Document
false--12-31Q220190001459417257000099300000.0010.00120000000057968493632313765796849363231376P5YP10YP5YP10YP3YP4YP9YP3YP5YP2YP1Y00000.0010.001500000000P168DP112DP84DP42DP1Y 0001459417 2019-01-01 2019-06-30 0001459417 2019-07-26 0001459417 2018-12-31 0001459417 2019-06-30 0001459417 2019-04-01 2019-06-30 0001459417 2018-01-01 2018-06-30 0001459417 2018-04-01 2018-06-30 0001459417 us-gaap:CommonStockMember 2018-04-01 2018-06-30 0001459417 us-gaap:CommonStockMember 2018-06-30 0001459417 us-gaap:CommonStockMember 2018-03-31 0001459417 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001459417 2017-12-31 0001459417 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001459417 us-gaap:RetainedEarningsMember 2018-03-31 0001459417 us-gaap:CommonStockMember 2018-01-01 2018-03-31 0001459417 us-gaap:CommonStockMember 2017-12-31 0001459417 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0001459417 2018-01-01 2018-03-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001459417 2018-03-31 0001459417 2018-06-30 0001459417 us-gaap:RetainedEarningsMember 2017-12-31 0001459417 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001459417 us-gaap:RetainedEarningsMember 2018-06-30 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0001459417 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001459417 us-gaap:CommonStockMember 2019-04-01 2019-06-30 0001459417 2019-01-01 2019-03-31 0001459417 us-gaap:RetainedEarningsMember 2019-03-31 0001459417 2019-03-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001459417 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001459417 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001459417 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001459417 us-gaap:CommonStockMember 2018-12-31 0001459417 us-gaap:CommonStockMember 2019-06-30 0001459417 us-gaap:CommonStockMember 2019-03-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001459417 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001459417 us-gaap:RetainedEarningsMember 2019-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001459417 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001459417 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001459417 us-gaap:RetainedEarningsMember 2018-12-31 0001459417 us-gaap:AccountsPayableAndAccruedLiabilitiesMember 2019-06-30 0001459417 srt:MaximumMember 2019-01-01 2019-06-30 0001459417 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001459417 2018-07-01 2018-12-31 0001459417 us-gaap:AccountsPayableAndAccruedLiabilitiesMember 2018-12-31 0001459417 srt:MinimumMember twou:ShortCourseMember 2019-06-30 0001459417 srt:MinimumMember 2019-01-01 2019-06-30 0001459417 srt:MinimumMember twou:BootCampMember 2019-06-30 0001459417 srt:MaximumMember twou:BootCampMember 2019-06-30 0001459417 srt:MaximumMember twou:ShortCourseMember 2019-06-30 0001459417 twou:TrilogyEducationServicesInc.Member 2019-05-22 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:TradeNamesMember 2019-05-22 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:CustomerRelationshipsMember 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member twou:ContentDevelopmentMember 2019-05-22 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:TechnologyBasedIntangibleAssetsMember 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:TradeNamesMember 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:CustomerRelationshipsMember 2019-05-22 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member twou:ContentDevelopmentMember 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member us-gaap:TechnologyBasedIntangibleAssetsMember 2019-05-22 2019-05-22 0001459417 twou:ExcludingInProcessCapitalizedTechnologyAndContentDevelopmentMember 2019-06-30 0001459417 us-gaap:ArtisticRelatedIntangibleAssetsMember 2019-06-30 0001459417 us-gaap:ContractualRightsMember 2019-06-30 0001459417 us-gaap:DevelopedTechnologyRightsMember 2018-12-31 0001459417 us-gaap:ArtisticRelatedIntangibleAssetsMember 2018-12-31 0001459417 us-gaap:TradeNamesMember 2018-12-31 0001459417 us-gaap:ContractualRightsMember 2018-12-31 0001459417 us-gaap:TradeNamesMember 2019-06-30 0001459417 us-gaap:DevelopedTechnologyRightsMember 2019-06-30 0001459417 2018-01-01 2018-12-31 0001459417 twou:InProcessCapitalizedTechnologyAndContentDevelopmentMember 2018-12-31 0001459417 twou:InProcessCapitalizedTechnologyAndContentDevelopmentMember 2019-06-30 0001459417 twou:GraduateProgramSegmentMember 2019-06-30 0001459417 twou:GraduateProgramSegmentMember 2019-01-01 2019-06-30 0001459417 twou:GraduateProgramSegmentMember 2018-12-31 0001459417 twou:AlternativeCredentialSegmentMember 2019-01-01 2019-06-30 0001459417 twou:AlternativeCredentialSegmentMember 2018-12-31 0001459417 twou:AlternativeCredentialSegmentMember 2019-06-30 0001459417 srt:MaximumMember us-gaap:ArtisticRelatedIntangibleAssetsMember 2019-01-01 2019-06-30 0001459417 srt:MaximumMember us-gaap:TradeNamesMember 2019-01-01 2019-06-30 0001459417 srt:MinimumMember us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-06-30 0001459417 srt:MaximumMember us-gaap:ContractualRightsMember 2019-01-01 2019-06-30 0001459417 srt:MinimumMember us-gaap:ArtisticRelatedIntangibleAssetsMember 2019-01-01 2019-06-30 0001459417 srt:MinimumMember us-gaap:TradeNamesMember 2019-01-01 2019-06-30 0001459417 srt:MaximumMember us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-06-30 0001459417 srt:MinimumMember us-gaap:ContractualRightsMember 2019-01-01 2019-06-30 0001459417 srt:MaximumMember 2019-06-30 0001459417 srt:MinimumMember 2019-06-30 0001459417 srt:MinimumMember twou:CreditAgreementMember us-gaap:LetterOfCreditMember us-gaap:BaseRateMember 2019-05-22 2019-05-22 0001459417 srt:MaximumMember twou:CreditAgreementMember us-gaap:LetterOfCreditMember 2019-05-22 2019-05-22 0001459417 twou:CreditAgreementMember us-gaap:LetterOfCreditMember us-gaap:BaseRateMember 2019-05-22 2019-05-22 0001459417 twou:PrinceGeorgesCountyMarylandMember 2019-06-30 0001459417 twou:CreditAgreementMember us-gaap:LetterOfCreditMember 2019-01-01 2019-06-30 0001459417 us-gaap:StandbyLettersOfCreditMember 2019-06-30 0001459417 twou:CreditAgreementMember us-gaap:LetterOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-05-22 2019-05-22 0001459417 twou:CreditAgreementMember us-gaap:LetterOfCreditMember 2019-05-22 0001459417 srt:MinimumMember twou:CreditAgreementMember us-gaap:LetterOfCreditMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-05-22 2019-05-22 0001459417 twou:TrilogyEducationServicesInc.Member 2019-01-01 2019-06-30 0001459417 us-gaap:CommonStockMember 2018-05-22 2018-05-22 0001459417 us-gaap:EmployeeStockOptionMember twou:EquityIncentivePlan2014Member 2018-01-01 0001459417 us-gaap:EmployeeStockOptionMember twou:EquityIncentivePlan2014Member 2019-01-01 0001459417 us-gaap:CommonStockMember us-gaap:OverAllotmentOptionMember 2018-05-22 2018-05-22 0001459417 twou:ServicingAndSupportMember 2019-04-01 2019-06-30 0001459417 twou:TechnologyAndContentDevelopmentMember 2018-04-01 2018-06-30 0001459417 twou:TechnologyAndContentDevelopmentMember 2018-01-01 2018-06-30 0001459417 us-gaap:GeneralAndAdministrativeExpenseMember 2018-01-01 2018-06-30 0001459417 us-gaap:GeneralAndAdministrativeExpenseMember 2019-01-01 2019-06-30 0001459417 twou:TechnologyAndContentDevelopmentMember 2019-01-01 2019-06-30 0001459417 us-gaap:SellingAndMarketingExpenseMember 2019-01-01 2019-06-30 0001459417 twou:TechnologyAndContentDevelopmentMember 2019-04-01 2019-06-30 0001459417 us-gaap:SellingAndMarketingExpenseMember 2019-04-01 2019-06-30 0001459417 twou:CurriculumAndTeachingMember 2019-01-01 2019-06-30 0001459417 twou:ServicingAndSupportMember 2019-01-01 2019-06-30 0001459417 twou:ServicingAndSupportMember 2018-01-01 2018-06-30 0001459417 twou:CurriculumAndTeachingMember 2018-01-01 2018-06-30 0001459417 us-gaap:SellingAndMarketingExpenseMember 2018-01-01 2018-06-30 0001459417 twou:CurriculumAndTeachingMember 2019-04-01 2019-06-30 0001459417 twou:CurriculumAndTeachingMember 2018-04-01 2018-06-30 0001459417 us-gaap:GeneralAndAdministrativeExpenseMember 2018-04-01 2018-06-30 0001459417 twou:ServicingAndSupportMember 2018-04-01 2018-06-30 0001459417 us-gaap:SellingAndMarketingExpenseMember 2018-04-01 2018-06-30 0001459417 us-gaap:GeneralAndAdministrativeExpenseMember 2019-04-01 2019-06-30 0001459417 twou:RestrictedStockUnitsandPerformanceRestrictedStockUnitsMember 2019-01-01 2019-06-30 0001459417 twou:RestrictedStockUnitsandPerformanceRestrictedStockUnitsMember 2018-12-31 0001459417 twou:RestrictedStockUnitsandPerformanceRestrictedStockUnitsMember 2019-06-30 0001459417 twou:PerformanceRestrictedStockUnitsMember 2019-06-30 0001459417 srt:MaximumMember twou:PerformanceRestrictedStockUnitsMember 2019-04-01 2019-06-30 0001459417 twou:PerformanceRestrictedStockUnitsMember 2019-04-01 2019-06-30 0001459417 srt:MinimumMember twou:PerformanceRestrictedStockUnitsMember 2019-04-01 2019-06-30 0001459417 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-06-30 0001459417 us-gaap:EmployeeStockOptionMember 2019-06-30 0001459417 us-gaap:EmployeeStockOptionMember 2018-12-31 0001459417 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-06-30 0001459417 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-06-30 0001459417 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-06-30 0001459417 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-06-30 0001459417 twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 twou:AlternativeCredentialSegmentMember 2018-01-01 2018-06-30 0001459417 twou:GraduateProgramSegmentMember 2018-04-01 2018-06-30 0001459417 twou:AlternativeCredentialSegmentMember 2018-04-01 2018-06-30 0001459417 twou:GraduateProgramSegmentMember 2019-04-01 2019-06-30 0001459417 twou:AlternativeCredentialSegmentMember 2019-04-01 2019-06-30 0001459417 twou:UniversityClientOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2019-04-01 2019-06-30 0001459417 twou:UniversityClientOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2019-06-30 0001459417 twou:FourUniversityClientsMember twou:SalesRevenueSegmentRevenueMember us-gaap:CustomerConcentrationRiskMember twou:AlternativeCredentialSegmentMember 2019-04-01 2019-06-30 0001459417 us-gaap:NonUsMember twou:AlternativeCredentialSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2019-01-01 2019-06-30 0001459417 twou:FourUniversityClientsMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:AlternativeCredentialSegmentMember 2019-01-01 2019-06-30 0001459417 twou:UniversityClientThreeMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-04-01 2018-06-30 0001459417 twou:UniversityClientTwoMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 twou:ThreeUniversityClientsMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:AlternativeCredentialSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientOneMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-04-01 2018-06-30 0001459417 twou:UniversityClientTwoMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-04-01 2018-06-30 0001459417 us-gaap:NonUsMember twou:AlternativeCredentialSegmentMember 2018-12-31 0001459417 us-gaap:NonUsMember twou:AlternativeCredentialSegmentMember 2018-04-01 2018-06-30 0001459417 twou:UniversityClientOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2019-01-01 2019-06-30 0001459417 twou:ThreeUniversityClientsMember twou:SalesRevenueSegmentRevenueMember us-gaap:CustomerConcentrationRiskMember twou:AlternativeCredentialSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientTwoMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 twou:UniversityClientThreeMember us-gaap:SalesRevenueNetMember us-gaap:CustomerConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-01-01 2018-06-30 0001459417 us-gaap:NonUsMember twou:AlternativeCredentialSegmentMember 2019-04-01 2019-06-30 0001459417 us-gaap:NonUsMember twou:AlternativeCredentialSegmentMember 2019-01-01 2019-06-30 0001459417 twou:UniversityClientTwoMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-12-31 0001459417 twou:UniversityClientOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember twou:GraduateProgramSegmentMember 2018-12-31 iso4217:USD twou:agreement xbrli:pure twou:segment iso4217:USD xbrli:shares xbrli:shares twou:plan

Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019
 
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
 
Commission File Number: 001-36376
 
2U, INC.
(Exact name of registrant as specified in its charter)

Delaware
26-2335939
 
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
 
7900 Harkins Road
Lanham,
MD
20706
 
(Address of Principal Executive Offices)
(Zip Code)
 

(301) 892-4350
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading Symbol(s):
 
Name of each exchange on which registered:
 
 
 
 
 
Common stock, $0.001 par value per share
 
TWOU
 
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer


Accelerated filer

Non-accelerated filer  

Smaller reporting company
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No
As of July 26, 2019, there were 63,334,891 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
 



Table of Contents

TABLE OF CONTENTS
 
 
 
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018
 
 
Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019 and 2018
 
 
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2019 and 2018
 
 
Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



1


Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Factors which may cause actual results to differ materially from current expectations include, but are not limited to:
trends in the higher education market and the market for online education, and expectations for growth in those markets;
the acceptance, adoption and growth of online learning by colleges and universities, faculty, students, employers, accreditors and state and federal licensing bodies;
our ability to comply with evolving regulations and legal obligations related to data privacy, data protection and information security;
our expectations about the potential benefits of our cloud-based software-as-a-service, or SaaS, technology and technology-enabled services to university clients and students;
our dependence on third parties to provide certain technological services or components used in our platform;
our ability to meet the anticipated launch dates of our graduate programs, short courses and boot camps;
our expectations about the predictability, visibility and recurring nature of our business model;
our ability to acquire new university clients and expand our graduate programs, short courses and boot camps with existing university clients;
our ability to successfully integrate the operations of Get Educated International Proprietary Limited, or GetSmarter, and Trilogy Education Services, Inc., or Trilogy, achieve the expected benefits of the acquisitions and manage, expand and grow the combined company;
our ability to service our substantial indebtedness and comply with the financial and other restrictive covenants contained in the credit agreement governing our senior secured term loan facility;
our ability to execute our growth strategy in the international, undergraduate and non-degree alternative markets;
our ability to continue to acquire prospective students for our graduate programs, short courses and boot camps;
our ability to affect or increase student retention in our graduate programs;
our ability to attract, hire and retain qualified employees;
our expectations about the scalability of our cloud-based platform;
our expectations regarding future expenses in relation to future revenue;
potential changes in regulations applicable to us or our university clients; and
our expectations regarding the amount of time our cash balances and other available financial resources will be sufficient to fund our operations.
 

2


Table of Contents

You should refer to the risks described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, as amended and supplemented by Part II, Item 1A “Risk Factors” in this Quarterly Report, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. In this Quarterly Report on Form 10-Q, the terms “2U,” “Company,” “we,” “us,” and “our” refer to 2U, Inc. and its subsidiaries, unless the context indicates otherwise.

3


Table of Contents

PART I.  FINANCIAL INFORMATION
 
Item 1.       Financial Statements

2U, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
 
June 30,
2019
 
December 31,
2018
 
(unaudited)
 
 
Assets
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
218,723

 
$
449,772

Restricted cash
14,761

 

Investments

 
25,000

Accounts receivable, net
71,578

 
32,636

Prepaid expenses and other assets
43,136

 
14,272

Total current assets
348,198

 
521,680

Property and equipment, net
57,464

 
52,299

Right-of-use assets
36,463

 

Goodwill
488,747

 
61,852

Amortizable intangible assets, net
339,269

 
136,605

University payments and other assets, non-current
61,606

 
34,918

Total assets
$
1,331,747

 
$
807,354

Liabilities and stockholders’ equity
 

 
 

Current liabilities
 

 
 

Accounts payable and accrued expenses
$
66,468

 
$
27,647

Accrued compensation and related benefits
21,472

 
23,001

Deferred revenue
54,600

 
8,345

Lease liability
6,277

 

Other current liabilities
10,329

 
9,487

Total current liabilities
159,146

 
68,480

Long-term debt
245,451

 
3,500

Deferred tax liabilities, net
6,440

 
6,949

Lease liability, non-current
58,924

 

Other liabilities, non-current
737

 
23,416

Total liabilities
470,698

 
102,345

Commitments and contingencies (Note 5)


 


Stockholders’ equity


 


Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued

 

Common stock, $0.001 par value, 200,000,000 shares authorized, 63,231,376 shares issued and outstanding as of June 30, 2019; 57,968,493 shares issued and outstanding as of December 31, 2018
63

 
58

Additional paid-in capital
1,161,321

 
957,631

Accumulated deficit
(293,692
)
 
(244,166
)
Accumulated other comprehensive loss
(6,643
)
 
(8,514
)
Total stockholders’ equity
861,049

 
705,009

Total liabilities and stockholders’ equity
$
1,331,747

 
$
807,354

 
See accompanying notes to condensed consolidated financial statements.

4


Table of Contents

2U, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited, in thousands, except share and per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
135,461

 
$
97,423

 
$
257,695

 
$
189,711

Costs and expenses
 
 
 
 
 
 
 
Curriculum and teaching
13,308

 
6,007

 
20,009

 
10,314

Servicing and support
23,993

 
17,297

 
44,167

 
32,530

Technology and content development
26,043

 
15,235

 
45,837

 
29,075

Marketing and sales
89,749

 
58,376

 
166,710

 
111,434

General and administrative
28,408

 
22,480

 
51,431

 
44,349

Total costs and expenses
181,501


119,395


328,154


227,702

Loss from operations
(46,040
)
 
(21,972
)
 
(70,459
)
 
(37,991
)
Interest income
1,814

 
912

 
4,163

 
1,254

Interest expense
(2,424
)
 
(27
)
 
(2,479
)
 
(54
)
Other expense, net
(13
)
 
(825
)
 
(383
)
 
(1,220
)
Loss before income taxes
(46,663
)

(21,912
)

(69,158
)

(38,011
)
Income tax benefit
18,691

 
3,565

 
19,632

 
4,793

Net loss
$
(27,972
)

$
(18,347
)

$
(49,526
)

$
(33,218
)
Net loss per share, basic and diluted
$
(0.46
)
 
$
(0.33
)
 
$
(0.83
)
 
$
(0.62
)
Weighted-average shares of common stock outstanding, basic and diluted
60,516,662

 
54,981,192

 
59,334,246

 
53,840,582

Other comprehensive loss
 

 
 

 
 

 
 

Foreign currency translation adjustments, net of tax of $0 for all periods presented
2,243

 
(14,178
)
 
1,871

 
(9,546
)
Comprehensive loss
$
(25,729
)

$
(32,525
)

$
(47,655
)

$
(42,764
)
 
See accompanying notes to condensed consolidated financial statements.


5


Table of Contents

2U, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited, in thousands, except share amounts)
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2018
57,968,493

 
$
58

 
$
957,631

 
$
(244,166
)
 
$
(8,514
)
 
$
705,009

Exercise of stock options
211,506

 

 
1,928

 

 

 
1,928

Issuance of common stock in connection with settlement of restricted stock units, net of withholdings
9,319

 

 

 

 

 

Stock-based compensation expense

 

 
9,584

 

 

 
9,584

Net loss

 

 

 
(21,554
)
 

 
(21,554
)
Foreign currency translation adjustment

 

 

 

 
(372
)
 
(372
)
Balance, March 31, 2019
58,189,318

 
$
58

 
$
969,143

 
$
(265,720
)
 
$
(8,886
)
 
$
694,595

Exercise of stock options
85,539

 

 
452

 

 

 
452

Issuance of common stock in connection with settlement of restricted stock units, net of withholdings
348,418

 

 
(2,558
)
 

 

 
(2,558
)
Issuance of common stock in connection with business combination, net of offering costs
4,608,101

 
5

 
184,317

 

 

 
184,322

Stock-based compensation expense

 
 
 
9,967

 

 

 
9,967

Net loss

 

 

 
(27,972
)
 

 
(27,972
)
Foreign currency translation adjustment

 

 

 

 
2,243

 
2,243

Balance, June 30, 2019
63,231,376

 
$
63

 
$
1,161,321

 
$
(293,692
)
 
$
(6,643
)
 
$
861,049

 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2017
52,505,856

 
$
53

 
$
588,289

 
$
(205,836
)
 
$
5,326

 
$
387,832

Exercise of stock options
186,049

 

 
2,120

 

 

 
2,120

Issuance of common stock in connection with settlement of restricted stock units, net of withholdings
154,111

 

 
(1,002
)
 

 

 
(1,002
)
Stock-based compensation expense

 

 
7,122

 

 

 
7,122

Net loss

 

 

 
(14,871
)
 

 
(14,871
)
Foreign currency translation adjustment

 

 

 

 
4,632

 
4,632

Balance, March 31, 2018
52,846,016

 
$
53

 
$
596,529

 
$
(220,707
)
 
$
9,958

 
$
385,833

Exercise of stock options
315,482

 

 
2,673

 

 

 
2,673

Issuance of common stock in connection with settlement of restricted stock units, net of withholdings
320,753

 

 
(2,405
)
 

 

 
(2,405
)
Issuance of common stock in connection with a public offering of common stock, net of offering costs
3,833,334

 
4

 
330,858

 

 

 
330,862

Stock-based compensation expense

 

 
9,009

 

 

 
9,009

Net loss

 

 

 
(18,347
)
 

 
(18,347
)
Foreign currency translation adjustment

 

 

 

 
(14,178
)
 
(14,178
)
Balance, June 30, 2018
57,315,585

 
$
57

 
$
936,664

 
$
(239,054
)
 
$
(4,220
)
 
$
693,447


See accompanying notes to condensed consolidated financial statements.

6


Table of Contents

2U, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands) 
 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities
 

 
 

Net loss
$
(49,526
)
 
$
(33,218
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization expense
24,351

 
14,783

Stock-based compensation expense
19,551

 
16,131

Non-cash lease expense
5,264

 

Bad debt expense
993

 

Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(25,548
)
 
(35,932
)
Payments to university clients
(20,060
)
 
(8,923
)
Prepaid expenses and other assets
(8,796
)
 
(3,705
)
Accounts payable and accrued expenses
18,081

 
10,207

Accrued compensation and related benefits
(5,964
)
 
(1,998
)
Deferred revenue
15,849

 
24,086

Other liabilities, net
(23,056
)
 
(2,854
)
Other
912

 
1,221

Net cash used in operating activities
(47,949
)

(20,202
)
Cash flows from investing activities
 

 
 

Purchase of a business, net of cash acquired
(387,815
)
 

Additions of amortizable intangible assets
(32,430
)
 
(40,039
)
Purchases of property and equipment
(8,139
)
 
(5,124
)
Purchase of equity interests
(5,000
)
 

Proceeds from maturities of investments
25,000

 

Advances made to university clients
(100
)
 
(100
)
Advances repaid by university clients
200

 

Other
4

 

Net cash used in investing activities
(408,280
)

(45,263
)
Cash flows from financing activities
 

 
 

Proceeds from issuance of common stock, net of offering costs

 
330,862

Proceeds from exercise of stock options
2,380

 
4,793

Proceeds from debt
243,726

 

Tax withholding payments associated with settlement of restricted stock units
(2,558
)
 
(3,407
)
Payments for acquisition of amortizable intangible assets
(1,283
)
 

Payment of debt issuance costs
(1,953
)
 

Net cash provided by financing activities
240,312


332,248

Effect of exchange rate changes on cash
(371
)
 
(1,319
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(216,288
)
 
265,464

Cash, cash equivalents and restricted cash, beginning of period
449,772

 
223,370

Cash, cash equivalents and restricted cash, end of period
$
233,484


$
488,834

 
See accompanying notes to condensed consolidated financial statements.


7

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)



1.    Organization

2U, Inc. (together with its subsidiaries, the “Company”) is a leading education technology company that well-recognized nonprofit colleges and universities trust to bring them into the digital age. The Company’s comprehensive platform of tightly integrated technology and services provides the digital infrastructure universities need to attract, enroll, educate and support students at scale. With the Company’s platform, students can pursue their education anytime, anywhere, without quitting their jobs or moving; and university clients can improve educational outcomes, skills attainment and career prospects for a greater number of students.

The Company has two reportable segments: the Graduate Program Segment and the Alternative Credential Segment (formerly known as the Short Course Segment). The Company’s Graduate Program Segment provides services to well-recognized nonprofit colleges and universities, primarily in the United States, to enable the online delivery of graduate programs. The Company’s Alternative Credential Segment provides short form non-degree offerings, such as premium online short courses and technical skills-based boot camps, to working professionals around the world through relationships with leading universities. In the first quarter of 2019, we elected to change the name of this segment from Short Course to Alternative Credential because we believe the name, Alternative Credential, more accurately describes this segment as we expand our offerings along the career curriculum continuum. Refer to Note 12 for further information about the Company’s segments.

On May 22, 2019, the Company completed its acquisition of Trilogy, a workforce accelerator that prepares adult learners for high-growth careers in the digital economy. The acquisition will expand 2U’s university portfolio and deepen relationships across both 2U’s and Trilogy’s partners to make education more accessible for lifelong learners. The results of Trilogy’s operations are included in the Alternative Credential Segment. Refer to Note 3 for further information about the acquisition of Trilogy.
 
2.    Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements, which include the assets, liabilities, results of operations and cash flows of the Company have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended, for financial statements required to be filed with the Securities and Exchange Commission (“SEC”). As permitted under such rules, certain notes and other financial information normally required by U.S. GAAP have been condensed or omitted. The Company believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. The Company’s results of operations for the three and six months ended June 30, 2019 and 2018 may not be indicative of the Company’s future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet data as of December 31, 2018 was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP on an annual reporting basis.

Use of Estimates

The preparation of the condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be affected by changes in those estimates. The Company evaluates its estimates and assumptions on an ongoing basis.

8

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

2.    Significant Accounting Policies (Continued)


Restricted Cash

The Company maintains restricted cash as collateral for standby letters of credit for the Company’s leased office facilities and in connection with the deferred government grant obligations.

Investments

The Company’s investments within current assets on the condensed consolidated balance sheets relate to certificates of deposit with original maturities between three months and one year. As of December 31, 2018, the Company had a $25.0 million certificate of deposit included in investments that qualified as a Level 1 fair value measurement asset and was stated at cost, which approximated fair value. This certificate of deposit matured in the first quarter of 2019.

Revenue Recognition

The Company generates substantially all of its revenue from contractual arrangements, with either its university clients or students, to provide a comprehensive platform of tightly integrated technology and technology-enabled services that support its offerings.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

The Graduate Program Segment derives revenue primarily from contractually specified percentages of the amounts the Company’s university clients receive from their students in 2U-enabled graduate programs for tuition and fees, less credit card fees and other specified charges the Company has agreed to exclude in certain university contracts. The Company’s contracts with university clients in this segment typically have initial terms of 10 to 15 years and have a single performance obligation, as the promises to provide a platform of tightly integrated technology and services that university clients need to attract, enroll, educate and support students are not distinct within the context of the contracts. The single performance obligation is delivered as the university clients receive and consume benefits, which occurs ratably over a series of academic terms. The amounts received from university clients over the term of the arrangement are variable in nature in that they are dependent upon the number of students that are enrolled in the program within each academic term. These amounts are allocated to and are recognized ratably over the related academic term, defined as the period beginning on the first day of classes through the last. Revenue is recognized net of an allowance, which is established for the Company’s expected obligation to refund tuition and fees to university clients.

The Alternative Credential Segment derives revenue primarily from contracts with students for the tuition and fees paid to enroll in, and progress through, the Company’s short courses and boot camps. The Company’s short courses run between six and 16 weeks, while boot camps run between 12 and 24 weeks. In this segment, the Company’s contracts with students include the delivery of the educational and related student support services and are treated as either a single performance obligation or multiple performance obligations, depending upon the offering being delivered. All performance obligations are satisfied ratably over the same presentation period, which is defined as the period beginning on the first day of the course through the last. The Company recognizes the gross proceeds received from the students enrolled and shares contractually specified amounts received from students with the associated university client, for providing items such as certification and content, as required. These amounts are recognized as curriculum and teaching costs on the Company’s condensed consolidated statements of operations and comprehensive loss. The Company’s contracts with university clients in this segment are typically shorter and less restrictive than the Company’s contracts with university clients in the Graduate Program Segment.

Business Combinations


9

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

2.    Significant Accounting Policies (Continued)

The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the cost of an acquired entity, net of the amounts assigned to the assets acquired and liabilities assumed, is recognized as goodwill. The net assets and results of operations of an acquired entity are included on the Company’s consolidated financial statements from the acquisition date.

Equity Interests

As of June 30, 2019, the Company had a $5.0 million investment in an education technology company recorded within university payments and other assets, non-current on the condensed consolidated balance sheet. This investment does not have a readily determinable fair value, and is accounted for as a cost method investment, which is subject to fair value remeasurement upon the occurrence of an observable event.

Marketing and Sales Costs

The majority of the marketing and sales costs incurred by the Company are directly related to acquiring students for its university clients’ graduate programs, with lesser amounts related to acquiring students for its short courses and boot camps and marketing and advertising efforts related to the Company’s own brand. For the three and six months ended June 30, 2019 and 2018, costs related to the Company’s marketing and advertising efforts of its own brand were not material. All such costs are expensed as incurred and reported in marketing and sales expense on the Company’s condensed consolidated statements of operations and comprehensive loss.

As of June 30, 2019 and December 31, 2018, the Company had $25.7 million and $10.3 million, respectively, of accrued marketing costs included in accounts payable and accrued expenses on its condensed consolidated balance sheets.

Leases

For the Company’s operating leases, an assessment is performed to determine if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the information necessary to determine the rate implicit in the Company’s leases is not readily available, the Company determines its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments made, less lease incentives. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not have any finance leases for any periods presented.

The Company has elected, as an accounting policy for its leases of real estate, to account for lease and non-lease components in a contract as a single lease component. In addition, the recognition requirements are not applied to leases with a term of 12 months or less. Rather, the lease payments for short-term leases are recognized on the condensed consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term.

Variable payments that depend on an index or a rate are initially measured using the index or rate at the lease commencement date. Such variable payments are included in the total lease payments when measuring the lease liability and ROU asset. The Company will only remeasure variable payments that depend on an index or a rate when the Company is remeasuring the lease liability due to any of the following occurring: (i) the lease is modified and the modification is not accounted for as a separate contract, (ii) a contingency, upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, is resolved, (iii) there is a change in lease term, (iv) there is a change in the probability of exercising a purchase option or (v) there is a change in the amount probable of being owed under residual value guarantees. Until the lease liability is remeasured due to one of the aforementioned events, additional payments for an increase in the index or rate will be recognized in the period in which they are incurred. Variable payments that do not depend on an index or a rate are excluded from the measurement of the lease liability and recognized in the condensed consolidated statements of operations and comprehensive loss in the period in which the obligation for those payments is incurred. The

10

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

2.    Significant Accounting Policies (Continued)

Company will remeasure its lease payments when the contingency underlying such variable payments is resolved such that some or all of the remaining payments become fixed. 

Long-Lived Asset Additions

During the six months ended June 30, 2019, the Company had capital asset additions of $41.7 million in property and equipment and capitalized technology and content development, $1.2 million of which consisted of non-cash capital expenditures. Due to extended payment terms associated with the timing of cash capital expenditures made more than 90 days after the date of purchase, $1.3 million of these additions was classified as cash flows from financing activities in the condensed consolidated statement of cash flows for the six months ended June 30, 2019.

During the six months ended June 30, 2018, the Company had capital asset additions of $55.2 million in property and equipment and capitalized technology and content development, of which $10.0 million consisted of non-cash capital expenditures, primarily related to the acquisition of certain long-lived assets for which a liability was accrued.

Debt Issuance Costs

Debt issuance costs are incurred as a result of entering into certain borrowing transactions and are presented as a reduction from the carrying amount of the debt liability on the Company’s condensed consolidated balance sheets. Debt issuance costs are amortized over the term of the associated debt instrument. The amortization of debt issuance costs is included as a component of interest expense on the Company’s condensed consolidated statements of operations and comprehensive loss. If the Company extinguishes debt prior to the end of the underlying instrument’s full term, some or all of the unamortized debt issuance costs may need to be written off, and a loss on extinguishment may need to be recognized. Refer to Note 7 for further information about the Company’s debt.

Recent Accounting Pronouncements

In April 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. ASU No. 2019-04 provides corrections, updates and clarifications to the previously issued updates of ASU No. 2016-01, ASU No. 2016-13 and ASU No. 2017-12. Various areas of the Accounting Standards Codification were impacted by the update. This standard follows the effective dates of the previously issued ASUs, unless an entity has already early adopted the previous ASUs, in which case the effective date will vary according to each specific ASU adoption. As the Company has adopted ASU No. 2016-01, the amendments related to ASU No. 2016-01 are effective for annual and interim periods in fiscal years beginning after December 15, 2019. As the Company has not yet adopted ASU No. 2016-13, the amendments related to ASU No. 2016-13 are effective for fiscal years beginning after December 15, 2019. Refer below for further discussion of ASU No. 2016-13. The Company is evaluating the impact that the amendments related to ASU Nos. 2016-13 and 2016-01 will have on its consolidated financial position and related disclosures. The amendments to ASU No. 2017-12 are not applicable to the Company.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires customers in cloud computing arrangements that are service contracts to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company early adopted this ASU on July 1, 2018 under the prospective method. As a result of adopting this standard, as of June 30, 2019 and December 31, 2018, the Company had balances of $1.5 million and $0.4 million, respectively, of capitalized implementation costs incurred to integrate the software associated with its cloud computing arrangements, within university payments and other assets, non-current on the condensed consolidated balance sheets. Such capitalized costs are subject to amortization over the remaining contractual term of the associated cloud computing arrangement, with a useful life of between three to five years. The Company did not incur a material amount of such amortization for the three and six months ended June 30, 2019.


11

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

2.    Significant Accounting Policies (Continued)

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, which clarifies and corrects unintended applications of guidance, and makes improvements to several Accounting Standards Codification topics. The applicable amendments in this ASU are effective for the Company in annual periods beginning after December 15, 2018. The Company adopted this ASU on January 1, 2019. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this ASU on January 1, 2019. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates step two from the goodwill impairment test and requires an entity to recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value, up to the amount of goodwill allocated to that reporting unit. The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company early adopted this ASU on January 1, 2019. Adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements or related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequently, the FASB has issued the following standards related to ASU No. 2016-13: ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief; ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; and ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. ASU No. 2016-13 requires entities to measure all expected credit losses for most financial assets held at the reporting date based on an expected loss model, which includes historical experience, current conditions, and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. ASU No. 2016-13 also requires enhanced disclosures to help financial statement users better understand assumptions used in estimating expected credit losses. The amendments in these ASUs are effective for annual and interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact that the new guidance will have on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases (Topic 840). The ASU introduces a model for lessees requiring most leases to be reported on the balance sheet. The Company adopted this ASU and the related amendments on January 1, 2019 under the modified retrospective transition method, which resulted in no cumulative-effect adjustment to retained earnings. The Company’s financial results for periods ending after January 1, 2019 are presented in accordance with the requirements of Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with Topic 840.

Upon adoption, the Company elected to not recognize ROU assets or lease liabilities for leases with a term of 12 months or less, as permitted by the short-term lease practical expedient. In transition, the Company also applied the package of practical expedients that permit entities to not reassess (i) whether expired or existing contracts contain a lease under the new standard, (ii) the lease classification for expired or existing leases, or (iii) whether previously capitalized initial direct costs would qualify for capitalization under the new standard. The Company also applied the practical expedient that permits a lessee to account for lease and non-lease components in a contract as a single lease component. In addition, the Company did not use hindsight during transition.

Upon adoption, the Company recorded ROU assets of approximately $34 million, which have been reduced for accrued rent, and the remaining balance of any lease incentives upon transition, and also recorded corresponding current and non-current lease liabilities for its operating leases of approximately $5 million and $58 million, respectively, on the condensed consolidated balance sheets. Adoption of this standard did not have a material impact on the Company’s condensed consolidated statements of operations and comprehensive loss, the condensed consolidated statements of changes in stockholders’ equity or the condensed consolidated statements of cash flows. Refer to Note 6 for more information about the Company’s lease-related obligations.

12

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

3.     Business Combination

On May 22, 2019, the Company completed its acquisition of Trilogy pursuant to an Agreement and Plan of Merger and Reorganization, dated as of April 7, 2019 (the “Merger Agreement”), for a net purchase price of $607.6 million in cash and stock consideration. Under the terms of the Merger Agreement, the Company has issued restricted stock units for shares of its common stock, par value $0.001 per share, to certain employees and officers of Trilogy. These awards were issued pursuant to the Company’s 2014 Equity Incentive Plan, are subject to future service requirements and will primarily vest over an 18-month period. In addition, a portion of the purchase price held in escrow will be recognized as compensation expense as it is subject to future service requirements of certain key employees for an 18-month period. The net assets and results of operations of Trilogy are included in the Company’s condensed consolidated financial statements within the Alternative Credential Segment as of May 22, 2019.

The following table reflects the Company’s provisional valuation of the assets acquired and liabilities assumed of Trilogy as of the date of the acquisition:
 
Estimated Average Useful Life (in years)
 
Purchase Price Allocation
 
 
 
(in thousands)
Cash and cash equivalents
 
 
$
35,509

Current assets
 
 
29,989

Property and equipment, net
 
 
2,417

Other non-current assets
 
 
6,291

Amortizable intangible assets:
 
 
 
Developed technology
3
 
48,096

Developed content
4
 
48,050

University client relationships
10
 
84,150

Trade names and domain names
5
 
7,100

Goodwill
 
 
425,525

Current liabilities
 
 
(57,055
)
Non-current liabilities
 
 
(22,429
)
 
 
 
$
607,643



The Company’s provisional valuation of the assets acquired and liabilities assumed is preliminary and the fair values recorded were based upon preliminary estimates, assumptions and other information compiled by management, and are subject to change (which could be significant) within the measurement period of up to one year from the acquisition date. As of June 30, 2019, the Company is awaiting information to finalize the valuation, primarily related to the recording of intangible assets, the related deferred taxes and the final amount of residual goodwill.

The goodwill balance is primarily attributed to the assembled workforce, expanded market opportunities and operating synergies anticipated upon the integration of the operations of 2U and Trilogy. The goodwill resulting from the acquisition is not expected to be tax deductible.

The unaudited pro forma combined financial information below is presented for illustrative purposes and does not purport to represent what the results of operations would actually have been if the business combination occurred as of the dates indicated or what the results would be for any future periods. The following table presents the Company’s unaudited pro forma combined revenue and pro forma combined net loss, for the three and six months ended June 30, 2019 and 2018 as if the acquisition of Trilogy had occurred on January 1, 2018:


13

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

3.    Business Combination (Continued)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands, except per share amounts)
Pro forma revenue
$
157,865

 
$
114,933

 
$
311,174

 
$
224,455

Pro forma net loss
(52,805
)
 
(50,299
)
 
(110,169
)
 
(103,978
)
Pro forma net loss per share, basic and diluted
$
(0.87
)
 
$
(0.91
)
 
$
(1.86
)
 
$
(1.93
)


4.     Goodwill and Amortizable Intangible Assets

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:
 
Graduate
Program Segment
 
Alternative
Credential Segment
 
Total
 
(in thousands)
Balance as of December 31, 2018
$

 
$
61,852

 
$
61,852

Goodwill recognized in connection with business combination

 
425,525

 
425,525

Foreign currency translation adjustments

 
1,370

 
1,370

Balance as of June 30, 2019
$


$
488,747


$
488,747


 
Amortizable intangible assets, net consisted of the following as of:
 
 
 
June 30, 2019
 
December 31, 2018
 
Estimated
Average Useful
Life (in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
(in thousands)
Capitalized technology
3-5
 
$
130,904

 
$
(24,148
)
 
$
106,756

 
$
68,291

 
$
(16,945
)
 
$
51,346

Capitalized content development
4-5
 
146,530

 
(39,715
)
 
106,815

 
79,725

 
(31,662
)
 
48,063

University client relationships
9-10
 
110,283

 
(6,742
)
 
103,541

 
25,616

 
(4,269
)
 
21,347

Trade names and domain names
5-10
 
26,335

 
(4,178
)
 
22,157

 
18,793

 
(2,944
)
 
15,849

Total amortizable intangible assets, net
 
 
$
414,052

 
$
(74,783
)
 
$
339,269

 
$
192,425

 
$
(55,820
)
 
$
136,605



The amounts presented in the table above include $41.0 million and $40.3 million of in process capitalized technology and content development as of June 30, 2019 and December 31, 2018, respectively. Amortizable intangible assets recognized in connection with the acquisition of Trilogy consisted of developed technology of $48.1 million, developed content of $48.1 million, university client relationships of $84.2 million and trade names and domain names of $7.1 million, and are included in the balances presented in the table above as of June 30, 2019.

During 2018, the Company acquired certain third-party technologies to enhance the Company’s platform, which is
referred to as the 2U Operating System, or 2UOS, for aggregate consideration of $9.5 million. As of June 30, 2019, the Company has a remaining obligation to pay the seller $0.7 million by December 31, 2019.


14

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

4.    Goodwill and Amortizable Intangible Assets (Continued)

The Company recorded amortization expense related to amortizable intangible assets of $11.9 million and $5.5 million for the three months ended June 30, 2019 and 2018, respectively. The Company recorded amortization expense related to amortizable intangible assets of $18.9 million and $10.7 million for the six months ended June 30, 2019 and 2018, respectively.
As of June 30, 2019, the estimated future amortization expense for amortizable intangible assets placed in service is as follows (in thousands):
Remainder of 2019
$
34,686

2020
66,574

2021
60,942

2022
46,898

2023
29,140

Thereafter
59,986

Total
$
298,226



5.    Commitments and Contingencies

Legal Contingencies

From time to time, the Company may become involved in legal proceedings or be subject to claims (e.g., related to regulatory, employment or indirect tax matters) in the ordinary course of its business. The Company is not presently involved in any legal proceeding or subject to claims that, if determined adversely to it, would individually or in the aggregate have a material adverse effect on its business, operating results, financial condition or cash flows. Accordingly, the Company does not believe that it is reasonably possible that a material loss exceeding amounts already recognized may have been incurred as of the date of the balance sheets presented herein.

Marketing and Sales Commitments

Certain of the agreements entered into between the Company and its university clients in the Graduate Program Segment require the Company to commit to meet certain staffing and spending investment thresholds related to marketing and sales activities. In addition, certain of the agreements in the Graduate Program Segment require the Company to invest up to agreed upon levels in marketing the programs to achieve specified program performance. The Company believes it is currently in compliance with all such commitments.

Future Minimum Payments to University Clients

Pursuant to certain of the Company’s contracts in the Graduate Program Segment, the Company has made, or is obligated to make, payments to university clients in exchange for contract extensions and various marketing and other rights. As of June 30, 2019, the future minimum payments due to university clients has not materially changed relative to the amounts provided in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Contingent Payments

The Company has entered into agreements with certain of its university clients in the Graduate Program Segment under which the Company would be obligated to make future minimum payments in the event that certain program metrics are not achieved on an annual basis. The Company recognizes any estimated contingent payments under these agreements as contra revenue over the period in which they relate, and records a liability in other current liabilities on the condensed consolidated balance sheets.
As of June 30, 2019, the Company had an obligation to make an additional investment in an education technology company of up to $10.0 million, upon demand by the investee.

15

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

6.    Leases

The Company leases office facilities under non-cancelable operating leases primarily in the United States, South Africa, the United Kingdom, Canada and Hong Kong. The Company’s operating leases have remaining lease terms of between one to 11 years, some of which include options to extend the leases for up to five years, and some of which include options to terminate the leases within one year. These options to extend the terms of the Company’s operating leases were not deemed to be reasonably certain of exercise as of lease commencement and are therefore not included in the determination of their respective non-cancelable lease terms. The future lease payments due under non-cancelable operating lease arrangements contain fixed rent increases over the term of the lease. The Company also leases office equipment under non-cancelable leases. The Company did not have any subleases as of June 30, 2019.

As of December 31, 2018, the future minimum lease payments for operating leases having initial or remaining noncancellable lease terms in excess of one year were as follows (in thousands):
2019
$
12,941

2020
14,020

2021
13,900

2022
13,633

2023
13,959

Thereafter
68,347

Total future minimum lease payments
$
136,800


The components of lease expense consisted of the following for the period presented:
 
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
 
(in thousands)
Operating lease expense
$
2,714

 
$
5,336

Short-term lease expense
154

 
390

Variable lease expense
1,091

 
2,005

Total lease expense
$
3,959

 
$
7,731



As of June 30, 2019, for the Company’s operating leases, the weighted-average remaining lease term was 8.4 years and the weighted-average discount rate was 12.9%. For the six months ended June 30, 2019, cash paid for amounts included in the measurement of operating lease liabilities was $5.9 million.

As of June 30, 2019, the maturities of operating lease liabilities were as follows (in thousands):
Remainder of 2019
$
7,030

2020
13,606

2021
12,536

2022
11,648

2023
11,387

Thereafter
51,934

Total lease payments
108,141

Less: imputed interest
(42,940
)
Total lease liability
$
65,201



As of June 30, 2019, the Company has additional operating leases for office facilities that have not yet commenced with future minimum lease payments of approximately $95.6 million. These operating leases will commence during fiscal years 2019 through 2021, with lease terms of between two to twelve years.


16

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

7.    Debt

The Company’s outstanding long-term debt was as follows:
 
June 30, 2019
 
December 31, 2018
 
(in thousands)
Term loan
$
250,000

 
$

Deferred government grant obligations
3,500

 
3,500

Less: unamortized debt issuance costs
(8,049
)
 

Long-term debt
$
245,451

 
$
3,500



As of June 30, 2019 and December 31, 2018, the Company had no current portion of long-term debt.

Credit Agreement

On May 22, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with Owl Rock Capital Corporation, as administrative agent and collateral agent, and certain other lenders party thereto that provides for a $250 million senior secured term loan facility (the “Term Loan”). Subject to certain exceptions, the Term Loan under the Credit Agreement may be increased or new term loans may be established in an amount not to exceed (i) $50 million plus (ii) the amount of certain prepayments made by the Company plus (iii) an unlimited amount, subject to the achievement of either a certain First Lien LQA University Segment Revenue Leverage Ratio (as defined in the Credit Agreement) or a certain First Lien Net Leverage Ratio (as defined in the Credit Agreement), as applicable.

The Term Loan matures on May 22, 2024 and bear interest, at the Company’s option, at variable rates based on (i) a customary alternative base rate (with a floor of 2.00%) plus an applicable margin of 4.75% or (ii) an adjusted LIBOR rate (with a floor of 1.00%) for the interest period relevant to such borrowing plus an applicable margin of 5.75%. During each of the three and six months ended June 30, 2019, the Company incurred interest expense of $2.4 million in connection with the Credit Agreement.

Comerica Line of Credit

Effective in the second quarter of 2019, the Company terminated its $25.0 million revolving line of credit agreement and letters of credit with Comerica Bank. No amounts were outstanding under this credit agreement as of June 30, 2019 or December 31, 2018.

Deferred Government Grant Obligations

The Company has a total of two outstanding conditional loan agreements with Prince George’s County, Maryland and the State of Maryland for an aggregate amount of $3.5 million, each bearing an interest rate of 3% per annum. These agreements are conditional loan obligations that may be forgiven provided that the Company attains certain conditions related to employment levels at 2U’s Lanham, Maryland headquarters. The conditional loan with the State of Maryland has a maturity date of December 31, 2026, and the conditional loan with Prince George’s County, Maryland has a maturity date of June 22, 2027. The interest expense related to these loans for the three and six months ended June 30, 2019 and 2018 is immaterial.

Letters of Credit

Certain of the Company’s operating lease agreements entered into prior to June 30, 2019 require security deposits in the form of cash or an unconditional, irrevocable letter of credit. As of June 30, 2019, the Company has entered into standby letters of credit totaling $14.0 million as security deposits for the applicable leased facilities and in connection with the deferred government grant obligations.

17

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

8.    Income Taxes

The Company’s income tax provisions for all periods consist of federal, state and foreign income taxes. The tax provisions for the three and six months ended June 30, 2019 and 2018 were based on estimated full-year effective tax rates, including the mix of income for the period between higher-taxed and lower-taxed jurisdictions, after giving effect to significant items related specifically to the interim periods, and loss-making entities for which it is not more likely than not that a tax benefit will be realized.

The Company’s effective tax rate was approximately 40% and 16% for the three months ended June 30, 2019 and 2018, respectively. The Company’s effective tax rate was approximately 28% and 13% for the six months ended June 30, 2019 and 2018, respectively. A one-time tax benefit of approximately $19.3 million related to the acquisition of Trilogy is included in the Company’s income tax benefit for the three and six months ended June 30, 2019. This benefit relates to the reversal of the Company’s tax valuation allowance that was no longer needed as a result of recognizing an additional net deferred tax liability due to the acquisition of Trilogy. Excluding the one-time tax benefit, the Company’s tax expense was $0.6 million and tax benefit of 0.3 million for the three and six months ended June 30, 2019, respectively, related to losses generated by operations and the amortization of acquired intangibles in the Alternative Credential Segment that are expected to be realized through future reversing taxable temporary differences. The Company expects to continue to recognize a tax benefit in the future for the Alternative Credential Segment to the extent that this segment continues to generate pre-tax losses while carrying deferred tax liabilities that are in excess of deferred tax assets. To date, the Company has not been required to pay U.S. federal income taxes because of current and accumulated net operating losses.

9.    Stockholders’ Equity

On May 22, 2018 the Company sold 3,833,334 shares of its common stock to the public, including 500,000 shares sold pursuant to the underwriters’ over-allotment option, and received net proceeds of $330.9 million. The Company will use the net proceeds from this public offering of common stock for working capital and other general corporate purposes, including expenditures for marketing, technology and content development, in connection with new offering launches and growing existing offerings, as well as strategic acquisitions of, or investments in, complementary products, technologies, solutions or businesses.

As of June 30, 2019, the Company was authorized to issue 205,000,000 total shares of capital stock, consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of June 30, 2019, the Company had reserved a total of 14,586,404 of its authorized shares of common stock for future issuance as follows:
Outstanding stock options
4,325,728

Possible future issuance under 2014 Equity Incentive Plan
7,916,599

Outstanding restricted stock units
1,407,748

Available for future issuance under 2017 Employee Stock Purchase Plan
936,329

Total shares of common stock reserved for future issuance
14,586,404



The shares available for future issuance increased by 2,896,365 and 2,625,292 on January 1, 2019 and 2018, respectively, pursuant to the automatic share reserve increase provision under the Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”). The Company has not declared or paid cash dividends on its common stock to date.

10.    Stock-Based Compensation

The Company provides equity-based compensation awards to employees, independent contractors and directors as an effective means for attracting, retaining and motivating such individuals. The Company maintains two share-based compensation plans: the 2014 Plan and the 2008 Stock Incentive Plan (the “2008 Plan”). Upon the effective date of the 2014 Plan in January 2014, the Company ceased using the 2008 Plan to grant new equity awards and began using the 2014 Plan for grants of new equity awards.

Stock-Based Compensation Expense


18

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

10.    Stock-Based Compensation (Continued)


Stock-based compensation expense related to stock-based awards, as well as the 2017 Employee Stock Purchase Plan, is included in the following line items on the condensed consolidated statements of operations and comprehensive loss:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Curriculum and teaching
$
5

 
$
5

 
$
8

 
$
7

Servicing and support
1,834

 
1,320

 
3,503

 
2,192

Technology and content development
1,648

 
1,075

 
3,504

 
1,786

Marketing and sales
1,487

 
718

 
2,743

 
1,207

General and administrative
4,993

 
5,891

 
9,793

 
10,939

Total stock-based compensation expense
$
9,967

 
$
9,009


$
19,551


$
16,131



Stock Options

The following is a summary of the stock option activity for the six months ended June 30, 2019:
 
Number of
Options
 
Weighted-Average
Exercise Price per
Share
Outstanding balance as of December 31, 2018
4,057,788

 
$
27.23

Granted
592,339

 
71.16

Exercised
(297,045
)
 
8.01

Forfeited
(27,354
)
 
66.31

Expired

 

Outstanding balance as of June 30, 2019
4,325,728

 
34.31

Exercisable as of June 30, 2019*
2,937,882

 
18.99

 
*
As of June 30, 2019, the aggregate intrinsic value of options exercisable was $62.8 million and such shares had a weighted-average remaining contractual term of 5.01 years.

Restricted Stock Units

Under the 2014 Plan, the Company grants restricted stock units (“RSUs”) to the Company’s directors and certain of the Company’s employees, and grants performance restricted stock units (“PRSUs”) to certain of the Company’s employees. The terms of these grants under the 2014 Plan, including the vesting periods, are determined by the Company’s board of directors or the compensation committee, or a subcommittee thereof.

During the six months ended June 30, 2019, the Company granted 186,433 PRSUs with an aggregate grant date fair value of $11.5 million to certain of its employees. These PRSU awards are generally subject to vesting over periods of approximately one or two years, based on the Company achieving pre-determined consolidated revenue and adjusted EBITDA performance targets for the 2019 fiscal year. The PRSU award agreements provide that the quantity of units subject to vesting may range from 100% to 0% of the granted quantities, depending on the achievement of performance targets. The expense recognized each period is dependent upon the Company’s estimate of the number of shares that will ultimately be issued.

The following is a summary of RSU and PRSU activity for the six months ended June 30, 2019:

19

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

10.    Stock-Based Compensation (Continued)


 
Number of
Units
 
Weighted-
Average Grant
Date Fair Value per Share
Outstanding balance as of December 31, 2018
1,139,045

 
$
52.47

Granted
717,502

 
68.22

Vested
(393,245
)
 
41.24

Forfeited
(55,554
)
 
63.03

Outstanding balance as of June 30, 2019
1,407,748

 
63.22



11.    Net Loss per Share

Diluted net loss per share is the same as basic net loss per share for all periods presented because the effects of potentially dilutive items were anti-dilutive, given the Company’s net loss. The following securities have been excluded from the calculation of weighted-average shares of common stock outstanding because the effect is anti-dilutive for the three and six months ended June 30, 2019 and 2018:
 
Three and Six Months Ended
June 30,
 
2019
 
2018
Stock options
4,325,728

 
4,659,638

Restricted stock units
1,407,748

 
1,280,627



Basic and diluted net loss per share is calculated as follows: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Numerator (in thousands):
 

 
 

 
 

 
 

Net loss
$
(27,972
)
 
$
(18,347
)
 
$
(49,526
)
 
$
(33,218
)
Denominator:
 

 
 

 
 

 
 

Weighted-average shares of common stock outstanding, basic and diluted
60,516,662

 
54,981,192

 
59,334,246

 
53,840,582

Net loss per share, basic and diluted
$
(0.46
)
 
$
(0.33
)
 
$
(0.83
)
 
$
(0.62
)


12.    Segment and Geographic Information

The Company has two reportable segments: the Graduate Program Segment and the Alternative Credential Segment (formerly known as the Short Course Segment). The Company’s Graduate Program Segment provides services to well-recognized nonprofit colleges and universities, primarily in the United States, to enable the online delivery of graduate programs. The Company’s Alternative Credential Segment provides short form non-degree offerings such as premium online short courses and technical skills-based boot camps to working professionals around the world through relationships with leading universities.

Graduate Program Segment

For the three months ended June 30, 2019, one university client accounted for 10% or more of the Company’s consolidated revenue, accounting for $21.2 million, which equaled 16% of the Company’s consolidated revenue. For the three months ended June 30, 2018, three university clients each accounted for 10% or more of the Company’s consolidated revenue, as follows: $20.4 million, $13.1 million and $10.2 million, which equaled 21%, 13% and 10% of the Company’s consolidated revenue, respectively.

For the six months ended June 30, 2019, one university client accounted for 10% or more of the Company’s consolidated revenue, accounting for $43.8 million, which equaled 17% of the Company’s consolidated revenue. For the six months ended June 30, 2018, three university clients each accounted for 10% or more of the Company’s consolidated revenue,

20

Table of Contents
2U, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

12.    Segment and Geographic Information (Continued)

as follows: $41.1 million, $26.5 million, and $19.8 million, which equaled 22%, 14%, and 10% of the Company’s consolidated revenue, respectively.

As of June 30, 2019, one university client accounted for 10% or more of the Company’s consolidated accounts receivable, net balance, accounting for $15.0 million, which equaled 21% of the Company’s consolidated accounts receivable, net balance. As of December 31, 2018, two university clients each accounted for 10% or more of the Company’s consolidated accounts receivable, net balance, as follows: $11.9 million and $11.8 million, which equaled 36% and 36% of the Company’s consolidated accounts receivable, net balance, respectively.

Alternative Credential Segment

For the three and six months ended June 30, 2019 and 2018, there were no customers or individual university clients that had associated offerings that accounted for 10% or more of the Company’s consolidated revenue. In addition, as of June 30, 2019 and December 31, 2018, no customers had accounts receivable, net balances that accounted for 10% or more of the Company’s consolidated accounts receivable, net balance, as customers are individual students or third parties paying on their behalf, rather than university clients.

For the three months ended June 30, 2019, offerings associated with two university clients each accounted for 10% or more of the segment’s revenue, and when combined, accounted for approximately 37% of the segment’s revenue. For the three months ended June 30, 2018, offerings associated with three university clients each accounted for 10% or more of the segment’s revenue, and when combined, accounted for approximately 83% of the segment’s revenue.

For the six months ended June 30, 2019, offerings associated with three university clients each accounted for 10% or more of the segment’s revenue, and when combined, accounted for approximately 56% of the segment’s revenue. For the six months ended June 30, 2018, offerings associated with three university clients each accounted for 10% or more of the segment’s revenue, and when combined, accounted for approximately 83% of the segment’s revenue.

Segment Performance

The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
 
(in thousands)
Revenue by segment*
 

 
 

 
 

 
 

Graduate Program Segment
$
101,403

 
$
81,209

 
$
205,577

 
$
161,768

Alternative Credential Segment
34,058

 
16,214

 
52,118

 
27,943

Total revenue
$
135,461


$
97,423


$
257,695


$