twou-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2021


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

For the transition period from to

Commission File Number: 001-36376

2U, INC.

(Exact name of registrant as specified in its charter)

Delaware

26-2335939

(State or other jurisdiction of incorporation or organization)

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

7900 Harkins Road

Lanham,

20706

(Address of Principal Executive Offices)

(Zip Code)

(301) 892-4350

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

TWOU

The Nasdaq Global Select Market

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

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

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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

As of April 26, 2021, there were 74,404,607 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

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PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements	4

Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020		4

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three months ended March 31, 2021 and 2020		5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2021 and 2020		6

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2021 and 2020		7

Notes to Condensed Consolidated Financial Statements (unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	35

PART II. OTHER INFORMATION		36

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Signatures		38

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

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

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

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

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

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

•our ability to meet the anticipated launch dates of our degree programs, short courses and boot camps;

•our ability to acquire new university clients and expand our degree programs, short courses and boot camps with existing university clients;

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

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

•our ability to service our substantial indebtedness and comply with the covenants and conversion obligations contained in the Indenture (as defined below) governing our convertible senior notes and the Credit Agreement (as defined below) governing our revolving credit facility;

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

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

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

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

•our ability to attract, hire and retain qualified employees;

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

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

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

•the impact and cost of stockholder activism;

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

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

•other factors beyond our control.

You should refer to the risks described in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

2U, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	March 31, 2021		December 31, 2020
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	486,830	$	500,629
Restricted cash	18,226		18,237
Accounts receivable, net	74,744		46,663
Prepaid expenses and other assets	57,770		39,353
Total current assets	637,570		604,882
Property and equipment, net	50,745		52,734
Right-of-use assets	59,653		60,785
Goodwill	415,145		415,830
Amortizable intangible assets, net	306,083		312,770
Other assets, non-current	86,317		97,263
Total assets	$	1,555,513	$	1,544,264
Liabilities and stockholders’ equity
Current liabilities
Accounts payable and accrued expenses	$	131,310	$	130,674
Deferred revenue	108,364		75,493
Lease liability	10,211		10,024
Other current liabilities	25,315		21,178
Total current liabilities	275,200		237,369
Long-term debt	280,429		273,173
Deferred tax liabilities, net	2,054		2,810
Lease liability, non-current	80,645		83,228
Other liabilities, non-current	6,697		6,694
Total liabilities	645,025		603,274
Commitments and contingencies (Note 5)
Stockholders’ equity
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued	—		—
Common stock, $0.001 par value, 200,000,000 shares authorized, 74,038,208 shares issued and outstanding as of March 31, 2021; 72,451,521 shares issued and outstanding as of December 31, 2020	74		72
Additional paid-in capital	1,662,439		1,646,574
Accumulated deficit	(741,436)		(695,872)
Accumulated other comprehensive loss	(10,589)		(9,784)
Total stockholders’ equity	910,488		940,990
Total liabilities and stockholders’ equity	$	1,555,513	$	1,544,264

See accompanying notes to condensed consolidated financial statements.

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2U, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited, in thousands, except share and per share amounts)


	Three Months Ended March 31,
	2021		2020
Revenue	$	232,473	$	175,479
Costs and expenses
Curriculum and teaching	33,148		20,478
Servicing and support	33,184		30,533
Technology and content development	42,924		35,510
Marketing and sales	113,237		99,215
General and administrative	47,112		43,653
Total costs and expenses	269,605		229,389
Loss from operations	(37,132)		(53,910)
Interest income	362		513
Interest expense	(7,881)		(5,493)
Other expense, net	(915)		(2,271)
Loss before income taxes	(45,566)		(61,161)
Income tax benefit	2		1,055
Net loss	$	(45,564)	$	(60,106)
Net loss per share, basic and diluted	$	(0.62)	$	(0.94)
Weighted-average shares of common stock outstanding, basic and diluted	73,676,409		63,626,333
Other comprehensive loss
Foreign currency translation adjustments, net of tax of $0 for all periods presented	(805)		(16,115)
Comprehensive loss	$	(46,369)	$	(76,221)

See accompanying notes to condensed consolidated financial statements.

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2U, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(unaudited, in thousands, except share amounts)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2020	72,451,521	$	72	$	1,646,574	$	(695,872)	$	(9,784)	$	940,990
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings	1,404,971	2		(12,615)		—		—		(12,613)
Exercise of stock options	181,716	—		3,533		—		—		3,533
Stock-based compensation expense	—	—		24,947		—		—		24,947
Net loss	—	—		—		(45,564)		—		(45,564)
Foreign currency translation adjustment	—	—		—		—		(805)		(805)
Balance, March 31, 2021	74,038,208	$	74	$	1,662,439	$	(741,436)	$	(10,589)	$	910,488


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance, December 31, 2019	63,569,109	$	63	$	1,197,379	$	(479,388)	$	(6,804)	$	711,250
Issuance of common stock in connection with settlement of restricted stock units, net of withholdings	96,683	1		(1)		—		—		—
Exercise of stock options	37,275	—		384		—		—		384
Stock-based compensation expense	—	—		20,870		—		—		20,870
Net loss	—	—		—		(60,106)		—		(60,106)
Foreign currency translation adjustment	—	—		—		—		(16,115)		(16,115)
Balance, March 31, 2020	63,703,067	$	64	$	1,218,632	$	(539,494)	$	(22,919)	$	656,283

See accompanying notes to condensed consolidated financial statements.

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2U, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited, in thousands)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities
Net loss	$	(45,564)	$	(60,106)

SEC Form 10-Q filed by 2U, Inc.