Cover Page
Cover Page - shares | 9 Months Ended | |
Sep. 30, 2019 | Nov. 08, 2019 | |
Cover page. | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Period End Date | Sep. 30, 2019 | |
Document Transition Report | false | |
Entity File Number | 001-36376 | |
Entity Registrant Name | 2U, INC. | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 26-2335939 | |
Entity Address, Address Line One | 7900 Harkins Road | |
Entity Address, City or Town | Lanham, | |
Entity Address, State or Province | MD | |
Entity Address, Postal Zip Code | 20706 | |
City Area Code | 301 | |
Local Phone Number | 892-4350 | |
Title of 12(b) Security | Common stock, $0.001 par value per share | |
Trading Symbol | TWOU | |
Security Exchange Name | NASDAQ | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 63,476,902 | |
Entity Central Index Key | 0001459417 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q3 | |
Amendment Flag | false |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Current assets | ||
Cash and cash equivalents | $ 154,091 | $ 449,772 |
Restricted cash | 16,739 | 0 |
Investments | 0 | 25,000 |
Accounts receivable, net | 84,797 | 32,636 |
Prepaid expenses and other assets | 39,239 | 14,272 |
Total current assets | 294,866 | 521,680 |
Property and equipment, net | 56,105 | 52,299 |
Right-of-use assets | 40,391 | 0 |
Goodwill | 414,027 | 61,852 |
Amortizable intangible assets, net | 336,373 | 136,605 |
University payments and other assets, non-current | 71,808 | 34,918 |
Total assets | 1,213,570 | 807,354 |
Current liabilities | ||
Accounts payable and accrued expenses | 59,607 | 27,647 |
Accrued compensation and related benefits | 27,256 | 23,001 |
Deferred revenue | 58,634 | 8,345 |
Lease liability | 7,104 | 0 |
Other current liabilities | 12,362 | 9,487 |
Total current liabilities | 164,963 | 68,480 |
Long-term debt | 245,856 | 3,500 |
Deferred tax liabilities, net | 6,172 | 6,949 |
Lease liability, non-current | 62,709 | 0 |
Other liabilities, non-current | 812 | 23,416 |
Total liabilities | 480,512 | 102,345 |
Commitments and contingencies | ||
Stockholders’ equity | ||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued | 0 | 0 |
Common stock, $0.001 par value, 200,000,000 shares authorized, 63,388,705 shares issued and outstanding as of September 30, 2019; 57,968,493 shares issued and outstanding as of December 31, 2018 | 63 | 58 |
Additional paid-in capital | 1,180,298 | 957,631 |
Accumulated deficit | (434,804) | (244,166) |
Accumulated other comprehensive loss | (12,499) | (8,514) |
Total stockholders’ equity | 733,058 | 705,009 |
Total liabilities and stockholders’ equity | $ 1,213,570 | $ 807,354 |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares | Sep. 30, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, authorized (in shares) | 5,000,000 | 5,000,000 |
Preferred stock, issued (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, authorized (in shares) | 200,000,000 | 200,000,000 |
Common stock, issued (in shares) | 63,388,705 | 57,968,493 |
Common stock, outstanding (in shares) | 63,388,705 | 57,968,493 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations and Comprehensive Loss - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Income Statement [Abstract] | ||||
Revenue | $ 153,798,000 | $ 106,963,000 | $ 411,493,000 | $ 296,674,000 |
Costs and expenses | ||||
Curriculum and teaching | 21,336,000 | 6,351,000 | 41,345,000 | 16,665,000 |
Servicing and support | 27,351,000 | 16,586,000 | 71,518,000 | 49,116,000 |
Technology and content development | 34,132,000 | 16,361,000 | 79,969,000 | 45,436,000 |
Marketing and sales | 93,521,000 | 60,548,000 | 260,231,000 | 171,982,000 |
General and administrative | 42,040,000 | 18,974,000 | 93,471,000 | 63,323,000 |
Impairment charge | 70,379,000 | 0 | 70,379,000 | 0 |
Total costs and expenses | 288,759,000 | 118,820,000 | 616,913,000 | 346,522,000 |
Loss from operations | (134,961,000) | (11,857,000) | (205,420,000) | (49,848,000) |
Interest income | 924,000 | 1,799,000 | 5,087,000 | 3,053,000 |
Interest expense | (5,651,000) | (27,000) | (8,130,000) | (81,000) |
Other expense, net | (710,000) | (273,000) | (1,093,000) | (1,493,000) |
Loss before income taxes | (140,398,000) | (10,358,000) | (209,556,000) | (48,369,000) |
Income tax (expense) benefit | (714,000) | 414,000 | 18,918,000 | 5,207,000 |
Net loss | $ (141,112,000) | $ (9,944,000) | $ (190,638,000) | $ (43,162,000) |
Net loss per share, basic and diluted (in dollars per share) | $ (2.23) | $ (0.17) | $ (3.14) | $ (0.78) |
Weighted-average shares of common stock outstanding, basic and diluted (in shares) | 63,358,890 | 57,663,361 | 60,690,536 | 55,128,845 |
Other comprehensive loss | ||||
Foreign currency translation adjustments, net of tax of $0 for all periods presented | $ (5,856,000) | $ (2,781,000) | $ (3,985,000) | $ (12,327,000) |
Comprehensive loss | $ (146,968,000) | $ (12,725,000) | $ (194,623,000) | $ (55,489,000) |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Operations and Comprehensive Loss (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Other comprehensive loss | ||||
Foreign currency translation adjustments, tax | $ 0 | $ 0 | $ 0 | $ 0 |
Condensed Consolidated Statem_3
Condensed Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands | Total | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) |
Beginning balance at Dec. 31, 2017 | $ 387,832 | $ 53 | $ 588,289 | $ (205,836) | $ 5,326 |
Beginning balance (in shares) at Dec. 31, 2017 | 52,505,856 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 2,120 | 2,120 | |||
Exercise of stock options (in shares) | 186,049 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | (1,002) | $ 0 | (1,002) | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 154,111 | ||||
Stock-based compensation expense | 7,122 | 7,122 | |||
Net loss | (14,871) | (14,871) | |||
Foreign currency translation adjustment | 4,632 | 4,632 | |||
Ending balance at Mar. 31, 2018 | 385,833 | $ 53 | 596,529 | (220,707) | 9,958 |
Ending balance (in shares) at Mar. 31, 2018 | 52,846,016 | ||||
Beginning balance at Dec. 31, 2017 | 387,832 | $ 53 | 588,289 | (205,836) | 5,326 |
Beginning balance (in shares) at Dec. 31, 2017 | 52,505,856 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Net loss | (43,162) | ||||
Foreign currency translation adjustment | (12,327) | ||||
Ending balance at Sep. 30, 2018 | 692,129 | $ 58 | 948,070 | (248,998) | (7,001) |
Ending balance (in shares) at Sep. 30, 2018 | 57,905,339 | ||||
Beginning balance at Mar. 31, 2018 | 385,833 | $ 53 | 596,529 | (220,707) | 9,958 |
Beginning balance (in shares) at Mar. 31, 2018 | 52,846,016 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 2,673 | 2,673 | |||
Exercise of stock options (in shares) | 315,482 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | (2,405) | $ 0 | (2,405) | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 320,753 | ||||
Shares issued | $ 330,862 | $ 4 | 330,858 | ||
Shares issued (in shares) | 3,833,334 | ||||
Stock-based compensation expense | $ 9,009 | 9,009 | |||
Net loss | (18,347) | (18,347) | |||
Foreign currency translation adjustment | (14,178) | (14,178) | |||
Ending balance at Jun. 30, 2018 | 693,447 | $ 57 | 936,664 | (239,054) | (4,220) |
Ending balance (in shares) at Jun. 30, 2018 | 57,315,585 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 2,239 | 2,239 | |||
Exercise of stock options (in shares) | 499,043 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | (43) | $ 1 | (44) | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 68,228 | ||||
Shares issued | $ 1,278 | $ 0 | 1,278 | ||
Shares issued (in shares) | 22,483 | ||||
Stock-based compensation expense | $ 7,933 | 7,933 | |||
Net loss | (9,944) | (9,944) | |||
Foreign currency translation adjustment | (2,781) | (2,781) | |||
Ending balance at Sep. 30, 2018 | 692,129 | $ 58 | 948,070 | (248,998) | (7,001) |
Ending balance (in shares) at Sep. 30, 2018 | 57,905,339 | ||||
Beginning balance at Dec. 31, 2018 | $ 705,009 | $ 58 | 957,631 | (244,166) | (8,514) |
Beginning balance (in shares) at Dec. 31, 2018 | 57,968,493 | 57,968,493 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | $ 1,928 | 1,928 | |||
Exercise of stock options (in shares) | 211,506 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | 0 | $ 0 | 0 | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 9,319 | ||||
Stock-based compensation expense | 9,584 | 9,584 | |||
Net loss | (21,554) | (21,554) | |||
Foreign currency translation adjustment | (372) | (372) | |||
Ending balance at Mar. 31, 2019 | 694,595 | $ 58 | 969,143 | (265,720) | (8,886) |
Ending balance (in shares) at Mar. 31, 2019 | 58,189,318 | ||||
Beginning balance at Dec. 31, 2018 | $ 705,009 | $ 58 | 957,631 | (244,166) | (8,514) |
Beginning balance (in shares) at Dec. 31, 2018 | 57,968,493 | 57,968,493 | |||
Increase (Decrease) in Stockholders' Equity | |||||
Net loss | $ (190,638) | ||||
Foreign currency translation adjustment | (3,985) | ||||
Ending balance at Sep. 30, 2019 | $ 733,058 | $ 63 | 1,180,298 | (434,804) | (12,499) |
Ending balance (in shares) at Sep. 30, 2019 | 63,388,705 | 63,388,705 | |||
Beginning balance at Mar. 31, 2019 | $ 694,595 | $ 58 | 969,143 | (265,720) | (8,886) |
Beginning balance (in shares) at Mar. 31, 2019 | 58,189,318 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 452 | 452 | |||
Exercise of stock options (in shares) | 85,539 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | (2,558) | $ 0 | (2,558) | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 348,418 | ||||
Shares issued | $ 184,322 | $ 5 | 184,317 | ||
Shares issued (in shares) | 4,608,101 | ||||
Stock-based compensation expense | $ 9,967 | 9,967 | |||
Net loss | (27,972) | (27,972) | |||
Foreign currency translation adjustment | 2,243 | 2,243 | |||
Ending balance at Jun. 30, 2019 | 861,049 | $ 63 | 1,161,321 | (293,692) | (6,643) |
Ending balance (in shares) at Jun. 30, 2019 | 63,231,376 | ||||
Increase (Decrease) in Stockholders' Equity | |||||
Exercise of stock options | 562 | 562 | |||
Exercise of stock options (in shares) | 41,828 | ||||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings | (15) | $ 0 | (15) | ||
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings (in shares) | 61,016 | ||||
Issuance of common stock in connection with employee stock purchase plan | $ 1,895 | $ 0 | 1,895 | ||
Issuance of common stock in connection with employee stock purchase plan (in shares) | 54,485 | ||||
Stock-based compensation expense | $ 16,535 | 16,535 | |||
Net loss | (141,112) | (141,112) | |||
Foreign currency translation adjustment | (5,856) | (5,856) | |||
Ending balance at Sep. 30, 2019 | $ 733,058 | $ 63 | $ 1,180,298 | $ (434,804) | $ (12,499) |
Ending balance (in shares) at Sep. 30, 2019 | 63,388,705 | 63,388,705 |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) | 9 Months Ended | |
Sep. 30, 2019 | Sep. 30, 2018 | |
Cash flows from operating activities | ||
Net loss | $ (190,638,000) | $ (43,162,000) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization expense | 46,639,000 | 23,382,000 |
Stock-based compensation expense | 36,086,000 | 24,064,000 |
Non-cash lease expense | 8,407,000 | 0 |
Bad debt expense | 1,785,000 | 0 |
Impairment charge | 70,379,000 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (39,743,000) | (35,543,000) |
Payments to university clients | (22,257,000) | (11,066,000) |
Prepaid expenses and other assets | (6,760,000) | (5,426,000) |
Accounts payable and accrued expenses | 12,712,000 | 10,796,000 |
Accrued compensation and related benefits | (109,000) | 1,185,000 |
Deferred revenue | 20,162,000 | 12,210,000 |
Other liabilities, net | (24,263,000) | (3,976,000) |
Other | 1,939,000 | 1,493,000 |
Net cash used in operating activities | (85,661,000) | (26,043,000) |
Cash flows from investing activities | ||
Purchase of a business, net of cash acquired | (388,004,000) | 0 |
Additions of amortizable intangible assets | (50,950,000) | (51,713,000) |
Purchases of property and equipment | (11,310,000) | (8,027,000) |
Purchase of equity interests | (10,000,000) | (25,000,000) |
Proceeds from maturities of investments | 25,000,000 | 0 |
Advances repaid by university clients | (100,000) | (300,000) |
Advances made to university clients | 350,000 | 25,000 |
Other | 4,000 | 0 |
Net cash used in investing activities | (435,010,000) | (85,015,000) |
Cash flows from financing activities | ||
Proceeds from issuance of common stock, net of offering costs | 0 | 330,862,000 |
Proceeds from exercise of stock options | 2,942,000 | 7,032,000 |
Proceeds from debt | 243,726,000 | 0 |
Tax withholding payments associated with settlement of restricted stock units | (2,573,000) | (3,450,000) |
Proceeds from ESPP share purchases | 1,895,000 | 1,278,000 |
Payments for acquisition of amortizable intangible assets | (1,283,000) | (4,900,000) |
Payment of debt issuance costs | (1,953,000) | 0 |
Net cash provided by financing activities | 242,754,000 | 330,822,000 |
Effect of exchange rate changes on cash | (1,025,000) | (908,000) |
Net (decrease) increase in cash, cash equivalents and restricted cash | (278,942,000) | 218,856,000 |
Cash, cash equivalents and restricted cash, beginning of period | 449,772,000 | 223,370,000 |
Cash, cash equivalents and restricted cash, end of period | $ 170,830,000 | $ 442,226,000 |
Organization
Organization | 9 Months Ended |
Sep. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization | 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 than they could on their own. 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 changed the name of this segment from Short Course to Alternative Credential to more accurately reflect the nature and breadth of educational offerings within this segment. Refer to Note 13 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 through its boot camp offerings. The acquisition expanded 2U’s university portfolio and deepened 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. |
Significant Accounting Policies
Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Significant Accounting Policies | 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 nine months ended September 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. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets and the recoverability of goodwill. 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. Restricted Cash The Company maintains restricted cash as collateral for standby letters of credit for the Company’s leased 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 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, in exchange for licenses to use the university brand name and other university trademarks. 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 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 September 30, 2019 , the Company had a $10.0 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 nine months ended September 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. 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 liabilities and ROU assets. The Company will only remeasure variable payments that depend on an index or a rate when the Company is remeasuring the lease liabilities 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 liabilities are 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 liabilities and recognized in the condensed consolidated statements of operations and comprehensive loss in the period in which the obligation for those payments is incurred. Long-Lived Asset Additions During the nine months ended September 30, 2019 , the Company had capital asset additions of $62.0 million in property and equipment and capitalized technology and content development, which included an immaterial amount 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 were classified as cash flows from financing activities in the condensed consolidated statement of cash flows for the nine months ended September 30, 2019 . During the nine months ended September 30, 2018 , the Company had capital asset additions of $70.7 million in property and equipment and capitalized technology and content development, of which $6.1 million consisted of non-cash capital expenditures, primarily related to the acquisition of certain long-lived assets for which a liability was accrued. Goodwill Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company’s goodwill balance relates to its acquisitions of GetSmarter in July 2017 and Trilogy in May 2019. The Company reviews goodwill at least annually, as of October 1. Between annual tests, goodwill is reviewed for possible impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company tests goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially assesses qualitative factors to determine if it is necessary to perform a quantitative goodwill impairment review. The Company reviews goodwill for impairment using a quantitative approach if it decides to bypass the qualitative assessment or determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on a qualitative assessment. Upon completion of a quantitative assessment, the Company may be required to recognize an impairment based on the difference between the carrying value and the fair value of the reporting unit. The determination of the fair value of a reporting unit using the income-based approach requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, the selection of appropriate peer group companies, control premiums and valuation multiples appropriate for acquisitions in the industry in which the Company competes, discount rates, terminal growth rates, and forecasts of revenue, operating income, depreciation and amortization expense, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, the Company considers each reporting unit’s historical results and current operating trends, revenues, profitability, cash flow results and forecasts, and industry trends. These estimates can be affected by a number of factors including, but not limited to, general economic and regulatory conditions, market capitalization, the continued efforts of competitors to gain market share and prospective student enrollment patterns. In addition, the Company uses a market-based approach to estimate the value of the reporting unit. The market value is estimated by comparing the reporting unit to other publicly-traded companies and/or to publicly-disclosed business mergers and acquisitions in similar lines of business. The value of a reporting unit is based on pricing multiples of certain financial parameters observed in the comparable companies. The Company also makes estimates and assumptions for market values to determine a reporting unit’s estimated fair value. The Company experienced a sustained decline in its stock price during the three months ended September 30, 2019, which management deemed a triggering event that required the Company to perform an interim goodwill impairment test as of September 1, 2019. The Company’s test relied in part on the work of an independent valuation firm engaged to provide inputs as to the fair value of the reporting units and to assist in the related calculations and analysis. The results of the interim impairment test indicated that the carrying value of the boot camp business acquired in 2019 within the Company’s Alternative Credential Segment exceeded the fair value by $70.4 million . The decrease in this reporting unit’s fair value was primarily due to lower expectations of future performance due to the impact of changes in key management as well as an increased focus in integrating the operations of the newly acquired reporting unit, which impacted the estimated operating cash flows. As a result, the Company recorded an impairment charge of $70.4 million on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019. Other than the recently impaired reporting unit, the Company had no reporting units whose estimated fair values as of September 30, 2019 exceeded their carrying value by less than 10%. It is possible that future changes in the Company’s circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, could require the Company to record additional impairment charges in the future. 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 8 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 September 30, 2019 and December 31, 2018 , the Company had balances of $2.3 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 nine months ended September 30, 2019 . 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 7 for more information about the Company’s lease-related obligations. |
Business Combination
Business Combination | 9 Months Ended |
Sep. 30, 2019 | |
Business Combinations [Abstract] | |
Business Combination | 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 $608.6 million in cash and stock consideration, subject to final adjustments related to working capital and indebtedness. 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 was recognized as compensation expense in the three months ended September 30, 2019 as the service requirements of certain key employees was determined to be fulfilled. 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 $ 35,320 Current assets 29,954 Property and equipment, net 2,411 Other non-current assets 6,276 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 425,678 Current liabilities (56,917 ) Non-current liabilities (21,523 ) $ 608,595 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. During the three months ended September 30, 2019, the Company made adjustments to the provisional valuation that affected deferred tax liabilities and the residual goodwill. As of September 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. Refer to Note 4 for details. 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 nine months ended September 30, 2019 and 2018 as if the acquisition of Trilogy had occurred on January 1, 2018: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands, except per share amounts) Pro forma revenue $ 153,798 $ 130,553 $ 459,756 $ 355,009 Pro forma net loss (141,020 ) (24,715 ) (226,901 ) (99,204 ) Pro forma net loss per share, basic and diluted $ (2.23 ) $ (0.43 ) $ (3.74 ) $ (1.80 ) |
Goodwill and Amortizable Intang
Goodwill and Amortizable Intangible Assets | 9 Months Ended |
Sep. 30, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Amortizable Intangible Assets | Goodwill and Amortizable Intangible Assets The table below summarizes the changes in the carrying amount of goodwill by reportable segment: Graduate Alternative Credential Segment Total (in thousands) Balance as of December 31, 2018 $ — $ 61,852 $ 61,852 Goodwill recognized in connection with business combination — 425,678 425,678 Impairment charge — (70,379 ) (70,379 ) Foreign currency translation adjustments — (3,124 ) (3,124 ) Balance as of September 30, 2019 $ — $ 414,027 $ 414,027 The Company experienced a sustained decline in its stock price during the three months ended September 30, 2019, which management deemed a triggering event that required the Company to perform an interim goodwill impairment test as of September 1, 2019. The Company’s test relied in part on the work of an independent valuation firm engaged to provide inputs as to the fair value of the reporting units and to assist in the related calculations and analysis. The results of the interim impairment test indicated that the carrying value of the boot camp business acquired in 2019 within the Company’s Alternative Credential Segment exceeded the fair value by $70.4 million . The decrease in this reporting unit’s fair value was primarily due to lower expectations of future performance due to the impact of changes in key management as well as an increased focus in integrating the operations of the newly acquired reporting unit, which impacted the estimated operating cash flows. As a result, the Company recorded an impairment charge of $70.4 million on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019. Amortizable intangible assets, net consisted of the following as of: September 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 $ 136,961 $ (32,625 ) $ 104,336 $ 68,291 $ (16,945 ) $ 51,346 Capitalized content development 4-5 158,136 (46,457 ) 111,679 79,725 (31,662 ) 48,063 University client relationships 9-10 108,587 (9,148 ) 99,439 25,616 (4,269 ) 21,347 Trade names and domain names 5-10 25,856 (4,937 ) 20,919 18,793 (2,944 ) 15,849 Total amortizable intangible assets, net $ 429,540 $ (93,167 ) $ 336,373 $ 192,425 $ (55,820 ) $ 136,605 The amounts presented in the table above include $24.2 million and $40.3 million of in process capitalized technology and content development as of September 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 September 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 September 30, 2019 , the Company has a remaining obligation to pay the seller $0.7 million by December 31, 2019. The Company recorded amortization expense related to amortizable intangible assets of $19.2 million and $6.4 million for the three months ended September 30, 2019 and 2018 , respectively. The Company recorded amortization expense related to amortizable intangible assets of $38.1 million and $17.1 million for the nine months ended September 30, 2019 and 2018 , respectively. As of September 30, 2019 , the estimated future amortization expense for amortizable intangible assets placed in service is as follows (in thousands): Remainder of 2019 $ 18,998 2020 73,413 2021 67,803 2022 53,678 2023 35,611 Thereafter 62,699 Total $ 312,202 |
Accrued Expenses
Accrued Expenses | 9 Months Ended |
Sep. 30, 2019 | |
Payables and Accruals [Abstract] | |
Accrued Expenses | Accrued Expenses Included within accounts payable and accrued expenses on the Company’s condensed consolidated balance sheet as of September 30, 2019 was $20.8 million of accrued university and head tutor compensation and $19.7 million of accrued marketing costs. As of December 31, 2018 , accounts payable and accrued expenses included $10.3 million of accrued marketing costs. As of September 30, 2019 , the Company maintained a reserve for its September 2019 organizational restructuring of approximately $2.9 million related to employee termination benefits. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Legal Contingencies From time to time, the Company is involved in legal proceedings and subject to claims in the ordinary course of its business. With respect to current legal proceedings, the Company does not believe it is probable a material loss exceeding amounts already recognized has been incurred as of the date of the balance sheets presented herein. The Company is involved in various claims and legal proceedings arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. While the Company does not expect that the ultimate resolution of any existing claims and proceedings (other than the specific matter described below, if decided adversely), individually or in the aggregate, will have a material adverse effect on its financial position, an unfavorable outcome in some or all of these proceedings could have a material adverse impact on results of operations or cash flows for a particular period. This assessment is based on the Company’s current understanding of relevant facts and circumstances. As such, the Company’s view of these matters is subject to inherent uncertainties and may change in the future. In re 2U, Inc., Securities Class Action , No. 1:19-cv-7390 (S.D.N.Y.) On August 7 and 9, 2019, Aaron Harper and Anne M. Chinn filed putative class action complaints against the Company, Christopher J. Paucek, the Company’s CEO, and Catherine A. Graham, the Company’s former CFO, in the United States District Court for the Southern District of New York. The district court consolidated the two actions on August 27, 2019, with the caption In re 2U, Inc., Securities Class Action , No. 1:19-cv-7390 (S.D.N.Y.). The complaints allege violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder, based upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. The proposed class consists of all persons who acquired the Company’s securities between February 26, 2018 and July 30, 2019. The Company believes that the claims are without merit and it intends to vigorously defend against these claims. However, due to the complex nature of the legal and factual issues involved, the outcome of this matter is not presently determinable. 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 September 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 September 30, 2019 , the Company had an obligation to make an additional investment in an education technology company of up to $5.0 million , upon demand by the investee. |
Leases
Leases | 9 Months Ended |
Sep. 30, 2019 | |
Leases [Abstract] | |
Leases | Leases The Company leases 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 September 30, 2019 . The components of lease expense consisted of the following for the periods presented: Three Months Ended Nine Months Ended September 30, 2019 September 30, 2019 (in thousands) Operating lease expense $ 3,053 $ 8,389 Short-term lease expense 188 578 Variable lease expense 1,031 3,036 Total lease expense $ 4,272 $ 12,003 As of September 30, 2019 , for the Company’s operating leases, the weighted-average remaining lease term was 8.1 years and the weighted-average discount rate was 12.5% . For the nine months ended September 30, 2019 , cash paid for amounts included in the measurement of operating lease liabilities was $9.6 million . As of September 30, 2019 , the maturities of operating lease liabilities were as follows (in thousands): Remainder of 2019 $ 3,865 2020 14,801 2021 13,801 2022 12,902 2023 12,508 Thereafter 55,165 Total lease payments 113,042 Less: imputed interest (43,229 ) Total lease liability $ 69,813 As of September 30, 2019 , the Company has additional operating leases for facilities that have not yet commenced with future minimum lease payments of approximately $99.3 million . These operating leases will commence during fiscal years 2019 through 2021, with lease terms of between four to twelve years . 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 |
Debt
Debt | 9 Months Ended |
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
Debt | Debt The Company’s outstanding long-term debt was as follows: September 30, 2019 December 31, 2018 (in thousands) Senior secured term loan facility $ 250,000 $ — Deferred government grant obligations 3,500 3,500 Less: unamortized debt issuance costs (7,644 ) — Long-term debt $ 245,856 $ 3,500 The Company believes the carrying value of its long-term debt approximates the fair value of the debt as the terms and interest rates approximate the market rates. As of September 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 bears 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% . The effective interest rate of the Term Loan for the three and nine months ended September 30, 2019 was 9.04% and 9.11% , respectively. During the three and nine months ended September 30, 2019 , the Company incurred interest expense of $5.5 million and $7.9 million , respectively, in connection with the Credit Agreement. As of September 30, 2019 , the Company’s accrued interest balance associated with the Credit Agreement was $0.2 million . 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 September 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 nine months ended September 30, 2019 and 2018 was immaterial. As of September 30, 2019 and December 31, 2018 , the Company’s combined accrued interest balance associated with the deferred government grant obligations was $0.2 million and $0.2 million , respectively. Letters of Credit Certain of the Company’s operating lease agreements entered into prior to September 30, 2019 require security deposits in the form of cash or an unconditional, irrevocable letter of credit. As of September 30, 2019 , the Company has entered into standby letters of credit totaling $15.7 million as security deposits for the applicable leased facilities and in connection with the deferred government grant obligations. The Company maintains restricted cash as collateral for standby letters of credit for the Company’s leased facilities and in connection with the deferred government grant obligations. |
Income Taxes
Income Taxes | 9 Months Ended |
Sep. 30, 2019 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | Income Taxes The Company’s income tax provisions for all periods consist of federal, state and foreign income taxes. The income tax provisions for the three and nine months ended September 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 (1)% and 4% for the three months ended September 30, 2019 and 2018 , respectively. The Company’s effective tax rate was approximately 9% and 11% for the nine months ended September 30, 2019 and 2018 , respectively. A one-time tax benefit of approximately $17.8 million related to the acquisition of Trilogy was included in the Company’s income tax (expense) benefit for the nine months ended September 30, 2019 . This one-time 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 benefit of $1.1 million for the nine months ended September 30, 2019 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. |
Stockholders' Equity
Stockholders' Equity | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity Note [Abstract] | |
Stockholders' Equity | Stockholders’ Equity On May 22, 2019, the Company issued 4,608,101 shares of common stock in connection with its acquisition of Trilogy. 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 September 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 September 30, 2019 , the Company had reserved a total of 14,423,479 of its authorized shares of common stock for future issuance as follows: Outstanding stock options 4,404,386 Possible future issuance under 2014 Equity Incentive Plan 7,480,316 Outstanding restricted stock units 1,656,933 Available for future issuance under 2017 Employee Stock Purchase Plan 881,844 Total shares of common stock reserved for future issuance 14,423,479 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. |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | 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 Stock-based compensation expense related to stock-based awards, as well as the 2017 Employee Stock Purchase Plan (the “ESPP”), is included in the following line items on the condensed consolidated statements of operations and comprehensive loss: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands) Curriculum and teaching $ 30 $ 3 $ 38 $ 10 Servicing and support 2,626 1,346 6,129 3,538 Technology and content development 2,228 1,089 5,732 2,875 Marketing and sales 2,238 839 4,981 2,046 General and administrative 9,413 4,656 19,206 15,595 Total stock-based compensation expense $ 16,535 $ 7,933 $ 36,086 $ 24,064 Stock Options The following is a summary of the stock option activity for the nine months ended September 30, 2019 : Number of Options Weighted-Average Exercise Price per Share Outstanding balance as of December 31, 2018 4,057,788 $ 27.23 Granted 769,452 63.68 Exercised (338,873 ) 8.68 Forfeited (73,404 ) 54.67 Expired (10,577 ) 49.47 Outstanding balance as of September 30, 2019 4,404,386 34.51 Exercisable as of September 30, 2019* 2,982,717 19.97 * As of September 30, 2019 , the aggregate intrinsic value of options exercisable was $14.9 million and such shares had a weighted-average remaining contractual term of 4.90 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 first quarter of 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 nine months ended September 30, 2019 : Number of Units Weighted- Average Grant Date Fair Value per Share Outstanding balance as of December 31, 2018 1,139,045 $ 52.47 Granted 1,120,287 57.43 Vested (454,655 ) 43.51 Forfeited (147,744 ) 58.91 Outstanding balance as of September 30, 2019 1,656,933 57.71 Employee Stock Purchase Plan During the three and nine months ended September 30, 2019 , an aggregate of 54,485 shares of 2U’s common stock were purchased in accordance with the ESPP. Net proceeds from the issuance of shares of 2U’s common stock under the ESPP for the nine months ended September 30, 2019 were $1.9 million . As of September 30, 2019 , 881,844 shares remain available for purchase under the ESPP. |
Net Loss per Share
Net Loss per Share | 9 Months Ended |
Sep. 30, 2019 | |
Earnings Per Share [Abstract] | |
Net Loss per Share | 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 nine months ended September 30, 2019 and 2018 : Three and Nine Months Ended 2019 2018 Stock options 4,404,386 4,097,480 Restricted stock units 1,656,933 1,217,161 Basic and diluted net loss per share is calculated as follows: Three Months Ended Nine Months Ended 2019 2018 2019 2018 Numerator (in thousands): Net loss $ (141,112 ) $ (9,944 ) $ (190,638 ) $ (43,162 ) Denominator: Weighted-average shares of common stock outstanding, basic and diluted 63,358,890 57,663,361 60,690,536 55,128,845 Net loss per share, basic and diluted $ (2.23 ) $ (0.17 ) $ (3.14 ) $ (0.78 ) |
Segment and Geographic Informat
Segment and Geographic Information | 9 Months Ended |
Sep. 30, 2019 | |
Segment Reporting [Abstract] | |
Segment and Geographic Information | 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 September 30, 2019 , one university client accounted for 10% or more of the Company’s consolidated revenue, with $20.5 million , or approximately 13% of the Company’s consolidated revenue. For the three months ended September 30, 2018 , three university clients each accounted for 10% or more of the Company’s consolidated revenue, as follows: $24.0 million , $13.0 million and $10.8 million , or approximately 22% , 12% and 10% of the Company’s consolidated revenue, respectively. For the nine months ended September 30, 2019 , one university client accounted for 10% or more of the Company’s consolidated revenue, with $64.3 million , or approximately 16% of the Company’s consolidated revenue. For the nine months ended September 30, 2018 , three university clients each accounted for 10% or more of the Company’s consolidated revenue, as follows: $65.0 million , $39.5 million and $30.6 million , or approximately 22% , 13% and 10% of the Company’s consolidated revenue, respectively. As of September 30, 2019 , two university clients each accounted for 10% or more of the Company’s consolidated accounts receivable, net balance, as follows: $11.8 million and $9.0 million , or approximately 14% and 11% of the Company’s consolidated accounts receivable, net balance, respectively. 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 , or approximately 36% and 36% of the Company’s consolidated accounts receivable, net balance, respectively. Alternative Credential Segment For the three and nine months ended September 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 September 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 September 30, 2019 , offerings associated with one university client accounted for 10% or more of the segment’s revenue, with $8.3 million , or approximately 16% of the segment’s revenue. For the three months ended September 30, 2018 , offerings associated with four university clients each accounted for 10% or more of the segment’s revenue, and when combined, accounted for approximately 91% of the segment’s revenue. For the nine months ended September 30, 2019 , offerings associated with one university client accounted for 10% or more of the segment’s revenue, with $26.0 million , or approximately 25% of the segment’s revenue. For the nine months ended September 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 82% 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 Nine Months Ended 2019 2018 2019 2018 (in thousands) Revenue by segment* Graduate Program Segment $ 103,393 $ 89,719 $ 308,970 $ 251,487 Alternative Credential Segment 50,405 17,244 102,523 45,187 Total revenue $ 153,798 $ 106,963 $ 411,493 $ 296,674 Segment profitability** Graduate Program Segment $ 1,213 $ 5,564 $ (6,126 ) $ (615 ) Alternative Credential Segment (11,936 ) (889 ) (22,778 ) (1,787 ) Total segment profitability $ (10,723 ) $ 4,675 $ (28,904 ) $ (2,402 ) Segment profitability margin*** Graduate Program Segment 1.2 % 6.2 % (2.0 )% (0.2 )% Alternative Credential Segment (23.7 ) (5.2 ) (22.2 ) (4.0 ) Total segment profitability margin (7.0 ) 4.4 (7.0 ) (0.8 ) * The Company has excluded immaterial amounts of intersegment revenues from the three and nine month periods ended September 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, integration costs, restructuring-related costs, impairment charges, 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. The following table reconciles net loss to total segment profitability: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands) Net loss $ (141,112 ) $ (9,944 ) $ (190,638 ) $ (43,162 ) Adjustments: Interest income (924 ) (1,799 ) (5,087 ) (3,053 ) Interest expense 5,651 27 8,130 81 Foreign currency loss 710 273 1,093 1,493 Income tax expense (benefit) 714 (414 ) (18,918 ) (5,207 ) Depreciation and amortization expense 22,288 8,599 46,639 23,382 Deferred revenue fair value adjustment 5,927 — 9,279 — Transaction costs 92 — 4,466 — Integration costs 2,436 — 2,493 — Restructuring-related costs 6,581 — 7,174 — Impairment charge 70,379 — 70,379 — Stock-based compensation expense 16,535 7,933 36,086 24,064 Total adjustments 130,389 14,619 161,734 40,760 Total segment profitability $ (10,723 ) $ 4,675 $ (28,904 ) $ (2,402 ) The Company’s total assets by segment are as follows: September 30, December 31, (in thousands) Total assets Graduate Program Segment $ 523,449 $ 702,827 Alternative Credential Segment 690,121 104,527 Total assets $ 1,213,570 $ 807,354 Trade Accounts Receivable and Contract Liabilities The Company’s trade accounts receivable and contract liabilities in each segment are as follows: September 30, December 31, (in thousands) Trade accounts receivable Graduate Program Segment accounts receivable, net of allowance for doubtful accounts of $0 for all periods presented $ 28,917 $ 31,110 Graduate Program Segment unbilled revenue* 36,380 265 Alternative Credential Segment accounts receivable, net of allowance for doubtful accounts of $1.8 million and $257 thousand as of September 30, 2019 and December 31, 2018, respectively 19,500 982 Total trade accounts receivable $ 84,797 $ 32,357 Contract liabilities Graduate Program Segment deferred revenue $ 5,484 $ 2,864 Alternative Credential Segment deferred revenue 53,150 5,481 Total contract liabilities $ 58,634 $ 8,345 * Unbilled revenue represents contract assets. For the Graduate Program Segment, no revenue recognized during the three months ended September 30, 2019 and 2018 was included in the deferred revenue balance at the beginning of each year, respectively. Revenue recognized in this segment during the nine months ended September 30, 2019 and 2018 that was included in the deferred revenue balance at the beginning of each year was $2.4 million and $2.5 million , respectively. For the Alternative Credential Segment, no revenue recognized during the three months ended September 30, 2019 and 2018 was included in the deferred revenue balance at the beginning of each year, respectively. Revenue recognized in this segment during the nine months ended September 30, 2019 and 2018 that was included in the deferred revenue balance at the beginning of each year was $5.4 million and $4.5 million , respectively. Contract Acquisition Costs The Graduate Program Segment had $0.5 million and $0.3 million of net capitalized contract acquisition costs as of September 30, 2019 and December 31, 2018 , respectively. During the three months ended September 30, 2019 and 2018 , the Company did not capitalize a material amount of contract acquisition costs and did not record a material amount of associated amortization expense in the Graduate Program Segment in either period. For the nine months ended September 30, 2019 and 2018 , the Company capitalized $0.2 million and $0.3 million , respectively, of such costs and did not record a material amount of associated amortization expense in the Graduate Program Segment in either period. Geographical Information The Company’s non-U.S. revenue, which is based upon the currency of the country in which the university client primarily operates, was $10.6 million and $8.8 million , for the three months ended September 30, 2019 and 2018 , respectively, and was sourced entirely from the Alternative Credential Segment’s operations outside of the U.S. The Company’s non-U.S. revenue, which is based upon the currency of the country in which the university client primarily operates, was $29.4 million and $26.0 million for the nine months ended September 30, 2019 and 2018 , respectively, and was sourced entirely from the Alternative Credential Segment’s operations outside of the U.S. The Company’s long-lived tangible assets in non-U.S. countries as of September 30, 2019 and December 31, 2018 totaled approximately $2.6 million and $1.2 million , respectively. |
Significant Accounting Polici_2
Significant Accounting Policies (Policies) | 9 Months Ended |
Sep. 30, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation and Principles of Consolidation | 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 nine months ended September 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 | 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. Significant estimates and assumptions are inherent in the analysis and the measurement of deferred tax assets and the recoverability of goodwill. 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. |
Investments | 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 |
Revenue Recognition | 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 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, in exchange for licenses to use the university brand name and other university trademarks. 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 | Business Combinations 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 | Equity Interests As of September 30, 2019 , the Company had a $10.0 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 | 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 nine months ended September 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. |
Leases | 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 liabilities and ROU assets. The Company will only remeasure variable payments that depend on an index or a rate when the Company is remeasuring the lease liabilities 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 liabilities are 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 liabilities and recognized in the condensed consolidated statements of operations and comprehensive loss in the period in which the obligation for those payments is incurred. |
Non-Cash Long-Lived Asset Additions | Long-Lived Asset Additions During the nine months ended September 30, 2019 , the Company had capital asset additions of $62.0 million in property and equipment and capitalized technology and content development, which included an immaterial amount 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 were classified as cash flows from financing activities in the condensed consolidated statement of cash flows for the nine months ended September 30, 2019 . During the nine months ended September 30, 2018 , the Company had capital asset additions of $70.7 million in property and equipment and capitalized technology and content development, of which $6.1 million consisted of non-cash capital expenditures, primarily related to the acquisition of certain long-lived assets for which a liability was accrued. |
Goodwill | Goodwill Goodwill is the excess of purchase price over the fair value of identified net assets of businesses acquired. The Company’s goodwill balance relates to its acquisitions of GetSmarter in July 2017 and Trilogy in May 2019. The Company reviews goodwill at least annually, as of October 1. Between annual tests, goodwill is reviewed for possible impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. The Company tests goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially assesses qualitative factors to determine if it is necessary to perform a quantitative goodwill impairment review. The Company reviews goodwill for impairment using a quantitative approach if it decides to bypass the qualitative assessment or determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on a qualitative assessment. Upon completion of a quantitative assessment, the Company may be required to recognize an impairment based on the difference between the carrying value and the fair value of the reporting unit. The determination of the fair value of a reporting unit using the income-based approach requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, the selection of appropriate peer group companies, control premiums and valuation multiples appropriate for acquisitions in the industry in which the Company competes, discount rates, terminal growth rates, and forecasts of revenue, operating income, depreciation and amortization expense, capital expenditures and future working capital requirements. When determining these assumptions and preparing these estimates, the Company considers each reporting unit’s historical results and current operating trends, revenues, profitability, cash flow results and forecasts, and industry trends. These estimates can be affected by a number of factors including, but not limited to, general economic and regulatory conditions, market capitalization, the continued efforts of competitors to gain market share and prospective student enrollment patterns. In addition, the Company uses a market-based approach to estimate the value of the reporting unit. The market value is estimated by comparing the reporting unit to other publicly-traded companies and/or to publicly-disclosed business mergers and acquisitions in similar lines of business. The value of a reporting unit is based on pricing multiples of certain financial parameters observed in the comparable companies. The Company also makes estimates and assumptions for market values to determine a reporting unit’s estimated fair value. The Company experienced a sustained decline in its stock price during the three months ended September 30, 2019, which management deemed a triggering event that required the Company to perform an interim goodwill impairment test as of September 1, 2019. The Company’s test relied in part on the work of an independent valuation firm engaged to provide inputs as to the fair value of the reporting units and to assist in the related calculations and analysis. The results of the interim impairment test indicated that the carrying value of the boot camp business acquired in 2019 within the Company’s Alternative Credential Segment exceeded the fair value by $70.4 million . The decrease in this reporting unit’s fair value was primarily due to lower expectations of future performance due to the impact of changes in key management as well as an increased focus in integrating the operations of the newly acquired reporting unit, which impacted the estimated operating cash flows. As a result, the Company recorded an impairment charge of $70.4 million on the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2019. Other than the recently impaired reporting unit, the Company had no reporting units whose estimated fair values as of September 30, 2019 exceeded their carrying value by less than 10%. It is possible that future changes in the Company’s circumstances, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, could require the Company to record additional impairment charges in the future. |
Debt Issuance Costs | 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 8 for further information about the Company’s debt. |
Recent Accounting Pronouncements | 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 September 30, 2019 and December 31, 2018 , the Company had balances of $2.3 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 nine months ended September 30, 2019 . 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 7 for more information about the Company’s lease-related obligations. |
Business Combination (Tables)
Business Combination (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Business Combinations [Abstract] | |
Schedule of purchase price allocation | 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 $ 35,320 Current assets 29,954 Property and equipment, net 2,411 Other non-current assets 6,276 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 425,678 Current liabilities (56,917 ) Non-current liabilities (21,523 ) $ 608,595 |
Schedule of unaudited pro forma combined revenue and net loss | The following table presents the Company’s unaudited pro forma combined revenue and pro forma combined net loss, for the three and nine months ended September 30, 2019 and 2018 as if the acquisition of Trilogy had occurred on January 1, 2018: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands, except per share amounts) Pro forma revenue $ 153,798 $ 130,553 $ 459,756 $ 355,009 Pro forma net loss (141,020 ) (24,715 ) (226,901 ) (99,204 ) Pro forma net loss per share, basic and diluted $ (2.23 ) $ (0.43 ) $ (3.74 ) $ (1.80 ) |
Goodwill and Amortizable Inta_2
Goodwill and Amortizable Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of changes in goodwill | The table below summarizes the changes in the carrying amount of goodwill by reportable segment: Graduate Alternative Credential Segment Total (in thousands) Balance as of December 31, 2018 $ — $ 61,852 $ 61,852 Goodwill recognized in connection with business combination — 425,678 425,678 Impairment charge — (70,379 ) (70,379 ) Foreign currency translation adjustments — (3,124 ) (3,124 ) Balance as of September 30, 2019 $ — $ 414,027 $ 414,027 |
Schedule of amortizable intangible assets | Amortizable intangible assets, net consisted of the following as of: September 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 $ 136,961 $ (32,625 ) $ 104,336 $ 68,291 $ (16,945 ) $ 51,346 Capitalized content development 4-5 158,136 (46,457 ) 111,679 79,725 (31,662 ) 48,063 University client relationships 9-10 108,587 (9,148 ) 99,439 25,616 (4,269 ) 21,347 Trade names and domain names 5-10 25,856 (4,937 ) 20,919 18,793 (2,944 ) 15,849 Total amortizable intangible assets, net $ 429,540 $ (93,167 ) $ 336,373 $ 192,425 $ (55,820 ) $ 136,605 |
Schedule of estimated future amortization expense for amortizable intangible assets | As of September 30, 2019 , the estimated future amortization expense for amortizable intangible assets placed in service is as follows (in thousands): Remainder of 2019 $ 18,998 2020 73,413 2021 67,803 2022 53,678 2023 35,611 Thereafter 62,699 Total $ 312,202 |
Leases (Tables)
Leases (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Leases [Abstract] | |
Schedule of lease cost | The components of lease expense consisted of the following for the periods presented: Three Months Ended Nine Months Ended September 30, 2019 September 30, 2019 (in thousands) Operating lease expense $ 3,053 $ 8,389 Short-term lease expense 188 578 Variable lease expense 1,031 3,036 Total lease expense $ 4,272 $ 12,003 |
Schedule of maturities of operating lease liabilities | As of September 30, 2019 , the maturities of operating lease liabilities were as follows (in thousands): Remainder of 2019 $ 3,865 2020 14,801 2021 13,801 2022 12,902 2023 12,508 Thereafter 55,165 Total lease payments 113,042 Less: imputed interest (43,229 ) Total lease liability $ 69,813 |
Schedule of future minimum lease payments | 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 |
Debt (Tables)
Debt (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Debt Disclosure [Abstract] | |
Schedule of long-term debt | The Company’s outstanding long-term debt was as follows: September 30, 2019 December 31, 2018 (in thousands) Senior secured term loan facility $ 250,000 $ — Deferred government grant obligations 3,500 3,500 Less: unamortized debt issuance costs (7,644 ) — Long-term debt $ 245,856 $ 3,500 |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Stockholders' Equity Note [Abstract] | |
Schedule of shares of common stock reserved for future issuance | As of September 30, 2019 , the Company had reserved a total of 14,423,479 of its authorized shares of common stock for future issuance as follows: Outstanding stock options 4,404,386 Possible future issuance under 2014 Equity Incentive Plan 7,480,316 Outstanding restricted stock units 1,656,933 Available for future issuance under 2017 Employee Stock Purchase Plan 881,844 Total shares of common stock reserved for future issuance 14,423,479 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Schedule of stock-based compensation expense included in the consolidated statements of operations and comprehensive loss | Stock-based compensation expense related to stock-based awards, as well as the 2017 Employee Stock Purchase Plan (the “ESPP”), is included in the following line items on the condensed consolidated statements of operations and comprehensive loss: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands) Curriculum and teaching $ 30 $ 3 $ 38 $ 10 Servicing and support 2,626 1,346 6,129 3,538 Technology and content development 2,228 1,089 5,732 2,875 Marketing and sales 2,238 839 4,981 2,046 General and administrative 9,413 4,656 19,206 15,595 Total stock-based compensation expense $ 16,535 $ 7,933 $ 36,086 $ 24,064 |
Schedule of stock option activity | The following is a summary of the stock option activity for the nine months ended September 30, 2019 : Number of Options Weighted-Average Exercise Price per Share Outstanding balance as of December 31, 2018 4,057,788 $ 27.23 Granted 769,452 63.68 Exercised (338,873 ) 8.68 Forfeited (73,404 ) 54.67 Expired (10,577 ) 49.47 Outstanding balance as of September 30, 2019 4,404,386 34.51 Exercisable as of September 30, 2019* 2,982,717 19.97 * As of September 30, 2019 , the aggregate intrinsic value of options exercisable was $14.9 million and such shares had a weighted-average remaining contractual term of 4.90 years . |
Schedule of restricted stock unit activity | The following is a summary of RSU and PRSU activity for the nine months ended September 30, 2019 : Number of Units Weighted- Average Grant Date Fair Value per Share Outstanding balance as of December 31, 2018 1,139,045 $ 52.47 Granted 1,120,287 57.43 Vested (454,655 ) 43.51 Forfeited (147,744 ) 58.91 Outstanding balance as of September 30, 2019 1,656,933 57.71 Employee Stock Purchase Plan During the three and nine months ended September 30, 2019 , an aggregate of 54,485 shares of 2U’s common stock were purchased in accordance with the ESPP. Net proceeds from the issuance of shares of 2U’s common stock under the ESPP for the nine months ended September 30, 2019 were $1.9 million . As of September 30, 2019 , 881,844 shares remain available for purchase under the ESPP. |
Net Loss per Share (Tables)
Net Loss per Share (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Earnings Per Share [Abstract] | |
Schedule of potential dilutive securities that would have been anti-dilutive due to 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 nine months ended September 30, 2019 and 2018 : Three and Nine Months Ended 2019 2018 Stock options 4,404,386 4,097,480 Restricted stock units 1,656,933 1,217,161 |
Schedule of calculation of basic and diluted net loss per share | Basic and diluted net loss per share is calculated as follows: Three Months Ended Nine Months Ended 2019 2018 2019 2018 Numerator (in thousands): Net loss $ (141,112 ) $ (9,944 ) $ (190,638 ) $ (43,162 ) Denominator: Weighted-average shares of common stock outstanding, basic and diluted 63,358,890 57,663,361 60,690,536 55,128,845 Net loss per share, basic and diluted $ (2.23 ) $ (0.17 ) $ (3.14 ) $ (0.78 ) |
Segment and Geographic Inform_2
Segment and Geographic Information (Tables) | 9 Months Ended |
Sep. 30, 2019 | |
Segment Reporting [Abstract] | |
Schedule of revenue, segment profitability and segment profitability margin by segment | The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands) Revenue by segment* Graduate Program Segment $ 103,393 $ 89,719 $ 308,970 $ 251,487 Alternative Credential Segment 50,405 17,244 102,523 45,187 Total revenue $ 153,798 $ 106,963 $ 411,493 $ 296,674 Segment profitability** Graduate Program Segment $ 1,213 $ 5,564 $ (6,126 ) $ (615 ) Alternative Credential Segment (11,936 ) (889 ) (22,778 ) (1,787 ) Total segment profitability $ (10,723 ) $ 4,675 $ (28,904 ) $ (2,402 ) Segment profitability margin*** Graduate Program Segment 1.2 % 6.2 % (2.0 )% (0.2 )% Alternative Credential Segment (23.7 ) (5.2 ) (22.2 ) (4.0 ) Total segment profitability margin (7.0 ) 4.4 (7.0 ) (0.8 ) * The Company has excluded immaterial amounts of intersegment revenues from the three and nine month periods ended September 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, integration costs, restructuring-related costs, impairment charges, 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. |
Schedule of reconciliation of net loss to total segment profitability | The following table reconciles net loss to total segment profitability: Three Months Ended Nine Months Ended 2019 2018 2019 2018 (in thousands) Net loss $ (141,112 ) $ (9,944 ) $ (190,638 ) $ (43,162 ) Adjustments: Interest income (924 ) (1,799 ) (5,087 ) (3,053 ) Interest expense 5,651 27 8,130 81 Foreign currency loss 710 273 1,093 1,493 Income tax expense (benefit) 714 (414 ) (18,918 ) (5,207 ) Depreciation and amortization expense 22,288 8,599 46,639 23,382 Deferred revenue fair value adjustment 5,927 — 9,279 — Transaction costs 92 — 4,466 — Integration costs 2,436 — 2,493 — Restructuring-related costs 6,581 — 7,174 — Impairment charge 70,379 — 70,379 — Stock-based compensation expense 16,535 7,933 36,086 24,064 Total adjustments 130,389 14,619 161,734 40,760 Total segment profitability $ (10,723 ) $ 4,675 $ (28,904 ) $ (2,402 ) |
Schedule of total assets by segment | The Company’s total assets by segment are as follows: September 30, December 31, (in thousands) Total assets Graduate Program Segment $ 523,449 $ 702,827 Alternative Credential Segment 690,121 104,527 Total assets $ 1,213,570 $ 807,354 |
Schedule of contract assets and liabilities | The Company’s trade accounts receivable and contract liabilities in each segment are as follows: September 30, December 31, (in thousands) Trade accounts receivable Graduate Program Segment accounts receivable, net of allowance for doubtful accounts of $0 for all periods presented $ 28,917 $ 31,110 Graduate Program Segment unbilled revenue* 36,380 265 Alternative Credential Segment accounts receivable, net of allowance for doubtful accounts of $1.8 million and $257 thousand as of September 30, 2019 and December 31, 2018, respectively 19,500 982 Total trade accounts receivable $ 84,797 $ 32,357 Contract liabilities Graduate Program Segment deferred revenue $ 5,484 $ 2,864 Alternative Credential Segment deferred revenue 53,150 5,481 Total contract liabilities $ 58,634 $ 8,345 * Unbilled revenue represents contract assets. |
Organization (Details)
Organization (Details) | 9 Months Ended |
Sep. 30, 2019segment | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Number of reportable segments (in segments) | 2 |
Significant Accounting Polici_3
Significant Accounting Policies (Details) - USD ($) | 3 Months Ended | 6 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Jan. 01, 2019 | |
Short-term Investments | ||||||
Short-term investments | $ 25,000,000 | |||||
Revenue Recognition [Abstract] | ||||||
Contract term | The Company’s contracts with university clients in this segment typically have 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. | |||||
Members' Equity [Abstract] | ||||||
Equity method investment | $ 10,000,000 | $ 10,000,000 | ||||
Non-Cash Long-Lived Asset Additions | ||||||
Capital asset additions during the period | 62,000,000 | $ 70,700,000 | ||||
Non-cash capital expenditure | 6,100,000 | |||||
Payments for acquisition of amortizable intangible assets | (1,283,000) | (4,900,000) | ||||
Goodwill, Impaired [Abstract] | ||||||
Impairment charge | 70,379,000 | $ 0 | 70,379,000 | $ 0 | ||
Capitalized Computer Software, Net [Abstract] | ||||||
Capitalized implementation costs, software | 400,000 | 2,300,000 | ||||
Leases [Abstract] | ||||||
Right-of-use assets | 40,391,000 | 0 | 40,391,000 | |||
Lease liability, current | 7,104,000 | 0 | 7,104,000 | |||
Lease liability, non-current | $ 62,709,000 | $ 0 | $ 62,709,000 | |||
Accounting Standards Update 2016-02 | ||||||
Leases [Abstract] | ||||||
Right-of-use assets | $ 34,000,000 | |||||
Lease liability, current | 5,000,000 | |||||
Lease liability, non-current | $ 58,000,000 | |||||
Minimum | ||||||
Capitalized Computer Software, Net [Abstract] | ||||||
Useful life | 3 years | |||||
Maximum | ||||||
Capitalized Computer Software, Net [Abstract] | ||||||
Useful life | 5 years | |||||
Short Course | Minimum | ||||||
Revenue Recognition [Abstract] | ||||||
Period of remaining performance obligation | 42 days | 42 days | ||||
Short Course | Maximum | ||||||
Revenue Recognition [Abstract] | ||||||
Period of remaining performance obligation | 112 days | 112 days | ||||
Boot Camp | Minimum | ||||||
Revenue Recognition [Abstract] | ||||||
Period of remaining performance obligation | 84 days | 84 days | ||||
Boot Camp | Maximum | ||||||
Revenue Recognition [Abstract] | ||||||
Period of remaining performance obligation | 168 days | 168 days |
Business Combination - Addition
Business Combination - Additional Information (Details) - Trilogy Education Services, Inc. $ / shares in Units, $ in Millions | May 22, 2019USD ($)$ / shares |
Acquisition | |
Consideration transferred | $ | $ 608.6 |
Par value (in usd per share) | $ / shares | $ 0.001 |
Business Combination - Purchase
Business Combination - Purchase Price Allocation (Details) - USD ($) $ in Thousands | May 22, 2019 | Sep. 30, 2019 | Dec. 31, 2018 |
Acquisition | |||
Goodwill | $ 414,027 | $ 61,852 | |
Trilogy Education Services, Inc. | |||
Acquisition | |||
Cash and cash equivalents | $ 35,320 | ||
Current assets | 29,954 | ||
Property and equipment, net | 2,411 | ||
Other non-current assets | 6,276 | ||
Goodwill | 425,678 | ||
Current liabilities | (56,917) | ||
Non-current liabilities | (21,523) | ||
Total purchase price | 608,595 | ||
Developed technology | Trilogy Education Services, Inc. | |||
Acquisition | |||
Amortizable intangible assets: | $ 48,096 | ||
Estimated Average Useful Life (in years) | 3 years | ||
Developed content | Trilogy Education Services, Inc. | |||
Acquisition | |||
Amortizable intangible assets: | $ 48,050 | ||
Estimated Average Useful Life (in years) | 4 years | ||
University client relationships | Trilogy Education Services, Inc. | |||
Acquisition | |||
Amortizable intangible assets: | $ 84,150 | ||
Estimated Average Useful Life (in years) | 10 years | ||
Trade names and domain names | Trilogy Education Services, Inc. | |||
Acquisition | |||
Amortizable intangible assets: | $ 7,100 | ||
Estimated Average Useful Life (in years) | 5 years |
Business Combination - Pro Form
Business Combination - Pro Forma Information (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Business Combinations [Abstract] | ||||
Pro forma revenue | $ 153,798 | $ 130,553 | $ 459,756 | $ 355,009 |
Pro forma net loss | $ (141,020) | $ (24,715) | $ (226,901) | $ (99,204) |
Pro forma net loss per share, basic and diluted | $ (2.23) | $ (0.43) | $ (3.74) | $ (1.80) |
Goodwill and Amortizable Inta_3
Goodwill and Amortizable Intangible Assets - Amortizable Intangible Assets (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Goodwill [Roll Forward] | |||||
Beginning balance | $ 61,852,000 | ||||
Goodwill recognized in connection with business combination | 425,678,000 | ||||
Impairment charge | $ (70,379,000) | $ 0 | (70,379,000) | $ 0 | |
Foreign currency translation adjustments | (3,124,000) | ||||
Ending balance | 414,027,000 | 414,027,000 | |||
Gross Carrying Amount | 429,540,000 | 429,540,000 | $ 192,425,000 | ||
Accumulated Amortization | (93,167,000) | (93,167,000) | (55,820,000) | ||
Net Carrying Amount | 336,373,000 | $ 336,373,000 | 136,605,000 | ||
Minimum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 3 years | ||||
Maximum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 5 years | ||||
Graduate Program Segment | |||||
Goodwill [Roll Forward] | |||||
Beginning balance | $ 0 | ||||
Goodwill recognized in connection with business combination | 0 | ||||
Impairment charge | 0 | ||||
Foreign currency translation adjustments | 0 | ||||
Ending balance | 0 | 0 | |||
Alternative Credit Segment | |||||
Goodwill [Roll Forward] | |||||
Beginning balance | 61,852,000 | ||||
Goodwill recognized in connection with business combination | 425,678,000 | ||||
Impairment charge | (70,379,000) | ||||
Foreign currency translation adjustments | (3,124,000) | ||||
Ending balance | 414,027,000 | 414,027,000 | |||
Capitalized technology | |||||
Goodwill [Roll Forward] | |||||
Gross Carrying Amount | 136,961,000 | 136,961,000 | 68,291,000 | ||
Accumulated Amortization | (32,625,000) | (32,625,000) | (16,945,000) | ||
Net Carrying Amount | 104,336,000 | $ 104,336,000 | 51,346,000 | ||
Capitalized technology | Minimum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 3 years | ||||
Capitalized technology | Maximum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 5 years | ||||
Capitalized content development | |||||
Goodwill [Roll Forward] | |||||
Gross Carrying Amount | 158,136,000 | $ 158,136,000 | 79,725,000 | ||
Accumulated Amortization | (46,457,000) | (46,457,000) | (31,662,000) | ||
Net Carrying Amount | 111,679,000 | $ 111,679,000 | 48,063,000 | ||
Capitalized content development | Minimum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 4 years | ||||
Capitalized content development | Maximum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 5 years | ||||
University client relationships | |||||
Goodwill [Roll Forward] | |||||
Gross Carrying Amount | 108,587,000 | $ 108,587,000 | 25,616,000 | ||
Accumulated Amortization | (9,148,000) | (9,148,000) | (4,269,000) | ||
Net Carrying Amount | 99,439,000 | $ 99,439,000 | 21,347,000 | ||
University client relationships | Minimum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 9 years | ||||
University client relationships | Maximum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 10 years | ||||
Trade names and domain names | |||||
Goodwill [Roll Forward] | |||||
Gross Carrying Amount | 25,856,000 | $ 25,856,000 | 18,793,000 | ||
Accumulated Amortization | (4,937,000) | (4,937,000) | (2,944,000) | ||
Net Carrying Amount | 20,919,000 | $ 20,919,000 | 15,849,000 | ||
Trade names and domain names | Minimum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 5 years | ||||
Trade names and domain names | Maximum | |||||
Goodwill [Roll Forward] | |||||
Estimated Average Useful Life (in years) | 10 years | ||||
In Process Capitalized Technology And Content Development | |||||
Goodwill [Roll Forward] | |||||
Net Carrying Amount | $ 24,200,000 | $ 24,200,000 | $ 40,300,000 |
Goodwill and Amortizable Inta_4
Goodwill and Amortizable Intangible Assets - Narrative (Details) - USD ($) | 3 Months Ended | 9 Months Ended | 12 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | May 22, 2019 | |
Finite-Lived Intangible Assets [Line Items] | ||||||
Impairment charge | $ 70,379,000 | $ 0 | $ 70,379,000 | $ 0 | ||
Payments made for acquisition of software | $ 9,500,000 | |||||
Outstanding license and software services consideration | 700,000 | 700,000 | ||||
Net carrying amount | 336,373,000 | 336,373,000 | 136,605,000 | |||
Capitalized technology | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Net carrying amount | 104,336,000 | 104,336,000 | 51,346,000 | |||
Trade names and domain names | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Net carrying amount | $ 20,919,000 | $ 20,919,000 | $ 15,849,000 | |||
Trilogy Education Services, Inc. | Developed technology | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Amortizable intangible assets: | $ 48,096,000 | |||||
Trilogy Education Services, Inc. | Developed content | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Amortizable intangible assets: | 48,050,000 | |||||
Trilogy Education Services, Inc. | University client relationships | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Amortizable intangible assets: | 84,150,000 | |||||
Trilogy Education Services, Inc. | Trade names and domain names | ||||||
Finite-Lived Intangible Assets [Line Items] | ||||||
Amortizable intangible assets: | $ 7,100,000 |
Goodwill and Amortizable Inta_5
Goodwill and Amortizable Intangible Assets - Estimated Future Amortization Expense (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Finite-Lived Intangible Assets [Line Items] | |||||
Amortization expense | $ 19,200 | $ 6,400 | $ 38,100 | $ 17,100 | |
Future amortization expense | |||||
Net Carrying Amount | 336,373 | 336,373 | $ 136,605 | ||
University client relationships | |||||
Future amortization expense | |||||
Net Carrying Amount | 99,439 | 99,439 | $ 21,347 | ||
Excluding in process capitalized technology and content development | |||||
Future amortization expense | |||||
Remainder of 2019 | 18,998 | 18,998 | |||
2020 | 73,413 | 73,413 | |||
2021 | 67,803 | 67,803 | |||
2022 | 53,678 | 53,678 | |||
2023 | 35,611 | 35,611 | |||
Thereafter | 62,699 | 62,699 | |||
Net Carrying Amount | $ 312,202 | $ 312,202 | |||
Minimum | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Useful life | 3 years | ||||
Minimum | University client relationships | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Useful life | 9 years | ||||
Maximum | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Useful life | 5 years | ||||
Maximum | University client relationships | |||||
Finite-Lived Intangible Assets [Line Items] | |||||
Useful life | 10 years |
Accrued Expenses (Details)
Accrued Expenses (Details) - USD ($) $ in Millions | Sep. 30, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Accrued university and head tutor fees | $ 20.8 | |
Accrued marketing costs | 19.7 | $ 10.3 |
Employee termination benefits reserve | $ 2.9 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | Sep. 30, 2019USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
Additional investment in educational technology, contingent payment | $ 5 |
Leases - Additional Information
Leases - Additional Information (Details) $ in Millions | 9 Months Ended |
Sep. 30, 2019USD ($) | |
Lessee, Lease, Description [Line Items] | |
Renewal term (in years) | 5 years |
Option to terminate, term (in years) | 1 year |
Weighted average remaining lease term (in years) | 8 years 1 month 6 days |
Weighted average discount rate | 12.50% |
Operating Lease, Payments | $ 9.6 |
Lease liability, leases not yet commenced | $ 99.3 |
Minimum | |
Lessee, Lease, Description [Line Items] | |
Contract term (in years) | 1 year |
Contract term, leases not yet commenced (in years) | 4 years |
Maximum | |
Lessee, Lease, Description [Line Items] | |
Contract term (in years) | 11 years |
Contract term, leases not yet commenced (in years) | 12 years |
Leases - Operating Lease Liabil
Leases - Operating Lease Liabilities Due (Details) $ in Thousands | Sep. 30, 2019USD ($) |
Leases [Abstract] | |
Remainder of 2019 | $ 3,865 |
2020 | 14,801 |
2021 | 13,801 |
2022 | 12,902 |
2023 | 12,508 |
Thereafter | 55,165 |
Total lease payments | 113,042 |
Less: imputed interest | (43,229) |
Total lease liability | 69,813 |
Lessee, Lease, Description [Line Items] | |
Lease liability, leases not yet commenced | $ 99,300 |
Maximum | |
Lessee, Lease, Description [Line Items] | |
Contract term, leases not yet commenced (in years) | 12 years |
Leases - Lease Cost (Details)
Leases - Lease Cost (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019 | Sep. 30, 2019 | |
Leases [Abstract] | ||
Operating lease expense | $ 3,053 | $ 8,389 |
Short-term lease expense | 188 | 578 |
Variable lease expense | 1,031 | 3,036 |
Total lease expense | $ 4,272 | $ 12,003 |
Leases - Future Minimum Lease P
Leases - Future Minimum Lease Payments (Details) $ in Thousands | Dec. 31, 2018USD ($) |
Leases [Abstract] | |
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 |
Debt - Long-Term Debt (Details)
Debt - Long-Term Debt (Details) - USD ($) $ in Thousands | Sep. 30, 2019 | Dec. 31, 2018 |
Debt Disclosure [Abstract] | ||
Senior secured term loan facility | $ 250,000 | $ 0 |
Deferred government grant obligations | 3,500 | 3,500 |
Less: unamortized debt issuance costs | (7,644) | 0 |
Long-term debt | $ 245,856 | $ 3,500 |
- Additional Information (Detai
- Additional Information (Details) | May 22, 2019USD ($) | Sep. 30, 2019USD ($)agreement | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)agreement | Sep. 30, 2018USD ($) | Dec. 31, 2018USD ($) |
Debt Instrument [Line Items] | ||||||
Interest expense | $ 5,651,000 | $ 27,000 | $ 8,130,000 | $ 81,000 | ||
Line of credit | $ 25,000,000 | $ 25,000,000 | ||||
Long-term line of credit | $ 0 | |||||
Number of contracts (in contracts) | agreement | 2 | 2 | ||||
Deferred government grant obligations | $ 3,500,000 | $ 3,500,000 | 3,500,000 | |||
Prince George's County, Maryland | ||||||
Debt Instrument [Line Items] | ||||||
Interest rate | 3.00% | 3.00% | ||||
Standby letters of credit | ||||||
Debt Instrument [Line Items] | ||||||
Line of credit | $ 15,700,000 | $ 15,700,000 | ||||
Deferred Government Grant Obligations | ||||||
Debt Instrument [Line Items] | ||||||
Interest payable | $ 200,000 | $ 200,000 | $ 200,000 | |||
Credit Agreement | Letter of Credit | ||||||
Debt Instrument [Line Items] | ||||||
Term loan | $ 250,000,000 | |||||
Interest rate during period | 9.04% | 9.11% | ||||
Interest expense | $ 5,500,000 | $ 7,900,000 | ||||
Interest payable | $ 200,000 | $ 200,000 | ||||
Credit Agreement | Letter of Credit | Maximum | ||||||
Debt Instrument [Line Items] | ||||||
Additional amount available | $ 50,000,000 | |||||
Base Rate | Credit Agreement | Letter of Credit | ||||||
Debt Instrument [Line Items] | ||||||
Variable rate, applicable margin | 4.75% | |||||
Base Rate | Credit Agreement | Letter of Credit | Minimum | ||||||
Debt Instrument [Line Items] | ||||||
Variable rate, applicable margin | 2.00% | |||||
LIBOR | Credit Agreement | Letter of Credit | ||||||
Debt Instrument [Line Items] | ||||||
Variable rate, applicable margin | 5.75% | |||||
LIBOR | Credit Agreement | Letter of Credit | Minimum | ||||||
Debt Instrument [Line Items] | ||||||
Variable rate, applicable margin | 1.00% |
Income Taxes (Details)
Income Taxes (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Acquisition | ||||
U.S. statutory federal income tax rate | (1.00%) | 4.00% | 9.00% | 11.00% |
Tax benefit, difference in operating losses and amortization of acquired intangibles | $ 1.1 | |||
Trilogy Education Services, Inc. | ||||
Acquisition | ||||
Income tax expense (benefit) related to asset acquisition | $ 19.3 | $ 17.8 |
Stockholders' Equity (Details)
Stockholders' Equity (Details) - USD ($) $ in Thousands | May 22, 2019 | May 22, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Jan. 01, 2019 | Dec. 31, 2018 | Jan. 01, 2018 |
Stockholders' Equity | |||||||
Shares issued (in shares) | 4,608,101 | ||||||
Proceeds from issuance of common stock, net of offering costs | $ 0 | $ 330,862 | |||||
Authorized shares of capital stock (in shares) | 205,000,000 | ||||||
Authorized shares of common stock (in shares) | 200,000,000 | 200,000,000 | |||||
Authorized shares of preferred stock (in shares) | 5,000,000 | 5,000,000 | |||||
Shares of common stock reserved for future issuance | |||||||
Outstanding stock options (in shares) | 4,404,386 | ||||||
Possible future issuance under 2014 Equity Incentive Plan (in shares) | 7,480,316 | ||||||
Outstanding restricted stock units (in shares) | 1,656,933 | ||||||
Available for future issuance under employee stock purchase plan (in shares) | 881,844 | ||||||
Total shares of common stock reserved for future issuance (in shares) | 14,423,479 | ||||||
Equity Incentive Plan 2014 | Stock options | |||||||
Shares of common stock reserved for future issuance | |||||||
Possible future issuance under 2014 Equity Incentive Plan (in shares) | 2,896,365 | 2,625,292 | |||||
Common Stock | |||||||
Stockholders' Equity | |||||||
Shares issued (in shares) | 3,833,334 | ||||||
Proceeds from issuance of common stock, net of offering costs | $ 330,900 | ||||||
Common Stock | Underwriters' over-allotment option | |||||||
Stockholders' Equity | |||||||
Shares issued (in shares) | 500,000 |
Stock-Based Compensation - Expe
Stock-Based Compensation - Expense (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019USD ($)plan | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)plan | Sep. 30, 2018USD ($) | |
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Number of share-based employee compensation plans (in plans) | plan | 2 | 2 | ||
Stock-based compensation expense | $ 16,535 | $ 7,933 | $ 36,086 | $ 24,064 |
Curriculum and teaching | ||||
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Stock-based compensation expense | 30 | 3 | 38 | 10 |
Servicing and support | ||||
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Stock-based compensation expense | 2,626 | 1,346 | 6,129 | 3,538 |
Technology and content development | ||||
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Stock-based compensation expense | 2,228 | 1,089 | 5,732 | 2,875 |
Marketing and sales | ||||
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Stock-based compensation expense | 2,238 | 839 | 4,981 | 2,046 |
General and administrative | ||||
Stock-based compensation expense included in the unaudited condensed consolidated statements of operations | ||||
Stock-based compensation expense | $ 9,413 | $ 4,656 | $ 19,206 | $ 15,595 |
Stock-Based Compensation - Opti
Stock-Based Compensation - Options (Details) - USD ($) $ / shares in Units, $ in Millions | 9 Months Ended |
Sep. 30, 2019 | |
Stock options | |
Number of Options | |
Outstanding balance at the beginning of the period (in shares) | 4,057,788 |
Granted (in shares) | 769,452 |
Exercised (in shares) | (338,873) |
Forfeited (in shares) | (73,404) |
Expired (in shares) | (10,577) |
Outstanding balance at the end of the period (in shares) | 4,404,386 |
Exercisable at the end of the period (in shares) | 2,982,717 |
Weighted-Average Exercise Price per Share | |
Outstanding balance at the beginning of the period (in dollars per share) | $ 27.23 |
Granted (in dollars per share) | 63.68 |
Exercised (in dollars per share) | 8.68 |
Forfeited (in dollars per share) | 54.67 |
Expired (in dollars per share) | 49.47 |
Outstanding balance at the end of the period (in dollars per share) | 34.51 |
Exercisable at the end of the period (in dollars per share) | $ 19.97 |
Employee Stock | |
Weighted-Average Exercise Price per Share | |
Intrinsic value of options exercisable at the end of the period | $ 14.9 |
Weighted-average remaining contractual term of options exercisable at the end of the period (in years) | 4 years 10 months 24 days |
Stock-Based Compensation - Rest
Stock-Based Compensation - Restricted Stock Units (Details) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | 9 Months Ended | |
Sep. 30, 2019 | Mar. 31, 2019 | Sep. 30, 2019 | |
PRSU | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Aggregate grant date fair value | $ 11.5 | ||
Summary of restricted stock unit activity | |||
Granted (in shares) | 186,433 | ||
PRSU | Minimum | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Vesting period | 1 year | ||
Quantity of units subject to vesting | 0.00% | ||
PRSU | Maximum | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Vesting period | 2 years | ||
Quantity of units subject to vesting | 100.00% | ||
RSU and PRSU | |||
Summary of restricted stock unit activity | |||
Outstanding balance at the beginning of the period (in shares) | 1,139,045 | 1,139,045 | |
Granted (in shares) | 1,120,287 | ||
Vested (in shares) | (454,655) | ||
Forfeited (in shares) | (147,744) | ||
Outstanding balance at the end of the period (in shares) | 1,656,933 | 1,656,933 | |
Weighted-Average Grant-Date Fair value | |||
Outstanding at the beginning of the period (in dollars per share) | $ 52.47 | $ 52.47 | |
Granted (in dollars per share) | 57.43 | ||
Vested (in dollars per share) | 43.51 | ||
Forfeited (in dollars per share) | 58.91 | ||
Outstanding at the end of the period (in dollars per share) | $ 57.71 | $ 57.71 |
Stock-Based Compensation - Empl
Stock-Based Compensation - Employee Stock Purchase Plan (Details) $ in Thousands | 3 Months Ended | 9 Months Ended |
Sep. 30, 2019USD ($)shares | Sep. 30, 2019USD ($)shares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares issued in period (shares) | 54,485 | |
Net proceeds | $ | $ 1,895 | |
Available for future issuance under employee stock purchase plan (in shares) | 881,844 | 881,844 |
Employee Stock | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Shares issued in period (shares) | 54,485 | 54,485 |
Net proceeds | $ | $ 1,900 |
Net Loss per Share (Details)
Net Loss per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | |
Numerator: | ||||
Net loss | $ (141,112) | $ (9,944) | $ (190,638) | $ (43,162) |
Denominator: | ||||
Weighted-average shares of common stock outstanding, basic and diluted (in shares) | 63,358,890 | 57,663,361 | 60,690,536 | 55,128,845 |
Net loss per share, basic and diluted (in dollars per share) | $ (2.23) | $ (0.17) | $ (3.14) | $ (0.78) |
Stock options | ||||
Potential dilutive securities that would have been anti-dilutive | ||||
Potential dilutive securities that would have been anti-dilutive due to net loss (in shares) | 4,404,386 | 4,097,480 | ||
Restricted stock units | ||||
Potential dilutive securities that would have been anti-dilutive | ||||
Potential dilutive securities that would have been anti-dilutive due to net loss (in shares) | 1,656,933 | 1,217,161 |
Segment and Geographic Inform_3
Segment and Geographic Information - Concentration Risk (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019USD ($) | Sep. 30, 2018USD ($) | Sep. 30, 2019USD ($)segment | Sep. 30, 2018USD ($) | Dec. 31, 2018USD ($) | |
Segment Information | |||||
Number of reportable segments (in segments) | segment | 2 | ||||
Revenue | $ 153,798 | $ 106,963 | $ 411,493 | $ 296,674 | |
Accounts receivable, net | 84,797 | 84,797 | $ 32,636 | ||
Graduate Program Segment | |||||
Segment Information | |||||
Revenue | 103,393 | 89,719 | 308,970 | 251,487 | |
Accounts receivable, net | 28,917 | 28,917 | 31,110 | ||
Alternative Credit Segment | |||||
Segment Information | |||||
Revenue | 50,405 | 17,244 | 102,523 | 45,187 | |
Accounts receivable, net | 19,500 | 19,500 | 982 | ||
University client A | Customer concentration risk | Sales Revenue, Net | Graduate Program Segment | |||||
Segment Information | |||||
Revenue | $ 20,500 | $ 24,000 | $ 64,300 | $ 65,000 | |
Percentage of concentration of credit risk | 13.00% | 22.00% | 16.00% | 22.00% | |
University client A | Credit concentration risk | Accounts receivable, net | Graduate Program Segment | |||||
Segment Information | |||||
Percentage of concentration of credit risk | 14.00% | 36.00% | |||
Accounts receivable, net | $ 11,800 | $ 11,800 | 11,900 | ||
University client B | Customer concentration risk | Sales Revenue, Net | Graduate Program Segment | |||||
Segment Information | |||||
Revenue | $ 13,000 | $ 39,500 | |||
Percentage of concentration of credit risk | 12.00% | 13.00% | |||
University client B | Credit concentration risk | Accounts receivable, net | Graduate Program Segment | |||||
Segment Information | |||||
Percentage of concentration of credit risk | 11.00% | 36.00% | |||
Accounts receivable, net | 9,000 | $ 9,000 | $ 11,800 | ||
University client C | Customer concentration risk | Sales Revenue, Net | Graduate Program Segment | |||||
Segment Information | |||||
Revenue | $ 10,800 | $ 30,600 | |||
Percentage of concentration of credit risk | 10.00% | 10.00% | |||
Four University Clients | Customer concentration risk | Sales Revenue, Net | Alternative Credit Segment | |||||
Segment Information | |||||
Revenue | $ 26,000 | ||||
Percentage of concentration of credit risk | 25.00% | 82.00% | |||
Four University Clients | Customer concentration risk | Revenue segment | Alternative Credit Segment | |||||
Segment Information | |||||
Revenue | $ 8,300 | ||||
Percentage of concentration of credit risk | 16.00% | 91.00% |
Segment and Geographic Inform_4
Segment and Geographic Information - Revenue and Total Assets by Segment (Details) - USD ($) | 3 Months Ended | 9 Months Ended | |||||||
Sep. 30, 2019 | Jun. 30, 2019 | Mar. 31, 2019 | Sep. 30, 2018 | Jun. 30, 2018 | Mar. 31, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Segment Information | |||||||||
Revenue | $ 153,798,000 | $ 106,963,000 | $ 411,493,000 | $ 296,674,000 | |||||
Total segment profitability | $ (10,723,000) | $ 4,675,000 | $ (28,904,000) | $ (2,402,000) | |||||
Total segment profitability margin | (7.00%) | 4.40% | (7.00%) | (0.80%) | |||||
Net loss | $ (141,112,000) | $ (27,972,000) | $ (21,554,000) | $ (9,944,000) | $ (18,347,000) | $ (14,871,000) | $ (190,638,000) | $ (43,162,000) | |
Adjustments | |||||||||
Interest income | (924,000) | (1,799,000) | (5,087,000) | (3,053,000) | |||||
Interest expense | 5,651,000 | 27,000 | 8,130,000 | 81,000 | |||||
Foreign currency loss | 710,000 | 273,000 | 1,093,000 | 1,493,000 | |||||
Depreciation and amortization expense | 22,288,000 | 8,599,000 | 46,639,000 | 23,382,000 | |||||
Income tax expense (benefit) | 714,000 | (414,000) | (18,918,000) | (5,207,000) | |||||
Deferred revenue fair value adjustment | 5,927,000 | 0 | 9,279,000 | 0 | |||||
Transaction costs | 92,000 | 0 | 4,466,000 | 0 | |||||
Integration costs | 2,436,000 | 0 | 2,493,000 | 0 | |||||
Restructuring-related costs | 6,581,000 | 0 | 7,174,000 | 0 | |||||
Impairment charge | 70,379,000 | 0 | 70,379,000 | 0 | |||||
Stock-based compensation expense | 16,535,000 | 7,933,000 | 36,086,000 | 24,064,000 | |||||
Total adjustments | 130,389,000 | 14,619,000 | 161,734,000 | 40,760,000 | |||||
Total assets | 1,213,570,000 | 1,213,570,000 | $ 807,354,000 | ||||||
Trade accounts receivable | |||||||||
Accounts receivable, net | 84,797,000 | 84,797,000 | 32,636,000 | ||||||
Total trade accounts receivable | 84,797,000 | 84,797,000 | 32,357,000 | ||||||
Contract liabilities | 58,634,000 | 58,634,000 | 8,345,000 | ||||||
Graduate Program Segment | |||||||||
Segment Information | |||||||||
Revenue | 103,393,000 | 89,719,000 | 308,970,000 | 251,487,000 | |||||
Total segment profitability | $ 1,213,000 | $ 5,564,000 | $ (6,126,000) | $ (615,000) | |||||
Total segment profitability margin | 1.20% | 6.20% | (2.00%) | (0.20%) | |||||
Adjustments | |||||||||
Impairment charge | $ 0 | ||||||||
Total assets | $ 523,449,000 | 523,449,000 | 702,827,000 | ||||||
Trade accounts receivable | |||||||||
Accounts receivable, net | 28,917,000 | 28,917,000 | 31,110,000 | ||||||
Graduate Program Segment unbilled revenue | 36,380,000 | 36,380,000 | 265,000 | ||||||
Allowance for doubtful accounts | 0 | 0 | 0 | ||||||
Contract liabilities | 5,484,000 | 5,484,000 | 2,864,000 | ||||||
Deferred revenue | 2,400,000 | $ 2,500,000 | |||||||
Alternative Credit Segment | |||||||||
Segment Information | |||||||||
Revenue | 50,405,000 | $ 17,244,000 | 102,523,000 | 45,187,000 | |||||
Total segment profitability | $ (11,936,000) | $ (889,000) | $ (22,778,000) | $ (1,787,000) | |||||
Total segment profitability margin | (23.70%) | (5.20%) | (22.20%) | (4.00%) | |||||
Adjustments | |||||||||
Impairment charge | $ 70,379,000 | ||||||||
Total assets | $ 690,121,000 | 690,121,000 | 104,527,000 | ||||||
Trade accounts receivable | |||||||||
Accounts receivable, net | 19,500,000 | 19,500,000 | 982,000 | ||||||
Allowance for doubtful accounts | 1,800,000 | 1,800,000 | 257,000 | ||||||
Contract liabilities | $ 53,150,000 | 53,150,000 | $ 5,481,000 | ||||||
Deferred revenue | $ 5,400,000 | $ 4,500,000 |
Segment and Geographic Inform_5
Segment and Geographic Information - Contract Acquisition Costs (Details) - Graduate Program Segment - USD ($) $ in Millions | 9 Months Ended | ||
Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Segment Information | |||
Capitalized contract cost | $ 0.5 | $ 0.3 | |
Capitalized contract cost, additional costs capitalized | $ 0.2 | $ 0.3 |
Segment and Geographic Inform_6
Segment and Geographic Information - Geographical Information (Details) - Alternative Credit Segment - Non-US - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2019 | Sep. 30, 2018 | Sep. 30, 2019 | Sep. 30, 2018 | Dec. 31, 2018 | |
Geographical Information | |||||
Revenue | $ 10.6 | $ 8.8 | $ 29.4 | $ 26 | |
Long-lived assets | $ 2.6 | $ 2.6 | $ 1.2 |