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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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26-2335939
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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7900 Harkins Road
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Lanham,
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MD
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20706
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(Address of Principal Executive Offices)
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(Zip Code)
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Title of each class:
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Trading Symbol(s):
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Name of each exchange on which registered:
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Common stock, $0.001 par value per share
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TWOU
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The Nasdaq Global Select Market
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Large accelerated filer
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☒
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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Condensed Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018
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Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and six months ended June 30, 2019 and 2018
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Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and six months ended June 30, 2019 and 2018
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Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2019 and 2018
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•
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trends in the higher education market and the market for online education, and expectations for growth in those markets;
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•
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the acceptance, adoption and growth of online learning by colleges and universities, faculty, students, employers, accreditors and state and federal licensing bodies;
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•
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our ability to comply with evolving regulations and legal obligations related to data privacy, data protection and information security;
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•
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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;
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•
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our dependence on third parties to provide certain technological services or components used in our platform;
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•
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our ability to meet the anticipated launch dates of our graduate programs, short courses and boot camps;
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•
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our expectations about the predictability, visibility and recurring nature of our business model;
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•
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our ability to acquire new university clients and expand our graduate programs, short courses and boot camps with existing university clients;
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•
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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;
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•
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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;
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•
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our ability to execute our growth strategy in the international, undergraduate and non-degree alternative markets;
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•
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our ability to continue to acquire prospective students for our graduate programs, short courses and boot camps;
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•
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our ability to affect or increase student retention in our graduate programs;
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•
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our ability to attract, hire and retain qualified employees;
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•
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our expectations about the scalability of our cloud-based platform;
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•
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our expectations regarding future expenses in relation to future revenue;
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•
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potential changes in regulations applicable to us or our university clients; and
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•
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our expectations regarding the amount of time our cash balances and other available financial resources will be sufficient to fund our operations.
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June 30,
2019 |
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December 31,
2018 |
||||
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(unaudited)
|
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|
||||
Assets
|
|
|
|
|
|
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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
|
|
|
|
|
|
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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
|
|
|
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
|
)
|
|
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
|
|
|
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
|
|
|
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
|
|
|
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
|
)
|
|
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
|
|
|
|
|
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
|
|
Remainder of 2019
|
$
|
34,686
|
|
2020
|
66,574
|
|
|
2021
|
60,942
|
|
|
2022
|
46,898
|
|
|
2023
|
29,140
|
|
|
Thereafter
|
59,986
|
|
|
Total
|
$
|
298,226
|
|
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
|
|
|
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
|
|
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
|
|
|
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
|
|
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
|
|
|
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
|
|
|
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.
|
|
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
|
|
|
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
|
|
|
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
|
)
|
|
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
|
|
|
$
|
189,711
|
|
|
|
|
|
|
|
|
|
||||||||
Segment profitability**
|
|
|
|
|
|
|
|
|
|
|
|
||||
Graduate Program Segment
|
$
|
(8,049
|
)
|
|
$
|
(5,905
|
)
|
|
$
|
(7,339
|
)
|
|
$
|
(6,179
|
)
|
Alternative Credential Segment
|
(6,926
|
)
|
|
350
|
|
|
(10,842
|
)
|
|
(898
|
)
|
||||
Total segment profitability
|
$
|
(14,975
|
)
|
|
$
|
(5,555
|
)
|
|
$
|
(18,181
|
)
|
|
$
|
(7,077
|
)
|
|
|
|
|
|
|
|
|
||||||||
Segment profitability margin***
|
|
|
|
|
|
|
|
|
|
|
|
||||
Graduate Program Segment
|
(7.9
|
)%
|
|
(7.3
|
)%
|
|
(3.6
|
)%
|
|
(3.8
|
)%
|
||||
Alternative Credential Segment
|
(20.3
|
)
|
|
2.2
|
|
|
(20.8
|
)
|
|
(3.2
|
)
|
||||
Total segment profitability margin
|
(11.1
|
)
|
|
(5.7
|
)
|
|
(7.0
|
)
|
|
(3.7
|
)
|
|
*
|
The Company has excluded immaterial amounts of intersegment revenues from the three and six month periods ended June 30, 2019 and 2018.
|
**
|
The Company defines segment profitability as net income or net loss, as applicable, before net interest income (expense), taxes, depreciation and amortization expense, foreign currency gains or losses, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs (including, as applicable, advisory fees and integration and restructuring expenses) and stock-based compensation expense. Some or all of these items may not be applicable in any given reporting period.
|
***
|
The Company defines segment profitability margin as segment profitability as a percentage of the respective segment’s revenue.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
(in thousands)
|
||||||||||||||
Net loss
|
$
|
(27,972
|
)
|
|
$
|
(18,347
|
)
|
|
$
|
(49,526
|
)
|
|
$
|
(33,218
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Interest income
|
(1,814
|
)
|
|
(912
|
)
|
|
(4,163
|
)
|
|
(1,254
|
)
|
||||
Interest expense
|
2,424
|
|
|
27
|
|
|
2,479
|
|
|
54
|
|
||||
Foreign currency loss
|
13
|
|
|
825
|
|
|
383
|
|
|
1,220
|
|
||||
Depreciation and amortization expense
|
14,653
|
|
|
7,408
|
|
|
24,351
|
|
|
14,783
|
|
||||
Income tax benefit
|
(18,691
|
)
|
|
(3,565
|
)
|
|
(19,632
|
)
|
|
(4,793
|
)
|
||||
Deferred revenue fair value adjustment
|
3,352
|
|
|
—
|
|
|
3,352
|
|
|
—
|
|
||||
Transaction costs
|
3,093
|
|
|
—
|
|
|
5,024
|
|
|
—
|
|
||||
Stock-based compensation expense
|
9,967
|
|
|
9,009
|
|
|
19,551
|
|
|
16,131
|
|
||||
Total adjustments
|
12,997
|
|
|
12,792
|
|
|
31,345
|
|
|
26,141
|
|
||||
Total segment profitability
|
$
|
(14,975
|
)
|
|
$
|
(5,555
|
)
|
|
$
|
(18,181
|
)
|
|
$
|
(7,077
|
)
|
|
June 30,
2019 |
|
December 31,
2018 |
||||
|
(in thousands)
|
||||||
Total assets
|
|
|
|
|
|
||
Graduate Program Segment
|
$
|
558,135
|
|
|
$
|
702,827
|
|
Alternative Credential Segment
|
773,612
|
|
|
104,527
|
|
||
Total assets
|
$
|
1,331,747
|
|
|
$
|
807,354
|
|
|
June 30,
2019 |
|
December 31,
2018 |
||||
|
(in thousands)
|
||||||
Trade accounts receivable
|
|
|
|
|
|
||
Graduate Program Segment accounts receivable, net of allowance for doubtful accounts of $0 for all periods presented
|
$
|
30,829
|
|
|
$
|
31,110
|
|
Graduate Program Segment unbilled revenue*
|
24,779
|
|
|
265
|
|
||
Alternative Credential Segment accounts receivable, net of allowance for doubtful accounts of $993 and $257 as of June 30, 2019 and December 31, 2018, respectively
|
15,969
|
|
|
982
|
|
||
Total trade accounts receivable
|
$
|
71,577
|
|
|
$
|
32,357
|
|
|
|
|
|
||||
Contract liabilities
|
|
|
|
|
|
||
Graduate Program Segment deferred revenue
|
$
|
11,560
|
|
|
$
|
2,864
|
|
Alternative Credential Segment deferred revenue
|
43,040
|
|
|
5,481
|
|
||
Total contract liabilities
|
$
|
54,600
|
|
|
$
|
8,345
|
|
|
*
|
Unbilled revenue represents contract assets.
|
•
|
Our 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. We target students seeking a full graduate degree of the same quality they would receive on-campus.
|
•
|
Our 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. We target working professionals seeking career advancement through skills attainment. 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.
|
•
|
Revenue was $135.5 million, an increase of 39.0% from $97.4 million in the second quarter of 2018.
|
•
|
Net loss was $(28.0) million, or $(0.46) per share, compared to $(18.3) million, or $(0.33) per share, in the second quarter of 2018.
|
•
|
Adjusted EBITDA loss* was $(15.0) million, compared to $(5.6) million in the second quarter of 2018.
|
•
|
We launched seven new graduate programs and ten new short courses.
|
|
*
|
Adjusted EBITDA is a financial measure not in accordance with United States generally accepted accounting principles, or U.S. GAAP. For more information about adjusted EBITDA and a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, to adjusted EBITDA, see the section below titled “Adjusted EBITDA.”
|
|
Three Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2019
|
|
2018
|
|
Period-to-Period Change
|
|||||||||||||||
|
Amount
|
|
Percentage of Revenue
|
|
Amount
|
|
Percentage of Revenue
|
|
Amount
|
|
Percentage
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Revenue
|
$
|
135,461
|
|
|
100.0
|
%
|
|
$
|
97,423
|
|
|
100.0
|
%
|
|
$
|
38,038
|
|
|
39.0
|
%
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Curriculum and teaching
|
13,308
|
|
|
9.8
|
|
|
6,007
|
|
|
6.2
|
|
|
7,301
|
|
|
121.6
|
|
|||
Servicing and support
|
23,993
|
|
|
17.7
|
|
|
17,297
|
|
|
17.8
|
|
|
6,696
|
|
|
38.7
|
|
|||
Technology and content development
|
26,043
|
|
|
19.2
|
|
|
15,235
|
|
|
15.6
|
|
|
10,808
|
|
|
70.9
|
|
|||
Marketing and sales
|
89,749
|
|
|
66.3
|
|
|
58,376
|
|
|
59.9
|
|
|
31,373
|
|
|
53.7
|
|
|||
General and administrative
|
28,408
|
|
|
21.0
|
|
|
22,480
|
|
|
23.1
|
|
|
5,928
|
|
|
26.4
|
|
|||
Total costs and expenses
|
181,501
|
|
|
134.0
|
|
|
119,395
|
|
|
122.6
|
|
|
62,106
|
|
|
52.0
|
|
|||
Loss from operations
|
(46,040
|
)
|
|
(34.0
|
)
|
|
(21,972
|
)
|
|
(22.6
|
)
|
|
(24,068
|
)
|
|
109.5
|
|
|||
Interest income
|
1,814
|
|
|
1.3
|
|
|
912
|
|
|
0.9
|
|
|
902
|
|
|
98.8
|
|
|||
Interest expense
|
(2,424
|
)
|
|
(1.8
|
)
|
|
(27
|
)
|
|
0.0
|
|
|
(2,397
|
)
|
|
*
|
|
|||
Other expense, net
|
(13
|
)
|
|
0.0
|
|
|
(825
|
)
|
|
(0.8
|
)
|
|
812
|
|
|
(98.4
|
)
|
|||
Loss before income taxes
|
(46,663
|
)
|
|
(34.5
|
)
|
|
(21,912
|
)
|
|
(22.5
|
)
|
|
(24,751
|
)
|
|
113.0
|
|
|||
Income tax benefit
|
18,691
|
|
|
13.8
|
|
|
3,565
|
|
|
3.7
|
|
|
15,126
|
|
|
424.3
|
|
|||
Net loss
|
$
|
(27,972
|
)
|
|
(20.7
|
)%
|
|
$
|
(18,347
|
)
|
|
(18.8
|
)%
|
|
$
|
(9,625
|
)
|
|
52.5
|
|
|
*
|
Not meaningful for comparative purposes.
|
|
Three Months Ended June 30,
|
|
Period-to-Period Change
|
|||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
Percentage
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Revenue by segment*
|
|
|
|
|
|
|
|
|
|
|
|
|||
Graduate Program Segment
|
$
|
101,403
|
|
|
$
|
81,209
|
|
|
$
|
20,194
|
|
|
24.9
|
%
|
Alternative Credential Segment
|
34,058
|
|
|
16,214
|
|
|
17,844
|
|
|
110.1
|
|
|||
Total revenue
|
$
|
135,461
|
|
|
$
|
97,423
|
|
|
$
|
38,038
|
|
|
39.0
|
|
|
*
|
The Company has excluded immaterial amounts of intersegment revenues from the three months ended June 30, 2019 and 2018.
|
|
Six Months Ended June 30,
|
|
|
|
|
|||||||||||||||
|
2019
|
|
2018
|
|
Period-to-Period Change
|
|||||||||||||||
|
Amount
|
|
Percentage of Revenue
|
|
Amount
|
|
Percentage of Revenue
|
|
Amount
|
|
Percentage
|
|||||||||
|
(dollars in thousands)
|
|||||||||||||||||||
Revenue
|
$
|
257,695
|
|
|
100.0
|
%
|
|
$
|
189,711
|
|
|
100.0
|
%
|
|
$
|
67,984
|
|
|
35.8
|
%
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Curriculum and teaching
|
20,009
|
|
|
7.8
|
|
|
10,314
|
|
|
5.4
|
|
|
9,695
|
|
|
94.0
|
|
|||
Servicing and support
|
44,167
|
|
|
17.1
|
|
|
32,530
|
|
|
17.1
|
|
|
11,637
|
|
|
35.8
|
|
|||
Technology and content development
|
45,837
|
|
|
17.8
|
|
|
29,075
|
|
|
15.3
|
|
|
16,762
|
|
|
57.6
|
|
|||
Marketing and sales
|
166,710
|
|
|
64.7
|
|
|
111,434
|
|
|
58.7
|
|
|
55,276
|
|
|
49.6
|
|
|||
General and administrative
|
51,431
|
|
|
20.0
|
|
|
44,349
|
|
|
23.4
|
|
|
7,082
|
|
|
16.0
|
|
|||
Total costs and expenses
|
328,154
|
|
|
127.4
|
|
|
227,702
|
|
|
119.9
|
|
|
100,452
|
|
|
44.1
|
|
|||
Loss from operations
|
(70,459
|
)
|
|
(27.4
|
)
|
|
(37,991
|
)
|
|
(19.9
|
)
|
|
(32,468
|
)
|
|
85.5
|
|
|||
Interest income
|
4,163
|
|
|
1.6
|
|
|
1,254
|
|
|
0.7
|
|
|
2,909
|
|
|
*
|
|
|||
Interest expense
|
(2,479
|
)
|
|
(1.0
|
)
|
|
(54
|
)
|
|
—
|
|
|
(2,425
|
)
|
|
*
|
|
|||
Other expense, net
|
(383
|
)
|
|
(0.1
|
)
|
|
(1,220
|
)
|
|
(0.6
|
)
|
|
837
|
|
|
(68.6
|
)
|
|||
Loss before income taxes
|
(69,158
|
)
|
|
(26.9
|
)
|
|
(38,011
|
)
|
|
(19.8
|
)
|
|
(31,147
|
)
|
|
81.9
|
|
|||
Income tax benefit
|
19,632
|
|
|
7.6
|
|
|
4,793
|
|
|
2.5
|
|
|
14,839
|
|
|
309.6
|
|
|||
Net loss
|
$
|
(49,526
|
)
|
|
(19.3
|
)
|
|
$
|
(33,218
|
)
|
|
(17.3
|
)
|
|
$
|
(16,308
|
)
|
|
49.1
|
|
|
*
|
Not meaningful for comparative purposes.
|
|
Six Months Ended June 30,
|
|
Period-to-Period Change
|
|||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
Percentage
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Revenue by segment*
|
|
|
|
|
|
|
|
|
|
|
|
|||
Graduate Program Segment
|
$
|
205,577
|
|
|
$
|
161,768
|
|
|
$
|
43,809
|
|
|
27.1
|
%
|
Alternative Credential Segment
|
52,118
|
|
|
27,943
|
|
|
24,175
|
|
|
86.5
|
|
|||
Total revenue
|
$
|
257,695
|
|
|
$
|
189,711
|
|
|
$
|
67,984
|
|
|
35.8
|
|
|
*
|
The Company has excluded immaterial amounts of intersegment revenues from the six months ended June 30, 2019 and 2018.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
(in thousands)
|
||||||||||||||
Net loss
|
$
|
(27,972
|
)
|
|
$
|
(18,347
|
)
|
|
$
|
(49,526
|
)
|
|
$
|
(33,218
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Interest income
|
(1,814
|
)
|
|
(912
|
)
|
|
(4,163
|
)
|
|
(1,254
|
)
|
||||
Interest expense
|
2,424
|
|
|
27
|
|
|
2,479
|
|
|
54
|
|
||||
Foreign currency loss
|
13
|
|
|
825
|
|
|
383
|
|
|
1,220
|
|
||||
Income tax benefit
|
(18,691
|
)
|
|
(3,565
|
)
|
|
(19,632
|
)
|
|
(4,793
|
)
|
||||
Depreciation and amortization expense
|
14,653
|
|
|
7,408
|
|
|
24,351
|
|
|
14,783
|
|
||||
Deferred revenue fair value adjustment
|
3,352
|
|
|
—
|
|
|
3,352
|
|
|
—
|
|
||||
Transaction costs
|
3,093
|
|
|
—
|
|
|
5,024
|
|
|
—
|
|
||||
Stock-based compensation expense
|
9,967
|
|
|
9,009
|
|
|
19,551
|
|
|
16,131
|
|
||||
Total adjustments
|
12,997
|
|
|
12,792
|
|
|
31,345
|
|
|
26,141
|
|
||||
Total segment profitability
|
$
|
(14,975
|
)
|
|
$
|
(5,555
|
)
|
|
$
|
(18,181
|
)
|
|
$
|
(7,077
|
)
|
|
Three Months Ended June 30,
|
|
Period-to-Period Change
|
|||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
Percentage
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Revenue by segment*
|
|
|
|
|
|
|
|
|
|
|
|
|||
Graduate Program Segment
|
$
|
101,403
|
|
|
$
|
81,209
|
|
|
$
|
20,194
|
|
|
24.9
|
%
|
Alternative Credential Segment
|
34,058
|
|
|
16,214
|
|
|
17,844
|
|
|
110.1
|
|
|||
Total revenue
|
$
|
135,461
|
|
|
$
|
97,423
|
|
|
$
|
38,038
|
|
|
39.0
|
|
|
|
|
|
|
|
|
|
|||||||
Segment profitability
|
|
|
|
|
|
|
|
|
|
|
|
|||
Graduate Program Segment
|
$
|
(8,049
|
)
|
|
$
|
(5,905
|
)
|
|
$
|
(2,144
|
)
|
|
36.3
|
|
Alternative Credential Segment
|
(6,926
|
)
|
|
350
|
|
|
(7,276
|
)
|
|
**
|
|
|||
Total segment profitability
|
$
|
(14,975
|
)
|
|
$
|
(5,555
|
)
|
|
$
|
(9,420
|
)
|
|
169.6
|
|
|
*
|
The Company has excluded immaterial amounts of intersegment revenues from the three months ended June 30, 2019 and 2018.
|
**
|
Not meaningful for comparative purposes.
|
|
Six Months Ended June 30,
|
|
Period-to-Period Change
|
|||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
Percentage
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Revenue by segment*
|
|
|
|
|
|
|
|
|
|
|
|
|||
Graduate Program Segment
|
$
|
205,577
|
|
|
$
|
161,768
|
|
|
$
|
43,809
|
|
|
27.1
|
%
|
Alternative Credential Segment
|
52,118
|
|
|
27,943
|
|
|
24,175
|
|
|
86.5
|
|
|||
Total revenue
|
$
|
257,695
|
|
|
$
|
189,711
|
|
|
$
|
67,984
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|||||||
Segment profitability
|
|
|
|
|
|
|
|
|
|
|
||||
Graduate Program Segment
|
$
|
(7,339
|
)
|
|
$
|
(6,179
|
)
|
|
$
|
(1,160
|
)
|
|
18.8
|
|
Alternative Credential Segment
|
(10,842
|
)
|
|
(898
|
)
|
|
(9,944
|
)
|
|
**
|
|
|||
Total segment profitability
|
$
|
(18,181
|
)
|
|
$
|
(7,077
|
)
|
|
$
|
(11,104
|
)
|
|
156.9
|
|
|
*
|
The Company has excluded immaterial amounts of intersegment revenues from the six months ended June 30, 2019 and 2018.
|
**
|
Not meaningful for comparative purposes.
|
|
Six Months Ended
June 30, |
|
Period-to-Period Change
|
|||||||||||
|
2019
|
|
2018
|
|
Amount
|
|
Percentage
|
|||||||
|
(dollars in thousands)
|
|||||||||||||
Cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
|||||
Operating activities
|
$
|
(47,949
|
)
|
|
$
|
(20,202
|
)
|
|
$
|
(27,747
|
)
|
|
137.4
|
%
|
Investing activities
|
(408,280
|
)
|
|
(45,263
|
)
|
|
(363,017
|
)
|
|
802.0
|
|
|||
Financing activities
|
240,312
|
|
|
332,248
|
|
|
(91,936
|
)
|
|
(27.7
|
)
|
|||
Effect of exchange rate changes on cash
|
(371
|
)
|
|
(1,319
|
)
|
|
948
|
|
|
(71.9
|
)
|
|||
Net (decrease) increase in cash, cash equivalents and restricted cash
|
$
|
(216,288
|
)
|
|
$
|
265,464
|
|
|
$
|
(481,752
|
)
|
|
(181.5
|
)
|
•
|
a $30.4 million change in working capital; and
|
•
|
a $16.3 million increase in net loss.
|
•
|
a $9.6 million increase in depreciation and amortization expense;
|
•
|
a $5.3 million increase in non-cash lease expense in connection with the adoption of Topic 842; and
|
•
|
a $3.4 million increase in stock-based compensation expense.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2019*
|
|
2018
|
|
2019*
|
|
2018
|
||||||||
Graduate Program Segment
|
|
|
|
|
|
|
|
|
|
|
|
||||
Full course equivalent enrollments
|
39,180
|
|
|
30,548
|
|
|
78,692
|
|
|
60,318
|
|
||||
Average revenue per full course equivalent enrollment
|
$
|
2,588
|
|
|
$
|
2,658
|
|
|
$
|
2,612
|
|
|
$
|
2,682
|
|
Alternative Credential Segment
|
|
|
|
|
|
|
|
|
|
|
|
||||
Full course equivalent enrollments
|
12,662
|
|
|
8,222
|
|
|
20,262
|
|
|
14,224
|
|
||||
Average revenue per full course equivalent enrollment**
|
$
|
2,955
|
|
|
$
|
1,972
|
|
|
$
|
2,738
|
|
|
$
|
1,964
|
|
|
*
|
We acquired Trilogy on May 22, 2019 and Trilogy’s results of operations are included in our results from the date of acquisition. As such, Trilogy will impact the full course equivalent enrollment measures for our Alternative Credential Segment from the acquisition date forward.
|
**
|
The calculation of the Alternative Credential Segment’s average revenue per full course equivalent enrollment includes $3.3 million of revenue that was excluded from the results of operations in the second quarter of 2019, due to a deferred revenue fair value purchase accounting adjustment recorded as part of the acquisition of Trilogy.
|
•
|
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
|
•
|
adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
•
|
adjusted EBITDA does not reflect the impact of changes in foreign currency exchange rates;
|
•
|
adjusted EBITDA does not reflect acquisition related gains or losses such as, but not limited to, post-acquisition changes in the value of contingent consideration reflected in operations;
|
•
|
adjusted EBITDA does not reflect transaction costs;
|
•
|
adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation;
|
•
|
adjusted EBITDA does not reflect interest or tax payments that may represent a reduction in cash available to us; and
|
•
|
other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.
|
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
||||||||||||
|
2019
|
|
2018
|
|
2019
|
|
2018
|
||||||||
|
(in thousands)
|
||||||||||||||
Net loss
|
$
|
(27,972
|
)
|
|
$
|
(18,347
|
)
|
|
$
|
(49,526
|
)
|
|
$
|
(33,218
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Interest income
|
(1,814
|
)
|
|
(912
|
)
|
|
(4,163
|
)
|
|
(1,254
|
)
|
||||
Interest expense
|
2,424
|
|
|
27
|
|
|
2,479
|
|
|
54
|
|
||||
Foreign currency loss
|
13
|
|
|
825
|
|
|
383
|
|
|
1,220
|
|
||||
Depreciation and amortization expense
|
14,653
|
|
|
7,408
|
|
|
24,351
|
|
|
14,783
|
|
||||
Income tax benefit
|
(18,691
|
)
|
|
(3,565
|
)
|
|
(19,632
|
)
|
|
(4,793
|
)
|
||||
Deferred revenue fair value adjustment
|
3,352
|
|
|
—
|
|
|
3,352
|
|
|
—
|
|
||||
Transaction costs
|
3,093
|
|
|
—
|
|
|
5,024
|
|
|
—
|
|
||||
Stock-based compensation expense
|
9,967
|
|
|
9,009
|
|
|
19,551
|
|
|
16,131
|
|
||||
Total adjustments
|
12,997
|
|
|
12,792
|
|
|
31,345
|
|
|
26,141
|
|
||||
Adjusted EBITDA (loss)
|
$
|
(14,975
|
)
|
|
$
|
(5,555
|
)
|
|
$
|
(18,181
|
)
|
|
$
|
(7,077
|
)
|
•
|
the need to localize and adapt online offerings for specific countries, including translation into foreign languages and ensuring that these offerings enable our university clients to comply with local education laws and regulations;
|
•
|
the burden of complying with a wide variety of laws, including those relating to labor and employment matters, education, data protection and privacy;
|
•
|
difficulties in staffing and managing foreign operations, including different pricing environments, longer sales cycles, longer accounts receivable payment cycles and collections issues;
|
•
|
lack of familiarity with and unexpected changes in foreign regulatory requirements;
|
•
|
challenges inherent in efficiently managing an increased number of employees over large geographic distances, including the need to implement appropriate systems, policies, benefits and compliance programs;
|
•
|
new and different sources of competition, and practices which may favor local competitors;
|
•
|
weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in enforcing intellectual property and other rights outside of the United States;
|
•
|
compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, including employment, tax, education, privacy and data protection, and anti-bribery laws and regulations such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;
|
•
|
increased financial accounting and reporting burdens and complexities;
|
•
|
restrictions on the transfer of funds;
|
•
|
adverse tax consequences, including liabilities for indirect taxes or the potential for required withholding taxes for our overseas employees;
|
•
|
terrorist attacks, acts of violence or war and adverse environmental conditions;
|
•
|
unstable regional and economic political conditions; and
|
•
|
fluctuations in currency exchange rates or restrictions on foreign currency, and the resulting effect on our revenue and expenses.
|
•
|
competitors may develop service offerings that our potential university clients or students find to be more compelling than ours;
|
•
|
competitors may adopt more aggressive pricing policies and offer more attractive sales terms, adapt more quickly to new technologies and changes in university client and student requirements, and devote greater resources to the acquisition of qualified students than we can;
|
•
|
current and potential competitors may establish cooperative relationships among themselves or with third parties to enhance their products and expand their markets, and our industry is likely to see an increasing number of new entrants and increased consolidation. Accordingly, new competitors or alliances among competitors may emerge and rapidly acquire significant market share; and
|
•
|
colleges and universities may choose to continue using or to develop their own online learning solutions in-house, rather than pay for our platform.
|
•
|
limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, investments and other general corporate purposes;
|
•
|
require a substantial portion of our cash from operating activities to be dedicated to debt service payments and reduce the amount of cash available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes;
|
•
|
expose us to increased interest rate risk as a significant portion of our indebtedness is subject to variable interest rates;
|
•
|
place us at a competitive disadvantage compared to certain of our competitors who have less debt;
|
•
|
hinder our ability to adjust rapidly to changing market conditions;
|
•
|
limit our ability to secure adequate bank financing in the future with reasonable terms and conditions; and
|
•
|
increase our vulnerability to, and limit our flexibility in planning for or reacting to, a potential downturn in general economic conditions or in one or more of our businesses.
|
Exhibit
Number
|
|
Description
|
|
Form
|
|
File No.
|
|
Exhibit
Number
|
|
Filing Date
|
|
Filed Herewith
|
|
Agreement and Plan of Merger and Reorganization, dated as of April 7, 2019, by and among 2U, Inc., Skywalker Purchaser, LLC, Skywalker Sub, Inc., Fortis Advisors LLC, as stockholder representative and Trilogy Education Services, Inc.
|
|
8-K
|
|
001-36376
|
|
2.1
|
|
April 8, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended and Restated Certificate of Incorporation of the Registrant.
|
|
8-K
|
|
001-36376
|
|
3.1
|
|
April 4, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended and Restated Bylaws of the Registrant.
|
|
8-K
|
|
001-36376
|
|
3.2
|
|
April 4, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Agreement, dated May 22, 2019, by and among 2U, Inc., as borrower, the Guarantors from time to time party thereto, the Lenders from time to time party thereto, Owl Rock Capital Corporation, as administrative agent and collateral agent and Owl Rock Capital Advisors LLC, as Lead Arranger and Bookrunner.
|
|
8-K
|
|
001-36376
|
|
10.1
|
|
May 22, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Non-Employee Director Compensation
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification of Chief Executive Officer of 2U, Inc. pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification of Chief Financial Officer of 2U, Inc. pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification of Chief Executive Officer of 2U, Inc. in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification of Chief Financial Officer of 2U, Inc. in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
|
2U, Inc.
|
|
|
|
|
July 30, 2019
|
By:
|
/s/ Christopher J. Paucek
|
|
|
Christopher J. Paucek
|
|
|
Chief Executive Officer
|
|
|
|
July 30, 2019
|
By:
|
/s/ Catherine A. Graham
|
|
|
Catherine A. Graham
|
|
|
Chief Financial Officer
|
•
|
Each year, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of 2U, Inc. (the “Company”) approves the compensation arrangements for non-employee members of the Board to take effect as of April 1 of such year. The compensation arrangements described below may be modified, amended or terminated by the Board at any time in its discretion.
|
•
|
Each non-employee director will receive an annual cash retainer of $25,000, to be paid in equal quarterly installments of $6,250 on April 1 (or as soon as reasonably practicable thereafter) and on the first day of each calendar quarter thereafter. At the timely election of a non-employee director, such director may receive, in lieu of such annual retainer, a restricted stock unit award (the “Director Retainer RSU Grant”) covering a number of shares of the Company’s common stock (the “Common Stock”) determined by dividing $25,000 by the Fair Market Value (as defined in the Company’s 2014 Equity Incentive Plan (as amended, the “2014 Plan”) of the Company’s Common Stock on the date of grant. Director Retainer RSU Grants vest in full on the first anniversary of the vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service (as defined in 2014 Plan) through the vesting date.
|
•
|
Each non-employee director who serves as Chair of the Board or Chair of the Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee will receive an additional annual cash retainer of $5,000, to be paid in equal quarterly installments of $1,250 on April 1 (or as soon as reasonably practicable thereafter) and on the first day of each calendar quarter thereafter. At the timely election of any Chair, such Chair may receive, in lieu of such annual retainer, a restricted stock unit award (the “Chair Retainer RSU Grant”) covering a number of shares of Common Stock determined by dividing $5,000 by the Fair Market Value of the Common Stock on the date of grant. Chair Retainer RSU Grants vest in full on the first anniversary of the vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service through the vesting date.
|
•
|
On or about April 1 of each year, each non-employee director will receive an annual restricted stock unit award (each, a “Director Annual RSU Grant”) covering a number of shares of Common Stock determined by dividing $100,000 by the Fair Market Value of the Common Stock on the date of grant. Director Annual RSU Grants vest as to one-third of the underlying shares on each of the first, second and third anniversaries of the applicable vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service through each vesting date.
|
•
|
On or about April 1 of each year, each non-employee director will also receive a stock option award (each, a “Director Annual Option Grant”) with a grant date fair value of $100,000 and an exercise price per share equal to the Fair Market Value of the Common Stock on the date of grant. Director Annual Option Grants vest and become exercisable as to one-third of the underlying shares on each of the first, second and third anniversaries of the applicable vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service through each vesting date.
|
•
|
On or about April 1 of each year, each non-employee director who is then serving as Chair of the Board or Chair of the Audit Committee will also receive a restricted stock unit award (each, an “Board/Audit Chair Annual RSU Grant”) covering a number of shares of Common Stock determined by dividing $15,000 by the Fair Market Value of the Common Stock on the date of grant. Board/Audit Chair Annual RSU Grants vest in full on the first anniversary of the vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service through the vesting date.
|
•
|
On or about April 1 of each year, each non-employee director who is then serving as Chair of the Compensation Committee or Chair of the Nominating and Corporate Governance Committee or member of the Audit Committee (other than the Chair) will also receive a restricted stock unit award (each, an “Other Chair/Audit Member Annual RSU Grant”) covering a number of shares of Common Stock determined by dividing $5,000 by the Fair Market Value of the Common Stock on the date of grant. Other Chair/Audit Member Annual RSU Grants vest in full on the first anniversary of the vesting commencement date (typically April 1 of the applicable year), assuming Continuous Service through the vesting date.
|
•
|
In connection with his or her initial appointment to the Board, each non-employee director will receive a restricted stock unit award (an “Initial RSU Grant”) and a stock option award (an “Initial Option Grant”) on the first day of the first quarter immediately following the effective date of the director’s appointment. Initial RSU Grants cover a number
|
•
|
Each Director Retainer RSU Grant, Chair Retainer RSU Grant, Director Annual RSU Grant, Director Annual Option Grant, Board/Audit Chair Annual RSU Grant, Other Chair Annual RSU Grant, Initial RSU Grant and Initial Option Grant is granted under and subject to the terms and conditions of the 2014 Plan and an award agreement in substantially the forms previously approved by the Board or the Compensation Committee to evidence awards issued under the 2014 Plan. Awards that would otherwise cover partial shares are typically rounded down to the nearest whole share.
|
•
|
The cash retainers, equity awards and vesting schedules described in this summary may be prorated to reflect partial periods of a non-employee director’s service.
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of 2U, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
July 30, 2019
|
By:
|
/s/ Christopher J. Paucek
|
|
|
|
|
|
|
|
|
|
Name:
|
Christopher J. Paucek
|
|
|
|
Title:
|
Chief Executive Officer
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of 2U, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date:
|
July 30, 2019
|
By:
|
/s/ Catherine A. Graham
|
|
|
|
|
|
|
|
|
|
Name:
|
Catherine A. Graham
|
|
|
|
Title:
|
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
July 30, 2019
|
By:
|
/s/ Christopher J. Paucek
|
|
|
|
|
|
|
|
|
|
Name:
|
Christopher J. Paucek
|
|
|
|
Title:
|
Chief Executive Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
July 30, 2019
|
By:
|
/s/ Catherine A. Graham
|
|
|
|
|
|
|
|
|
|
Name:
|
Catherine A. Graham
|
|
|
|
Title:
|
Chief Financial Officer
|