0001459417false12/312024Q1P3YP1Y0.03537730.111111135700014594172024-01-012024-03-3100014594172024-04-30xbrli:shares00014594172024-03-31iso4217:USD00014594172023-12-31iso4217:USDxbrli:shares00014594172023-01-012023-03-310001459417us-gaap:CommonStockMember2023-12-310001459417us-gaap:AdditionalPaidInCapitalMember2023-12-310001459417us-gaap:RetainedEarningsMember2023-12-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-12-310001459417us-gaap:CommonStockMember2024-01-012024-03-310001459417us-gaap:AdditionalPaidInCapitalMember2024-01-012024-03-310001459417us-gaap:RetainedEarningsMember2024-01-012024-03-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-01-012024-03-310001459417us-gaap:CommonStockMember2024-03-310001459417us-gaap:AdditionalPaidInCapitalMember2024-03-310001459417us-gaap:RetainedEarningsMember2024-03-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2024-03-310001459417us-gaap:CommonStockMember2022-12-310001459417us-gaap:AdditionalPaidInCapitalMember2022-12-310001459417us-gaap:RetainedEarningsMember2022-12-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-3100014594172022-12-310001459417us-gaap:CommonStockMember2023-01-012023-03-310001459417us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001459417us-gaap:RetainedEarningsMember2023-01-012023-03-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001459417us-gaap:CommonStockMember2023-03-310001459417us-gaap:AdditionalPaidInCapitalMember2023-03-310001459417us-gaap:RetainedEarningsMember2023-03-310001459417us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-3100014594172023-03-31twou:peopletwou:universitytwou:learningOpportunitytwou:segment0001459417twou:RevolvingLoanFacilityMemberus-gaap:LineOfCreditMember2023-01-090001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2023-01-090001459417us-gaap:LineOfCreditMembertwou:SecondAmendedCreditAgreementMember2024-01-012024-03-310001459417twou:AlternativeCredentialSegmentMember2023-04-012023-06-300001459417twou:DegreeProgramSegmentMember2024-01-012024-03-310001459417us-gaap:TradeNamesMember2023-07-0100014594172023-04-012023-06-30xbrli:pure00014594172023-09-3000014594172023-06-3000014594172023-10-012023-12-310001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2020-04-300001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2023-01-310001459417us-gaap:OperatingSegmentsMembertwou:DegreeProgramSegmentMember2023-12-310001459417us-gaap:OperatingSegmentsMembertwou:DegreeProgramSegmentMember2024-01-012024-03-310001459417us-gaap:OperatingSegmentsMembertwou:DegreeProgramSegmentMember2024-03-310001459417us-gaap:OperatingSegmentsMembertwou:AlternativeCredentialSegmentMember2023-12-310001459417us-gaap:OperatingSegmentsMembertwou:AlternativeCredentialSegmentMember2024-01-012024-03-310001459417us-gaap:OperatingSegmentsMembertwou:AlternativeCredentialSegmentMember2024-03-310001459417srt:MinimumMemberus-gaap:DevelopedTechnologyRightsMember2024-03-310001459417srt:MaximumMemberus-gaap:DevelopedTechnologyRightsMember2024-03-310001459417us-gaap:DevelopedTechnologyRightsMember2024-03-310001459417us-gaap:DevelopedTechnologyRightsMember2023-12-310001459417srt:MinimumMemberus-gaap:ArtisticRelatedIntangibleAssetsMember2024-03-310001459417srt:MaximumMemberus-gaap:ArtisticRelatedIntangibleAssetsMember2024-03-310001459417us-gaap:ArtisticRelatedIntangibleAssetsMember2024-03-310001459417us-gaap:ArtisticRelatedIntangibleAssetsMember2023-12-310001459417srt:MinimumMembertwou:UniversityClientRelationshipsMember2024-03-310001459417srt:MaximumMembertwou:UniversityClientRelationshipsMember2024-03-310001459417twou:UniversityClientRelationshipsMember2024-03-310001459417twou:UniversityClientRelationshipsMember2023-12-310001459417twou:EnterpriseClientRelationshipsMember2024-03-310001459417twou:EnterpriseClientRelationshipsMember2023-12-310001459417twou:TradeNamesAndDomainNamesMembersrt:MinimumMember2024-03-310001459417srt:MaximumMembertwou:TradeNamesAndDomainNamesMember2024-03-310001459417twou:TradeNamesAndDomainNamesMember2024-03-310001459417twou:TradeNamesAndDomainNamesMember2023-12-310001459417us-gaap:TradeNamesMember2024-03-310001459417us-gaap:TradeNamesMember2023-12-310001459417twou:InProcessCapitalizedTechnologyAndContentDevelopmentMember2024-03-310001459417twou:InProcessCapitalizedTechnologyAndContentDevelopmentMember2023-12-310001459417twou:ExcludingInProcessCapitalizedTechnologyAndContentDevelopmentMember2024-03-310001459417us-gaap:RelatedPartyMember2024-03-310001459417us-gaap:RelatedPartyMember2023-12-3100014594172023-10-102023-10-100001459417twou:A2022StrategicRealignmentPlanMembersrt:MinimumMember2024-03-310001459417twou:A2022StrategicRealignmentPlanMembersrt:MaximumMember2024-03-310001459417twou:A2022StrategicRealignmentPlanMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMember2024-03-310001459417twou:DegreeProgramSegmentMembertwou:LeadershipAndOrganizationalStructureChangesMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001459417twou:AlternativeCredentialSegmentMembertwou:LeadershipAndOrganizationalStructureChangesMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001459417twou:DegreeProgramSegmentMembertwou:LeadershipAndOrganizationalStructureChangesMemberus-gaap:EmployeeSeveranceMember2023-01-012023-03-310001459417twou:AlternativeCredentialSegmentMembertwou:LeadershipAndOrganizationalStructureChangesMemberus-gaap:EmployeeSeveranceMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:DegreeProgramSegmentMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:DegreeProgramSegmentMemberus-gaap:EmployeeSeveranceMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMemberus-gaap:EmployeeSeveranceMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMembertwou:DegreeProgramSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMembertwou:AlternativeCredentialSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMembertwou:DegreeProgramSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMembertwou:AlternativeCredentialSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMembertwou:DegreeProgramSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMembertwou:DegreeProgramSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:OtherMembertwou:DegreeProgramSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:OtherMembertwou:AlternativeCredentialSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:OtherMembertwou:DegreeProgramSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:OtherMembertwou:AlternativeCredentialSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:DegreeProgramSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:DegreeProgramSegmentMember2023-01-012023-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:AlternativeCredentialSegmentMember2023-01-012023-03-310001459417twou:SeveranceAndSeveranceRelatedCostsAndLeaseRelatedChargesMembertwou:DegreeProgramSegmentMembertwou:OtherRestructuringChargesMember2024-01-012024-03-310001459417twou:SeveranceAndSeveranceRelatedCostsAndLeaseRelatedChargesMembertwou:AlternativeCredentialSegmentMembertwou:OtherRestructuringChargesMember2024-01-012024-03-310001459417twou:SeveranceAndSeveranceRelatedCostsAndLeaseRelatedChargesMembertwou:DegreeProgramSegmentMembertwou:OtherRestructuringChargesMember2023-01-012023-03-310001459417twou:SeveranceAndSeveranceRelatedCostsAndLeaseRelatedChargesMembertwou:AlternativeCredentialSegmentMembertwou:OtherRestructuringChargesMember2023-01-012023-03-310001459417twou:AlternativeCredentialSegmentMember2024-01-012024-03-310001459417twou:DegreeProgramSegmentMember2023-01-012023-03-310001459417twou:AlternativeCredentialSegmentMember2023-01-012023-03-310001459417twou:LeadershipAndOrganizationalStructureChangesMembertwou:LeadershipAndOrganizationalStructureChangesMember2023-12-310001459417twou:LeadershipAndOrganizationalStructureChangesMembertwou:LeadershipAndOrganizationalStructureChangesMember2024-01-012024-03-310001459417twou:LeadershipAndOrganizationalStructureChangesMembertwou:LeadershipAndOrganizationalStructureChangesMember2024-03-310001459417twou:A2022StrategicRealignmentPlanMemberus-gaap:EmployeeSeveranceMember2023-12-310001459417twou:A2022StrategicRealignmentPlanMemberus-gaap:EmployeeSeveranceMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMemberus-gaap:EmployeeSeveranceMember2024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMember2023-12-310001459417twou:A2022StrategicRealignmentPlanMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:ProfessionalAndOtherFeesRelatingToRestructuringActivitiesMember2024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMember2023-12-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMember2024-01-012024-03-310001459417twou:A2022StrategicRealignmentPlanMembertwou:LeaseAndLeaseRelatedChargesMember2024-03-310001459417us-gaap:OtherRestructuringMember2023-12-310001459417us-gaap:OtherRestructuringMember2024-01-012024-03-310001459417us-gaap:OtherRestructuringMember2024-03-310001459417srt:MinimumMember2024-03-310001459417srt:MaximumMember2024-03-310001459417twou:TermLoanFacilitiesMember2024-03-310001459417twou:TermLoanFacilitiesMember2023-12-310001459417us-gaap:RevolvingCreditFacilityMember2024-03-310001459417us-gaap:RevolvingCreditFacilityMember2023-12-310001459417us-gaap:ConvertibleDebtMember2024-03-310001459417us-gaap:ConvertibleDebtMember2023-12-310001459417twou:DeferredGovernmentGrantObligationsMember2024-03-310001459417twou:DeferredGovernmentGrantObligationsMember2023-12-310001459417twou:OtherDebtMember2024-03-310001459417twou:OtherDebtMember2023-12-310001459417twou:The2025NotesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleDebtMember2024-03-310001459417twou:The2025NotesMemberus-gaap:FairValueInputsLevel2Memberus-gaap:ConvertibleDebtMember2023-12-310001459417us-gaap:FairValueInputsLevel2Membertwou:A2030NotesMemberus-gaap:ConvertibleDebtMember2024-03-310001459417us-gaap:FairValueInputsLevel2Membertwou:A2030NotesMemberus-gaap:ConvertibleDebtMember2023-12-310001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2023-01-080001459417twou:The2025NotesMembersrt:MinimumMemberus-gaap:DebtInstrumentRedemptionPeriodOneMemberus-gaap:ConvertibleDebtMember2023-01-090001459417us-gaap:DebtInstrumentRedemptionPeriodTwoMembertwou:The2025NotesMembersrt:MinimumMemberus-gaap:LineOfCreditMember2023-01-092023-01-090001459417twou:SecondAmendedCreditAgreementMember2021-07-012021-09-300001459417twou:TermLoanAgreementMemberus-gaap:BaseRateMemberus-gaap:LineOfCreditMember2023-01-092023-01-090001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-092023-01-090001459417twou:RevolvingLoanFacilityMemberus-gaap:BaseRateMemberus-gaap:LineOfCreditMember2023-01-092023-01-090001459417twou:RevolvingLoanFacilityMemberus-gaap:LineOfCreditMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2023-01-092023-01-090001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2023-01-092023-01-090001459417twou:TermLoanAgreementMemberus-gaap:BaseRateMemberus-gaap:LineOfCreditMember2024-03-310001459417twou:TermLoanAgreementMemberus-gaap:EurodollarMemberus-gaap:LineOfCreditMember2024-03-310001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2024-03-310001459417twou:TermLoanAgreementMember2024-03-310001459417twou:TermLoanAgreementMember2023-12-310001459417twou:TermLoanAgreementMember2024-01-012024-03-310001459417twou:TermLoanAgreementMember2023-01-012023-03-310001459417twou:RevolvingLoanFacilityMember2024-01-012024-03-310001459417twou:RevolvingLoanFacilityMember2023-01-012023-03-310001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2024-01-012024-03-310001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2023-01-012023-03-310001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2020-04-012020-04-300001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2024-03-310001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2023-12-310001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2024-01-012024-03-310001459417twou:The2025NotesMemberus-gaap:ConvertibleDebtMember2023-01-012023-03-31twou:day0001459417twou:TheNotesMemberus-gaap:ConvertibleDebtMember2020-04-302020-04-300001459417twou:TheNotesMemberus-gaap:ConvertibleDebtMember2020-04-012020-04-300001459417us-gaap:LineOfCreditMembertwou:SeniorSecuredTermLoanFacilityMember2020-04-012020-04-300001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2023-01-112023-01-110001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2024-03-310001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2023-12-310001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2024-01-012024-03-310001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2023-01-012023-03-310001459417us-gaap:ConvertibleDebtMembertwou:A2030NotesMember2023-01-110001459417twou:PrinceGeorgesCountyMarylandMember2024-03-31twou:agreement0001459417twou:DeferredGovernmentGrantObligationsMembertwou:PrinceGeorgesCountyMarylandMember2024-03-310001459417twou:PrinceGeorgesCountyMarylandMember2024-03-310001459417us-gaap:StandbyLettersOfCreditMember2024-03-310001459417twou:TermLoanFacilityConvertibleNotesAndGovernmentGrantsMember2024-03-310001459417twou:ConditionalLoanObligationsMembertwou:LanhamAmountOneMember2024-03-310001459417twou:ConditionalLoanObligationsMembertwou:LanhamAmountTwoMember2024-03-310001459417twou:TermLoanAgreementMemberus-gaap:LineOfCreditMember2023-03-310001459417us-gaap:RestrictedStockUnitsRSUMember2024-03-310001459417twou:PerformanceRestrictedStockUnitsMember2024-03-310001459417us-gaap:EmployeeStockOptionMember2024-03-310001459417us-gaap:ConvertibleDebtSecuritiesMember2024-03-310001459417twou:EquityIncentivePlan2014Member2024-01-010001459417twou:EquityIncentivePlan2014Member2023-01-010001459417twou:EquityIncentivePlan2017Member2023-06-300001459417us-gaap:EmployeeStockMember2024-03-310001459417twou:CurriculumAndTeachingMember2024-01-012024-03-310001459417twou:CurriculumAndTeachingMember2023-01-012023-03-310001459417twou:ServicingAndSupportMember2024-01-012024-03-310001459417twou:ServicingAndSupportMember2023-01-012023-03-310001459417twou:TechnologyAndContentDevelopmentMember2024-01-012024-03-310001459417twou:TechnologyAndContentDevelopmentMember2023-01-012023-03-310001459417us-gaap:SellingAndMarketingExpenseMember2024-01-012024-03-310001459417us-gaap:SellingAndMarketingExpenseMember2023-01-012023-03-310001459417us-gaap:GeneralAndAdministrativeExpenseMember2024-01-012024-03-310001459417us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-310001459417us-gaap:RestrictedStockUnitsRSUMembersrt:MinimumMember2024-01-012024-03-310001459417us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001459417us-gaap:RestrictedStockUnitsRSUMember2023-12-310001459417us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2022-01-012022-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2022-03-310001459417srt:MaximumMembertwou:PerformanceRestrictedStockUnitsMember2022-01-012022-03-310001459417srt:MinimumMembertwou:PerformanceRestrictedStockUnitsMember2022-01-012022-03-31twou:installment0001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2022-03-012022-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2023-02-012023-02-280001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2024-02-012024-02-290001459417twou:PerformanceRestrictedStockUnitsMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2024-01-012024-03-310001459417us-gaap:ShareBasedCompensationAwardTrancheTwoMembertwou:PerformanceRestrictedStockUnitsMember2024-01-012024-03-310001459417twou:PerformanceRestrictedStockUnitsMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMember2023-03-310001459417srt:MaximumMembertwou:PerformanceRestrictedStockUnitsMember2023-01-012023-03-310001459417srt:MinimumMembertwou:PerformanceRestrictedStockUnitsMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2023-03-012023-03-310001459417twou:MonteCarloValuationModelMember2024-02-012024-02-290001459417twou:MonteCarloValuationModelMemberus-gaap:ShareBasedCompensationAwardTrancheOneMember2023-01-012023-03-310001459417us-gaap:ShareBasedCompensationAwardTrancheTwoMembertwou:MonteCarloValuationModelMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2024-01-012024-03-310001459417twou:MonteCarloValuationModelMembertwou:PerformanceRestrictedStockUnitsMember2024-01-012024-03-310001459417twou:PerformanceRestrictedStockUnitsMembertwou:OneAndThreeYearPerformanceBasedVestingStockPriceAchievementMember2024-03-310001459417twou:PerformanceRestrictedStockUnitsMember2024-01-012024-03-310001459417twou:PerformanceRestrictedStockUnitsPerformanceMetricsNotYetDefinedMember2024-03-310001459417twou:PerformanceRestrictedStockUnitsPerformanceMetricsNotYetDefinedMember2023-12-310001459417twou:MarketBasedPerformanceRestrictedStockUnitsMember2024-01-012024-03-310001459417twou:PerformanceRestrictedStockUnitsMember2023-12-310001459417us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001459417us-gaap:EmployeeStockOptionMember2023-01-012023-03-3100014594172023-01-012023-12-310001459417us-gaap:EmployeeStockOptionMember2024-01-012024-03-310001459417us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001459417us-gaap:RestrictedStockUnitsRSUMember2024-01-012024-03-310001459417us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001459417twou:PerformanceRestrictedStockUnitsMember2024-01-012024-03-310001459417twou:PerformanceRestrictedStockUnitsMember2023-01-012023-03-310001459417us-gaap:ConvertibleDebtSecuritiesMember2024-01-012024-03-310001459417us-gaap:ConvertibleDebtSecuritiesMember2023-01-012023-03-310001459417twou:UniversityClientOneMemberus-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMembertwou:DegreeProgramSegmentMember2023-12-310001459417twou:UniversityClientTwoMemberus-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMembertwou:DegreeProgramSegmentMember2023-12-310001459417twou:UniversityClientOneMemberus-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMembertwou:DegreeProgramSegmentMember2023-01-012023-12-310001459417twou:UniversityClientTwoMemberus-gaap:CreditConcentrationRiskMemberus-gaap:AccountsReceivableMembertwou:DegreeProgramSegmentMember2023-01-012023-12-310001459417twou:DegreeProgramSegmentMember2024-03-310001459417twou:DegreeProgramSegmentMember2023-12-310001459417twou:AlternativeCredentialSegmentMember2024-03-310001459417twou:AlternativeCredentialSegmentMember2023-12-310001459417us-gaap:NonUsMember2024-01-012024-03-310001459417us-gaap:NonUsMember2023-01-012023-03-310001459417us-gaap:NonUsMembertwou:AlternativeCredentialSegmentMember2024-03-310001459417us-gaap:NonUsMembertwou:AlternativeCredentialSegmentMember2023-12-310001459417twou:PortfolioManagementAgreementMember2024-03-310001459417twou:PortfolioManagementAgreementMember2023-12-310001459417srt:MinimumMember2024-01-012024-03-310001459417srt:MaximumMember2024-01-012024-03-3100014594172024-01-012024-01-310001459417us-gaap:PrimeMember2024-03-310001459417twou:MidTierMember2024-03-310001459417us-gaap:SubprimeMember2024-03-310001459417us-gaap:PrimeMember2023-12-310001459417twou:MidTierMember2023-12-310001459417us-gaap:SubprimeMember2023-12-310001459417twou:AndrewHermalynMember2024-01-012024-03-310001459417twou:AndrewHermalynMember2024-03-31

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code)

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

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.

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

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

As of April 30, 2024, there were 84,159,626 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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

•our ability to maintain minimum Recurring Revenue (as defined by the Second Amended Credit Agreement) or other financial ratios during required periods through the maturity date of our Second Amended Credit Agreement (as defined below);

•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, artificial intelligence, 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 offerings;

•our ability to acquire new clients and expand our offerings with existing university clients;

•our ability to successfully integrate the operations of our acquisitions, including the edX Acquisition (as defined below), 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 and address impending maturities and the impact any refinancing or related transaction may have on the price and trading of our common stock;

•our ability to regain compliance with the continued listing standards for listing of our common stock on the Nasdaq Global Select Market;

•our ability to service our substantial indebtedness and comply with the covenants and conversion obligations contained in the Indenture (as defined below) governing our Convertible Notes (as defined below) and the Second Amended Credit Agreement (as defined below) governing our term loan facilities;

•our ability to implement our platform strategy and achieve the expected benefits;

•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 including expansion internationally and growing our enterprise business;

•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 senior management and other key personnel;

•our expectations about the scalability of our platform;

•potential changes in laws, regulations or guidance 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;

•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 expected impact of our 2022 Strategic Realignment Plan, or similar performance improvement initiatives and the estimated savings and amounts expected to be incurred in connection therewith;

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

You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. In this Quarterly Report on Form 10-Q, the terms “2U,” “our company,” “we,” “us,” and “our” refer to 2U, Inc. and its subsidiaries, unless the context indicates otherwise.

 

Item 1.    Financial Statements

 

2U, Inc. (together with its subsidiaries, the “Company”) is a leading online education platform company. The Company’s mission is to expand access to high-quality education and unlock human potential. As a trusted partner to top-ranked nonprofit universities and other leading organizations, the Company delivers technology and services that enable its clients to bring their educational offerings online at scale.

The Company provides 86 million people worldwide with access to world-class education in partnership with 260 top-ranked global universities and other leading organizations. Through edX, its education consumer marketplace, the Company offers more than 4,600 high-quality online learning opportunities, including open courses, executive education offerings, boot camps, professional certificates as well as undergraduate and graduate degree programs.

The Company’s offerings cover a wide range of topics including artificial intelligence, business, healthcare, education, and social work, and provide learners with an affordable pathway to achieve both short-term and long-term professional and educational goals. The Company’s platform provides its clients with the digital infrastructure to launch world-class online education offerings and allow students to easily access high-quality, job-relevant education 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.

The Company’s Alternative Credential Segment provides premium online open courses, executive education programs, technical, and skills-based boot camps through relationships with nonprofit colleges and universities and other leading organizations. Students enrolled in these offerings are generally seeking to reskill or upskill for career advancement or personal development through shorter duration, lower-priced offerings. In addition to selling these offerings directly to individuals, the Company also sells to organizations and institutions, including employers, non-profits, governments and governmental entities to enable upskilling and reskilling of their workforces.

The accompanying unaudited condensed consolidated financial statements, which include the assets, liabilities, results of operations and cash flows of the Company have been prepared in accordance with: (i) generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information; (ii) the instructions to Form 10-Q; and (iii) the guidance of Rule 10-01 of Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial statements required to be filed with the Securities and Exchange Commission (the “SEC”). As permitted under such rules, certain notes and other financial information normally required by U.S. GAAP have been condensed or omitted. The Company believes the condensed consolidated financial statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position, results of operations, and cash flows as of and for the periods presented herein. The Company’s results of operations for the three months ended March 31, 2024 and 2023 may not be indicative of the Company’s future results. These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet data as of December 31, 2023 was derived from the audited financial statements, but does not include all disclosures required by U.S. GAAP on an annual reporting basis.

At each annual and interim period, the Company evaluates whether there are conditions or events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The evaluation is based on relevant conditions or events that are known or reasonably knowable at the date that the consolidated financial statements are issued.

Pursuant to the Second Amended Credit Agreement, as defined in Note 8, if more than $40 million of the Company’s 2025 Notes, as defined below, remain outstanding on January 30, 2025, the maturity date of the outstanding term loan balance of $372.4 million springs forward to January 30, 2025.

The Second Amended Credit Agreement also contains a financial covenant that requires the Company to maintain $900 million minimum Recurring Revenues (as defined by the Second Amended Credit Agreement) as of the last day of any period of four consecutive fiscal quarters. As of March 31, 2024, the Company was in compliance with this covenant and Recurring Revenues exceeded the minimum Recurring Revenue amount by $5.8 million. Management cannot provide assurance that minimum Recurring Revenues will be achieved by the Company in future periods. Based on the Company’s current outlook, it believes Recurring Revenues for the four consecutive quarters ending June 30, 2024 will be less than $900 million. If the Company is unable to comply with this financial covenant and is otherwise unable to cure or obtain a waiver related to this covenant, the obligations under the Second Amended Credit Agreement could accelerate. Refer to Note 8 for further information about the Company’s debt.

On March 14, 2024, the Company received a written notification from The Nasdaq Stock Market LLC (“Nasdaq”) that it had failed to comply with Nasdaq’s minimum bid price requirement. In accordance with Nasdaq rules, the Company has a period of 180 calendar days, or until September 10, 2024 (the “Compliance Period”) to regain compliance with the minimum bid price requirement. If the Company fails to regain compliance by September 10, 2024, it may be eligible for a second 180 calendar day compliance period. The Company can regain compliance at any time during the Compliance Period if the Common Stock has a closing bid price of at least $1.00 per share for a minimum of ten consecutive business days (unless the staff of Nasdaq exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H)). If the Company fails to regain compliance in a timely manner, the delisting of the Company’s common stock would constitute a “fundamental change” under the terms of (i) the 2025 Notes and (ii) the 2030 Notes (together with the 2025 Notes, the “Convertible Notes”), whereupon holders of the Convertible Notes may require the Company to repurchase for cash all or part of their Convertible Notes at a purchase price equal to the principal amount of the Convertible Notes to be repurchased plus accrued and unpaid interest to, but excluding, the repurchase date. The Company is evaluating options for regaining compliance with the minimum bid price requirement, including by effecting a reverse stock split.

The Company’s ability to continue as a going concern is dependent on refinancing its debt or raising capital to reduce its debt in the short term and regaining compliance with the Nasdaq’s minimum bid price requirements or obtaining a waiver related to the fundamental change provisions of the Convertible Notes. If it is unable to complete the foregoing, the Company likely would not have sufficient cash on hand or available liquidity to meet its debt obligations as they become due. The Company is currently evaluating options to refinance its debt in the short term; however, there can be no assurance that such financing would be available to the Company on favorable terms or at all. Given these factors, substantial doubt exists about the Company’s ability to continue as a going concern within one year from the date that the consolidated financial statements are issued.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes the Company will be able to continue as a going concern and contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty, nor do they include adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

The preparation of condensed consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances. Significant 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, 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.

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 Note 3 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 March 31, 2024 and December 31, 2023. Refer to Note 8 for more information regarding the Company’s convertible senior notes.

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.

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.

During the second quarter of 2023, the Company completed the update of its internal financial reporting structure to better align with the executive structure following the 2022 Strategic Realignment. As a result of this update, the Company’s three reporting units within the Alternative Credential Segment (Executive Education, Boot Camp, and Open Courses) were combined into a single reporting unit (Alternative Credential). The Degree Program Segment continues to have one reporting unit (Degree Program). The Company performed impairment assessments before and after the change in reporting units. Refer to the Interim Impairment Assessments section below for further information regarding the results of these assessments.

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, discount rates, terminal growth rates, and forecasts of revenue and margins. 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.

In November 2021, the Company acquired an indefinite-lived intangible asset, which represented the established edX trade name. The Company concluded that due to changes in facts and circumstances, effective July 1, 2023, the edX trade name should no longer have an indefinite useful life. The Company began amortizing the edX trade name on a straight-line basis over its estimated remaining useful life of 25 years.

The Company determined the fair value of its indefinite-lived asset utilizing the income-based approach. The income-based approach requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, discount rates, terminal growth rates, forecasts of revenue and margins, and royalty rates. When determining these assumptions and preparing these estimates, the Company considers 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, the continued efforts of competitors to gain market share and prospective student enrollment patterns.

During the second quarter of 2023, the Company experienced a significant decline in its market capitalization, which management deemed to be a triggering event related to the Company’s goodwill and indefinite-lived intangible asset. In addition, as a result of the change in the Company’s reporting units in the second quarter of 2023, the Company performed interim impairment assessments before and after the change in reporting units. The Company performed these interim impairment assessments as of May 1, 2023.

For the quantitative interim impairment assessment performed as of May 1, 2023, before the change in reporting units, management determined the carrying value of the Open Courses reporting unit and the carrying value of an indefinite-lived intangible asset, both within the Alternative Credential Segment, exceeded their respective estimated fair value. As a result, during the three months ended June 30, 2023, the Company recorded impairment charges of $16.7 million to goodwill, all of which related to the Open Courses reporting unit, and $117.4 million to the indefinite-lived intangible asset. These charges are included within operating expense on the Company’s condensed consolidated statements of operations. The estimated fair value of each of the remaining reporting units exceeded their respective carrying value by approximately 10% or more.

For the interim impairment assessment performed as of May 1, 2023, after the change in reporting units, management determined it was not more likely than not that the fair values of the Degree Program reporting unit and the Alternative Credential reporting unit were less than their respective carrying amounts. As such, the Company concluded that the goodwill relating to those reporting units was not impaired and further quantitative impairment assessment was not necessary.

During the third quarter of 2023, the Company experienced a significant decline in its market capitalization, which management deemed to be a triggering event related to the Company’s goodwill. The Company performed a quantitative interim impairment assessment as of September 30, 2023. The estimated fair value of each of the Company’s reporting units exceeded their respective carrying value by more than 10%. Based on the qualitative assessment performed as of October 1, 2023, the date of the annual goodwill impairment assessment, the Company had no reporting units whose estimated fair value exceeded their carrying value by less than 10%.

During the fourth quarter of 2023, the Company experienced a significant decline in its market capitalization. In addition, the Company made updates to certain long-term financial projections. Management deemed these factors to be triggering events related to the Company’s goodwill. The Company performed a quantitative interim impairment assessment as of December 31, 2023 and determined the carrying value of its Alternative Credential reporting unit exceeded its estimated fair value. As a result, during the three months ended December 31, 2023, the Company recorded impairment charges of $62.8 million to goodwill. This charge is included within operating expense on the Company’s consolidated statements of operations. The estimated fair value of the Degree Program reporting unit exceeded its carrying value by more than 10%.

It is possible that future changes in circumstances, such as a decline in our market capitalization, 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 additional impairment charges in the future.

For each of the interim impairment assessments, the Company utilized a weighted combination of an income-based approach and market-based approach to determine the fair value of each reporting unit and an income-based approach to determine the fair value of its indefinite-lived intangible asset. Key assumptions used in the income-based approach included discount rates based upon each respective reporting unit’s or indefinite-lived intangible asset’s weighted-average cost of capital adjusted for the risk associated with the operations at the time of the assessment, terminal growth rates, forecasts of revenue and margins, and royalty rates. 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 above. Key assumptions used in the market-based approach included the selection of appropriate peer group companies. Changes in the estimates and assumptions used to estimate fair value could materially affect the determination of fair value and the impairment test result.

In April 2020, the Company issued 2.25% convertible senior notes due May 1, 2025 (the “2025 Notes”) in an aggregate principal amount of $380 million, including the exercise by the initial purchasers of an option to purchase additional 2025 Notes, in a private offering. Refer to Note 8 for more information regarding the 2025 Notes.

In January 2023, the Company issued 4.50% convertible senior notes due February 1, 2030 (the “2030 Notes”) in an aggregate principal amount of $147.0 million in a private offering. Refer to Note 8 for more information regarding the 2030 Notes.

Pursuant to 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, the Company’s convertible senior notes are accounted for as a single instrument.

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 8 for further information about the Company’s debt.

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. On December 21, 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. This ASU defers the sunset date from December 31, 2022 to December 31, 2024 and is effective immediately. The Company will adopt the 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 November 2023, the FASB issued ASU No 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires annual and interim disclosures that are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for fiscal years beginning after December 15, 2023 and should be adopted on a retrospective basis. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU requires new disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. The ASU is effective for annual periods beginning after December 15, 2024 and should be applied on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and related disclosures.

3.    Goodwill and Intangible Assets

The following tables present the changes in the carrying amount of goodwill by reportable segment on the Company’s condensed consolidated balance sheets for the periods indicated.

The following table presents the components of intangible assets, net on the Company’s condensed consolidated balance sheets as of each of the dates indicated.

The amounts presented in the table above include $40.5 million and $43.4 million of in-process capitalized technology and content development as of March 31, 2024 and December 31, 2023, respectively.

The Company recorded amortization expense related to amortizable intangible assets of $22.1 million and $27.2 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the estimated future amortization expense of the Company’s amortizable intangible assets placed in service as of March 31, 2024.

As of March 31, 2024 and December 31, 2023, the Company had balances of $20.5 million and $19.8 million, respectively, of prepaid assets within prepaid expenses and other assets on the condensed consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, the Company had balances of $13.8 million and $13.6 million, respectively, of deferred expenses incurred to integrate the software associated with its cloud computing arrangements, within other assets, non-current on the condensed 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 $1.2 million and $0.8 million of such amortization for the three months ended March 31, 2024 and 2023, respectively.

The following table presents the components of accounts payable and accrued expenses on the Company’s condensed consolidated balance sheets as of each of the dates indicated.

As of March 31, 2024 and December 31, 2023, the Company had balances of $13.4 million and $10.5 million, respectively, within other current liabilities on the condensed consolidated balance sheets, which represent proceeds received from students enrolled in certain of the Company’s alternative credential offerings that are payable to an associated university client. As of March 31, 2024 and December 31, 2023, the Company had accrued interest balances of $13.7 million and $13.6 million, respectively, within other current liabilities on the condensed consolidated balance sheets.

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.

On December 20, 2022, Plaintiffs Iola Favell, Sue Zarnowski, and Mariah Cummings filed a putative class action in the Superior Court of the State of California, County of Los Angeles, against the University of Southern California (“USC”) and the Company on behalf of “[a]ll students who were enrolled in an online graduate degree program at USC Rossier, from April 1, 2009 through April 27, 2022.” (“Favell I”) Compl. ¶ 135. Plaintiffs purported to allege violations of California’s False Advertising Law (“FAL”), Cal.

Civ. Code § 17500, California’s Unfair Competition Law (“UCL”), Cal. Civ. Code § 17200, California’s Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1770, as well as for unjust enrichment related to the use of USC Rossier’s rankings in certain marketing materials.

On February 3, 2023, the Company removed the case to the United States District Court for the Central District of California. Then, on March 8, 2023, the Company filed a motion to dismiss the lawsuit, arguing, among other things, that all of Plaintiffs’ allegations lacked merit and that certain claims for relief could not be brought in federal court in light of other allegations Plaintiffs had made. On March 28, 2023, before the court could rule on that motion, Plaintiffs filed an amended complaint (the “First Amended Complaint”), dropping the challenged claims for relief and instead asserting only a single cause of action under the CLRA. The First Amended Complaint is based on the same factual allegations as the original complaint but seeks declaratory relief, actual damages, incidental damages, consequential damages, compensatory damages, punitive damages, and attorneys’ fees and costs in connection with their CLRA claim.

On March 28, 2023, Plaintiffs also filed a separate class action lawsuit in the Superior Court of the State of California, County of Los Angeles, reasserting the FAL, UCL, and CLRA claims they dropped from the federal lawsuit (“Favell II”). The state court lawsuit is based on the same factual allegations as the federal lawsuit. Plaintiffs seek declaratory and injunctive relief, restitution, and attorneys’ fees and costs in connection with the claims in state court.

On April 17, 2023, the Company moved to dismiss the First Amended Complaint in Favell I in its entirety, arguing that all of Plaintiffs’ claims lack merit. On May 4, 2023, the Company removed the Favell II lawsuit from state court to the United States District Court for the Central District of California, and Plaintiffs later filed a motion to remand it back to state court. On July 6, 2023, the Court held a hearing on the Company’s motion to dismiss the First Amended Complaint in Favell I and the Plaintiffs’ motion to remand in Favell II, and issued a ruling granting the Company’s motion to dismiss with leave to amend and denying Plaintiffs’ motion to remand. On July 28, 2023, Plaintiffs filed amended complaints in both Favell I and Favell II, adding an additional plaintiff and more detailed allegations but otherwise reasserting the same claims in each case. 2U moved to dismiss the amended complaints on August 31, 2023, and a hearing was held on November 16, 2023. On January 23, 2024, the Court issued an order dismissing Plaintiffs’ amended complaints in both Favell I and II, but granting Plaintiffs leave to amend within twenty-one days of the order. Plaintiffs did not file an amended complaint within twenty-one days of the order. Therefore, there are no active claims against 2U in the matter any longer. The Company has always maintained that both lawsuits’ claims against 2U were meritless.

On April 4, 2023, the Company filed a lawsuit on behalf of itself and its South African subsidiary, Get Educated International Proprietary Ltd., against the Department of Education (the “Department”) and Secretary of Education Miguel Cardona. The suit challenges a Dear Colleague Letter issued by the Department that would treat the Company and other Online Program Managers (OPMs) as highly regulated “Third-Party Servicers” for purposes of the Higher Education Act (“HEA”). The Company contends that the Department has exceeded its authority by seeking to expand the definition of “Third-Party Servicer” contained in the HEA, 20 U.S.C. § 1088(c), as well as in the Department’s regulations and longstanding guidance documents. The Company also argues that the Department violated both the HEA and the Administrative Procedure Act in issuing its new understanding of Third-Party Servicer without following required rulemaking procedures. The case is now pending in the District of D.C., under case number 1:23-cv-00925. On April 7, 2023, the Company filed a motion for a stay and preliminary injunction to block the new Dear Colleague Letter to take effect as planned on September 1, 2023. On April 11, 2023, the Department announced that it would suspend the September 1, 2023 effective date and consider changes to the Dear Colleague Letter. The Department indicated that when it finalizes an updated version of the Dear Colleague Letter, the updated version will not go into effect for at least six months, to give regulated entities sufficient time to comply. Given these developments, the Company withdrew its motion for a stay and preliminary injunction and the court stayed the litigation pending the release of the finalized Dear Colleague Letter. On March 18, 2024, the parties filed a joint status report to the court, in which the government indicated that it was still in the process of developing an updated guidance, and that it did not anticipate issuing an updated guidance in the next 90 days. The Company believes that it has a meritorious claim and intends to vigorously pursue its challenge against the Department if the Department continues seeking to treat the Company as a Third-Party Servicer. Due to the complex nature of the legal issues involved, the outcome of this matter is not presently determinable.

On October 10, 2023, plaintiff Chad Francis filed a putative class action against the Company and edX LLC in the United States District Court for the District of Massachusetts, alleging violations of the federal Video Privacy Protection Act. The plaintiff, who seeks to represent a class of individuals who viewed a video on edX while they had a Facebook account, alleges that 2U and edX disclosed his personal viewing information to Facebook without his consent. Plaintiff seeks damages of $2,500 for each violation, punitive damages, injunctive relief and attorney fees. On December 15, 2023, the Company and edX filed a motion to dismiss the complaint for failure to state a claim. The plaintiff filed a response on February 12, 2024, and the Company and edX filed a reply on March 13, 2024. The motion to dismiss is currently pending before the Court. The Company intends to vigorously defend against these claims. However, due to the complex nature of the legal and factual issues involved, the outcome of the matter is not presently determinable.

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.

In September 2023, as part of an effort to consolidate vendors to reduce the cost of launching programs, the Company entered into an agreement with an existing vendor to purchase content development and other services at more favorable pricing, with a total minimum commitment of $30.0 million through December 31, 2026.

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. The following table presents the estimated future minimum payments due to university clients as of March 31, 2024.

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 condensed consolidated balance sheets.

During the second quarter of 2022, the Company accelerated its planned transition to a platform company (the “2022 Strategic Realignment Plan”). The plan was designed to reorient the Company around a single platform allowing it to pursue a portfolio-based marketing strategy that drives traffic to the edX marketplace. As part of the plan, the Company simplified its executive structure, reduced employee headcount, rationalized its real estate footprint and implemented steps to optimize marketing spend.

During the third quarter of 2022, the Company completed the planned headcount reductions and consolidated its in-person operations to its offices in Lanham, Maryland and Cape Town, South Africa. In furtherance of the 2022 Strategic Realignment Plan, the Company reduced employee headcount during the third quarter of 2023.

The Company anticipates that it will incur aggregate restructuring charges associated with the 2022 Strategic Realignment Plan of approximately $70 million to $75 million. The Company recorded $2.9 million and $4.5 million in restructuring charges related to the 2022 Strategic Realignment Plan for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the Company incurred cumulative restructuring charges of $58.5 million related to the 2022 Strategic Realignment Plan. The majority of the estimated remaining restructuring charges relate to leased facilities and will be recognized as expense over the remaining lease terms, ranging from 1 to 7 years.

In late 2023, the Company announced leadership changes and commenced a comprehensive performance improvement exercise aimed at, among other things, further improving its profitability and optimizing its operating model and balance sheet. Part of this exercise includes headcount reductions associated with implementing changes to the Company’s organizational structure, as management works to align staffing levels with business priorities across functional areas.

The following table presents restructuring charges by reportable segment on the Company’s condensed consolidated statements of operations for the periods indicated.

The following table presents the additions and adjustments to the accrued restructuring liability on the Company’s condensed consolidated balance sheets for the periods indicated.

The Company leases facilities under non-cancellable operating leases primarily in the United States, South Africa, and the United Kingdom. The Company’s operating leases have remaining lease terms of between less than one to 10 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 following table presents the components of lease expense on the Company’s condensed consolidated statements of operations and comprehensive loss for each of the periods indicated.

As of March 31, 2024, for the Company’s operating leases, the weighted-average remaining lease term was 6.0 years and the weighted-average discount rate was 10.7%. For the three months ended March 31, 2024 and 2023, cash paid for amounts included in the measurement of operating lease liabilities was $6.1 million and $6.0 million, respectively. There were no lease liabilities arising from obtaining right-of-use assets for each of the three months ended March 31, 2024 and 2023.

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 $4.1 million in aggregate.

The following table presents the components of outstanding long-term debt on the Company’s condensed consolidated balance sheets as of each of the dates indicated.

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 2025 Notes, which had an estimated fair value of $177.1 million and $191.7 million as of March 31, 2024 and December 31, 2023, respectively, and the 2030 Notes, which had an estimated fair value of $51.2 million and $55.0 million as of March 31, 2024 and December 31, 2023, respectively. The 2030 Notes, described below, were issued in January 2023. Each of the Company’s long-term debt instruments were classified as Level 2 within the fair value hierarchy.

On January 9, 2023, the Company entered into an Extension Amendment, Second Amendment and First Incremental Agreement to Credit and Guaranty Agreement, dated as of January 9, 2023 (the “Second Amended Credit Agreement”), which amended the Company’s existing term loan facilities, previously referred to as the Amended Term Loan Facilities. The provisions of the Second Amended Credit Agreement became effective upon the satisfaction of certain conditions set for therein, including, without limitation, the funding of the 2030 Notes referenced below and the prepayment of certain existing term loans to reduce the outstanding principal amount of term loans outstanding under the Amended Term Loan Facilities from $567 million to $380 million. Pursuant to the Second Amended Credit Agreement, the lenders thereunder agreed to, among other amendments, extend the maturity date of the term loans thereunder from December 28, 2024 to December 28, 2026 (or, if more than $40 million of the Company’s 2025 Notes remain outstanding on January 30, 2025, January 30, 2025) and to provide a senior secured first lien revolving loan facility to the Company in the principal amount of $40 million (the “Revolving Loan Facility”). The termination date for such revolving loans will be June 28, 2026 (or, if more than $50 million of the Company’s 2025 Notes remain outstanding on January 1, 2025, January 1, 2025). If the Company does not refinance or raise capital to reduce its debt in the short term, and in the event that the maturity date of the outstanding term loan balance of $372.4 million springs forward to January 30, 2025, the Company’s liquidity may not be sufficient to pay off the balance on the accelerated maturity date if the Company does not otherwise sufficiently increase revenues, realize additional operating efficiencies and reduce its expenses. As of March 31, 2024, outstanding borrowings under the Revolving Loan Facility were $40 million. In addition, our Second Amended Credit Agreement includes a financial covenant that requires the Company to maintain $900 million minimum Recurring Revenues (as defined by the Second Amended Credit Agreement) as of the last day of any period of four consecutive fiscal quarters, commencing with the fiscal quarter ending September 30, 2021 through the maturity date. Failure to maintain this minimum Recurring Revenue may result in a default under the aforementioned financing facilities and therefore result in the acceleration of due dates.

Loans under the Second Amended Credit Agreement bear interest at a per annum rate equal to (i) with respect to term loans, a base rate or the Term SOFR (as defined in the Second Amended Credit Agreement) rate, as applicable, plus a margin of 5.50% in the case of the base rate loans and 6.50% in the case of Term SOFR loans and (ii) with respect to revolving loans, a base rate or the Term SOFR rate, as applicable, plus a margin of 4.50% in the case of the base rate loans and 5.50% in the case of Term SOFR loans. If the term loans under the Second Amended Credit Agreement are prepaid or amended prior to the six month anniversary of the Second Amended Credit Agreement in connection with a Repricing Event (as defined in the Second Amended Credit Agreement), the Company shall pay a prepayment premium of 1.0% of the amount of the loans so prepaid.

Prior to the amendment, loans under the Amended Term Loan Facilities bore 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 Company is required to make quarterly principal repayments equal to 0.25% of the aggregate principal amount.

The obligations under the Second Amended Credit Agreement are guaranteed by certain of the Company’s subsidiaries (the Company and the guarantors, collectively, the “Credit Parties”). The obligations under the Second Amended Credit 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.

The Second Amended Credit 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 Second Amended Credit 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 Second Amended Credit Agreement contains (i) a financial covenant for the benefit of the lenders that requires the Company to maintain minimum Recurring Revenues (as defined in the Second Amended Credit 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 and (ii) three financial covenants solely for the benefit of the revolving lenders, in respect of a maximum consolidated senior secured net leverage ratio, a maximum consolidated total net leverage ratio, and a minimum consolidated fixed charge coverage ratio. The Second Amended Credit 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 Second Amended Credit Agreement); failure of any material provision of the Second Amended Credit 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 Second Amended Credit Agreement. As of March 31, 2024, the Company was in compliance with the covenants under the Second Amended Credit Agreement.

If an event of default under the Second Amended Credit Agreement occurs and is continuing, then, at the request (or with the consent) of the lenders holding the applicable requisite amount of commitments and loans under the Second Amended Credit Agreement, upon notice by the administrative agent to the borrowers, the obligations under the Second Amended Credit 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 Second Amended Credit Agreement will automatically become immediately due and payable.

As of March 31, 2024 and December 31, 2023, the balance of unamortized debt discount and issuance costs related to the term loan under the Second Amended Credit Agreement was $20.0 million and $21.7 million, respectively. For the three months ended March 31, 2024 and 2023, the associated effective interest rate for the term loan under the Second Amended Credit Agreement was approximately 14.7% and 13.8%, respectively. For the three months ended March 31, 2024 and 2023 the associated interest rate for the revolving loan under the Second Amended Credit Agreement was approximately 10.9% and 10.1%, respectively. For the three months ended March 31, 2024 and 2023, the associated interest expense for these facilities was approximately $14.1 million and $13.2 million, respectively.

In April 2020, the Company issued the 2025 Notes in an aggregate principal amount of $380 million, including the exercise by the initial purchasers of an option to purchase additional 2025 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 2025 Notes were approximately $369.6 million after deducting the initial purchasers’ discounts, commissions and offering expenses payable by the Company.

The 2025 Notes are governed by an indenture (the “2025 Indenture”) between the Company and Wilmington Trust, National Association, as trustee. The 2025 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 2025 Notes will mature on May 1, 2025, unless earlier repurchased, redeemed or converted and contain a cross-acceleration provision tied to the acceleration of other material debt, including the Second Amended Credit Agreement and the 2030 Notes.

The 2025 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 2025 Notes, effectively subordinated to the Company’s senior secured indebtedness (including indebtedness under the Second Amended Credit Agreement), 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.

The net carrying amount of the 2025 Notes consists of the following as of each of the dates indicated:

Issuance costs are being amortized to interest expense over the contractual term of the 2025 Notes. Subsequent to the adoption of ASU 2020-06 in the first quarter of 2022, the effective interest rate used to amortize the issuance costs was 2.9%. The interest expense related to the 2025 Notes for the three months ended March 31, 2024 and 2023 was $2.7 million and $2.7 million, respectively.

Holders may convert their 2025 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 2025 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 2025 Indenture;

•if the Company calls such 2025 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 2025 Notes is 35.3773 shares of the Company’s common stock per $1,000 principal amount of 2025 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 2025 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 2025 Notes for redemption or the holders of the 2025 Notes electing to convert their 2025 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 2025 Indenture), the Company will in certain circumstances increase the conversion rate for a specified period of time.

In addition, upon the occurrence of a “fundamental change” (as defined in the 2025 Indenture), holders of the 2025 Notes may require the Company to repurchase their 2025 Notes at a cash repurchase price equal to the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest, if any.

The 2025 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 2025 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 2025 Notes.

As of March 31, 2024, the conditions allowing holders of the 2025 Notes to convert had not been met and the Company has the right under the 2025 Indenture to determine the method of settlement at the time of conversion. Therefore, the 2025 Notes are classified as non-current on the condensed consolidated balance sheets.

In connection with the 2025 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 2025 Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted 2025 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 2025 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 2025 Notes for working capital or other general corporate purposes, which may include capital expenditures, potential acquisitions and strategic transactions.

On January 11, 2023, the Company issued the 2030 Notes in an aggregate principal amount of $147.0 million. The 2030 Notes are governed by an indenture (the “2030 Indenture” and together with the 2025 Indenture, the Indentures) between the Company and Wilmington Trust, National Association, as trustee. The 2030 Notes bear interest at a rate of 4.50% per annum, payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2023. The 2030 Notes mature on February 1, 2030, unless earlier redeemed or repurchased by the Company or converted and contain a cross-acceleration provision tied to the acceleration of other material debt, including the Second Amended Credit Agreement and the 2025 Notes. The net proceeds from the issuance of the 2030 Notes was $127.1 million.

The 2030 Notes are the senior, unsecured obligations of the Company and are equal in right of payment with the Company’s senior indebtedness, senior in right of payment to the Company’s indebtedness that is expressly subordinated to the 2030 Notes, effectively subordinated to the Company’s senior secured indebtedness, 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.

The net carrying amount of the 2030 Notes consist of the following as of the date indicated:

Issuance costs are being amortized to interest expense over the contractual term of the 2030 Notes. The effective interest rate used to amortize the issuance costs was 7.5% and 7.2% for three months ended March 31, 2024 and 2023, respectively. The interest expense related to the 2030 Notes for the three months ended March 31, 2024 and 2023 was $2.4 million and $2.0 million, respectively.

Holders may convert their 2030 Notes at their option in the following circumstances:

•at any time from, and after January 11, 2023 until the close of business on the second scheduled trading day immediately before the maturity date;

•upon the occurrence of certain corporate events or distributions on the Common Stock as provided in the Indenture;

•if the Company calls such 2030 Notes for redemption; subject to the right of certain holders to elect a delayed conversion period for any such 2030 Notes called for redemption that would cause such holders to beneficially own shares of Common Stock, in excess of the Ownership Cap (as defined in the 2030 Indenture), over which threshold a settlement of such conversion could be made in cash; and

•upon the occurrence of a default with regard to the Company’s financial covenants under the 2030 Indenture.

The initial conversion rate for the 2030 Notes is 111.1111 shares of Common Stock per $1,000 principal amount of 2030 Notes, which represents an initial conversion price of approximately $9.00 per share, and is subject to adjustment upon the occurrence of certain specified events as set forth in the 2030 Indenture. Upon conversion, the Company will pay or deliver, as applicable, cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s election (subject to aforementioned Ownership Cap). Upon the occurrence of a “Make-Whole Fundamental Change” (as defined in the 2030 Indenture) the Company will in certain circumstances increase the conversion rate for a specified period of time.

In addition, upon the occurrence of a “Fundamental Change” (as defined in the 2030 Indenture), holders of the 2030 Notes may require the Company to repurchase their 2030 Notes at a cash repurchase price equal to the principal amount of the 2030 Notes to be repurchased, plus accrued and unpaid interest, if any.

The 2030 Notes are redeemable, in whole or in part, at the Company’s option at any time, and from time to time, subject to limited exceptions with respect to 2030 Notes that cannot be immediately physically settled due to the Ownership Cap, on or after January 11, 2026 and on or before the 30th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the 2030 Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of Common Stock exceeds 130% of the conversion price on 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. 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 2030 Notes. The Company used cash on hand and the proceeds from the offering of the 2030 Notes to repay a portion of the amounts outstanding under the Amended Term Loan Facilities.

The Company has the right under the 2030 Indenture to determine the method of settlement at the time of conversion. Therefore, the 2030 Notes are classified as non-current on the condensed consolidated balance sheets.

The Company has two outstanding conditional loan agreements with Prince George’s County, Maryland and the State of Maryland for an aggregate amount of $3.5 million, each bearing an interest rate of 3% per annum. These agreements are conditional loan obligations that may be forgiven, provided that the Company attains certain conditions related to employment levels at 2U’s Lanham, Maryland headquarters. The conditional loan with Prince George’s County has a maturity date of June 22, 2027 and the conditional loan agreement with the State of Maryland has a maturity date of June 30, 2028. The interest expense related to these loans for the three months ended March 31, 2024 and 2023 was immaterial.

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 March 31, 2024, the Company has entered into standby letters of credit totaling $12.1 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.

Future principal payments for the term loan under the Second Amended Credit Agreement, the 2025 Notes, the 2030 Notes, and the government grants, as of the date indicated are as follows:

			March 31, 2024
			(in thousands)
Remainder of 2024*			$	6,350
2025			383,800
2026			368,600
2027			—
2028			—
Thereafter			147,000
Total future principal payments			$	905,750

*						Amounts due in 2024 include $1.5 million and $2.0 million of 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 January 2023, the Company entered into the Second Amended Credit Agreement, which amended the Amended Term Loan Facilities. Certain investors in the Amended Term Loan Facilities participated in the Second Amended Credit Agreement and the change in the present value of future cash flows between the investments was less than 10%. Accordingly, the Company accounted for this refinancing event for these investors as a debt modification. Certain investors in the Amended Term Loan Facilities did not participate in the Second Amended Credit Agreement or the change in the present value of future cash flows between the investments was greater than 10%. Accordingly, the Company accounted for this refinancing event for these investors as a debt extinguishment. In applying debt modification accounting in connection with this refinancing event, during the first quarter of 2023, the Company recorded $12.1 million in loss on debt extinguishment and $4.6 million in debt modification expense.

The Company’s income tax provisions for all periods consist of federal, state and foreign income taxes. The income tax provision for the three months ended March 31, 2024 and 2023 were based on estimated full-year effective tax rates, including the mix of income for the period between higher-taxed and lower-taxed jurisdictions, after giving effect to significant items related specifically to the interim periods, and loss-making entities for which it is not more likely than not that a tax benefit will be realized.

The Company’s effective tax rate for each of the three months ended March 31, 2024 and 2023 was less than 1%. For the three months ended March 31, 2024, the Company’s income tax expense was $0.2 million. For the three months ended March 31, 2023, the Company’s income tax expense was $0.1 million.

To date, the Company has not been required to pay U.S. federal income taxes because of current and accumulated net operating losses.

As of March 31, 2024, 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 March 31, 2024, there were 83,644,026 shares of common stock outstanding, and the Company had reserved a total of 46,969,043 of its authorized shares of common stock for future issuance as follows:

The Company maintains a stock-based compensation plan: the Amended and Restated 2014 Equity Incentive Plan (the “2014 Plan”), which became effective in January 2014. The shares available for future issuance under the 2014 Plan increased by 4,113,030 and 3,916,733 on January 1, 2024 and 2023, respectively, pursuant to the automatic share reserve increase provision in the 2014 Plan.

The Company also has a 2017 Employee Stock Purchase Plan (the “ESPP”). During the second quarter of 2023, shares available for purchase under the ESPP increased by 2,000,000 shares, pursuant to an amendment to the Company’s ESPP to increase the number of authorized shares available under such plan. As of March 31, 2024, 1,289,678 shares remained available for purchase under the ESPP.

The following table presents stock-based compensation expense related to the 2014 Plan and the ESPP, contained on the following line items on the Company’s condensed consolidated statements of operations and comprehensive loss for each of the periods indicated.

The 2014 Plan provides for the issuance of restricted stock units (“RSUs”) to eligible participants. Restricted stock units are generally subject to service-based vesting conditions and vest at various times from the date of grant, with most RSUs vesting in equal quarterly or annual tranches, generally over a period of three years.

The following table presents a summary of the Company’s RSU activity for the period indicated. No RSUs were granted during the three months ended March 31, 2024.

The total fair value of RSUs vested during the three months ended March 31, 2024 and 2023 was $0.7 million and $5.2 million, respectively. The total compensation cost related to the unvested RSUs not yet recognized as of March 31, 2024 was $17.1 million, and will be recognized over a weighted-average period of approximately 1.5 years.

The 2014 Plan provides for the issuance of performance restricted stock units (“PRSUs”) to eligible participants. 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 and/or conditions based on the Company’s internal financial performance achieving predetermined targets. The terms of the performance 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.

During the first quarter of 2022, as part of its annual equity awards cycle, the Company awarded 1.7 million PRSUs with an aggregate intrinsic value of $20.4 million. 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 internal financial performance-based targets, which are established annually. Certain of these PRSUs vest at the end of all three one-year performance periods, while others vest at the end of each of three one-year performance periods. Of the PRSUs awarded, 0.6 million were granted in March 2022 with a weighted-average grant date fair value per share of $10.77, 0.6 million were granted in February 2023 with a weighted-average grant date fair value per share of $11.13, and 0.3 million were granted in February 2024 with a weighted-average grant date fair value of $0.40. 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. For the first and second performance periods, 100% and 27.8% of the eligible PRSUs were earned, respectively.

During the first quarter of 2023, as part of its annual equity award cycle, the Company awarded 1.4 million PRSUs with an aggregate intrinsic value of $12.2 million. The PRSU award agreements provide that the quantity of units subject to vesting may range from 150% to 0% of the granted quantities. For the first performance period, which began on January 1, 2023 and ended on December 31, 2023, and the second performance period, which began on January 1, 2024 and ends on December 31, 2024, the quantity of units eligible to be earned ranges from 130% to 0% depending on the achievement of internal financial performance-based targets, which are established annually. Additionally, the actual number of PRSUs earned may be adjusted upward or downward by 20% based upon the Company’s total shareholder return (“TSR”) performance compared to the Russell 3000 Index’s TSR performance over the same period. If the Company’s absolute TSR is negative, the TSR multiplier cannot exceed 0% and the achievement percentage based up on the internal financial performance-based targets is capped at 125%. Of the PRSUs awarded, 0.5 million were granted in March 2023 with a weighted-average grant date fair value per share of $7.15 and 0.4 million were granted in February 2024 with a weighted-average grant date fair value per share of $0.39. These include the fair values per share of the TSR-performance component of the awards, which were determined using a Monte Carlo valuation model, and were $0.39 and $0.00 per share for the first and second performance periods, respectively. For the first performance period, 0% of the eligible PRSUs were earned.

During the first quarter of 2024, as part of a one-time award cycle, the Company granted 0.8 million PRSUs with a grant date fair value per share of $0.49. The PRSU award agreements provide that the awards are eligible to vest upon the 30-day average stock price of the Company attaining at least $10.00 on or prior to the two-year anniversary of the grant date.

The following tables present a summary of (i) for the three months ended March 31, 2024 and 2023, the assumptions used for estimating the fair values of the TSR-performance component of the PRSUs, and (ii) for the three months ended March 31, 2024, the assumptions used for estimating the fair value of the PRSUs subject to market-based vesting conditions. As of March 31, 2024 and December 31, 2023, there were 0.4 million and 1.2 million outstanding PRSUs for which the performance metrics had not been defined as of each respective date. Accordingly, such awards are not considered granted for accounting purposes as of March 31, 2024 and December 31, 2023, and have been excluded from the tables below.

The following table presents a summary of the Company’s PRSU activity for the period indicated.

The total compensation expense related to the unvested PRSUs not yet recognized as of March 31, 2024 was $1.9 million, and will be recognized over a weighted-average period of approximately 1.3 years.

The 2014 Plan provides for the issuance of stock options to eligible participants. Stock options issued under the 2014 Plan generally are exercisable for periods not to exceed 10 years and generally vest over a three-year period.

The following table summarizes the assumptions used for estimating the fair value of the stock options granted for the period presented. No stock options were granted during the three months ended March 31, 2024.

The following table presents a summary of the Company’s stock option activity for the period indicated.

The aggregate intrinsic value of options exercised during the three months ended March 31, 2023 was $0.1 million.

The total unrecognized compensation cost related to the unvested options as of March 31, 2024 was $3.1 million, and will be recognized over a weighted-average period of approximately 0.9 years.

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.

The following table presents the calculation of the Company’s basic and diluted net loss per share for each of the periods indicated.

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, universities, and other leading organizations.

For each of the three months ended March 31, 2024 and 2023, no university clients accounted for 10% or more of the Company’s consolidated revenue.

As of March 31, 2024, no university clients accounted for 10% or more of the Company’s consolidated accounts receivable, net balance. As of December 31, 2023, two university clients in the Degree Program Segment accounted for 10% or more of the Company’s consolidated accounts receivable, net balance, as follows: $36.4 million and $14.3 million, which equaled 31% and 12% of the Company’s consolidated accounts receivable, net balance, respectively.

The following table presents financial information regarding each of the Company’s reportable segment’s results of operations for each of the periods indicated.

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

The following table presents the Company’s total assets by segment as of each of the dates indicated.

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 $28.5 million and $30.7 million for the three months ended March 31, 2024 and 2023, 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 March 31, 2024 and December 31, 2023 totaled approximately $3.2 million and $3.5 million, respectively.

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 condensed consolidated balance sheets.

The following table presents the Company’s trade accounts receivable in each segment as of each of the dates indicated.

The Company regularly reviews its portfolio of offerings for alignment with its business objectives, including cost to operate, expected enrollments, and other factors, and from time to time, the Company has entered into, and may in the future enter into, agreements to strategically exit certain programs. As of March 31, 2024 and December 31, 2023, the Company had balances of $10.5 million and $68.2 million, respectively, of unbilled revenue associated with portfolio management activities within accounts receivable, net on the condensed consolidated balance sheets. In addition, as of March 31, 2024 and December 31, 2023, the Company had balances of $1.0 million and $16.9 million, respectively, of non-current accounts receivable associated with portfolio management activities within other assets, non-current on the condensed consolidated balance sheets. These non-current accounts receivable are typically due within 12 to 24 months.

In January 2024, the Company entered into a receivables factoring transaction whereby a counterparty committed to purchase certain receivables owing to the company related to portfolio management activities at a purchase rate of 88% (the “Factoring Agreement”). Under the Factoring Agreement, the Company could sell eligible receivables without recourse in exchange for cash. In accordance with ASC 860 Transfers and Servicing of Financial Assets, the sold receivables were derecognized from the Company’s balance sheet. The fair value of the sold receivables approximated their book value due to their short-term nature. Proceeds from the sale of receivables are reflected as cash flows from operating activities on the condensed consolidated statement of cash flows.

During the three months ended March 31, 2024, the Company sold, without recourse, $82.1 million of receivables under the Factoring Agreement, with net proceeds of $74.0 million. The loss on the sale of these receivables of $8.1 million is included within other income (expense), net on the Company’s condensed consolidated statements of operations.

The following table presents the change in provision for credit losses for trade accounts receivable on the Company’s condensed consolidated balance sheets for the period indicated.

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.

The following table presents the change in provision for credit losses for other receivables on the Company’s condensed consolidated balance sheets for the period indicated.

The Company considers receivables to be past due when amounts contractually due under the extended payment plans have not been paid. As of March 31, 2024, 70% 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.

			March 31, 2024
			Year of Origination
			2024						2023						2022						2021						2020 & Prior						Total
			(in thousands)
Credit Quality Tier
High			$	3,874					$	8,184					$	244					$	492					$	1,073					$	13,867
Mid			4,317						8,755						2,759						2,111						2,867						20,809
Low			2,837						4,906						2,092						2,090						2,945						14,870
Total			$	11,028					$	21,845					$	5,095					$	4,693					$	6,885					$	49,546