2U, Inc. (NASDAQ:TWOU) Q1 2023 Earnings Conference Call April 26, 2023 4:30 PM ET
Company Participants
Steve Virostek - Head, Investor Relations
Chip Paucek - Co-Founder and Chief Executive Officer
Paul Lalljie - Chief Financial Officer
Conference Call Participants
George Tong - Goldman Sachs
Ryan MacDonald - Needham & Company
Stephen Sheldon - William Blair
Josh Baer - Morgan Stanley
Jeff Meuler - Baird
Brett Knoblauch - Cantor Fitzgerald
Fred Havemeyer - Macquarie
Arvind Ramani - Piper Sandler
Operator
Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2U, Inc. First Quarter 2023 Earnings Conference Call. [Operator Instructions] Steve Virostek, Head of Investor Relations, you may begin your conference.
Steve Virostek
Thank you, Rob, and good afternoon, everyone. Welcome to 2U's first quarter 2023 earnings conference call. Joining me on the call this afternoon are Chip Paucek, our Co-Founder and CEO; and Paul Lalljie, our Chief Financial Officer. Following our prepared remarks, we will take your questions. Our earnings release and slide presentation are available on the Investor Relations website, and a replay of the webcast will be made available later today. .
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 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, 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 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 as 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.
And with that, I'll turn the call to Chip.
Chip Paucek
Thank you, Steve. We had a great Q1. Notably, we reached positive levered free cash flow for the first time. We'll tell you all about it shortly, but before we get into the business, let me spend a few minutes on a topic that's clearly overshadowing the fundamentals and the strong performance of the company. There's some confusion about what's going on in the regulatory environment, and I'd like to try to clear that up.
As framing for you the civics lesson, but the order of priority goes law, regulation, guidance. The law comes from Congress, regulation is the executive branch implementing those laws and guidance is meant to be additional color or commentary related to the regulation. A dear colleague letter, which you'll hear me talk about coming up, is the form of guidance. They come out from many different agencies on many different topics.
On February 15, the Department of Education made two separate and largely unrelated announcements that were applicable to our industry. First, they announced a significantly expanded interpretation of who the department can regulate as a close third-party servicer under the Higher Education Act. Second, they announced a review of the 2011 bundled services Dear Colleague Letter. I feel like we need to explain both because some folks have been conflating the 2.
First, let's talk third-party servicer, which has nothing to do with revenue sharing under bundled services. Through a Dear Colleague Letter, which as a reminder is guidance, the department announced a brand-new significantly expanded interpretation of the definition of third-party servicer under the Higher Education Act.
To provide some context for you, a third-party servicer is specifically defined by the Higher Education Act and the department's regulations as entities that manage an institution's Title IV financial programs, either manually or through automated processing. To safeguard federal funds, third-party servicers are subject to extensive requirements governing the management of Title IV loan and grant programs.
In its February 15 Dear Colleague letter, the Department announced a new and much broader interpretation of the definition of a third-party servicer that would cover a wide variety of entities who support an institutions educational programs, including hospitals, police departments, publishers, study abroad programs, high schools and online program managers even though these entities have no plausible connection to the administration of Title IV Financial. The department originally set the compliance date at May 1, 2023, and invited the public to submit written comments, which, of course, we did.
Following very critical comments from the entire space and the American Council on Education, on February 28, the department postponed the effective date to September 1, 2023. By the conclusion of the comment period on March 30, the Department had received over 1,000 comments from students, educational institutions, non-profit associations and service providers to colleges and universities.
The vast majority of these comments, in fact, around 99% were against the department's expanded view of a third-party servicer. Many of the comments denounce the letter's expansive new interpretation as contrary to law, complain the letter with disrupt educational institutions and their third-party contractors and emphasize the unworkability of the September 1 effective date.
Like so many others, we disagree with the department's new definition of third-party servicers. We firmly believe the department's actions contradict the Higher Education Act and their long-standing interpretation of it and also violate the rule-making requirements under the law.
As a result, we filed a lawsuit against the department in early April, asking the court to declare this guidance unlawful and unenforceable. We urged the court to the departments actions to revise the law and claim sweeping powers which are not authorized by Congress.
We then filed a request for a preliminary injunction on April 7, asking the court to stay the effective date of the Dear Colleague Letter pending the outcome of the litigation. Then on April 1, the department through a blog post announced that they decided to revise the Dear Colleague letter and delay its effective date to six months following the release of some updated version whenever that may be.
Now a couple of points for you to note about the third-party servicer guidance and our lawsuit. First, suing the Department of Education was not a decision we made lightly. As with any business, we have to take calculated risks and measure potential benefits versus those risks. And this lawsuit is no different. We obviously consulted our internal and external constituencies, including our Board and it was something we thought through quite meaningfully.
At the end of the day, we recognize the importance of being a leader in this industry, and we recognize the need to protect our shareholders and shareholder value and to ensure that we're able to continue to deliver for universities and their students, each of which is critically important. Here, this meant pushing back against the department when it overstepped its legal authority.
Second, I want to reiterate that we're not alone in our views of the department's actions here. Universities have spoken out against departments actions. And in that spirit, we've not seen any negative impact to our pipeline or anything like that since we filed the suit. In fact, the suit has been very well received by our clients, so far, so good.
It's important to reiterate that we agree with the department's stated goals of additional transparency in our space and reducing the cost of tuition and correspondingly student debt. We just disagree with the department's means for achieving these goals. We welcome the opportunity to collaborate with the department to find ways to move those goals forward in a manner consistent with law.
Now moving on to bundled services. People confuse the department's third-party servicer guidance with the Department's announcement that it's reviewing the bundled services rule. Essentially, in its announcement, the Department stated it's reviewing the benefits and disadvantages of revenue-sharing arrangements that have been the norm for many institutions for more than two decades. The department did not issue any new guidance with respect to bundled services.
Guidance written back in 2011 in a Dear Colleague Letter makes it clear that the Higher Education Act permits revenue-sharing agreements where a third party is providing recruiting services as part of a bundle of services to the institution. This understanding, which is consistent with the department's position since 1992, spanning five presidential administrations, serves as the foundation for our degree business model as well as the foundation for the rest of the industry.
The department invited the public to submit written comments on bundled services, and those written comments overwhelmingly supported the current guidance. Overall, the department received 268 comments and over 90% supported keeping the bundled services rule in its current form. This is good.
A couple of important points for you to note about bundled services. First, I've seen many articles conflating the department's review of bundled services with its new third-party servicer guidance, which is entirely inaccurate. The fact is the department has not made any changes to the 2011 bundled services Dear Colleague Letter they only announced they'd be reviewing it.
Second, for the first time since 2U was founded in 2008, we're seeing universities speak out loudly about the benefits of revenue sharing. This is huge. Universities have become very animated and concerned about any changes that might be made.
Rather than trying to summarize all the amazing letters university submitted, let me share a quote from Grover Gilmore, Dean Emeritus of the School of Applied Social Sciences at Case Western Reserve University. He addressed this fact in his comments, tuition revenue sharing is a good business model for the University, he wrote. "2U Shares and interest in attracting qualified candidates who can complete the program. As a full service partner, it's in the interest of every area in the business model from marketing to online content support and to student support to ensure that students are served very well. With bundled services, marketing success and the revenue generated are tied directly to the enrollment and eventual graduation of students."
From our point of view, related to bundled services, it's really good to see the department listening to the actual stakeholders that matter for whom these relationships are critical. This is a big deal. Now notably, our velocity of client signings for our new flex model are accelerating, indicating not only our clients' desire for these revenue-sharing models in the current climate, but their confidence in both the immediate and longer-term future of revenue sharing.
Okay. Enough with regulatory. Now let's move on to the first quarter results and accomplishments. 2U delivered a solid start to 2023 with strong EBITDA growth and positive free cash flow. Our results are driven by our best-in-class edX [ph] platform and execution of our platform strategy. Our core focus remains profitability and sustainable cash flow while driving strong student outcomes. To this end, I'm pleased to report a new milestone for the company. We generated positive adjusted free cash flow of $10 million for the 12 months ended March 31, 2023. This metric is inclusive of our interest payments and it's something we've never done before.
We delivered adjusted EBITDA growth of 146% versus the prior year. We continue to leverage the domain authority of X ph to drive organic leads and marketing efficiency. During the quarter, X generated 40% - 41% of organic leads, up from 37% in the fourth quarter.
We announced the new metric at Investor Day to encompass the full breadth of the edX 2U portfolio activity. This metric is the learner prospect. This quarter, we generated over 3 million new learner prospects, which includes all expressions of interest across our open course, degree, boot camp and executive education offerings. This brings our total to 76 million across our platform.
Our marketing and sales expense was 42% of revenue in the quarter, a full 10 percentage points lower than the first quarter of 2022. More importantly, while expense was down meaningfully, our total number of leads increased by 7%. To understand why revenue declined 6% versus the prior year, remember, we transitioned to our new marketing framework in mid-2022, so this was expected. Revenue is an output rather than an input to our model.
The enterprise business continued to cook with strong revenue growth at 57%. We have enormous runway here. edX' best-in-class content portfolio is highly relevant for every level of the organization from entry-level workers to the C-suite. Our competitive differentiators are meaningful in this huge and growing market. Annual learning and development spend is $360 billion globally.
We had a great quarter on what we call content velocity. We're rapidly adding new higher education offerings with 4 flex degrees, 1 full degree and 33 new professional certificates added this quarter. We just signed an additional flex degree with Arcadia University, our partner since 2019 to launch their doctor of education program. As mentioned, our pipeline of opportunities is strong with substantial interest in our flex degree model in both the U.S. and abroad.
Notably, the U.K. is a hotbed of degree activity as these universities cope with lower enrollments following Brexit. But we've seen increasing interest in this model in the U.S. also. Together with our partners, this quarter, we launched over 130 new edX courses from 50 unique institutions. We welcome many new members, including Southern Memphis University, Tel Aviv University, Wesleyan University, the University of Cape Town, Lufthansa and others.
This morning, we announced a new partnership with Deepak Chopra, the internationally recognized author and leader in global well-being, to create open courses and executive education programs in topics ranging from consciousness to integrated medicine. Areas Chopra has defined over the course of his decades-long career as an international figure in well-being. This partnership underscores that edX is not only a platform with content and programs from the world's top universities but also a hub for influential minds and thought leaders.
All of this exceptional content requires a superior platform and learner experience. With this in mind, we're committed to continuously advancing the edX platform with innovative ways to deliver value to learners. We built and will soon launch 2 new tools that leverage generative AI. The first is the ability for learners to instantly obtain a concise summary of a video lecture, a more convenient and efficient way to access, evaluate and reinforce the educational content.
The second is the learner help center, which leverages the capabilities of Chat GPT to efficiently answer questions about courses, the platform, policies and purchasing. We believe this feature can expedite the pre-course selection process for learners as well as improve the service experience. We have exciting number of AI-related projects on the road map for the remainder of 2023 and beyond.
In conclusion, we're off to a really good start in 2023 as we execute the platform strategy and drive greater profitability and cash flow. Our solid performance for the quarter led us to increase our adjusted EBITDA outlook for the full year.
Now Paul will take you through the additional detail. Take it away, Paul.
Paul Lalljie
Thanks, Chip, and good afternoon, everyone. In the first quarter, we continued to deliver on our goals with a particularly strong performance in adjusted EBITDA and cash flow. We delivered adjusted EBITDA of $30.2 million, a 146% increase from the first quarter of last year.
Adjusted unlevered free cash flow on a trailing 12-month basis was $58.5 million compared to $11.5 million at the end of 2022. And for the first time, we delivered positive adjusted levered free cash flow, which came in at $10.4 million.
We're proud of these results, particularly since our first quarter is typically a higher expense quarter and the quarter with the highest use of cash. And we did this while continuing the implementation of our platform strategy. And perhaps more importantly, we were able to outperform on adjusted EBITDA and cash flows while continuing to navigate a tricky macroeconomic environment to deliver the top line.
Before delving into the specifics of our financial performance, I'd like to provide you some context. As you saw in our press release, our Q1 results represents a calculated and intentional decision to prioritize long-term profitability over immediate revenue growth. This strategic shift is supported by our marketing framework overhaul, enabling us to allocate resources more efficiently and effectively. As a result, we are attracting students at a reduced cost while also enhancing our capacity for innovation and delivering superior outcome.
This transformation bolsters our business model, paving the way for sustained value creation. We expect to see growth in revenue and increased profitability as we approach the midyear point, marking 1 year since the implementing -- since implementing these changes.
I'll now move on to a more detailed discussion of our results for the quarter, and then I'll provide an update on our balance sheet and cash flow, concluding with some thoughts on our outlook for the year.
Taking a closer look at revenue. Revenue for the quarter totaled $238.5 million, a decline of 6% from a year ago, driven by a 9% decrease in full course equivalent enrollments, or FCEs, which came in at $77,000 for the quarter. FCEs were relatively unchanged on a sequential basis.
Revenue from the Alternative Credential segment totaled $98 million, a decline of 1% from the first quarter of last year, driven by lower student enrollment, a 3% decrease in FCEs. This decrease was driven by a 24% decrease in executive revenue, offset by a 16% decrease in revenue from our boot camp.
In the first quarter, enterprise revenue grew 57% on a year-over-year basis to $13.1 million. In the degree program segment, revenue in the first quarter totaled $140.5 million, a decrease of 9% from the first quarter of 2022. This decrease was driven by lower student enrollment, an 11% decrease in FCEs.
Now let's take a look at cost and expenses. Operating expense decreased $106 million when compared to the first quarter of last year. Operating expense for the first quarter of last year included $58.8 million goodwill impairment charge. Without that impairment charge, operating expense for the first quarter of 2023 decreased $47.2 million to $258.7 million. This decrease reflects the realization of savings from our 2022 strategic realignment plan and marketing efficiencies from our platform strategy. In particular, paid marketing decreased $19.3 million and personnel and personnel-related expenses decreased $19.6 million.
Marketing and sales as a percent of revenue came in at 42% for the quarter, a decline of 10 percentage points on a year-over-year basis. This decrease was largely driven by a decrease in paid marketing costs. Without noncash items, such as stock-based compensation and depreciation and amortization, marketing and sales as a percent of revenue came in at 39% for the quarter.
Stock-based compensation expense for the quarter totaled $14.6 million, down $9.9 million or 40% from the first quarter of 2022, primarily due to headcount reductions. We ended the quarter with headcount of 3,377 compared to 3,869 in the first quarter of last year.
Moving on to profitability. Net loss for the quarter totaled $54.1 million, an improvement of $71.7 million from the first quarter of last year, reflecting lower operating expense I just mentioned, partly offset by a $16.7 million charge recorded to reflect the modification expense and the extinguishment loss associated with our January 2023 debt refinancing. In addition, we recorded $4.1 million in higher interest expense.
Adjusted EBITDA totaled $30.2 million for the quarter, a margin of 13%. Adjusted EBITDA margin in the degree segment was 34% for the quarter, an 11 percentage point improvement over the first quarter of 2022, showing the inherent profitability of the degree segment business model. Adjusted EBITDA margin in the Alternative Credential segment was a loss of 17% compared to a loss of 24% in the first quarter of 2022, driven by lower operating expense.
To remind everyone, we expect to be adjusted EBITDA positive on a full year basis in the Alternative Credential segment. The first quarter is normally our highest marketing spend quarter and we expect this spend to decrease as we progress through the remainder of the year.
Now for a discussion of the balance sheet and cash flow statement. We ended the quarter with cash -- with total cash and cash equivalents of $109.3 million, a decrease of $73.3 million from year-end 2022, primarily reflecting the impact of a $187 million net paydown on the January 2023 refinancing.
Our accounts receivable balance totaled $72.8 million, up $10 million from the end of the previous quarter. Fluctuations in our accounts receivable balance reflects the timing of payments from our university partners, which often matches the academic calendar.
Now for a discussion of guidance. We are affirming our revenue guidance for 2023. We expect revenue to range from $985 million to $995 million. We are increasing our adjusted EBITDA guidance to reflect the overperformance in the first quarter while maintaining our outlook for the remainder of the year. We now expect adjusted EBITDA to range from $157 million to $163 million, representing growth of 28% at the midpoint. As discussed last year, our priority continues to be delivering strong adjusted EBITDA growth and sustainable cash flow, while revenue continues to be an output to our model.
Concerning revenue pacing for 2023, as we've said on our last earnings call, revenue in the second half is expected to return to growth. In particular, we expect second half revenue to be about 10% higher than the first half of 2023. We are seeing green shoots in the degree business as we teach out our COVID enrollment and expect to see enrollments from our first quarter marketing spend. We also have several new enterprise and social enterprise opportunities that we've announced to have an impact. In addition, for 2023, we expect stock-based compensation to be $58 million, capital expenditures to be approximately $60 million and weighted average shares outstanding to be approximately 82 million shares.
To conclude, our first quarter results showed strong bottom line performance and a number of great wins that we believe will deliver top line growth in the future.
And with that, I'll turn it back over to Chip.
Chip Paucek
Today, 2U is reaching more than 76 million people worldwide with accessible, affordable, high-quality education on one of the world's most powerful online learning platforms. We're leveraging our track record for delivering strong student outcomes to facilitate economic and social mobility at scale. With the outstanding support of our 250 university and corporate partners, we're ensuring that all people have the opportunity to fuel their ambition.
And with that, we will open it up to Q&A.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question comes from the line of George Tong from Goldman Sachs. Your line is open.
George Tong
Hi, thanks. Good afternoon. The free cash flow for the quarter, adjusted leverage free cash flow turned positive. It sounds like that was an outperformance versus internal expectations. Can you elaborate on what drove the upside? How much of it was revenue driven, coming in better than expected? How much of it was more prudent cost management? And how would you expect those trends to progress over the course of the year? In other words, can the upside from 1Q persist moving through the rest of 2023?
Paul Lalljie
George, so a couple of things. If you look at the cash flow statement in the press release, I think you'll see a couple of things. We saw a positive contribution from working capital. And that comes from, obviously, collections as well as payables. A lot of what we do on the change in working capital side of things has to do with the matching up of the academic calendar. That's point number one.
Point number two, we're seeing the flow-through of the 2022 strategic initiatives that is contributing to the EBITDA side of the equation. EBITDA is up significantly $30.2 million this quarter. We expect EBITDA to continue to be the main driver of free cash flow as we get through the rest of the year. The only X factor that we see as we go through the year that will contribute to a fluctuation would be the change in net working capital. And that has to do with the academic calendar.
I think you noticed very well. Third quarter, we tend to have that mismatch in the academic calendar. So we expect net working capital to be used, but we expect EBITDA to be high enough to make up for that use. Second quarter of 2023, we do expect that we will have EBITDA contributing, but not -- perhaps maybe not contributing enough to make it a positive $10 million, but closer to 0. And then as we get into the fourth quarter, we expect that to be positive. So overall, for the full year, we expect to be positive and we expect some fluctuations that primarily has to do with changes in net working capital.
Revenue is contributing, obviously, flowing through to EBITDA and then the strategic plan. Of course, marketing -- the marketing contributions, the marketing spend is a contributor to the EBITDA number also.
George Tong
Okay. Got it. That's helpful context on free cash flow. So maybe digging in a little bit more on the revenue and the expense side of things. How are those trends progressing versus your internal plan? Are you finding that the efficiencies of organic paid is starting to improve in line with your expectations as you migrate from paid to organic?
Paul Lalljie
So George, a couple of things. The short answer is yes. We are seeing green shoots, as I mentioned in my prepared remarks, on the degree side. And we're also seeing higher contributions of organic leads to the overall marketing framework that we have. . Now keep in mind that we expected, we planned, we budgeted for the first half of this year to ramp up into the back half of the year, simply because we made the changes second, third quarter of last year. Then fourth quarter, we generally don't have a lot of marketing spend and marketing activities.
So this was our first full quarter, and we expect to see the benefits of this as we get to the back half of the year. And you've seen all the announcements we've had. We've had a number of new partners that added us - that we added in the first quarter of this year that we expect the contributors as we get to the back half of the year also. Chip, I don't know if you'd add anything to that?
Chip Paucek
No, the only thing I would add is you might have seen 41% organic up from 37% in the fourth quarter. We're converting off edX what you would expect us to be converting. So it's becoming a meaningful contributor on the consumer boot camp side and the consumer exec ed [ph ] side. We also think it does become a pretty solid later over time to generate interest in the enterprise channel because people that took exec ed, in particular, it has such a high completion rate, super high quality, super high satisfaction.
So if you took one of the small cohorts in the exec ed course, about taking your team through it, that -- we think that's a big opportunity. So we're continuing to find ways to leverage the edX platform into various parts of the business. It doesn't have as big of an impact on the historical degrees yet, but that's because SEO takes time to ramp.
And I would tell you, like the disruptively priced degrees, it's pretty impressive. I mean, the cohort -- our cohort for the BU MBA program in the fall, it probably will be the biggest cohort we've ever had. And that's all generated off of organic on edX. If you look at the -- the University of Texas, Austin master of artificial intelligence, I mean it's the extreme of this. It is going to be very large, and that's all once again off edX. So we're pretty pleased right now. We feel really good progress being made.
George Tong
Got it. Very helpful. Thank you.
Operator
Your next question comes from the line of Ryan MacDonald from Needham & Company. Your line is open.
Ryan MacDonald
Hi, thanks for taking my questions. Congrats on a nice quarter here. Chip, maybe touching on the regulatory environment. Obviously, TPS, the bundled services exception, obviously, creating a lot of distraction right now and sort of uncertainty. But it sounds like that you're still making really strong progress in terms of demand and converting some of these flex degree pipeline.
Can you just talk about how you're -- how the conversations with these prospective university partners are going? And whether that is impacting at all sort of ability to sign new degree programs or new partnerships?
Chip Paucek
Yes. Thank you, Ryan. We obviously didn't pursue the action that we did with -- against the department for any reason related to our pipeline or anything like that. We certainly didn't expect -- candidly did not expect it to be as strongly positive as it's been from the standpoint of the sentiment related to it. We felt like it was important to do it as a leader in the space, we felt that we had to and we'll continue to stand by that because we do believe that we're in the right on this.
But from a university partner standpoint, I would tell you that really, since we since we announced it, it's been an excellent response, if anything, flex has been accelerating. So it has not only not put a damper on anyone's interest in wanting to do a longer-term revenue-sharing opportunity. But at GSV, I know we saw you there multiple times. I mean there were 5, we did at GSV that were really at the show, like live at the show that were not expected. And so that was obviously after we have done -- after we had filed. So we feel very strongly.
Universities want us to stay. I think that's the most meaningful -- one of the positives of doing it is it has animated the space in a meaningful fashion. And then on bundled services, I will tell you that's unrelated to TPS and for 15 years now, we wanted university partners to make stronger statements about the importance of these models. And these are risk-averse institutions. And for a long time, it seems like there was no reason to make statements related to these models. And that area is definitely over. The universities are super active right now as they should be. This is a very important business model that universities are going through a tremendous amount of diligence and negotiation to come to a conclusion on relationships that take a long time to form.
So these are not willy-nilly decisions. They're well thought through. And clearly, universities want this business model as part of their toolkit to build and transform themselves and do high-quality online education. So we've definitely seen an acceleration since. There's no hesitation for folks to enter into revenue-sharing relationships.
And I think it's important to remember that on TPS, it was 99% of the comments were positive and on bundled services, it was 90%. Part of the reason that we went through -- what we went through in the prepared remarks is not because we really want to spend our time talking about regulatory affairs. I would candidly much rather spend my time talking about the 33 professional search we launched in the quarter, but we thought it was important because people are definitely confusing the two. And obviously, we're pursuing and continuing litigation, so we're not going to talk about the litigation itself. But that's on its course. And we're -- we feel like we're on a good course.
And then on the side of bundled, it's been incredible to see the response from the university partners. And from my standpoint, it's about time because these are really important programs and models and producing nurses and social workers and physician assistants and this kind of training is critical for the country, and it's all being done under the bundled services model. So we're thrilled to see the support from the space.
Ryan MacDonald
That's super helpful color. I really appreciate it. Maybe just as a follow-up. I wanted to ask about sort of the edX platform and sort of sort of emerging potential there as a strong distribution channel for new content partnerships. You're obviously generating more and more organic leads there. And obviously, there, you get quite a bit of traffic in terms of new learners. How are you starting to leverage that to drive new content partnerships and relationships that can sort of create that flywheel of interesting new content continues to bring new learners to the platform?
Chip Paucek
We thought the content velocity was notable. We keep increasing it. We are having great success bringing in new university partners, like it's great to see like Tel Aviv University, like that's an incredible university in a region where we need more content. We're excited to see it. We're excited to see University of Cape Town, a place where we've done tremendous activity on the short course side, on the exec ed side for years and have an incredible team in Cape Town. So they were particularly excited to see University Cape Town sign up.
And you might have noticed that we launched a thing called Try, it's very, very small, short sample courses that people can try. One of the biggest obstacles to getting somebody over the hump to really change their life in a coding program as an example or in a cyber program is the stress around starting. And so giving somebody an opportunity to start. And we just launched them, and we're really seeing people start them, try it and then jump into a full program. And that has a big impact to the business, no marketing cost. But it's a bigger impact to the world because people need.
The OECD estimates 1.1 billion jobs are going to be transformed by technology in the next decade. Well, by the way, that stack came out before Chat GPT. You think it slowed down? No, I think it's increased quite a bit here. So all of that kind of training of the platform, we think, is huge. And we do think that platforms of the future of education. And so we're really happy to see our transformation and to see how it's being responded to. The content velocity across all of the categories has picked up to a point where now we're in the process of figuring out what new exec ed courses were going to do because enterprise is doing so well. So a lot going right on the content side, Ryan.
Ryan MacDonald
Appreciate the color. I'll hop back in queue.
Operator
Your next question comes from the line of Stephen Sheldon from William Blair. Your line is open.
Stephen Sheldon
Thank you. And nice work in the quarter. And the first year in Al Cred, it seems like there is a big ramp in launches this year. So just curious if that was a notable factor at all in the step back in profitability this quarter? Or was it mostly just about normal seasonality?
It sounds like you're still confident about being positive in Al Cred for the full year. So just given what you're seeing recently, curious if you're more or less confident about that now than you would have been a few months back?
Paul Lalljie
So Stephen, a couple of things. Boot Camp grew 16% on a year-over-year basis in the first quarter. The first quarter is generally where we would spend in particularly at a higher rate than we would for the rest of the year. And based on our internal calculus here, we are just as confident and if not, no more confident on the full year Alternative Credential being positive on a full year basis. And that has to do with the growth that we are expecting in the back half of the year both on enterprise and social enterprise in the back half of the year.
So the short answer is we are still positive on being - on Al Cred being a contributor on a full year basis on EBITDA. And secondly, based on the performance of boot camp, based on the performance of enterprise, particularly social enterprise, we feel good as we head into the back half of the year here.
Stephen Sheldon
Great. That's helpful. And then I appreciate all the regulatory, and I guess the guidance commentary and encouraging to see the Department of Education kind of walking back its positioning some. But with at least some remaining uncertainty out there, unfortunately, I have to think about it that way, is it impacting how you're running the business at all, especially in terms of where you're allocating capital to structure new programs that plan to launch or even things like -- and trying to reduce your total exposure to Title IV funding, given that uncertainty, I guess, just how do you think about it?
Chip Paucek
Absolutely not. We have over a multiyear period, half a decade worked hard to have a lower Title IV percentage. So none of that is relevant to the current either TPS or bundled certainly not to the lawsuit. So it's not really impacting the way we run the business. Look, we are -- as a company, we are concerned about affordability. We are concerned about debt-to-income ratios. We have been for years. So it's not just important for the world, but it's also good for our business to have lower tuition prices.
Stephen, you probably know what most folks didn't win certainly not something that's made it out enough into the press is we offered lower revenue share for lower tuition. So this is something that is really good for the company. So it is having no impact on running the business. I mean I will tell you, I am surprised to see that -- I feel like we've had an acceleration of university revenue-sharing interest. That has surprised.
Stephen Sheldon
Great. Thank you.
Operator
And your next question comes from the line of Josh Baer from Morgan Stanley. Your line is open.
Josh Baer
Great, thanks for the question. When you start thinking about lifelong learning, the platform strategy, the potential lifetime value of the student. I mean, with that in mind, what keeps a learner on the edX 2U platform from a competitive differentiation standpoint? Like how do you think about the competitive environment over time and the potential overlap of learners with some other platforms?
Chip Paucek
Yes. So Josh, we think that the quality of the content, we have literally 38, I think, of the best 50 universities on the planet. On the exec ed side, which we're excited to roll out the executive education subscription, we think that, that will -- that's a real differentiator. The sort of small cohort, very high quality, very high NPS, very high completion rate.
One of the things that I do think is relevant about the entire positioning of the company is edX brings outcomes at scale, not just interested potential learners. You've got folks that are completing and driving really high-quality opportunities to fuel their ambition to get that next job or to get that promotion or to make themselves a better human because there's a lot of courses that can inspire people. So continuing to pull that content velocity and just light up that flywheel.
I mean I do think it's pretty notable how much we've sped up our ability to bring in new content. So it's all very high-quality stuff, and I think that's differentiated. The service stack underneath it that originally came from 2U is part of the story, no question. So embedding that into edX is meaningful. The career engagement that we have, the support that we have, those are all meaningful contributors to people completing.
And then I would say the boot camp business itself is -- it's doing this at a scale that no one else is. Like we just passed 70,000 graduates from those programs, and there's a huge need for that from not just enterprises, but from governments, local governments and federal governments. Our relationship with the U.K. Department of Education is doing really, really well. So we feel like that's another indicator of the power of the platform.
The one other thing that I would say is we did announce at Investor Day the subscriptions that are coming, and we do think that, that's a way to drive deeper engagement longer term with the customer. But I think it's fair to say that the average revenue per user for the edX platform is going to be substantially higher than anybody else in the space because of the combination of edX in 2U.
Josh Baer
Thanks. And a quick one on enterprise, still seeing that rapid growth, 57% in the quarter. I think it grew 86% for the full year '22. Any sense for what the growth rate was in Q4?
Paul Lalljie
In Q4, it was in excess of 180%. And we expect that we get -- as we get to the full year 2023, it should be paralleled to 86% thereabouts on a full year basis.
Chip Paucek
We have quite a bit of back half opportunity in the enterprise channel.
Josh Baer
Okay. So anything to call out for that? Like is that step down in Q1 of concern or just like still off a small base in numbers can move around?
Paul Lalljie
No. I think Q1 of 2022 was a step up and then Q1 of 2023 was somewhat mirroring that. As we get through the rest of this year, you will see the momentum build up, some of the announcements we've made, some of the social impact programs are going to be launched in the back half of the year. That's the type of contributors that we're seeing here.
This is still already innings. I mean, it's $30 million a quarter. It was just on the $50 million last year. So it is probably just something to do with numbers and the lumpiness of it.
Josh Baer
Got it. Okay, thanks.
Operator
Your next question comes from the line of Jeff Meuler from Baird. Your line is open.
Jeff Meuler
Yeah, thank you. I want to ask about those green shoots in the degreed [ph] business.
Chip Paucek
I thought you would. I thought you would, Jeff.
Jeff Meuler
The sequential trend looks better. The second derivative on the year-over-year looks a little bit better. But I don't know exactly what you're talking about. So like is it new enrollment trends or what are you referring to when you say the green shoots?
Chip Paucek
Yes. We are starting to see an improvement in both the retention rate and in the new student enrollment rate. As you know, in that business, it takes time. If it goes up, it takes time to show it. If it goes down, it takes time to show it. So it makes us pretty pleased about what 2024 could look like.
We're definitely seeing signs of life in the degree channel, and that's been a tough channel for a couple of years. But think about it, it makes sense. I mean, the world is not quite as friendly as it was 3 years ago. So that's -- we should see these turn that way, and we're starting to see it.
Jeff Meuler
Yes. And then I know it's usually a mix sector, but the average revenue per FCE in degree was up. And I know the disruptively priced degrees have been doing really well. So what was driving that? What programs are particularly strong in terms of growth or what's going on with revenue per FCE degree?
Paul Lalljie
It was probably just a mix response, a mix of programs. So if you think of the verticals that we have, the programs that we have there in the degree segment, we had more of things like the licensure vertical and those set to contribute greater revenue per FCE, if you will. That was just a mix during the quarter.
Jeff Meuler
Okay. Thank you.
Operator
Your next question comes from the line of Brett Knoblauch from Cantor Fitzgerald. Your line is open.
Brett Knoblauch
Hi, guys. Thanks for taking my questions. Two for me. The first, as you look at your full year revenue guide, can you just break out what we should be expecting in the back half from the degree and the AC side? I guess what do you expect it to ramp up more to drive that kind of 10% growth outperformance in the second half versus first half?
Paul Lalljie
I'm not sure I follow, but let me make sure I'm going to kind of phrase it and then respond. The back half of 2023, we're expecting Alternative Credentials to lead the growth that we expect to see in the back half of the year. Particularly within Alternative Credentials, we were expecting enterprise and social enterprise to be the leaders of it, and then we expect boot camp to be a contributor.
Boot camp in the last couple of quarters have been a key contributor to growth. This quarter, it grew 16%, 16%. So we expect that to be a contributor as we look at it on an overall back half of the year perspective.
Brett Knoblauch
You hit it on the head. And then second question, I guess, since the, I guess, the department has issued new guidance on February 15, shares are down, call it, 50%. So obviously, there's a lot of uncertainty in what's going to happen and not so much on the TPS side, but I think more in the bundled services side. Can you just give us any type of confidence in what would happen should worst-case scenario bundled services given? And you may profitability by reworking your contracts with universities? Thanks.
Chip Paucek
No. We do not feel the need to rework any contracts at this point, and we are not reworking any contracts at this point if that's a statement of what we think. But we're not going to speculate on what the regulators will decide to do. We do believe bundled services is consistent with the statute with the law and it's been for years. And so we do feel like there's a reason an industry was built on this.
And I guess, Brett, I would say while we've, of course, modeled every scenario, as you would expect us to -- as you'd expect us to do, this company is super resilient. We've been doing this 15 years, and we're going to keep doing it for a long time. And so we are continuing to plow ahead with candidly larger number of signings than we've ever had in that exact model. And I do think that's pretty meaningful from a statement standpoint.
Brett Knoblauch
All right, great.
Operator
Your next question comes from the line of Fred Havemeyer from Macquarie. Your line is open.
Fred Havemeyer
Hi. Thank you very much. Firstly, great to hear that you're integrating generative AI capabilities into the platform right now for summarization and personalized kind of like tutoring and querying. I wanted to ask, though, with respect to the boot camp segment of your more technically focused boot camps, where do you see potentially either the ongoing technical layoffs in the broader tech industry, especially among companies? And also the competency of some of the generative AI platforms out there at generating code. How do you see that potentially impacting those more technical boot camps?
Chip Paucek
We have some -- we chose to not talk too much about what's in development and rather just focus about what's actually coming out like right away. But we do have some pretty cool product changes to announce related to our boot camp business and our business that we're going to save for the time period in which we actually can fully announce them. We do think it's transformative technology.
Fred, I would joke with you that Chat GPT is answering all these questions, not me. But we do think it is like meaningful. And we think that this will have a really big impact on the quality of learning. We're excited about what it can do inside the system. And clearly, the needs for technology training go deep are big and vast and are worldwide. So we're certainly seeing that on the enterprise side, where we've got a tremendous amount of activity around boot camps.
I will save the additional Chat GPT-focused product enhancements for a later date to not steal my own thunder. The two that we referenced, what was the main thing about it is just how - how our team reacted very quickly and to see how transformative it could be this quickly is exciting to the company. We think that there's all kinds of opportunity to drive efficiency, to drive better conversion on the business side by using the technology upfront, we think that's a huge opportunity. So there's more to come.
Fred Havemeyer
Thank you.
Operator
Your next question comes - sorry, your final question comes from the line of Arvind Ramani from Piper Sandler. Your line is open.
Arvind Ramani
Thanks for tilling me in. Yes, I just wanted to ask about the sort of the substantial progress you're making on the kind of the partnerships and the new wins kind of the backdrop of this regulatory framework. I guess salespeople or I don't know, Chip, if you're involved with the sales process itself directly, but does that come up in sort of questions as you're signing contracts and going through the sales process? Or is it not like a big topic as you're sort of closing some of these deals?
Chip Paucek
No, it's definitely a topic, Arv. So I am very pleased to tell you that while I am lightly involved at various moments, we have an incredible team working with our partners and potential partners. Andrew Hermelin, the President of Programs; Nikin, who runs the sort of active partner solicitation. Andrew has been here 15 years. Nathan has been here for almost 10. Ken LaOrden, who works with the current partners to drive new program growth. Ken has been here 13.5 years.
So these people know our system incredibly well, are very effective at selling to the university partners, mainly because it's so consultative. One of the things that gets odd about this discussion is these universities are smart. They know what they're doing. And they really put us through a tremendous amount of effort and work to really show them the value of doing a longer-term relationship. So of course, this comes up.
I do think, Arv, it is notable at this point, the universities are much more concerned about driving high-quality new program growth. And when you look at our flex model at 35%, one of the great values is like, why is the revenue share important is we're launching programs with them that they would not be able to launch without us. Even in cases where they could launch programs without us, I just don't believe you can do what we can do for 35% in that comprehensive bundle of services for anywhere near that price. Our scale really matters, and the universities see that. So they're in a good run right now.
We've got -- certainly gone through periods where there were more questions around the model. We're doing this a long time. So the model was not as understood in the early days of the company's history. And it's not a new model now. There are thousands of schools doing this and doing it with good reason. So what I love is you can finally see them saying why? You can see it in the letters that were written. We chose a particular quote for the prepared remarks. For the first time, we could have chosen it from 100 different quotes that we had of people supporting the model.
So it's clear that they certainly ask about it, but I think we have good answers. We feel very strongly that the statute supports this model, and we're just driving hard at it. And so far, so good.
Arvind Ramani
Terrific. And then if you didn't have this sort of regulatory kind of pushback or this kind of back and forth. Kind of do you think revenue growth would have been higher? Or in other words, is this having some impact? Or you feel like people are sort of moving forward regardless of what's happening from a regulatory perspective? And then just a follow-up on that is also like are we going to get like some, hey, this is done, and let's move on? Or is this going to be like just like messy for some period of time?
Chip Paucek
Yes. So Arv, it's not having an impact on revenue. It's really not relevant to the revenue creation. The only place it might have an impact is what I just said is new signings, and it seems like it's having the opposite effect there. So it's not relevant to revenue generation. You heard us mention revenue the way we're thinking about revenue is not thinking about revenue, we're thinking about profitability and cash flow and driving long-term sustainable profitability and cash flow and showing growth in that metric.
We do think we will get back to revenue growth. But right now, that's just not the focus of our management team or me. We want to continue to drive high-quality student outcomes and we want to build a long-term, sustainable, profitable, cash flow positive business that candidly gets to positive EPS. So I'm also some of the other components that we're really bringing down over time. So 146% EBITDA growth is nontrivial.
In terms of what happens next, we -- as we said in the prepared remarks, I think people are conflating the 2 things. They are very different. Most of the time, when people are talking about the impact to our business, candidly, they're talking about what we did on TPS, but conflating it with the potential impact of bundled services. Bundled services is a review and the department is doing what we think it should be doing, which is listening to a lot of comments. And I got to tell you, the comments are loud and they're on our side for reason.
The model works. You've got shared success. We don't get -- number one, we don't control the input. We don't admit students. We don't give them their degree. We don't have anything to do with accreditation, all these types of things. But more importantly, if we bring in a student and that student drops out, semester one, that's a disaster for 2U financially. We only do well as the student has success. And if the student graduates, then that turns into a positive outcome for the company because it really is a shared success model.
So we think the model drives innovation in higher ed. 25% of all new online programs fail, but this is not easy. This is not easy even for a company that's been doing in 15 years and as a leader in the space. Building these programs is hard. Finding a clinical placement for somebody in Oklahoma that's attending a program out of Texas or DC to handle their -- to deliver babies in a midwifery program, like these things are hard. And I think we're doing it in a high quality and that gets responded to by the clients.
So next steps in the process. We obviously will continue to -- we're not going to comment on the active litigation. As far as things stand on TPS, yesterday, the case was stayed pending the department's issuance of -- whenever the updated Dear Colleague letter comes out, that's good. And 2U -- and the court agreed with 2U's request to set an expedited reschedule to begin after that occurs. So like that's on its own track.
And as far as bundled goes, we think that overall, the space being as animated as it is very positive. So I certainly can't control how this affects our share price, but we are thinking long term, and we are making real progress platform strategy. So we hope that resonates with this community.
Arvind Ramani
Perfect. And just last question, just moving on from the regulatory thing. Just on the business side. You announced some things with wellbeing. Are you going to be competing more with like, with some of these announcements over time. I mean, obviously, not in the next 2, 3 months, but look at for the next couple of years, like will it become pushing up more against like a master class type of offering?
Chip Paucek
We just think the power of the platform is the content velocity people, there's plenty of opportunity for us to have not just great university content. I mean, no one asked us anything about the Lufthansa content, but that got a pretty reaction at the ASU GSV show because people were surprised by it.
So we thought that, that was an example of new content that will be in demand that is needed by the world that you wouldn't have typically seen. You certainly wouldn't have seen out of 2U. But even out of edX, there's been now an increase in acceleration in that kind of content, Mike Dombrowski and Matt Bennett on the edX side are doing a great job in a bunch of new content.
And obviously, Deep Chopra, we were excited to announce that today. We do think it means that edX is not just a platform from for the world's top universities. It also can be a hub for influential minds and thought leaders, and that kind of content is in demand, not just by consumers, but also by enterprises. So I think you should expect to see more of that kind of content over time.
Arvind Ramani
Operator
And Mr. Steve Virostek, I turn the call back over to you for some final closing remarks.
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 an e-mail to investorinfo@2u.com.
Operator
This concludes today's conference call. Thank you for your participation. You may now disconnect.+
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