2U

Potential, 
unlocked.

2021 Annual Report

230+

World-Class Partners

3,600+ 

Digital Offerings

42M+

Students

1,200+

Enterprise Clients

As of 2/9/2022

Free-to-degree 
lifelong learning

We partner with 35+ of the  
50 best global universities  
as ranked by U.S. News.

As of 12/31/2021

We also partner 
with some of 
the world’s top 
corporations 
and institutions.

DEAR FELLOW STOCKHOLDERS,

2008: 2U was founded, delivering high-quality online 

“The transformation starts today. Welcome, edX!”  
That was the subject line of the email I sent to 2U employees 

across the globe on November 16, 2021—the day our industry- 

redefining combination with edX became official. It was a  

special moment in the history of 2U. It marked the beginning 

of a new era that brings together two mission-driven 

organizations committed to unlocking human potential by 

making higher education more affordable and accessible. 

Evolving into a Platform 

2U was founded in 2008 with the belief that online 

degree programs

2014: IPO

2017: Acquired GetSmarter

2019: Acquired Trilogy Education

2021: Joined forces with edX

2U and edX also bring together unique strengths and 

complementary capabilities. edX built one of the strongest 

online education brands and largest global communities of 

learners in the world. 2U is the digital transformation partner 

of choice for the world’s leading universities and offers one 

of the most comprehensive sets of enabling functions—

including digital marketing, student success, fieldwork 

education, when done well, could change lives. We started 

placement, and career services—to deliver high-impact, high-

by powering high-quality degree programs in partnership 

quality digital education globally. Our combined scale, reach, 

with some of the nation’s top universities in disciplines like 

capabilities, marketing efficiency, and relationships unlock 

education, nursing, social work, and business. After scaling 

opportunities to reach and serve more learners, universities, 

that business to 18 universities, over 40 degree programs, 

and employers worldwide.

and 24 verticals, we broadened our portfolio by offering 

high-quality short courses with great universities through 

the acquisition of GetSmarter, allowing us to better meet the 

reskilling and upskilling needs of lifelong learners globally. 

Two years later, we added technical boot camps via the 

strategic acquisition of Trilogy Education, allowing us to not 

only expand our university partner base and meet the needs 

of more learners, but also help close the workforce skills 

gap. Fast forward to 2021: Prior to coming together with 

edX, 2U had grown to partner with 85 universities, serving 

over 375,000 students with 550 digital offerings, including 

undergraduate degrees.

Through hard work and a collective dedication to our mission, 

our global team has built 2U into a sustainable and resilient 

business. In 2021 we delivered revenue growth in excess of 

20% in both our degree and alternative credential segments, 

with particularly strong demand for our undergraduate 

degree offerings. 

And with the acquisition of edX, we are now a leading global 

The Power of Our Platform

education platform and free-to-degree marketplace that is a 

For the first time in 2U’s nearly 15-year history, learners have 

partner to 230+ of the world’s most-recognized corporations 

access to all of our partners’ online offerings—executive 

and higher-education institutions, including 38 of the top 50 
ranked universities according to U.S. News & World Report. 
We now provide access to more than 3,600 digital education 

education courses, boot camps, and undergraduate and 

graduate degrees—in a marketplace alongside thousands of 

open courses and a growing number of new and disruptively 

offerings—from free courses to degrees—to more than 42 

priced degree programs. These include Boston University’s 

million learners from 196 countries and a growing network  

Master’s of Public Health and innovative MicroMasters® courses 

of more than 1,200 enterprise clients. 

such as MIT’s Supply Chain program, which has resulted in 

40 students per year enrolling in other institutions’  

on-campus supply chain master’s programs. This is just 

Vision for the Future

the beginning of our efforts to create more affordable and 

We have a bold vision for the future. Our ambition is to be 

accessible credit-bearing pathways that offer students  

the premier education platform company through the edX 

in-demand skills and the flexibility to finish a full degree or 

consumer brand, marketplace, and high-quality offerings. 

take what they’ve learned and put it to work immediately. 

The pandemic not only accelerated the adoption of online 

We are also now well positioned to better deliver on this 

learning, but also permanently shifted the power dynamics in 

promise for learners and universities across the globe, as 

higher education toward consumers. They have more choice 

demonstrated by our recently announced partnership with 

over what, when, where, and how they want to learn. They 

the University of Sydney to bring four of its most in-demand 

are seeking greater flexibility and personal relevance, placing 

degree programs online. 

We’re also going beyond meeting the needs of individual 

learners and universities. Together with edX, we have one 

of the most comprehensive portfolios of degree and non-

a premium on convenience and affordability, and increasingly 

choosing online options. And they’ll find those options at 

edX: the right learning at the right time, from the world’s best 

institutions, delivering great outcomes for students. 

degree offerings to meet the rapidly growing demands 

As we expand our reach, we believe we will expand 

of employers—large and small—to reskill and upskill their 

our impact by continuing to lead the industry in quality, 

workforce, find new talent pipelines, and open doors of 

transparency, and life-changing student outcomes. In 

opportunity for historically underrepresented communities. 

December we released 2U’s second annual industry-leading 

Beyond offering companies access to thousands of high-

Transparency Report, one expression of our continued 

quality courses through edX for Business, we can now 

commitment to prioritizing student success in everything 

help them provide relevant tech skills to their employees 

we do. I could not be prouder that a Gallup study found that 

through our boot camps or essential leadership skills through 

97% of all 2U-powered degree alumni achieved a positive 

executive education courses (previously known as short 

career outcome after graduating, and that the number of 

courses). And our rapidly growing Career Engagement 

students of color increased across our partners’ boot camps 

Network has become a go-to resource for students looking 

and degree programs—creating more diverse pipelines of 

for career advice and job opportunities, and for employers in 

talent. Moreover, thousands of aspiring nurses, counselors, 

search of a free, one-stop shop to source talent with the kind 

and teachers completed over 3.5 million hours of virtual and 

of skills their companies need. 

in-person field placements, helping care for and educate 

people in communities across all 50 states. 

From the beginning, 2U’s mission has been to eliminate the 

back row in higher education. Together with edX, we can 

now better deliver on that promise for millions of learners, 

universities, and companies around the world, helping 

each one unlock their potential, and in doing so positively 

transform their lives and the world around them. And that is 

what motivates and inspires all of us every day.

Christopher “Chip” Paucek
Co-Founder & CEO

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K 

☒

☐

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021 

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to

Commission File Number: 001-36376 

2U, INC. 
(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

Delaware

26-2335939

7900 Harkins Road

Lanham, MD

(Address of Principal Executive Offices)

20706

(Zip Code)

Securities registered pursuant to Section 12(b) of the Act:

(301) 892-4350 
Registrant’s telephone number, including area code:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

TWOU

The Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒    No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such 
filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such 
files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or 
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 
company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Non-accelerated filer  

☒

☐

Accelerated filer

Smaller reporting company

Emerging growth company

☐

☐

☐

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

 
 
 
 
 
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal 
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that 
prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

The aggregate market value of the 52,068,002 shares of the registrant’s common stock held by non-affiliates as of June 30, 2021 (computed based on 
the closing price on such date as reported on The Nasdaq Global Select Market) was $2,169,673,643.

As of February 25, 2022, there were 76,350,667 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s definitive proxy statement, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, for its 2022 
Annual Meeting of Stockholders, or an amendment on Form 10-K/A are incorporated by reference in Part III of this Form 10-K.

2U, Inc.
FORM 10-K
TABLE OF CONTENTS

PART I

Item 1.

Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2.

Item 3.

Properties

Legal Proceedings

Item 4. Mine Safety Disclosures

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases 

PART II

of Equity Securities

Item 6.

[Reserved]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related 

Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

Item 14.

Principal Accounting Fees and Services

PART IV

Item 15. Exhibits, Financial Statement Schedules

Item 16.

Form 10-K Summary

Signatures

PAGE

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42

42

43

43

44

44

45

60

61

106

106

106

106

107

107
107

107

107

108

108

109

1

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities 

Litigation Reform Act of 1995, which are subject to substantial risks and uncertainties. In some cases, you can identify forward-
looking statements by the words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “objective,” 
“anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue” and “ongoing,” or the negative of these terms, 
or other comparable terminology intended to identify statements about the future. These statements involve known and 
unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements 
to be materially different from the information expressed or implied by these forward-looking statements. Although we believe 
that we have a reasonable basis for each forward-looking statement contained in this Annual Report on Form 10-K, we caution 
you that these statements are based on a combination of facts and factors currently known by us and our expectations of the 
future, about which we cannot be certain. Factors that may cause actual results to differ materially from current expectations 
include, but are not limited to:

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

trends in the higher education market and the market for online education, and expectations for growth in those 
markets;

the acceptance, adoption and growth of online learning by colleges and universities, faculty, students, employers, 
accreditors and state and federal licensing bodies;

the impact of competition on our industry and innovations by competitors;

our ability to comply with evolving regulations and legal obligations related to data privacy, data protection and 
information security;

our expectations about the potential benefits of our cloud-based software-as-a-service technology and technology-
enabled services to university clients and students;

our dependence on third parties to provide certain technological services or components used in our platform;

our expectations about the predictability, visibility and recurring nature of our business model;

our ability to meet the anticipated launch dates of our degree programs, executive education offerings and boot camps;

our ability to acquire new university clients and expand our degree programs, executive education offerings and boot 
camps with existing university clients;

our ability to successfully integrate the operations of our acquisitions, including the edX Acquisition, to achieve the 
expected benefits of our acquisitions and manage, expand and grow the combined company;

our ability to refinance our indebtedness on attractive terms, if at all, to better align with our focus on profitability;

our ability to service our substantial indebtedness and comply with the covenants and conversion obligations contained 
in the Indenture (as defined below) governing our Notes (as defined below) and the Term Loan Agreement (as defined 
below) governing our Term Loan Facilities (as defined below);

our ability to generate sufficient future operating cash flows from recent acquisitions to ensure related goodwill is not 
impaired;

our ability to execute our growth strategy in the international, undergraduate and non-degree alternative markets;

our ability to continue to recruit prospective students for our offerings;

our ability to maintain or increase student retention rates in our degree programs;

our ability to attract, hire and retain qualified employees; 

our expectations about the scalability of our cloud-based platform;

potential changes in regulations applicable to us or our university clients; 

our expectations regarding the amount of time our cash balances and other available financial resources will be 
sufficient to fund our operations;

the impact and cost of stockholder activism;

2

•

•

•

•

the potential negative impact of the significant decline in the market price of our common stock, including the 
impairment of goodwill and indefinite-lived intangible assets;

the impact of any natural disasters or public health emergencies, such as the coronavirus disease 2019 (“COVID-19”) 
pandemic;

our expectations regarding the effect of the capped call transactions and regarding actions of the option counterparties 
and/or their respective affiliates; and

other factors beyond our control.

You should refer to the risks described in Part I, Item 1A “Risk Factors” in this Annual Report on Form 10-K for a 
discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our 
forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this 
Annual Report on Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, 
the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not 
regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans 
in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether 
as a result of new information, future events or otherwise, except as required by law.

You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results 

may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary 
statements.

Additional Information

In this Annual Report on Form 10-K, the terms “2U,” “our company,” “we,” “us,” and “our” refer to 2U, Inc. 

and its subsidiaries, unless the context indicates otherwise.

We announce material information to the public through a variety of means, including filings with the Securities and 

Exchange Commission, press releases, public conference calls, our website (2u.com), the investor relations section of our 
website (investor.2u.com), our Twitter account (@2Uinc), Chip Paucek’s Twitter account (@chippaucek) and our blogs 
(2u.com/latest) and (blog.edx.org). We use these channels to communicate with investors and the public about our company, 
our products, and other matters. Therefore, we encourage investors, the media and others interested in our company to review 
the information we make public in these locations, as such information could be deemed to be material information. The 
information on or accessible through our websites and social media channels is not incorporated by reference in this Annual 
Report on Form 10-K.

3

 
Item 1.    Business

Overview

PART I

We are a leading online education platform company.  Our mission is to expand access to high-quality educational 

opportunities that unlock human potential.  In November 2021, we acquired substantially all of the assets of edX Inc. (the “edX 
Acquisition”), including the edX brand, website and marketplace. As a result of the edX Acquisition, we expanded our digital 
education offerings to include open courses and micro-credential offerings at the undergraduate and graduate levels and added 
an education consumer marketplace, edx.org, with over 42 million registered learners.

Following the completion of the edX Acquisition, we now serve more than 230 top-ranked global universities and 

other leading institutions, and offer more than 3,600 high-quality online learning opportunities, including open courses, 
executive education offerings, boot camps, micro-credentials, professional certificates as well as undergraduate and graduate 
degree programs. 

With the edX Acquisition, we are now positioned as one of the world’s most comprehensive free-to-degree online 

learning platforms. We believe our platform and robust consumer marketplace provide our clients with the digital infrastructure 
to launch world-class online education offerings and allow students to easily access high-quality, job-relevant education 
offerings without the barriers of cost or location. 

Business Segments

We have two reportable segments: the Degree Program Segment and the Alternative Credential Segment.

In our Degree Program Segment, we provide the technology and services to nonprofit colleges and universities to 

enable the online delivery of degree programs. Students enrolled in these programs are generally seeking an undergraduate or 
graduate degree of the same quality they would receive on campus.

In our Alternative Credential Segment, we provide premium online open courses, executive education programs, 
technical, skills-based boot camps and micro-credential programs at the undergraduate and graduate levels through relationships 
with nonprofit colleges and universities and other leading institutions. Students enrolled in these offerings are generally seeking 
to reskill or upskill for career advancement or personal development through shorter duration, lower-priced offerings. 
Following the edX Acquisition, we changed the name of our “short courses” in our Alternative Credential Segment to 
“executive education” to more clearly align with industry terminology. 

Our Platform

Our platform consists of a seamlessly integrated ecosystem of technology, people and data. Through our platform, we 
provide the tools and services our clients need to bring high-quality online education offerings to students around the world and 
we provide students an expansive range of offerings to support their educational and career goals.

Degree Program Segment: Technology and Services

In the Degree Program Segment, we provide front-end and back-end cloud-based SaaS technology and technology-

enabled services, which are tightly integrated and optimized with data analysis and machine learning techniques. In general, for 
our degree program offerings, we provide the following full suite of technology and services:

•

Technology.  

◦

◦

Infrastructure – We use a variety of proprietary technologies to streamline the launch of our degree programs 
and to scale launches with multiple schools. Prior to the launch of new degree programs, we also tightly 
integrate our systems with our university clients’ systems by building integrations and data connections. 
These integrations facilitate the secure bi-directional exchange of data to support our degree programs and to 
automate a variety of processes on an ongoing basis, including admissions and live class scheduling. 

Learning Technology – Our learning platform provides a live and engaging classroom environment that is 
accessible through web and mobile applications for convenient consumption of asynchronous coursework. 
Our STEM-based education tools and collaborative annotation technology significantly enhance the learning 
experience for students and instruction capabilities for faculty. 

• Marketing Services. Our marketing team uses best-in-class digital marketing strategies – including Search Engine 

Optimization, Search Engine Marketing and Social Media Optimization – together with data analytics and machine 

4

learning techniques and a strong affiliate marketing channel to engage prospective students for our university clients’ 
degree programs. Our marketing campaigns are often program-specific and leverage each university client’s brand 
identity and approved messaging. 

•

Student Engagement and Services. We provide a broad scope of services to students to support them on their learning 
journey from the admissions process through career services. 

◦

◦

◦

Admissions – Our admissions team provides prospective students with transparent information regarding 
admissions requirements, the application process, curriculum, tuition information, and time to completion. 

Student Success – We augment each student’s academic experience by assigning a dedicated advisor to 
provide individualized non-academic support throughout their program. These advisors focus on retention and 
graduation by using data analysis and personalized coaching plans. 

Career Services – Through our Career Engagement Network, we provide students and alumni of our 
university clients’ offerings with access to industry-aligned resources designed to support students in 
achieving their career goals following graduation. These services include resume and interview tools, live 
coaching and workshops as well as career fairs and employer referrals to our strong network of employer 
partnerships around the world.  

•

Curriculum and Learning Services. Our learning design and development experts collaborate with faculty to produce 
high-quality, engaging, online coursework and content for our university clients’ degree programs. Our learner-
centered approach to curriculum design incorporates our university clients’ curricular expertise and pedagogical 
preferences and is founded in principles of learning science and informed by our deep online course development 
expertise and historical user experience. We use a learning management system that facilitates authoring and hosting 
asynchronous learning activities. In addition to interactive asynchronous learning experiences, our offerings feature 
live, online classes. Live classes provide the opportunity for students to build community with peers and receive 
personalized and real-time instructor support, which is a cornerstone of our approach to delivering degree programs. 
To maximize the benefit of these synchronous live sessions, we employ a flipped classroom model, which focuses on 
dynamic interactive learning rather than solely direct teacher instruction. We also provide technology tools to reduce 
friction in the virtual learning environment for students and professors. 

•

University Support Services. We provide a range of other services to enable the success of our university clients’ 
online degree programs and allow them to focus on their core academic functions.

◦

◦

◦

Admissions – While our university clients are solely responsible for making admissions decisions, we 
streamline the admissions process by assisting prospective students in the application process and organizing 
and routing completed student application packages to the university’s admissions office. 

Placement – Using our global network of clinics, hospitals, schools and other sites, our field placement team 
secures local placements for students enrolled in degree programs such as nursing, social work, teaching and 
other programs that require field placements to satisfy curriculum and accreditation requirements. We have 
integrated placements into our learning technology to enable students, faculty and field placement supervisors 
to monitor completion of student field work directly from our platform. During the COVID-19 pandemic we 
developed a virtual field placement program for our counseling and social work programs to allow students to 
continue to progress through these degree programs while in-person placements were not possible.

Faculty Success – We provide a dedicated team to support and train university administration and faculty on 
how to use our platform to facilitate high-quality live instruction. In addition, we help our university clients 
succeed by assisting with faculty recruiting efforts, including attracting, cultivating and vetting a pool of 
faculty candidates for our university clients.

Alternative Credential Segment: Technology and Services

In the Alternative Credential Segment we provide flexible technology platforms and services to enable our clients to 
provide a range of non-degree credentials and other courses to learners. In general, for our alternative credential offerings, we 
provide the following technology and services:

•

Technology. Our executive education and boot camp platform provides an integrated hub for students to access 
coursework and learning modules, interact with tutors and peers, attend live classes where applicable, and review 
assignment grading and tutor feedback. For our open course and micro-credential offering, our clients leverage the 
Open edX platform, an open source, scalable learning platform, that we have customized to enable our clients to build 
offerings to launch on the edX marketplace. For our executive education, open course and micro-credential offerings, 

5

our platform is also available through proprietary mobile applications for convenient consumption of asynchronous 
coursework.

• Marketing Services. Our marketing team uses best-in-class digital marketing strategies – including Search Engine 

Optimization, Search Engine Marketing and Social Media Optimization – together with data analytics and machine 
learning techniques and a strong affiliate marketing channel to engage prospective students for our university partners 
alternative credential offerings. 

•

Student Engagement and Services. We provide a broad scope of services to students in our executive education courses 
and boot camps to support them on their learning journey from the enrollment process through career services. 

◦

◦

◦

Enrollment – We provide prospective students with transparent information regarding the enrollment process, 
curriculum, tuition information, and time to completion.

Student Success – For our executive education and boot camp offerings, we augment each student’s academic 
experience by assigning a dedicated advisor to provide individualized non-academic support throughout their 
course. For our boot camp offerings we have proprietary tools to allow us to scale our student support and 
ensure student questions on asynchronous content or coursework receive an advisor or teaching assistant 
response efficiently. 

Career Services – Through our Career Engagement Network, we provide students and alumni of our 
university clients’ executive education and boot camp offerings with access to industry-aligned resources 
designed to support students in achieving their career goals following completion. These services include 
resume and interview tools and workshops as well as career fairs and employer referrals to our strong network 
of employer partnerships around the world. 

•

Curriculum and Learning Services. Our learning design and development experts produce high-quality, engaging, 
online coursework and content for our executive education and boot camp offerings. We use a learning management 
system that facilitates authoring and hosting asynchronous learning activities. We employ tools to make real-time 
updates to our curriculum to keep certain offerings current in quickly evolving fields such as coding, data analytics and 
cybersecurity. We also use a proprietary analytics platform to capture the sentiment of students in our boot camp and 
executive education offerings. We use this data to improve our curricula, calibrate differences across classrooms and 
offer targeted support to students. We also recruit, hire and train faculty to teach the executive education and boot 
camp offerings for our university clients. For our open course and micro-credential offerings, we provide course 
strategy and design consultation services and other self-help resources to assist our clients in creating engaging content 
for our platform. 

edX Marketplace

Our marketplace, available at edX.org, provides the full catalog of online offerings ranging from free offerings to 

graduate degree programs that we enable. Once we have completed integration of the edX marketplace with our broader 
business, we believe this thriving consumer marketplace will enable our clients to efficiently reach a large audience of global 
learners and expand the impact of their institutions and brands, and allow students to access relevant, high-quality education 
offerings from top-tier academic institutions and other industry leading entities. We believe the edX marketplace provides an 
opportunity to increase the efficiency of our marketing efforts by combining the strength of the edX brand and large global 
audience with a comprehensive range of high-quality education offerings and our strong offering-specific marketing 
capabilities. As we continue to increase the range of offerings on the edX marketplace, we believe we will attract additional 
students to the marketplace, some of whom will enroll in additional offerings.

Key Benefits of our Solution

We believe our solutions provide the following key benefits:

•

•

Extend Institutional Reach and Impact. Our platform enables our university and institutional clients to extend their 
brands and increase their impact by delivering high-quality education offerings to students anywhere in the world at a 
wide range of prices and credential levels. 

Low Financial Risk for Clients. We make many of the initial investments required to launch new offerings across our 
portfolio. In our Degree Program Segment, in particular, we make significant investments in technology, integration, 
content production, marketing, student and faculty support, and other services. Our revenue-share model, combined 
with long contractual terms in this segment, enables us to make these investments without significant financial risk to 
our university clients. Our platform provides a broad set of capabilities that would otherwise require universities to 

6

purchase multiple, disparate point solutions, and significantly increase headcount in marketing, data analytics, 
technology and other areas.

• Marketing Reach. As part of the edX Acquisition, we acquired edX’s thriving consumer marketplace and global brand. 
Once we have completed our integration activities, we believe the edX marketplace together with the strong consumer-
facing brand, will enable our clients to efficiently reach a large audience of potential students. As we continue to 
expand the scope of offerings on the edX marketplace, we believe we will generate additional interest in our offerings 
among students and incentivize clients to create additional offerings on our platform ranging from free-to-degree.

•

•

•

Comprehensive Scope of Offerings. We provide a broad range of education offerings to students that range from free 
open courses to graduate degree programs. Our breadth of offerings allows students to gain the skills and credentials 
they need to reach their career and personal goals and provides the flexibility to “stack” credentials to progress towards 
a more advanced credential or degree. 

Outcomes. Our platform allows students to pursue a wide range of high-quality education offerings provided by 
leading universities and other top-tier institutions. Through these offerings, students obtain valuable skills and 
credentials that can create upward career mobility, facilitate a transition to a new field and lead to personal enrichment.

Scalable Support. High-quality student support is a central pillar of our platform. We provide student support for all 
offerings in our portfolio that is tailored to student needs based on offering type. For many of our offerings our support 
teams work with prospective students prior to enrollment as they consider and apply to a particular offering. Once 
enrolled, we augment the academic experience by assigning a dedicated advisor to provide ongoing individualized 
non-academic support and career guidance for certain offerings. For our self-paced offerings such as our open courses, 
we provide students with platform technical support as needed. 

Our Growth Strategy

We intend to continue our industry leadership as a provider of a digital education platform that enables our clients to 

deliver high-quality online education at scale and provides students with lifelong learning opportunities to unlock their 
potential. Our approach to growth is disciplined and focused on long-term success. The principal elements of our strategy are:

•

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•

•

Adding Offerings with New and Existing Clients and  Increasing Enrollments in Our Offerings. We intend to add 
additional top-tier universities and other entities to our client base and to increase the number of offerings we power on 
behalf of our existing client base.  We believe that once we have fully integrated the edX marketplace with our existing 
business, and enhanced search functionality of the marketplace, potential students will be able to more efficiently 
search for and find courses of interest from free-to-degree. We also intend to scale enrollments in our offerings by 
expanding the reach and diversity of our marketing channels and making incremental improvements to our learning 
technology. 

Expanding Offerings from Free-to-Degree. We intend to continue evolving our offering portfolio to meet the demands 
of lifelong learners by expanding our offerings in accordance with our client’s roadmaps. This expansion could include 
new offering types, course bundles or stacks, or additional credentialing options. 

Expanding Enterprise Channel. We believe expanding our enterprise channel presents a significant opportunity for us. 
Our deep catalog of over 3,600 high-quality free-to-degree offerings enables us to partner with a wide range of 
institutions seeking to upskill and train employees at any level of their organizations with exceptional digital learning 
experiences in job-relevant subject areas. 

Expanding Globally. The edX marketplace generates significant traffic across the globe and the edX offerings have a 
large non-US student base. We believe this creates a significant opportunity to expand our offerings with top-tier 
international universities and other entities and to attract additional non-US students to our existing offerings.

Clients

As of December 31, 2021, we had more than 230 clients with more than 3,600 offerings. Our clients are nonprofit 

colleges and universities as well as leading corporations and non-profit entities. 

Competition

The overall market for technology solutions that enable higher education providers to deliver education online is 
highly fragmented, rapidly evolving and subject to changing technology, shifting needs of students, faculty and clients and 
frequent introductions of new delivery methods. 

7

We face competition from various companies in the online education sector, including companies that provide direct-
to-consumer online education offerings, corporate training programs and technology solutions and services to universities that 
offer online learning programs. Many of these companies provide components of the technology and services we provide, and 
these companies may choose to pursue some of the institutions we target. Moreover, nonprofit colleges and universities may 
elect to continue using or develop their own online learning solutions in-house.

We expect that the competitive landscape will continue to expand as the market for online education offerings at 

nonprofit institutions matures. We believe the principal competitive factors in our market include the following: 

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•

•

quality and reputation of university client base and track record of performance;

robustness and evolution of technology solutions and marketplace capabilities;

scope and quality of educational content;

strength of brand awareness and reputation among consumers; 

ability of online education offerings to deliver desired student outcomes;

breadth and depth of service offering;

ability to make significant investments in launching and operating degree programs;

expertise in marketing, student acquisition and student retention;

student and faculty experience;

ease of deployment and use of technology solutions; and

level of customization, configurability, integration, security, scalability and reliability of technology solutions.

We believe we compete favorably on the basis of these factors. Our ability to remain competitive will depend, to a 
great extent, on our ability to consistently deliver high-quality offerings; meet client needs for content development; attract, 
support and retain students; and deliver desired student, faculty and client outcomes.

Seasonality

We experience seasonality in our marketing and sales expense in both our Degree Program Segment and our 
Alternative Credential Segment. We typically reduce our paid search and other marketing and sales efforts during late 
November and December because of less demand during the holiday season. We generally do not experience pronounced 
seasonality in our revenue, although revenue can fluctuate significantly from quarter to quarter due to variations driven by the 
varying academic schedules of our offerings and university clients.

Intellectual Property

We protect our intellectual property by relying on a combination of copyrights, trademarks, trade secrets and 
contractual agreements. For example, we rely on trademark protection in the United States and various foreign jurisdictions to 
protect our rights to various marks, including 2U, NO BACK ROW, GETSMARTER, TRILOGY, EDX and other distinctive 
logos associated with our brand. We continue to evaluate developing and expanding our intellectual property rights in patents, 
trademarks and copyrights, as available through registration in the United States and internationally.

We ensure that we own intellectual property created for us by signing agreements with employees, independent 
contractors, consultants, companies, and any other third party that creates intellectual property for us that assign any intellectual 
property rights to us.

We have also established business procedures designed to maintain the confidentiality of our proprietary information, 

including the use of confidentiality agreements with employees, independent contractors, consultants and companies with 
which we conduct business.

We also purchase or license technology that we incorporate into our technology or services. While it may be necessary 

in the future to seek or renew licenses relating to various aspects of our technology and services, we believe, based upon past 
experience and industry practice, such licenses generally could be obtained on commercially reasonable terms.

For important additional information related to our intellectual property position, please review the information set 

forth in “Risk Factors—Risks Related to Intellectual Property.”

8

Education Laws and Regulations

The higher education industry is heavily regulated. Institutions of higher education that award degrees and certificates 

to signify the successful completion of an academic program are subject to regulation from three primary entities: the U.S. 
Department of Education, or DOE, accrediting agencies and state licensing authorities. Each of these entities promulgates and 
enforces its own laws, regulations and standards, which we refer to collectively as education laws.

We contract with postsecondary institutions that are subject to education laws. In addition, we ourselves are required to 
comply with certain education laws as a result of our role as a service provider to institutions of higher education, either directly 
or indirectly through our contractual arrangements with university clients. Our failure, or that of our university clients, to 
comply with education laws could adversely impact our operations. As a result, we work closely with our university clients to 
maintain compliance with education laws.

Federal Laws and Regulations

Under the Higher Education Act of 1965, as amended, or the HEA, institutions offering postsecondary education must 
comply with certain laws and related regulations promulgated by the DOE in order to participate in the Title IV federal student 
financial assistance programs. Most of our university clients participate in the Title IV programs.

The HEA and the regulations promulgated thereunder are frequently revised, repealed or expanded. Congress 

historically has reauthorized and amended the HEA at regular intervals but has failed to do so in recent years. The 
reauthorization process and congressional oversight of the DOE is nonetheless ongoing, such as oversight and investigations of 
the education sector and DOE conducted on behalf of Congress by the Government Accountability Office, or GAO.

The reauthorization of the HEA, or other legislation, could alter the regulatory landscape of the higher education 

industry, and thereby impact the manner in which we conduct business and serve our university clients. In addition, the DOE 
frequently conducts rulemakings that may impact our business and we expect each incoming administration to change the DOE 
rules in accordance with its policy priorities regardless of whether the HEA is reauthorized by Congress. The DOE also issues 
formal and informal guidance instructing institutions of higher education and other covered entities how to comply with various 
federal laws and regulations. DOE guidance is subject to change and such changes may impact our business model.

Although we are not considered an institution of higher education and we do not directly participate in Title IV 
programs, we are required to comply with certain regulations promulgated by the DOE as a result of our role as a service 
provider to institutions that do participate in Title IV programs. These include, for example, regulations governing student 
privacy under Family Educational Rights and Privacy Act, or FERPA. While online executive education courses and boot 
camps are typically not eligible for Title IV aid, when offered by or on behalf of Title IV eligible institutions, many education 
laws, such as FERPA, remain applicable to us or our university clients even in the Alternative Credential Segment.

Current DOE rules material to our business include the incentive compensation rule, the misrepresentation rule, the 

“written arrangements” rules and state authorization requirements, which are discussed in further detail below. 

Incentive Compensation Rule

The HEA provides that any institution that participates in the Title IV federal student financial assistance programs 

must agree with the DOE that the institution will not provide any commission, bonus or other incentive payment to any person 
or entity engaged in any student recruiting or admission activities as those terms and activities are defined in DOE regulations 
and policy guidance.

Under DOE’s incentive compensation regulations, each higher education institution agrees that it will not “provide any 
commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or 
the award of financial aid, to any person or entity who is engaged in any student recruitment or admission activity, or in making 
decisions regarding the award of Title IV, HEA program funds.” Pursuant to this rule, we are prohibited from offering our 
covered employees, who are those involved with or responsible for recruiting or admissions activities, any bonus or incentive-
based compensation based on the successful recruitment, admission or enrollment of students into a postsecondary institution.

At the time the incentive compensation rule was last revised, in July 2011, the revised rule initially raised a question as 

to whether entities could be prohibited from entering into tuition revenue-sharing arrangements with university clients. On 
March 17, 2011, the DOE issued official agency guidance, known as a “Dear Colleague Letter,” or the DCL, providing 
guidance on this point. The DCL states that “[t]he Department generally views payment based on the amount of tuition 
generated as an indirect payment of incentive compensation based on success in recruitment and therefore a prohibited basis 
upon which to measure the value of the services provided” and that “[t]his is true regardless of the manner in which the entity 
compensates its employees.” But the DCL also provides an important exception to the ban on tuition revenue-sharing 
arrangements between institutions and third parties. According to the DCL, the DOE does not consider payment based on the 

9

amount of tuition generated by an institution to violate the incentive compensation ban if the payment compensates an 
“unaffiliated third party” that provides a set of “bundled services” that includes recruitment services, such as those we provide. 
Example 2-B in the DCL is described as a “possible business model” developed “with the statutory mandate in mind.” Example 
2-B describes the following as a possible business model:

“A third party that is not affiliated with the institution it serves and is not affiliated with any other institution that 

provides educational services, provides bundled services to the institution including marketing, enrollment application 
assistance, recruitment services, course support for online delivery of courses, the provision of technology, placement services 
for internships, and student career counseling. The institution may pay the entity an amount based on tuition generated for the 
institution by the entity’s activities for all the bundled services that are offered and provided collectively, as long as the entity 
does not make prohibited compensation payments to its employees, and the institution does not pay the entity separately for 
student recruitment services provided by the entity.”

The DCL guidance indicates that an arrangement that complies with Example 2-B will be deemed to be in compliance 

with the incentive compensation provisions of the HEA and the DOE’s regulations. Our business model and contractual 
arrangements with our university clients closely follow Example 2-B in the DCL. In addition, we assure that none of our 
“covered employees” are paid any bonus or other incentive compensation in violation of the rule.

Because the bundled services rule was promulgated in the form of agency guidance issued by the DOE in the form of a 

DCL and is not codified by statute or regulation, the rule could technically be altered or removed without customary 
administrative procedural requirements, such as adequate prior notice, that accompany formal agency rulemaking. Similarly, a 
court could invalidate the rule in an action involving our company or our university clients, or in an action that does not involve 
us at all. Finally, while most states defer to DOE regulations, different versions of the federal incentive compensation rule exist 
under state law, and such statutes or rules, or their interpretation, may change at any time. The revision, removal or invalidation 
of the bundled services rule by Congress, the DOE or a court could require us to change our business model, and separate 
revisions at the state level could require us to amend certain of our contracts.

Misrepresentation Rule

The HEA prohibits an institution that participates in the Title IV programs from engaging in any “substantial 

misrepresentation” regarding three broad subject areas: (i) the nature of the school’s education programs, (ii) the school’s 
financial charges and (iii) the employability of the school’s graduates.

Under the DOE rule, “misrepresentation” is defined broadly as any false, erroneous or misleading statement, written, 
visual or oral. This may include even statements that “have the likelihood or tendency to deceive.” Therefore, a statement need 
not be intentionally deceitful to qualify as a misrepresentation. “Substantial misrepresentation” is defined loosely as a 
misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to 
that person’s detriment.

The regulation also covers statements made by any representative of an institution, including agents, employees and 
subcontractors, and statements made directly or indirectly to any third party, including state agencies, government officials or 
the public, and not just statements made to students or prospective students.

Violations of the misrepresentation rule are subject to various sanctions by the DOE and violations may be used as a 

basis for legal action by third parties or as a defense to the obligation to repay student loans. The DOE rules regarding 
misrepresentation change frequently and DOE has indicated it may revise aspects of the rule and related student recruiting 
standards as part of its ongoing rulemakings. In addition, the DOE has designated an investigations unit to enforce rules related 
to deceptive student marketing, which is expected to work with other federal agencies. 

Similar rules apply under state laws or are incorporated in institutional accreditation standards, and the Federal Trade 

Commission, or FTC, applies similar rules that prohibit any unfair or deceptive marketing practices by vendors in the education 
sector. As a result, we and our employees and subcontractors, as agents of our university clients, must use a high degree of care 
to comply with such rules and are prohibited by contract from making any false, erroneous or misleading statements about our 
university clients. To avoid an issue under the misrepresentation rule and similar state and federal rules, we assure that all 
marketing materials are approved in advance by our university clients before they are used by our employees.

10

Accreditation Rules and Standards

Accrediting agencies primarily examine the academic quality of the instructional programs of an educational 
institution, and a grant of accreditation is typically viewed as confirmation that an institution or an institution’s programs meet 
generally accepted academic standards. Accrediting agencies also review the administrative and financial operations of the 
institutions they accredit to ensure that each institution has the resources to perform its educational mission. The DOE also 
relies on accrediting agencies to determine whether institutions qualify to participate in Title IV programs.

In addition to institutional accreditation, colleges and universities may require specialized programmatic accreditation 
for particular educational programs. Many states and professional associations require professional programs to be accredited, 
and require individuals to have graduated from accredited programs in order to sit for professional license exams. Programmatic 
accreditation, while not a sufficient basis for institutional Title IV Program certification by the DOE, assists graduates to 
practice or otherwise secure appropriate employment in their chosen field. Common fields of study subject to programmatic 
accreditation include teaching and nursing.

Although we are not an accredited institution and are not required to maintain accreditation, accrediting agencies are 

responsible for reviewing an accredited institution’s third-party contracts with service providers like us and may require an 
institution to obtain approval from or to notify the accreditor in connection with such arrangements. One purpose of the 
notification and approval requirements is to verify that the accredited institution remains responsible for providing academic 
instruction leading to a credential and provides oversight of other activities undertaken by third parties like us that are within 
the scope of its accreditation. We work closely with our university clients to assure that the standards of their respective 
accreditors are met and are not adversely impacted by us.

Accrediting agencies are also responsible for assuring that any “written arrangements” to outsource academic 

instruction meet accreditation standards and related regulations of the DOE. Our operations are generally not subject to such 
“written arrangements” rules because academic instruction is provided by our university client institutions and not by us; 
however, the “written arrangements” rules may apply to online programs in the Alternative Credential Segment to the extent 
such courses are outsourced by university clients. 

State Laws and Regulations

Each state has at least one licensing agency responsible for the oversight of educational institutions operating within its 

jurisdiction. Continued approval by such agencies is necessary for an institution to operate and grant degrees, diplomas or 
certificates in those states. Moreover, under the HEA, approval by such agencies is necessary to maintain eligibility to 
participate in Title IV programs. State attorneys general are also active in enforcing education laws, and the level of regulatory 
oversight varies substantially from state to state.

We and our university clients may be subject to regulation in each state in which we or they own facilities, provide 

distance education or recruit students. State laws establish standards for, among other things, student instruction, qualifications 
of faculty, location and nature of facilities, recruiting practices and financial policies. The need to comply with applicable state 
laws and regulations may limit or delay our ability to market or expand our offerings. In addition, the interpretation of state 
authorization regulations is subject to substantial discretion by the state agency responsible for enforcing the regulations.

DOE requires, among other things, that an institution offering distance learning or online programs secure the approval 

of those states which require such approval and provide evidence of such approval to the DOE upon request. This regulation 
increases the importance of state authorization because failure to obtain the necessary state authorization for online programs 
(which may also be obtained through participation in a state authorization reciprocity agreement) could result in an obligation to 
return federal funds received by an institution. The federal state authorization rules were updated in July 2020 to, among other 
things, require more detailed disclosure requirements about whether particular states have authorized programs that may lead to 
professional licensure, which created an additional compliance burden for many of our partner institutions. The DOE is 
currently considering further changes to its state authorization requirements.

All states except California now participate in the State Authorization Reciprocity Agreement, or SARA, governing 

the licensing of online offerings. All SARA-member institutions may provide online offerings in SARA states without 
obtaining separate state authorization (this includes externships, recruiting, local advertising, and faculty presence). SARA-
member institutions must still obtain a separate authorization in order to open a physical location in another state and are also 
required to obtain any additional approvals that may be required for offerings leading to professional licensure in a state 
(e.g., nursing, teaching, or counseling). Most of our university clients are SARA members and the DOE accepts participation in 
a reciprocity agreement as evidence of state approval.

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Finally, many programs leading to professional licensure, such as graduate degree programs in nursing or teaching, 

also require approval from, and are subject to ongoing oversight by separate state agencies such as state nursing boards. 
Membership in SARA does not encompass approvals by professional licensing boards, which must be obtained separately.

We monitor state law developments closely and work closely with our university clients to assist them with obtaining 

any required approvals.

Other Laws

Our activities or those of our university clients are also subject to other federal and state laws. These regulations 
include, but are not limited to, consumer marketing and unfair trade practices laws and regulations, including those promulgated 
and enforced by the FTC, state and federal consumer lending laws, including those enforced by the federal Consumer Financial 
Protection Bureau, student accessibility requirements, federal and state data protection and privacy requirements and foreign 
and U.S. anti-corruption regulations.

Human Capital Resources

General Information About Our Human Capital Resources

As of December 31, 2021, we had approximately 3,982 full-time employees and 3,206 part-time employees 
worldwide. Approximately 6,220 of our employees are located in the U.S., approximately 835 of our employees are located in 
Cape Town, South Africa, and approximately 133 employees are located in other jurisdictions. None of our employees are 
represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to 
be good. 

Our Culture

2U was founded on a set of “guiding principles” that are core to our culture and guide big and small decisions every 

day. New employees are introduced to the guiding principles in orientation and are expected to bring these guiding principles to 
life as they work with their teams, interact with our university clients and students or otherwise represent 2U in the community.

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Cherish each opportunity.  Life is short, so treasure every moment.

Give a damn.  Care about what you do each day.

Strive for excellence.  Don’t settle for second best. 

Be bold and fearless.  Question the status quo and embrace change.

Be candid, honest and open.  Listen to others and offer respectful feedback. 

Have fun. Fun is important.  Fun is simply better. 

• Make service your mission.  Give the highest level of support to our partners and to one another.

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Don’t let the skeptic win.  “No” is easy. “Yes” is hard. Fight for “yes.”

Relationships matter.  Invest the time, build trust, and value differences. 

Human Capital Measures and Objectives

2U is dedicated to eliminating the back row in higher education and our employees are critical to achieving this 

mission. We believe that when our employees feel appreciated and included they can be more creative, innovative, and better 
serve our university clients and students. Human capital measures and objectives that we focus on in managing our business 
include talent acquisition and retention, diversity and inclusion, employee development and training, community involvement 
and employee experience and wellness. 

•

Talent Acquisition and Retention. We seek to recruit, retain and incentivize highly talented employees and our 
compensation and benefits programs are aligned with these goals. We are committed to providing total rewards 
programs for our employees that are market-competitive and based on each employee’s contribution and performance. 
To foster a stronger sense of ownership and align the interests of employees with stockholders, we provide equity 
compensation in the form of performance and service-based restricted stock units to eligible employees under our 
broad-based stock compensation program. We also offer eligible employees the ability to participate in our Employee 
Stock Purchase Plan, which enables them to purchase shares of our stock at a discount. We also provide 

12

comprehensive benefits for employees and their families, which are tailored to the various geographies in which we 
operate. Depending on the jurisdiction, our benefits may include health insurance coverage, 401(k) matching, paid 
parental leave, and unlimited paid time off. 

• Diversity and Inclusion. We believe an equitable and inclusive environment with diverse teams produces more creative 
solutions and results in better outcomes for our university clients and students. We strive to attract, retain and promote 
diverse talent at all levels of the organization. Our Board is 27% women and 27% people of color and our executive 
team is 28% women and 33% people of color. We have established a diversity and inclusion committee, known as 
MOSAIC, that serves as a liaison with management on diversity and inclusion issues and we maintain executive-
sponsored business resource networks (“BRNs”) that offer a forum for employees to network and engage in 
professional development activities. As of December 31, 2021 we had 6 BRNs focused on the following groups: 
Black/African American, Women, LGBTQ+, Asian Pacific Islander, Latinx and People Who Are Differently Abled. 
To further support our diversity and inclusion goals, starting in 2020 the Company bonus plan included a diversity and 
inclusion component for our employees at and above the vice president level. 

•

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Employee Development and Training. We provide a range of mandatory and optional employee development programs 
and opportunities for employees to develop the skills they need to be successful. Our learning and development teams 
create and teach a variety of live courses and our employees also have free access to a library of learning resources via 
LinkedIn Learning. Our diversity and inclusion principles are also reflected in our employee training programs. We 
require all managers to complete trainings on allyship, unconscious bias, cultural communication and thriving across 
differences and we offer additional training on emotional intelligence and leading with empathy. In addition, we offer 
a tuition reimbursement benefit for employees, which allows eligible employees and their family members to receive 
reimbursement for completion of certain of our offerings.  

Community Involvement. We are committed to making an impact in our local communities through volunteering, 
financial donations, scholarships and other forms of engagement. Our corporate social responsibility program, “2U 
Engage”, supports local non-profit organizations in each location where we have a 2U office with a focus on 
organizations that are aligned with our mission to provide access to quality education. Employees are encouraged to 
volunteer for these organizations throughout the year using our “Volunteer Paid Time Off” program and bi-annually 
through Company-organized “Days of Service” events. We also endeavor to support the local community through 
scholarship initiatives, which focus on reaching the Black, Latinx and indigenous communities, as well as women and 
individuals from low income households. 

Employee Experience and Wellness. We strive to create employee programs that promote our guiding principles, 
support employee wellness and enable employees to work productively. Particularly during the COVID-19 pandemic 
with our global workforce working primarily remotely, supporting and engaging our employees has been our top 
priority. These efforts include providing access to free wellness resources such as meditation and mental health 
support, monthly stipends for home Wi-Fi access, a Company-wide “Daily Dose of Team Time” call to foster 
employee engagement and connection and hosting remote-versions of our annual employee events. We regularly 
survey our employees to assess wellness and additional support needs.  

Other Information

We were incorporated as a Delaware corporation in April 2008 and completed our initial public offering in April 2014. 

We acquired Get Educated International Proprietary Limited, or GetSmarter, in July 2017, acquired Trilogy in May 2019, and 
acquired substantially all of the assets of edX in November 2021.

Our principal executive offices are located at 7900 Harkins Road, Lanham, MD 20706, and our telephone number is 

(301) 892-4350.

You can obtain copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on 

Form 8-K, and other filings with the U.S. Securities and Exchange Commission, or the SEC, and all amendments to these 
filings, free of charge from our website at investor.2u.com or on the SEC’s website at www.sec.gov as soon as reasonably 
practicable following our filing of any of these reports with the SEC. The contents of these websites are not incorporated into 
this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

13

Item 1A. Risk Factors

In addition to the other information set forth in this Annual Report on Form 10-K, you should carefully consider the 

factors discussed in the “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.

Risk Factors Summary

Our business is subject to numerous risks and uncertainties, including those highlighted in this section of our Annual 

Report on Form 10-K and summarized below. This risk factor summary does not contain all of the information that may be 
important to you, and you should read the risk factor summary together with the more detailed discussion of risks and 
uncertainties set forth following this section as well as elsewhere in this Annual Report on Form 10-K.

Risks Related to COVID-19 

• Our business, results of operations, and financial condition have been, and could continue to be, affected by 

COVID-19. 

Risks Related to Our Business Model 

• We have incurred significant net losses since inception and may not achieve or maintain profitability in the future. 

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Our financial performance depends heavily on our ability to recruit potential students for our offerings, and our ability 
to do so may be affected by circumstances beyond our control. 

Our business depends heavily on the adoption by colleges and universities of online delivery of their educational 
offerings. 

To launch a new degree program, we typically must incur significant expense in technology and content development, 
as well as in marketing and sales to identify and attract prospective students, and it may be several years, if ever, 
before we generate revenue from a new program sufficient to recover our costs. 

If new offerings do not scale efficiently and in the time frames we expect, our reputation and our revenue will suffer. 

Our financial performance depends heavily on student retention within our offerings, and factors influencing student 
retention may be out of our control. 

Risks Related to Our Operations and Our Growth Strategy

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Our student acquisition efforts depend in large part upon a limited number of third-party advertising platforms.

If our security measures or those of our third-party service providers are breached or fail and result in unauthorized 
disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation. 

Disruption to or failures of our platform could reduce client and student satisfaction with our offerings and could harm 
our reputation.

• We face competition from established and emerging companies, which could divert clients or students to our 

competitors, result in pricing pressure and significantly reduce our revenue.

•

If we do not retain our senior management team and key employees, we may not be able to sustain our growth or 
achieve our business objectives.

Risks Related to the edX Acquisition and the Combined Company

• We may experience difficulties in integrating the operations of edX into our business and in realizing the expected 

benefits of the edX Acquisition.

• We have incurred substantial transaction and integration expenses related to the edX Acquisition and expect to incur 
additional integration expenses related to edX that could negatively impact our financial results and cash flows. 

•

If students do not expand beyond the free offerings available on our platform, our ability to grow our business and 
improve our results of operations may be adversely affected. 

14

Risks Related to Our Indebtedness and Capital Structure

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•

•

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit 
our ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from 
meeting our obligations with respect to our indebtedness. 

Despite current indebtedness levels and existing restrictive covenants, we may still incur additional indebtedness that 
could further exacerbate the risks associated with our substantial financial leverage. 

To service our indebtedness, we will require a significant amount of cash, and our ability to generate cash depends on 
many factors beyond our control.

• We may be unable to raise the funds necessary to repurchase the Notes for cash following a “fundamental change,” or 
to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the 
Notes or pay cash upon their conversion.

•

Conversion of the Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price 
of our common stock.

• We may need additional capital in the future to pursue our business objectives. Additional capital may not be available 

on favorable terms, or at all, which could compromise our ability to grow our business.

Risks Related to Regulation of Our Business and That of Our University Clients

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•

Our business model relies on university client institutions complying with federal and state laws and regulations.

Our activities are subject to federal and state laws and regulations and other requirements. 

Activities of the U.S. Congress or DOE could result in adverse legislation or regulatory actions or investigations. 

Our business model, which depends in part on our ability to receive a share of tuition revenue as payment from our 
university clients, has been validated by a DOE “dear colleague” letter, but such validation is not codified by statute or 
regulation and may be subject to change. 

If we or our subcontractors or agents violate the incentive compensation rule, we could be liable to our university 
clients for substantial fines, sanctions or other liabilities. 

Our future growth could be impaired if our university clients fail to obtain timely approval from applicable regulatory 
agencies to offer new programs, make substantive changes to existing programs or expand their programs into or 
within certain states. 

Evolving regulations and legal obligations related to data privacy, data protection and information security and our 
actual or perceived failure to comply with such obligations, could have an adverse effect on our business.

Risk Factors

Risks Related to COVID-19

Our business, results of operations, and financial condition have been, and could continue to be, affected by COVID-19. 

The ongoing COVID-19 pandemic and the actions taken by governments, businesses and individuals in response to the 

pandemic has caused, and continues to cause, significant disruptions to the flow of the economy, significant volatility and 
uncertainty in the global financial markets and disruptions to the normal operations of many businesses, including ours. 
Furthermore, as the COVID-19 pandemic continues, new variants of the virus are emerging and many jurisdictions are seeing a 
resurgence in COVID-19 cases, resulting in governments and businesses implementing additional measures in the interest of 
public health. As such, we cannot predict, with any degree of certainty, the ultimate duration and severity of the adverse effects 
of the COVID-19 pandemic and the measures taken in response to the pandemic on the global economy and our business, or the 
likelihood or frequency of future resurgences of the COVID-19 pandemic or other similar major public health concerns.

In response to the COVID-19 pandemic, we have taken steps to protect and assist our employees, including 
implementing remote and flexible work policies, limiting non-essential business travel, postponing, cancelling or converting to 
virtual-only certain industry, analyst and employee events and implementing a vaccine policy for employees. 

The COVID-19 pandemic, as well as measures undertaken to contain the spread of COVID-19, including the measures 

we have taken, has caused disruptions to our business, including volatility in demand for our offerings from students and in 

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student retention rates and fluctuations in marketing costs from period to period. Disruptions and impacts to our business in the 
future may include, but are not limited to:

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causing one or more of our university clients to file for bankruptcy protection or shut down; 

reducing student demand for our offerings; 

impacting current and prospective university clients’ desire to launch new educational offerings with us; 

impacting collections of accounts receivable; 

impacting our ability to facilitate in-program placements for students in clinical graduate programs; 

impacting student retention rates in our offerings;

increasing cyberattacks and security challenges as our employees and those of our clients and third-party service 
providers work remotely from networks that may be less secure; 

impacting the efficiency of our marketing activities;

creating difficulties or delays in ramping, training and retaining new employees in an effective manner; 

imposing negative physical and mental health impacts on, and resulting unavailability or reduced productivity of, our 
key executives or other employees as a result of such employees or their family members contracting the virus, being 
placed in quarantine or self-isolation, being in jurisdictions where travel or other activities remain restricted, or due to 
prolonged social isolation or distancing measures; 

delaying the anticipated launch dates of our offerings;

changing our internal controls, policies and procedures due to remote work arrangements, which may result in 
significant deficiencies or material weaknesses in our internal controls in the preparation of our financial reports and 
resulting increased costs of controls and compliance oversight activities; and 

harming our business, results of operations and financial condition. 

We cannot predict with any certainty whether and to what degree the disruption caused by the COVID-19 pandemic 

and reactions thereto will continue and how our business and results of operation will be impacted as the COVID-19 pandemic 
continues to evolve or subside. As a result, we expect to face difficulty accurately predicting our internal financial forecasts. 

The COVID-19 pandemic may also have the effect of heightening many of the other risks identified in this “Risk 

Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021. It is not possible for us to predict 
the duration or magnitude of the adverse results of the outbreak and its effects on our business, results of operations or financial 
condition at this time, but such effects may be material. 

Risks Related to Our Business Model

Our limited operating history, and the evolving scope of our offerings, make it difficult to predict our future financial and 
operating results, and we may not achieve our expected financial and operating results in the future.

We were incorporated in 2008 and launched our first graduate program in 2009. In July 2017, we acquired GetSmarter 
and extended our offerings to include premium online executive education programs and in May 2019, we acquired Trilogy and 
further extended our offerings to include skills-based boot camps. In November 2021, we acquired substantially all of the assets 
of edX, which expanded our offerings to include open courses and micro-credentials and added a consumer facing marketplace. 
As a result of our limited operating history, and the evolving scope of our offerings, our ability to forecast our future operating 
results, including revenue, cash flows and profitability, is limited and subject to a number of risks and uncertainties. If our 
assumptions regarding these risks and uncertainties are incorrect or change, or if we do not manage these risks successfully, our 
operating and financial results may differ materially from our expectations and our business may suffer.

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We have incurred significant net losses since inception and may not achieve or maintain profitability in the future. 

We incurred net losses of $194.8 million, $216.5 million and $235.2 million during the years ended December 31, 

2021, 2020 and 2019, respectively. We will need to generate and sustain increased revenue levels in future periods to become 
profitable, and, even if we do, we may not be able to maintain or increase our profitability. We expect to continue to expend 
substantial financial and other resources on technology and production efforts to support a growing number of offerings and our 
marketing and sales efforts to drive the acquisition of potential students. Our efforts to grow our business may be more costly 
than we expect, and we may not be able to increase our revenue enough to offset our operating expenses. If we are forced to 
reduce our expenses, our growth strategy could be compromised. We may incur significant losses in the future for a number of 
reasons, including unforeseen expenses, difficulties, complications, delays and other unknown events. As a result, we may be 
unable to achieve and maintain profitability, and the value of our company and our common stock could decline significantly.

Our financial performance depends heavily on our ability to recruit potential students for our offerings, and our ability to do 
so may be affected by circumstances beyond our control.

Building awareness of our offerings is critical to our ability to recruit prospective students for our university clients’ 

offerings and generate revenue. A substantial portion of our expenses is attributable to marketing and sales efforts dedicated to 
attracting potential students to our offerings. Because we generate revenue based on a portion of the tuition and fees that 
students pay, it is critical to our success that we identify prospective students for our offerings in a cost-effective manner, and 
that enrolled students remain active in our offerings until graduation or completion. 

We have experienced, and may in the future experience, fluctuations in our student enrollments based on a variety of 
factors. For example, student enrollments have declined, and may decline in the future, due to our university clients changing 
their admissions standards. In addition, the COVID-19 pandemic has led to significant fluctuations in student enrollment across 
our offerings and we are unable to predict the impact of the COVID-19 pandemic on student enrollments in the future. 

The following factors, many of which are largely outside of our control, may prevent us from successfully driving and 

maintaining student enrollment in our offerings in a cost-effective manner or at all, which would adversely affect our revenue 
and ability to achieve profitability:

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Negative perceptions about online learning programs. Online offerings that we or our competitors provide may not be 
successful or operate efficiently, and new entrants to the market also may not perform well. Such underperformance 
could create the perception that online offerings in general are not an effective way to educate students, whether or not 
our offerings achieve satisfactory performance. 

Unsuccessful marketing efforts. We invest substantial resources in developing and implementing data-driven 
marketing strategies that focus on identifying the right potential student at the right time. These marketing efforts make 
substantial use of search engine optimization, paid search, social media and custom website development and 
deployment and we rely on a small number of internet search engines and marketing partners. The effectiveness and 
cost of our marketing efforts has varied over time and from offering to offering based on economic conditions, 
competition, advertising prices, offerings type, university client reputation and other factors. 

Damage to university client reputation. Because we often use a university client’s brand in connection with our 
marketing efforts for their offerings, our university clients’ reputations are critical to our ability to enroll students. 
Many factors affecting our university clients’ reputations are beyond our control, including ranking among nonprofit 
educational institutions, internal university matters, changes in university leadership positions and other matters that 
impact the public perception of our university clients.

Lack of interest in an offering. We may encounter difficulties attracting students for offerings that are not highly 
desired or that are relatively new within their fields. Macroeconomic conditions beyond our control may diminish 
interest in employment in a field, which could contribute to a lack of interest in offerings related to that field.

Reduced support from our university clients. Our ability to grow our revenue from a particular offering depends on the 
growth of enrollment in that offering. Our university clients could limit enrollment in certain offerings, cease 
providing the offerings altogether or significantly curtail or inhibit our ability to promote their offerings, any of which 
would negatively impact our revenue. 

Our lack of control over our university clients’ admissions standards and admissions decisions for degree programs. 
Even if we identify prospective students for a degree program, there is no guarantee that our university clients will 
admit these students to that program. Our university clients retain complete discretion over setting admissions 
standards and making admissions decisions, and university clients may change admissions standards or inconsistently 
apply admissions standards. 

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Inability to maintain sufficient high-quality content from our partners. Our success depends on our ability to provide 
students with high-quality learning experiences. For certain of our offerings, including our degree programs, while our 
clients are primarily responsible for curriculum development our learning design and development experts collaborate 
with faculty to ensure the final course content is engaging and digestible in an online format. For other offerings, 
including our open course and micro-credential offerings, our clients are solely responsible for curriculum 
development and we provide limited self-help resources. If the course content in our offerings is not high-quality and 
students are dissatisfied with their experience in an offering on our platform or do not find the content of our offerings 
appealing, they may stop accessing our content. In turn, if clients perceive that our platform lacks an adequate learner 
audience, clients may be less willing to provide content to offer on our platform, and the experience of students could 
be further negatively impacted.

Inability of students to secure funding. Like on-campus college and university students, many of the students in our 
university clients’ offerings, in particular degree programs and boot camps, rely on the availability of third-party 
financing to pay for tuition and other costs of their education. This may include federal or private student loans, 
scholarships and grants, or benefits or reimbursement provided by an employer. Any developments that reduce the 
availability or increase the cost of financial aid for higher education generally, or for our university clients’ offerings, 
could impair students’ abilities to meet their financial obligations and could negatively impact future enrollment in our 
offerings.

General economic conditions. Student enrollment in our offerings may be affected by changes in global economic 
conditions, including changes caused by the COVID-19 pandemic. An improvement in economic conditions and, in 
particular, an improvement in the economic conditions in the U.S. and the U.S. unemployment rate, may reduce 
demand among potential students for educational services, as they may find adequate employment without additional 
education. Conversely, a worsening of economic and employment conditions may reduce the willingness of employers 
to sponsor educational opportunities for their employees or discourage existing or potential students from pursuing 
additional education due to a perception that there are insufficient job opportunities, increased economic uncertainty or 
other factors.

Our business depends heavily on the adoption by colleges and universities of online delivery of their educational offerings. 
If we fail to attract new university clients, or if new leadership at existing university clients does not have an interest in 
continuing or expanding online delivery of their educational offerings, our revenue growth and profitability may suffer.

The success of our business depends in large part on our ability to enter into agreements with additional nonprofit 

colleges and universities to provide their offerings online. In particular, to engage new university clients, we need to convince 
potential university clients, many of which have been educating students only in on-campus programs for hundreds of years, to 
invest significant time and resources to introduce a new teaching modality. The delivery of online education at leading 
nonprofit colleges and universities is evolving, but many administrators and faculty members continue to have concern 
regarding the perceived loss of control over the education process that might result from offering content online, as well as 
skepticism regarding the ability of colleges and universities to provide high-quality education online that maintains the 
standards they set for their on-campus programs. It may be difficult to overcome this resistance, and online offering of the kind 
we develop with our university clients may not achieve significant market acceptance. In addition, our university clients have 
regular turnover in their leadership positions, and there is no guarantee that any new leader will have an interest in continuing or 
expanding online delivery of the university’s educational offerings. If new leaders at our university clients do not embrace 
online delivery of educational offerings, we may not be able to add additional offerings with the university client and the 
university client may attempt to terminate or may not renew their relationship with us.

The market for our offerings may be limited based on the types of nonprofit colleges and universities we target and due to 
exclusivity provisions in certain of our contracts with university clients. We have agreed to incur, and we may incur in the 
future, costs to terminate some or all of the exclusivity obligations in certain of our university client contracts.

Certain of our contracts with our university clients limit our ability to enable competitive offerings with other schools. 

In our Degree Program Segment, we have determined that enabling some of these contractually prohibited competitive 
programs may be part of our business strategy. We have in the past agreed and may in the future agree with certain university 
clients to do some or all of the following to reduce or eliminate certain exclusivity obligations: make fixed and contingent cash 
payments over time, reduce our revenue share over time, and/or make minimum investments in marketing under certain 
conditions.

In addition, in order to maintain good relations with our university clients, we may decide not to approach certain 
institutions that our university clients regard as their direct competitors to offer similar programs or courses, even if we are 
allowed to do so under our contracts. A limited number of our contracts with our university clients include provisions that may 
result in pricing adjustment in limited circumstances. If we need to incur contingent costs in connection with enabling 

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competitive offerings or if we determine not to approach certain institutions, or if we have to adjust our pricing provisions, our 
ability to grow our business and achieve profitability would be impaired.

To launch a new degree program, we generally incur significant expense in technology and content development, as well as 
in marketing and sales to identify and attract prospective students, and it may be several years, if ever, before we generate 
revenue from a new program sufficient to recover our costs.

To launch a new degree program, we generally integrate components of our platform with the various student 
information and other operating systems our university clients use to manage functions within their institutions. In addition, for 
these degree programs, our content development staff works closely with the university client’s faculty members to produce 
engaging online coursework and content, and we must commence student acquisition activities. This process is time-consuming 
and costly and, under our agreements with our university clients, we are primarily responsible for the significant costs of this 
effort for most of our degree programs, even before we generate any revenue and there is no guarantee we will ever recoup 
these costs. 

In exchange for the upfront investments we make in our university clients’ degree programs, our university client 

agreements generally provide that we receive a fixed percentage of the tuition that the university clients receive from the 
students enrolled in their degree programs. We only begin to recover these upfront costs once students are enrolled and our 
university clients begin billing students for tuition and fees. The time that it takes for us to recover our investment in a new 
degree program depends on a variety of factors, primarily our content development costs, student acquisition costs, the rate of 
growth in student enrollment in the program, and the tuition of the program. We estimate that, on average, it takes 
approximately three years after signing an agreement with a university client to fully recover our investment in that university 
client’s new degree program. Because of the lengthy period required to recoup our investment in these new degree programs, 
unexpected developments beyond our control could occur that result in the university client ceasing or significantly curtailing a 
degree program before we are able to fully recoup our investment. As a result, we may ultimately be unable to recover the full 
investment that we make in a new degree program or achieve our expected level of profitability for the degree program.

If new offerings do not scale efficiently and in the time frames we expect, our reputation and our revenue will suffer.

Our continued growth and ability to achieve profitability depends on our and our university clients’ ability to 
successfully scale newly launched offerings. Our ability to scale new offerings in the time frame we expect has varied over time 
and from offering to offering. If we are not successful in recruiting potential students for our offerings, it would adversely 
impact our ability to generate revenue, and our university clients and the students in their offerings could lose confidence in the 
knowledge and capability of our employees. If we cannot quickly and efficiently scale our technology to handle growing 
student enrollment and new offerings, our university clients’ and their students’ experiences may suffer, which could damage 
our reputation among colleges and universities and their faculty and students and impact our ability to acquire new university 
clients.

In addition, in our Degree Program Segment, if our university clients cannot quickly develop the infrastructure and 

hire sufficient faculty and administrators to handle growing student enrollments, our university clients’ and their students’ 
experiences with our platform may suffer, which could damage our reputation among colleges and universities and their faculty 
and students.

Our ability to efficiently scale new offerings will depend on a number of factors, including our ability to:

satisfy existing students in, and attract and enroll new students for, our offerings;

assist our university clients in recruiting qualified faculty to support their expanding enrollments;

assist our university clients in developing and producing an increased volume of course content;

successfully introduce new features and enhancements and maintain a high level of functionality in our platform; and

deliver high-quality support to our university clients and their faculty and students.

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If student enrollment in our offerings does not increase, if we are unable to launch new offerings in a cost-effective 

manner or if we are otherwise unable to manage new offerings effectively, our ability to grow our business and achieve 
profitability would be impaired, and the quality of our platform and the satisfaction of our university clients and their students 
could suffer.

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Our financial performance depends heavily on student retention within our offerings, and factors influencing student 
retention may be out of our control.

Once a student is enrolled in an offering, we and our university client must retain the student over the life of the 
offering to generate ongoing revenue. Our strategy involves offering high-quality support to students enrolled in these offerings 
to support their retention. If we are unable to help students quickly resolve any educational, technological or logistical issues 
they encounter, otherwise provide effective ongoing support to students or deliver high-quality, engaging educational content, 
students may withdraw from the offering, which would negatively impact our revenue.

In addition, student retention could be compromised by the following factors, many of which are largely outside of our 

control:

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Lack of support from faculty members in our university clients’ degree programs. It takes a significant time 
commitment and dedication from our university clients’ faculty members to work with us to develop or to 
independently develop course content for their degree programs and other courses designed for an online learning 
environment. Our university clients’ faculty may be unfamiliar with the development and production process, may not 
understand the time commitment involved, or may otherwise be resistant to changing the ways in which they present 
the same content in an on-campus class. Our ability to maintain high student retention will depend in part on our 
ability to convince our university clients’ faculty of the value in the time and effort they will spend developing the 
course content. Lack of support from faculty could cause the quality of our degree programs to decline, which could 
contribute to decreased student satisfaction and retention in our Degree Program Segment.

Student dissatisfaction. Enrolled students may drop out of our offerings based on their individual perceptions of the 
value they are getting from the offering. For example, we may face retention challenges as a result of students’ 
dissatisfaction with our university clients’ faculty, changing views of the value of our offerings and perceptions of 
employment prospects following completion of the offering. 

Personal factors. Personal factors, such as ability to continue to pay tuition, ability to meet the rigorous demands of the 
offering, and lack of time to continue classes, all of which are generally beyond our control, may impact a student’s 
willingness and ability to stay enrolled in an offering.

If student retention is compromised by any of these factors, it could significantly reduce the revenue that we generate 
from our offerings, which would negatively impact our return on investment for the particular offering and could compromise 
our ability to grow our business and achieve profitability.

The loss, or material underperformance, of any one of our offerings could harm our reputation, which could in turn affect 
our future revenue growth.

We rely on our reputation for delivering high-quality online degree programs and alternative credential offerings and 

recommendations from existing university clients to attract potential new university clients. Therefore, the loss of any single 
offering, or the failure of any university client to renew its agreement with us upon expiration, could harm our reputation and 
impair our ability to pursue our growth strategy and ultimately to become profitable. 

The recent, significant decline in the market price of our common stock could adversely affect our business, results of 
operations, and financial position.

Our goodwill and other indefinite-lived intangible assets are tested for impairment annually, as of October 1, and more 
frequently  if  an  event  occurs  or  circumstances  change  that  would  more  likely  than  not  reduce  the  fair  value  below  carrying 
value.  We  experienced  a  significant  decline  in  the  market  price  of  our  common  stock  subsequent  to  February  9,  2022  and 
management  is  evaluating  whether  this  decline  represents  a  triggering  event  for  assessing  the  goodwill  and  indefinite-lived 
intangible  asset  balances  for  impairment  in  the  first  quarter  of  2022.  There  is  the  potential  for  a  non-cash  charge  in  the  first 
quarter of 2022 to recognize impairment losses on some or all of our goodwill and indefinite-lived intangible assets.  If it is 
determined that an impairment loss should be recognized on goodwill or indefinite-lived intangible assets, our business, results 
of operations, and financial position could be adversely affected.

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Risks Related to Our Operations and Our Growth Strategy

Our student acquisition efforts depend in large part upon a limited number of third-party advertising platforms.

Our marketing efforts make substantial use of paid search, social media, search engine optimization and custom 

website development and deployment and we rely on advertising through a limited number of third-party advertising platforms 
such as Google, Meta Platforms and LinkedIn, to direct traffic to, and recruit new students for, our offerings. Changes in the 
way these platforms operate - whether due to changes in law, changes in the practices of mobile operating system providers, or 
otherwise - or changes in their advertising prices, data use practices, or other terms have impacted the cost and efficiency of our 
student acquisition efforts in the past and could in the future make marketing our offerings more expensive, or more difficult. In 
addition, the elimination of a particular medium or platform on which we advertise, could limit our ability to direct traffic to our 
offerings and recruit new students on a cost-effective basis, any of which could have a material adverse effect on our business, 
results of operations and financial condition.

If internet search engines’ methodologies are modified, our search engine optimization capability in connection with our 
student recruiting efforts could be harmed.

Our search engine optimization capability in connection with our student acquisition efforts substantially depends on 

various internet search engines, such as Google, to direct a significant amount of traffic to websites related to our offerings. Our 
ability to influence the number of visitors directed to these websites through search engines is not entirely within our control. 
For example, search engines frequently revise their algorithms in an attempt to optimize their search result listings. In this 
respect, we have experienced fluctuations in our search result listings and website traffic based on changes to search engine 
algorithms, and future algorithm changes by Google or any other search engines could cause the websites for our offerings to 
receive less favorable placements, which could reduce the number of prospective students who visit these websites and impact 
our ability to effectively utilize search engine optimization as part of our student acquisition strategies in the long-term. Further, 
if our competitors’ search engine optimization efforts are more successful than ours, fewer prospective students may be directed 
to our websites. 

In October 2020, the U.S. Department of Justice brought an antitrust lawsuit against Google claiming that Google 

improperly uses its monopoly over internet search to impede competition and harm consumers. We cannot predict the impact 
that this lawsuit may have on advertising costs or Google’s future operations. Any reduction in the number of prospective 
students directed to our websites could negatively affect our ability to generate prospective students, and ultimately revenue, 
through our student acquisition activities.

If our security measures or those of our third-party service providers are breached or fail and result in unauthorized 
disclosure of data, we could lose clients, fail to attract new clients and be exposed to protracted and costly litigation.

Our platforms and computer systems store and transmit proprietary and confidential client, student, and company 

information, which may include personal information of students, prospective students, faculty and employees, that are subject 
to stringent legal and regulatory obligations. As a technology company, we have faced and continue to face an increasing 
number of threats to our platforms and computer systems, including unauthorized activity and access, system viruses, worms, 
malicious code, denial of service attacks, phishing attacks, ransomware attacks, social engineering attacks, and organized 
cyberattacks, any of which could breach our security and create a data exfiltration condition and/or disrupt our platform and our 
clients’ offerings. The techniques used by computer hackers and cyber criminals to obtain unauthorized access to data or to 
sabotage computer systems are growing in sophistication, change frequently and generally are not detected until after an 
incident has occurred. We have experienced, and may in the future experience, an increasing number of cybersecurity threats to 
our platform and computer systems and to the systems of our third-party service providers and our efforts to maintain the 
security and integrity of our platform, and the cybersecurity measures taken by our third-party service providers may be unable 
to anticipate, detect or prevent all attempts to compromise our systems. While there can be no assurances of effectiveness, we 
have implemented certain safeguards and processes to thwart hackers, and all related activity, and protect the data in our 
platforms and computer systems. If our, or our third-party service providers’, security measures are breached or fail as a result 
of third-party action, employee error, malfeasance or otherwise, it could result in the loss or misuse of proprietary and 
confidential university, student (including prospective student), employee or company information, which could subject us to 
material liability, or materially interrupt our business, potentially over an extended period of time. Any such event could harm 
our reputation, adversely affect our ability to attract new clients and students, cause existing clients to scale back their offerings 
or elect not to renew their agreements, cause prospective students not to enroll or existing students to not stay enrolled in our 
offerings, or subject us to third-party lawsuits, regulatory fines or other action or liability. Further, any reputational damage 
resulting from breach of our security measures could create distrust of our company by prospective clients or students. In 
addition, our insurance coverage may not be adequate to cover losses associated with such events, and in any case, such 
insurance may not cover all costs, expenses or losses we could incur to respond to and remediate a security breach. As a result, 

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we may be required to expend significant additional resources to protect against the threat of these disruptions and security 
breaches or to alleviate problems caused by such disruptions or breaches.

Data protection laws in jurisdictions around the world require companies and institutions to notify impacted 
individuals of data breach incidents, usually in writing. Under the terms of our contracts with our university clients, we would 
be responsible for the costs of investigating and disclosing data breaches to the university clients’ students, if required by law.  
In addition to costs associated with investigating and fully disclosing a data breach, we could be subject to substantial monetary 
fines or private claims by affected parties and our reputation would likely be harmed.

Disruption to or failures of our platform could reduce university client and student satisfaction with our offerings and could 
harm our reputation.

The performance and reliability of our platform is critical to our operations, reputation and ability to attract new 

university clients, as well as our student acquisition and retention efforts. Our university clients rely on our platform to provide 
their offerings online, and students access our platform on a frequent basis as an important part of their educational experience. 
Because our platform is complex and incorporates a variety of hardware and proprietary and third-party software, our platform 
may have errors or defects that could result in unanticipated downtime for our university clients and students. Web- and mobile- 
based applications frequently contain undetected errors when first introduced or when new versions or enhancements are 
released, and we have from time to time found errors and defects in our technology and new errors and defects may be detected 
in the future. In addition, we have experienced and may in the future experience temporary system interruptions to our platform 
for a variety of reasons, including network failures, power failures, problems with third-party firmware and software updates, as 
well as an overwhelming number of users trying to access our platform. Any errors, defects, disruptions or other performance 
problems with our platform could damage our or our university clients’ reputations, decrease student satisfaction and retention 
and impact our ability to attract new students and university clients. If any of these problems occur, our university clients could 
attempt to terminate their agreements with us or make indemnification or other claims against us. In addition, sustained or 
recurring disruptions in our platform could adversely affect our and our university clients’ compliance with applicable 
regulations and accrediting body standards.

We rely upon Amazon Web Services to host certain aspects of our platform and any disruption of or interference with our 
use of Amazon Web Services could impair our ability to deliver our platform to clients and students, resulting in client and 
student dissatisfaction, damage to our reputation, and harm to our business.

Our online learning platform and certain of our other technology and services are hosted on data centers provided by 
Amazon Web Services, or AWS. Given this, along with the fact that we cannot easily switch our AWS operations to another 
cloud provider, any disruption of, or interference with our use of, AWS would impact our operations and our business would be 
adversely impacted. AWS may terminate its agreement with us upon 30 days’ notice. Additionally, AWS has the right to 
terminate the agreement immediately with notice to us in certain scenarios, such as if AWS believes providing the services 
could create a substantial economic or technical burden or material security risk for AWS, or in order to comply with the law or 
requests of governmental entities. If any of our arrangements with AWS is terminated, we could experience interruptions in our 
platform as well as delays and additional expenses in arranging new facilities and services.

Our operations depend, in part, on AWS’s abilities to protect their data center hosting facilities against damage or 

interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The occurrence of 
spikes in usage volume, a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close a facility without 
adequate notice, or other unanticipated problems at a facility could result in lengthy interruptions in the availability of our 
platform, which would result in harm to our business. In the event of a system failure, the backup systems and disaster recovery 
services provided by AWS may be insufficient or fail. Also, in the event of damage or interruption, our insurance policies may 
not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue, subject 
us to liability or cause our clients to fail to renew or terminate their contracts, any of which could harm our business.

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Our  internal  information  technology  systems  are  critical  to  our  business.  System  integration  and  implementation  issues 
could  disrupt  our  operations,  which  could  have  a  material  adverse  impact  on  our  business  or  result  in  significant 
deficiencies or material weaknesses in our internal controls.

We rely on the efficient and uninterrupted operation of complex information technology systems, including systems 
for billing, human resources, enterprise resource planning, and customer relationship management. As our business has grown 
in  size  and  complexity,  the  growth  has  placed,  and  will  continue  to  place,  significant  demands  on  our  internal  information 
technology  systems.  To  effectively  manage  this  growth,  we  must  commit  significant  financial  resources  and  personnel  to 
maintain  and  enhance  existing  systems  and  develop  or  acquire  new  systems  to  keep  pace  with  continuing  changes  in  our 
business  and  information-processing  technology  as  well  as  evolving  industry,  regulatory,  and  accounting  standards.  If  the 
information we rely upon to run our businesses is determined to be inaccurate or unreliable, or if we fail to properly maintain or 
enhance  our  internal  information  technology  systems,  we  could  have  operational  disruptions,  significant  deficiencies,  or 
material weaknesses in our internal controls, incur increased operating and administrative expenses, lose our ability to produce 
timely and accurate financial reports, or suffer other adverse consequences

If the mobile solutions available to our students and clients are not effective, the use of our platform could decline. 

Students have been increasingly accessing our offerings and marketplace on mobile devices through our mobile 

applications in recent years. The smaller screen size and reduced functionality associated with some mobile devices may make 
the use of our platform more difficult or our clients may believe that online learning through such mobile devices is not 
effective. If we are not able to provide our clients with the functionality to deliver a rewarding experience on mobile devices, 
our ability to attract students to our offerings may be harmed and, consequently, our business may suffer. 

As new mobile devices and mobile features are released, we may encounter problems in developing or supporting apps 
for them. In addition, supporting new devices and mobile device operating systems may require substantial time and resources. 

The success of our mobile apps could also be harmed by factors outside our control, such as: 

actions taken by mobile app distributors;

unfavorable treatment received by our mobile apps, especially as compared to competing apps, such as the placement 
of our mobile apps in a mobile app download store;

increased costs in the distribution and use of our mobile apps; or

changes in mobile operating systems, such as iOS and Android, that degrade functionality of our mobile website or 
mobile apps or that give preferential treatment to competitive offerings.

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•

If our clients or students encounter difficulty accessing or using, or if they choose not to use, our mobile platform, our 

growth prospects and our business may be adversely affected. 

If we fail to manage our growth effectively, the success of our business model will be compromised.

We have experienced rapid growth in a relatively short period of time, which has placed, and will continue to place, a 
significant strain on our administrative and operational infrastructure and may require us to expand personnel on certain teams, 
as well as our facilities and infrastructure. We will also be required to refine our operational, financial and management controls 
and reporting systems and procedures. If we fail to manage the growth of our business efficiently, our costs and expenses may 
increase more than we plan and we may not successfully expand our university client base, enhance our platform, develop new 
offerings with new and existing university clients, attract a sufficient number of students in a cost-effective manner, satisfy the 
requirements of our existing university clients, respond to competitive challenges or otherwise execute our business plan. 
Accordingly, our historical revenue growth rate may not continue in the future.

Our ability to manage any significant growth of our business effectively will depend on a number of factors, including 

our ability to:

•

effectively recruit, integrate, train and motivate any new employees, while retaining existing employees;

• maintain the beneficial aspects of our corporate culture and effectively execute our business plan;

•

•

implement systems enhancements and continue to improve our operational, financial and management controls;

protect and further develop our strategic assets, including our intellectual property rights; and

• make sound business decisions in light of the scrutiny associated with operating as a public company.

23

These activities will require significant capital expenditures and place significant demands on our management and our 

operational and financial infrastructure.

We may not be able to effectively manage any future growth in a cost-effective or timely manner, or at all, which 

could negatively affect the quality of our platform, our reputation, results of operations and overall business.

We may expand by acquiring or investing in other companies or technologies, which may divert our management’s 
attention, result in dilution to our shareholders and consume resources that are necessary to sustain our business.

We have in the past acquired and may in the future acquire complementary products, services, technologies or 

businesses. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these 
transactions may be subject to conditions or approvals that are beyond our control. In addition, we may not be able to identify 
desirable acquisition targets, may incorrectly estimate the value of an acquisition target or may not be successful in entering 
into an agreement with any particular target. Consequently, these transactions, even if undertaken and announced, may not 
close.

An acquisition, investment, or new business relationship may result in unforeseen operating difficulties, expenditures 

and integration challenges including the following:

•

diversion of management’s attention from ongoing business concerns and performance;

• managing a larger combined company;

• maintaining employee morale and retaining key management and other employees;

•

•

•

•

•

•

•

•

retaining existing business and operational relationships and attracting new business and operational relationships;

consolidating corporate and administrative infrastructures and eliminating duplicative operations and inconsistencies in 
standards, controls, procedures and policies;

coordinating geographically separate organizations;

unanticipated issues in integrating information technology, communications and other systems;

undetected errors or unauthorized use of a third party’s code in the products of the acquired companies or in the 
technology acquired;

breaches of our cybersecurity measures if there are cybersecurity issues we are not aware of at the time of the 
acquisition;

entry into highly competitive markets in which we have no or limited direct prior experience and where competitors 
have stronger market positions;

exposure to unknown liabilities, including claims and disputes by third parties against the companies we acquire.

Many of these factors will be outside of the combined company’s control and any one of them could result in delays, 

increased costs, decreased revenue and diversion of management’s time and energy, which could materially affect our financial 
position, results of operations and cash flows.

If we experience difficulties with the integration process following an acquisition, the anticipated benefits of the 

acquisition may not be realized fully or at all, or may take longer to realize than expected. Moreover, the anticipated benefits of 
any acquisition, investment, or business relationship may not be realized.

In addition, in connection with an acquisition, investment or new business relationship we may:

•

•

•

•

•

issue additional equity securities that would dilute current shareholders;

use cash that we may need in the future to operate our business;

incur debt on terms unfavorable to us or that we are unable to repay or that may place burdensome restrictions on our 
operations;

incur large charges or substantial liabilities; or

become subject to adverse tax consequences.

24

Any of these outcomes could harm our business and operating results. In addition, a significant portion of the purchase 
price of companies we have acquired and may acquire in the future may be allocated to goodwill and indefinite-lived intangible 
assets, which must be assessed for impairment at least annually. If our acquisitions do not ultimately yield expected returns, we 
may be required to make changes to our operating results based on our impairment assessment process. For example, an interim 
goodwill impairment test performed in 2019 indicated that the carrying value of Trilogy exceeded its fair value. As a result, we 
recorded an impairment charge of $70.4 million on our consolidated statements of operations and comprehensive loss for the 
year ended December 31, 2019. As of December 31, 2021, our goodwill balance was $834.5 million and indefinite-lived 
intangible asset was $255.0 million, a significant portion of which relate to the edX Acquisition.

We face competition from established and emerging companies, which could divert clients or students to our competitors, 
result in pricing pressure and significantly reduce our revenue.

We expect that the online learning market will continue to expand and that the number of degree and non-degree 

offerings available online will proliferate.

Particularly in the Degree Program Segment, the number of new competitive entrants into the online learning market 

has expanded rapidly in recent years. As the number of online degree programs expands, we face increasing competition to 
enroll students in our offerings. This expansion has also resulted in an increase in the number of regional online degree program 
offerings for potential students. In addition to making enrollment decisions based on factors such as program quality and 
university brand strength, we have observed potential students giving preference to universities located in their region, which 
has further impacted the competitive landscape in our Degree Program Segment.

In our Alternative Credential Segment, which has a lower barrier to entry, we face increasing competition from other 
providers of massive open online courses, which directly compete with our open course offerings, but have also expanded their 
offerings to include certificate offerings, nano-degrees and similar non-degree alternatives. We also face competition from 
companies that provide corporate training programs and online courses taught outside the university environment (e.g., by 
experts in various fields). Many of these competitors can also leverage the strength of their consumer facing brands to attract 
students to their offerings at a low cost.

We expect existing competitors and new entrants to the online learning market to revise and improve their business 
models constantly in response to challenges from competing businesses, including ours. If these or other market participants 
introduce new or improved delivery of online education and technology-enabled services that we cannot match or exceed in a 
timely or cost-effective manner, our ability to grow our revenue and achieve profitability could be compromised.

Some of our competitors and potential competitors have significantly greater resources than we do. Increased 

competition may result in pricing pressure for us in terms of the percentage of tuition and fees we are able to negotiate to 
receive. The competitive landscape may also result in longer and more complex sales cycles with a prospective university client 
or a decrease in our market share among select nonprofit colleges and universities seeking to offer online educational offerings, 
any of which could negatively affect our revenue and future operating results and our ability to grow our business.

A number of competitive factors could cause us to lose potential client and student opportunities or force us to offer 

our platform on less favorable economic terms, including:

•

•

•

•

competitors may develop service offerings that our potential clients or students find to be more compelling than ours;

competitors may adopt more aggressive pricing policies and offer more attractive sales terms, adapt more quickly to 
new technologies and changes in client and student requirements, and devote greater resources to the acquisition of 
students than we can;

current and potential competitors may establish cooperative relationships among themselves or with third parties to 
enhance their products and expand their markets, and our industry is likely to see an increasing number of new entrants 
and increased consolidation. Accordingly, new competitors or alliances among competitors may emerge and rapidly 
acquire significant market share; and

colleges and universities may choose to continue using or to develop their own online learning solutions in-house, 
rather than pay for our platform.

We may not be able to compete successfully against current and future competitors. In addition, competition may 
intensify as our competitors raise additional capital and as established companies in other market segments or geographic 
markets expand into our market segments or geographic markets. If we cannot compete successfully against our competitors, 
our ability to grow our business and achieve profitability could be impaired.

25

If for-profit postsecondary institutions, which offer online education alternatives different from ours, or online program 
management providers perform poorly or continue to attract negative publicity, it could tarnish the reputation of online 
education as a whole, which could impair our ability to grow our business.

For-profit  postsecondary  institutions,  many  of  which  provide  course  offerings  predominantly  online,  remain  under 
intense  regulatory  and  other  scrutiny,  which  has  led  to  media  attention  that  has  portrayed  that  sector  in  an  unflattering  light. 
Some for-profit online school operators have been subject to governmental investigations alleging the misuse of public funds, 
financial irregularities, exaggerated promises to students, and failure to achieve positive outcomes for students, including the 
inability  to  obtain  employment  in  their  fields.  These  allegations  have  attracted  significant  adverse  media  coverage  and  have 
prompted  ongoing  legislative  hearings  and  actions  as  well  as  regulatory  responses  at  both  the  state  and  federal  level.  These 
investigations  have  focused  on  specific  companies  and  individuals,  and  the  entire  industry  in  the  case  of  marketing  and 
recruiting  practices  by  for-profit  higher  education  companies.  Even  though  we  do  not  market  our  platform  to  for-profit 
institutions, and have a different business model from them, this negative media attention may nevertheless foster skepticism 
about online higher education generally and our company specifically. Allegations of abuse of federal financial aid funds and 
other  statutory  violations  against  for-profit  higher  education  companies,  even  if  unfounded,  could  negatively  impact  our 
opportunity to succeed due to increased regulation or decreased demand for our offerings. Our company has been the subject of 
articles and inquiries by critics of for-profit education models generally, and such critics have advocated for changes in law and 
regulation at the state and federal level that would be adverse to our business model and have sought information and increased 
oversight regarding the business practices of online program management companies. Such critics have sometimes compared 
our business to that of entities that were formally for-profit institutions and that subsequently converted to non-profit status, and 
the conflation of these newer business models with our own may increase scrutiny of our business by Congress, DOE or other 
regulatory agencies. Any of these factors could negatively impact our ability to increase our university client base and grow our 
offerings and our revenue, which would make it difficult to continue to grow our business.

If we do not retain our senior management team and key employees, we may not be able to sustain our growth or achieve 
our business objectives.

Our future success is substantially dependent on the continued service of our senior management team. In this respect, 

our senior management team is heavily involved in the university client identification and sales process, and their expertise is 
critical in navigating the complex approval processes of large nonprofit colleges and universities. We do not maintain key-
person insurance on any of our employees, including our senior management team. The loss of the services of any individual on 
our senior management team, or failure to find a suitable successor, could make it more difficult to successfully operate our 
business and achieve our business goals.

Our future success also depends heavily on the retention of our marketing and sales, technology and content 
development and support teams to continue to attract and retain students, thereby generating revenue for us. In particular, our 
highly-skilled technology and content development employees provide the technical expertise underlying our technology and 
technology-enabled services that support our university clients’ offerings and the students enrolled in these offerings. We have 
experienced intense competition for these employees, and we may be unable to attract or retain these key personnel that are 
critical to our success, resulting in harm to our relationships with university clients, loss of expertise or know-how and 
unanticipated recruitment and training costs.

In addition, as a result of business acquisitions, current and prospective employees of 2U and any acquired company 

may experience uncertainty about their future roles following the acquisition. If our employees or the employees of any 
acquired company depart because of issues relating to uncertainty or perceived difficulties of integration, our ability to realize 
the anticipated benefits of an acquisition could be adversely impacted.

We maintain offices outside of the United States, have international residents that apply to and enroll in our offerings and 
plan to expand our international business, which exposes us to risks inherent in international operations.

Since 2017, and more recently as a result of the edX Acquisition, we have significantly increased our international 

operations, including the number of international applicants and students in our offerings. One element of our growth strategy is 
to continue expanding our international operations and to continue expanding our global student and client base. Our current 
international operations and future initiatives will involve a variety of risks that could constrain our operations and compromise 
our growth prospects, including:

•

•

the need to localize and adapt online offerings for specific countries, including translation into foreign languages and 
ensuring that these offerings enable our university clients to comply with local education laws and regulations;

difficulties in staffing and managing foreign operations, including different pricing environments, longer sales cycles, 
longer accounts receivable payment cycles and collections issues;

26

•

•

•

•

•

•

•

•

•

•

•

•

lack of familiarity with and unexpected changes in foreign regulatory requirements;

challenges inherent in efficiently managing an increased number of employees over large geographic distances, 
including the need to implement appropriate systems, policies, benefits and compliance programs;

new and different sources of competition, and practices which may favor local competitors;

weaker protection for intellectual property and other legal rights than in the United States and practical difficulties in 
enforcing intellectual property and other rights outside of the United States;

compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and 
regulations, including labor and employment, tax, education, privacy and data protection, and anti-bribery laws and 
regulations, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act;

increased financial accounting and reporting burdens and complexities;

restrictions on the transfer of funds;

adverse tax consequences, including liabilities for indirect taxes or the potential for required withholding taxes for our 
overseas employees;

terrorist attacks, public health crises, acts of violence or war and adverse environmental conditions;

a country’s response to the COVID-19 pandemic or economic and political measures taken to contain the spread of 
COVID-19 as well as any resurgence of the COVID-19 pandemic;

unstable regional, economic or political conditions; and

fluctuations in currency exchange rates or restrictions on foreign currency and resulting effects on our revenue and 
expenses.

Our expansion efforts may not be successful. Our experience with attracting university clients and students in the U.S. 
may not be relevant to our ability to attract clients and students in other markets. If we invest substantial time and resources to 
expand our international operations and are unable to attract university clients and students successfully and in a timely manner, 
our business and operating results will be harmed.

Our operations in South Africa expose us to risks that could have an adverse effect on our business.

We have a significant employee base in South Africa. We may incur costs complying with labor laws, rules and 
regulations in South Africa, including laws that regulate work time, provide for mandatory compensation in the event of 
termination of employment for operational reasons, and impose monetary penalties for non-compliance with administrative and 
reporting requirements in respect of affirmative action policies. Our reliance on a workforce in South Africa also exposes us to 
disruptions in the business, political, and economic environment in that region, as well as natural disasters, public health crises 
and other environmental conditions. Maintenance of a stable political environment is important to our operations in South 
Africa, and terrorist attacks and acts of violence or war may directly affect our physical facilities and workforce or contribute to 
general instability. Our operations in South Africa require us to comply with complex local laws and regulatory requirements 
and expose us to foreign currency exchange rate risk. The economy of South Africa in the past has been, and in the future may 
continue to be, characterized by rates of inflation and interest rates that are substantially higher than those prevailing in the 
United States, which could increase our South-African-based costs and decrease our operating margins. Our operations in South 
Africa may also subject us to trade restrictions, exchange control limitations, reduced or inadequate protection for intellectual 
property rights, security breaches, and other factors that may adversely affect our business. Negative developments in any of 
these areas could increase our costs of operations or otherwise harm our business.

We engage some individuals classified as independent contractors, not employees, and if U.S. or international regulatory 
authorities mandate that they be classified as employees, our business would be adversely impacted.

We engage independent contractors and are subject to U.S. and international regulations and guidelines regarding 

independent contractor classification. These regulations and guidelines are subject to judicial and agency interpretation, and it 
could be determined that our current or former independent contractor classifications are inapplicable. Further, if legal 
standards for classification of independent contractors change, it may be necessary to modify our compensation structure for 
these personnel, including by paying additional compensation or reimbursing expenses. In addition, if our independent 
contractors are determined to have been misclassified as independent contractors, we would incur additional exposure under 
U.S. and international law, workers’ compensation, unemployment benefits, labor, employment and tort laws, including for 
prior periods, as well as potential liability for employee benefits and tax withholdings. Any of these outcomes could result in 

27

substantial costs to us, could significantly impair our financial condition and our ability to conduct our business as we choose, 
and could damage our reputation and our ability to attract and retain other personnel.

We rely on certain third-party providers of software and services integral to the operations of our business.

We  rely  on  software  that  we  license  from  third  parties  and  services  provided  by  third  parties  to  offer  certain 
components of our technology and services. In addition, we may need to obtain future licenses or services from third parties 
necessary for the continued provision of our technology and services, which might not be available to us on acceptable terms, or 
at all. If our agreements with third-party software or services vendors are not renewed or the third-party software or services 
become  obsolete,  fail  to  function  properly,  are  defective  or  otherwise  fail  to  provide  quality  service  or  address  our  or  our 
clients’ needs, there is no assurance that we would be able to replace the functionality provided by the third-party software or 
service provider with software or services from alternative providers. Any of these factors could have a material adverse effect 
on our financial condition, cash flows or results of operations.

Risks Related to the edX Acquisition and the Combined Company

We may experience difficulties in integrating the operations of edX into our business and in realizing the expected benefits 
of the edX Acquisition.

The success of the edX Acquisition depends in part on our ability to realize the anticipated business opportunities from 

combining the operations of edX with our business in an efficient and effective manner. Following the closing of the edX 
Acquisition, we are integrating the edX business with our existing business, which is a complex and time-consuming process. 
Our failure to meet the challenges involved in successfully integrating the operations of edX or to otherwise realize any of the 
anticipated benefits of the edX Acquisition, including additional cost savings and synergies, could impair our operations. It is 
possible that this integration and our efforts to realize the expected benefits of the edX Acquisition could result in material 
challenges, including, without limitation: 

•

•

•

the disruption of each company’s ongoing businesses, including as a result of diverting management’s attention to 
integration efforts; 

unanticipated issues in integrating operations and systems, including administrative and information technology 
infrastructure and financial reporting and internal control systems;

the burden of complying with a wide variety of laws, including additional privacy, marketing and international trade 
and economic sanctions related laws, some of which did not apply to edX as a non-profit before the closing of the edX 
Acquisition;

• managing a larger combined company;

• maintaining employee morale and retaining key management and other employees;

• maintaining the reputation and brand of edX, including as a result of the edX business ceasing to be operated by a non-

profit entity;

•

•

•

•

•

•

•

the possibility of faulty assumptions underlying expectations regarding the integration process or expected synergies;

inability to realize the expected operating leverage, marketing efficiencies and other strategic benefits anticipated

inability to maintain and grow the edX enterprise business;

coordinating geographically separate organizations; 

tax costs, liabilities or inefficiencies;

additional regulatory scrutiny focused on edX or the combined company; and 

unforeseen expenses associated with the integration of the edX business.

Many of these factors are outside of our control and any one of them could result in delays, increased costs, decreases 
in revenues and diversion of management’s time and energy, which could adversely affect our ability to achieve the anticipated 
benefits of the edX Acquisition and could harm our financial performance. The initial anticipated cost savings, synergies and 
other benefits of the edX Acquisition assume a successful integration of edX’s operations and are based on projections and 
other assumptions, which are inherently uncertain. If we are unable to successfully or timely integrate the operations of edX 
with our business, we may be unable to realize the anticipated benefits resulting from the edX Acquisition, and our business, 
results of operations and financial condition could be materially and adversely affected. Even if integration is successful, 

28

anticipated cost savings, synergies and other benefits may not be achieved. If, among other things, we are unable to achieve the 
anticipated strategic benefits or synergies, or if the integration costs related to the edX Acquisition are greater than expected, the 
market price of our common stock may decline. The market price of our common stock also may decline if we do not achieve 
the perceived benefits of the edX Acquisition as rapidly or to the extent anticipated by financial or industry analysts or if the 
effect of the edX Acquisition on our financial results is not consistent with the expectations of financial or industry analysts. 

We have incurred substantial transaction and integration expenses related to the edX Acquisition and expect to incur 
additional integration expenses related to edX that could negatively impact our financial results and cash flows. 

We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the edX 
Acquisition and associated integration activities. For example, we expect to incur costs related to formulating and implementing 
integration plans, including facilities and systems consolidation costs and employment-related costs. We continue to assess the 
magnitude of these costs, and additional unanticipated costs may be incurred in the integration process. Any expected 
efficiencies to offset these costs may not be achieved in the near term, or at all.

We do not control and may be unable to predict the future path of the Licensed edX Platform. 

Certain of our offerings are hosted on the open source learner management platform that is owned by the non-profit 

entity that survived the edX Acquisition (the “Licensed Platform”). We do not own the Licensed Platform and we do not 
control and may be unable to predict the future path of open source technology development of the Licensed Platform, 
including the ongoing development of open source components used in the Licensed Platform, which could reduce the appeal 
of our offerings hosted on the Licensed Platform and damage our reputation. If open source software programmers, many of 
whom we do not employ, or our own internal programmers do not continue to develop and enhance the Licensed Platform, we 
may be unable to meet student or university requirements.

If students do not expand beyond the free offerings available on our platform, our ability to grow our business and improve 
our results of operations may be adversely affected. 

Many of our students initially access the free or audit track of the open courses available on our platform. Our growth 

strategy depends in part on our ability to persuade those students to enroll in the paid certificate track of the open courses 
available on our platform or in one of our other degree programs, executive education programs, boot camps or micro-
credential courses. If students do not expand beyond free offerings, our ability to grow our business may be adversely affected.

Risks Related to Our Indebtedness and Capital Structure

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our 
ability to react to changes in the economy or our industry, expose us to interest rate risk and prevent us from meeting our 
obligations with respect to our indebtedness.

As of December 31, 2021, we had approximately $960.3 million of indebtedness on a consolidated basis. See Note 9 

in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.

Our substantial indebtedness could have important consequences. For example, it could:

limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, investments and 
other general corporate purposes; 

require a substantial portion of our cash from operating activities to be dedicated to debt service payments and reduce 
the amount of cash available for working capital, capital expenditures, investments or acquisitions and other general 
corporate purposes; 

place us at a competitive disadvantage compared to certain of our competitors who have less debt; 

hinder our ability to adjust rapidly to changing market conditions; 

limit our ability to secure adequate bank financing in the future with reasonable terms and conditions; and 

increase our vulnerability to, and limit our flexibility in planning for or reacting to, a potential downturn in general 
economic conditions or in one or more of our businesses. 

•

•

•

•

•

•

The Indenture and the Term Loan Agreement contain, and the agreements governing indebtedness we may incur in the 
future may contain, affirmative and negative covenants that limit our ability to engage in activities that may be in our long-term 
best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, 
could result in the acceleration of all of our debt.

29

In addition, we may need to amend agreements that use LIBOR as a benchmark for establishing the rate. On March 5, 
2021, the authority that regulates LIBOR announced that it intends to stop compelling banks to submit rates for the calculation 
of one, three- and six-month LIBOR after June 30, 2023. It is unclear whether new methods of calculating such LIBOR periods 
will be established such that they continue to exist after June 30, 2023. The U.S. Federal Reserve, in conjunction with the 
Alternative Reference Rates Committee, has recommended replacing U.S. dollar LIBOR periods with a newly created term 
index based on the secured overnight financing rate, commonly referred to as ‘Term SOFR’; provided, that, our Term Loan 
Agreement, after the cessation of such LIBOR periods, shall use firstly ‘Term SOFR’ plus a customary market adjustment and 
if Term SOFR is no longer available, overnight SOFR plus a customary market adjustment. It is not possible to predict the 
effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom, the United 
States or elsewhere.

Despite current indebtedness levels and existing restrictive covenants, we may still incur additional indebtedness that could 
further exacerbate the risks associated with our substantial financial leverage.

We may incur significant additional indebtedness in the future under the agreements governing our indebtedness. We 

will not be restricted under the terms of the Indenture from incurring additional debt. Although the Term Loan Agreement 
contains, and any future indebtedness may contain, restrictions on the incurrence of additional indebtedness, these restrictions 
are subject to a number of thresholds, qualifications and exceptions, and the additional indebtedness incurred in compliance 
with these restrictions could be substantial. Additionally, these restrictions could permit us to incur obligations that, although 
preferential to our common stock in terms of payment, do not constitute indebtedness.

Furthermore, any future indebtedness may prohibit or otherwise restrict us from making any cash payments on the 

conversion or repurchase of the Notes. Our failure to make cash payments upon the conversion or repurchase of the Notes as 
required under the terms of the Notes would permit holders of the Notes to accelerate our obligations under the Notes. In 
addition, any future indebtedness that we may incur may contain financial and other restrictive covenants that limit our ability 
to operate our business, raise capital or make payments under our other indebtedness. If we fail to comply with such covenants 
or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in 
turn, result in that indebtedness becoming immediately payable in full.

The Term Loan Agreement contains a financial covenant that may limit our operational flexibility.

In connection with the edX Acquisition, we entered into the Term Loan Agreement, which requires us to comply with 

several customary financial and other restrictive covenants, such as maintaining leverage ratios in certain situations, 
maintaining insurance coverage, and restricting our ability to make certain investments. We are also required to maintain 
minimum Recurring Revenues (as defined in the Term Loan Agreement) as of the last day of any period of four consecutive 
fiscal quarters of the Company commencing with fiscal quarter ending September 30, 2021 through the Maturity Date (as 
defined in the Term Loan Agreement), which may limit our ability to engage in new lines of business, make certain 
investments, pay dividends, or enter into various transactions.

This covenant may limit the flexibility of our operations, and failure to meet this financial covenant could result in a 

default under the Term Loan Agreement. If such a default were to occur, the lenders would have the right to terminate their 
commitments to provide loans under the Term Loan Agreement and declare any and all borrowings outstanding, together with 
accrued and unpaid interest and fees, to be immediately due and payable. In addition, the lenders would have the right to 
proceed against the collateral in which we granted a first priority security interest to them, which consists of substantially all our 
assets. If the debt under the Term Loan Agreement were to be accelerated, we may not have sufficient cash or be able to borrow 
sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately materially and 
adversely affect our business, financial condition, and results of operations.

To service our indebtedness, we will require a significant amount of cash, and our ability to generate cash depends on many 
factors beyond our control.

Our ability to make cash payments on and to refinance our indebtedness will depend upon our financial condition and 

operating performance, which are subject to prevailing economic and competitive conditions and to financial, business, 
legislative, regulatory and other factors beyond our control.

If we are unable to generate sufficient cash from operating activities or are otherwise unable to obtain funds necessary 
to meet required payments of principal, premium, if any, and interest on our indebtedness, or amounts paid upon conversion of 
the Notes, or if we fail to comply with the various covenants in the instruments governing our indebtedness and we are unable 
to obtain waivers from the required lenders or noteholders, we could be in default under the terms of the agreements governing 
such indebtedness. In the event of such default, the holders of our indebtedness could elect to declare all the funds borrowed to 
be due and payable, together with accrued and unpaid interest. As a result, we could be forced into bankruptcy or liquidation.

30

We may be unable to raise the funds necessary to repurchase the Notes for cash following a “fundamental change,” or to 
pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay 
cash upon their conversion.

Holders of the Notes may, subject to certain exceptions, require us to repurchase their Notes following a “fundamental 

change” (as defined in the Indenture) at a cash repurchase price generally equal to the principal amount of the Notes to be 
repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion, we will satisfy part or all of our conversion 
obligation in cash unless we elect to settle conversions solely in shares of our common stock. We may not have enough 
available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due 
upon conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may 
restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion. Our failure to repurchase Notes or to 
pay the cash amounts due upon conversion when required will constitute a default under the Indenture. A default under the 
Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, 
which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy 
all amounts due under the other indebtedness and the Notes.

Conversion of the Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our 
common stock.

The conversion of some or all of the Notes may dilute the ownership interests of existing stockholders to the extent we 

deliver shares upon any conversion of the Notes. Any sales in the public market of the common stock issuable upon such 
conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may 
encourage short selling by market participants because the conversion of the Notes could be used to satisfy short positions. The 
anticipated conversion of the Notes into shares of our common stock could also depress the price of our common stock.

Provisions in the Notes, Indenture and in the Term Loan Agreement could delay or prevent an otherwise beneficial takeover 
of us.

Certain provisions in the Notes and the Indenture could make a third-party attempt to acquire us more difficult or 

expensive. For example, if a takeover constitutes a “fundamental change” (as defined in the Indenture), then noteholders will 
have the right to require us to repurchase their Notes for cash. In addition, if a takeover constitutes a “make-whole fundamental 
change” (as defined in the Indenture), then we may be required to temporarily increase the conversion rate. In either case, and 
in other cases, our obligations under the Notes and the Indenture, as well as the Term Loan Agreement, under which a “change 
of control” is an event of default resulting in acceleration of all indebtedness thereunder, could increase the cost of acquiring us 
or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that 
noteholders or holders of our common stock may view as favorable.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material 
effect on our reported financial results. 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-06, Accounting for 

Convertible Instruments and Contract on an Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”), which amends the 
accounting standards for convertible debt instruments that may be settled entirely or partially in cash upon conversion. ASU 
2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments 
and eliminates the ability to use the treasury stock method for calculating diluted earnings per share for convertible instruments 
whose principal amount may be settled using shares. Instead, ASU 2020-06 requires (i) the entire amount of the security to be 
presented as a liability on the balance sheet and (ii) application of the if-converted method for calculating diluted earnings per 
share. Under the if-converted method, diluted earnings per share will generally be calculated assuming that all the Notes were 
converted solely into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive, 
which could adversely affect our diluted earnings per share. However, if the principal amount of the convertible debt security 
being converted is required to be paid in cash and only the excess is permitted to be settled in shares, the if-converted method 
will produce a similar result as the treasury stock method prior to the adoption of ASU 2020-06 for such convertible debt 
security.

We will adopt ASU 2020-06 in the first quarter of 2022, using the modified retrospective basis, effective as of 

January 1, 2022. Following adoption of this ASU, we will no longer separate the liability and equity components of the Notes 
on our balance sheet.

The capped call transactions may affect the value of our common stock.

In connection with the Notes, we entered into capped call transactions with certain option counterparties. The capped 

call transactions are expected generally to reduce the potential dilution upon any conversion of the Notes and/or offset any cash 

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payments we are required to make in excess of the principal amount of converted Notes, as the case may be, with such 
reduction and/or offset subject to a cap. 

The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding 
various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours 
in secondary market transactions from time to time (and are likely to do so following any conversion of the Notes, any 
repurchase of the Notes by us on any fundamental change repurchase date, any redemption date or any other date on which the 
Notes are retired by us, in each case, if we exercise our option to terminate the relevant portion of the capped call transactions). 
This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

In addition, if any such capped call transactions are terminated for any reason, the option counterparties or their 
respective affiliates may unwind their hedge positions with respect to our common stock, which could adversely affect the value 
of our common stock.

Furthermore, the option counterparties are financial institutions, and we will be subject to the risk that any or all of 
them might default under the capped call transactions. Our exposure to the credit risk of the option counterparties will not be 
secured by any collateral. Past global economic conditions have resulted in the actual or perceived failure or financial 
difficulties of a number of financial institutions. If an option counterparty becomes subject to insolvency proceedings, we will 
become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under the capped call 
transactions with such option counterparty. Our exposure will depend on many factors but, generally, an increase in our 
exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a 
default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with 
respect to our common stock. We can provide no assurances as to the financial stability or viability of the option counterparties.

We might not be able to utilize a portion of our net operating loss carryforwards, which could adversely affect our 
profitability.

As of December 31, 2021, we had federal net operating loss carryforwards due to prior period losses, which, if not 

utilized, will begin to expire in 2029. Our gross state net operating loss carryforwards are equal to or less than the federal net 
operating loss carryforwards and expire over various periods based on individual state tax laws. These net operating loss 
carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our 
profitability. In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an 
“ownership change,” which is generally defined as a greater than 50% change, by value, in its equity ownership over a three-
year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes 
to offset its post-change income may be limited. Similar rules may apply under state tax laws. During the three-year period 
ended December 31, 2016, we determined that such an ownership change occurred. Absent a subsequent ownership change, 
however, all of our historical net operating losses should be available. Therefore, the occurrence of the ownership change 
during the three-year period ended December 31, 2016 is not expected to limit our ability to carry forward historical net 
operating losses before expiration. We may experience ownership changes in the future as a result of subsequent shifts in our 
stock ownership. If a future ownership change occurs and limits our ability to use our historical net operating loss 
carryforwards, it would harm our future financial statement results by increasing our future tax obligations. We also have net 
operating loss carryforwards in South Africa and the United Kingdom and there is no guarantee that entities in these countries 
will generate enough taxable income to fully utilize them.

We may need additional capital in the future to pursue our business objectives. Additional capital may not be available on 
favorable terms, or at all, which could compromise our ability to grow our business.

We may need to raise additional funds to respond to business challenges or opportunities, accelerate our growth, 
develop new offerings or enhance our platform. Our continued access to sources of liquidity depends on multiple factors, 
including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of 
financing and our operating performance, all of which may be impacted by the COVID-19 pandemic. If we seek to raise 
additional capital, it may not be available on favorable terms or may not be available at all. In addition, under our Term Loan 
Agreement, we may be restricted from using the net proceeds of financing transactions for our operating objectives. Lack of 
sufficient capital resources could significantly limit our ability to manage our business and to take advantage of business and 
strategic opportunities. Any additional capital raised through the sale of equity or debt securities with an equity component 
would dilute our stock ownership. If adequate additional funds are not available if and when needed, we may be required to 
delay, reduce the scope of, or eliminate material parts of our business strategy.

Risks Related to Regulation of Our Business and That of Our University Clients

Our business model relies on university client institutions complying with federal and state laws and regulations.

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Higher education is heavily regulated. All of our university clients in the United States and certain university clients 

outside of the United States participate in Title IV federal student financial assistance programs under the HEA of 1965, as 
amended, or HEA, and are subject to extensive regulation by the DOE, as well as various state agencies, licensing boards and 
accrediting commissions. To participate in the Title IV programs, an institution must receive and maintain authorization by the 
appropriate state education agencies, be accredited by an accrediting commission recognized by the DOE, and be certified by 
the DOE as an eligible institution. If a university client participating in Title IV was found to be in non-compliance with any of 
these laws, regulations, standards or policies, the university client could lose some or all of its access to Title IV program funds, 
lose the ability to offer certain programs or lose its ability to operate in certain states, any of which could cause our revenue 
from that university client’s program to decline.

The regulations, standards and policies applicable to our university clients change frequently and are often subject to 

interpretation. Changes in, or new interpretations of, applicable laws, regulations or standards could compromise our university 
clients’ accreditation, authorization to operate in various states, permissible activities or use of federal funds under Title IV 
programs. We cannot predict with certainty how the requirements applied by our university clients’ regulators will be 
interpreted, or whether our university clients will be able to comply with these requirements in the future.

Certain requirements of Title II and Title III of the Americans with Disabilities Act apply to us and our university 

clients and Section 504 of the Rehabilitation Act of 1974 applies to our university clients that receive federal funding. Further, 
in the absence of definitive federal rulemaking, the Web Content Accessibility Guidelines 2.1, a set of recommendations and 
technical standards for making websites accessible to individuals with disabilities published by the World Wide Web 
Consortium, have become the effective standard for learner-facing aspects of our platform. We may not be successful in 
ensuring that our offerings and services comply with these changing statutory and regulatory requirements, which could make 
our solutions less attractive to our clients and students, and we expect to incur ongoing costs of compliance.

Our activities are subject to federal and state laws and regulations and other requirements.

Although we are not an institution of higher education, we are required to comply with certain education laws and 

regulations as a result of our role as a service provider to higher education institutions, either directly or indirectly through our 
contractual arrangements with university clients. Failure to comply with these laws and regulations could result in breach of 
contract and indemnification claims and could cause damage to our reputation and impair our ability to grow our business and 
achieve profitability.

Activities of the U.S. Congress or Department of Education could result in adverse legislation or regulatory actions or 
investigations.

The process of reauthorization of the HEA began in 2014 and is expected to continue until the HEA is updated. 
Congressional hearings will continue to be scheduled by the U.S. Senate Committee on Health, Education, Labor and Pensions, 
the U.S. House of Representatives Committee on Education and the Workforce and other Congressional committees regarding 
various aspects of the education industry, including accreditation matters, student debt, student recruiting, cost of tuition, 
distance learning, competency-based learning, student success and outcomes and other matters. Future hearings may include a 
discussion of the role of online program management companies.

The increased scrutiny and results-based accountability initiatives in the education sector, as well as ongoing policy 
differences in Congress regarding spending levels and other issues, could lead to significant changes in connection with the 
reauthorization of the HEA or otherwise. These changes may place new or additional regulatory burdens on postsecondary 
schools generally, and specific initiatives may be targeted at or have an impact upon companies like us that serve higher 
education. The adoption of any laws or regulations that limit our ability to provide our services to our university clients could 
compromise our ability to drive revenue through their programs or make our platform less attractive to them. Congress could 
also enact laws or authorize regulations that require us to modify our practices in ways that could increase our costs, including 
as a result of new regulatory burdens.

In addition, regulatory activities and initiatives of the DOE may have similar consequences for our business even in the 

absence of Congressional action. For example, DOE initiated two new rulemaking processes in 2021 that may impact our 
partners. While neither proceeding is expected to directly impact our business model, we cannot predict the impact that these 
and other, future DOE initiatives may have on us, our reputation or operating results.

Our business model, which depends on our ability to receive a share of tuition revenue as payment from our university 
clients, has been validated by a DOE “dear colleague” letter, but such validation is not codified by statute or regulation and 
may be subject to change.

Each institution that participates in Title IV programs agrees it will not “provide any commission, bonus, or other 

incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to 

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any person or entity who is engaged in any student recruitment or admission activity, or in making decisions regarding the 
award of Title IV, HEA program funds.” Virtually all of our university clients participate in Title IV Programs.

Although this rule, referred to as the incentive compensation rule, generally prohibits entities or individuals from 

receiving incentive-based compensation payments for the successful recruitment, admission or enrollment of students, the DOE 
provided official policy guidance in 2011 permitting tuition revenue-sharing arrangements known as the “bundled services 
rule.” Our current business model relies in part on the bundled services rule to enter into tuition revenue-sharing agreements 
with our university clients.

Because the bundled services rule was promulgated in the form of agency guidance issued by the DOE in the form of a 

“dear colleague” letter, or DCL, and is not codified by statute or regulation, there is risk that the rule could be altered or 
removed without customary administrative procedural requirements, such as adequate prior notice, that accompany formal 
agency rulemaking. Although the DCL remains the longstanding policy of the DOE, the bundled services rule could be 
reviewed, altered or vacated in the future. In addition, the legal weight the DCL would carry in litigation over the propriety of 
any specific compensation arrangements under the HEA or the incentive compensation rule is uncertain. We can offer no 
assurances as to how the DCL would be interpreted by a court. The revision, removal or invalidation of the bundled services 
rule by Congress, the DOE or a court, whether in an action involving our company or our university clients, or in action that 
does not involve us, could require us to change our business model and renegotiate the terms of many of our university client 
contracts and could compromise our ability to generate revenue.

If we or our subcontractors or agents violate the incentive compensation rule, we could be liable to our university clients for 
substantial fines, sanctions or other liabilities.

Even though the DCL clarifies that tuition revenue-sharing arrangements with our university clients are permissible, 
we are still subject to other provisions of the incentive compensation rule that prohibit us from offering to our employees who 
are involved with or responsible for recruiting or admissions activities any bonus or incentive-based compensation based on the 
successful identification, admission or enrollment of students into any institution. If we or our subcontractors or agents violate 
the incentive compensation rule, we could be liable to our university clients for substantial fines, sanctions or other liabilities, 
including liabilities related to “whistleblower” claims under the federal False Claims Act. Any such claims, even if without 
merit, could require us to incur significant costs to defend the claim, distract management’s attention and damage our 
reputation.

If we or our subcontractors or agents violate the misrepresentation rule, or similar federal and state regulatory 
requirements, we could face fines, sanctions and other liabilities.

We are required to comply with other regulations promulgated by the DOE that affect our student acquisition 

activities, including the misrepresentation rule. The misrepresentation rule is broad in scope and applies to statements our 
employees, subcontractors or agents may make about the nature of a university client’s program, a university client’s financial 
charges or the employability of a university client’s program graduates. A violation of this rule, FTC rules or other federal or 
state regulations applicable to our marketing activities by an employee, subcontractor or agent performing services for 
university clients could lead to governmental investigations and sanctions, hurt our reputation, result in the termination of 
university client contracts, require us to pay fines or other monetary penalties or require us to pay the costs associated with 
indemnifying a university client from private claims or government investigations.

If our university clients fail to maintain their state authorizations, or we or our university clients violate other state laws and 
regulations, students in their offerings could be adversely affected and we could lose our ability to operate in that state and 
provide services to these university clients.

Our university clients must be authorized in certain states to offer online educational offerings, engage in recruiting 

and operate externships, internships, clinical training or other forms of field experience, depending on state law. The loss of or 
failure to obtain state authorization would, among other things, limit the ability of a university client to enroll students in that 
state, render the university client and its students ineligible to participate in Title IV programs in that state, diminish the 
attractiveness of the university client’s offering and ultimately compromise our ability to generate revenue and become 
profitable.

In addition, if we or any of our university clients fail to comply with any state agency’s rules, regulations or standards 

beyond authorizations, the state agency or state attorney general could limit the ability of the university client to offer 
educational offerings in that state or limit our ability to perform our contractual obligations to our university client in that state.

If our university clients fail to maintain institutional or programmatic accreditation for their offerings, our revenue could be 
materially affected.

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The loss or suspension of a university client’s accreditation or other adverse action by the university client’s 

institutional or programmatic accreditor would render the institution or its offerings ineligible to participate in Title IV 
programs, could prevent the university client from offering certain educational offerings and, for certain degree-granting 
programs, could make it impossible for the graduates of the university client’s program to obtain employment in the profession 
for which they trained. If any of these results occurs, it could hurt our ability to generate revenue from that offering.

Our future growth could be impaired if our university clients fail to obtain timely approval from applicable regulatory 
agencies to offer new programs, make substantive changes to existing programs or expand their programs into or within 
certain states.

Our university clients are required to obtain the appropriate approvals from the DOE and applicable state and 
accrediting regulatory agencies for new programs or locations, which may be conditioned, delayed or denied in a manner that 
could impair our strategic plans and future growth. Regulatory constraints have resulted in delays to various approvals our 
university clients are requesting, and such delays could in turn delay the timing of our ability to generate revenue from our 
university clients’ programs.

If more state agencies require specialized approval of our university clients’ offerings, our operating costs could increase 
significantly, approval times could lag, or we could be prohibited from operating in certain states.

In addition to state licensing agencies, our university clients may be required to obtain approval from professional 

licensing boards in certain states to offer specialized programs in specific fields of study. Currently, relatively few states require 
institutions to obtain professional board approval for their online educational offerings. However, more states could pass laws 
requiring our university clients’ offerings, such as graduate programs in teaching or nursing, to obtain approval from state 
professional boards. If a significant number of states pass additional laws requiring schools to obtain professional board 
approval, the cost of obtaining all necessary state approvals could dramatically increase, which could make our platform less 
attractive to university clients, and these university clients could be barred from operating in some states entirely.

Evolving regulations and legal obligations related to data privacy, data protection and information security and our actual 
or perceived failure to comply with such obligations, could have an adverse effect on our business.

The legislative and regulatory framework for privacy and data security is rapidly evolving and likely is to remain 

uncertain for the foreseeable future. In providing our platform to university clients and in operating our business, we collect and 
process regulated personal information from students, faculty, prospective students and employees. Our handling of this 
personal information is subject to a variety of laws and regulations, which have been adopted by federal, state and foreign 
governments to regulate the collection, distribution, use and storage of personal information. Any failure or perceived failure by 
us to comply with these privacy laws and regulations or any security incident that results in the unauthorized release or transfer 
of this personal information in our possession, could result in government enforcement actions, litigation, fines and penalties or 
adverse publicity, all of which could have an adverse effect on our reputation and business.

Various federal, state and foreign legislative, regulatory or other governmental bodies have adopted laws or regulations 

concerning privacy, security, data storage and data protection that could materially adversely impact our business. Moreover, 
much of the personal information we collect and process is regulated by multiple privacy laws across various jurisdictions. For 
example, the General Data Protection Regulation (“GDPR”), which took effect in May 2018, introduced robust new 
requirements for the protection of personal data of individuals in the European Union (“EU”) and substantial fines for non-
compliance, including fines up to 4% of a Company’s annual global revenue. However, with the withdrawal of the United 
Kingdom (“UK”) from the EU in 2020, we must also now comply with the local laws of that jurisdiction such as the UK Data 
Protection Act 2018 and the UK General Data Protection Regulation. This introduces the risk of possible enforcement from a 
separate data protection authority, with its distinct power to impose substantial fines for non-compliance. As another example, 
in July 2020, South Africa’s privacy law known as the Protection of Personal Information Act became effective, mandating new 
requirements for processing of personal information by entities domiciled in South Africa, and our Company must comply with 
these laws. 

We are also subject to evolving EU rules on data transfer, as we may transfer personal data from the European 
Economic Area to other jurisdictions. The invalidation of the EU-U.S. Privacy Shield framework in July 2020 and introduction 
of updated Standard Contractual Clauses (SCC) in 2021 for alternative means of cross-border data transfer, introduces 
additional complexity and risk to our compliance measures. 

In the U.S., the California Consumer Privacy Act (“CCPA”) took effect in January 2020. Pursuant to the CCPA, we 

are required, among other things, to meet certain enhanced notice requirements to California residents regarding our use or 
disclosure of their personal information, allow California residents to opt-out of certain uses and disclosures of their personal 

35

information without penalty, and provide Californians with other choices related to personal data in our possession. The 
California Attorney General may seek substantial monetary penalties and injunctive relief in the event of our non-compliance 
with the CCPA. The CCPA also allows for private lawsuits from Californians in the event of certain data breaches. 

We also expect that there will continue to be new proposed laws, regulations, rulings and industry standards 

concerning privacy, security, data storage and data protection in the U.S., the EU and other jurisdictions, and we cannot yet 
determine the impact such future laws, regulations, rulings and standards may have on our business. For example, the European 
ePrivacy Directive (Directive 2002/58/EC, as amended by Directive 2009/136/EC), which obliges EU member states to 
introduce certain national laws regulating privacy in the electronic communications sector, will soon be replaced by the 
ePrivacy Regulation. As the text of the ePrivacy Regulation is still under development and in draft form, and as further 
guidance is issued and interpretations of both the ePrivacy Regulation and the GDPR develop, it is difficult to assess the impact 
of either on our business or operations, but it may require us to modify our data practices and policies. In addition, in 2021 new 
privacy laws were passed in China, Brazil and other jurisdictions, and many countries are considering updates to their current 
data protection regulations, including Australia and India. 

In the U.S., various states have proposed privacy laws that represent a trend towards stronger privacy protections and 

greater data transparency. In January 2023, the California Consumer Privacy Act, which includes significant amendments to the 
CCPA, becomes operative, thereby placing additional obligations on us to protect personal information, to offer enhanced data 
rights to Californians, and to provide notice regarding our data sharing practices. Likewise, both Colorado and Virginia passed 
consumer privacy laws in 2021. Without an overarching federal law driving privacy compliance in the U.S., the risk is high of a 
patchwork of privacy legislation formed by individual state laws, similar to the states’ approach to breach notification 
obligations. This could not only increase costs for compliance but also raise the risk of enforcement by individual state 
attorneys general.

Complying with these and other changing requirements could cause us to incur substantial costs, or require us to 

change our business practices, any of which could materially adversely affect our business and operating results. 

We are required to comply with the Family Educational Rights and Privacy Act, or FERPA, and failure to do so could harm 
our reputation and negatively affect our business.

FERPA generally prohibits an institution of higher education participating in Title IV programs from disclosing 

personally identifiable information from a student’s education records without the student’s consent. Our university clients and 
their students disclose to us certain information that originates from or comprises a student education record under FERPA. As 
an entity that provides services to institutions participating in Title IV programs, we are indirectly subject to FERPA, and we 
may not transfer or otherwise disclose any personally identifiable information from a student record to another party other than 
in a manner permitted under the statute. If we violate FERPA, it could result in a material breach of contract with one or more 
of our university clients and could harm our reputation. Further, in the event that we disclose student information in violation of 
FERPA, the DOE could require a university client to suspend our access to its student information for at least five years.

In our Alternative Credential Segment, we are subject to risks and compliance rules and regulations related to the third-
party credit card payment processing platform integrated within our websites or otherwise used by our business.

Students typically use a credit or debit card to pay application and enrollment fees and to make tuition payments for 

the offerings in our Alternative Credential Segment that are not free. We are subject to payment card association operating 
rules, certification requirements and rules governing electronic funds transfers, which could change or be reinterpreted to make 
it difficult or impossible for us to comply. We believe that we and the payment processing service providers we use are 
compliant in all material respects with the Payment Card Industry Data Security Standard. However, there is no guarantee that 
such compliance will be maintained or that compliance will prevent illegal or improper use of our systems that are integrated 
with our payment processing providers. If we or any of the third-party payment processors we use fail to be in compliance with 
applicable credit card rules and regulations, we may be required to migrate to an alternate payment processor which could result 
in transaction downtime during the migration and/or a loss of students and have a material adverse effect on our business, 
financial condition and results of operations.

We are subject to governmental export, import and sanctions controls that could impair our ability to compete in 
international markets and subject us to liability if we are not in full compliance with applicable laws. 

Our business activities are subject to various restrictions under U.S. export and similar laws and regulations, including 
the U.S. Department of Commerce’s Export Administration Regulations and various economic and trade sanctions regulations 
administered by the U.S. Treasury Department’s Office of Foreign Assets Controls. The U.S. export control laws and U.S. 
economic sanctions laws include restrictions or prohibitions on the sale of certain services to U.S. embargoed or sanctioned 
countries, governments, persons, and entities. In addition, various countries regulate the import of certain technology and have 

36

enacted or could enact laws that could limit our ability to provide students access to our platform or could limit our students’ 
ability to access or use our services in those countries. 

Changes in our platform, or future changes in export and import regulations, may prevent our international students 

from utilizing our platform or, in some cases, prevent the export or import of our platform to certain countries, governments, or 
persons altogether. Any change in export or import regulations, economic sanctions, or related legislation or changes in the 
countries, governments, persons, or technologies targeted by such regulations, could result in decreased use of our platform by, 
or in our decreased ability to export or sell subscriptions to our platform to, existing or potential students internationally. Any 
decreased use of our platform or limitation on our ability to export or sell our platform would adversely affect our business, 
results of operations, and financial results. 

Risks Related to Intellectual Property

We operate in an industry with extensive intellectual property litigation. Claims of infringement against us may hurt our 
business.

Our success depends, in part, upon our ability to avoid infringing intellectual property rights owned by others and 

being able to resolve claims of intellectual property infringement without major financial expenditures or adverse 
consequences. The technology and software fields generally are characterized by extensive intellectual property litigation and 
many companies that own, or claim to own, intellectual property have aggressively asserted their rights. In addition, we face 
potential copyright and trademark infringement from the content we produce in connection with our marketing activities, 
including in websites related to our offerings. From time to time, we may be subject to legal proceedings and claims relating to 
the intellectual property rights of others, and we expect that third parties will assert intellectual property claims against us, 
particularly as we expand the complexity and scope of our business. In addition, our university client agreements require us to 
indemnify our university clients against claims that our platform infringes the intellectual property rights of third parties.

Future litigation may be necessary to defend ourselves or our university clients from intellectual property infringement 
claims or to establish our proprietary rights. Some of our competitors have substantially greater resources than we do and would 
be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we 
could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights 
may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, 
these claims are time-consuming and costly to evaluate and defend and could:

•

•

•

•

•

•

•

hurt our reputation;

adversely affect our relationships with our current or future university clients;

cause delays or stoppages in providing our platform;

divert management’s attention and resources;

require technology changes to our software that could cause us to incur substantial cost;

subject us to significant liabilities; and

require us to cease some or all of our activities.

In addition to liability for monetary damages against us, which may include attorneys’ fees, treble damages in the 

event of a finding of willful infringement, or, in some circumstances, damages against our university clients, we may be 
prohibited from developing, commercializing or continuing to provide some or all of our bundled technology-enabled platform 
unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may 
not be available on commercially favorable terms, or at all.

We may incur liability, or our reputation may be harmed, as a result of the activities of our university clients and students or 
the content in our online learning platforms.

We may be subject to potential liability for the activities of our university clients or students in connection with the 

data they post or store in our online learning platforms. For example, university personnel or students, or our employees or 
independent contractors, may post to our online learning platforms various articles or other third-party content for use in class 
discussions or within asynchronous lessons.

Various U.S. federal statutes may apply to us with respect to these activities. For example, the Digital Millennium 

Copyright Act of 1998, or DMCA and the Communications Decency Act, or CDA, have provisions that limit our liability for 
certain content posted by third parties on our platforms.

37

Although statutes and case law in the U.S. have generally shielded us from liability for these activities to date, court 

rulings in pending or future litigation may narrow the scope of protection afforded us under these laws. In addition, laws 
governing these activities are unsettled in many international jurisdictions. As a result, we could incur liability to third parties 
for the unauthorized duplication, distribution or other use of third-party content. Any such claims could subject us to costly 
litigation and impose a significant strain on our financial resources and management personnel regardless of whether the claims 
have merit. Our various liability insurance coverages may not cover potential claims of this type adequately or at all, and we 
may be required to alter or cease our uses of such material, which may include changing or removing content from courses or 
altering the functionality of our online learning platform, or to pay monetary damages.

Additionally, university personnel or students, or our employees or independent contractors could use our online 
learning platform to store or process regulated personal information without our knowledge. In the event that our systems 
experience a data security incident, or an individual or entity accesses information without, or in excess of, proper 
authorization, we could be subject to data security incident notification laws, as described elsewhere, which may require prompt 
remediation and notification to individuals. If we are unaware of the data and information stored on our systems, we may be 
unable to appropriately comply with all legal obligations, and we may be exposed to governmental enforcement or prosecution 
actions, private litigation, fines and penalties or adverse publicity and these incidents could harm our reputation and business.

Our failure to protect our intellectual property rights could diminish the value of our platform, weaken our competitive 
position and reduce our revenue.

We regard the protection of our intellectual property, which includes trade secrets, copyrights, trademarks and domain 
names, as critical to our success. We protect our proprietary information from unauthorized use and disclosure by entering into 
confidentiality agreements with any party that may come in contact with such information. We also seek to ensure that we own 
intellectual property created for us by signing agreements with employees, independent contractors, consultants, companies and 
any other third party that may create intellectual property for us that assigns any copyright and patent rights to us. However, 
these arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation 
of our proprietary information or deter independent development of similar technologies by others.

We pursue the registration of our domain names, trademarks and service marks in the United States and in jurisdictions 

outside the United States. However, third parties may knowingly or unknowingly infringe on our trademark or service mark 
rights, third parties may challenge our trademark or service mark rights, and pending or future trademark or service mark 
applications may not be approved. In addition, effective trademark protection may not be available in every country in which 
we operate or intend to operate. In any or all cases, we may be required to expend significant time and expense to prevent 
infringement or enforce our rights.

Monitoring unauthorized use of our intellectual property is difficult and costly. Our efforts to protect our proprietary 

rights may not be adequate to prevent misappropriation of our intellectual property. Further, we may not be able to detect 
unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Our competitors may also 
independently develop similar technology. In addition, the laws of many countries may not protect our proprietary rights to as 
great an extent as do the laws of the United States. Further, the laws in the United States and elsewhere change rapidly, and any 
future changes could adversely affect us and our intellectual property rights. Our failure to meaningfully protect our intellectual 
property could result in competitors offering services that incorporate our most technologically advanced features, which could 
seriously reduce demand for our platform. In addition, we may in the future need to initiate litigation such as infringement or 
administrative proceedings, to protect our intellectual property rights. Litigation, whether we are a plaintiff or a defendant, can 
be expensive, time-consuming and may divert the efforts of our technical staff and managerial personnel, whether or not such 
litigation results in a determination that is unfavorable to us. In addition, litigation is inherently uncertain, and thus we may not 
be able to stop our competitors from infringing upon our intellectual property rights.

The use of “open source” software in our platform could negatively affect our ability to offer our platform and subject us to 
possible litigation.

A portion of our platform incorporates so-called “open source” software, and we may incorporate additional open 

source software in the future. Certain open source licenses may, in certain circumstances, require us to offer our platform that 
incorporates the open source software for no cost, to make available source code for modifications or derivative works we 
create based upon, incorporating or using the open source software and to license such modifications or derivative works under 
the terms of the particular open source license. Our efforts to monitor the use of open source software in our platform to ensure 
that no open source software is used in such a way as to require us to disclose our source code when we do not wish to do so, 
may be unable to prevent such use from occurring. In addition, if a third-party software provider has incorporated certain types 
of open source software into software we license from such third party without our knowledge, we could, under certain 
circumstances, be required to comply with the foregoing conditions. If an author or other third party that distributes open source 
software that we use were to allege that we had not complied with the conditions of one or more of these licenses, we could be 

38

required to incur significant legal expenses defending against such allegations and could be subject to significant damages, 
including being enjoined from offering the component of our platform that contained the open source software and being 
required to comply with the foregoing conditions, which could disrupt our ability to offer certain components of our platform.

We could also be subject to suits by parties claiming ownership of what we believe to be open source software. The 
terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. Accordingly, 
there is a risk that those licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our 
ability to offer our platform. Litigation could be costly for us to defend, have a negative effect on our operating results and 
financial condition and require us to devote additional research and development resources to change our products.

Individuals that appear in content hosted on our online learning platform may claim violation of their rights.

Faculty and students that appear in video segments hosted on our online learning platform may claim that proper 

assignments, licenses, consents and releases were not obtained for use of their likenesses, images or other contributed content. 
Our contracts typically require that our university clients ensure that proper assignments, licenses, consents and releases are 
obtained for their course material, but we cannot know with certainty that they have obtained all necessary rights. Moreover, the 
laws governing rights of publicity and privacy, and the laws governing faculty ownership of course content, are imprecise and 
adjudicated on a case-by-case basis, such that the enforcement of agreements to transfer the necessary rights is unclear. As a 
result, we could incur liability to third parties for the unauthorized duplication, display, distribution or other use of this material. 
Any such claims could subject us to costly litigation and impose a significant strain on our financial resources and management 
personnel regardless of whether the claims have merit. Our various liability insurance coverages may not cover potential claims 
of this type adequately or at all, and we may be required to alter or cease our use of such material, which may include changing 
or removing content from courses, or to pay monetary damages. Moreover, claims by faculty and students could damage our 
reputation, regardless of whether such claims have merit. 

Risks Related to Ownership of Our Common Stock 

Our operating results have fluctuated in the past and may do so in the future, which could cause our stock price to decline.

Our operating results have historically fluctuated due to seasonality and changes in our business, and our future 

operating results may vary significantly due to a variety of factors, many of which are beyond our control. You should not rely 
on period-to-period comparisons of our operating results as an indication of our future performance. Factors that may cause 
fluctuations in our operating results include, but are not limited to, the following:

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the timing of our costs incurred in connection with the launch of new degree programs and the delay in receiving 
revenue from these new programs, which delay may last for several years;

seasonal variation driven by the semester schedules for our university clients’ degree programs and seasonal 
engagement patterns of students on the edX marketplace, which may vary from year to year;

changes in the student enrollment and retention levels in our university clients’ offerings;

changes in our key metrics or the methods used to calculate our key metrics;

changes in tuition rates;

the timing and amount of our marketing and sales expenses;

costs necessary to improve and maintain our platform;

fluctuations in foreign currency exchange rates;

the impact of the COVID-19 pandemic, including on the global economy, educational institutions and our results of 
operations;

costs related to any acquisition and integration of business and technology;

our ability to effectively integrate businesses and technologies that we acquire;

impairment of goodwill or intangible assets; and

changes in the prospects of the economy generally, which could alter current or prospective university clients’ or 
students’ spending priorities or could increase the time it takes us to launch new offerings.

39

Our operating results may fall below the expectations of market analysts and investors in some future periods, which 

could cause the market price of our common stock to decline substantially.

The trading price of the shares of our common stock may be volatile, and purchasers of our common stock could incur 
substantial losses.

The trading price of the shares of our common stock may be volatile. The stock market in general, and the market for 

technology companies in particular, have experienced extreme volatility that has often been unrelated to the operating 
performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or 
above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

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actual or anticipated variations in our operating results;

variations between our actual operating results and the expectations of securities analysts, investors and the financial 
community;

changes in financial estimates by us or by any securities analysts who might cover our stock or our failure to meet 
these financial estimates;

conditions or trends in our industry, the stock market or the economy;

the level of demand for our stock, including the amount of short interest in our stock;

stock market price and volume fluctuations of comparable companies and, in particular, those that operate in the 
software and information technology industries;

announcements by us or our competitors of new product or service offerings, significant acquisitions, strategic 
partnerships or divestitures;

announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;

capital commitments;

investors’ general perception of our company and our business;

actions instituted by activist shareholders or others;

lawsuits threatened or filed against us;

recruitment or departure of key personnel; and

sales of our common stock, including sales by our directors and officers or specific stockholders; and

other factors such as political or social unrest, terrorist attacks, other hostilities, natural disasters and potential public 
health crises, such as COVID-19.

Activist shareholders who disagree with the composition of our board of directors, our strategy or the way we are 
managed may seek to effect change through various strategies that range from private engagement to publicity campaigns, 
proxy contests, efforts to force transactions not supported by our board of directors and litigation. Responding to these actions 
may be costly and time-consuming, disrupt our operations, divert the attention of our board of directors, management and 
employees and interfere with the execution of our strategic plan. A contested election could also require us to incur substantial 
legal and public relations fees and proxy solicitation expenses. The perceived uncertainty as to our future direction resulting 
from activist strategies could also affect the market price and volatility of our common stock.

As described in Part I, Item 3 of this Annual Report on Form 10-K, certain stockholders have initiated class action 

lawsuits against us and certain of our employees and directors. Our defense against this litigation has caused and will continue 
to cause us to incur additional expenses and continue to divert management’s attention and resources from our business.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our 
stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of 
our common stock may be lower as a result.

Provisions in our amended and restated certificate of incorporation and amended and restated bylaws may make it 
difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control is considered 
favorable by you and other stockholders. For example, our board of directors has the authority to issue up to 5,000,000 shares 
of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock 

40

without any further vote or action by our stockholders. An issuance of shares of preferred stock may result in the loss of voting 
control to other stockholders, which could delay or prevent a change in control transaction. As a result, the market price of our 
common stock and the voting and other rights of our stockholders may be adversely affected.

Our charter documents also contain other provisions that could have an anti-takeover effect, including:

only one of our three classes of directors is elected each year;

stockholders are not entitled to remove directors other than by a 662/3% vote and only for cause;

stockholders are not permitted to take actions by written consent;

stockholders are not permitted to call a special meeting of stockholders; 

our board of directors is allowed to adopt, amend or repeal our bylaws; and

stockholders are required to give us advance notice of their intention to nominate directors or submit proposals for 
consideration at stockholder meetings. 

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In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, 

which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations 
with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could 
delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender 
offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent 
changes in our management or limit the price that investors are willing to pay for our stock.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an 
alternative forum, the Court of Chancery of the State of Delaware and the state and federal courts located within the State of 
Delaware are the exclusive forum for substantially all disputes between us and our stockholders, which could limit our 
stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, stockholders, or employees 
and, in turn, discourage lawsuits against our directors, officers, or employees. 

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an 

alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, 
another state or federal court in the State of Delaware) will be the sole and exclusive forum for any derivative action or 
proceeding brought on our behalf; any action asserting a claim of breach of a fiduciary duty owed by any of our directors, 
stockholders, officers, or other employees to us or our stockholders; any action arising pursuant to any provision of the DGCL, 
our amended and restated certificate of incorporation, or our bylaws; and any action asserting a claim that is governed by the 
internal affairs doctrine. This exclusive forum provision would not apply to any action brought to enforce a duty or liability 
created by the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction. 

This exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for 

disputes with us or our current or former directors, officers, stockholders, or other employees, which may discourage such 
lawsuits against us and our current and former directors, officers, stockholders, and other employees. Alternatively, if a court 
were to find the exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or 
unenforceable in an action, we may incur further significant additional costs associated with resolving such action in other 
jurisdictions, all of which could have a material adverse effect on our business, financial condition, and results of operations.

Concentration of ownership of our common stock among our existing executive officers, directors and large stockholders 
may prevent smaller stockholders from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock and their 

respective affiliates, in the aggregate, beneficially own a substantial percentage of our outstanding common stock. These 
persons, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and 
removal of directors, any merger, consolidation, sale of all or substantially all of our assets, or other significant corporate 
transaction. The interests of this group of stockholders may not coincide with our interests or the interests of other stockholders.

Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital 
appreciation, if any, will be your sole source of gains and you may never receive a return on your investment.

We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future 

earnings, if any, to fund the development and growth of our business. In addition, the terms of our Term Loan Agreement 
preclude, and the terms of any future debt agreements are likely to similarly preclude, us from paying dividends. As a result, 

41

capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Investors seeking 
cash dividends should not purchase our common stock.

General Risk Factors 

Increased scrutiny and changing expectations from investors, customers, employees, and others regarding our 
environmental, social and governance practices and reporting could cause us to incur additional costs, devote additional 
resources and expose us to additional risks, which could adversely impact our reputation, customer acquisition and 
retention, access to capital and employee retention. 

Companies across all industries are facing increasing scrutiny related to their environmental, social and governance, or 

ESG, practices and reporting. Investors, customers, employees and other stakeholders have focused increasingly on ESG 
practices and placed increasing importance on the implications and social cost of their investments, purchases and other 
interactions with companies. For example, many investment funds focus on positive ESG business practices and sustainability 
scores when making investments and may consider a company’s ESG or sustainability scores as a reputational or other factor in 
making an investment decision. In addition, investors, particularly institutional investors, use these scores to benchmark 
companies against their peers and if a company is perceived as lagging, these investors may engage with such company to 
improve ESG disclosure or performance and may also make voting decisions on this basis. With this increased focus and 
demand, public reporting regarding ESG practices is becoming more broadly expected. If our ESG practices and reporting do 
not meet investor, customer, or employee expectations, which continue to evolve, our brand and reputation may be negatively 
impacted. Any disclosure we make may include our policies and practices on a variety of ESG matters, including corporate 
governance, environmental compliance, employee health and safety practices, human capital management, and workforce 
inclusion and diversity. It is possible that stakeholders may not be satisfied with our ESG reporting, our ESG practices or our 
speed of adoption. We could also incur additional costs and devote additional resources to monitor, report and implement 
various ESG practices. If we fail, or are perceived to be failing, to meet the standards included in any sustainability disclosure 
or the expectations of our various stakeholders, it could negatively impact our reputation, access to capital and employee 
retention.

If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely 
basis could be impaired.

We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act and the 

rules and regulations of the Nasdaq Global Select Market. The Sarbanes-Oxley Act requires, among other things, that we 
maintain effective disclosure controls and procedures and internal control over financial reporting. We are required to perform 
system and process evaluation and testing of our internal control over financial reporting to allow management to report on the 
effectiveness of our internal control over financial reporting in our Form 10-K filing for that year, as required by Section 404 of 
the Sarbanes-Oxley Act. This may require us to incur substantial additional professional fees and internal costs to further 
expand our accounting and finance functions and expend significant management efforts.

We may in the future discover material weaknesses in our system of internal financial and accounting controls and 

procedures that could result in a material misstatement of our financial statements. In addition, our internal control over 
financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and 
operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the 
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to 
errors or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if 

we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial 
statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or 
investigations by the stock exchange on which our common stock is listed, the Securities and Exchange Commission, or SEC, 
or other regulatory authorities.

Item 1B.    Unresolved Staff Comments

None.

Item 2.    Properties

Our headquarters are located in Lanham, Maryland, where we occupy approximately 309,000 square feet under a lease 

that expires in 2028. Our other material properties are 216,000 square feet of leased office space in Cape Town, South Africa, 
166,000 square feet of leased office space in Denver, Colorado and 80,000 square feet of leased office space in Brooklyn, New 
York. All of our material properties are used to support both of our business segments.

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We intend to adjust our facility occupancy commensurate with our business needs and believe that we will be able to 

do so on commercially reasonable terms.

Item 3.    Legal Proceedings

As disclosed in Note 7 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual 

Report on Form 10-K, the Company is involved in various claims and legal proceedings arising in the ordinary course of 
business and the disclosure in Note 7 relating to certain legal proceedings is incorporated herein by reference. 

Item 4.    Mine Safety Disclosures

None.

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PART II

Item 5.    Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 
Securities

Our common stock has been listed on the Nasdaq Global Select Market since March 28, 2014, under the symbol 

“TWOU.” 

As of February 25, 2022, there were 46 stockholders of record of our common stock. The actual number of 

stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose 
shares are held in street name by brokers and other nominees. This number of holders of record also does not include 
stockholders whose shares may be held in trust by other entities.

Stock Performance Graph

The graph set forth below compares the cumulative total stockholder return on our common stock with that of the 

Nasdaq Composite Index, the Russell 3000 Index and the S&P North American Technology Software Index for the five years 
ended December 31, 2021. The graph assumes that $100 was invested at the close of market on the last trading day of the fiscal 
year ended December 31, 2016 in the common stock of 2U, Inc., the Nasdaq Composite Index, the Russell 3000 Index and the 
S&P North American Technology Software Index. We have not paid any cash dividends and, therefore, the cumulative total 
return calculation on our common stock is based solely upon our stock price appreciation or depreciation and does not include 
any reinvestment of cash dividends. The data for the Nasdaq Composite Index, the Russell 3000 Index and the S&P North 
American Technology Software Index assumes reinvestments of gross dividends. The comparisons shown in the graph below 
are based upon historical data, and are not necessarily indicative of, nor intended to forecast, the potential future stock 
performance of our common stock.

Comparison of Cumulative Total Return
Through December 31, 2021 
Assumes Initial Investment of $100

The information presented above in the stock performance graph shall not be deemed to be “soliciting material” or to 

be “filed” with the SEC or subject to Regulation 14A or 14C, except to the extent that we subsequently specifically request that 
such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act 
of 1933, as amended, or a filing under the Securities Exchange Act of 1934, as amended.

Item 6.    [Reserved]

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in 
conjunction with our consolidated financial statements and the related notes and other financial information included 
elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth 
elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-
looking statements that involve risks and uncertainties. You should review “Special Note Regarding Forward-Looking 
Statements” and Item 1A “Risk Factors” in this report for a discussion of important factors that could cause actual results to 
differ materially from the results described in or implied by the forward-looking statements contained in the following 
discussion and analysis.

This section of this Form 10-K does not address certain items regarding the year ended December 31, 2019. For a 

discussion of our results of operations and liquidity and capital resources for the year ended December 31, 2019, including a 
year-over-year comparison between the years ended December 31, 2020 and 2019, refer to “Management’s Discussion and 
Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of our Annual Report on Form 10-K for 
the year ended December 31, 2020.

Overview

We are a leading online education platform company.  Our mission is to expand access to high-quality educational 

opportunities that unlock human potential.  In November 2021, we acquired substantially all of the assets of edX Inc. (the “edX 
Acquisition”), including the edX brand, website and marketplace. As a result of the edX Acquisition, we expanded our digital 
education offerings to include open courses and micro-credential offerings at the undergraduate and graduate levels and added 
an education consumer marketplace, edx.org, with over 42 million registered learners.

Following the completion of the edX Acquisition, we now serve more than 230 top-ranked global universities and 

other leading institutions, and offer more than 3,600 high-quality online learning opportunities, including open courses, 
executive education offerings, boot camps, micro-credentials, professional certificates as well as undergraduate and graduate 
degree programs. 

With the edX Acquisition, we are now positioned as one of the world’s most comprehensive free-to-degree online 

learning platforms. We believe our platform and robust consumer marketplace provide our clients with the digital infrastructure 
to launch world-class online education offerings and allow students to easily access high-quality, job-relevant education 
offerings without the barriers of cost or location. 

We have two reportable segments: the Degree Program Segment and the Alternative Credential Segment.

In our Degree Program Segment, we provide the technology and services to nonprofit colleges and universities to 

enable the online delivery of degree programs. Students enrolled in these programs are generally seeking an undergraduate or 
graduate degree of the same quality they would receive on campus.

In our Alternative Credential Segment, we provide premium online open courses, executive education programs, 
technical, skills-based boot camps and micro-credential programs at the undergraduate and graduate levels through relationships 
with nonprofit colleges and universities and other leading institutions. Students enrolled in these offerings are generally seeking 
to reskill or upskill for career advancement or personal development through shorter duration, lower-priced offerings.  

COVID-19 Update

The COVID-19 pandemic continues to have widespread impacts on society and the global economy. Our focus 
remains on ensuring the health and safety of our employees and clients, while ensuring the continuity of our business. We have 
adapted our business practices to allow our global workforce to continue to work from home on a voluntary basis. In addition, 
many of our in-person offerings and other campus-based experiences are offered in a virtual format, including the field 
placement components in certain of our clinical graduate programs. Our course production capabilities allow faculty to record 
studio-quality asynchronous content remotely.

We continue to closely monitor the impact of the COVID-19 pandemic on our business. The pandemic initially 
accelerated the need for online learning and training, but has also created new and different demand dynamics in the market. At 
the beginning of the pandemic, we experienced increased demand from new and existing university clients and students as 
universities moved classes online. We do not know if the university client and student demand levels we have experienced 
during the pandemic will continue. More recently, we have seen some of these pandemic-related trends subside in certain areas 
of our business. We have experienced fluctuations in our student retention rates and in our marketing costs. In particular, our 
marketing costs were lower earlier in the pandemic and began to increase in the second half of 2021. In addition, during the past 
year, competition for talent has increased, resulting in higher employee turnover and additional costs to attract and retain 
employees.  

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We cannot estimate the impact of COVID-19 on future demand or cost levels or on our business or economic 

conditions generally, due to numerous uncertainties, including uncertainties regarding the duration or reemergence of the 
outbreak in various regions, including the potential impact of variants of the virus, actions that may be taken by governmental 
authorities, future fluctuations in demand and cost levels and labor market conditions. For a discussion of additional risks 
related to COVID-19, see Part I, Item 1A. “Risk Factors.”

Certain Trends and Uncertainties

The following represents a summary of certain trends and uncertainties, which could have a significant impact on our 

financial condition and results of operations. This summary is not intended to be a complete list of potential trends and 
uncertainties and should be considered along with the factors identified in the section titled “Risk Factors” of this Annual 
Report on Form 10-K and elsewhere in this report.

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The risk of a data security breach or service disruption has increased as the frequency, intensity and sophistication of 
attempted attacks and intrusions from around the world have increased. While we make significant efforts to maintain 
the security and integrity of our services and computer systems, our cybersecurity measures and the cybersecurity 
measures taken by our third-party software and service providers may be unable to anticipate, detect or prevent all 
attempts to compromise our systems. In particular, during the COVID-19 pandemic, the risk of cyber-attacks or other 
privacy or data security incidents may be heightened as a result of our employees and third-party service providers 
working remotely from networks that may be less secure. 

• We and our university clients are subject to certain education laws and regulations that are frequently revised, repealed 
or expanded. Any administration may change certain DOE rules or policies in accordance with its policy priorities. 
The outcome of the process to re-authorize the HEA, any DOE rulemakings, or other law and policy changes may alter 
the regulatory landscape of the higher education industry, and thereby impact the manner in which we conduct 
business and serve our university clients.

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Following the onset of the COVID-19 pandemic, we experienced increased demand for our technology and services 
from university clients, increased demand for our offerings from students, and a decrease in our marketing costs. 
Although we believe that the COVID-19 pandemic accelerated the trend towards adoption of online education that was 
already in process prior to the pandemic, we have recently seen demand and marketing cost fluctuate. We do not know 
the impact that COVID-19 will have on future demand or cost levels.

• We believe the edX Acquisition will combine our industry-leading marketing capabilities with the edX marketplace 

will result in a scalable and sustainable marketing advantage and drive marketing cost efficiencies. We are in the early 
stages of the edX integration. If we are unable to successfully or timely integrate the operations of edX, or if we are 
unable to realize the anticipated benefits resulting from the edX Acquisition, our results of operations and financial 
condition could be materially and adversely affected. 

Our Business Model and Components of Operating Results

The key elements of our business model and components of our operating results are described below.

Revenue Drivers

In our Degree Program Segment, we derive substantially all of our revenue from revenue-share arrangements with our 

university clients under which we receive a contractually specified percentage of the amounts students pay them to enroll in 
degree programs. In our Alternative Credential Segment, we derive substantially all of our revenue from tuition and fees from 
students taking our executive education programs and boot camps. Revenue in each segment is primarily driven by the number 
of student enrollments in our offerings. 

Operating Expense

Marketing and Sales

Our most significant expense relates to marketing and sales activities to attract students to our offerings across both of 
our segments. This includes the cost of Search Engine Optimization, Search Engine Marketing and Social Media Optimization, 
as well as personnel and personnel-related expense for our marketing and recruiting teams.

In our Degree Program Segment, our marketing and sales expense in any period generates student enrollments eight 

months later, on average. We then generate revenue as students progress through their programs, which generally occurs over a 
two-year period following initial enrollment. Accordingly, our marketing and sales expense in any period is an investment to 

46

generate revenue in future periods. Therefore, we do not believe it is meaningful to directly compare current period revenue to 
current period marketing and sales expense. Further, in this segment we believe that our marketing and sales expense in future 
periods will generally decline as a percentage of the revenue reported in those same periods as our revenue base from returning 
students in existing programs increases.

In our Alternative Credential Segment, our marketing and sales expense in any period generates student enrollments as 

much as 24 weeks later. We then generate revenue as students progress through their courses, which typically occurs over a 
two- to six-month period following initial enrollment.

Curriculum and Teaching

Curriculum and teaching expense consists primarily of amounts due to universities for licenses to use their brand 

names and other trademarks in connection with our executive education and boot camp offerings. The payments are based on 
contractually specified percentages of the tuition and fees we receive from students in those offerings. Curriculum and teaching 
expense also includes personnel and personnel-related expense for our executive education and boot camp instructional staff.

Servicing and Support

Servicing and support expense consists primarily of personnel and personnel-related expense associated with the 

management and operations of our educational offerings, as well as supporting students and faculty members. Servicing and 
support expense also includes expenses to support our platform, facilitate in-program field placements and student immersions, 
and assist with compliance requirements.

Technology and Content Development

Technology and content development expense consists primarily of personnel and personnel-related expense 
associated with the ongoing improvement and maintenance of our platform, as well as hosting and licensing expenses. 
Technology and content expense also includes the amortization of capitalized technology and content.

General and Administrative

General and administrative expense consists primarily of personnel and personnel-related expense for our centralized 
functions, including executive management, legal, finance, human resources, and other departments that do not provide direct 
operational services. General and administrative expense also includes professional fees and other corporate expenses.

Net Interest Income (Expense)

Net interest income (expense) consists primarily of interest expense from our long-term debt and interest income from 

our cash and cash equivalents. Interest expense also includes the amortization of debt issuance costs. 

Loss on Debt Extinguishment

Loss on debt extinguishment consists of amounts recorded related to the retirement of our debt obligations.

Other Income (Expense), Net

Other income (expense), net consists primarily of foreign currency gains and losses, gains and losses related to the sale 

of investments and other non-operating income and expense. 

Income Taxes

Our income tax provisions for all periods consist of U.S. federal, state and foreign income taxes. Our effective tax rate 

for the period is based on a mix of higher-taxed and lower-taxed jurisdictions. 

47

 
 
 
Results of Operations

Consolidated Operating Results

Comparison of Years Ended December 31, 2021 and 2020 

The following table presents selected consolidated statement of operations and comprehensive loss data for each of the 

periods indicated.

Revenue
Costs and expenses

Curriculum and teaching

Servicing and support

Technology and content development

Marketing and sales

General and administrative

Total costs and expenses

Loss from operations

Interest income

Interest expense

Loss on debt extinguishment

Other income (expense), net

Loss before income taxes

Income tax benefit

Net loss

Year Ended December 31,

2021

2020

Period-to-Period Change

Amount

Percentage 
of Revenue

Amount

Percentage 
of Revenue

Amount

Percentage

$ 945,682 

 100.0 % $ 774,533 

 100.0 % $ 171,149 

 22.1  %

(dollars in thousands)

  130,817 

  138,548 

  179,061 

  456,096 

  208,598 

 13.8 

 14.7 

 18.9 

 48.2 

 22.1 

  107,968 

  125,851 

  155,949 

  390,174 

  173,526 

 13.9 

 16.2 

 20.1 

 50.4 

 22.4 

22,849 

12,697 

23,112 

65,922 

35,072 

 1,113,120 

 117.7 

  953,468 

 123.0 

  159,652 

  (167,438) 

 (17.7) 

  (178,935) 

 (23.0) 

11,497 

1,475 

(51,222) 

(1,101) 

22,324 

 0.2 

 (5.4) 

 (0.1) 

 2.4 

1,354 

(27,317) 

(11,671) 

(1,429) 

 0.2 

 (3.5) 

 (1.5) 

 (0.2) 

  (195,962) 

 (20.6) 

  (217,998) 

 (28.0) 

121 

10,570 

23,753 

22,036 

1,196 

 0.1 

1,514 

 0.2 

(318) 

 21.2 

 10.1 

 14.8 

 16.9 

 20.2 

 16.7 

 6.4 

 9.0 

 (90.6) 

*

 10.1 

 21.1 

(23,905) 

 87.5 

$ (194,766) 

 (20.5) % $ (216,484) 

 (27.8) % $  21,718 

 10.0  %

*

Not meaningful for comparative purposes.

Revenue.  Revenue for the year ended December 31, 2021 increased $171.1 million, or 22.1%, to $945.7 million as 

compared to $774.5 million in 2020. Revenue from our Degree Program Segment increased $105.6 million, or 21.7%, primarily 
due to growth in full course equivalent (“FCE”) enrollments of 39,102, or 19.7% and a 1.7% increase in average revenue per 
FCE enrollment, from $2,456 to $2,497. Revenue from our Alternative Credential Segment increased $65.5 million, or 22.8%, 
primarily due to a 15.3% increase in average revenue per FCE enrollment, from $3,561 to $4,105, and growth in FCE 
enrollments of 5,251, or 6.5%.

Curriculum and Teaching.  Curriculum and teaching expense increased $22.8 million, or 21.2%, to $130.8 million as 

compared to $108.0 million in 2020. This increase was primarily due to an increase of $17.4 million for amounts owed to 
university clients resulting from revenue growth of our offerings in our Alternative Credential Segment. In addition, expense 
for instructional staff increased $4.0 million to support to higher FCE enrollments.

Servicing and Support.  Servicing and support expense increased $12.7 million, or 10.1%, to $138.5 million as 

compared to $125.9 million in 2020. This increase was primarily due to an $11.5 million increase in personnel and personnel-
related expense and a $0.9 million increase in student support costs to serve a greater number of students. 

Technology and Content Development.  Technology and content development expense increased $23.1 million, or 

14.8%, to $179.1 million as compared to $155.9 million in 2020. This increase was primarily due to a $9.7 million increase in 
depreciation and amortization expense, a $7.4 million increase in expenses to support our platform and software applications, 
and a $4.9 million increase in personnel and personnel-related expense.

Marketing and Sales.  Marketing and sales expense increased $65.9 million, or 16.9%, to $456.1 million as compared 
to $390.2 million in 2020. This increase was primarily due to a $59.6 million increase in marketing expense and a $4.8 million 
increase in personnel and personnel-related expense to support our revenue growth.

48

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and Administrative.  General and administrative expense increased $35.1 million, or 20.2%, to $208.6 million 

as compared to $173.5 million in 2020. This increase was primarily due to a $14.6 million increase in transaction and 
integration expense, a $12.5 million increase in personnel and personnel-related expense, a $4.1 million increase in professional 
fees, a $3.5 million increase in provision for credit losses, a $2.7 million increase in depreciation and amortization expense, a 
$1.7 million increase in restructuring-related expense, and a $1.7 million increase in banking fees. Stockholder activism and 
litigation-related expense decreased by $5.0 million, primarily due to $5.6 million in legal fees associated with stockholder 
activism incurred during the year ended December 31, 2020 which did not recur in 2021. This decrease was partially offset by a 
$0.6 million increase in litigation-related expense.

Net Interest Income (Expense).  Net interest expense was $49.7 million and $26.0 million for the years ended 
December 31, 2021 and 2020, respectively. The net interest expense for the year ended December 31, 2021 was primarily due 
to interest incurred on our Notes and our $575 million aggregate principal amount of term loan facilities that were issued in 
June 2021 and amended in November 2021. The net interest expense for the year ended December 31, 2020 was primarily due 
to interest incurred on our Notes that were issued in April 2020 and our $250 million senior secured term loan facility that was 
extinguished in April 2020.

Loss on Debt Extinguishment.  Loss on debt extinguishment was $1.1 million and $11.7 million for the years ended 

December 31, 2021 and 2020, respectively. The loss on debt extinguishment for the year ended December 31, 2021 was due to 
the write-off of deferred financing costs and fees paid in connection with the termination of our $50 million credit agreement in 
June 2021. The loss on debt extinguishment for the year ended December 31, 2020 was due to the write-off of deferred 
financing costs and fees paid in connection with the extinguishment of our $250 million senior secured term loan facility in 
April 2020.

Other Income (Expense), Net.  Other income (expense), net was $22.3 million and $(1.4) million for the years ended 
December 31, 2021 and 2020, respectively. This increase was primarily due to the gain recognized in connection with the sale 
of our investment in an education technology company.

Income Tax Benefit.  For the year ended December 31, 2021, we recognized an income tax benefit of $1.2 million, and 

our effective tax rate was approximately 0.6%. This income tax benefit was due to net operating losses and the reversal of 
taxable temporary differences of the acquired intangibles, as well as realization of deferred tax assets in our Alternative 
Credential Segment. There was also a tax expense recorded to establish a deferred tax liability related to the tax amortization of 
acquired edX indefinite lived intangibles. For the year ended December 31, 2020, we recognized an income tax benefit of 
$1.5 million, and our effective tax rate was approximately 0.7%. This tax benefit was due to net operating losses and the 
reversal of taxable temporary differences of the acquired intangibles in our Alternative Credential Segment. We expect to 
continue to recognize an income tax benefit for our Alternative Credential Segment to the extent that this segment continues to 
generate pre-tax losses while carrying a net deferred tax liability. To date, we have not been required to pay U.S. federal income 
taxes because of our current and accumulated net operating losses.

Business Segment Operating Results

We define segment profitability as net income or net loss, as applicable, before net interest income (expense), other 

income (expense), net, taxes, depreciation and amortization expense, deferred revenue fair value adjustments, transaction costs, 
integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for 
certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-
based compensation expense. Some of these items may not be applicable in any given reporting period and they may vary from 
period to period. Total segment profitability is a non-GAAP measure when presented outside of the financial statement 
footnotes. Total segment profitability is a key measure used by our management and board of directors to understand and 
evaluate our operating performance and trends, to develop short- and long-term operational plans and to compare our 
performance against that of other peer companies using similar measures. In particular, the exclusion of certain expenses in 
calculating total segment profitability can provide a useful measure for period-to-period comparisons of our business. 
Accordingly, we believe that total segment profitability provides useful information to investors and others in understanding 
and evaluating our operating results in the same manner as our management and board of directors.

49

The following table presents a reconciliation of total segment profitability to net loss for each of the periods indicated.

Net loss

Adjustments:

Stock-based compensation expense

Other (income) expense, net

Net interest expense

Income tax benefit

Depreciation and amortization expense

Loss on debt extinguishment

Other*

Total adjustments

Total segment profitability

Year Ended
December 31,

2021

2020

(in thousands)

$ 

(194,766)  $ 

(216,484) 

97,766 

(22,324)   

49,747 

82,042 

1,429 

25,963 

(1,196)   

(1,514) 

108,448 

1,101 

27,801 

261,343 

$ 

66,577  $ 

96,469 

11,671 

16,497 

232,557 

16,073 

*

Includes (i) transaction and integration expense of $16.9 million and $2.3 million for the years ended December 31, 
2021 and 2020, respectively, (ii) restructuring-related expense of $8.5 million and $6.8 million for the years ended 
December 31, 2021 and 2020, respectively, and (iii) stockholder activism and litigation-related expense of $2.4 
million and $7.4 million for the years ended December 31, 2021 and 2020, respectively.

Years Ended December 31, 2021 and 2020

The following table presents revenue by segment and segment profitability for each of the periods indicated.

Revenue by segment*

Degree Program Segment

Alternative Credential Segment

Total revenue

Segment profitability

Degree Program Segment

Alternative Credential Segment

Total segment profitability

Year Ended December 31,

Period-to-Period Change

2021

2020

Amount

Percentage

(dollars in thousands)

$ 

$ 

$ 

$ 

592,288  $ 

486,676  $ 

105,612 

353,394 

287,857 

65,537 

945,682  $ 

774,533  $ 

171,149 

126,141  $ 

49,607  $ 

76,534 

(59,564)   

(33,534)   

(26,030) 

66,577  $ 

16,073  $ 

50,504 

 22 %

 23 %

 22 %

 154 %

 (78) %

 314 %

*

Immaterial amounts of intersegment revenue have been excluded from the above results for the years ended 
December 31, 2021 and 2020.

Degree Program Segment profitability increased $76.5 million, or 154%, to $126.1 million as compared to $49.6 
million in 2020. This increase was primarily due to revenue growth of $105.6 million and operational efficiency initiatives.

Alternative Credential Segment profitability decreased $26.0 million, or 78%, to $(59.6) million as compared to 

$(33.5) million in 2020. This decrease was primarily due to an increase in marketing and sales expense and the contribution 
of $11.7 million in operating expense from edX.

Key Business and Financial Performance Metrics

We use a number of key metrics to evaluate our business, measure our performance, identify trends affecting our 

business, formulate financial projections and make strategic decisions. In addition to adjusted EBITDA (loss), which we discuss 

50

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
below, and revenue and the components of loss from operations in the section above entitled “Our Business Model and 
Components of Operating Results,” we utilize FCE enrollments as a key metric to evaluate the success of our business. 

Full Course Equivalent Enrollments

We measure FCE enrollments for each of the courses offered during a particular period by taking the number of 

students enrolled in that course and multiplying it by the percentage of the course completed during that period. We add the 
FCE enrollments for each course within each segment to calculate the total FCE enrollments per segment. This metric allows us 
to consistently view period-over-period changes in enrollments by accounting for the fact that many courses we enable straddle 
multiple fiscal quarters. For example, if a course had 25 enrolled students and 40% of the course was completed during a 
particular period, we would count the course as having 10 FCE enrollments for that period. Any individual student may be 
enrolled in more than one course during a period.

Average revenue per FCE enrollment represents our weighted-average revenue per course across the mix of courses 

being offered during a period in each of our operating segments. This number is derived by dividing the total revenue for a 
period for each of our operating segments by the number of FCE enrollments within the applicable segment during that same 
period. This amount may vary from period to period depending on the academic calendars of our university clients, the relative 
growth rates of our degree programs, executive education programs, and boot camps, as applicable, and varying tuition levels, 
among other factors.

The following table presents the FCE enrollments and average revenue per FCE enrollment in our Degree Program 

Segment and Alternative Credential Segment for each of the periods indicated.

Degree Program Segment

FCE enrollments

Average revenue per FCE enrollment

Alternative Credential Segment

FCE enrollments

Average revenue per FCE enrollment

Adjusted EBITDA (Loss)

Year Ended December 31,

2021

2020

237,245 

2,497  $ 

198,143 

2,456 

86,084 

4,105  $ 

80,833 

3,561 

$ 

$ 

We define adjusted EBITDA (loss) as net income or net loss, as applicable, before net interest income (expense), other 
income (expense), net, taxes, depreciation and amortization expense, deferred revenue fair value adjustments, transaction costs, 
integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for 
certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-
based compensation expense. Some of these items may not be applicable in any given reporting period and they may vary from 
period to period. 

In the second quarter of 2021, we revised our definition of adjusted EBITDA (loss) to exclude other income (expense), 
net in connection with the recognition of a gain on the sale of our interest in an education technology company. We believe this 
change is meaningful to investors because we did not have this activity in prior periods, and as a result, excluding the impact of 
such a gain in 2021 facilitates a period-to-period comparison of our business. Prior to this revision, our definition of adjusted 
EBITDA excluded foreign currency gains or losses, which comprised the entirety of our other income (expense), net for all 
prior periods. The revision to the definition of adjusted EBITDA (loss) had no impact on our reported adjusted EBITDA (loss) 
for the year ended December 31, 2020.

Adjusted EBITDA (loss) is a key measure used by our management and board of directors to understand and evaluate 

our operating performance and trends, to develop short- and long-term operational plans and to compare our performance 
against that of other peer companies using similar measures. In particular, the exclusion of certain expenses that are not 
reflective of our ongoing operating results in calculating adjusted EBITDA (loss) can provide a useful measure for period-to-
period comparisons of our business. Accordingly, we believe that adjusted EBITDA (loss) provides useful information to 
investors and others in understanding and evaluating our operating results in the same manner as our management and board of 
directors.

Adjusted EBITDA (loss) is not a measure calculated in accordance with U.S. GAAP, and should not be considered as 

an alternative to any measure of financial performance calculated and presented in accordance with U.S. GAAP. Our use of 

51

 
 
 
 
 
 
adjusted EBITDA (loss) has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for 
analysis of our financial results as reported under U.S. GAAP. Some of the limitations are:

•

•

•

although depreciation and amortization expense are non-cash charges, the assets being depreciated and amortized may 
have to be replaced in the future, and adjusted EBITDA (loss) does not reflect cash capital expenditure requirements 
for such replacements or for new capital expenditure requirements;

adjusted EBITDA (loss) does not reflect (i) changes in, or cash requirements for, our working capital needs; (ii) the 
impact of changes in foreign currency exchange rates; (iii) acquisition related gains or losses such as, but not limited 
to, post-acquisition changes in the value of contingent consideration reflected in operations; (iv) transaction and 
integration costs; (v) restructuring-related costs; (vi) impairment charges; (vii) stockholder activism costs; (viii) certain 
litigation-related costs; (ix) losses on debt extinguishment; (x) the impact of deferred revenue fair value adjustments; 
(xi) interest or tax payments that may represent a reduction in cash; or (xii) the non-cash expense or the potentially 
dilutive impact of equity-based compensation, which has been, and we expect will continue to be, an important part of 
our compensation plan; and

other companies, including companies in our industry, may calculate adjusted EBITDA (loss) differently, which 
reduces its usefulness as a comparative measure.

Because of these and other limitations, you should consider adjusted EBITDA (loss) alongside other U.S. GAAP-

based financial performance measures, including various cash flow metrics, net income (loss) and our other U.S. GAAP results. 
The following table presents a reconciliation of adjusted EBITDA (loss) to net loss for each of the periods indicated. 

Net loss

Adjustments:

Stock-based compensation expense

Other (income) expense, net

Net interest expense

Income tax benefit

Depreciation and amortization expense

Loss on debt extinguishment

Other*

Total adjustments

Adjusted EBITDA

Year Ended December 31,

2021

2020

(in thousands)

$ 

(194,766)  $ 

(216,484) 

97,766 

(22,324)   

49,747 

82,042 

1,429 

25,963 

(1,196)   

(1,514) 

108,448 

1,101 

27,801 

261,343 

$ 

66,577  $ 

96,469 

11,671 

16,497 

232,557 

16,073 

*

Includes (i) transaction and integration expense of $16.9 million and $2.3 million for the years ended December 31, 
2021 and 2020, respectively, (ii) restructuring-related expense of $8.5 million and $6.8 million for the years ended 
December 31, 2021 and 2020, respectively, and (iii) stockholder activism and litigation-related expense of $2.4 
million and $7.4 million for the years ended December 31, 2021 and 2020, respectively.

52

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liquidity and Capital Resources

As of December 31, 2021, our principal sources of liquidity were cash and cash equivalents totaling $232.9 million, 

which were held for working capital and general corporate purposes. 

In April 2020, we issued the Notes in an aggregate principal amount of $380 million, including the exercise by the 

initial purchasers of an option to purchase additional Notes, in a private placement to qualified institutional buyers under Rule 
144A of the Securities Act. The Notes are governed by an indenture (the “Indenture”) between the Company and Wilmington 
Trust, National Association, as trustee. The Notes bear interest at a rate of 2.25% per annum, payable semi-annually in arrears 
on May 1 and November 1 of each year, beginning on November 1, 2020. The Notes mature on May 1, 2025, unless 
repurchased, redeemed or converted in accordance with their terms prior to such date. Prior to November 1, 2024, the Notes are 
convertible only upon satisfaction of certain conditions, and thereafter at any time until the close of business on the second 
scheduled trading date immediately before the maturity date. In connection with the Notes, we entered into privately negotiated 
capped call transactions with a premium cost of approximately $50.5 million. The capped call transactions are generally 
expected to reduce the potential dilution to our common stock upon any conversion of the Notes and/or to offset any cash 
payments we are required to make in excess of the principal amount of the converted Notes, with such reduction and/or offset 
subject to the cap. The net proceeds from the issuance of the Notes were $319.0 million after deducting the initial purchasers’ 
discount, offering expenses and the cost of the capped call transactions. As of December 31, 2021, the conditions allowing 
holders of the Notes to convert had not been met and we have the right under the Indenture to determine the method of 
settlement at the time of conversion, and the Notes, therefore, are classified as a non-current on the consolidated balance sheets. 
Refer to Note 9 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on 
Form 10-K for more information regarding our Notes.

On April 23, 2020, we repaid our $250 million senior secured term loan facility in full (including interest and 
prepayment premium) and terminated our credit agreement with Owl Rock Capital Corporation. In connection with the 
extinguishment of our $250 million senior secured term loan facility, we recognized a charge of approximately $11.7 million in 
the second quarter of 2020.

On June 25, 2020, we entered into a $50 million credit agreement with Morgan Stanley Senior Funding, Inc., as 

administrative agent and collateral agent, and certain other lenders party thereto that provided for $50 million in revolving 
loans. In connection with entering into the Term Loan Agreement (as defined below) in June 2021, we terminated our 
$50 million credit agreement with Morgan Stanley Senior Funding, Inc. Refer to Note 9 in the “Notes to Consolidated Financial 
Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

On August 6, 2020, we sold 6,800,000 shares of our common stock to the public. We received net proceeds of 

$299.8 million, which we use for working capital and other general corporate purposes.

In June 2021, we entered into a Term Loan Credit and Guaranty Agreement, dated June 28, 2021 (“the Term Loan 

Agreement”), with Alter Domus (US) LLC as administrative agent and collateral agent, to make term loans to us in the 
aggregate principal amount of $475 million (the “Term Loan Facilities”), which have an initial maturity date of 
December 28, 2024. Loans under this facility bear interest at a per annum rate equal to a base rate or adjusted Eurodollar rate, 
as applicable, plus the applicable margin of 4.75% in the case of the base rate loans and 5.75% in the case of the Eurodollar 
loans. We used the proceeds of the Term Loan Facilities to fund a portion of the edX Acquisition and to pay related costs, fees 
and expenses. On November 4, 2021, we entered into a First Amendment to Term Loan Credit and Guaranty Agreement and a 
Joinder Agreement, which amended the Term Loan Agreement (collectively, the “Amended Term Loan Facility”) primarily to 
provide for an incremental facility to us in an original principal amount of $100 million. The proceeds of the Amended Term 
Loan Facility may be used for general corporate purposes. Refer to Note 9 in the “Notes to Consolidated Financial Statements” 
included in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our Amended Term Loan 
Facility. 

We have financed our operations primarily through payments from university clients and students for our technology 

and services, the Amended Term Loan Facility, the Notes, and public and private equity financings. We believe that our 
existing cash and cash equivalents, together with cash generated from operations and available borrowing capacity under the 
Amended Term Loan Facility, will be sufficient to meet our working capital and capital expenditure requirements for the next 
12 months. We regularly evaluate our liquidity position, debt obligations, and anticipated cash needs, and may consider capital 
raising and other market opportunities that may be available to us. 

Our operations require us to make capital expenditures for content development, capitalized technology, and property 
and equipment and to service our debt. During the years ended December 31, 2021 and 2020, our capital asset additions were 
$72.0 million and $72.6 million, respectively. 

53

We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through 
cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. 
Such repurchases or exchanges, if any, will be upon such terms and at such prices as we may determine, and will depend on 
prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may 
be material.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands).

Net cash (used in) provided by operating activities

Net cash used in investing activities

Net cash provided by financing activities 

Effect of exchange rate changes on cash

Year Ended December 31,

2021

2020

$ 

(18,074)  $ 

29,604 

(793,434)   

544,860 

(2,309)   

(69,325) 

367,506 

1,212 

Net (decrease) increase in cash, cash equivalents and restricted cash

$ 

(268,957)  $ 

328,997 

Operating Activities

Cash flows from operating activities have typically been generated from our net income (loss) and by changes in our 
operating assets and liabilities, adjusted for non-cash expense items such as depreciation and amortization expense and stock-
based compensation expense.

Net cash used in operating activities increased $47.7 million from net cash provided by operating activities of $29.6 

million in 2020 to net cash used in operating activities of $18.1 million in 2021. This increase was the result of a net increase in 
the use of cash of $80.9 million related to changes in net operating assets and liabilities, partially offset by a decrease of $21.7 
million in net loss, and a net increase of $11.6 million in non-cash adjustments.

Net cash used from net changes in operating assets and liabilities increased $80.9 million from net cash provided of 

$18.4 million in 2020 to net cash used of $62.6 million. This net increase in cash used was primarily due to $42.4 million of net 
changes in accounts payable, accrued expenses and other liabilities, an increase of $19.7 million in accounts receivable and 
other receivables as a result of revenue growth, a lower increase in deferred revenue of $16.7 million on a comparative basis to 
prior year, and an increase of $2.2 million in cash used for prepaid expense and other assets.

Non-cash adjustments increased $11.6 million from $227.7 million in 2020 to $239.3 million in 2021.  This net 
increase was due to an increase of $49.9 million in non-cash adjustments, primarily driven by higher stock-based compensation 
and depreciation and amortization expense. This increase was partially offset by a $27.8 million gain recognized during 2021, 
with no corresponding gain in 2020, in connection with the sale of our investment in an education technology company, and a 
net decrease of $10.6 million in loss on debt extinguishment driven by the 2020 settlement of our $250 million senior secured 
term loan facility. 

Investing Activities

Our investing activities primarily consist of strategic acquisitions, divestitures and purchases of property and 

equipment to support the overall growth of our business. We expect our investing cash flows to be affected by the timing of 
payments we make for capital expenditures and the strategic acquisition or other growth opportunities we decide to pursue.

Net cash used in investing activities increased $724.1 million from $69.3 million in 2020 to $793.4 million in 2021. 
This net increase in cash used was primarily due to $761.1 million in use of cash for the 2021 business acquisition of edX and 
an increase of $3.3 million in cash outflows for property and equipment purchases. These cash uses were partially offset by 
$38.8 million in proceeds from the sale of investments, including $37.8 million from the sale of our investment in an education 
technology company completed in 2021.

Financing Activities

Our financing activities primarily consist of long-term debt borrowings, the repayment of principal on long-term debt, 

tax withholding payments associated with the settlement of restricted stock units and the exercise of stock options.

Net cash provided by financing activities increased $177.4 million from $367.5 million in 2020 to $544.9 million in 

2021. This net increase in cash provided was primarily due to the increase of $192.2 million in net proceeds received from 

54

 
 
 
 
 
 
long-term debt borrowings, net of payments related to the initial purchaser’s discount, offering expenses, prepayment premium 
penalty, debt issuance costs, and the cost of the capped call transactions. Refer to Note 9 in the “Notes to Consolidated 
Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our debt. 
In addition, the net increase in cash provided includes an increase of $2.3 million in cash proceeds received from the exercise of 
stock options. Cash proceeds were partially offset by an increase of $14.0 million in tax withholding payments associated with 
the settlement of restricted stock units and an increase of $3.4 million in payments on our long-term debt.

Contractual Obligations and Commitments

The following table summarizes our obligations under the Notes, deferred government grant obligations, non-

cancelable operating leases, commitments to certain of our university clients in exchange for contract extensions and various 
marketing and other rights, and purchase obligations as of December 31, 2021. Future events could cause actual payments to 
differ from these amounts.

Contractual Obligations

Term loan facilities*

Convertible senior notes**

Deferred government grant obligations

Operating lease obligations

Future minimum payments to university clients

Purchase obligations***

Payment due by period

Less than
1 year

1 - 3 years

3 - 5 years

(in thousands)

More than
5 years

Total

$ 

43,434  $  640,541  $ 

—  $ 

—  $  683,975 

8,550 

— 

24,200 

1,725 

9,426 

17,100 

384,275 

— 

409,925 

— 

43,324 

1,250 

12,365 

— 

35,945 

1,250 

— 

3,500 

69,674 

1,900 

— 

3,500 

173,143 

6,125 

21,791 

$ 

87,335  $  714,580  $  421,470  $ 

75,074  $ 1,298,459 

Total

*

**

***

Amounts represent principal and interest.

Amounts represent principal and fixed-rate interest cash payments over the life of the convertible senior notes, 
including anticipated interest payments that are not recorded on our consolidated balance sheets. Any future 
settlement of convertible senior notes would impact our cash payments.

Other purchase orders made in the ordinary course of business are excluded from the table above. Any amounts for 
which we are liable under purchase orders are reflected on our consolidated balance sheets as accounts payable and 
accrued liabilities.

Contingent Payments

We have entered into agreements with certain of our university clients in our Degree Program Segment that require us 
to make future minimum payments in the event that certain program metrics are not achieved on an annual basis. We recognize 
any estimated contingent payments under these agreements as contra revenue over the period to which they relate, and record a 
liability in other current liabilities on our consolidated balance sheets.

In the first quarter of 2019, we entered into an agreement to make investments in an education technology company of 
up to $15.0 million, upon demand by the investee. During the second quarter of 2021, we sold our investment in this education 
technology company and were released from any further obligation to make additional investments.

See Note 7 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 and “Legal Proceedings” 

contained in Part I, Item 3 of this Annual Report on Form 10-K for additional information regarding contingencies.

Critical Accounting Policies and Significant Judgments and Estimates

This management’s discussion and analysis of financial condition and results of operations is based on our 

consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these 
consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and 
liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported 
amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on 
historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may 
differ from these estimates if conditions differ from our assumptions.

55

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
While our significant accounting policies are more fully described in Note 2 in the “Notes to Consolidated Financial 
Statements” included in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following accounting policies are 
critical to the process of making significant judgments and estimates in preparation of our consolidated financial statements.

Revenue Recognition, Receivables and Provision for Credit Losses

We generate substantially all of our revenue from contractual arrangements, with either our university clients or 
students, to provide a comprehensive platform of tightly integrated technology and technology-enabled services that support our 
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 transaction price is determined based on the consideration to which we will be entitled in exchange 
for transferring services to the customer. To the extent the transaction price includes variable consideration, we estimate the 
amount of variable consideration that should be included in the transaction price utilizing the expected value method. Variable 
consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of 
cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable 
consideration, are evaluated at each reporting period, and if necessary, we adjust our estimate of the overall transaction price. 
Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

Our Degree Program Segment derives revenue primarily from contractually specified percentages of the amounts our 
university clients receive from their students in 2U-enabled degree programs for tuition and fees, less credit card fees and other 
specified charges we have agreed to exclude in certain university contracts. Our 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 our expected obligation to refund tuition and fees to university clients.

Our Alternative Credential Segment derives revenue primarily from contracts with students for the tuition and fees 

paid to enroll in, and progress through, our executive education programs and boot camps. Our executive education programs 
run between two and 16 weeks, while our boot camps run between 12 and 24 weeks. In this segment, our 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. We recognize the proceeds received, net of any applicable pricing concessions, from the students 
enrolled and share 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 expenses on our consolidated statements of operations and comprehensive loss. Our contracts with university clients in 
this segment are typically shorter and less restrictive than our contracts with university clients in our Degree Program Segment.

We do not disclose the value of unsatisfied performance obligations for our Degree Program Segment because the 

variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single 
performance obligation. We do not disclose the value of unsatisfied performance obligations for our Alternative Credential 
Segment because the performance obligations are part of contracts that have original durations of less than one year.

Payments to University Clients

Pursuant to certain of our contracts in the Degree Program Segment, we have made, or are obligated to make, 

payments to university clients at either the execution of a contract or at the extension of a contract in exchange for various 
marketing and other rights. Generally, these amounts are capitalized as other assets on our consolidated balance sheets, and 
amortized as contra revenue over the life of the contract, commencing on the later of when payment is due or when contract 
revenue recognition begins.

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Receivables, Contract Assets and Liabilities

Balance sheet items related to contracts consist of accounts receivable, net, other receivables, net and deferred revenue 
on our consolidated balance sheets. Accounts receivable, net includes trade accounts receivable, which are comprised of billed 
and unbilled revenue. Our trade accounts receivable balances have terms of less than one year. Accounts receivable, net is 
stated at amortized cost net of provision for credit losses. Our methodology to measure the provision for credit losses requires 
an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the 
expected collectability of accounts receivable. Some of these factors include current market conditions, delinquency trends, 
aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual 
customers. Our estimates are reviewed and revised periodically based on the ongoing evaluation of credit quality indicators. 
Historically, actual write-offs for uncollectible accounts have not significantly differed from prior estimates. 

We recognize unbilled revenue when revenue recognition occurs in advance of billings. Unbilled revenue is 
recognized in our Degree Program Segment because billings to university clients do not occur until after the academic term has 
commenced and final enrollment information is available. Our unbilled revenue represents contract assets. 

Other receivables, net are comprised of amounts due under tuition payment plans with extended payment terms from 
students enrolled in certain of our alternative credential offerings. These plans, which are managed and serviced by third-party 
providers, are designed to assist students with covering tuition costs after all other student financial assistance and scholarships 
have been applied. The associated receivables generally have payment terms that exceed one year and are recorded net of any 
implied pricing concessions, which are determined based on our collections history, market data and any time value of money 
component. There are no fees or origination costs included in these receivables. 

Deferred revenue represents the excess of amounts billed or received as compared to amounts recognized in revenue 
on our consolidated statements of operations and comprehensive loss as of the end of the reporting period, and such amounts 
are reflected as a current liability on our consolidated balance sheets. Our deferred revenue represents contract liabilities. We 
generally receive payments from Degree Program Segment university clients early in each academic term and from Alternative 
Credential Segment students, either in full upon registration for the course or in full before the end of the course based on a 
payment plan, prior to completion of the service period. These payments are recorded as deferred revenue until the services are 
delivered or until our obligations are otherwise met, at which time revenue is recognized.

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. 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 our consolidated financial statements from the acquisition date. 

The purchase price allocation process requires management to make significant estimates and assumptions, especially 

with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are 
based in part on historical experience, market conditions, and information obtained from management of the acquired 
companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have 
acquired or may acquire in the future include but are not limited to the cash flows that an asset is expected to generate in the 
future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. 
Unanticipated events and circumstances may occur, which may affect the accuracy or validity of such assumptions, estimates or 
actual results.

On November 16, 2021, we completed the edX Acquisition for a preliminary purchase price of $773 million. Refer to 
Note 3 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for 
more information regarding this transaction.

Long-Lived Assets

Amortizable Intangible Assets

Acquired Definite-lived Intangible Assets. We capitalize purchased definite-lived intangible assets, such as software, 

websites and domains, and amortize them on a straight-line basis over their estimated useful life. Historically, we have assessed 
the useful lives of these acquired intangible assets to be between three and 10 years.

Capitalized Technology. Capitalized technology includes certain purchased software and technology licenses, direct 

third-party costs, and internal payroll and payroll-related costs used in the creation of our internal-use software. Software 
development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the 
application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-

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implementation/operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage 
include costs of designing the application, coding, integrating our and the university’s networks and systems, and the testing of 
the software. Capitalization of costs requires judgment in determining when a project has reached the application development 
stage and the period over which we expect to benefit from the use of that software. Once the software is placed in service, these 
amounts are amortized using the straight-line method over the estimated useful life of the software, which is generally three to 
five years.

Capitalized Content Development. We develop content for each offering on a course-by-course basis in collaboration 
with university client faculty and industry experts. Depending upon the offering, we may use materials provided by university 
clients and their faculty, including curricula, case studies, presentations and other reading materials. We are responsible for the 
creation of materials suitable for delivery through our online learning platform, including all expenses associated with this 
effort. With respect to the Degree Program Segment, the development of content is part of our single performance obligation 
and is considered a contract fulfillment cost.

The content development costs that qualify for capitalization are third-party direct costs, such as videography, editing 

and other services associated with creating digital content. Additionally, we capitalize internal payroll and payroll-related 
expenses incurred to create and produce videos and other digital content utilized in the university clients’ offerings for delivery 
via our online learning platform. Capitalization ends when content has been fully developed by both us and the university 
client, at which time amortization of the capitalized content development begins. The capitalized costs for each offering are 
recorded on a course-by-course basis and included in amortizable intangible assets, net on our consolidated balance sheets. 
These amounts are amortized using the straight-line method over the estimated useful life of the respective course, which is 
generally four to five years. The estimated useful life corresponds with the planned curriculum refresh rate. This refresh rate is 
consistent with expected curriculum refresh rates as cited by faculty members for similar on-campus offerings. 

Evaluation of Long-Lived Assets

We review long-lived assets, which consist of property and equipment, capitalized technology, capitalized content 

development and acquired finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate 
the carrying value of an asset may not be recoverable. In order to assess the recoverability of the capitalized technology and 
content development, the amounts are grouped by the lowest level of independent cash flows. Recoverability of a long-lived 
asset is measured by a comparison of the carrying value of an asset or asset group to the future undiscounted net cash flows 
expected to be generated by that asset or asset group. If such assets are not recoverable, the impairment to be recognized is 
measured by the amount by which the carrying value of an asset exceeds the estimated fair value (discounted cash flow) of the 
asset or asset group. Our impairment analysis is based upon cumulative results and forecasted performance.

Goodwill and Other Indefinite-lived Intangible Assets

We review goodwill and other indefinite-lived intangible assets for impairment annually, as of October 1, and more 
frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of goodwill or an 
indefinite-lived asset below its carrying value. 

Goodwill

We test our goodwill at the reporting unit level, which is an operating segment or one level below an operating 

segment. We initially assess qualitative factors to determine if it is necessary to perform a quantitative goodwill impairment 
review. We review goodwill for impairment using a quantitative approach if we decide to bypass the qualitative assessment or 
determine 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, we may be required to recognize an impairment based on the 
difference between the carrying value and the fair value of the reporting unit. 

We determine the fair value of a reporting unit by utilizing a weighted combination of the income-based and market-

based approaches. 

The income-based approach requires us to make significant assumptions and estimates. These assumptions and 

estimates primarily include, but are not limited to, the selection of appropriate peer group companies, 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, we consider each 
reporting unit’s historical results and current operating trends, revenue, 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.

58

In addition, the value of a reporting unit using the market-based approach 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. We also make estimates and assumptions for market values to determine a reporting unit’s estimated fair value.

Changes in these estimates and assumptions could materially affect the determination of fair value and the goodwill 

impairment test result. As of December 31, 2021 and 2020, the goodwill balance was $834.5 million and $415.8 million, 
respectively. See Note 5 to our Consolidated Financial Statements in Item 8 of Part II of this annual report for more information 
regarding goodwill.

Based on our quantitative assessment performed during 2019 and the qualitative assessments performed as of 
October 1 in 2020 and 2021, we believe that the estimated fair values of the reporting units exceeded their carrying values by 
no less than 10%. It is possible that future changes in our circumstances, including potential impacts from COVID-19, or in the 
variables associated with the judgments, assumptions and estimates used in assessing the fair value of our reporting units, could 
require us to record impairment charges in the future. Subsequent to year-end and through the date of this filing, we 
experienced a significant decline in our market capitalization, from $1.5 billion to $0.8 billion. Management is evaluating 
whether this decline represents a triggering event for assessing the goodwill and indefinite-lived intangible asset balances for 
impairment in the first quarter of 2022. As of December 31, 2021, the balances of our goodwill and indefinite-lived intangible 
asset were $834.5 million and $255.0 million, respectively.

Other Indefinite-lived Intangible Assets

Our indefinite-lived intangible asset was acquired in November 2021 and represents the established edX trade name. 
Given the timing of the edX Acquisition, we will review this asset for impairment as of October 1, 2022, or earlier if an event 
occurs or circumstances change that would more likely than not reduce the fair value of this asset below its carrying value. 

Stock-Based Compensation

We provide stock-based compensation awards consisting of restricted stock units (“RSUs”), performance restricted 
stock units (“PRSUs”) and stock options to employees, directors and consultants. We measure all stock-based compensation 
awards at fair value as of the grant date. The fair values of RSUs and PRSUs containing performance-based vesting conditions 
are based on the fair value of our stock on the date of grant. We use a Black-Scholes option pricing model to estimate the fair 
value of stock option grants and a Monte Carlo valuation model to estimate the fair value of PRSUs containing market-based 
vesting conditions . We also maintain the 2017 Employee Stock Purchase Plan (the “ESPP”) and estimate the fair value of each 
purchase right thereunder as of the grant date using a Black-Scholes option pricing model.

The Black-Scholes and Monte Carlo valuation models require the input of subjective assumptions, including the risk-
free interest rate, expected life, expected stock price volatility and dividend yield. For stock option grants, the risk-free interest 
rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected 
term of our employee stock options. The expected life represents the period of time the stock options are expected to be 
outstanding and is based on the “simplified method.” Under the “simplified method,” the expected life of an option is presumed 
to be the mid-point between the vesting date and the end of the contractual term. We use the “simplified method” due to the 
lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the 
stock options. Expected volatility is based on the historical volatility of our common stock over the estimated expected life of 
the stock options. We assume no dividend yield because dividends are not expected to be paid in the near future, which is 
consistent with our history of not declaring or paying dividends to date.  

For PRSUs subject to market-based vesting conditions, the risk-free interest rate assumption is based upon observed 

interest rates for constant maturity U.S. Treasury securities consistent with the expected life of the awards. The expected life is 
consistent with the performance measurement period of the awards. Expected volatility is based on the historical volatility of 
our common stock over the estimated expected life. We assume no dividend yield because dividends are not expected to be paid 
in the near future, which is consistent with our history of not declaring or paying dividends to date. The valuations determined 
by the Monte Carlo simulation utilize 50,000 future stock prices for us and our peer group. We have chosen this amount for the 
simulation as to minimize the standard modeling error and believe that the resulting distribution gives a reasonable estimate of 
the grant date fair value.

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For awards subject only to service-based vesting conditions, we recognize stock-based compensation expense on a 

straight-line basis over the awards’ requisite service period. For awards subject to both service and performance-based vesting 
conditions, we recognize stock-based compensation expense using an accelerated recognition method when it is probable that 
the performance condition will be achieved. For awards subject to both service and market-based vesting conditions, we 
recognize stock-based compensation expense using an accelerated recognition method over the requisite service period 
beginning with the date of the grant and ending upon completion of the service period, with stock-based compensation expense 
being recognized irrespective of the achievement of the market condition. For shares subject to the ESPP, we use the straight-
line method to record stock-based compensation expense over the respective offering period.

Refer to Note 12 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report 

on Form 10-K for more information regarding our stock-based compensation awards.

Recent Accounting Pronouncements

Refer to Note 2 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report 

on Form 10-K for a discussion of the FASB’s recent accounting pronouncements and their effect on us.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price 

of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, 
commodity prices, equity prices and other market changes. Our exposure to market risk related to changes in foreign currency 
exchange rates is deemed moderate as further described below. In addition, we do not use derivative financial instruments for 
speculative, hedging or trading purposes, although in the future we may enter into exchange rate hedging arrangements to 
manage the risks described in the succeeding paragraphs.

Interest Rate Risk

We are subject to interest rate risk through our borrowings under our Amended Term Loan Facility. Loans under this 

facility bear interest at a per annum rate equal to a base rate or adjusted Eurodollar rate, as applicable, plus the applicable 
margin of 4.75% in the case of the base rate loans and 5.75% in the case of the Eurodollar loans. As of December 31, 2021, 
borrowings under our Amended Term Loan Facility were $572.4 million. A hypothetical change in interest rates by 100 basis 
points would not have a material impact on our financial position. 

Foreign Currency Exchange Risk

We transact material business in foreign currencies and are exposed to risks resulting from fluctuations in foreign 

currency exchange rates. Our primary exposures are related to non-U.S. dollar denominated revenue and operating expenses in 
South Africa and the United Kingdom. Accounts relating to foreign operations are translated into U.S. dollars using prevailing 
exchange rates at the relevant period end. As a result, we would experience increased revenue and operating expenses in our 
non-U.S. operations if there were a decline in the value of the U.S. dollar relative to these foreign currencies. Conversely, we 
would experience decreased revenue and operating expenses in our non-U.S. operations if there were an increase in the value of 
the U.S. dollar relative to these foreign currencies. Translation adjustments are included as a separate component of 
stockholders’ equity.

For the years ended December 31, 2021 and 2020, our foreign currency translation adjustment was a loss of 
$6.1 million and a loss of $3.0 million, respectively. For the years ended December 31, 2021 and 2020, we recognized foreign 
currency exchange losses of $2.5 million and $1.4 million, respectively, included on our consolidated statements of operations 
and comprehensive loss.

The foreign exchange rate volatility of the trailing 12 months ended December 31, 2021 was 11% and 5% for the 

South African rand and British pound, respectively. The foreign exchange rate volatility of the trailing 12 months ended 
December 31, 2020 was 13% and 9% for the South African rand and British pound, respectively. A 10% fluctuation of foreign 
currency exchange rates would have had an immaterial effect on our results of operations and cash flows for all periods 
presented. The fluctuations of currencies in which we conduct business can both increase and decrease our overall revenue and 
expenses for any given fiscal period. Such volatility, even when it increases our revenue or decreases our expense, impacts our 
ability to accurately predict our future results and earnings.

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Item 8.    Financial Statements and Supplementary Data

2U, Inc.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm (KPMG, LLP, McLean, VA Auditor Firm ID: 185)
Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2021, 2020 and 

2019

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

PAGE
62

65

66

67

68

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
2U, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of 2U, Inc. and subsidiaries (the Company) as of 

December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in 
stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2021, and the related 
notes and financial statement Schedule II—Valuation and Qualifying Accounts (collectively, the consolidated financial 
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of 
the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the 
three‑year period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 

States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria 
established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the 
Treadway Commission, and our report dated March 1, 2022 expressed an unqualified opinion on the effectiveness of the 
Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to 
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered 
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities 
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and 

perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material 
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material 
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to 
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the 
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates 
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that 
our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated 

financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to 
accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, 
subjective, or complex judgments. The communication of  critical audit matters does not alter in any way our opinion on the 
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, 
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Determination of implied pricing concessions

As discussed in Note14 to the consolidated financial statements, the Company’s Alternative Credential Segment 

recorded revenue of $353 million for the year ended December 31, 2021. As discussed in Note 2 to the consolidated financial 
statements, the transaction price in certain contracts with customers of the Alternative Credential Segment includes variable 
consideration, subject to a constraint, in the form of implied pricing concessions. The Company initially estimates the value of 
implied pricing concessions, including the effect of the constraint on variable consideration, at contract inception and updates 
the estimate in each reporting period based on the Company’s own collection history data and market data.

We identified the assessment of the estimated implied pricing concessions as a critical audit matter. Significant auditor 

judgment was involved in evaluating the reliability of market data and the weighting applied to the Company’s own collection 
history data and the market data used in estimating the overall rate of implied pricing concessions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design 

and tested the operating effectiveness of certain internal controls related to the Company’s process to estimate the overall rate of 

62

implied pricing concessions, including controls related to the reliability of the market data and determination of the weighting 
applied to the Company’s own collection history data and market data used in the estimate. We evaluated the reliability of the 
market data by considering the source and nature of the data. We evaluated the reasonableness of the weighting applied to the 
Company’s own collection history data and market data by performing sensitivity analyses over those inputs and by comparing 
the Company’s overall rate of implied pricing concessions to data published by certain agencies of the federal government.

Evaluation of acquisition-date fair value of acquired intangible assets

As discussed in Note 3 to the consolidated financial statements, on November 16, 2021, the Company acquired 
substantially all of the assets of edX, Inc. (edX) in a business combination. As a result of the transaction, the Company acquired 
trade names and university client relationships as intangible assets with acquisition-date fair value of $255 million and 
$104 million, respectively.

We identified the evaluation of the initial measurement of the trade names and university client relationships intangible 

assets acquired in the edX transaction as a critical audit matter. The estimated acquisition-date fair values of these intangible 
assets were sensitive to changes in significant assumptions used to measure their fair values. Specifically, there was a high 
degree of subjective auditor judgment involved in evaluating:  

•

•

the forecasted revenue growth, forecasted margins on earnings before interest, taxes, depreciation and 
amortization (EBITDA margins), and the discount rate used to value the trade names

the forecasted revenue used to value the university client relationships.

The primary procedures we performed to address this critical audit matter included the following. We tested certain 

internal controls over the Company’s acquisition-date valuation process to develop the significant assumptions discussed above. 
We evaluated the forecasted revenue growth and EBITDA margins used to value the trade names by comparing them to those 
of the Company’s peers and edX’s historical results. We evaluated the forecasted revenue used to value the university client 
relationships by comparing it to edX’s historical results. In addition, we involved valuation professionals with specialized skills 
and knowledge, who assisted in:

•

•

evaluating the Company’s discount rate used to value the trade names by comparing it against a discount rate that 
was independently developed using publicly available third-party market data for comparable entities

developing an estimate of the fair value of the trade names using the Company’s forecasted cash flows and our 
independently developed discount rate and comparing the result to the Company’s fair value estimate.

/s/ KPMG LLP

We have served as the Company’s auditor since 2013.

McLean, Virginia
March 1, 2022

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
2U, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited 2U, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 
2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring 
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal 
control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated 
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 

States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated 
statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the years in the 
three-year period ended December 31, 2021, and the related notes and financial statement Schedule II—Valuation and 
Qualifying Accounts (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an 
unqualified opinion on those consolidated financial statements.

The Company completed the edX Acquisition during 2021, and management excluded from its assessment of the 

effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, edX’s internal control over 
financial reporting associated with 1% of total assets and 1% of total revenue included in the consolidated financial statements 
of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the 
Company also excluded an evaluation of the internal control over financial reporting of edX, Inc.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for 

its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s 
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s 
internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are 
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable 
rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and 

perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was 
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of 
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design 
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other 
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our 
opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding 

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with 
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and 
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions 
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to 
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and 
expenditures of the company are being made only in accordance with authorizations of management and directors of the 
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or 
disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become 
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

McLean, Virginia
March 1, 2022

/s/ KPMG LLP

64

 
2U, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)

Assets

Current assets

Cash and cash equivalents

Restricted cash

Accounts receivable, net

Other receivables, net

Prepaid expenses and other assets

Total current assets

Other receivables, net, non-current

Property and equipment, net

Right-of-use assets

Goodwill

Intangible assets, net

Other assets, non-current

Total assets

Liabilities and stockholders’ equity

Current liabilities

Accounts payable and accrued expenses

Deferred revenue

Lease liability

Other current liabilities

Total current liabilities

Long-term debt

Deferred tax liabilities, net

Lease liability, non-current

Other liabilities, non-current

Total liabilities

Commitments and contingencies (Note 7)

Stockholders’ equity

December 31,
2021

December 31,
2020

$ 

232,932  $ 

500,629 

16,977 

67,287 

29,439 

47,217 

18,237 

46,663 

1,076 

38,277 

393,852 

604,882 

21,568 

48,650 

76,841 

834,539 

665,523 

68,033 

24,332 

52,734 

60,785 

415,830 

312,770 

72,931 

$ 

2,109,006  $ 

1,544,264 

$ 

166,458  $ 

130,674 

91,926 

13,985 

61,138 

333,507 

845,316 

1,726 

98,666 

636 

75,493 

10,024 

21,178 

237,369 

273,173 

2,810 

83,228 

6,694 

1,279,851 

603,274 

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

Common stock, $0.001 par value, 200,000,000 shares authorized, 75,754,663 shares issued 
and outstanding as of December 31, 2021; 72,451,521 shares issued and outstanding as 
of December 31, 2020

— 

76 

— 

72 

Additional paid-in capital

Accumulated deficit
Accumulated other comprehensive loss

Total stockholders’ equity

Total liabilities and stockholders’ equity

1,735,628 

1,646,574 

(890,638)   
(15,911)   
829,155 
2,109,006  $ 

(695,872) 
(9,784) 
940,990 
1,544,264 

$ 

See accompanying notes to consolidated financial statements.

65

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)

Revenue

Costs and expenses

Curriculum and teaching

Servicing and support

Technology and content development

Marketing and sales

General and administrative

Impairment charge

Total costs and expenses

Loss from operations

Interest income

Interest expense

Loss on debt extinguishment

Other income (expense), net

Loss before income taxes

Income tax benefit

Net loss

Net loss per share, basic and diluted
Weighted-average shares of common stock outstanding, basic and 

diluted

Other comprehensive income (loss)

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

presented

Comprehensive loss

Year Ended December 31,

2021

2020

2019

$ 

945,682  $ 

774,533  $ 

574,671 

130,817 

138,548 

179,061 

456,096 

208,598 

— 

107,968 

125,851 

155,949 

390,174 

173,526 

— 

1,113,120 

953,468 

63,270 

98,890 

115,473 

342,395 

131,020 

70,379 

821,427 

(167,438)   

(178,935)   

(246,756) 

1,475 

(51,222)   

(1,101)   

22,324 

1,354 

(27,317)   

(11,671)   

(1,429)   

5,800 

(13,419) 

— 

(707) 

(195,962)   

(217,998)   

(255,082) 

1,196 

1,514 

19,860 

$ 

$ 

(194,766)  $ 

(216,484)  $ 

(235,222) 

(2.61)  $ 

(3.22)  $ 

(3.83) 

74,580,115 

67,142,976 

61,393,666 

(6,127)   

(2,980)   

1,710 

$ 

(200,893)  $ 

(219,464)  $ 

(233,512) 

See accompanying notes to consolidated financial statements.

66

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)

Common Stock

Shares

Amount

Additional 
Paid-In 
Capital

Accumulated 
Deficit

Accumulated 
Other 
Comprehensive 
Loss

Total 
Stockholders’ 
Equity

Balance, December 31, 2018

 57,968,493  $ 

58  $  957,631  $  (244,166)  $ 

(8,514)  $  705,009 

Issuance of common stock in connection 

with business combination, net of 
offering costs

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

Exercise of stock options
Issuance of common stock in connection 
with employee stock purchase plan

Issuance of common stock award

Stock-based compensation expense

Net loss

Foreign currency translation adjustment

  4,608,101 

5 

184,317 

502,795 

  — 

(2,574)   

361,134 

  — 

3,119 

123,365 

  — 

5,221 

  — 

— 

— 

— 

  — 

  — 

  — 

3,382 

— 

51,504 

— 

— 

— 

— 

— 

— 

— 

— 

(235,222)   

— 

184,322 

— 

— 

— 

— 

— 

— 

(2,574) 

3,119 

3,382 

— 

51,504 

(235,222) 

— 

1,710 

1,710 

Balance, December 31, 2019

 63,569,109 

63 

  1,197,379 

(479,388)   

(6,804)   

711,250 

Issuance of common stock in connection 
with a public offering of common 
stock, net of offering costs

Equity component of convertible senior 

notes, net of issuance costs

Purchases of capped calls in connection 

with convertible senior notes

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

Exercise of stock options
Issuance of common stock in connection 
with employee stock purchase plan

Stock-based compensation expense

Net loss

Foreign currency translation adjustment

  6,800,000 

7 

299,789 

— 

  — 

114,551 

— 

  — 

(50,540)   

  1,582,362 

2 

(4,784)   

353,480 

  — 

4,177 

146,570 

  — 

— 

— 

— 

  — 

  — 

  — 

3,960 

82,042 

— 

— 

— 

— 

— 

— 

— 

— 

— 

(216,484)   

— 

— 

— 

— 

— 

— 

— 

— 

299,796 

114,551 

(50,540) 

(4,782) 

4,177 

3,960 

82,042 

(216,484) 

— 

(2,980)   

(2,980) 

Balance, December 31, 2020

 72,451,521 

72 

  1,646,574 

(695,872)   

(9,784)   

940,990 

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

Exercise of stock options, net
Issuance of common stock in connection 
with employee stock purchase plan

Stock-based compensation expense
Net loss
Foreign currency translation adjustment

  2,839,887 

4 

(18,784)   

312,570 

  — 

6,489 

150,685 
— 
— 
— 

  — 
  — 
  — 
  — 

3,583 
97,766 
— 
— 

— 

— 

— 
— 

(194,766)   

— 

Balance, December 31, 2021

 75,754,663  $ 

76  $ 1,735,628  $  (890,638)  $ 

See accompanying notes to consolidated financial statements.

— 

— 

(18,780) 

6,489 

— 
3,583 
— 
97,766 
— 
(194,766) 
(6,127)   
(6,127) 
(15,911)  $  829,155 

67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Consolidated Statements of Cash Flows
(in thousands)

Cash flows from operating activities
Net loss

Adjustments to reconcile net loss to net cash (used in) provided by operating 

activities:
Non-cash interest expense
Depreciation and amortization expense
Stock-based compensation expense
Non-cash lease expense
Loss on sublease
Provision for credit losses
Impairment charge
Loss on debt extinguishment
Gain on sale of investment
Other
Changes in operating assets and liabilities, net of assets and liabilities acquired:

Accounts receivable, net
Other receivables
Prepaid expenses and other assets
Accounts payable and accrued expenses
Deferred revenue
Other liabilities, net
Net cash (used in) provided by operating activities

Cash flows from investing activities

Purchase of a business, net of cash acquired
Additions of amortizable intangible assets
Purchases of property and equipment
Purchase of investments
Proceeds from investments
Advances made to university clients
Advances repaid by university clients

Net cash used in investing activities

Cash flows from financing activities

Proceeds from issuance of common stock, net of offering costs
Proceeds from debt
Payments on debt
Extinguishment of long-term facility
Purchases of capped calls in connection with issuance of convertible senior notes
Prepayment premium on extinguishment of senior secured term loan facility
Payment of debt issuance costs
Tax withholding payments associated with settlement of restricted stock units
Proceeds from exercise of stock options
Proceeds from employee stock purchase plan share purchases
Payments for acquisition of intangible assets

Net cash provided by financing activities
Effect of exchange rate changes on cash
Net (decrease) increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, end of period

Year Ended December 31,

2021

2020

2019

$ 

(194,766)  $ 

(216,484)  $ 

(235,222) 

25,403 
108,448 
97,766 
18,933 
4,845 
8,036 
— 
1,101 
(27,762)   
2,515 

(31,756)   
(27,001)   
(7,467)   
21,212 
9,388 
(26,969)   
(18,074)   

(761,118)   
(60,546)   
(9,788)   
(1,000)   
38,818 
— 
200 

(793,434)   

— 
569,477 

(4,334)   
— 
— 
— 

(11,575)   
(18,780)   
6,489 
3,583 
— 
544,860 

(2,309)   
(268,957)   
518,866 
249,909  $ 

$ 

16,267 
96,469 
82,042 
15,153 
— 
4,642 
— 
11,671 
— 
1,443 

(17,877)   
(21,148)   
(5,230)   
41,959 
26,061 
(5,364)   
29,604 

(949)   
(62,784)   
(6,517)   
— 
— 
— 
925 
(69,325)   

299,796 
371,681 

(837)   

(250,000) 

(50,540)   
(2,528)   
(3,419)   
(4,784)   
4,177 
3,960 
— 
367,506 
1,212 
328,997 
189,869 
518,866  $ 

1,153 
69,843 
51,504 
11,725 
— 
1,425 
70,379 
— 
— 
1,982 

11,949 
(1,354) 
(27,166) 
11,542 
10,014 
(29,748) 
(51,974) 

(388,004) 
(64,923) 
(13,421) 
(10,000) 
25,000 
(400) 
350 
(451,398) 

— 
244,724 
— 
— 
— 
— 
(1,953) 
(2,574) 
3,119 
3,382 
(2,180) 
244,518 
(1,049) 
(259,903) 
449,772 
189,869 

See accompanying notes to consolidated financial statements.

68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements

1.

Organization

2U, Inc. (together with its subsidiaries, the “Company”) is an online education platform company. The Company’s 

mission is to expand access to high-quality educational opportunities that unlock human potential.

On November 16, 2021, pursuant to the Membership Interest Purchase Agreement, dated June 28, 2021 (the “Purchase 

Agreement”), by and among the Company, edX Inc., a Massachusetts nonprofit corporation (“edX Inc.”) and edX LLC (f/k/a 
Circuit Sub LLC), a Delaware limited liability company and a wholly owned subsidiary of edX Inc. (“edX”), edX Inc. 
contributed substantially all of its assets to edX and the Company acquired 100% of the outstanding membership interests of 
edX (the “edX Acquisition”) including the edX brand, website, and marketplace. 

As a result of the edX Acquisition, the Company expanded its digital education offerings to include open courses and 

micro-credential offerings at the undergraduate and graduate levels and added an education consumer marketplace, edx.org, 
with over 42 million registered learners. Substantially all of the results of edX’s operations are included in the Alternative 
Credential Segment. 

Following the completion of the edX Acquisition, the Company now serves more than 230 top-ranked global 
universities and other leading institutions, and offers more than 3,600 high-quality online learning opportunities, including open 
courses, executive education offerings, boot camps, micro-credentials, professional certificates as well as undergraduate and 
graduate degree programs. The Company expects edX to be the primary brand for its products and services and that edx.org 
will operate as its global online learning marketplace. Refer to Note 3 for further information about the edX Acquisition.

With the edX Acquisition, the Company is now positioned as one of the world’s most comprehensive free-to-degree 

online learning platforms. The Company believes its platform and robust consumer marketplace provide clients with the digital 
infrastructure to launch world-class online education offerings and allow students to easily access high-quality, job-relevant 
education offerings without the barriers of cost or location. 

The Company has two reportable segments: the Degree Program Segment and the Alternative Credential Segment. 

The Company’s Degree Program Segment provides the technology and services to nonprofit colleges and universities 

to enable the online delivery of degree programs. Students enrolled in these programs are generally seeking an undergraduate or 
graduate degree of the same quality they would receive on campus. In the first quarter of 2021, the Company changed the name 
of this segment from Graduate Program Segment to Degree Program Segment because this segment now includes 
undergraduate degree programs. 

The Company’s Alternative Credential Segment provides online executive education programs and technical, skills-

based boot camps through relationships with nonprofit colleges and universities. Students enrolled in these offerings are 
generally seeking to reskill or upskill through shorter duration, lower-priced offerings that are relevant to the needs of industry 
and society. Following the edX Acquisition, we changed the name of our “short courses” in our Alternative Credential Segment 
to “executive education” to more clearly align with industry terminology. 

2.

Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned 

subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) 
and include the assets, liabilities, results of operations and cash flows of the Company. All significant intercompany accounts 
and transactions have been eliminated in consolidation.

Reclassifications

The Company has reclassified prior period amounts in the consolidated balance sheets and consolidated statements of 

cash flows to conform to the current period’s presentation of other receivables. Within the Company’s consolidated balance 
sheet as of December 31, 2020, the Company reclassified $1.1 million from prepaid expenses and other assets to other 
receivables, net and $24.3 million from other assets, non-current to other receivables, net, non-current. Within the Company’s 
consolidated statements of cash flows for the years ended December 31, 2020 and 2019, the Company reclassified $21.1 

69

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

million and $1.4 million, respectively, from changes in prepaid expenses and other assets to changes in other receivables. This 
reclassification had no impact on the previously reported operating cash flows. 

The Company has reclassified certain other prior period amounts in the consolidation statements of cash flows to 

conform to current period presentation. These reclassifications had no impact on previously reported operating, financing, or 
financing cash flows. 

Use of Estimates

The preparation of 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 items 
subject to such estimates include, but are not limited to, the measurement of provisions for credit losses, implied price 
concessions, acquired intangible assets, the recoverability of goodwill and indefinite-lived intangible assets, deferred tax assets, 
and the fair value of the convertible senior notes. Due to the inherent uncertainty involved in making estimates, particularly in 
light of the COVID-19 pandemic, 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.

Revenue Recognition, Receivables and Provision for Credit Losses

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 transaction price is determined based on the consideration to which the Company will be entitled in 
exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the 
Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected 
value method. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a 
significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the 
constraint on variable consideration, are evaluated at each reporting period, and if necessary, the Company adjusts its estimate 
of the overall transaction price. Revenue is then recognized over the remaining estimated period of performance using the 
cumulative catch-up method. 

The Degree Program Segment derives revenue primarily from contractually specified percentages of the amounts the 

Company’s university clients receive from their students in 2U-enabled degree 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 executive education programs and boot camps. The Company’s 
executive education programs run between two 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 proceeds received, net of any applicable 
pricing concessions, from the students enrolled and shares contractually specified amounts received from students with the 

70

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

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 expenses on the Company’s 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 Degree Program Segment.

The Company does not disclose the value of unsatisfied performance obligations for the Degree Program Segment 

because the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a 
single performance obligation. The Company does not disclose the value of unsatisfied performance obligations for the 
Alternative Credential Segment because the performance obligations are part of contracts that have original durations of less 
than one year.

Contract Acquisition Costs

The Company pays commissions to certain of its employees to obtain contracts with university clients in the Degree 

Program Segment. These costs are capitalized and recorded on a contract-by-contract basis and amortized using the straight-line 
method over the expected life, which is generally the length of the contract.

With respect to contract acquisition costs in the Alternative Credential Segment, the Company has elected to apply the 
practical expedient in Accounting Standards Codification (“ASC”) Topic 606 to expense these costs as incurred, as the terms of 
contracts with students in this segment are less than one year.

Payments to University Clients

Pursuant to certain of the Company’s contracts in the Degree Program Segment, the Company has made, or is 
obligated to make, payments to university clients at either the execution of a contract or at the extension of a contract in 
exchange for various marketing and other rights. Generally, these amounts are capitalized as other assets on the Company’s 
consolidated balance sheets, and amortized as contra revenue over the life of the contract, commencing on the later of when 
payment is due or when contract revenue recognition begins.

Receivables, Contract Assets and Liabilities

Balance sheet items related to contracts consist of accounts receivable, net, other receivables, net, and deferred revenue 

on the Company’s consolidated balance sheets. Accounts receivable, net includes trade accounts receivable, which are 
comprised of billed and unbilled revenue. The Company’s trade accounts receivable balances have terms of less than one year. 
Accounts receivable, net is stated at amortized cost net of provision for credit losses. The Company’s methodology to measure 
the provision for credit losses requires an estimation of loss rates based upon historical loss experience adjusted for factors that 
are relevant to determining the expected collectability of accounts receivable. Some of these factors include current market 
conditions, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, 
customer classes or individual customers. The Company’s estimates are reviewed and revised periodically based on the ongoing 
evaluation of credit quality indicators. Historically, actual write-offs for uncollectible accounts have not significantly differed 
from prior estimates.

The Company recognizes unbilled revenue when revenue recognition occurs in advance of billings. Unbilled revenue 
is recognized in the Degree Program Segment because billings to university clients do not occur until after the academic term 
has commenced and final enrollment information is available. The Company’s unbilled revenue represents contract assets.

Other receivables, net are comprised of amounts due under tuition payment plans with extended payment terms from 
students enrolled in certain of the Company’s alternative credential offerings. These plans, which are managed and serviced by 
third-party providers, are designed to assist students with covering tuition costs after all other student financial assistance and 
scholarships have been applied. The associated receivables generally have payment terms that range from 12 to 42 months and 
are recorded net of any implied pricing concessions, which are determined based on our collections history, market data and 
any time value of money component. There are no fees or origination costs included in these receivables. 

Deferred revenue represents the excess of amounts billed or received as compared to amounts recognized in revenue 

on the Company’s consolidated statements of operations and comprehensive loss as of the end of the reporting period, and such 
amounts are reflected as a current liability on the Company’s consolidated balance sheets. The Company’s deferred revenue 
represents contract liabilities. The Company generally receives payments from Degree Program Segment university clients 
early in each academic term and from Alternative Credential Segment students, either in full upon registration for the course or 
in full before the end of the course based on a payment plan, prior to completion of the service period. These payments are 

71

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

recorded as deferred revenue until the services are delivered or until the Company’s obligations are otherwise met, at which 
time revenue is recognized.

Marketing and Sales Costs

The Company’s marketing and sales costs relate to activities to attract students to offerings across both of the 

Company’s segments. This includes the cost of Search Engine Optimization, Search Engine Marketing and Social Media 
Optimization, as well as personnel and personnel-related expense for the Company’s marketing and recruiting teams. For the 
years ended December 31, 2021, 2020 and 2019, expense 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 
consolidated statements of operations and comprehensive loss.

Stock-Based Compensation

The Company provides stock-based compensation awards consisting of restricted stock units (“RSUs”), performance 
restricted stock units (“PRSUs”) and stock options to employees, directors and consultants. The Company measures all stock-
based compensation awards at fair value as of the grant date. The fair values of RSUs and PRSUs containing performance-
based vesting conditions are based on the fair value of the Company’s stock on the date of grant. The Company uses a Monte 
Carlo valuation model to estimate the fair value of PRSUs containing market-based vesting conditions and uses a Black-
Scholes option pricing model to measure the fair value of stock option grants. The Company also maintains the 2017 Employee 
Stock Purchase Plan (the “ESPP”) and estimates the fair value of each purchase right thereunder as of the grant date using a 
Black-Scholes option pricing model.

For awards subject only to service-based vesting conditions, the Company recognizes stock-based compensation 

expense on a straight-line basis over the awards’ requisite service period. For awards subject to both service and performance-
based vesting conditions, the Company recognizes stock-based compensation expense using an accelerated recognition method 
when it is probable that the performance condition will be achieved. For awards subject to both service and market-based 
vesting conditions, the Company recognizes stock-based compensation expense using an accelerated recognition method over 
the requisite service period beginning with the date of the grant and ending upon completion of the service period, with stock-
based compensation expense being recognized irrespective of the achievement of the market condition. The Company accounts 
for forfeitures as they occur. For shares subject to the ESPP, the Company uses the straight-line method to record stock-based 
compensation expense over the respective offering period.

Refer to Note 12 for further information about the Company’s stock-based compensation awards.

Income Taxes

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax 

assets and liabilities for the expected future tax consequences of events that are included in the financial statements. Under this 
method, the deferred tax assets and liabilities are determined based on the differences between the financial statement and tax 
bases of the assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. 
The effect of a change in tax rates on the deferred tax assets and liabilities is recognized in earnings in the period when the new 
rate is enacted. Deferred tax assets are subject to periodic recoverability assessments. Valuation allowances are established, 
when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. The Company considers 
all positive and negative evidence relating to the realization of the deferred tax assets in assessing the need for a valuation 
allowance. The Company currently maintains a full valuation allowance against deferred tax assets in the U.S. and certain 
entities in the foreign jurisdictions.

The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected 
to be taken in a tax return. The Company accounts for uncertainty in income taxes using a two-step approach for evaluating tax 
positions. Step one, recognition, occurs when the Company concludes that a tax position, based solely on its technical merits, is 
more likely than not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more 
likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant 
information. Derecognition of a tax position that was previously recognized would occur if the Company subsequently 
determines that a tax position no longer meets the more likely than not threshold of being sustained. The Company recognizes 
interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the consolidated statements of 
operations and comprehensive loss.

72

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2.

Significant Accounting Policies (Continued)

Cash and Cash Equivalents

Cash and cash equivalents consist of bank checking accounts, money market accounts, investments in certificates of 

deposit that have an original maturity of three months or less and highly liquid marketable securities with maturities at the time 
of purchase of three months or less.

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.

Fair Value Measurements

The carrying amounts of certain assets and liabilities, including cash and cash equivalents, receivables, advances to 

university clients, accounts payable and accrued expenses and other current liabilities, approximate their respective fair values 
due to their short-term nature.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly 
transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a 
principal, most advantageous, market for the specific asset or liability.

U.S. GAAP provides for a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at 

fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods 
subsequent to their initial measurement. Generally, assets are recorded at fair value on a non-recurring basis as a result of 
impairment charges. The Company remeasures non-financial assets such as goodwill, intangible assets and other long-lived 
assets at fair value when there is an indicator of impairment, and records them at fair value only when recognizing an 
impairment loss. The fair value hierarchy requires the Company to use observable inputs when available, and to minimize the 
use of unobservable inputs when determining fair value. Refer to Notes 4 and 5 for further discussion of assets measured at fair 
value on a nonrecurring basis. The three tiers are defined as follows:

•

•

•

Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active
markets;

Level 2—Observable inputs, other than quoted prices in active markets, that are observable either directly or indirectly
in the marketplace for identical or similar assets and liabilities; and

Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its
own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best
information available in the circumstances.

The Company has financial instruments, including cash deposits, receivables, accounts payable and debt. The carrying

values for such financial instruments, other than the Company’s convertible senior notes, each approximated their fair
values as of December 31, 2021 and 2020.  Refer to Note 9 for more information regarding the Company’s convertible senior 
notes.

Long-Lived Assets

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Expenditures for major 

additions, construction and improvements are capitalized. Depreciation and amortization is expensed using the straight-line 
method over the estimated useful lives of the related assets, which range from three to five years for computer hardware and 
five to seven years for furniture and office equipment. Leasehold improvements are depreciated on a straight-line basis over the 
lesser of the remaining term of the leased facility or the estimated useful life of the improvement, which generally ranges from 
four to approximately 11 years. Useful lives of significant assets are periodically reviewed and adjusted prospectively to reflect 
the Company’s current estimates of the respective assets’ expected utility. Repair and maintenance costs are expensed as 
incurred.

73

 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

Amortizable Intangible Assets

Acquired Definite-lived Intangible Assets.    The Company capitalizes purchased intangible assets, such as software, 
websites and domains, and amortizes them on a straight-line basis over their estimated useful life. Historically, the Company 
has assessed the useful lives of these acquired intangible assets to be between three and 10 years.

Capitalized Technology.    Capitalized technology includes certain purchased software and technology licenses, direct 

third-party costs, and internal payroll and payroll-related costs used in the creation of our internal-use software. Software 
development projects generally include three stages: the preliminary project stage (all costs are expensed as incurred), the 
application development stage (certain costs are capitalized and certain costs are expensed as incurred) and the post-
implementation/operation stage (all costs are expensed as incurred). Costs capitalized in the application development stage 
include costs of designing the application, coding, integrating the Company’s and the university’s networks and systems, and 
the testing of the software. Capitalization of costs requires judgment in determining when a project has reached the application 
development stage and the period over which the Company expects to benefit from the use of that software. Once the software 
is placed in service, these amounts are amortized using the straight-line method over the estimated useful life of the software, 
which is generally three to five years.

Capitalized Content Development.    The Company develops content for each offering on a course-by-course basis in 
collaboration with university client faculty and industry experts. Depending upon the offering, the Company may use materials 
provided by university clients and their faculty, including curricula, case studies, presentations and other reading materials. The 
Company is responsible for the creation of materials suitable for delivery through the Company’s online learning platform, 
including all expenses associated with this effort. With respect to the Degree Program Segment, the development of content is 
part of the Company’s single performance obligation and is considered a contract fulfillment cost.

The content development costs that qualify for capitalization are third-party direct costs, such as videography, editing 
and other services associated with creating digital content. Additionally, the Company capitalizes internal payroll and payroll-
related expenses incurred to create and produce videos and other digital content utilized in the university clients’ offerings for 
delivery via the Company’s online learning platform. Capitalization ends when content has been fully developed by both the 
Company and the university client, at which time amortization of the capitalized content development begins. The capitalized 
costs for each offering are recorded on a course-by-course basis and included in intangible assets, net on the Company’s 
consolidated balance sheets. These costs are amortized using the straight-line method over the estimated useful life of the 
respective course, which is generally four to five years. The estimated useful life corresponds with the planned curriculum 
refresh rate. This refresh rate is consistent with expected curriculum refresh rates as cited by faculty members for similar on-
campus offerings. 

Evaluation of Long-Lived Assets

The Company reviews long-lived assets, which consist of property and equipment, capitalized technology, capitalized 

content development and acquired finite-lived intangible assets, for impairment whenever events or changes in circumstances 
indicate the carrying value of an asset may not be recoverable. In order to assess the recoverability of the capitalized technology 
and content development, the amounts are grouped by the lowest level of independent cash flows. Recoverability of a long-
lived asset is measured by a comparison of the carrying value of an asset or asset group to the future undiscounted net cash 
flows expected to be generated by that asset or asset group. If such assets are not recoverable, the impairment to be recognized 
is measured by the amount by which the carrying value of an asset exceeds the estimated fair value (discounted cash flow) of 
the asset or asset group. The Company’s impairment analysis is based upon cumulative results and forecasted performance.

Non-Cash Long-Lived Asset Additions

The Company had non-cash capital asset additions of $1.8 million and $3.3 million in property and equipment, during 

the years ended December 31, 2021 and 2020, respectively. 

Goodwill and Other Indefinite-lived Intangible Assets

The Company reviews goodwill and other indefinite-lived intangible assets for impairment annually, as of October 1, 

and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of 
goodwill or an indefinite-lived asset below its carrying value. 

74

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

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, Trilogy in May 2019 and edX in 
November 2021. 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 Company determines the fair value of a reporting unit by utilizing a weighted combination of the income-based 

and market-based approaches. 

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, 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, revenue, 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 value of a reporting unit using the market-based approach 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.

Based on the Company’s quantitative assessment performed during 2019 and the qualitative assessments performed as 

of October 1 in 2020 and 2021, the Company believes that the estimated fair values of the reporting units exceeded their 
carrying values by no less than 10%. It is possible that future changes in the Company’s circumstances, including potential 
impacts from COVID-19, or in the variables associated with the judgments, assumptions and estimates used in assessing the fair 
value of the Company’s reporting units, could require the Company to record additional impairment charges in the future.

Other Indefinite-lived Intangible Assets

The Company’s indefinite-lived intangible asset was acquired in November 2021 and represents the established edX 

trade name. Given the timing of the edX Acquisition, the Company will review this asset for impairment as of October 1, 2022, 
or earlier if an event occurs or circumstances change that would more likely than not reduce the fair value of this asset below its 
carrying value.

Equity Interests

As of December 31, 2020, the Company had a $10.0 million investment in an education technology company recorded 

within other assets, non-current on the consolidated balance sheets. This investment did not have a readily determinable fair 
value, and was accounted for as a cost method investment, which was subject to fair value remeasurement upon the occurrence 
of an observable event. During the second quarter of 2021, the Company sold its investment in this education technology 
company and recorded a gain on sale of $27.8 million. Refer to Note 7 for further information.

Employee Benefits

The Company offers a variety of benefits to its employees (e.g., health care, gym memberships and tuition 
reimbursement). The Company accounts for costs related to providing employee benefits as incurred, unless there is a service 
requirement, in which case, such costs are recognized over the service commitment period.

75

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

Convertible Senior Notes

In April 2020, the Company issued 2.25% convertible senior notes due May 1, 2025 (the “Notes”) in an aggregate 

principal amount of $380 million, including the exercise by the initial purchasers of an option to purchase additional Notes, in a 
private offering. Refer to Note 9 for more information regarding the Notes.

The Notes are accounted for in accordance with Financial Accounting Standards Board (“FASB”) ASC Subtopic 

470-20, Debt with Conversion and Other Options (“ASC 470-20”). Pursuant to ASC 470-20, issuers of certain convertible debt 
instruments, such as the Notes, that have a net settlement feature and may be settled wholly or partially in cash upon conversion 
are required to separately account for the liability (debt) and equity (conversion option) components of the instrument. The 
carrying amount of the liability component of the instrument is computed by estimating the fair value of a similar liability 
without the conversion option using a market-based approach. The amount of the equity component is then calculated by 
deducting the fair value of the liability component from the principal amount of the instrument. The difference between the 
principal amount and the liability component represents a debt discount that is amortized to interest expense over the term of 
the Notes using the effective interest rate method. The equity component is not remeasured as long as it continues to meet the 
conditions for equity classification. In accounting for the issuance costs related to the Notes, the allocation of issuance costs 
incurred between the liability and equity components was based on their relative values.

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 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 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 9 for further information 
about the Company’s debt.

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 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 consolidated statements of 
operations and comprehensive loss in the period in which the obligation for those payments is incurred.

76

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

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.

Foreign Currency Translation

For the portion of the Company’s non-U.S. business where the local currency is the functional currency, operating 

results are translated into U.S. dollars using the average rate of exchange for the period, and assets and liabilities are converted 
at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a 
separate component of stockholder’s equity and comprehensive loss.

For any transaction that is in a currency different from the entity’s functional currency, the Company records a gain or 
loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement 
date (or rate at period end, if unsettled) as other income (expense), net on the consolidated statements of operations and 
comprehensive loss.

Concentration of Credit Risk

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash 

and cash equivalents and accounts receivable. All of the Company’s cash is held at financial institutions that management 
believes to be of high credit quality. The Company’s bank accounts exceed federally insured limits at times. The Company has 
not experienced any losses on cash to date. The Company maintains an allowance for doubtful accounts, if needed, based on 
collection history.

Recent Accounting Pronouncements

In October 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-10, Codification Improvements. 
The amendments in this ASU affect a wide variety of topics in the Accounting Standards Codification by either clarifying the 
codification or correcting unintended application of guidance. The amendments do not change U.S. GAAP and, therefore, are 
not expected to result in a significant change in current accounting practice. The Company adopted this ASU on 
January 1, 2021. Adoption of this standard did not have a material impact on the Company’s consolidated financial statements 
or related disclosures.

In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets 

and Contract Liabilities from Contracts with Customers. The new guidance requires companies to apply ASC Topic 606 to 
recognize and measure contract assets and contract liabilities with customers acquired in a business combination, which creates 
an exception to the general recognition principle in ASC Topic 805. In addition, the guidance clarifies that companies should 
apply the definition of a performance obligation in ASC Topic 606 when recognizing contract liabilities assumed in a business 
combination. The guidance is effective for fiscal years beginning after December 15, 2022 and interim periods within those 
years. Early adoption is permitted. The Company adopted the standard in the fourth quarter of 2021, effective January 1, 2021. 
Adoption of this standard is reflected in the preliminary purchase price allocation of the edX Acquisition. Refer to Note 3 for 
further information about the edX Acquisition.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 
470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible 
Instruments and Contracts in an Entity’s Own Equity. This ASU simplifies the accounting for certain financial instruments with 
characteristics of liabilities and equity, including convertible instruments and contracts indexed to and potentially settled in an 
entity’s own equity. The new guidance eliminates the beneficial conversion and cash conversion accounting models for 
convertible instruments. As a result, in more cases, convertible debt will be accounted for as a single instrument. The guidance 
also removes certain conditions for equity classification related to contracts in an entity’s own equity and requires the 
application of the if-converted method for calculating diluted earnings per share. This ASU is effective for fiscal years 
beginning after December 15, 2021. Early adoption is permitted. 

The Company will adopt this ASU on a modified retrospective basis in the first quarter of 2022, effective as of January 

1, 2022. The Company expects that the adoption of this ASU will have a material effect on the Company’s consolidated 

77

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

2. 

Significant Accounting Policies (Continued)

financial statements. Although the Company continues to evaluate the effect of the ASU on the Company’s consolidated 
financial statements, the adoption of this ASU is expected to result in an increase in long-term debt of approximately 
$81.7 million to reflect the full principal amount of the Notes outstanding, net of issuance costs, a reduction of approximately 
$114.6 million to additional paid-in capital to remove the equity component separately recorded for the conversion features 
associated with the Notes, a reduction in deferred tax liabilities of approximately $22.1 million, and a cumulative-effect 
adjustment to opening accumulated deficit of $32.8 million. After the adoption of this ASU, the Company’s interest expense 
will be reduced as there will not be any further amortization of the debt discount due to the derecognition of the equity 
component that represents the value of the conversion option on the issuance date of the Notes. In addition, adoption of this 
ASU requires the use of the if-converted method for all convertible notes in the diluted net income (loss) per share calculation 
and the inclusion of the effect of potential share settlement of the convertible notes, if the effective is more dilutive. No impact 
to the number of potentially dilutive shares is expected upon adoption. Adoption of this standard is not expected to impact the 
Company’s liquidity or cash flows.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of 

Reference Rate Reform on Financial Reporting. This ASU is intended to provide optional expedients and exceptions for 
applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, to ease the 
potential accounting and financial reporting burden associated with the expected market transition from the London Interbank 
Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This ASU may be applied as of the 
beginning of any interim period that includes its effective date (i.e., March 12, 2020) through December 31, 2022. The 
Company will adopt this standard when LIBOR is discontinued and does not expect the adoption of this standard to have a 
material impact on its consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—

Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between 
Topic 321, Topic 323, and Topic 815. This ASU was issued to clarify the interaction of the accounting for equity securities 
under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for 
certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between 
ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either 
apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately 
before applying or discontinuing the equity method of accounting. The Company adopted this ASU on January 1, 2021. 
Adoption of this standard did not have a material impact on the Company’s consolidated financial statements or related 
disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for 
Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The amendments in this ASU include 
removal of certain exceptions to the general principles in Topic 740 related to recognizing deferred taxes for investments, 
performing intraperiod tax allocation and calculating income taxes in an interim period. The ASU also clarifies and simplifies 
other aspects of the accounting for income taxes, including the recognition of deferred tax liabilities for outside basis 
differences. The Company adopted this ASU on January 1, 2021. Adoption of this standard did not have a material impact on 
the Company’s consolidated financial statements or related disclosures.

3.

Business Combination

On November 16, 2021, the Company completed its acquisition of edX pursuant to a Membership Interest Purchase 

Agreement, dated as of June 28, 2021 (the “Purchase Agreement”). The total preliminary purchase price was $773.0 million in 
cash consideration, of which $23.0 million was distributed to an escrow account to satisfy indemnification claims and purchase 
price adjustments, as applicable. The preliminary purchase price is subject to customary adjustments based on, among other 
things, the finalization of working capital as of the closing date. The Company recorded $14.8 million and $0.3 million of 
acquisition costs in general and administrative expense related to this acquisition during the years ended December 31, 2021 
and 2020, respectively. 

The transaction was accounted for under the acquisition method of accounting and revenue of $5.2 million and 
operating expense of $14.4 million have been included in the Company’s consolidated statement of operations since the date of 
acquisition.

Under the acquisition method of accounting, the total preliminary purchase price was allocated to edX’s net tangible 

and intangible assets acquired and liabilities assumed based on their estimated fair values as of November 16, 2021. The 

78

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

3. 

Business Combination (Continued)

allocation of the preliminary purchase price is pending the finalization of the acquired company’s working capital as of the 
closing date and the finalization of the fair value of acquired deferred revenue and other liabilities, deferred income tax assets 
and liabilities, and assumed non-income tax liabilities. 

The following table summarizes the preliminary purchase price allocation based on the estimated fair value of the 

assets acquired and liabilities assumed as of the date of the acquisition:

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other assets

Property and equipment, net

Right-of-use assets

Other assets, non-current

Accounts payable and accrued expenses

Deferred revenue

Lease liability

Other liabilities

Intangible assets:

Developed technology

University client relationships

Enterprise client relationships

Trade names

Goodwill

Estimated
Useful Life (in 
years)

Purchase Price
Allocation

(in thousands)

$ 

$ 

11,901 

6,608 

11,379 

529 

2,868 

572 

(17,024) 

(20,264) 

(2,868) 

(32,934) 

15,400 

104,000 

14,300 

255,000 

423,552 

773,019 

3

10

10

indefinite

Of the total preliminary purchase price, the Company allocated $255.0 million and $133.7 million to indefinite-lived 

intangibles and definite-lived intangibles, respectively. The estimated values of the definite-lived intangibles is being amortized 
on a straight-line basis over the estimated useful lives. The methodologies utilized to determine the estimated fair values of the 
acquired intangible assets are Level 3 measurements.

The acquired indefinite-lived intangible asset represents the established edX trade name that we expect to be the 
primary brand for the Company’s marketplace, educational offerings and services. Acquired client relationships represent 
agreements with existing clients as of the acquisition date. The fair values of the trade name and the client relationships were 
determined using the discounted cash flow method. Under this method, the Company’s significant assumptions and estimates 
included expected future cash flows and the weighted-average cost of capital. 

The acquired developed technology represents technology that had reached technological feasibility and for which 
development had been completed as of the date of the Acquisition. The Company utilized the relief-from-royalty valuation 
method to value the acquired technology. Under this method, the Company’s significant assumptions and estimates included an 
estimated market royalty rate, remaining useful life, future revenue, and a rate of return utilized in the determination of a 
discounted present value. 

The goodwill balance is primarily attributed to the assembled workforce, expanded market opportunities and operating 
synergies anticipated upon the integration of the operations of the Company and edX. The goodwill is expected to be deductible 
for tax purposes. Refer to Note 5 for details.

79

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

3. 

Business Combination (Continued)

The Company’s 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 date indicated or what the results would be for any future periods. The following table presents the Company’s unaudited 
pro forma combined revenue, pro forma combined net loss and pro forma combined net loss per share for the years ended 
December 31, 2021 and 2020, as if the acquisition of edX had occurred on January 1, 2020.

Pro forma revenue

Pro forma net loss

Pro forma net loss per share, basic and diluted

4.

Property and Equipment, Net

Year Ended
December 31,

2021

2020

(in thousands)

$ 

$ 

$ 

985,016  $ 

818,700 

(273,889)  $ 

(323,277) 

(3.67)  $ 

(4.81) 

The following table presents the components of property and equipment, net on the Company’s consolidated balance 

sheets as of each of the dates indicated.

Computer hardware

Furniture and office equipment

Leasehold improvements

Leasehold improvements in process

Total

Accumulated depreciation and amortization

Property and equipment, net

December 31,
2021

December 31,
2020

(in thousands)

$ 

9,454  $ 

16,739 

57,972 

5,667 

89,832 

9,053 

18,041 

58,443 

2,184 

87,721 

(41,182)   

(34,987) 

$ 

48,650  $ 

52,734 

Depreciation expense of property and equipment was $12.5 million, $13.4 million and $11.6 million for the years 

ended December 31, 2021, 2020 and 2019, respectively.

5.

Goodwill and Intangible Assets

The following table presents the changes in the carrying amount of goodwill on the Company’s consolidated balance 

sheets for the periods indicated.

Alternative 
Credential Segment

Unassigned 
Goodwill

Total

(in thousands)

Balance as of December 31, 2019

$ 

418,350  $ 

—  $ 

Foreign currency translation adjustments and other
Balance as of December 31, 2020
Goodwill recognized in connection with business combination*
Foreign currency translation adjustments
Balance as of December 31, 2021

(2,520)   

415,830 
— 
(4,843)   

— 
— 
423,552 
— 

$ 

410,987  $ 

423,552  $ 

418,350 

(2,520) 
415,830 
423,552 
(4,843) 

834,539 

*

See Note 3 for a discussion of the Acquisition.

The Acquisition was completed within close proximity of the Company’s year end and, as a result, the assignment of 

the preliminary goodwill balance of $423.6 million to the Company’s reporting units has not been completed as of 

80

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

5. 

Goodwill and Intangible Assets (Continued)

December 31, 2021. This preliminary goodwill balance will be assigned to the relevant reporting units in advance of the 
Company’s next annual goodwill impairment test that will be performed as of October 1, 2022, or earlier, in the event of a 
triggering event for assessing the goodwill balance for impairment. 

The Company experienced a sustained decline in its stock price during the third quarter of 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 consolidated statements of operations and comprehensive loss in the third quarter of 
2019. For purposes of testing the Company’s goodwill for impairment, fair value measurements were determined primarily 
using a weighted combination of the income-based and market-based approaches. The income-based approach largely relied on 
inputs that were not observable to active markets, which would be deemed “Level 3” fair value measurements, as defined in the 
Fair Value Measurements section of Note 2. These inputs included the Company’s expectations about future revenue growth, 
profitability, income tax rates, cash flows and the rate at which cash flows should be discounted, in order to determine this fair 
value estimate. The primary input used in the market-based approach was publicly-available data on the financial ratios of the 
Company’s competitors. The carrying amount of goodwill in the Alternative Credential Segment included accumulated 
impairment charges of $70.4 million as of both December 31, 2021 and 2020.

The following table presents the components of intangible assets, net on the Company’s consolidated balance sheets as 

of each of the dates indicated.

December 31, 2021

December 31, 2020

Estimated
Average 
Useful
Life (in 
years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

(in thousands)

Accumulated
Amortization

Net
Carrying
Amount

3-5

4-5

9-10

10

5-10

$  199,766  $  (112,357)  $  87,409  $ 165,254  $ 

(75,822)  $  89,432 

243,687 

211,680 

14,300 

27,161 

(125,599)    118,088 

  208,170 

(88,168)    120,002 

(34,995)    176,685 

  109,498 

(23,376)    86,122 

(179)    14,121 

— 

— 

— 

(12,941)    14,220 

  26,697 

(9,483)    17,214 

696,594 

(286,071)    410,523 

  509,619 

(196,849)    312,770 

Definite-lived intangible assets

Capitalized technology

Capitalized content development

University client relationships

Enterprise client relationships

Trade names and domain names
Total definite-lived intangible 

assets

Indefinite-lived intangible assets

Trade names

indefinite

255,000 

— 

  255,000 

Total indefinite-lived intangible 

assets

255,000 

— 

  255,000 

— 

— 

— 

— 

— 

— 

Total intangible assets, net

$  951,594  $  (286,071)  $ 665,523  $ 509,619  $  (196,849)  $ 312,770 

The amounts presented in the table above include $46.3 million and $38.6 million of in process capitalized technology 

and content development as of December 31, 2021 and December 31, 2020, respectively. 

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

5. 

Goodwill and Intangible Assets (Continued)

The Company recorded amortization expense related to amortizable intangible assets of $95.9 million, $83.1 million 

and $58.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. 

The following table presents the estimated future amortization expense of the Company’s amortizable intangible assets 

placed in service as of December 31, 2021.

2022

2023

2024

2025

2026

Thereafter

Total

Future 
Amortization 
Expense

(in thousands)

$ 

90,116 

75,153 

59,615 

35,305 

24,291 

79,734 

$ 

364,214 

82

 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

6. 

Other Balance Sheet Details

Prepaid expenses and other assets

As of December 31, 2021 and 2020, the Company had balances of $23.0 million and $14.0 million, respectively, of 

prepaid assets within prepaid expenses and other assets on the consolidated balance sheet.

Other Assets, Non-current

As of December 31, 2021 and 2020, the Company had balances of $7.0 million and $6.3 million, respectively, of 

deferred expenses incurred to integrate the software associated with its cloud computing arrangements, within other assets, non-
current on the consolidated balance sheets. Such expenses 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 incurred $2.4 million, 
$1.3 million, and $0.3 million of such amortization for the years ended December 31, 2021, 2020, and 2019, respectively.

Accounts Payable and Accrued Expenses

The following table presents the components of accounts payable and accrued expenses on the Company’s 

consolidated balance sheets as of each of the dates indicated.

Accrued university and instructional staff compensation

Accrued marketing expenses

Accrued transaction, integration and restructuring-related expenses

Accrued compensation and related benefits

Accounts payable and other accrued expenses

Total accounts payable and accrued expenses

Other Current Liabilities

December 31, 
2021

December 31, 
2020

(in thousands)

$ 

36,806  $ 

26,469 

4,072 

49,143 

49,968 

27,371 

24,682 

3,492 

52,820 

22,309 

$ 

166,458  $ 

130,674 

As of December 31, 2021, the Company had a balance of $21.9 million within other current liabilities on the 
consolidated balance sheet, which represents proceeds received from students enrolled in certain of the Company’s alternative 
credential offerings that are payable to associated university client.

In response to COVID-19, various government programs have been announced to provide financial relief for affected 

businesses. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted in the 
United States on March 27, 2020, the Company is allowed to defer payment of the employer’s share of Social Security taxes 
incurred from March 27, 2020 through December 31, 2020. In addition, the CARES Act provides eligible employers with an 
employee retention tax credit for employees whose services were impacted by COVID-19. As of December 31, 2021, the 
amount of payroll taxes subject to deferred payment, net of employee retention tax credits of $0.5 million, was approximately 
$5.0 million. The balance is recorded within other current liabilities on the consolidated balance sheet.

83

 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

7.

Commitments and Contingencies

Legal Contingencies

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 matters 
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 the 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. 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. 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

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, alleging violations of Sections 10(b) and 20(a) of the Exchange 
Act, and Rule 10b-5 promulgated thereunder, based upon allegedly false and misleading statements regarding the Company’s 
business prospects and financial projections. The district court transferred the cases to the United States District Court for the 
District of Maryland, consolidated them under docket number 8:19-cv-3455 (D. Md.), and appointed Fiyyaz Pirani as the lead 
plaintiff in the consolidated action. On July 30, 2020, Mr. Pirani filed a consolidated class action complaint (“CAC”), adding 
Harsha Mokkarala, the Company’s former Chief Marketing Officer, as a defendant. The CAC also asserts claims under 
Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, against Mr. Paucek, Ms. Graham, members of the 
Company’s board of directors, and the Company’s underwriters, based on allegations related to the Company’s secondary stock 
offering on May 23, 2018. The proposed class consists of all persons who acquired the Company’s securities between February 
26, 2018 and July 30, 2019. On October 27, 2020, defendants filed a motion to dismiss. On August 5, 2021, the court largely 
denied the defendants’ motion to dismiss. On February 18, 2022, the court stayed discovery until April 19, 2022, pending 
mediation. 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. 

Stockholder Derivative Suits

On April 30, 2020, Richard Theis filed a stockholder derivative complaint purportedly on behalf of the Company and 

against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, and the Company’s 
board of directors in the United States District Court for the Southern District of New York, with docket number 20-cv-3360. 
The complaint alleges claims for breaches of fiduciary duty, insider sales and misappropriation of information, unjust 
enrichment, and violations of Section 14(a) of the Exchange Act, based upon allegedly false and misleading statements 
regarding the Company’s business prospects and financial projections. On July 22, 2020, the court entered a joint stipulation 
staying the case pending resolution of the securities class action. On January 5, 2022, the court entered a joint stipulation 
staying the case for sixty days. Due to the complex nature of the legal and factual issues involved, the outcome of this matter is 
not presently determinable.

On August 21, 2020, Thomas Lucey filed a stockholder derivative complaint purportedly on behalf of the Company 

and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, Harsha 
Mokkarala, the Company’s former Chief Marketing Officer and the Company’s board of directors in the United States District 
Court for the District of Maryland, with docket number 1:20-cv-02424-GLR. The complaint alleges claims for breaches of 
fiduciary duty, insider trading, and contribution for alleged violations of Sections 10(b) and 21D of the Exchange Act, based 
upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. On 
September 3, 2020, the court entered a joint stipulation staying the case pending resolution of the securities class action. On 
January 5, 2022, the court entered a joint stipulation staying the case for sixty days. Due to the complex nature of the legal and 
factual issues involved, the outcome of this matter is not presently determinable.

On November 30, 2020, Leo Shumacher filed a stockholder derivative complaint purportedly on behalf of the 
Company and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, Harsha 
Mokkarala, the Company’s former Chief Marketing Officer, and the Company’s board of directors in the Court of Chancery of 

84

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

7. 

Commitments and Contingencies (Continued)

the State of Delaware, with docket number 2020-1019-AGB. The complaint alleges claims for breaches of fiduciary duty and 
unjust enrichment, based upon allegedly false and misleading statements regarding the Company’s business prospects and 
financial projections. On January 6, 2021, the court entered a joint stipulation staying the case pending resolution of the 
securities class action. On January 10, 2022, the court entered a joint stipulation staying the case for sixty days. 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 agreements entered into between the Company and its university clients in the Degree Program Segment 
require the Company to commit to meet certain staffing and spending investment thresholds related to marketing and sales 
activities. In addition, certain agreements in the Degree 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 Degree 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. 
Generally, these amounts are capitalized as other assets on the Company’s consolidated balance sheets, and amortized as contra 
revenue over the life of the contract, commencing on the later of when payment is due or when contract revenue recognition 
begins.

The following table presents the estimated future minimum payments due to university clients as of December 31, 

2021.

2022

2023

2024

2025

2026

Thereafter

Future Minimum 
Payments

(in thousands)

$ 

1,725 

625 

625 

625 

625 

1,900 

6,125 

Total future minimum payments to university clients

$ 

Contingent Payments

The Company has entered into agreements with certain of its university clients in the Degree Program Segment that 

require the Company 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 to which they relate, and records a liability in other current liabilities on the consolidated balance sheets.

In the first quarter of 2019, the Company entered into an agreement to make investments in an education technology 

company of up to $15.0 million, upon demand by the investee. During the second quarter of 2021, the Company sold its 
investment in this education technology company and was released from any further obligation to make additional investments.

8.

Leases

The Company leases facilities under non-cancellable operating leases primarily in the United States, South Africa, the 

United Kingdom and Canada. The Company’s operating leases have remaining lease terms of between less than one to 12 
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-cancellable lease terms. The future lease payments due under non-cancellable operating lease arrangements contain fixed 
rent increases over the term of the lease. The Company also leases office equipment under non-cancellable leases.

85

 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

8. 

Leases (Continued)

In October 2020, the Company entered into an agreement with an unrelated party to sublease a portion of the 
Company’s office space in the United States. As of December 31, 2021, this sublease was classified as an operating lease and 
had a remaining term of 1.8 years, with scheduled annual rent increases and no option to extend or renew the sublease term. 
Sublease income is recognized on a straight-line basis over the sublease term as a reduction to expense incurred by the 
Company under the associated head lease. 

In August 2021, the Company entered into an agreement with an unrelated party to sublease a portion of the 
Company’s office space in Denver, Colorado, as part of its overall real estate management strategy. As of December 31, 2021, 
this sublease was classified as an operating lease and had a remaining term of 2.9 years with scheduled annual rent increases 
and no option to extend or renew the sublease term. Sublease income is recognized on a straight-line basis over the sublease 
term as a reduction to expense incurred by the Company under the associated master lease. In connection with the execution of 
this agreement, the Company recognized a loss on sublease of $4.8 million in the third quarter of 2021.

The following table presents the components of lease expense on the Company’s consolidated statements of operations 

and comprehensive loss for each of the periods indicated.

Operating lease expense

Short-term lease expense

Variable lease expense

Sublease income

Total lease expense

Year Ended
December 31,

2021

2020

(in thousands)

$ 

18,933  $ 

15,153 

185 

6,279 

(489)   

362 

5,837 

(36) 

$ 

24,908  $ 

21,316 

As of December 31, 2021, for the Company’s operating leases, the weighted-average remaining lease term was 7.7 

years and the weighted-average discount rate was 11.2%. For the years ended December 31, 2021 and 2020, cash paid for 
amounts included in the measurement of operating lease liabilities was $21.7 million and $17.3 million, respectively.  For the 
years ended December 31, 2021 and 2020, lease liabilities arising from obtaining right-of-use assets were $28.0 million and 
$26.7 million, respectively.

The following table presents the maturities of the Company’s operating lease liabilities as of the date indicated, and 

excludes the impact of future sublease income totaling $4.4 million in aggregate.

2022

2023

2024

2025

2026
Thereafter

Total lease payments
Less: imputed interest
Total lease liability

December 31, 
2021

(in thousands)

$ 

$ 

24,200 

21,789 

21,535 

17,716 

18,229 
69,674 
173,143 
(60,492) 
112,651 

As of December 31, 2021, the Company had additional operating leases for facilities that have not yet commenced 

with future minimum lease payments of approximately $5.8 million. Each of these operating leases will commence during the 
fiscal year ending 2022 and have lease terms of approximately 8 years.

86

 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

9.

Debt

The following table presents the components of outstanding long-term debt on the Company’s consolidated balance 

sheets as of each of the dates indicated.

Term loan facilities

Convertible senior notes

Deferred government grant obligations

Other borrowings

Less: unamortized debt discount and issuance costs

Total debt

Less: current portion of long-term debt

Total long-term debt

December 31, 
2021

December 31, 
2020

(in thousands)

$ 

572,374  $ 

— 

380,000 

380,000 

3,500 

4,423 

3,500 

1,343 

(107,777)   

(111,043) 

852,520 

273,800 

(7,204)   

(627) 

$ 

845,316  $ 

273,173 

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, other than the 2.25% convertible senior notes due 2025 (the “Notes”), which had an 
estimated fair value of $403.3 million and $616.6 million as of December 31, 2021 and 2020, respectively. Each of the 
Company’s long-term debt instruments were classified as Level 2 within the fair value hierarchy. 

The Company’s cash interest payments, net of amounts capitalized, were $25.5 million, $10.8 million and $5.3 million 

for the years ended December 31, 2021, 2020 and 2019, respectively.

Term Loan Credit and Guaranty Agreement

The Company entered into a Term Loan Credit and Guaranty Agreement, dated June 28, 2021 (the “Term Loan 
Agreement”), among the Company, as borrower, the subsidiaries of the Company party thereto, as guarantors, the lenders party 
thereto, and Alter Domus (US) LLC as administrative agent and collateral agent. Pursuant to the Term Loan Agreement, the 
lenders thereunder made term loans to the Company on June 29, 2021 (the “Funding Date”) in the aggregate principal amount 
of $475 million (the “Term Loan Facilities”). The Term Loan Facilities have an initial maturity date of December 28, 2024 (the 
“Maturity Date”). Commencing on the Funding Date, loans under the Term Loan Facilities will bear interest at a per annum rate 
equal to a base rate or adjusted Eurodollar rate, as applicable, plus the applicable margin of 4.75% in the case of the base rate 
loans and 5.75% in the case of the Eurodollar loans. The Term Loan Agreement requires the Company to make quarterly 
principal repayments equal to 0.25% of the $475 million aggregate principal amount, beginning September 2021. If the loans 
under the Term Loan Facilities are prepaid prior to the second anniversary, subject to certain customary exceptions, the 
Company shall pay the Applicable Premium (as defined in the Term Loan Agreement) on the amount of the loans so prepaid. 

On November 4, 2021, the Company entered into a First Amendment to Term Loan Credit and Guaranty Agreement 

and a Joinder Agreement, which amended the Term Loan Agreement (collectively, the “Amended Term Loan Facility”) 
primarily to provide for an incremental facility to the Company in an original principal amount of $100 million. The Company 
is required to make quarterly principal repayments equal to 0.25% of this original principal amount beginning in 
December 2021. The proceeds of the Amended Term Loan Facility may be used for general corporate purposes.

The associated effective interest rate of the Amended Term Loan Facility for the year ended December 31, 2021 was 

approximately 7.56% and the associated interest expense was approximately $19.5 million.

The obligations under the Term Loan Agreement are guaranteed by certain of the Company’s subsidiaries (the 
Company and the guarantors, collectively, the “Credit Parties”). The obligations under the Term Loan Agreement are secured, 
subject to customary permitted liens and other agreed-upon exceptions, by a perfected security interest in all tangible and 
intangible assets of the Credit Parties, except for certain customary excluded assets.

87

 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

9. 

Debt (Continued)

The Term Loan Agreement contains customary affirmative covenants, including, among others, the provision of 

annual and quarterly financial statements and compliance certificates, maintenance of property, insurance, compliance with 
laws and environmental matters. The Term Loan Agreement contains customary negative covenants, including, among others, 
restrictions on the incurrence of indebtedness, granting of liens, making investments and acquisitions, paying dividends, 
repurchases of equity interests in the Company and entering into affiliate transactions and asset sales. The Term Loan 
Agreement contains a financial covenant that requires the Company to maintain minimum Recurring Revenues (as defined in 
the Term Loan Agreement) as of the last day of any period of four consecutive fiscal quarters of the Company commencing 
with fiscal quarter ending September 30, 2021 through the Maturity Date. The Term Loan Agreement also provides for 
customary events of default, including, among others: non-payment of obligations; bankruptcy or insolvency event; failure to 
comply with covenants; breach of representations or warranties; defaults on other material indebtedness; impairment of any lien 
on any material portion of the Collateral (as defined in the Term Loan Agreement); failure of any material provision of the 
Term Loan Agreement or any guaranty to remain in full force and effect; a change of control of the Company; and material 
judgment defaults. The occurrence of an event of default could result in the acceleration of obligations under the Term Loan 
Agreement.

If an event of default under the Term Loan Agreement occurs and is continuing, then, at the request (or with the 

consent) of the lenders holding a majority of the commitments and loans under the Term Loan Agreement, upon notice by the 
administrative agent to the borrowers, the obligations under the Term Loan Agreement shall become immediately due and 
payable. In addition, if the Credit Parties become the subject of voluntary or involuntary proceedings under any bankruptcy, 
insolvency or similar law, then any outstanding obligations under the Term Loan Agreement will automatically become 
immediately due and payable.

Credit Agreement

On June 25, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with Morgan Stanley Senior 
Funding, Inc., as administrative agent and collateral agent, and certain other lenders party thereto that provided for $50 million 
in revolving loans (the “Loans”). The Credit Agreement allowed for incremental borrowings from time to time in an aggregate 
amount for all such incremental amounts not to exceed (i) the lesser of (x) $50 million and (y) an amount such that the 
aggregate principal amount of the lenders’ commitments under the revolving credit facility does not exceed $100 million, plus 
(ii) certain specified prepayments of indebtedness, plus (iii) an unlimited amount subject to satisfaction of a leverage ratio based 
compliance test.  

The Loans bore interest, at the Company’s option, at variable rates based on (i) a customary base rate plus an 

applicable margin of 2.75% or (ii) an adjusted LIBOR rate (with a floor of 0.00%) for the interest period relevant to such 
borrowing plus an applicable margin of 3.75%. In connection with entering into the Term Loan Agreement in June 2021, the 
Company terminated the Credit Agreement and recognized a loss on debt extinguishment of $1.1 million in connection with the 
write-off of previously capitalized deferred financing costs and associated fees.

Convertible Senior Notes

In April 2020, the Company issued the Notes in an aggregate principal amount of $380 million, including the exercise 
by the initial purchasers of an option to purchase additional Notes, in a private placement to qualified institutional buyers under 
Rule 144A of the Securities Act of 1933, as amended. The net proceeds from the offering of the Notes were approximately 
$369.6 million after deducting the initial purchasers’ discounts, commissions and offering expenses payable by the Company.

The Notes are governed by an indenture (the “Indenture”) between the Company and Wilmington Trust, National 

Association, as trustee. The Notes bear interest at a rate of 2.25% per annum, payable semi-annually in arrears on May 1 and 
November 1 of each year, beginning on November 1, 2020. The Notes will mature on May 1, 2025, unless earlier repurchased, 
redeemed or converted. The interest expense related to the Notes, including amortization of the debt discount and debt issuance 
costs, was $30.9 million and $19.8 million for the years ended December 31, 2021 and 2020, respectively. The associated 
effective interest rate of the Notes was approximately 11.0% for each of the years ended December 31, 2021 and 2020.

The Notes are the senior, unsecured obligations of the Company and are equal in right of payment with the Company’s 

senior unsecured indebtedness, senior in right of payment to the Company’s indebtedness that is expressly subordinated to the 
Notes, effectively subordinated to the Company’s senior secured indebtedness (including indebtedness under the Term Loan 
Facilities), to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all 
indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred 
equity, if any, of the Company’s subsidiaries.

88

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

9. 

Debt (Continued)

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components. 

The carrying amount of the liability component was calculated using a discount rate of 10.3%, which was determined by 
measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount 
of the equity component representing the conversion option, excluding debt issuance costs, was $117.8 million and was 
determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not 
remeasured as long as it continues to meet the conditions for equity classification. The Company allocated debt issuance costs 
of $7.2 million and $3.2 million to the debt and equity components, respectively. The excess of the principal amount of the 
liability component over its carrying amount, inclusive of debt issuance costs, represents the debt discount, which is amortized 
to interest expense at an annual effective interest rate over the contractual term of the Notes. As of December 31, 2021 and 
2020, the unamortized debt discount was $88.7 million and $111.0 million, respectively, and the net carrying amount of the 
liability component of the Notes was $291.3 million and $269.0 million.

Holders may convert their Notes at their option in the following circumstances:

•

•

•

•

•

during any calendar quarter commencing after the calendar quarter ending on September 30, 2020 (and only 
during such calendar quarter), if the last reported sale price per share of the Company’s common stock, exceeds 
130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 
consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar 
quarter;

during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 
consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount 
of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale 
price per share of the Company’s common stock on such trading day and the conversion rate on such trading day;

upon the occurrence of certain corporate events or distributions on the Company’s common stock, as provided in 
the Indenture;

if the Company calls such Notes for redemption; and

at any time from, and including, November 1, 2024 until the close of business on the second scheduled trading 
day immediately before the maturity date.

The initial conversion rate for the Notes is 35.3773 shares of the Company’s common stock per $1,000 principal 

amount of Notes, which represents an initial conversion price of approximately $28.27 per share of the Company’s common 
stock, and is subject to adjustment upon the occurrence of certain specified events as set forth in the Indenture. Upon 
conversion, the Company will pay or deliver, as applicable, cash, shares of the Company’s common stock or a combination of 
cash and shares of the Company’s common stock, at the Company’s election. In the event of the Company calling the Notes for 
redemption or the holders of the Notes electing to convert their Notes, the Company will determine whether to settle in cash, 
common stock or a combination thereof. Upon the occurrence of a “make-whole fundamental change” (as defined in the 
Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time. As of 
December 31, 2021, the if-converted value of the Notes did not exceed the principal amount.

In addition, upon the occurrence of a “fundamental change” (as defined in the Indenture), holders of the Notes may 

require the Company to repurchase their Notes at a cash repurchase price equal to the principal amount of the Notes to be 
repurchased, plus accrued and unpaid interest, if any. 

The Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or 
after May 5, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption 
price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last 
reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least 20 
trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day 
immediately before the date the Company sends the related redemption notice, and (ii) the trading day immediately before the 
date the Company sends such notice. In addition, calling any Note for redemption will constitute a “make-whole fundamental 
change” with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased 
in certain circumstances if such Note is converted after it is called for redemption. No sinking fund is provided for the Notes.

89

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

9. 

Debt (Continued)

As of December 31, 2021, the conditions allowing holders of the Notes to convert had not been met and the Company 
has the right under the Indenture to determine the method of settlement at the time of conversion, and the Notes, therefore, are 
classified as a non-current on the consolidated balance sheets.

In connection with the Notes, the Company entered into privately negotiated capped call transactions (the “Capped 

Call Transactions”) with certain counterparties. The Capped Call Transactions are generally expected to reduce potential 
dilution to the Company’s common stock upon any conversion of Notes and/or offset any cash payments the Company is 
required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset 
subject to a cap, based on the cap price of the Capped Call Transactions. The cap price of the Capped Call Transactions is 
initially $44.34 per share. The cost of the Capped Call Transactions was approximately $50.5 million. 

In April 2020, the Company used a portion of the proceeds from the sale of the Notes to repay in full all amounts 

outstanding, and discharge all obligations in respect of, the $250 million senior secured term loan facility. The Company 
intends to use the remaining net proceeds from the sale of the Notes for working capital or other general corporate purposes, 
which may include capital expenditures, potential acquisitions and strategic transactions.

Deferred Government Grant Obligations

Government grants awarded to the Company in the form of forgivable loans are recorded within long-term debt on the 

Company’s consolidated balance sheets until all contingencies are resolved and the grants are determined to be realized. 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. 

In July 2020, the Company amended its conditional loan agreement with Prince George’s County to modify the terms 

of the employment level thresholds. The conditional loan with Prince George’s County has a maturity date of June 22, 2027.

In January 2021, the Company amended its conditional loan agreement with the State of Maryland to modify the terms 

of the employment level thresholds and extend the maturity date to June 30, 2028.

The interest expense related to these loans for the years ended December 31, 2021 and 2020 was immaterial. As of 

December 31, 2021 and 2020, the Company’s combined accrued interest balance associated with the deferred government grant 
obligations was $0.5 million and $0.4 million, respectively.

Letters of Credit

Certain of the Company’s operating lease agreements entered into require security deposits in the form of cash or an 

unconditional, irrevocable letter of credit. As of December 31, 2021, the Company has entered into standby letters of credit 
totaling $16.2 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.

90

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

9. 

Debt (Continued)

Future Principal Payments

Future principal payments under the Amended Term Loan Facility, the Notes, and the government grants, as of the 

date indicated are as follows:

2022

2023

2024

2025

2026

Thereafter*

Total future principal payments

December 31, 
2021
(in thousands)

$ 

5,753 

5,753 

560,869 

380,000 

— 

3,500 

$ 

955,875 

*

Amounts represent conditional loan obligations that may be forgiven, provided that the Company attains certain 
conditions related to employment levels at 2U’s Lanham, Maryland headquarters.

10. 

Other Income (Expense)

The following table presents the components of other income (expense) on the Company’s consolidated statements of 

operations and comprehensive loss for each of the periods indicated.

Other income (expense):

Gain on sale of investment

Foreign currency loss

Other

Total

Year Ended December 31,

2021

2020

2019

(in thousands)

$ 

27,762  $ 

—  $ 

(2,491)   

(2,947)   

(1,429)   

— 

$ 

22,324  $ 

(1,429)  $ 

— 

(707) 

— 

(707) 

During the year ended December 31, 2021, the Company recorded a gain of $27.8 million on the sale of its interest in 

an education technology company. Refer to Note 7 for further information.

11.

Income Taxes

The following table presents the components of loss before income taxes on the Company’s consolidated statements of 

operations and comprehensive loss for each of the periods indicated.

Loss before income taxes:
United States
Foreign
Total

Year Ended December 31,

2021

2020

2019

(in thousands)

$ 

$ 

(172,856)  $ 
(23,106)   
(195,962)  $ 

(204,522)  $ 
(13,476)   
(217,998)  $ 

(239,629) 
(15,453) 
(255,082) 

91

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

11. 

Income Taxes (Continued)

The following table presents the components of the income tax benefit (provision) on the Company’s consolidated 

statements of operations and comprehensive loss for each of the periods indicated.

Current income tax (provision) benefit:

United States federal and state

Foreign

Total current income tax provision

Deferred income tax (provision) benefit:

United States federal and state

Foreign

Total deferred income tax benefit

Total income tax benefit

Year Ended December 31,

2021

2020

2019

(in thousands)

(240)  $ 

(636)   

(876)  $ 

(347)  $ 

(249)   

(596)  $ 

(97) 

3 

(94) 

(389)  $ 

2,461 

—  $ 

2,110 

2,072  $ 

2,110  $ 

17,459 

2,495 

19,954 

1,196  $ 

1,514  $ 

19,860 

$ 

$ 

$ 

$ 

$ 

The following table presents a reconciliation between the Company’s statutory federal income tax rate and the 

effective tax rate for each of the periods indicated.

U.S. statutory federal income tax rate

Increase (decrease) resulting from:

U.S. state income taxes, net of federal benefits

Foreign tax rate differential

Non-deductible expenses

Non-deductible compensation

Stock-based compensation

Change in valuation allowance

Change in tax rate

Non-deductible impairment

Other

Effective tax rate

Year Ended December 31,

2021

2020

2019

 21.0  %

 21.0  %

 21.0 %

 4.4 

 0.1 

 (0.4) 

 (6.7) 

 6.7 

 5.0 

 0.3 

 (0.4) 

 (2.0) 

 0.7 

 (26.5) 

 (23.9) 

 1.0 

 — 

 1.0 

 0.6  %

 0.1 

 — 

 (0.1) 

 0.7  %

 4.2 

 0.2 

 (0.7) 

 (0.4) 

 0.5 

 (10.9) 

 — 

 (5.8) 

 (0.3) 

 7.8 %

92

 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

11. 

Income Taxes (Continued)

The following table presents the significant components of deferred tax assets and liabilities on the Company’s 

consolidated balance sheets as of each of the dates indicated.

Deferred tax assets:

Accrued expenses and other

Accrued compensation and related benefits

Property and equipment

Stock-based compensation

Deferred income

Lease liability

Interest expense carryforwards

Foreign net operating loss carryforwards

U.S. net operating loss carryforwards

Valuation allowance

Total deferred tax assets

Deferred tax liabilities:

Prepaid expenses and other

Property and equipment

Right-of-use assets

Intangibles

Deferred rent

Nondeductible interest on debt discount

Total deferred tax liabilities

Net deferred tax liabilities

As of December 31,

2021

2020

(in thousands)

$ 

12,095  $ 

10,285 

100 

21,729 

2,096 

24,463 

12,868 

6,981 

8,772 

12,552 

— 

18,811 

1,113 

24,775 

5,393 

3,499 

$ 

$ 

208,585 

186,089 

(190,779)   

(137,767) 

108,423  $ 

123,237 

(322)  $ 

— 

(15,310)   

(70,865)   

(414)   

(197) 

(1,684) 

(16,116) 

(79,164) 

(912) 

(22,083)   

(27,974) 

(108,994)   

(126,047) 

$ 

(571)  $ 

(2,810) 

As of December 31, 2021, the Company had a U.S. net operating loss (“NOL”) carryforward of approximately 
$793.9 million, of which $265.0 million expires between 2029 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 
(the “Tax Act”), U.S. NOLs arising in a tax year ending after 2017 will not expire. The Company has generated $528.9 million 
of U.S. NOLs in tax years ending after 2017. The gross amount of the state NOL carryforwards is equal to or less than the 
federal NOL carryforwards and expires over various periods based on individual state tax laws. The Company also has an NOL 
carryforward of $27.3 million in its foreign jurisdictions, of which $1.2 million begins to expire in 2038 and the remainder will 
not expire. A full valuation allowance has been established to offset its net deferred tax assets in the U.S., and certain foreign 
jurisdictions as the Company has not generated taxable income since inception and does not have sufficient deferred tax 
liabilities to recover the deferred tax assets in these jurisdictions. For the year ended December 31, 2021, the beginning 
valuation allowance in Australia of $0.8 million was released as management has concluded, based on the evaluation of the 
positive and negative evidence, that the deferred tax assets are more likely than not to be realizable. The total increase in the 
valuation allowance was $53.0 million for the year ended December 31, 2021. The utilization of the NOL carryforwards to 
reduce future income taxes will depend on the Company’s ability to generate sufficient taxable income prior to the expiration of 
the NOL carryforwards. Under the provisions of Internal Revenue Code Section 382, certain substantial changes in the 
Company’s ownership may result in a limitation on the amount of U.S. net operating loss carryforwards that could be utilized 
annually to offset future taxable income and taxes payable. The Company does not expect such limitation, if any, to impact the 
use of the net operating losses prior to their expiration.

The Company recorded an income tax expense of approximately $0.4 million for the year ended December 31, 2021 
related to recording of a U.S. deferred tax liability. The deferred tax liability was recorded to account for the book vs. tax basis 
difference related to the acquired edX indefinite lived intangibles (including goodwill), also known as a “naked credit”. The 
deferred tax liability was excluded from sources of future taxable income available to realize definite lived deferred tax assets, 
as the timing of its reversal cannot be predicted due to the indefinite life of the intangibles. In accordance with the Tax Act, 

93

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

11. 

Income Taxes (Continued)

losses generated beginning with the 2018 tax year may be carried forward indefinitely for U.S. federal tax purposes, however 
utilization is limited to offsetting 80% of taxable income in future years. Thus, 80% of the U.S. deferred tax liability related to 
the edX indefinite lived intangibles was able to be used as a source of income to realize the indefinite lived deferred tax assets 
as of December 31, 2021.

A one-time tax benefit of approximately $17.5 million related to the acquisition of Trilogy was included in the 
Company’s income tax benefit for the year ended December 31, 2019. This one-time benefit relates to the release 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. 

As of December 31, 2021 and 2020, the Company has not recognized any amounts for uncertain tax positions.

The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is 

required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no 
longer subject to U.S. federal, state and local tax examinations by tax authorities for the years prior to 2018, though the NOL 
carryforwards can be adjusted upon audit and could impact taxes owed in open tax years. No income tax returns are currently 
under examination by the taxing authorities.

The Tax Act includes Global Intangible Low-Taxed Income (“GILTI”) provisions that require a company to include in 

its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible 
assets. Due to foreign subsidiary losses, this provision did not apply to the Company in 2021. Another significant section of the 
Tax Act, the Base Erosion Anti-Abuse Tax (“BEAT”), did not apply to the Company’s 2021 tax year as the Company’s base 
erosion payments are less than 3% of the Company’s total deductions. As these taxes may become applicable in the future, the 
Company will continue to monitor the potential impact.

12.

Stockholders’ Equity

Common Stock

As of December 31, 2021, 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 December 31, 2021, there were 
75,754,663 shares of common stock outstanding, and the Company had reserved a total of 24,352,021 of its authorized shares 
of common stock for future issuance as follows:

Outstanding restricted stock units

Outstanding performance restricted stock units

Outstanding stock options

Reserved for convertible senior notes

Total shares of common stock reserved for future issuance

Shares Reserved 
for Future 
Issuance

2,613,063 

1,121,277 

3,477,439 

17,140,242 

24,352,021 

On August 6, 2020, the Company sold 6,800,000 shares of the Company’s common stock to the public. The Company 
received net proceeds of $299.8 million, which the Company uses for working capital and other general corporate purposes. 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.

Stock-Based Compensation

The Company maintains two stock-based compensation plans: the Amended and Restated 2014 Equity Incentive Plan 

(the “2014 Plan”) and the 2008 Stock Incentive Plan (the “2008 Plan” and together with the 2014 Plan, the “Stock Plans”). 
Upon the effective date of the 2014 Plan in January 2014, the Company ceased using the 2008 Plan to grant new equity awards. 

94

 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

12. 

Stockholders’ Equity (Continued)

2014 Plan

In February 2014, the Company’s stockholders approved the 2014 Plan. The 2014 Plan provides for the grant of 

incentive stock options to the Company’s employees and for the grant of nonstatutory stock options, restricted stock awards, 
restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to the 
Company’s employees, directors and consultants. The 2014 Plan also provides for the grant of performance-based cash awards 
to the Company’s employees, directors and consultants.

A total of 2,800,000 shares of the Company’s common stock were initially reserved for issuance pursuant to the 2014 
Plan. In addition, the shares reserved for issuance under the 2014 Plan include (a) those shares reserved but unissued under the 
2008 Plan, and (b) shares returned to the 2008 Plan as the result of expiration or termination of awards (provided that the 
maximum number of shares that may be added to the 2014 Plan pursuant to (a) and (b) is 5,943,348 shares). The number of 
shares of the Company’s common stock that may be issued under the 2014 Plan will automatically increase on January 1st of 
each year, for a period of ten years, from January 1, 2015 continuing through January 1, 2024, by 5% of the total number of 
shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, or a lesser number of 
shares as may be determined by the Company’s board of directors. The shares available for future issuance under the 2014 Plan 
increased by 3,782,719 and 3,619,344 on January 1, 2022 and 2021, respectively, pursuant to the automatic share reserve 
increase provision in the 2014 Plan.

In addition, shares subject to outstanding stock awards granted under the 2008 Plan and 2014 Plan that (i) expire or 

terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or 
condition required to vest such shares or otherwise return to the Company; or (iii) are reacquired or withheld (or not issued) to 
satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock 
award, return to the 2014 Plan’s share reserve and become available for future grant under the 2014 Plan, up to the maximum 
number of shares of 5,943,348.

As of December 31, 2021, the Company had 7,465,698 shares available for issuance under the 2014 Plan. Further, as 

of December 31, 2021, under the 2014 Plan, options to purchase 2,593,719 shares of the Company’s common stock were 
outstanding at a weighted-average exercise price of $46.38 per share, and 2,613,063 RSUs and 1,121,277 PRSUs were also 
outstanding.

2008 Plan

In October 2008, the Company’s stockholders approved the Company’s 2008 Plan. The 2008 Plan was most recently 

amended on May 8, 2013. The 2008 Plan provided for the grant of incentive stock options to the Company’s employees and the 
employees of the Company’s subsidiaries, and for the grant of nonstatutory stock options, restricted stock awards and deferred 
stock awards to the Company’s employees, directors and consultants. The Company ceased granting equity awards under the 
2008 Plan, and accordingly, as of January 30, 2014, no shares were available for future grant under the 2008 Plan. However, the 
2008 Plan will continue to govern the terms and conditions of outstanding awards granted thereunder.

As of December 31, 2021, options to purchase 883,720 shares of the Company’s common stock were outstanding 

under the 2008 Plan at a weighted-average exercise price of $6.04 per share.

Employee Stock Purchase Plan

The Company also has an ESPP. The Company’s ESPP provides (i) for two offering periods each year and (ii) that the 

purchase price for shares of the Company’s common stock purchased under the ESPP will be 90% of the lesser of the fair 
market value of the Company’s common stock on the purchase date or the fair market value of the Company’s common stock 
on the first day of the offering period. Notwithstanding the foregoing, the compensation committee of the Company’s board of 
directors may exercise its discretion, subject to certain conditions, to make changes to certain aspects of the ESPP including, but 
not limited to, the length of the offering periods and that the purchase price will be 85% of the lesser of the fair market value of 
the Company’s common stock on the purchase date or the fair market value of 2U’s common stock on the first day of the 
offering period. Participating eligible employees select a rate of payroll deduction between 1% and 15% of their salary or wage 
compensation received from the Company as in effect at the start of the offering period, with the aggregate purchase limited to 
a maximum fair market value of $25,000 per employee per year. Participation in the ESPP began on January 1, 2018. The ESPP 
is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. A maximum of 
1,000,000 shares of 2U’s common stock may be issued under the ESPP, subject to adjustments for certain capital transactions.

95

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

12. 

Stockholders’ Equity (Continued)

During the years ended December 31, 2021 and 2020, an aggregate of 150,685 and 146,570 shares, respectively, of the 

Company’s common stock were purchased in accordance with the ESPP. Net proceeds from the issuance of these shares were 
$3.6 million and $4.0 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, 
515,709 shares remained available for purchase under the ESPP.

Stock-Based Compensation Expense

The following table presents stock-based compensation expense related to the Stock Plans and the ESPP, contained on 

the following line items on the Company’s consolidated statements of operations and comprehensive loss for each of the 
periods indicated. The Company accounts for forfeitures as they occur.

Year Ended December 31,

2021

2020

2019

Curriculum and teaching

Servicing and support

Technology and content development

Marketing and sales

General and administrative

(in thousands)

$ 

69  $ 

230  $ 

15,352 

11,832 

6,711 

63,802 

14,033 

12,014 

8,217 

47,548 

Total stock-based compensation expense

$ 

97,766  $ 

82,042  $ 

45 

8,915 

8,241 

7,021 

27,282 

51,504 

Restricted Stock Units

The 2014 Plan provides for the issuance of RSUs to employees and consultants. RSUs generally vest over a three- or 

four-year period. 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.

Throughout 2021 and 2020, the Company granted RSUs under the 2014 Plan to the Company’s directors and certain 

of the Company’s employees and certain consultants. The terms of the restricted stock unit grants under the 2014 Plan, 
including the vesting periods, are determined by the Company’s board of directors or the compensation committee thereof. 
Restricted stock units are generally subject to service-based vesting conditions and vest at various times from the date of the 
grant, with most restricted stock units vesting in equal annual tranches, generally over a period of three to four years.

The following table presents a summary of the Company’s RSU activity for the period indicated.

Outstanding balance as of December 31, 2020

Granted

Vested

Forfeited

Outstanding balance as of December 31, 2021

Number of 
Units

Weighted-Average
Grant Date Fair
Value per Share

3,010,019  $ 

1,470,090 

(1,480,281) 

(386,765) 

2,613,063  $ 

29.41 

37.07

31.31

31.76

32.29 

The total compensation cost related to the unvested RSUs not yet recognized as of December 31, 2021 was 

$56.6 million and will be recognized over a weighted-average period of approximately 1.4 years.

Performance Restricted Stock Units

The 2014 Plan provides for the issuance of PRSUs to employees and consultants. PRSUs generally include both 

service conditions and market conditions related to total shareholder return targets relative to that of companies comprising the 
Russell 3000 Index.

96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

12. 

Stockholders’ Equity (Continued)

During the fourth quarter of 2019, the Company granted 1.3 million PRSUs with a weighted-average grant date fair 
value per share of $22.94 to certain of its employees. These PRSU awards are subject to vesting over a period of three years, 
based on the Company’s stock price achieving predetermined total shareholder return targets relative to that of companies 
comprising the Russell 3000 Index during each of the one, two and three-year vesting periods. The PRSU award agreements 
provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities, depending on the 
achievement of market-based targets. The expense recognized each period is determined at the time of grant and not subject to 
fluctuation due to the achievement of market-based targets. In each of the fourth quarters ending 2020 and 2021, as a result of 
the achievement of market-based targets for the first and second performance periods of these PRSUs, 200% of the eligible 
units vested.

During the first quarter of 2020, as part of its annual equity awards cycle, the Company awarded 1.9 million PRSUs 
with an aggregate intrinsic value of $37.8 million. Of these PRSUs, 0.6 million were granted in January 2020 with a weighted-
average grant date fair value per share of $22.45, and 0.6 million were granted in January 2021 with a weighted-average grant 
date fair value per share of $61.14. These PRSU awards are subject to vesting over respective one year periods, based on the 
Company’s stock price achieving predetermined total shareholder return targets relative to that of companies comprising the 
Russell 3000 Index. The PRSU award agreements provide that the quantity of units subject to vesting may range from 200% to 
0% of the granted quantities for each of the first and second performance periods, depending on the achievement of market-
based targets. The expense recognized each period is determined at the time of grant and not subject to fluctuation due to the 
achievement of market-based targets. In January 2021, as a result of the achievement of market-based targets for the first 
performance period of these PRSUs, 200% of the granted quantities vested. In January 2022, as a result of not achieving the 
market-based targets for the second performance period of these PRSUs, 0% of the granted quantities vested. Achievement 
percentages applicable to each performance period will be determined prior to the grant date. 

During the first quarter of 2021, as part of its annual equity awards cycle, the Company awarded 0.4 million PRSUs 
with an aggregate intrinsic value of $20.0 million. Of these PRSUs, 0.1 million were granted with a weighted-average grant 
date fair value per share of $40.69. Certain of these PRSU awards are subject to vesting over a period of one year, while certain 
other of these awards are subject to vesting over a period of three years, all of which are based on the Company’s internal 
financial performance achieving predetermined targets. The PRSU award agreements provide that the quantity of units subject 
to vesting may range from 200% to 0% of the granted quantities for the first performance period, depending on the achievement 
of internal financial performance-based targets. The expense recognized each period is estimated at the time of grant and is 
subject to fluctuation due to the achievement of internal financial performance-based targets. In January 2022, as a result of the 
achievement of internal financial performance-based targets for the first performance period of these PRSUs, 112.7% of the 
goals were achieved, and the PRSUs subject to a one-year service period vested. Achievement percentages applicable to each 
performance period will be determined prior to the grant date.

During the first quarter of 2021, as part of its annual equity awards cycle, the Company granted 0.2 million PRSUs 
with an aggregate intrinsic value of $9.1 million and a weighted-average grant date fair value of $61.94. These PRSU awards 
are subject to vesting over a single three-year period, based on the Company’s stock price achieving predetermined total 
shareholder return targets relative to that of companies comprising the Russell 3000 Index. The PRSU award agreements 
provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities for the performance 
period, depending on the achievement of market-based targets. The expense recognized each period is determined at the time of 
grant and not subject to fluctuation due to the achievement of market-based targets. 

The Company values PRSUs subject to market-based vesting conditions using a Monte Carlo valuation model, which 

requires the input of subjective assumptions, including the risk-free interest rate, expected life, expected stock price volatility 
and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. 
Treasury securities consistent with the performance period. The expected life is consistent with the performance period of the 
awards. Expected volatility is based on the historical volatility of the Company’s common stock over the estimated expected 
life. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which is 
consistent with the Company’s history of not declaring or paying dividends to date.

The following table summarizes the assumptions used for estimating the fair values of the PRSUs subject to market-

based vesting conditions that were granted for the periods presented.

97

2U, Inc.
Notes to Consolidated Financial Statements (Continued)

12. 

Stockholders’ Equity (Continued)

Risk-free interest rate

Expected term (years)

Expected volatility

Dividend yield

Year Ended December 31,

2021

0.10% – 0.26%

1.00 – 3.00

85% – 89%

0%

2020

1.51%

1.00

75%

0%

The following table presents a summary of the Company’s PRSU activity for the period indicated.

Outstanding balance as of December 31, 2020

Granted

Vested

Forfeited

Outstanding balance as of December 31, 2021

Number of
Units

Weighted-Average 
Grant Date Fair 
Value per Share

1,355,296  $ 

1,916,354 

(1,928,729) 

(221,644) 

1,121,277  $ 

23.51 

41.10

24.25

42.17

48.62 

The total compensation cost related to the unvested PRSUs not yet recognized as of December 31, 2021 was 

$11.5 million and will be recognized over a weighted-average period of approximately 1.3 years.

Stock Options

The Stock Plans provide for the issuance of stock options to employees and consultants. Stock options issued under the 

Stock Plans generally are exercisable for periods not to exceed 10 years and generally vest over four years.

The terms of stock option grants, including the exercise price per share and vesting periods, are determined by the 

Company’s board of directors or the compensation committee thereof. Stock options are granted at exercise prices of not less 
than the estimated fair market value of the Company’s common stock at the date of grant. Stock options are generally subject to 
service-based vesting conditions and vest at various times from the date of the grant, with most options vesting in tranches, 
generally over a period of four years. Stock options granted under the 2014 Plan and the 2008 Plan are subject to service-based 
vesting conditions, and generally expire ten years from the grant date.

The Company values stock options using the Black-Scholes option pricing model, which requires the input of 

subjective assumptions, including the risk-free interest rate, expected life of the option, expected stock price volatility and 
dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury 
securities consistent with the expected term of the Company’s employee stock options. The expected life represents the period 
of time the stock options are expected to be outstanding and is based on the “simplified method.” Under the “simplified 
method,” the expected life of an option is presumed to be the mid-point between the vesting date and the end of the contractual 
term. The Company uses the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable 
basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on the historical 
volatility of the Company’s common stock over the estimated expected life of the stock options. The Company assumes no 
dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company’s history 
of not declaring or paying dividends to date.

The following table summarizes the assumptions used for estimating the fair value of the stock options granted for the 

periods presented. No stock options were granted during the year ended December 31, 2021.

98

 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

12. 

Stockholders’ Equity (Continued)

Risk-free interest rate

Expected term (years)

Expected volatility

Dividend yield

Year Ended December 31,

2020

1.5%

6.04

64%

0%

2019

1.6% - 2.6%

5.96 - 6.08

45% - 64%

0%

The following table presents a summary of the Company’s stock option activity for the period indicated.

Number of
Options

Weighted-Average
Exercise Price per
Share

Weighted-Average
Remaining
Contractual Term
(in years)

Aggregate
Intrinsic
Value
(in thousands)

Outstanding balance as of December 31, 2020

3,916,867  $ 

Granted

Exercised

Forfeited

Expired

Outstanding balance as of December 31, 2021

Exercisable as of December 31, 2021

— 

(326,430)   

(60,388)   

(52,610)   

3,477,439 

3,154,910  $ 

35.63 

— 

21.29 

55.64 

68.81 

36.13 

32.62 

5.08 $ 

59,906 

— 

1.68

3.87  

3.58 $ 

16,246 

16,191 

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2020 and 

2019 was $11.48 and $28.49 per share, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2021, 2020 and 2019 was 

$6.8 million, $8.7 million and $15.4 million, respectively.

The total unrecognized compensation cost related to the unvested options as of December 31, 2021 was $8.9 million 

and will be recognized over a weighted-average period of approximately 1.7 years.

13. 

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 each of the 
periods indicated.

Stock options

Restricted stock units

Performance restricted stock units

Shares related to convertible senior notes
Total antidilutive securities

Year Ended December 31,

2021

2020

2019

3,477,439 

2,613,063 

1,121,277 

13,443,374 
20,655,153 

3,916,867 

3,010,019 

1,355,296 

3,432,837 
11,715,019 

4,373,895 

2,281,142 

1,413,773 

— 
8,068,810 

The following table presents the calculation of the Company’s basic and diluted net loss per share for each of the 

periods indicated. The calculation of diluted net loss per share reflects the Company’s intent to settle conversions of the Notes 
through a combination settlement, which contemplates repayment in cash of the principal amount and repayment in shares of 
the Company’s common stock of any excess of the conversion value over the principal amount. 

99

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

13. 

Net Loss per Share (Continued)

Numerator (in thousands):

Net loss

Denominator:

Year Ended December 31,

2021

2020

2019

$ 

(194,766)  $ 

(216,484)  $ 

(235,222) 

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

74,580,115 

67,142,976 

61,393,666 

Net loss per share, basic and diluted

$ 

(2.61)  $ 

(3.22)  $ 

(3.83) 

14. 

Segment and Geographic Information

The Company has two reportable segments: the Degree Program Segment and the Alternative Credential Segment. 

The Company’s reportable segments are determined based on (i) financial information reviewed by the chief operating decision 
maker, the Chief Executive Officer (“CEO”), (ii) internal management and related reporting structure, and (iii) the basis upon 
which the CEO makes resource allocation decisions. The Company’s Degree Program Segment includes the technology and 
services provided to nonprofit colleges and universities to enable the online delivery of degree programs. The Company’s 
Alternative Credential Segment includes the premium online executive education programs and technical skills-based boot 
camps provided through relationships with nonprofit colleges and universities.

Significant Customers

For the year ended December 31, 2021, no university clients accounted for 10% or more of the Company’s 
consolidated revenue. For the year ended December 31, 2020, one university client in the Degree Program Segment accounted 
for 10% or more of the Company’s consolidated revenue, contributing $74.6 million, or approximately 10% of the Company’s 
consolidated revenue. For the year ended December 31, 2019, one university client in the Degree Program Segment accounted 
for 10% or more of the Company’s consolidated revenue, contributing $83.5 million, or approximately 15% of the Company’s 
consolidated revenue.

As of December 31, 2021, two university clients in the Degree Program Segment each accounted for 10% or more of 

the Company’s consolidated accounts receivable, net balance, as follows: $9.8 million and $8.8 million, which equaled 14% 
and 13% of the Company’s consolidated accounts receivable, net balance, respectively. As of December 31, 2020, two 
university clients in the Degree Program Segment each accounted for 10% or more of the Company’s consolidated accounts 
receivable, net balance, contributing $5.8 million and $5.2 million, or approximately 12% and 11% of the Company’s 
consolidated accounts receivable, net balance, respectively.

100

 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

14. 

Segment and Geographic Information (Continued)

Segment Performance

The following table presents financial information regarding each of the Company’s reportable segment’s results of 

operations for each of the periods indicated.

Revenue by segment*

Degree Program Segment

Alternative Credential Segment

Total revenue

Segment profitability**

Degree Program Segment

Alternative Credential Segment

Total segment profitability

Segment profitability margin***

Degree Program Segment

Alternative Credential Segment

Total segment profitability margin

Year Ended December 31,

2021

2020

2019

(in thousands)

$ 

592,288 

$ 

486,676 

$ 

417,206 

353,394 

287,857 

157,465 

$ 

945,682 

$ 

774,533 

$ 

574,671 

$ 

126,141 

(59,564) 

$ 

66,577 

$ 

$ 

49,607 

$ 

5,770 

(33,534) 

(29,716) 

16,073 

$ 

(23,946) 

 21 %

 (17) %

 7 %

 10 %

 (12) %

 2 %

 1 %

 (19) %

 (4) %

*

**

The Company has excluded immaterial amounts of intersegment revenues from the years ended December 31, 2021, 
2020 and 2019.
The Company defines segment profitability as net income or net loss, as applicable, before net interest income 
(expense), other income (expense), net, taxes, depreciation and amortization expense, deferred revenue fair value 
adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain 
litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment 
charges, losses on debt extinguishment, 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.

101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

14. 

Segment and Geographic Information (Continued)

The following table presents a reconciliation of the Company’s total segment profitability to net loss for each of the 

periods indicated.

Net loss

Adjustments:

Stock-based compensation expense

Other (income) expense, net

Net interest expense

Income tax benefit

Depreciation and amortization expense

Loss on debt extinguishment

Impairment charge

Other*

Total adjustments

Total segment profitability

Year Ended December 31,

2021

2020

2019

(in thousands)

$ 

(194,766)  $ 

(216,484)  $ 

(235,222) 

97,766 

(22,324)   

49,747 

82,042 

1,429 

25,963 

(1,196)   

(1,514)   

108,448 

1,101 

— 

27,801 

261,343 

96,469 

11,671 

— 

16,497 

232,557 

51,504 

707 

7,619 

(19,860) 

69,843 

— 

70,379 

31,084 

211,276 

$ 

66,577  $ 

16,073  $ 

(23,946) 

*

Includes (i) transaction and integration costs of $16.9 million, $2.3 million and $8.0 million for the years ended 
December 31, 2021, 2020 and 2019, respectively, (ii) restructuring-related costs of $8.5 million, $6.8 million and 
$10.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, (iii) stockholder activism and 
litigation-related costs of $2.4 million, $7.4 million and $1.0 million for the years ended December 31, 2021, 2020 
and 2019, respectively, and (iv) deferred revenue fair value adjustments of $11.2 million for the year ended December 
31, 2019.

The following table presents the Company’s total assets by segment as of each of the dates indicated.

Total assets

Degree Program Segment

Alternative Credential Segment

Total assets

Geographical Information

December 31,
2021

December 31,
2020

(in thousands)

$ 

546,572  $ 

1,562,434 

830,706 

713,558 

$ 

2,109,006  $ 

1,544,264 

The Company’s non-U.S. revenue is based on the currency of the country in which the university client primarily 

operates. The Company’s non-U.S. revenue was $98.5 million, $73.0 million and $40.8 million for the years ended December 
31, 2021, 2020 and 2019, respectively. Substantially all of the Company’s non-U.S. revenue for each of the aforementioned 
periods was sourced 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 December 31, 2021 and 2020 totaled approximately $3.3 million and $1.6 million, 
respectively.

102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

15. 

Receivables and Contract Liabilities

Trade Accounts Receivable

The Company’s trade accounts receivable balances relate to amounts due from students or customers occurring in the 

normal course of business. Trade accounts receivable balances have a term of less than one year and are included in accounts 
receivable, net on the Company’s consolidated balance sheets. The following table presents the Company’s trade accounts 
receivable in each segment as of each of the dates indicated.

Degree Program Segment accounts receivable

Degree Program Segment unbilled revenue

Alternative Credential Segment accounts receivable

Total

Less: Provision for credit losses

Trade accounts receivable, net

December 31, 
2021

December 31, 
2020

(in thousands)

$ 

31,762  $ 

4,440 

42,771 

78,973 

(11,686)   

$ 

67,287  $ 

16,424 

6,072 

29,717 

52,213 

(5,936) 

46,277 

The following table presents the change in provision for credit losses for trade accounts receivable on the Company’s 

consolidated balance sheets for the period indicated.

Balance as of December 31, 2020

Current period provision

Amounts written off

Amounts recovered

Foreign currency translation adjustments

Balance as of December 31, 2021

Other Receivables

Provision for 
Credit Losses

(in thousands)

$ 

5,936 

6,794 

(157) 

(874) 

(13) 

$ 

11,686 

The Company’s other receivables are comprised of amounts due under tuition payment plans with extended payment 

terms from students enrolled in certain of the Company’s alternative credential offerings. These payment plans, which are 
managed and serviced by third-party providers, are designed to assist students with paying tuition costs after all other student 
financial assistance and scholarships have been applied. The associated receivables generally have payment terms that range 
from 12 to 42 months and are recorded net of any implied pricing concessions, which are determined based on collections 
history, market data and any time value of money component. There are no fees or origination costs included in these 
receivables. The carrying value of these receivable balances approximate their fair value. The following table presents the 
components of the Company’s other receivables, net, as of each of the dates indicated.

Other receivables, amortized cost
Less: Provision for credit losses
Other receivables, net
Other receivables, net, current
Other receivables, net, non-current

103

December 31, 
2021

December 31, 
2020

(in thousands)

52,428  $ 
(1,421)   
51,007  $ 
29,439  $ 
21,568  $ 

25,587 
(179) 
25,408 
1,076 
24,332 

$ 

$ 
$ 
$ 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

15. 

Receivables and Contract Liabilities (Continued)

The following table presents the change in provision for credit losses for other receivables on the Company’s 

consolidated balance sheets for the period indicated.

Balance as of December 31, 2020

Current period provision

Balance as of December 31, 2021

Provision for 
Credit Losses
(in thousands)

$ 

$ 

179 

1,242 

1,421 

The Company considers receivables to be past due when amounts contractually due under the extended payment plans 

have not been paid. As of December 31, 2021, 93% of other receivables, net due under extended payment plans were current.

At the time of origination, the Company categorizes its other receivables using a credit quality indicator based on the 

credit tier rankings obtained from the third-party providers that manage and service the payment plans. The third-party 
providers utilize credit rating agency data to determine the credit tier rankings. The Company monitors the collectability of its 
other receivables on an ongoing basis. The adequacy of the allowance for credit losses is determined through analysis of 
multiple factors, including industry trends, portfolio performance, and delinquency rates. The following tables present other 
receivables, at amortized cost including interest accretion, by credit quality indicator and year of origination, as of the dates 
indicated. 

December 31, 2021

Year of Origination

2021

2020

2019

2018

Total

(in thousands)

$ 

$ 

18,466  $ 

14,352 

8,135 

40,953  $ 

1,635  $ 
2,992 

2,802 

7,429  $ 

24  $ 

1,312 

1,873 

3,209  $ 

115  $ 
392 

330 

837  $ 

20,240 

19,048 

13,140 

52,428 

December 31, 2020

Year of Origination

2020

2019

2018

Total

$ 

$ 

9,506  $ 

7,821 

4,892 
22,219  $ 

(in thousands)

28  $ 

1,126 

1,453 

2,607  $ 

104  $ 
356 

301 

761  $ 

9,638 

9,303 

6,646 
25,587 

Credit Quality Tier

High

Mid

Low

Total

Credit Quality Tier

High

Mid

Low

Total

104

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2U, Inc.
Notes to Consolidated Financial Statements (Continued)

15. 

Receivables and Contract Liabilities (Continued)

Contract Liabilities

The Company’s deferred revenue represents contract liabilities. The Company generally receives payments from 

Degree Program Segment university clients early in each academic term and from Alternative Credential Segment students, 
either in full upon registration for the course or in full before the end of the course based on a payment plan, prior to completion 
of the service period. These payments are recorded as deferred revenue until the services are delivered or until the Company’s 
obligations are otherwise met, at which time revenue is recognized. The following table presents the Company’s contract 
liabilities in each segment as of each of the dates indicated.

Degree Program Segment deferred revenue

Alternative Credential Segment deferred revenue

Total contract liabilities

December 31, 
2021

December 31, 
2020

(in thousands)

3,462  $ 

88,464 

91,926  $ 

1,714 

73,779 

75,493 

$ 

$ 

For the Degree Program Segment, revenue recognized during the years ended December 31, 2021 and 2020 that was 

included in the deferred revenue balance that existed at the end of each preceding year was $1.7 million and $2.2 million, 
respectively.

For the Alternative Credential Segment, revenue recognized during the years ended December 31, 2021 and 2020 that 

was included in the deferred revenue balance that existed at the end of each preceding year was $71.9 million and 
$46.6 million, respectively.

Contract Acquisition Costs

The Degree Program Segment had $0.5 million and $0.5 million of net capitalized contract acquisition costs recorded 

primarily within other assets, non-current on the Company’s consolidated balance sheets as of December 31, 2021 and 2020, 
respectively. For the years ended December 31, 2021 and 2020, the Company capitalized an immaterial amount of contract 
acquisition costs and recorded an immaterial amount of associated amortization expense in the Degree Program Segment.

16. 

Retirement Plan

The Company has established a 401(k) plan for eligible employees to contribute up to 100% of their compensation, 
limited by the IRS-imposed maximum contribution amount. The Company matches 100% of the first 2% of each employee’s 
contribution, and 50% of the next 4% of each employee’s contribution, each plan year. For the years ended December 31, 2021, 
2020 and 2019, the Company made employer contributions of $7.8 million, $3.6 million and $3.0 million, respectively.

17. 

Subsequent Event

Subsequent to year-end and through the date of this filing, the Company has experienced a significant decline in its 
market capitalization, from $1.5 billion to $0.8 billion. Management is evaluating whether this decline represents a triggering 
event for assessing the goodwill and indefinite-lived intangible asset balances for impairment in the first quarter of 2022. As of 
December 31, 2021, the balances of the Company’s goodwill and indefinite-lived intangible asset were $834.5 million and 
$255.0 million, respectively.

105

 
 
 
 
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.    Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief 

Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to the Securities 
Exchange Act of 1934 Rules 13a-15 and 15d-15 as of the end of the period covered by this report. Based on that evaluation, our 
Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for our 

company. With the participation of our Chief Executive Officer and Chief Financial Officer, management conducted an 
evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the Internal 
Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 
Based on this evaluation, management concluded that our internal control over financial reporting was effective as of 
December 31, 2021.

We completed the edX Acquisition on November 16, 2021, which represented 1% of our total assets as of 

December 31, 2021 and 1% of our total revenue for the year ended December 31, 2021. As the edX Acquisition was completed 
during the fourth quarter of 2021, the scope of our evaluation of the effectiveness of our internal control over financial reporting 
does not include edX.

Our independent registered public accounting firm, KPMG LLP, has issued an audit report on the effectiveness of our 

internal control over financial reporting, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

We made no changes in our internal control over financial reporting during the three months ended December 31, 2021 

that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other 
than changes in controls to integrate the business we acquired in the edX acquisition.

Item 9B.    Other Information

(a) On November 4, 2021, we entered into (i) a First Amendment to Term Loan Credit and Guaranty Agreement (the “First 
Amendment”) with certain of our subsidiaries, Alter Domus (US) LLC, as administrative agent, and the lenders party thereto 
and (ii) a Joinder Agreement (collectively, with the First Amendment, the “Facility Amendments”) with Alter Domus (US) 
LLC, as administrative agent, and the lenders party thereto. The Facility Amendments amend the Term Loan Agreement 
primarily to provide for an incremental facility to us in an original principal amount of $100 million, the proceeds of which may 
be used for general corporate purposes.

Item 9C.    Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

106

PART III

We will file a definitive Proxy Statement for our 2022 Annual Meeting of Stockholders or our 2022 Proxy Statement 

with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain 
information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2022 
Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10.    Directors, Executive Officers and Corporate Governance

The information required by Item 10 will be contained in our 2022 Proxy Statement under the captions “Board of 

Directors and Committees,” “Election of Directors,” “Management,” “Code of Business Conduct and Ethics for Employees, 
Executive Officers and Directors” and, if applicable, “Delinquent Section 16(a) Reports” or in an amendment on Form 10-K/A 
and is incorporated herein by reference.

Item 11.    Executive Compensation

The information required by Item 11 will be contained in our 2022 Proxy Statement under the captions “Executive 

Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” or in an 
amendment on Form 10-K/A and is incorporated herein by reference. 

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 will be contained in our 2022 Proxy Statement under the captions “Security 

Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity 
Compensation Plans” or in an amendment on Form 10-K/A and is incorporated herein by reference. 

Item 13.    Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 will be contained in our 2022 Proxy Statement under the captions “Transactions 

with Related Parties” and “Director Independence” or in an amendment on Form 10-K/A and is incorporated herein by 
reference.

Item 14.    Principal Accounting Fees and Services

The information required by Item 14 will be contained in our 2022 Proxy Statement under the caption “Independent 

Registered Public Accounting Firm Fees” and is incorporated herein by reference.

107

Item 15.    Exhibits, Financial Statement Schedules

(a)   Exhibits

PART IV

See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K.

(b)   Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts (in thousands)

Provision for credit losses for trade accounts receivable:

Year ended December 31, 2021

Year ended December 31, 2020

Year ended December 31, 2019

Income tax valuation allowance:

Year ended December 31, 2021

Year ended December 31, 2020

Year ended December 31, 2019

Balance at 
Beginning of 
Period

Additions 
Charged to 
Expense/Against 
Revenue

Deductions

Balance at End 
of Period

5,936  $ 

6,794  $ 

(1,044)  $ 

11,686 

1,331 

4,642 

257  $ 

1,425  $ 

(37)   

(351)  $ 

5,936 

1,331 

Balance at 
Beginning of 
Period

Additions

Deductions

Balance at End 
of Period

137,767  $ 

53,012  $ 

116,244 

21,523 

—  $ 

— 

88,061  $ 

45,642  $ 

(17,459)  $ 

190,779 

137,767 

116,244 

$ 

$ 

$ 

$ 

Other financial statement schedules have been omitted because they are not applicable, not material, or the required 

information is presented in the Consolidated Financial Statements or notes thereto. 

Item 16.    Form 10-K Summary

None.

108

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly 

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized:

SIGNATURES

2U, Inc.
March 01, 2022
By:

/s/ CHRISTOPHER J. PAUCEK
Name:
Title:

Christopher J. Paucek
Chief Executive Officer and Director

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and 
appoints Christopher J. Paucek, Paul S. Lalljie and Matthew J. Norden, or each of them, as his or her true and lawful attorneys-
in-fact and agents, each with the full power of substitution, for him or her and in his or her name, place or stead, in any and all 
capacities, to sign any amendments to this report and to file the same, with exhibits thereto, and other documents in connection 
therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-
fact, or substitute or substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been 

signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

109

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Signature

Title

Date

/s/ CHRISTOPHER J. PAUCEK
Christopher J. Paucek

  Chief Executive Officer and Director 

(Principal Executive Officer)

  Chief Financial Officer (Principal 

Financial Officer)

  Chief Accounting Officer (Principal 

Accounting Officer)

March 1, 2022

March 1, 2022

March 1, 2022

/s/ PAUL S. LALLJIE
Paul S. Lalljie

/s/ JOHN B. ELLIS
John B. Ellis

/s/ PAUL A. MAEDER
Paul A. Maeder

/s/ TIMOTHY M. HALEY

Timothy M. Haley

/s/ JOHN M. LARSON

John M. Larson

/s/ CORETHA M. RUSHING

Coretha M. Rushing

/s/ ROBERT M. STAVIS

Robert M. Stavis

/s/ SALLIE L. KRAWCHECK

Sallie L. Krawcheck

/s/ EARL LEWIS

Earl Lewis

/s/ EDWARD S. MACIAS

Edward S. Macias

/s/ GREGORY PETERS

Gregory Peters

/s/ ALEXIS MAYBANK

Alexis Maybank

Director and Chairman of the Board

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

March 1, 2022

Director

Director

Director

Director

Director

Director

Director

Director

Director

110

 
 
 
 
 
 
 
 
 
 
 
 
SPECIAL NOTE REGARDING EXHIBITS

In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are 

included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure 
information about the Company or the other parties to the agreements. The agreements contain representations and warranties 
by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit 
of the other parties to the applicable agreement and:

•

•

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one 
of the parties if those statements prove to be inaccurate;

have been qualified by disclosures that were made to the other party in connection with the negotiation of the 
applicable agreement, which disclosures are not necessarily reflected in the agreement;

• may apply standards of materiality in a way that is different from what may be viewed as material to you or other 

investors; and

•

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the 
agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were 

made or at any other time. Additional information about the Company may be found elsewhere in this Annual Report on 
Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://
www.sec.gov.

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is 

responsible for considering whether additional specific disclosures of material information regarding material contractual 
provisions are required to make the statements in this report not misleading.

111

2.3

3.1

3.2

4.1

4.2

4.3

4.4

Exhibit
Number

2.1

Exhibit Index

Description

Form

File No.

Exhibit
Number

Filing Date

Filed/
Furnished 
Herewith

Agreement and Plan of Merger and 
Reorganization, dated as of April 7, 2019, by 
and among 2U, Inc., Skywalker Purchaser, 
LLC, Skywalker Sub, Inc., Fortis Advisors 
LLC, as stockholder representative and Trilogy 
Education Services, Inc.

8-K

001-36376

2.1

April 8, 2019

2.2** Membership  Interest Purchase Agreement, 

dated as of June 28, 2021, by and among 2U, 
Inc., edX Inc. and Circuit Sub LLC. Interest 
Purchase Agreement, dated as of June 28, 2021, 
by and among 2U, Inc., edX Inc. and Circuit 
Sub LLC.

Amendment No. 1 to Membership Interest 
Purchase Agreement, dated as of November 16, 
2021, by and between 2U, Inc. and edX Inc.

Amended and Restated Certificate of 
Incorporation of the Registrant.

Amended and Restated Bylaws of the 
Registrant.

8-K

001-36376

2.1

June 29, 2021

X

8-K

001-36376

3.1

April 4, 2014

8-K

001-36376

3.2

April 4, 2014

Specimen stock certificate evidencing shares of 
Common Stock.

S-1/A 333-194079

4.2

March 17, 2014

Description of Registrant’s Securities 
Registered Pursuant to Section 12 of the 
Securities Exchange Act of 1934.

Indenture, dated as of April 23, 2020, between 
2U, Inc. and Wilmington Trust, National 
Association.

Form of 2.25% Convertible Senior Note due 
May 1, 2025 (included as Exhibit A to Exhibit 
4.1).

10.1*

Services Agreement, by and between the 
Registrant and University of Southern 
California, on behalf of the USC Rossier School 
of Education, dated as of October 29, 2008, as 
amended to date.

10.2* Master Services Agreement, by and between the 
Registrant and University of Southern 
California, on behalf of School of Social Work, 
dated as of April 12, 2010, as amended.

10.2.1*

Second Addendum to the Master Services 
Agreement, by and between the Registrant and 
University of Southern California, on behalf of 
the School of Social Work, dated as of 
March 14, 2014.

10.2.2* Amendment to Master Services Agreement, by 

and between the Registrant and University of 
Southern California, on behalf of School of 
Social Work, dated as of November 5, 2015.

10.3†

10.4†

Fourth Amended and Restated 2008 Stock 
Incentive Plan, as amended to date.

Form of Incentive Stock Option Agreement 
under 2008 Stock Incentive Plan.

10-K 001-36376

4.2

February 28, 2020

8-K

001-36376

4.1

April 27, 2020

8-K

001-36376

4.2

April 27, 2020

S-1

333-194079

10.1

February 21, 2014

S-1

333-194079

10.2

February 21, 2014

S-1/A 333-194079

10.2.1

March 17, 2014

10-K 001-36376

10.2.2

March 10, 2016

S-1

333-194079

10.7

February 21, 2014

S-1

333-194079

10.8

February 21, 2014

112

 
 
 
 
 
 
 
 
 
Exhibit
Number
10.5†

10.6†

10.7†

10.8†

10.9†

10.10†

10.11†

Description

Form of Non-Qualified Stock Option 
Agreement under 2008 Stock Incentive Plan.

Amended and Restated 2014 Equity Incentive 
Plan.

Form of Stock Option Agreement under 
Amended and Restated 2014 Equity Incentive 
Plan.

Form of Restricted Stock Unit Award 
Agreement under Amended and Restated 2014 
Equity Incentive Plan.

Form of Performance Stock Unit Award 
Agreement under Amended and Restated 2014 
Equity Incentive Plan.

Form of Performance Stock Unit Award 
Agreement under Amended and Restated 2014 
Equity Incentive Plan.

Form of Restricted Stock Unit Award 
Agreement under Amended and Restated 2014 
Equity Incentive Plan.

Form
S-1

File No.
333-194079

Exhibit
Number
10.9

Filing Date
February 21, 2014

Filed/
Furnished 
Herewith

10-Q 001-36376

10.3

November 9, 2021

10-Q 001-36376

10.2

August 2, 2018

10-K 001-36376

10.8

February 28, 2020

10-Q 001-36376

10.3

November 12, 2019

10-K 001-36376

10.10

February 28, 2020

10-Q 001-36376

10.1

April 28, 2021

10.12†*

Form of Performance Stock Unit Award 
Agreement under Amended and Restated 2014 
Equity Incentive Plan.

10-Q 001-36376

10.2

April 28, 2021

10.13†

Form of Severance Pay and Change in Control 
Plan.

8-K

001-36376

10.1

February 21, 2020

10.13.1† First Amendment to the 2U, Inc. Severance Pay 

10-Q 001-36376

10.4

April 30, 2020

10.14†

10.15†

10.16†

10.17†

10.18†

10.19†

10.20†

10.21†

and Change in Control Plan.

Summary of Non-Employee Director 
Compensation.

Confidential Information, Invention 
Assignment, Work for Hire, Noncompete and 
No Solicit/No Hire Agreement, dated as of 
February 28, 2009, by and between the 
Registrant and Christopher J. Paucek.

Form of Indemnification Agreement with 
directors and executive officers.

Offer letter agreement, dated as of May 20, 
2018, between Mark Chernis and 2U, Inc.

Offer letter agreement, dated as of October 10, 
2019, between Paul S. Lalljie and 2U, Inc.

Employee Intellectual Property, Non-
Competition, and Non-Solicitation Agreement, 
dated October 10, 2019, between Paul S. Lalljie 
and 2U, Inc.

Separation and Transition Agreement, dated 
October 17, 2019, between Catherine A. 
Graham and 2U, Inc.

Separation, Consulting and Release Agreement, 
dated November 10, 2021 by and between 2U, 
Inc. and James Kenigsberg.

10-Q 001-36376

10.2

July 29, 2021

S-1/A 333-194079

10.14

March 17, 2014

S-1

333-194079

10.15

February 21, 2014

10-Q 001-36376

10.4

August 2, 2018

8-K

001-36376

10.1

October 16, 2019

8-K

001-36376

10.2

October 16, 2019

8-K

001-36376

10.1

October 23, 2019

8-K

001-36376

10.1

November 12, 
2021

113

 
 
 
 
 
Exhibit
Number
10.22**

Description

Term Loan Credit and Guaranty Agreement, 
dated June 28, 2021, by and among 2U, Inc., as 
borrower, the Guarantors party thereto, Alter 
Domus (US) LLC, as administrative agent and 
collateral agent, and the Lenders party thereto.

Form
8-K

File No.
001-36376

Exhibit
Number
10.1

Filing Date
June 29, 2021

Filed/
Furnished 
Herewith

10.23

First Amendment to Term Loan Credit and 
Guaranty Agreement.

10-Q 001-36376

10.1

November 9, 2021

10.24*

Joinder Agreement.

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Base Call Option Confirmation, dated as of 
April 20, 2020, between 2U, Inc. and Citibank, 
N.A.

Base Call Option Confirmation, dated as of 
April 20, 2020, between 2U, Inc. and Morgan 
Stanley & Co. LLC.

Base Call Option Confirmation, dated as of 
April 20, 2020, between 2U, Inc. and Credit 
Suisse Capital LLC.

Additional Call Option Confirmation, dated as 
of April 29, 2020, between 2U, Inc. and 
Citibank, N.A.

Additional Call Option Confirmation, dated as 
of April 29, 2020, between 2U, Inc. and Morgan 
Stanley & Co. LLC.

Additional Call Option Confirmation, dated as 
of April 29, 2020, between 2U, Inc. and Credit 
Suisse Capital LLC.

Office Lease, by and between Lanham Office 
2015 LLC and 2U Harkins Road LLC, dated as 
of December 23, 2015.

Agreement of Lease, by and between 55 
Prospect Owner LLC and 2U NYC, LLC, dated 
as of February 13, 2017.

10-Q 001-36376

8-K

001-36376

10.2

10.1

November 9, 2021

April 27, 2020

8-K

001-36376

10.2

April 27, 2020

8-K

001-36376

10.3

April 27, 2020

8-K

001-36376

10.1

May 1, 2020

8-K

001-36376

10.2

May 1, 2020

8-K

001-36376

10.3

May 1, 2020

10-K 001-36376

10.16

February 24, 2017

10-K 001-36376

10.17

February 24, 2017

10.33

Office Lease, by and between SRI Ten DCC 
LCC and 2U, Inc., dated May 11, 2016.

10-K 001-36376

10.18

February 24, 2017

21.1

23.1

31.1

31.2

32.1

Subsidiaries of the Registrant.

Consent of KPMG LLP, independent registered 
public accounting firm.

Certification of Chief Executive Officer of 2U, 
Inc. pursuant to Exchange Act Rule 
13a-14(a)/15d-14(a), as adopted pursuant to 
Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer of 2U, 
Inc. pursuant to Exchange Act Rule 
13a-14(a)/15d-14(a), as adopted pursuant to 
Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer of 2U, 
Inc. in accordance with 18 U.S.C. Section 1350, 
as adopted pursuant to Section 906 of the 
Sarbanes-Oxley Act of 2002.

114

X

X

X

X

X

 
 
 
 
 
 
Exhibit
Number
32.2

Description
Certification of Chief Financial Officer of 2U, 
Inc. in accordance with 18 U.S.C. Section 1350, 
as adopted pursuant to Section 906 of the 
Sarbanes-Oxley Act of 2002.

101.INS   XBRL Instance Document - The instance 

document does not appear in the interactive data 
file because its XBRL tags are embedded within 
the Inline XBRL document.

101.SCH   XBRL Taxonomy Extension Schema 

Document.

101.CAL   XBRL Taxonomy Extension Calculation 

Linkbase Document.

101.DEF   XBRL Taxonomy Extension Definition 

Linkbase Document.

101.LAB   XBRL Taxonomy Extension Label Linkbase 

Document.

101.PRE   XBRL Taxonomy Extension Presentation 

Linkbase Document.

104

Cover Page Interactive Data File (formatted as 
Inline XBRL and contained in Exhibit 101).

Form

File No.

Exhibit
Number

Filing Date

Filed/
Furnished 
Herewith
X

X

X

X

X

X

X

X

*

Portions of this exhibit, indicated by asterisks, have been omitted pursuant to a request for confidential treatment 
and have been separately filed with the Securities and Exchange Commission.

**   Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant hereby 
undertakes to supplementally furnish to the Securities and Exchange Commission copies of any of the omitted 
schedules and exhibits upon request by the Securities and Exchange Commission. 

†

Indicates management contract or compensatory plan.

115

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Board of Directors.

Christopher J. Paucek
Co-Founder and CEO

Paul A. Maeder
Board Chair
Audit Committee Member
General Partner of Highland Capital Partners

Timothy M. Haley
Nominating and Governance Committee Chair 
Managing Director of Redpoint Ventures

John M. Larson
Compensation Committee Chair
Executive Chairman of Triumph Higher Education 
Group, Inc., and President of Triumph Group, Inc.

Robert M. Stavis
Audit Committee Chair
Partner at Bessemer Venture Partners

Earl Lewis
Audit Committee Member
Thomas C. Holt Distinguished University Professor 
of History, Afroamerican and African Studies, 
and Public Policy at the University of Michigan

Sallie L. Krawcheck
Nominating and Governance Committee Member 
CEO and Co-Founder of Ellevest

Coretha M. Rushing
Compensation Committee Member
President at CR Consulting Alliance, LLC
Managing Director and Executive Mentor at 
The ExCo Group

Gregory K. Peters
Audit Committee Member
Chief Operating Officer and Chief Product 
Officer at Netflix

Alexis Maybank
Compensation Committee Member
Founder and Chief Executive Officer of 
Creative Beauty, Inc.

Edward S. Macias
Nominating and Governance Committee Member 
Provost Emeritus and Barbara and David Thomas 
Distinguished  Professor  Emeritus  in  Arts  & 
Sciences at Washington University in St. Louis

Shareholder Information
Copies of the Company’s Form 10-K filed with the Securities and Exchange Commission for the 
year ended December 31, 2021; committee charters; Code of Business Conduct and Ethics and 
other documents may be obtained free of charge at investor.2u.com or by contacting:

2U, Inc.
Investor Relations
7900 Harkins Road
Lanham, MD 20706
301-892-4350

Annual Meeting
The annual meeting of stockholders will be held virtually on June 8, 2022, at 3:00 p.m. ET  
at www.virtualshareholdermeeting.com/TWOU2022

2U.com

2U, Inc. 
7900 Harkins Road
Lanham, MD 20706  
301-892-4350