Hello, welcome to the 2U, Inc. Second Quarter 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. I will now turn the conference over to Mr. Steve Virostek, Head of Investor Relations. Please go ahead. Thank you, Sarah. Good afternoon, everyone, and welcome to 2U's Second Quarter 2023 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. Our earnings press release and slide presentation are available on the investor relations website, and a replay of this webcast will be made available later today. Following our prepared remarks, we will take questions. Statements made on this call will include forward-looking statements regarding our financial and operating results, plans and objectives for management, for future operations, the implementation of our platform strategy, anticipated trends for learners and university partners, changes in laws, regulations, and agency guidance for our industry and other matters. These statements are subject to risks, uncertainties, and assumptions. Any forward-looking statements made on this call reflect our analysis as of today. We have no plans or duty to update them. Please refer to the earnings press release and to the risk factors described in our documents filed with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2022, and 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 a substitute for or in isolation from, our 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 to Chip. Thanks, Steve. We had a strong Q2. Notably, we sustained double-digit EBITDA margins, continued to drive down costs, and increased organic leads from the edX platform to 44%. We believe the business is moving strongly in the right direction due to our platform strategy. As a result, we're increasing our bottom-line guidance for the full year while reiterating our top line. We did have some revenue shift from Q2 to later in the year, something Paul will cover in detail. I'll provide more color on our full year expectations in a moment, but first, I want to give some commentary on the EdTech sector as a whole and our strategy. EdTech is critical for the future of society. The need for high-quality education is only increasing. Digital penetration is low, and it's a massive global market. It's becoming more clear to me by the day that our strategy is the correct one to achieve preeminence in our space. We're the only company that can deliver outcomes at scale, outcomes, because we built an apparatus that delivers the hard parts, many of which are driven not just by tech, but also by people. It's my belief that AI will only accelerate this differentiation. Everyone knows with the edX acquisition, we moved to a platform strategy. This brings us closer to the consumer, lowers our costs, and generates lots of new revenue synergy. To attack it properly, we reorganized our team, and we continue to do so actively. We believe this is creating long-term, sustainable profitability. Part of transitioning to a platform company involves rotating our offerings, adapting and growing our products by the day to be better suited to the long-term needs of our customers, both universities and students. Think of this rotation as us turning dials, creating greater emphasis on certain attributes that are critical to the long-term future of our platform. As I see it, there are five keys to this rotation. First, we've been expanding from highly selective and expensive programs to those with greater access and affordability. You will see 2U continue to aggressively manage our portfolio to better suit the evolving needs of our customer base. Second, we're rotating and have been for some time now, from degree to non-degree. In 2024, for the first time, we expect our alternative credentials will be larger than our degree business. Our acquisitions of GetSmarter and Trilogy were critical here. Third, we're rotating from reaching consumers to serving enterprises and governments, therefore gaining access to larger addressable market with an extremely efficient model. You'll see 2U continue to focus on growing the enterprise business with a series of offerings that make us unique in the space. Enterprise revenue grew 35% this quarter. We expect continued strong growth in the future. Fourth, we're rotating to more frequent purchases. We're doing a better job moving from single purchases to a subscription-based model. While in its infancy, we believe subscriptions, particularly for enterprise markets, will be an increasingly important part of our business in 2024 and 2025. Fifth, finally, we're continuing to diversify the content base to include content created by industry leaders. Our content acquisition strategy is bearing incredible fruit. Course launches on edX are up 56% year-over-year. The vast majority of these deals are very CapEx light, given that course build is not part of most of these launches. To deliver this strategy, we must continuously evaluate our current portfolio of offerings and at times, exit programs that do not fit. We've managed our portfolio in this manner for a few years now, and we've discussed some of those in the past, and we'll continue rotating the dial towards evolving student needs. We've always been laser-focused on delivering offerings that drive a positive ROI for the student, the university, and 2U. That's not changing at all. In fact, reexamining our programs regularly through portfolio management helps ensure that we continue to deliver on that promise. When managing our portfolio, we think about four key factors: One, the financial health of the program. Two, efficient resource allocation. Three, debt-to-earnings ratios of programs, and four, the strategic importance of the relationship with the partner. Proper portfolio management creates greater value for not just the students, but ultimately for our shareholders. Of note for the quarter, we expected to sunset some programs in Q2, which would have resulted in significant additional revenue in the quarter. These were pushed into the back half of the year. We're confident they will close, which makes us continue to feel very good about our full year expectations. Before I move on, I want to highlight two notable degree developments. Our new signings are occurring at a pace that we've never seen before, due to our recently unveiled flex revenue share model. We're seeing a radical increase in demand for this model. This is part of our previously discussed rotation, bringing in programs that meet a market need and have attractive pricing. The new flex model offers the university a variety of revenue share-based bundles to select from and has been a home run. We've really never seen anything like this. It allows us to aggregate degrees on the platform and bring in new programs that are attractive to students, either because the cost is lower, better pathways exist into the programs, or both. Also note, this model is very CapEx-like compared to our full bundle, as course build is not typically purchased by the university. Note, universities generally prefer the core flex model, plus paid marketing, netting out at 50%. Demand for the flex model means we're ramping up launches. I'm pleased to announce that we're doubling our degree cadence for 2024 launches, from our previously announced target of 25 programs to at least 50 programs. You may remember that our largest ever launch year was 17 programs. 50 is really something, and a 130% increase over our historic high. Universities clearly want revenue share deals, and the current regulatory climate is not dissuading them. Universities have spoken out aggressively in support of revenue sharing. We're confident with our short and long-term plans to navigate the regulatory environment properly. Regardless, we also wanted to create an option in our toolkit for a new model that isn't built on a revenue share for any schools that might not want revenue sharing. We're excited to announce our flat fee model. Our flat fee is an innovative non-revenue share-based model. In this model, we charge a simple flat fee for our standard, standard services across the board based on the particular program and services we expect to provide. This flat fee would include a shorter-term contract of three-five years. Instead of a long-term revenue sharing model, 2U would price the program competitively to what might be available in the market to universities on a fee or revenue share basis, doing it based on our proprietary formula and betting on ourselves for renewal upon success of the first term. We can do this because of the combo of our excellent operating history and our platform strategy. This flat fee will not suffer from the never-ending list of charges schools face in a fee-for-service relationship. One of the main positives for 2U is the flat fee revenue will be extremely predictable. It's a fixed, guaranteed fee. In addition, I think it'll be very difficult for competitors to replicate. We have the track record to sell it, the operating history to price it, and believe the response will be strong based on initial conversations. Note, we believe this model will be profitable, will be as profitable as our flex revenue share model, but will have a much smaller cash burn. To be crystal clear, we believe that revenue sharing will continue to be an important part of the ecosystem, we think this flat fee fits nicely with our revenue-sharing models. A few notable developments on our other product lines. Our boot camp business continues to grow and innovate, although we've seen some softening in the coding sector. We're in a bit of a tech recession in terms of jobs, that is having some impact. Fortunately, the new AI boot camp is off to a great start. It's also notable that the boot camp business is generating great results in our enterprise segment. Our exec ed business is really surging. We're successfully converting off the edX platform, we're adding a ton of AI content. Exec ed is a real differentiator in our enterprise segment. It is cohort-based, boasting a 90-plus% completion, compared to typically completion rates in the teens at best for the competition. Finally, a few comments on the impact of AI. First, someone has to teach AI at scale. We are that company. I alluded to it earlier, the pace of new AI content on the platform is excellent and will continue. Second, we believe implementing generative AI inside our business will be a huge positive for us and allow us to deepen our competitive moat. This is already evident through our implementation of the edX expert chatbot on our platform and our ChatGPT plugin. These tools are driving new user engagement on edX and eliminating some legacy support cost. These tools are just the beginning. AI will actually allow us to build more efficiently on the durable moat 2U has around our product and service layer. Cohort-based, instructor-led learning and other people-mediated experiences drive significantly higher completion rates. This is hard to build. The results it drives are powerful. Our competition doesn't have these things, and it shows. Compare the industry Prof Cert completion rate of low teens at best, to our exec ed completion rate of over 90%. AI will not replace our cohort-based learning or people learning from and with other people. Strategic implementation of AI will create significantly greater efficiency in creating those interactions. The combination of people plus AI can bridge the uncanny valley and drive a greater durable moat around 2U. It can bring down our costs substantially and drive greater high-value human contact. We're at the early stages of unlocking the power of AI across our business, and we're very, very excited about it. Finally, I wanna highlight that we added an executive hire that will be critical to executing on our strategy, Aaron McCullough, our Chief Product Officer. He has an outstanding background in EdTech, in addition to stints at Uber, Walmart, and other companies. Aaron will be critical in driving the next phase of our platform strategy. 16 years into our journey, we've seen a lot, and we've also changed a lot, working around corners and ahead of the competition. We have more capabilities and a better product suite than anyone in our space. Our business and our team are conditioned to face the challenges of this new era. Paul will now take you through current results. Paul? Thanks, Chip, and good afternoon, everyone. On our second quarter call of last year, I said that the long-term objective of our platform strategy is to drive sustainable, profitable growth and to set up the company to capitalize on the significant opportunity in front of us. A year later, here's where we are on a 12-month basis. Adjusted EBITDA has grown $70 million. We reduced marketing and sales as a percentage of revenue by 9 percentage points and increased organic leads from the platform by 22 percentage points, all indicators of a healthier and more efficient business. Taking a closer look at results. Revenue for the quarter totaled $222.1 million, down 8% from a year ago, driven by a 9% decrease in full course equivalents, or FCEs, which totaled 76,300 for the quarter. Revenue from the alternative credential segment totaled $102.6 million, an increase of 4% from the second quarter of 2022, primarily due to a 10% increase in FCEs, while revenue per FCE decreased 8%. Bootcamp revenue increased on the strength of our cybersecurity offerings, offset by softness in our coding segment. Exec ed revenue increased due to stronger demand for our Artificial Intelligence courses. As Chip mentioned, enterprise continues to be a focus of ours, and the numbers support that. Enterprise grew 35% and now has annualized bookings of almost $100 million. Degree program segment revenue decreased 16% to $119.5 million, primarily driven by a 16% decrease in FCEs, reflecting the implementation of our new marketing framework last summer. Given the time from marketing spend to revenue, we are now seeing that impact. As part of our portfolio management efforts, in the second quarter, we expected to finalize agreements to sunset certain programs. However, these were pushed into the second half of the year. These agreements would have generated revenue in the degree program segment in the second quarter. Let's take a look at costs and expenses. For the second quarter, OpEx totaled $378.2 million, up from $289.4 million in the second quarter of last year. This $88.8 million increase includes a non-cash impairment charge in the current quarter of $134.1 million. Without the impairment charge, OpEx for the quarter decreased 16% from the second quarter of last year, reflecting efficiencies from our platform strategy. This decrease was primarily driven by a $13.9 million decline in paid marketing costs, a $13.1 million decrease in restructuring expense, an $11.1 million reduction in personnel and personnel-related expenses, and a $4 million decline in depreciation and amortization expense. To elaborate on the non-cash impairment charge, based on our stock price decline, and as a result, our market capitalization, we determined that a triggering event for an interim impairment analysis had occurred. This evaluation led to a $16.7 million write-down of certain goodwill assets and a $117.4 million reduction of intangible assets. Marketing and sales as a percent of revenue decreased to 43% from 48% in the second quarter of last year. This decrease was driven by a $13.9 million reduction in marketing spend on prospect generation. Removing non-cash items such as stock-based compensation and depreciation and amortization, marketing and sales expense as a percent of revenue declined to 39% in the second quarter, down from 44% in the same period last year. Stock-based compensation expense for the period totaled $11 million, down 51% from the prior year, due to the combination of a significant reduction in equity awards granted and lower grant value. We ended the quarter with 3,314 full-time employees, compared to 3,848 employees in the second quarter of last year. Moving on to profitability. Net loss for the quarter totaled $173.7 million, compared to a net loss of $62.9 million in the second quarter of last year, reflecting the $134.1 million in non-cash impairment charge, and partly offset by lower operating expense of $45.4 million and $4 million in higher interest expense. Adjusted EBITDA for the quarter totaled $21.8 million, a margin of 10%, compared to a 9% margin for the same period last year. Adjusted EBITDA margin in the degree segment was 28% for the quarter, flat compared to the second quarter of 2022. Adjusted EBITDA margin in the alternative credentials segment was a negative 11%, a 700 basis point improvement from the second quarter of 2022. Now for a discussion of the balance sheet and cash flow statement. We ended the quarter with cash and cash equivalents of $66.7 million, a decrease of $42.6 million from the end of the first quarter. As a reminder, the timing of payments from our university partners follow the academic calendar. As a result, accounts receivable balance increased $14.5 million to $87.3 million from the first quarter. In addition, we ended the quarter with lower accounts payable and accrued expenses of $122 million, a $4.3 million decrease from the first quarter. For the trailing 12 months ended June 30th, 2023, we generated $11.7 million of adjusted unlevered free cash flow, a slight improvement over the same period last year. Now for a discussion of the 2023 guidance. As we enter the second half of the year, we remain focused on scaling our business, increasing Adjusted EBITDA, and continuing to build our competitive advantages as a platform company. We are reaffirming our 2023 revenue guidance to range from $985 million-$995 million, representing 3% growth at the midpoint. This guidance is primarily based on the following: The strength of contracts we have signed that are expected to generate revenue in the back half of the year, stronger expected second half growth led by enterprise, particularly our social impact programs, and expected execution of portfolio management transactions in the back half of the year. During our first quarter earnings call, we said that revenue in the second half of 2023 would be approximately 10% more than the first half. However, due to a shift in revenue from the second quarter to the back half of the year, we now anticipate a 15% increase in revenue for the back half of the year compared to the first half. Specifically, we expect our enterprise revenue to accelerate in the fourth quarter and our degree segment to generate higher revenue due to the shift in revenue we just discussed. On Adjusted EBITDA, we've demonstrated that we can be more deliberate on corporate spending, and we are seeing the benefits of our platform strategy, particularly with respect to paid marketing. As a result, we're increasing our Adjusted EBITDA guidance to range from $160 million-$165 million, or growth of approximately 30% at the midpoint of the revenue and Adjusted EBITDA guidance ranges. To conclude, our platform strategy is working. There are numerous indications of this, including the momentum in content velocity, the growth in organic leads, the significant marketing efficiencies, enterprise growth, and the strong demand we're seeing for our flex degree offerings. We are on track to meet and perhaps beat our 2023 financial goals while optimizing our degree portfolio and rolling out new program options for our partners. All of which is building a more competitively differentiated, resilient business for the future of education and positioning the company to deliver continued improvement in profitability and cash flows. With that, I'd like to turn the call to the operator for questions. Thank you. If you have a question, please press star one on your telephone keypad. If you have queued up for questions and wish to withdraw, you may press star one again. One moment, please, for your first question. Your first question comes from the line of George Tong with Goldman Sachs. Your line is open. Hi, thanks. Good afternoon. You're doubling the cadence of your new degree program launches for 2024 from 25 initially to 50. Can you discuss the expected capital intensity of these new launches and the anticipated impact to free cash flow generation? Yeah. George, the, the CapEx on all of these new offerings, not just the degree side, but also on the content velocity on the edX courses, they're all very, very CapEx light. The vast majority of them do not include, course build. On top of that, a, a decent portion of the launches, are existing online programs that are already in the market as online programs. There's a sort of double benefit there, is they don't have the cash burn, and we get revenue more quickly. What's going on with pipeline is, you know, we've really never seen anything like it before. It's, it's very positive. We also like the financial characteristics. You know, rotating the business to programs that, that can meet a demand, you know, you've got a sort of average tuition of, you know, somewhere close to half of what our historical average tuition would be. We think that's also very positive for the sort of long-term future of the revenue in the degree business. Got it. That's helpful. You also talked about the introduction of a flat fee model. Can you talk about which customers this new model would likely appeal to, and what the incremental revenue impact would be if you would expect any potential cannibalization from existing revenue streams? If so, how to quantify that? I would say, just like when we announced flex, the flex revenue share model, we had some folks wondering if that might negatively impact our existing clients. You know, we're, we're pretty good at testing these things out and determining what the impact might be to our existing base. The reality is some clients, some potential clients just don't want a revenue share model, and we're just trying to add something to our toolkit that allows us to expand out into the market and aggregate a larger number of degree programs. There's obviously a shorter contract length. We're willing to bet on ourselves because of both our operating history, our track record in the space, and our ability to, we believe, bet on ourselves to have a longer-term relationship in that flat fee. You know, the reality is this fee-for-service is, is not something that most university partners want. Revenue sharing, still extremely popular, as you can tell by our cadence, but we do have a limited number of folks that don't want a revenue share and are interested in this notion of a flat fee. We think we'll get some really solid additional pickup. You know, the reality is we've had fee-for-service for some time, and just hasn't been very popular. We like the idea of having our full bundle in a flat fee that allows people, you know, gives us great predictability. That's a real positive. Ultimately, you have, you know, our ability to sort of bet on ourselves to go forward, but including that, the full bundle in that flat fee, and not having to sort of do a long list of individual fee-for-service components, that gets, you know, at times onerous and expensive. We're pretty excited about it, George. We think, the response to the Flex model has been stellar. You know, we'll have, we'll have announcements related to the universities that are actually coming on board, soon. We are willing to say that at least 50 for next year. You know, the, the notable thing about that overall pipeline is when you look at the overall sort of aggregated pipeline, you've got, you know, very large amount of long-term, steady-state revenue that should come into play, from this pipeline. We do like that in both cases, they get started faster because, you know, you don't have the big J-curve. Got it. Very helpful. Thank you. Your next question comes from the line of Jeff Silber with BMO Capital Markets. Your line is open. Thanks so much. My first question probably is for Paul. In terms of your guidance, I know you mentioned the shift in revenue from the second quarter to the second half. One, can you quantify what that shift is? Again, I know there's some seasonality in the business, but, you know, you're looking for a pretty steep ramp-up in the second half. Maybe you can give us some color in terms of the cadence between 3Q and 4Q. That would be really helpful. Yeah. Jeff, as, as you know, with any type of forecast, we, we, we think of our plan on an annual basis, and we have several ways of achieving those numbers, whether it is around new launches, new customers that we sign, new contracts that we have in the pipeline. The shift from the second quarter to the second half of the year basically reflects now a third quarter that looks kinda similar to the third quarter, to the second quarter, a third quarter that looks like the second quarter, and then a fourth quarter that has the benefit of some enterprise contracts and some other contracts that we have on the degree side of the house that brings the revenue back up and produces a significant growth on a year-over-year basis in the fourth quarter. At the same time, allowing us to hit our guidance range that we had at the beginning of the year and our plan at the beginning of the year. Most importantly, probably on the EBITDA side and the cash flow side of the equation, you know, when we, it is one of those areas that we have more control over, so we're probably a little bit playing a wait-and-see mode before we deliver everything we can on the EBITDA side of the equation. That's one of the sides that we feel like we have visibility, we have control, and it's one of the sides that we have tremendous confidence in. Then what we're doing now is making sure that we can set the business up for a more resilient 2024, 2025, and those are the contracts that will come in and help us to deliver Q4 numbers. All right, that's great to hear. Then on the degree program side, it's great to hear about the accelerated launches for next year. I want to talk about the other side of the equation in terms of renewals. Can you remind us when your next renewals are coming up in your degree programs? Are you having negotiations with those partners? Should we expect a different type of contract, maybe shifting out a revenue share to flat fee, et cetera? We, yeah, Jeff, we, I mean, we're continually, pretty much never not in some kind of discussion or negotiation with our clients. We do have a very, very substantial percentage of the revenue locked. I'll get the number for you before we're done with the question. Existing contracts represent, it's like greater than 90% of our revenue through. Nonetheless, it's, we do feel very confident in the current client relationships and our ability to navigate new, you know, moving people to Flex in some cases. What's interesting about Flex, as you might have heard me mention, that in the case of Flex, what people are really most interested in is the sort of core model plus marketing, which is very similar to our full bundle at this stage. We don't have any renewals until, I believe, after 2026. I'm trying to verify that in the room. Yeah, 2026, Chip. Thank you, Paul. Okay. You know, feeling, feeling, feeling very positive about the existing client base. There are definitely some cases where you have current clients that have programs that exist already. As you might imagine, if they exist already, doing them under the full revenue share bundle, like what we've historically been known for, doesn't make as much sense because the courses already exist. Therefore, the cash to create those has already been in place. You know, we think flat fee just sort of opens up more opportunities, not just with new clients, but add existing clients. You know, the, the reality is you just want to give them the options. I think if we keep giving them the options, we should see more and more degrees come onto the platform. All right, that makes sense. Thanks so much. Your next question comes from the line of Ryan MacDonald with Needham & Company. Your line is open. Hi, thanks for taking my questions. Maybe to start, Chip and Paul, you know, obviously, a common topic on the conversation was the idea of portfolio management and continuing to sort of evaluate the existing portfolio. Given the commentary, you know, that alternative credentials is expected to be larger in 2024, I'm curious, beyond, you know, what you've talked about in sort of the shift of sunsetting programs in 2Q, 3Q, how, how many additional programs or what level of evaluation are you undertaking to sunset additional programs as we go into 2024? And is that having a contributing factor on sort of the commentary around alternative credentials exceeding degrees next year? Thank you, Ryan. No, the, the, the, the commentary related to alt, alt credit degrees are not really related. You know, we tried to lay out the four criteria that we use to evaluate whether or not we want to continue with programs. One is the financial health of the program, two is, you know, the overall partner relationship, three is the resource allocation, and four is the debt- to- earnings on various programs. We've been doing this for some time now. We thought it was important to call it out so that people understand that this is like, this is going to be an ongoing process of us gradually rotating the business to something that we think fits the long-term value more strongly, both for students, probably most importantly, but also for our shareholders. You know, overall, we feel like we've been able to do it historically with no student impact. I think that was the key, is as we started doing these a couple of years ago, our biggest concern in how we handled them was making sure that students had a really good outcome and that our overall student outcomes didn't suffer during that process in any way. Honestly, we've gotten good at it. We've, we've gotten pretty good at a very smooth transition on these. We're obviously not going to talk about individual clients or individual contracts at all. It is multiple university partners, and something that we think is important for us to continue to drive the long-term value, you know, with where the business is going. What's interesting about it, Ryan, is that we've got so many launches coming in, that we do think we're able to drive a really good sort of rotation to that kind of newer revenue in those cases, that we think might be a more appropriate revenue mix for the platform. Yeah, Chip, if I, if I may jump in for a second here. Ryan, at Investor Day, we talked about the mix of degree versus AltCred on a long-term basis. In 2022, it was a 59, 41 split, we talked about long-term 40, 60 split. If you think of that rotation and steady state of, you know, the flex programs that are coming in and some of the newer models and the new revenue that will come in, you'll get back to a place where you're comparing apples to apples on a long-term basis. That 40, 60 split, where AltCred becomes a larger portion of the business, it becomes really material as we go forward, comparing apples to apples. S uper helpful color. I appreciate that. Maybe as a follow-up, Chip, we're seeing obviously in education, the continued growing of skills-based learning, skills-based hiring, as, as a theme across sort of not only university institutions, but also enterprise organizations. You know, given the, the rotational comment you made about adding more industry content partners to the platform, is, is this sort of your strategy for how you'll be tackling more of this skills-based opportunity? Do you expect that to be more of a driver to the enterprise business, or maybe an enhancer to the existing university relationships you have today? We, we definitely believe in university-backed credentials, feels very strongly that we continue to have the best portfolio of universities in the world, honestly. Like, have, you know, in, in many ways, doubled down on our relationships with many of those schools. Ryan, what I think is fascinating about the space right now is that, you know, you've got a lot of people, sort of smaller companies that are failing and then larger companies that are kinda bailing out of the space. We really like our where we sit in the market. I don't mean the stock market, I mean the university market. We feel like our sort of overall strength is represented by that pipeline. We're certainly not getting away from university content. We think it's critical, and our university partners are the best in the world, and we continue to work with them to provide them a greater sort of toolkit to do more content with us. That's part of the reason the content strategy's way up. Now, with that said, industry-leading companies is also a big part of it, and in some cases, industry-leading individuals, like, like Deepak Chopra. Like, we do think the content overall will drive greater organic growth. We do think that's something that's a little misunderstood in terms of like, yes, overall, like our-- if you look at, like five consecutive quarters of an improvement in both registered learners and learner prospects, and two consecutive quarters of year-on-year growth in both of those categories, regardless of what's going on overall with traffic, you know, traffic overall is a little bit more of a vanity metric. We do think, like we're bringing in the right people to the platform. To do that, we need both quality university content and quality industry content. You've seen a big mix of both. If you look at our announcements, you know, Tel Aviv University and IE University, and then of course, companies like Databricks. We do think overall, you know, the story is, is and, not or. This is not, it's not a pivot, it's a rotation. Just one quick thing for the previous question, Jeff Silber. 95% of degree revenue is under contract, which renew Under contracts, which renew after 2026. We still got a quite a bit of runway in the existing portfolio. Sorry for not having that right real time. Go ahead, Ryan. That's all I've got. Thanks for the color. Your next question comes from the line of Josh Baer with Morgan Stanley. Your line is open. Great, thanks for the question. I wanted to ask on AltCred, still with the negative double-digit margins. I guess, why isn't that business profitable today? And what are some of the drivers that will get it over to profitable? Josh, a couple of things there. Number one, I think, we are moving towards-- with the realignment that we did last year, we're looking at it on an annual basis to get to profitability. We're beginning to move in that direction. A lot of our leads that are coming off the platform is helping the exec ed business, is helping the boot camp business. We're also leveraging our student support organization across degree and the alternative credential business. Then, from an enterprise perspective, as enterprise grows and becomes a larger component of the revenue stream, we have a better flow through on enterprise, both from a contribution margin all the way down to an EBITDA level. You know, we are implementing lots of efficiencies within the back office to help us to be more efficient, whether it's the use of AI or the way we serve the students in that segment. Look, it's, it's, cost cutting is not a thing. It's about how do you efficiently change the way you operate and run a business. We've begun to do that last year, and we're gonna continue to do that, and we believe we can get there on a 12-month basis, particularly as we see the enterprise business continues to grow. Great, thanks. The 12-month basis, or I guess, could you just update on the timeline to get to profitable for that segment? In, at the beginning of this year, we said we hope to be there, for the calendar year 2023, and we're still on, on track to do that. The 11% negative margin that you mentioned is a 700 basis point improvement on a year-over-year basis. We expect the fourth quarter to be a material quarter, particularly in the alternative credential business, with enterprise being a significant growth driver in that quarter. Okay. that's full- for the full year of 2023? Full year of 2023. Not just Q4. Okay, great. Thank you. Thinking ahead, like with the, with the mix shift, kind of toward AltCred, I mean, how should we think about the impact to just the overall business margin profile, you know, coming from more degree business, which has such great margins? Thanks. Well, Josh, you did. Paul, I'll let you answer that in a sec, but you, you did hear us mention that we think the, the new Flex model is, is, is quite attractive on a margin basis. The, the programs may not be quite as large as the programs that we've run, you know, way back in the day, you know, 5, 10 years ago. They, they're, they're gonna get quite attractive from a margin point of view. Yes. Josh, I mean, our, our long-term, our midterm and long-term numbers that we provided at Investor Day, midterm, we said EBITDA margin 17%-19%. This year, with the guidance we just provided, that's roughly around 16%. We don't see anything changing with the mix. If not anything, it gets better because to some extent, the margins, the, the, we have capital-light programs in the flex degrees. We're rotating into flex degrees or flat model or the flat fee model, both of those have very similar margins at steady state to what we're rotating out of. To some extent, it is the alternative credential business that really ramps up the margin as we go forward. Keep in mind, we're at 16. To get between 17 and 19 for the midterm, it seems to be a shorter putt, and then we have to focus on the long term of 2024-2026, which are the numbers we provided to Investor Day. Clearly, over time, AltCred is becoming more and more important because the world wants it. Like, students, students and employers want this content. At the same time, our degree business is very large and profitable and will continue to be so. Like, we're not, we're not getting out of our degree business in any manner. This is not a pivot. We, we actually really love what's happening on the degree pipeline side. We think it's, you know, pretty wild. We've never done more than 17, so it's, you know, investing in what we think will drive the right long-term benefit and great value for the students. Once again, ladies and gentlemen, if you have a question, it is star 1 on your telephone keypad. Your next question comes from the line of Stephen Sheldon with William Blair. Your line is open. Hi, you've got Pat McAleer on for Stephen today. I have a couple questions for you all. First on the fixed fee model that you announced this quarter, I just wanted to ask if, if there have been any updates on the, the regulatory front related to oversight of OPMs, or any update to how you feel positioned on that front that may have influenced or driven that decision. No, we, we, as I mentioned in the prepared remarks, we feel like the flat fee model is just a way to offer an additional sort of toolkit to the university partners to drive value for them. There are some that don't want a revenue share, that's not new. We feel very comfortable with where we are from a regulatory standpoint, and it's been extraordinarily clear from both universities and from ACE and others that support the industry, how important revenue sharing is, sort of, on an overwhelming basis. Sort of hard to overstate how much support there was for revenue share, and really nothing has changed on that front. We didn't announce flat fee because of a regulatory reason. We announced flat fee because we like it, to be honest. It's, it's pretty good. Yep. Okay, very clear. It sounds like you continue to focus on materially growing your enterprise business, and you, you, you noted some encouraging indicators on that front this quarter. Can, can you just talk about what you've seen in terms of end market demand there and learning and development budgets in general? What's interesting about the enterprise business is, like, there are multiple components to it that I think are very differentiated from what you've seen in the space. You've got, first of all, a incredibly high completion rate programs that are driven, on a cohort basis to whether it be, you know, mid-level execs or C-suite level. You're even able to configure some of these to the enterprise very specifically in a way that's become very attractive. You've got boot camps, where you've got people sort of, fully reskilling folks, and we don't think anybody really can do this kind of stuff at scale the way we can. You know, we passed something on the order of 55,000 graduates in that, in that, business. You know, for most people, it's sort of onesie, twosie, we can really handle these things for the enterprise in both cases at scale. Separately, this is all very attractive, both from a social impact standpoint, sort of tapping funding sources to once again move the dial at scale for local communities, on tech reskilling and governments, where in the case of government, it's a mix of all of the above. You've got governments interested in purchasing both the individual exec ed courses, the subscription overall to edX, and the boot camps themselves. There's just a tremendous amount of opportunity for us there, it's now getting to a nontrivial number. You're looking at a run rate that is now a number that obviously will matter more to this audience. You know, when we've got a sort of big company and, and it's, it's not as big a number where folks haven't been paying attention to it, but we're paying a ton of attention to it because we think highly differentiated outcomes of scale is the way I would really think about it. It's like we can drive a really high outcome for people, and ultimately, that is really what matters, whether you're a single consumer or you're an enterprise. You know, where we're coming from right now, we see enterprise as a very significant 2024 and 2025 growth opportunity. Understood. Thanks for the color, Chip. Your final question comes from the line of Jeff Meuler of Baird. Your line is open. Yeah, thank you. Apologies if it's just me that's confused, but, it's not I'm not understanding why sunsetting programs later than expected is causing revenue to be pushed out. Is this, like, early break fees that you were expecting to be recognized in Q2 that you're now expecting to be recognized in the back half? Just getting more clear on what the dynamic is that sunsetting later than expected pushes revenue out? Yeah, so in certain cases, there's a contractual arrangement that we expected in the forecast, and in this particular case, it's moved into the back half of the year. You know, it's that simple. These are negotiated agreements, Jeff. With that dynamic and the rotation comments, but also the new launch bullishness and target, do the midterm revenue growth targets, 8%-10% CAGR from 2022 that you gave us at Investor Day, do those still stand or any change? Yeah, we're not. As of right now, we're not changing any update to our guidance at all. You know, we don't expect to change. I guess, we obviously don't, in our Q2 call, give a guide for 2024. You know, we like where we sit, Jeff. You know, this is. You know, we understand that the, the quarter impact is one that, of course, you're gonna ask questions about. We don't, we don't manage the business on the quarters, you know, we manage the business overall in a way that we think is, you know, best for the company and, and therefore for the shareholders. It's part of the reason that we feel comfortable with the annual guide. Shift, but not a change. Were the contractual arrangements in place, that the timing was moved, but the contractual arrangements for the sunset, were they in place at the time that you gave us the multi-year targets at the Investor Day in March? Yeah, I mean, Jeff, there's, there's obviously a lot in a forecast. You know, there's a lot of puts and takes in the forecast. We've done this for some time. You might remember, Jeff, in particular, the Simmons undergrad program, that we talked with you in particular quite a bit about. So the Simmons On-Ground, that's an example of one. Yep. Where you, you did have a substantial impact in that current period. You know, we've had some of these in the first six months of the year. We will continue to have them. You know, unfortunately, you know, we had a multiple universities in play on this, it's a shift. We feel very confident in our ability to manage them overall, and we like the mix that we're moving to. Okay, thank you. There are no further questions at this time. I will turn the call to Steve Virostek. I just want to thank everybody for joining us today, and if you have follow-up questions, please give me a call or send me an email. Thanks so much, and have a good day. This concludes today's conference call. Thank Thank you for joining. You may now disconnect your line.