All right, we'll get started. My name is Josh Baer, Software Analyst at Morgan Stanley. We have the 2U team here today: Paul Lalljie, CEO; Matt Norden, CFO; and Steve, head of IR. Thank you very much for joining us today. Research disclosures, from my end, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representative. I think, Steve, do you have one on your side? I do. And to the extent that we do make forward-looking statements at today's conversation, they'll be covered under the Safe Harbor Statement. And if you want to look into that a little bit more, check out the statement on our IR website. Awesome. Love forward-looking statements. Makes a really exciting session. There's a lot to talk about today, both addressing some near-term debt maturities, hear about the longer-term strategy, but I think it would be helpful first just to level set and get a little bit of an introduction on 2U. If you could talk a little bit about the role that you play for universities and for learners. Thank you, Josh. Appreciate you having us. I'm going to spend a couple of minutes, particularly for those of you who are new to 2U and for those listening in on a webcast. 2U is a company that builds, delivers, and supports digital offerings on behalf of over 260 university partners. And we do all of this with our students and the university partners at the center of everything that we do. Since inception, our objective has always been to make education affordable with the access to high-quality digital offerings. But currently, we're in the midst of a turnaround. That turnaround is defined by a change in leadership, a change in our business strategy, and a vast opportunity that online education presents for us today while we tackle the challenges of our balance sheet that we face. But let's be clear. We are bullish on the future of 2U simply because of the market opportunity that's presented in front of us and the position that we hold in the education space. Let me spend a moment on three things that will provide some support for what I would agree is a bold statement. Those areas are the business, the market trends that we're seeing, and then the marketplace in which we operate. So to start with the business, we're optimizing the business for profitability and a return to growth. I think we are looking at the fundamentals of the business, and also we've adopted a shrink-to-growth strategy where we are prioritizing profitable revenues and turning down the less profitable opportunities so that we can optimize revenue growth and, to some extent, maximize profitability. And while we're doing all of this, we believe that all of these will bolster our liquidity position. Let me provide some context for that there. We ended last year with just under $950 million of revenue. We had Adjusted EBITDA of about $170 million. We ended the year with $73 million of cash, and that is after paying down $187 million of our secured debt during the year. We've guided to positive cash flow in 2024. All of this is before the impact of any of the business optimizations that I've spoken about. So the bottom line is that in the last four months, the last four months since I took over as CEO, I've become more confident that we have the management team for the task at hand. More importantly, we have the fundamentals that will allow us to refinance the balance sheet and effectively execute on a big turnaround in 2025. We're also changing the culture of the organization. We've aligned the business in two segments with the appropriate accountability, both for performance and also for strategy. We're committed to transparency within the organization because we believe in a culture of curiosity, and we believe that good ideas and innovative ideas can come from anywhere within the organization, not necessarily from the top. That's the business. Let me touch a little bit on the trends that we're seeing. I'm sure all of you have heard the buzz, and particularly at the TMT conference here today, you've seen the unprecedented technology moment that we're in. It's creating an enormous growth potential for online learning. Demand for online learning has returned to that pre-COVID levels, and we are seeing students enrolling at that level. There is a massive potential growth for emerging fields like AI and the skills associated with AI, and the need to develop workforce skills that matches the technology changes that are happening. Some market data to support this opportunity: by 2030, I think HolonIQ suggest that the education market is going to be around $8 trillion. Today, only 2% of that $6 trillion number that it is today is online. That is a tremendous opportunity for us. The upshot is that online learning is emerging as one of the most important tools, particularly for upskilling workforces and for them to be able to deal with the challenges presented by this unprecedented technology change that we're seeing. From a landscape perspective, I think 2U remains the largest and most comprehensive online education provider. Some can describe the market as fragmented. We have lots of small players. We have some large players. But they're often providing partial solutions. And from our perspective, we're in a position to serve the learner where the learner wants to be met because we have a breadth of services and a variety of modalities that a student can find beneficial. We're also fortunate to have a large network of university partners that are spread throughout the world. We have an expansive global network. And then when we couple that with the unmatched group of individuals that we have within the organization, the technology and the services, we believe that we can deliver tremendous outcomes. When we think of our graduation rates, our graduation rates are in excess of 70%. When we think of completion rates, completion rates meaning someone has completed the academic work, it's in excess of 90%. That is because of that combination that we have with technology and human touch. We have the relevant content and programs that are highly relevant in today's market, particularly things around AI and the skills associated with AI. So to some extent, we have a comprehensive offering, but we have assets that give us the right to win in education. So I think you all would agree with me, having heard all of that, that in essence, when we combine the market potential and the position that 2U holds today, that we should be bullish about our future. Specifically, we expect to increase our profitability. We expect to return to growth. And we'll tackle our balance sheet challenges, all while harnessing this unprecedented technology moment that we're facing as an organization and as a society. Let's jump in, Josh. All right, great. Great overview. A lot to unpack there, Paul. Thank you. So you've. Did I give you more questions out of that? I think that's most of my questions. No, I'm just kidding. So you mentioned, as part of the turnaround, new leadership. You are both new to your current roles, but you've been at the company for some time. Was hoping you could dig in a little bit on where exactly your focus is, your top priorities, and most interested in hearing about this comprehensive improvement plan that is still in the works. Let me start off, and I'm sure Matt will want to add something here. But if you think of what we're trying to do, we're looking at the business from a very fundamental bottom-up perspective. Every dollar of revenue, the costs that deliver that dollar of revenue, we want to make sure that we have a contribution margin that allows for substantial flow through to free cash flow. And when we put all of that together, it leads us to a direction that says, we have the appropriate product for the market. We have the appropriate go-to-market strategy. We have the appropriate delivery, asynchronous, synchronous. Are there things we need to tweak? Do we have the appropriate pricing, et cetera? So the way we're looking at it, it is not from the perspective of, this department is fat because you have a benchmarking that says it's fat. There's not a lot of intellect that goes into that. But when you're looking at your business from a bottoms-up perspective, are you delivering the product that is appropriate? Can that product win in this market? Then it gives you the opportunity to truly change the methodology. So let me give you an example. We think of pre-enrollment and post-enrollment. Are there places in the pre-enrollment process that we can add software that reduces the human touch, improves conversion because you're using technology such as AI to determine high-propensity leads versus just trying to hit all of them and see as many as you can convert? So technology can help us make that more efficient. If we think about repeatable processes in our back office, it gives us the opportunity to apply technology to that, outsource it, whatever the mechanism we can do. Those are some of the areas that I can think of, Matt. Yeah. I kind of view it as a short- and long-term plan. From the short-term standpoint, there's certainly what I would call still low-hanging fruit that we have addressed. We took $45 million out of the business late last year, early this year. I think there's more to come in that regard. That could be anything from additional organizational hygiene to looking at our real estate footprint and rationalizing some of that. Over the longer term, kind of to Paul's point, we're looking in detail at all of our products to ensure that we're making them as efficient as they possibly can be. So if you think of our boot camp business, which today is primarily synchronous and cohort-based, we think there's a way to make it much more efficient by at least offering an asynchronous and non-cohort-based product that would increase demand and drive efficiency. OK, that's helpful. And so the guidance that's set for 2024, just to be clear, to get there, it does not incorporate the incremental revenue plan to come. And where are you in that process? Any expectations on when we could hear about the kind of results of that review? Yeah, so it is far along. It was rapidly progressing, starting late last year. And so I think we have some more decisions to make, some edges to round still. And then I think we'll move quickly into implementation. And we are moving as quickly as we can, both to implement it but to talk about it as well. Yeah. Josh, that's Matt leaning in. We're far along. But the bottom line is, we want to be able to address the balance sheet as quickly as we can. And in order to do that, we want to make sure we have a good business plan. A strong P&L takes care of a balance sheet, not vice versa. Great. So let's address the balance sheet a little bit in our conversation. Just as far as the debt maturities coming up, could you sort of lay out what's due and when, and really, what are your best alternatives as far as addressing those? Sure. So we have a convertible note that is due May 2025 for $380 million, a term loan also for $375 million that matures in December 2026, and then another convertible note that matures in 2030. It's around $147 million. The term loan also has a spring maturity to January 2025 if there's $40 million or more of the 2025 convertible note outstanding. So at the end of the day, January 30, 2025 is the soonest maturity. And as far as what we're doing to address those, to me, it all starts with the operating plan and finalizing that and ensuring that it puts 2U in a place that enables us to succeed for the long term. We think once that plan is finalized and implemented, we'll be able to work with our lenders in a collaborative way, as we always have, to come up with that long-term solution that sets us up for future success. OK, got it. In thinking about the potential for refinancing, restructuring, whatever it is, in my conversations with investors, everyone is hyper-focused on trying to figure out the right level of EBITDA or free cash flow in the near term. Maybe we could spend some time there. I believe you guided for $120 million-$125 million in EBITDA in 2024. I wanted to check how much of that is one-time in nature related to the sunsetting if we're trying to get to that normalized EBITDA upon which to grow. Yeah, so I'd say it's normalized, but I'll caveat it one way. There's $15 million of revenue that we will recognize this year related to the sunsetting of programs last year. But one difference to that revenue is that we've continued to provide services with respect to those programs, which is why we're recognizing revenue over the course of this year and not in a one-time fee or one-time nature as we did when we executed the agreements. So from our standpoint, it is much more similar to how we recognize revenue typically. And so it's not really one-time in nature in the same way. OK. When we're thinking about moving from 2024 to 2025, $120 million-$125 million is kind of the right base in your mind. Correct. OK, for EBITDA. And then how does that bridge to free cash flow if you could spend a minute walking through some of the assumptions we should have around CapEx, working capital? Yeah, so CapEx, we've said $45 million for 2024. So with EBITDA of $122.50, CapEx of $45 million, and interest expense of around $60 million, that gets you to a levered cash flow number of around, I think, $17 million, and working capital kind of staying flat, which is what we assume. Got it. On the free cash flow side, are there any moving pieces as far as one-time or? No. OK, got it. We talked about generally looking at different businesses, making sure that they were profitable. And so I wanted to really touch on this mix shift that we're seeing, shifting toward alternative credentials, which historically has had much lower margins than the degree side. So I guess the question is, can you expand a little bit more on how you improve the economics of the alternative credentials specifically? So I mean, a couple of things. On both executive education and on the boot camp side, there is a gross revenue recognition, which is very different from the degree side of the house. So for every dollar that comes in on the exec ed side, on average, $0.30 goes to the university partners. On the boot camp side, $0.20 goes to the university partners. In addition to that, on the boot camp side, we have a tutor cost of somewhere between 6%-9% of revenue. And then on top of that, we have university operations that helps with pre-enrollment and post-enrollment. One of the things that we have done since the fourth quarter is to look at the variable component of that revenue stream. So for example, we've talked about the headwinds we've seen in coding. Whenever you see that headwind, do you have variable expense to come down appropriately? Because no longer are you going to have that revenue base to amortize a fixed cost across. We've done that. We've done some of that variabilization, if you will. There are other things we're doing around post-enrollment where we can add technology and we can augment the employee base with the appropriate tools to ensure that we can lower the cost and add some variability to it. Those are the types of things we're doing. We believe that we can get that business to at least a break-even position. And then the Exec Ed business coming out of last year, we mentioned the partner fees. We have a head tutor cost that is closer to 4% or 5%. And then after that, it's marketing spend that's the highest. In both categories, marketing spend is between 30%-35%. As you know, we've been reducing marketing spend as a percentage of revenue across the business. We expect to continue to do that in 2024. We are looking at the unit economics because that's how we'll scale. We can't hope to have a certain revenue level, and then above that, you have scaling. If we look at it from a unit perspective, the likelihood of achieving smart scaling, if you will, is much greater. That's some insight into the margin. Matt, I don't know if there's any other thing you'd round that out with. Yeah, well, in thinking about the mix shift overall, I think you have to think about degree too because on its face, it is coming down. But we think that's not really the whole story there. So degree, at least 2023 over 2022, and then the same kind of factors apply 2024 over 2023 are driven by a couple of things. One, we had peak enrollment during COVID. And in 2023, many of those students started to graduate out of the system. And demand obviously declined from peak COVID. So we didn't fill those graduations with one-for-one new students. On top of that, sunsetting the programs caused fewer programs to be kind of in the system for 2024, which results in lower revenue. But when you look at the core portfolio, so the portfolio of degree programs that we operated in 2023 and will be operating in 2024, we're seeing all of the key leading indicators trend very positively. New student enrollments are expected to grow 11%. Total student enrollments are expected to grow around 3%. So we think that demand for graduate online education, while certainly not back to peak COVID levels yet, is certainly starting to trend in the right direction, which we like for that segment going forward. Josh, if I may add something here. I mean, you notice very well, but for the audience, our degree business, we do have that visibility into when enrollment is going to happen. Just because when we spend marketing dollars in this quarter, we see that student enrolled seven to 12 months out. So a lot of what Matt is producing there as a projection is more data that he's seeing today and not a projection. What gives us some confidence going beyond 2024 are the 60 new programs that we are launching this year, primarily flex degree programs. For those who are not familiar, this is a significantly lower capital intensity of a program. Many of them already exist. They come to us with existing infrastructure, a funnel of students, a brand name, things that we can use the edX platform in which to leverage those attributes and reach a payback that much sooner. We call it steady state, 2.5-3 years as opposed to a three to five-year for the traditional program. We'll be launching 60 of those this year. It's not a huge impact to revenue this year. It's more of an expense. I believe Matt said $23 million of OpEx this year is what we would be spending to launch those new programs. And as typical with our business, we'll spend $1 today in terms of marketing. Seven to ``12 months from now, we'll start to see the revenue from that spend come in. Great. Maybe that's a good place to spend a few minutes on these program launches. 60 new launches this year. Are all of them flex? What mix of that is flex? Where are these programs coming from? And there's lower capital intensity associated with it. Could you give some examples of what a typical program was traditionally versus flex? Yeah, so why don't I start off? So of the 60 programs, we probably have maybe four or five that are of your traditional ilk, and the rest are in the flex category. A traditional program, we would spend anywhere from $5 million-$10 million of cash outlay, not capital, not OpEx, but total cash that's out the door. We call it our cash low point at any given point in time. What we've done is to offer a flex program, as Steve outlined earlier, where the capital outlay, the cash low point, is somewhere between $500 million-$1 million. So instead of spending 60 times $10 million or $5 million, we're spending 60 times $1 million. The other point I would make is that there is one school that has 39 of these degrees that are programs that are already in existence and up and running, which reduces that cash low point even more significantly for that 39, allowing us to afford to launch 60 at this point in time. When we talk about shrink to grow and optimizing growth and all those types of things, here is an example. We signed 81 programs that we could have launched in 2024. We've chosen to launch 60. Why? We're not solving for the highest revenue that we can get. We're solving for the highest EBITDA that we can get in the calendar year. The $5 million-$10 million cash outlay for the traditional way, that's not what we're going to see with these 4-5? No, you'll see a lower number than that because we've also found ways of building courses cheaper, better, faster. I don't remember which one of our press releases, but we announced that we have a partner that's helping us with some of the course build. And that is something that you'll see more of. We will stick to our core competence, and we will get the help of someone who is better at doing something. And in that way, time to market could be shorter. And in that way, we can be more efficient. And in that way, we don't have to have fixed costs in our books. When you're outsourcing or partnering with someone, that becomes a variable expense for you. Got it. That's a great example of how we're operating differently, Josh. And so thinking about these 60 program launches, what is the timing? And what are the assumptions on contribution to the model this year and next year? So I'm going to start off, and I'll look to Steve and Matt to keep me honest here. We have launched the bulk of the 60 in the first quarter of this year. And we will launch the remainder in time for the fall semester. From a contribution perspective, we're not expecting it to contribute significant revenue in 2024. And I don't know if we've given that number, Steve, so I'm pausing on that number until you confirm. But as we go forward, when it gets to steady state, which is somewhere around 2.5-3 years, we expect somewhere between $75 million-$100 million to come from these programs. But I don't know if we've given the 2024 number, Steve. I believe we did comment about $10 million this year. About $10 million. Expense of $23 million to launch. Yeah. OK. The 39 degree programs coming over that are kind of up and running, kind of assuming that those programs are making more of the contribution this year, just wondering if you could talk a little bit about where those programs are coming, how they came to you, and what subject domains are they in? Sure. So there are a wide variety of domains. There are data analytics, marketing, business, STEM-type degrees. It's a mix of graduates and undergraduates. This particular university partner was working with another OPM, saw the attributes of the edX platform, its high ranking and high relevance and domain authority, saw our capabilities with respect to supporting students throughout the whole value chain and delivering a very high graduation rate. And that became very attractive to this particular university partner, such that they decided to make the switch. OK, that's helpful. I want to ask just a couple more somewhat related to the balance sheet. Just as far as, are you seeing any impact to your partner relationships from partners that are concerned about debt maturities? So the short answer is we are proactively speaking with our university partners. I have one tomorrow. We had a group of university partners at our offices last week. We addressed probably a large number of university partners the week before. So what we're doing, we're proactively sharing our position with our university partners. The way I describe it, it's captured in three buckets: situation analysis, where we are today, what does it mean, where are we going as a company, and then what's the role of our university partners in that journey for us. The feedback that we've gotten is they've left each of those meetings with confidence that we have a direction, we have a path, and they understand where we are and what it means to be in the situation that we're in. And they understand the impact it may have on them as we go through the journey together. So we've committed to overcommunicating. We've committed to partnering with our university partners. And I may argue that pipeline remains strong, and we still continue to do a lot of new business with our university partners because they recognize, number one, the position that we have in the marketplace. We are the largest, particularly in the OPM space. We continue to have the best outcomes in the marketplace, whether it's graduation rates of 70% plus or completion of 90% plus. And the way we do things with the human touch on pre and post-enrollment in certain of our programs, I think university partners find very attractive. We need to work closer with them. We need to partner with them, and we need to solicit their help and make sure that they're in full understanding of where we're going and what we're doing. We intend to do that. That's really helpful, Paul. On the spectrum of risks and concern for you, where does it fall? Maybe to ask it additionally or a different way, is your assumption for full retention? Assumption is for full retention, number one. Number two, we don't take our university partners for granted. They are probably the most important. I said very specifically to them that university partners and students will be the center of every decision we make. And we want to make sure that we are considering intended and unintended consequences on that group as we make decisions, number one. Number two, sorry. And then number three, we don't anticipate any disruption, any dissatisfaction with our university partners or students. We will focus on the highest quality of education for our students and the highest quality of service for our partners. And we have to build that into the framework around which we do everything, even as we build a comprehensive plan. That plan will continue to allocate appropriate resources to ensure that we're serving students with utmost care. Great. I'm going to ask another, and then maybe we can see if there's questions in the audience. Similar question, but as far as potential customers. Coming out of Investor Day, there was a lot of focus on pretty exciting growth from enterprise or government. Has the conversation changed with those potential customers and that bucket from a growth perspective based on the balance sheet? The conversation has been somewhat delayed in that category just because we're focusing on all the things that we're focusing on. But we still continue to see tremendous traction in that area. Anant Agarwal, who is, I would argue, our company evangelist, our company rainmaker. And he goes out there, and he comes back with all sorts of opportunities for us. And he sent me 10 articles of something that was published in India where we were awarded an opportunity to provide courses for 1.2 million students in Andhra Pradesh, a particular state in India. And I think opportunities like that are validation that not only can we deliver online education with access, but we could do it at scale. And there are very, very few that can say that. So I think the opportunities are there. We still expect it to be a growth engine for us. We still expect it to be a contributor for us. Perhaps focus is going to be 90% of success for us as a company. We have to focus on fixing the balance sheet first and foremost. That's our highest priority at this time. Great. Any questions? I have a question again. Do you guys get to see a lot of students outside of the U.S. right now taking the course? Specifically, when the pandemic happened, did you guys see more of the growth from kind of foreign students or international students? And then does that growth continue, or is it fairly similar with the U.S. students? So as Matt and Steve will caution me here, online education has no geographic boundaries. It has no back row, for example. You get rid of the back row in a classroom the same way. Because of that, students around the world have access to our programs. We tell the story. We see a lot of interest and a lot of traffic, particularly from places like India where a student may not have the ability to go to London to take a degree from London School of Economics, but we can provide that access to them at their particular location. It's hard for us to identify exactly where a student is coming from, so I don't have an exact number for you. But we continue to see interest. If we look at it from a funnel perspective, the interests that are coming in from the students, we're seeing that international interest continue to grow and grow over time. The short answer is maybe. The long answer is it's hard for us to tell with specificity. Where that initial interest resides, that continues to grow. We've definitely seen partner growth over time from those international partners. Paul mentioned the London School of Economics. We announced new degrees at the University of Cape Town, South Africa, University of Queensland, and Australia. So we are seeing more interest outside the U.S. from non-U.S. partners. We announced a recent couple of degrees at the University of Surrey in the U.K. That's been a particularly active market for us in terms of adding a new partner, new degrees, and we would expect the students to follow. Excellent. A couple more areas for me. One, it sounds like Flex is what's making up most of the new launches. You could talk a little bit about, from that menu of offerings, what is the university typically using 2U for versus yeah. So I can start off again. I'm not seeing a lot of energy over here, so Matt, jumping in for the answers. We are seeing the base, which is our ability to take a course and list it on our marketplace. Because our marketplace has such strong credibility with consumers, it is generating naturally a lot more interest than if it was on another website someplace else. That's point number one. Point number two, we're seeing a lot of interest for our marketing apparatus. Marketing for us is another 15% that's added. We are seeing less interest on things like a course build. But marketing and the. Placement for licensure-based programs. That's a great one, yes. Placement. I missed that one. I do think, though, Josh, it's worth mentioning that I think as the space evolves, a company's ability to offer its clients flexible solutions from a business model standpoint is going to be a key differentiator. So right now, we're still seeing demand kind of only for revenue share. And Flex is still revenue share. But we have the ability to provide fixed fee, flat fee, subscription, whatever suits a university client based on how much risk they want to take from a financial standpoint on themselves or push to us. And so I think as the landscape evolves, being able to meet the partner where they are, not just the student where they are, will be an important factor to winning in the market. That's helpful. And that was my next question. Just any traction on fixed fee since making that an option? We haven't seen much demand for it. Yeah, OK. And then as a follow-up to the flex fee and what universities are adopting versus I guess on the less interest in course builder, are universities doing that themselves, or are they using another provider? No. So we've partnered with someone that can help us if we need to do it. The Surrey announcement, for example, is one we're doing. We're doing course build with LearningMate, who's our partner, as we do that. We haven't seen university partners. If they're coming over with a course that's already online, then they have the content. And we just haven't seen a lot where they're coming from scratch. OK, that makes sense. The last topic I wanted to touch on, just get an update on edX, on the brand, on the traffic, and registered learner growth, sort of top-of-funnel trends. If you could provide a little bit of context and update on where we are and maybe where things are today versus expectations from a couple of years ago. So Josh, I do think that edX continues to be extremely high credibility with consumers. We're looking at an 89 domain authority. Continues to be strong. We continue to see traffic eyeballed. And then if you think of where our strength lies, our strength lies in how do we convert those eyeballs into enrolled students but doing it in a more algorithmic way using human touch. One of the things that I think we need to implement and to build out is how do we add software to help us do that a lot more efficiently. And that can help our conversion because we're not seeing the conversion that we were anticipating, but we're seeing very good conversion. As you can see, organic still continues to be roughly around 40% of our total organic coming from edX. But it's not getting the momentum and the traction that we wanted. And that is an area particularly that we may want to look at how we can do that better if it means doing it with a partner or something like that to see how we can do it better. That's an area. Today, as we sit here, we do believe that platform is the future of education, online education. And we are still very grateful that we have edX as part of our portfolio. But it's operating mainly as a marketplace right now, and we need to add that martech back end, if you will, to use some industry lingo that then helps us to convert and monetize it much more efficiently. All right. Excellent. We're out of time. Really appreciate the conversation. Thank you very much. Thank you, Josh. Always a pleasure. Thank you.