mean the stock market, I mean the world, like, we thought that was a really, prudent and proper thing to do. We do think we're starting to get the benefit of it now. Clearly that creates a moment in time where we're taking a pause from growth, you know, small single-digit growth, and we do like our odds of seeing growth improve as we get into the next year, and you know, should be able to start seeing that flywheel produce. The whole notion of matching people into a pathway, it's clear at this stage. I'll give you an example of something, George, that had a really substantial impact this quarter, is we started geo-pricing a variety of the edX, sorry, Exec Ed courses, the short courses that you might have known as the original GetSmarter courses. It worked fabulously. EdX has a very large amount of international traffic, and the reality is, as we could start geo-pricing in that business line, we found conversion got substantially better in those markets for those courses, we were able to do it. We think that's just one example. There's a bunch of levers that we have to execute on across the business, and that is certainly one of them. Ultimately it gives us a great opportunity to you know, improve revenue growth as we get into 2023. You know, our flexible degree model should be able to get us additional growth in the degree business as we take a pause on some of the pieces in degree that, you know, where we reduced spend. The final growth lever, I would say enterprise, 62% on the quarter, non-trivial, right? Now it's getting to be a meaningful number. You know, a year ago it was high growth, but nobody cared because we're pretty big and it was a small number overall. It's now getting to be non-trivial. We've got an entire team focused on that, and we do like what it means. You know, if you think about what we announced with the UK government, the Department for Education in the UK, reskilling and upskilling is a worldwide need. You know, candidly, nobody is doing it at scale. We really are. You know, we think we have the largest bootcamp business in, you know, on the planet. We think that opportunity to work with local governments and enterprises with a product that ultimately helps people fully transition into a new role is a big deal. Great. Very helpful. Thank you. Our next question comes from Josh Baer from Morgan Stanley. Please go ahead, your line is open. Hey guys, this is Matt Saltzman on for Josh Baer tonight. Thanks for taking the question. With regard to edX, I think the reorg and the operational efficiencies are very clear. I just have kind of a broader strategic question just around the strategy going forward. Are there specific ways that you guys are attracting partners to create new content on the platform, new domains that's going to help bring some of those new learners to the platform? I think it's, you know, it's great to hear about the organic leads that are coming through, but I'm just curious how you guys are gonna continue that momentum. Well, you know, since we acquired edX, we've released over 500 new massive open online courses. You're talking about a lot of content, a lot of new content. We wanna make sure that the full edX community of partners, both university partners and corporate partners, know how committed we are to continue to growing the platform, and that all starts with great new free courses. We also announced a whole variety of different professional certs, different corporate partners like Google Cloud, the Web3 Foundation. Like, there's a bunch of new content, and we do think you'll see that accelerate over the next year. Like, we're working on a whole bunch of new partners, new content, and, you know, the flex model on the degree side allows us to really aggregate great degrees without the J-curve that you've historically seen in our degree business. We think you'll see an acceleration of launches on the degree side, making it clear that we're still doing full degrees. We've got a couple of those we're about to get out there. Not everything's meant for a full degree model because that includes paid marketing, and if you're gonna include paid marketing, it's gotta scale. Number one, some schools don't want really big scale. Number two, not every program will have really large scale. It's a great opportunity for us to have more degrees to offer to more students, both here and in the international markets. Like our new relationship with the University of Sydney is doing incredibly well out of the gate. You know, we're all in on just the notion of free to degree and having steps along the way. What we need to do is just continue to develop the right technology and the right infrastructure to match people on their pathway. You know, you can see it in a variety of places. The website itself, edX.org, is really changing pretty rapidly with a large amount of production of new pages, new course pages, new learn focus pages on disciplines like machine learning and things that are of high value to folks. That all just drives greater share of voice on the web. edX has the kinda muscle mass on the internet that 2U's never had before, but I will tell you, we have, I think, the single best team in higher ed at monetizing educational traffic, so that's a really nice combination. It, you know, took a while for it to start to show, you know, it's really starting to show. Got it. Thank you. Appreciate the thorough answer. Our next question comes from Ryan MacDonald from Needham & Company. Please go ahead, your line is open. Hi, Chip and Paul. Thanks for taking my question, and congrats on all the great progress you've made this quarter. You know, maybe I'd like. Thanks, Ryan. To go back and ask enrollments. You know, obviously we're seeing in the fall numbers that grad enrollments are declining, but you know, I'd be curious, you know, given the pipeline activity you're talking about, a lot of new programs coming out, I'd be curious to hear what you're seeing in terms of new applications as you think about the 2023 cohorts and, you know, whether or not sort of the tough macro is translating into sort of a tailwind to enrollment at all. Yeah. You know, Ryan, it's interesting. Everybody's degree business really across the entire industry declined. Ours is pretty resilient. We did see a little bit of decline, but pretty resilient in part. More than half of our business is helping hands disciplines or licensure-focused disciplines, and those tend to have a little bit more resiliency. The macro is tough on degree in general. You know, as the job market starts to get worse, not to root for layoffs for the world, but the reality is that is definitively good for the degree business. Higher ed has a long history of that. We do think as the economy gets tougher, we're probably exiting one of the hardest demand environments for really in the history of the degree space overall. We think we're probably likely heading into rougher waters for the world, but clearer waters for the degree business, if that makes sense. Now the flip side of that is we're definitely seeing on the front end, the boot camp side in particular is really cooking. And that actually does sync historically where job-focused programs do typically get the boost first. You know, as you mentioned, we do think this flex model is meaningful, launching many of those programs, while they won't be as large, we do think that they will be profitable, nicely profitable. And we also think that, you know, they don't have the kinda J-curve associated with, you know, the cash burn because the course build is on the university side, and the paid marketing is different. You know, the share of voice we can achieve on Google now is meaningful, because of the platform. Really like what that strategy means for getting the degree business back to growth in 2024. In 2023, we are gonna grow, to be clear, and we're gonna grow faster than we just grew this year. We do like the direction of parts of the business, not just enterprise. The reality is all degree businesses have been in a bit of a tough tape here. We thought ours was, you know, pretty good given the circumstances. Yeah. Very much so. That's helpful. Then, you know, on the flex programs, You know, it's great to hear about the strong pipeline you're building, but I'm curious how it's altering the conversations with existing partners. You know, I guess, should we expect. You know, does this create an opportunity for early renewals and expansions of existing contracts? If so, should investors expect any sort of transitional period from the modeling perspective as they shift from maybe the traditional model to a flex? Thanks. In general, Ryan, full and flex will coexist. Somebody having a full program, the flex existing doesn't mean all of those schools are running to a flex program. That's not the case. Our partners understand for the most part, if something is large, if it's a program that is really meaningful to the partner and to 2U, they understand that you can't get there without the scale that the paid marketing brings to the table. You know, we've got really stable partnerships across the board. Partners are in a good place. The GW example is a great example of, like, where this flex model does come to bear for a current client. You heard me mention in the prepared remarks that that doctorate would not have been able to work in the full model, and there's a reason. Like, that it's just not simply gonna get to the size that you would need to make that J-curve function properly, to make it work financially. The reality is, that's one that we love deploying flex for GW into a high-quality program today that has a really strong full degree model in the Master of Public Health, and then putting a doctorate in for the program is great. I think you'll see a lot more of that. We've had quite a bit of interest from. You know, not every faculty group at every university partner we work with wants to scale to, you know, 500 or 700 or whatever the number is of students. But many of them might have 50 or 75 students, and they might want 50 or 75 more. And that is perfect opportunity for flex and for 2U just to build a bigger and bigger portfolio of high-quality degree programs. We do think it's really relevant. Now, you heard me mention that you will see us launch additional full programs because we do think that there's still great opportunity. One of the things COVID did do is sending everybody online. Clearly, the days of debating whether you should go online are over. We think flex is a great way to capture some of that demand under the 2U/edX platform. Excellent. I appreciate the color. Congratulations. I guess one other comment I would mention is that we're still pretty far away from renewal periods in the degrees. As you know, we went through a wave of renewing early a bunch of degrees, so we don't have any renewals of any kind until 2025 and later. We feel good about where we are with the existing clients. Our next question comes from Jeff, Jeffrey Silber from BMO Capital Markets. Please go ahead. Your line is open. Thanks so much. Just to follow up on the last question and focusing on the degree segment. When you go to market, do you go to market specifically with this flex degree schedule? Do you go to market with your full-service program? Can you talk a little bit about the strategy there? Sure, Jeff. We do both. We really are. You know, we've got opportunities for. You know, it puts us in a lot of conversations that we weren't in before. The full model, you know, the reality is we didn't wanna deploy the full model at many places in our existing university base, or many places that were new because those programs wouldn't have gotten to the scale that would really matter, in terms of the ROI that we need to see. You know, if you're gonna put in $5 million-$10 million in net negative cash over the first four years, that program's gotta get really big. So we show up with a much broader menu of options for the school. That is really working. You notice I used the word escalating number of flex programs. We're excited about what that means for the number of programs we can sign over the next, you know, 12 months. There are some places, Jeff, where there's a great opportunity for a program that does want scale, is really interested in scale, or might wanna disruptively price something and get really, really big. You know, the notion of a degree program like the very successful Boston University MBA, we do think there'll be more of those types of programs. It just gives us a much broader menu of things to go to market with on the degree side. Now, one of the things we've had to do, Jeff, is as we've reorged the company, like reorging all of our activity under key leaders across the business so it's not siloed. You know, we're really excited about what, some of these professional certs, like the Google Cloud cert, what they mean for the business or the London School of Economics announcement. Like, you know, Jeff, you might remember LSE was a GetSmarter client, right when we bought the company. Hadn't done anything with 2U, and you know, you fast-forward now today, I was so proud to host the executive director of LSE here at headquarters. You know, it's an incredible client, and they just announced their first massive open online course in math. Math is a huge need for the world, so that could be a very large massive open online course. What's great is then it basically paths into a MicroBachelors, which gives somebody a good certificate and drives revenue for the school and for 2U. It passed into our nine undergraduate programs. The best part of it is those undergraduate programs. Why does somebody stall in the current funnel that we have for 2U? They typically stall because they don't have the math requirement. Like, that's how to change the world and drive a great business at the same time. You know, it's not just about the degrees anymore. I think this community of people should be assured that we're very focused on the right things in terms of the bottom line. We're willing to say today that all credit will be profitable next year. I'll tell you, when you bring in a bunch of students that have a successful outcome, and ultimately there's no CAC, everybody's gonna like it a lot more. Right. That's great to hear. My follow-up question, I know you're not giving guidance for next year. You did talk a little bit about your goals, so one of the things I know last quarter was your cadence to get to positive free cash flow. I think you said you hope to get there, you know, on a run rate by the end of this year and then continue with 2023. Is that something we should still be expecting? Jeff, absolutely. I mean, if you look at the numbers that we have here that we delivered this quarter, and then the midpoint of the guidance exiting this year, 160, it sets us up nicely for an EBITDA number next year to achieve the 150. And then if we do some reconciliations in the 150, if CapEx is coming in somewhere, you know, $60 million-$70 million, anywhere between that, and then assuming net working capital close to zero or, you know, if anything a use of about $10 million as we roll through some of the restructuring charges that go through that fall over into next year. I mean, you're looking easily at a cash flow number on a full year basis that is somewhere between $10 million-$20 million. That is assuming an increased interest payment in calendar year 2023. The bottom line is, we are still. Our plan is still to exit the year, if you take the month of December, multiply by 12, cash flow positive. Probably more importantly, our visibility into the 150, as we exit the year, we've completed the cost realignment activities over the summer. Those are all behind us. We've done some of the real estate work, and we have some perfunctory aspects left. When we put those pieces together, we're still very confident in a 150 and feel good about crossing over to free cash flow next year. All right. That's great to hear. Thanks so much. Our next question comes from Brett Knoblauch from Cantor Fitzgerald. Please go ahead. Your line is open. Hi guys. Thanks for taking my question. I think you guys started the year with, I think, 7,200 employees. I guess regarding the headcount reduction, I guess how many employees are you at now? Where do you see that trending over the medium term? Is headcount reduction off the table? Brett, did you say 7,200? We don't have anywhere near 7,200 employees. Just wanna make sure FTEs, so it might be including part-time. There was 3,900 full-time, 3,200 part-time. Got it. Okay. Got it. Okay. Got it. Sorry. You know, obviously, part-time employees come in and out of our business based on instructors for boot camps and the alt-cred segment. You know, we decreased overall personnel expenses by 20%, compared to our budget, and feel that we're, you know. There's nothing harder to do as an executive team than that. We are very happy to be ahead of it. We did it. I was very proud of the team. We did it very quickly and effectively. Now, you know, we are focusing the company on all the positives related to where we stand in the market and how great we think the opportunity ahead of the company is right now. The reality is like, I mean, right now I feel like we're at IPO again. You know, I feel like the company has an incredible runway ahead of it. You know, getting there with greater efficiency was important, but I think you could reasonably argue that while the cost savings was really important, getting to a point of, you know, increasing our speed, increasing our decision-making time, upping our risk tolerance to make those decisions quickly has been huge. I think we've been operating really effectively over the last three or four months. Very proud of that top line. Paul, maybe on the segment margin as we look out to next year. You know, on the degree side, it was very strong this quarter. I'm guessing we should expect that to be over 30% next year with the kind of AC or I guess with your guidance for Q4, it seems like AC is gonna be close to breakeven in this Q4, which sets up nice for next year. Am I thinking about that right? Brett, a couple of things. Let's remember that there is some seasonality in the business, so we do expect the fourth quarter to have higher margins. That's something we've seen seasonally over the years. The degree business in particular should show higher margins as you get into next quarter. Then first and Q2, generally, that's where we do most of our spend and most of our build in a given calendar year. You should expect some contraction as you get into those periods. Look, we haven't done the bottoms-up work in 2023 as yet. We haven't gone through a completed budgeting process yet for the next calendar year. I think you're thinking about it generally the right way. I think the biggest leverage that you'll see or the biggest change that you'll see is in the alternative credential segment. That is the one where you'll see the significant movement, and then the degree business will simply follow its natural course. As you know, if you look at it from a cohort perspective We have more of our degree programs that are in that mature cohort that we should expect to be 33% or above from a fully loaded margin perspective. In combination, that will flow through to a consolidated margin profile throughout the year. The alt-cred business is the one where we'll see the significant improvement on a year-over-year basis. Understood. Appreciate it. Thanks, guys. Our next question comes from Jeffrey Meuler from Baird. Please go ahead. Your line is open. Yes. Thank you. The 2023 revenue commentary is more positive than I was expecting at this point of the transition. Is that all about the organic lead quantity and quality and synergies? Or is there also a learning in terms of what you're seeing in the paid lead channel, and how efficiently or effectively you're able to cut marketing spend in that part of the business without seeing too negative of an impact on paid leads and conversions? I mean, Jeff, when we made the marketing change, you know, we were doing it with a ton of analysis from what I think is the best team in the United States to do that. They are very good. It was all obviously estimates. Did we know exactly how the efficiency was gonna come out? No. Which is why we're pleased to keep our revenue guidance in line. We, you know, we're seeing that we can drive some greater efficiency on the bottom line. That's worked out as hoped, or better than hoped. You know, obviously, as I mentioned, the degree business, it's tricky time for everybody's degree businesses. I mean, we're the last to report in this cycle, I think, and obviously everybody had declines, and a lot of those businesses are a lot smaller than ours. You know, we do think going into next year, you have some things like our boot camp business, which is just really getting impressive, and enterprise is meaningful. There's an entire arc of activity around both government and the enterprise side of the shop that is in a, you know, really good place for what we think, you know, means meaningful growth for next year. We have a lot to do, Jeff. You know, I'm very proud of what the team has done. You know, we're early days of, like, the expansion on the web and on edX in particular. You know, there's an entire project called Lead to Learner that is really powerful. People don't fully appreciate, like, you know, over four million leads that come into 2U that are super high intent, by the way. These are people that have said, "I would like you to contact me about a master in data science from blank." Ultimately, only 1% of those on the degree side ultimately convert. The other 99% are most of the time doing something, and historically, we've not had the opportunity to talk to them about that. Now we're going to. Like, you know, in some ways, the 2U going into edX might be more powerful than the edX going to 2U, but it's early days of that. I feel so bullish about the team that's doing it and, you know, we're starting to see it, is the point. Like, we're actually starting to see it. You can see it happening. We believed it when we bought edX, but we're now at a point where, like, you know, you can really see it happening. It's easy to get excited about what, you know, 2024 and 2025 start to look like. You know, that's why we did this. It's also getting harder and harder to convert people the way that you might have, you know, five, six years ago on the web. Like, Google's gotten smarter about search. The old way of aggregating people under sort of SEO-based websites, that's getting harder and harder. EdX has, you know, so many different opportunities for us to publish high-quality content and then help people find a pathway from that content into something that changes their lives. Like, matching people into pathways is the entire story of 2023 and 2024. Got it. You have slide four, like the 15% EBITDA margin target. We have your qualitative growth commentary from a revenue perspective. I guess just on the $150 of EBITDA that you're targeting in 2023, how much protection is there on being able to achieve that in a weaker revenue environment, should the degree business remain challenging? Just like, how close to $1 billion qualitatively do you need to be for that to be an achievable figure? A couple of things, Jeff. If we were to take the $70 million of cost reductions, cost takeout, the activities of the summer, and we look at the guidance that we've provided for this year of $116. If one were to assume that we had taken out that $70 million on January 1, I mean, you're getting pretty close to that 150. To some extent, we have protected ourselves in terms of how we're getting to the 150 and not depending too much on a top-line performance to get there. However, as we sit here today, we don't expect the top line next year to decline on a year-over-year basis. For the company, right? We're expecting growth, and it's a matter of how much growth, and that will depend on, you know, as we go through our planning process here for 2023, we're gonna come up with some refinements on that. But the bottom line is that the mere fact that we had the confidence to give the $150, we feel better about it now. It is not a number that is dependent on hitting a certain revenue number in order to make it happen. I think we can see clearly the path there. You know our business, right? We have tremendous visibility into next year from a degree program perspective, particularly with long-term contracts, particularly with returning students. You know, we kinda have tremendous visibility into a significant portion. You know, we're We feel good about the performance that we've seen from the bootcamp business, particularly with the platform strategy and the new framework. That's been performing very well. We have enterprise, government, and social, and we put those pieces together, we feel good about our trajectory for next year. It's a matter of refining it. Yeah, Jeff, I guess what I would add is you know, when we think about next year and that $150, we certainly weren't presuming strength in the degree segment when we gave you that $150. We feel like we've got real strength in bootcamp. If the world gets a little less friendly and degree gets better for us, yay. That's not what we, you know, we're not planning on that today. We're pretty comfortable with where we are and feel very good about that $150, that floor of $150. Oh, understood. Just last from me. Paul, interest rates have moved up a lot since you entered the term loans. I understand it's preliminary discussions, but when you're saying you're talking about refinancing that debt, is it about extending the remaining duration or is there actually some conversation that you might be able to get a lower rate on the debt because you're an improved credit with the profitability improvement? I mean, of course, improving the credit quality and looking at better terms is definitely something that we're looking at. And with the production, with the EBITDA expansion that we're expecting next year, those are the types of things that are giving us the optimism that we're seeing in terms of getting it extended and also focusing on terms that can help us, whether it's a cap, whether it's reduced rates. All those types of things are on the table. The bottom line is we wanna make sure we take that risk off the table. That is somewhat a perceived risk because at the end of the day, look, we've you know. By the time we get to next quarter and exit the year, we believe we have good liquidity, strong liquidity from a business perspective, you know, close to $200 million of cash exiting the year. We should hopefully be generating cash next year. It's a matter of just getting the maturities extended where we wanna get it and protect ourselves from fluctuating interest rates as you started out. Jeff, just a plug for everybody else on the call. I would love, I appreciate you pointing out slide four in the earnings presentation because I do think it's super meaningful in terms of what it says about where the company is today. The margin progression from IPO till now, the percent of sales and marketing, from IPO till now, we think it's a slide that people should pay attention to. Marketing and sales, 37% of revenue. We said we were gonna do it, we're there. We're there. Right. All right. Thanks for taking my questions. Appreciate it, Jeff. We have no further questions in queue. I'd like to turn the call back over to Stephen Virostek for closing remarks. I want to thank everyone for joining us on today's call. If you have follow-up questions, please reach out to me at Investor Relations. Have a great day. This concludes today's conference call.