This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, ~~and~~ 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 Annual Report on Form 10-K, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

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

You should read this Annual Report on Form 10-K completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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

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

We are a leading ~~provider of~~online education ~~technology for~~platform company. Our mission is to expand access to high-quality education and unlock human potential. As a trusted partner to top-ranked nonprofit ~~colleges~~universities and ~~universities. We build,~~other leading organizations, we deliver and support more than 400 digital and in-person educational offerings, including graduate degrees, undergraduate degrees, professional certificates, boot camps, and short courses, across the career curriculum continuum. Together with our university clients, we have positively transformed the lives of more than 200,000 students.

We serve more than 230 top-ranked global universities and other leading organizations and, together, we offer more than 4,000 high-quality online learning opportunities, including open courses, executive education offerings, boot camps, micro-credentials, professional certificates as well as undergraduate and graduate degree programs. Our offerings cover a wide range of topics including technology, business, healthcare, science, education, social work, and sustainability. Many of our offerings are stackable, providing learners with an affordable pathway to achieve both short-term and long-term professional and educational goals. Our platform provides our clients with the digital infrastructure ~~that universities need~~ to attract, enroll, educate and support students at scale. With our platform, students can pursue their education anytime, anywhere, without quitting their jobs or moving; and university clients can provide broader access to their educational offerings, thereby improving outcomes, skills attainment, and career prospects for a greater number of students.

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

In our ~~Graduate~~Degree Program Segment, we provide ~~the~~ technology and services to nonprofit colleges and universities to enable the online delivery of degree programs. Students enrolled in these programs are generally seeking an undergraduate or graduate degree of the same quality they would receive on campus.

Our platform ~~or 2UOS,~~ consists of a seamlessly integrated ecosystem of technology, people and data. Through ~~2UOS,~~our platform, we provide ~~front-end~~the tools and ~~back-end cloud-based SaaS~~services our clients need to bring their education offerings online, at scale and we provide learners with flexible, high-quality learning opportunities across an expansive range of topics to support their educational and career goals.

As of December 31, ~~2019, we had 31 university clients with 127 offerings in 26 academic disciplines.~~

The overall market for technology solutions that enable higher education providers to deliver education online is highly fragmented, rapidly evolving and subject to changing technology, shifting needs of students, faculty and ~~educators~~clients and frequent introductions of new delivery methods. ~~Several competitors provide platforms that compete with some of the capabilities of our platform.~~

~~Table of Contents~~

We expect that the competitive landscape will continue to expand as the market for online education offerings at nonprofit institutions matures. We believe the principal competitive factors in our market include the following:

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

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

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

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

We have also established business procedures designed to maintain the confidentiality of our proprietary information, including the use of confidentiality agreements with employees, independent contractors, consultants and companies with which we conduct business.

We also purchase or license technology and other intellectual property that we incorporate into our technology or services. While it may be necessary in the future to seek or renew licenses relating to various aspects of our technology and services, we believe, based upon past experience and industry practice, such licenses generally could be obtained on commercially reasonable terms.

For important additional information related to our intellectual property position, please review the information set forth in “Risk Factors—Risks Related to Intellectual Property.”

The higher education industry is heavily regulated. Institutions of higher education that award degrees and certificates to signify the successful completion of an academic program are subject to regulation from three primary entities: the U.S. Department of Education, or DOE, accrediting agencies and state licensing authorities. Each of these entities promulgates and enforces its own laws, regulations, guidance and standards, which we refer to collectively as education laws.

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

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

The HEA and the regulations promulgated thereunder are frequently revised, repealed or expanded. Congress historically has reauthorized and amended the HEA inat regular intervals ~~approximately every seven~~but has failed to do so in recent years. The ~~re-authorization~~reauthorization process and congressional oversight of the DOE is ~~currently under way.~~nonetheless ongoing, such as oversight and investigations of the education sector and DOE conducted on behalf of Congress by the Government Accountability Office, or GAO.

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

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

Current DOE rules material to our business include ~~principally~~ the incentive compensation rule, the misrepresentation rule, the “written arrangements” rules and state authorization requirements, which are discussed in further detail below. Certain DOE rules have been revised by the current administration as part of its policy to deregulate and spur innovation in higher education, and such changes are generally expected to become final in 2020.

The HEA provides that any institution that participates in the Title IV federal student financial assistance programs must agree with the DOE that the institution will not provide any commission, bonus or other incentive payment to any person or entity engaged in any student recruiting or admission activities as those terms and activities are defined in DOE ~~regulations.~~regulations and policy guidance.

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

At the time the incentive compensation rule was last revised, in July 2011, the revised rule initially raised a question as to whether entities could be prohibited from entering into tuition revenue-sharing arrangements with university clients. On March 17, 2011, the DOE issued official agency guidance, known as a “Dear Colleague Letter,” or the DCL, providing guidance on this point. The DCL states that “[t]he Department generally views payment based on the amount of tuition generated as an indirect payment of incentive compensation based on success in recruitment and therefore a prohibited basis upon which to measure the value of the services provided” and that “[t]his is true regardless of the manner in which the entity

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

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

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

The HEA prohibits an institution that participates in the Title IV programs from engaging in any “substantial misrepresentation” regarding three broad subject areas: (i) the nature of the school’s education programs, (ii) the school’s financial charges and (iii) the employability of the school’s graduates.

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

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

Violations of the misrepresentation rule are subject to various sanctions by the DOE and violations may be used as a basis for legal action by third parties or as a defense to the obligation to repay student loans. In 2022, DOE completed changes to related “borrower defense to repayment” regulations including new definitions of “aggressive recruitment” and misrepresentation (including omission of fact). The new rules could make it significantly easier for students to obtain student loan discharges, in some cases at the institution’s expense, and may trigger further scrutiny of marketing or recruiting practices. In addition, the DOE has designated an investigations unit to enforce rules related to deceptive student marketing, which is expected to work with other federal agencies.

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

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

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

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

Accrediting agencies are also responsible for assuring that any “written arrangements” to outsource academic instruction meet ~~accrediting~~accreditation standards and related regulations of the DOE. Our operations are generally not subject to such “written arrangements” rules because academic instruction is provided by our university client institutions and not by us; however, the “written arrangements” rules may apply to online programs in the Alternative Credential Segment to the extent such courses are outsourced by university clients. ~~The “written arrangements” rule is under review by the current administration. Any changes are not expected to be final until later in 2020.~~

Each state has at least one licensing agency responsible for the oversight of educational institutions operating within its jurisdiction. Continued approval by such agencies is necessary for an institution to operate and grant degrees, diplomas or certificates in those states. Moreover, under the HEA, approval by such agencies is necessary to maintain eligibility to participate in Title IV programs. State attorneys general are also active in enforcing education laws, and the level of regulatory oversight varies substantially from state to state.

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

DOE requires, among other things, that an institution offering distance learning or online programs secure the approval of those states which require such approval and provide evidence of such approval to the DOE upon request. This regulation increases the importance of state authorization because failure to obtain the necessary state authorization for online programs (which may also be obtained through participation in a state authorization reciprocity agreement) could result in an obligation to return federal funds received by an institution. The ~~current administration initially delayed the effective date of the current~~federal state authorization ~~regulations before making minor~~rules were updated in July 2020 to, among other things, require more detailed disclosure requirements about whether particular states have authorized programs that may lead to professional licensure, which created an additional compliance burden for many of our partner institutions. The DOE is currently considering further changes to ~~them, which are expected to be effective on July 1, 2020.~~its state authorization requirements.

All states except California now participate in the State Authorization Reciprocity Agreement, or SARA, governing the licensing of online offerings. All SARA-member institutions may provide online offerings in SARA states without obtaining separate state authorization (this includes externships, recruiting, local advertising, and faculty presence). SARA-member institutions must still obtain a separate authorization in order to open a physical location in another state and are also required to obtain any additional approvals that may be required for offerings leading to professional licensure in a state (e.g., nursing, teaching, or counseling). Most of our university clients are SARA members and the DOE accepts participation in a reciprocity agreement as evidence of state approval. SARA policies and procedures change frequently and must reflect changes in policy instituted by accreditation agencies and the DOE.

Finally, many programs leading to professional licensure, such as graduate degree programs in nursing or teaching, also require approval from, and are subject to ongoing oversight by separate state agencies such as state nursing boards. Membership in SARA does not encompass approvals by professional licensing boards, which must be obtained separately.

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

~~Table~~Our activities or those of ~~Contents~~

As of December 31, 2022, we had approximately 3,445 full-time employees and ~~Employees~~3,699 part-time employees worldwide. Approximately 6,077 of our employees are located in the U.S., approximately 702 of our employees are located in Cape Town, South Africa, and approximately 365 employees are located in other jurisdictions. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relations with our employees to be good.

2U was founded on a set of “guiding principles” that are core to our culture and guide big and small decisions every day. New employees are introduced to the guiding principles in orientation and are expected to bring these guiding principles to life as they work with their teams, interact with our university clients and students or otherwise represent 2U in the community.

2U is dedicated to eliminating the back row in higher education and our employees are critical to achieving this mission. We believe that when our employees feel appreciated and included they can be more creative, innovative, and better serve our university clients and students. Human capital measures and objectives that we focus on in managing our business include talent acquisition and retention, diversity and inclusion, employee development and training, community involvement and employee engagement and wellness.

We were incorporated as a Delaware corporation in April 2008 and completed our initial public offering in April 2014. ~~We acquired Get Educated International Proprietary Limited, or GetSmarter, in July 2017, and acquired Trilogy in May 2019.~~

Our principal executive offices are located at 7900 Harkins Road, Lanham, MD 20706, and our telephone number is (301) 892-4350.

You can obtain copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the U.S. Securities and Exchange Commission, or the SEC, and all amendments to these filings, free of charge from our website at investor.2u.com or on the SEC’s website at www.sec.gov as soon as reasonably practicable following our filing of any of these reports with the SEC. The contents of these websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

In addition to the other information set forth in this Annual Report on Form 10-K, you should carefully consider the factors discussed in the “Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.

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

We incurred net losses of ~~$235.2~~$322.2 million, ~~$38.3~~$194.8 million and ~~$29.4~~$216.5 million during the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, respectively. We will need to generate and sustain increased revenue levels and/or reduce operating expenditures in future periods to become profitable, and, even if we do, we may not be able to maintain or increase our ~~level of~~ profitability. We have invested, and expect to continue to ~~expend~~invest, substantial financial and other resources in developing our platform, including expanding our platform offerings, developing or acquiring new platform features and services, expanding into new markets and geographies, developing new content, and on ~~technology~~our sales and ~~production efforts to support a growing number of offerings and our~~ marketing and sales efforts to drive the acquisition of potential students. In addition, as a public company, we will continue to incur significant accounting, legal and other expenses that we did not incur as a private company. These expenditures will make it harder for us to achieve and maintain profitability.efforts. Our efforts to grow our business may be more costly than we expect, and we may not be able to achieve or maintain profitability or to increase our revenue enough to offset our operating expenses. ~~If we are forced to reduce our expenses, our growth strategy could be compromised.~~ We may incur significant losses in the future for a number of reasons, including unforeseen expenses, difficulties, complications, delays and other unknown events. As a result, we may be unable to achieve and maintain profitability, and the value of our company and our common stock could decline significantly.

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

The following factors, many of which are largely outside of our control, may prevent us from successfully driving and maintaining student enrollment in our offerings in a cost-effective manner or at ~~all:~~all, which would adversely affect our revenue and ability to achieve profitability:

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

Certain of our contracts ~~we have entered into or may enter into~~ with our university clients ~~contain limitations on~~limit our ability to ~~contract~~enable competitive offerings with other ~~institutions~~schools. In our Degree Program Segment, we have determined that enabling some of these contractually prohibited competitive programs may be part of our business strategy. We have in the past agreed and may in the future agree with certain university clients to ~~provide~~do some or all of the ~~same~~following to reduce or ~~a similar offering.~~ eliminate certain exclusivity obligations: make fixed and contingent cash payments over time, reduce our revenue share over time, and/or make minimum investments in marketing under certain conditions.

In addition, in order to maintain good relations with our university clients, we may decide not to approach certain institutions that our university clients regard as their direct competitors to offer similar programs or courses, even if we are allowed to do so under our contracts.

To launch a new degree program, we ~~must~~generally integrate components of our platform with the various student information and other operating systems our university clients use to manage functions within their institutions. In addition, for these degree programs, our content development staff ~~must~~ work closely with the university client’s faculty members to produce engaging online coursework and content, and we must commence student acquisition activities. This process ~~of launching a new degree program~~ is time-consuming and costly and,

Our continued growth and ability to achieve profitability depends on our and our university clients’ ability to successfully scale newly launched offerings. AsOur ability to scale new offerings in the time frame we ~~continue growing our business, we plan~~expect has varied over time and from offering to ~~continue to hire new employees, particularly in our~~

In addition, in our ~~Graduate~~Degree Program Segment, if our university clients cannot quickly develop the infrastructure and hire sufficient faculty and administrators to handle growing student enrollments, our university clients’ and their students’ experiences with our platform may suffer, which could damage our reputation among colleges and universities and their faculty and students.

Establishing new offerings or expanding existing offerings will require us to make investments in management and key staff, increase capital expenditures, incur additional marketing expenses and reallocate other resources. If student ~~enrollment~~enrollments in our offerings ~~does~~do not increase, if we are unable to launch new offerings in a cost-effective manner or if we are otherwise unable to manage new offerings effectively, our ability to grow our business and achieve profitability would be impaired, and the quality of our platform and the satisfaction of our university clients and their students could suffer.

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

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

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

We rely on our reputation for delivering high-quality online ~~degree programs~~educational offerings and recommendations from existing university clients to attract potential new university clients. Therefore, the loss of any single ~~degree program,~~offering, or the failure of any university client to renew its agreement with us upon expiration, could harm our reputation and impair our ability to pursue our growth strategy and ultimately to become profitable.

We review goodwill and other indefinite-lived intangible assets for impairment annually, 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. We experienced a significant decline in the market price of our common stock subsequent to February 9, 2022 that resulted in a triggering event for assessing our goodwill and indefinite-lived intangible asset balances. When we acquire a business, a substantial portion of the purchase price of the acquisition may be allocated to goodwill and other indefinite-lived intangible assets. During the three months ended March 31, 2022, we recorded impairment charges of $28.8 million and $30.0 million to goodwill and the indefinite-lived intangible asset, respectively. During the three months ended September 30, 2022, we recorded impairment charges of $50.2 million and $29.3 million to goodwill and the indefinite-lived intangible asset, respectively.

Future declines in the results of our acquisitions and other factors could cause us to record an impairment of all or a portion of the relevant goodwill in the future. We may not be able to achieve our business targets for businesses we previously acquired or will acquire in the future, which could result in our incurring additional goodwill and other intangible assets impairment charges. Further declines in our market capitalization increase the risk that we may be required to perform another impairment analysis, which could result in an impairment of up to the entire balance of our goodwill and other intangible assets based on the quantitative assessment performed.

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

The U.S. Department of Justice brought several antitrust lawsuits against Google claiming, among other things, that Google improperly uses its monopoly over internet search to impede competition and harm consumers. We cannot predict the impact that these lawsuits may have on advertising costs or Google’s future operations. Any reduction in the number of prospective students directed to our websites could negatively affect our ability to generate prospective students, and ultimately revenue, through our student acquisition activities.

Our ~~platform~~platforms and computer systems store and transmit proprietary and confidential ~~university,~~client, student, and company information, which may include personal information of students, prospective students, faculty and employees, ~~that are~~ subject to stringent legal and regulatory obligations. As a technology company, we have faced and continue to face an increasing number of threats to our ~~platform~~platforms and computer systems, including unauthorized activity and access, system viruses, worms, malicious code, denial of service

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

~~We have experienced rapid growth in a relatively short period~~The performance and reliability of ~~time, which has placed,~~our online learning platforms is critical to our operations, reputation and ~~will continue to place, a significant strain on our administrative and operational infrastructure, facilities and other resources. Our~~ ability to ~~manage our operations and growth may require us to continue to expand our marketing and sales personnel, technology team, finance and administration teams,~~attract new university clients, as well as our ~~facilities~~student acquisition and ~~infrastructure. We will also be required~~retention efforts. Our university clients rely on our platforms to ~~refine~~provide their offerings online, and students access our ~~operational, financial~~platforms on a frequent basis as an important part of their educational experience. Because our platforms are complex and ~~management controls~~incorporates a variety of hardware and ~~reporting systems~~proprietary and ~~procedures. If we fail to manage this expansion of~~third-party software, our ~~business efficiently,~~platforms may have errors or defects that could result in unanticipated downtime for our ~~costs~~university clients and ~~expenses may increase more than we plan~~students. Web- and mobile- based applications frequently contain undetected errors when first introduced or when new versions or enhancements are released, and we have from time to time found errors and defects in our technology and new errors and defects may not successfully expand our university client base, enhance our platform, develop new offerings with new and existing university clients, attract a sufficient number of qualified students in a cost-effective manner, satisfy the requirements of our existing university clients, respond to competitive challenges or otherwise execute our business plan. Accordingly, our historical revenue growth rate may not continuebe detected in the future.

~~For-profit postsecondary institutions, many~~Our online learning platform and certain of ~~which provide course offerings predominantly online, remain under intense regulatory~~our other technology and ~~other scrutiny, even under~~services are hosted on data centers provided by Amazon Web Services, or AWS. Given this, along with the ~~current administration, which~~fact that we cannot easily switch our AWS operations to another cloud provider, any disruption of, or interference with our use of, AWS would impact our operations and our business would be adversely impacted. AWS may terminate its agreement with us upon 30 days’ notice. Additionally, AWS has ~~led~~the right to ~~media attention that has portrayed~~

Our operations depend, in part, on AWS’s abilities to protect their data center hosting facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. The occurrence of spikes in usage volume, a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close a facility without adequate notice, or other unanticipated problems at ~~both the state and federal level. These investigations have focused on specific companies and individuals, and the entire industry~~a facility could result in lengthy interruptions in the ~~case~~availability of ~~marketing and recruiting practices by for-profit higher education companies. Even though we do not market~~ our platform, to for-profit institutions, and have a different business model from them, this negative media attention may nevertheless foster skepticism about online higher education generally and our company specifically. Allegations of abuse of federal financial aid funds and other statutory violations against for-profit higher education companies, even if unfounded, could negatively impact our opportunity to succeed due to increased regulation or decreased demand for our offerings. More recently, our company has been the subject of articles and inquires by critics of for-profit education models more generally, and such critics have advocated for changeswhich would result in ~~law and regulation at the state and federal level that would be adverse~~harm to our ~~business model~~business. In the event of a system failure, the backup systems and ~~sought information regarding the business practices of online program management companies generally. Efforts to further regulate for-profit institutions~~disaster recovery services provided by AWS may be insufficient or ~~our own business model could increase~~fail. Also, in the event of ~~a change~~damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in ~~political party control of the U.S. Congress or the executive branch. Any of these factors~~turn could ~~negatively impact our ability to increase our university client base and grow our offerings and~~further reduce our revenue, subject us to liability or cause our clients to fail to renew or terminate their contracts, any of which ~~would make it difficult to continue to grow~~could harm our business.

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

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

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

If our clients or students encounter difficulty accessing or using, or if they choose not to use, our mobile platform, our growth prospects and our business may be adversely affected.

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

Our ability to manage any growth or changes in our business operations effectively will depend on a number of factors, including our ability to:

These activities will require significant capital expenditures and place significant demands on our management and our operational and financial infrastructure.

We may not be able to effectively manage any future growth in a cost-effective or timely manner, or at all, which could negatively affect the quality of our platform, our reputation, results of operations and overall business.

We have in the past acquired and may in the future acquire complementary products, services, technologies or businesses. Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may be subject to conditions or approvals that are beyond our control. In addition, we may not be able to identify desirable

An acquisition, investment, or new business relationship may result in unforeseen operating difficulties, expenditures and integration challenges including the following:

Many of these factors will be outside of the combined company’s control and any one of them could result in delays, increased costs, decreased revenue and diversion of management’s time and energy, which could materially affect our financial position, results of operations and cash flows.

If we experience difficulties with the integration process following an acquisition, the anticipated benefits of the acquisition may not be realized fully or at all, or may take longer to realize than expected. Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized.

Any of these outcomes could harm our business and operating results. In addition, a significant portion of the purchase price of companies we have acquired and may acquire in the future may be allocated to goodwill and indefinite-lived intangible assets, which must be assessed for impairment at least annually. If our acquisitions do not ultimately yield expected returns, we may be required to make changes to our operating results based on our impairment assessment process. For example, during the three months ended March 31, 2022, we recorded impairment charges of $28.8 million and $30.0 million to goodwill and the indefinite-lived intangible asset, respectively. During the three months ended September 30, 2022, we recorded impairment charges of $50.2 million and $29.3 million to goodwill and the indefinite-lived intangible asset, respectively. As of December 31, 2022, our goodwill balance was $734.6 million and indefinite-lived intangible asset balance was $195.7 million, a significant portion of which relate to the acquisition of edX completed in November 2021 (the “edX Acquisition”).

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

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

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

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

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

A number of competitive factors could cause us to lose potential client and student opportunities or force us to offer our platform on less favorable economic terms, including:

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

We believe that maintaining and enhancing our reputation and brand recognition is important to attract and retain students and clients, and that the importance of our reputation and brand recognition will continue to increase as competition in the markets in which we operate continues to develop. Our success in this arena will depend on a range of factors, both within and beyond our control. The following factors, many of which are beyond our control, may affect our reputation and brand recognition:

Damage to our reputation and brand, from the factors listed above or otherwise, may reduce demand for our platform and have an adverse effect on our business, operating results and financial condition. Moreover, any attempts to rehabilitate our reputation and brand recognition may be costly and time-consuming, and there can be no assurance that any such efforts will ultimately be successful.

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

Our future success is substantially dependent on the continued service of our senior management team. ~~Because of our small number of university clients and the significant nature of each new university client relationship,~~In this respect, our senior management team is heavily involved in the university client identification and sales process, and their expertise is critical in navigating the complex approval processes of large nonprofit colleges and universities. We do not maintain key-person insurance on any of our employees, including our senior management team. The loss of the services of any individual on our senior management team, or failure to find a suitable successor, could make it more difficult to successfully operate our business and achieve our business goals.

Our future success also depends heavily on the retention of our marketing and sales, technology and content development and support teams to continue to attract and retain ~~qualified~~ students, thereby generating revenue for us. In particular, our highly-skilled technology and content development employees provide the technical expertise underlying our ~~bundled technology-enabled~~technology and technology-

In addition, as a result of business acquisitions and our Strategic Realignment Plan, our current and prospective employees and employees of ~~2U and~~ any acquired company may experience uncertainty about their future roles following the ~~acquisition.~~acquisition or announcement of the Strategic Realignment Plan. If our employees or the employees of any acquired company depart because of issues relating to uncertainty or perceived difficulties of integration, our ability to realize the anticipated benefits of an acquisition could be adversely impacted.

Since 2017, and more recently as a result of the edX Acquisition, we have significantly increased our international operations, including the number of international applicants and students in our offerings. One element of our growth strategy is to continue expanding our international operations and to ~~establish a worldwide~~continue expanding our global student and client base. Our current international operations and future initiatives will involve a variety of risks that could constrain our operations and compromise our growth prospects, including:

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

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

As of February ~~24, 2020,~~15, 2023, there were ~~81 registered~~45 stockholders of record ~~for~~of our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

The graph set forth below compares the cumulative total stockholder return on our common stock with that of the Nasdaq Composite Index, the Russell 3000 Index and the S&P North American Technology Software Index for the five years ended December 31, ~~2019.~~2022. The graph assumes that $100 was invested at the close of market on the last trading day of the fiscal year ended December 31, ~~2014~~2016 in the common stock of 2U, Inc., the Nasdaq Composite Index, the Russell 3000 Index and the S&P North American Technology Software Index. We have not paid any cash dividends and, therefore, the cumulative total return calculation on our common stock is based solely upon our stock price appreciation or depreciation and does not include any reinvestment of cash dividends. The data for the Nasdaq Composite Index, the Russell 3000 Index and the S&P North American Technology Software Index assumes reinvestments of gross dividends. The comparisons shown in the graph below are based upon historical data, and are not necessarily indicative of, nor intended to forecast, the potential future stock performance of our common stock.

The information presented above in the stock performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, except to the extent that we subsequently specifically request that such information be treated as soliciting material or specifically incorporate it by reference into a filing under the Securities Act of 1933, as amended, or a filing under the Securities Exchange Act of 1934, as amended.

We are a leading ~~provider of~~online education ~~technology for~~platform company. Our mission is to expand access to high-quality education and unlock human potential. As a trusted partner to top-ranked nonprofit ~~colleges~~universities and ~~universities. We build,~~other leading organizations, we deliver and support more than 400 digital and in-person educational offerings, including graduate degrees, undergraduate degrees, professional certificates, boot camps, and short courses, across the career curriculum continuum. Together with our university clients, we have positively transformed the lives of more than 200,000 students.

We serve more than 230 top-ranked global universities and other leading organizations and, together, we offer more than 4,000 high-quality online learning opportunities, including open courses, executive education offerings, boot camps, micro-credentials, professional certificates as well as undergraduate and graduate degree programs. Our offerings cover a wide range of topics including technology, business, healthcare, science, education, social work, and sustainability. Many of our offerings are stackable, providing learners with an affordable pathway to achieve both short-term and long-term professional and educational goals. Our platform provides our clients with the digital infrastructure ~~that universities need~~ to ~~attract, enroll, educate~~launch world-class online education offerings and ~~support~~allow students ~~at scale. With our platform, students can pursue their~~to easily access high-quality, job-relevant education ~~anytime, anywhere,~~ without ~~quitting their jobs~~the barriers of cost or ~~moving; and university clients can provide broader access to their educational offerings, thereby improving outcomes, skills attainment and career prospects for a greater number of students.~~location.

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

In our ~~Graduate~~Degree Program Segment, we provide ~~the~~ technology and services to nonprofit colleges and universities to enable the online delivery of degree programs. Students enrolled in these programs are generally seeking an undergraduate or graduate degree of the same quality they would receive on campus.

In January 2023, we entered into an agreement to amend our First Amended Term Loan Agreement to, among other things, extend the maturity date from December 2024 to December 2026. In connection with amending the terms and extending the maturities under the First Amended Term Loan Agreement, we issued the 2030 Notes with an aggregate principal amount of $147.0 million. We used cash on hand and the $127.1 million of net proceeds from the 2030 Notes to reduce the outstanding principal amount of secured debt under the Amended Term Loan Facilities from $567 million to $380 million. As part of the refinancing transaction, in addition to extending the maturity date, the lenders provided us with a senior secured first lien revolving loan facility in the principal amount of $40 million. Refer to Note 10 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our debt.

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

As a result of the plan, in addition to marketing efficiencies, we expect to generate approximately $70 million in annual cost savings. We anticipate that we will incur aggregate restructuring charges associated with the 2022 Strategic Realignment Plan of approximately $35 million to $40 million. We recorded $30.7 million in restructuring charges related to the 2022 Strategic Realignment Plan for the year ended December 31, 2022. 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 9 years.

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

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

In our ~~Graduate~~Degree Program Segment, we derive substantially all of our revenue from revenue-share arrangements with our university clients under which we receive a contractually specified percentage of the amounts students pay them to enroll in degree programs. In our Alternative Credential Segment, we derive substantially all of our revenue from tuition and fees ~~that~~from students ~~pay to take~~taking our ~~short courses~~executive education programs, boot camps, and ~~boot camps. Accordingly, the primary driver of our revenue growth~~premium online open courses. Revenue in each segment is primarily driven by the number of student enrollments in ~~the offerings we enable. This in turn is influenced primarily by three factors:~~our offerings.

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

~~Graduate~~In our Degree Program Segment,

In our Alternative Credential Segment,

Curriculum and teaching expense consists primarily of amounts due to universities for licenses to use their brand names and other trademarks in connection with our ~~short course~~executive education and boot camp offerings. The payments are based on contractually specified percentages of the tuition and fees we receive from students in those offerings. Curriculum and teaching expense also includes personnel and personnel-related expense for our ~~short course~~executive education and boot camp instructional staff.

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

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

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

Restructuring charges consist of severance and severance-related costs, costs associated with the exit of facilities, and costs associated with professional services.

Net interest income (expense) consists primarily of interest expense from our long-term debt and interest income from our cash and cash equivalents. Interest expense also includes the amortization of debt issuance costs.

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

Other ~~expense,~~income (expense), net consists primarily ~~consists~~ of foreign currency gains and ~~losses.~~losses, gains and losses related to the sale of investments and other non-operating income and expense.

Our income tax provisions for all periods consist of U.S. federal, state and foreign income taxes. Our effective tax rate for the period is based on a mix of higher-taxed and lower-taxed jurisdictions. ~~Due~~On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Currently, we do not believe this legislation will have a material impact on our ~~current and accumulated net operating losses, we have not been required to pay U.S. federal income taxes to date.~~consolidated financial statements.

The following table ~~sets forth~~presents selected consolidated statement of operations and comprehensive loss data for each of the periods indicated.

Revenue from our ~~Graduate~~Degree Program Segment ~~increased $68.8~~decreased $20.7 million, or ~~19.8%, primarily due to growth in~~3.5%. Average revenue per full course equivalent (“FCE”) enrollment decreased from $2,497 to $2,447, or 2.0%, and FCE enrollments ~~of 33,628,~~decreased by 3,610, or ~~26.3%~~1.5%.

Revenue from our Alternative Credential Segment increased ~~$94.1~~$38.1 million, or ~~148.3%~~10.8%. FCE enrollments increased by 7,387, or 8.6%, ~~primarily due to growth in full course equivalent enrollments of 18,956, or 58.9%, as well as an increase in the~~and average revenue per ~~full course equivalent~~FCE enrollment decreased from ~~$1,969~~$4,105 to ~~$3,296. These increases were primarily due to the addition of incremental full course equivalent enrollments from Trilogy.~~$3,897, or 5.1%.

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

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

~~Graduate~~Degree Program Segment profitability ~~decreased $11.1~~increased $54.6 million, or ~~66%~~43%, to ~~$5.8~~$180.7 million as compared to ~~$16.8~~$126.1 million in ~~2018.~~2021. This ~~decrease~~increase was primarily due to ~~an increase~~lower operating expenses due to the implementation of the 2022 Strategic Realignment Plan and lower performance-based compensation, partially offset by a decline in ~~marketing and sales expense incurred to support the launch~~revenue of ~~new degree programs.~~

Alternative Credential Segment profitability ~~decreased $30.5~~increased $3.9 million, or 7%, to ~~$(29.7)~~$(55.6) million as compared to ~~$0.8~~$(59.6) million in ~~2018.~~2021. This ~~decrease~~increase was primarily due to revenue growth of $38.1 million, including an increase of $22.0 million from the addition of ~~Trilogy’s results of operations since the acquisition date.~~edX offerings, partially offset by higher operating expenses, including a $33.1 million increase in operating expenses from edX that are included in segment profitability.

We use a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. In addition to adjusted EBITDA (loss), which we discuss below, and revenue and the components of loss from operations in the section above entitled “Our Business Model and Components of Operating Results,” we utilize ~~full course equivalent~~FCE enrollments as a key metric to evaluate the success of our business.

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

Average revenue per ~~full course equivalent~~FCE enrollment represents our weighted-average revenue per course across the mix of courses being offered during a period in each of our operating segments. This number is derived by dividing the total revenue for a period for each of our operating segments by the number of ~~full course equivalent~~FCE enrollments within the applicable segment during that same period. This amount may vary from period to period depending on the academic calendars of our university clients, the relative growth rates of our degree programs, ~~short courses,~~executive education programs, and boot camps, as applicable, and varying tuition levels, among other factors.

~~The following table sets forth~~For the ~~full course equivalent~~Degree Program Segment, FCE enrollments and average revenue per ~~full course equivalent~~FCE enrollment include enrollments and revenue from edX bachelor’s and master’s degree offerings. For the Alternative Credential Segment, FCE enrollments and average revenue per FCE enrollment exclude enrollments and revenue from edX offerings due to the large number of learners taking free or low-cost courses. We believe excluding the impact of these enrollments and revenue is useful to investors because it facilitates a period-to-period comparison.

The following table presents the FCE enrollments and average revenue per FCE enrollment in our ~~Graduate~~Degree Program Segment and Alternative Credential Segment for each of the periods ~~presented.~~indicated.

We define adjusted EBITDA (loss) as net income or net loss, as applicable, before net interest income (expense), other income (expense), net, taxes, depreciation and amortization expense, ~~foreign currency gains or losses, deferred revenue fair value adjustments,~~ transaction costs, integration costs, restructuring-related costs, ~~shareholder~~stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense.

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

Adjusted EBITDA (loss) is not a measure calculated in accordance with U.S. GAAP, and should not be considered as an alternative to any measure of financial performance calculated and presented in accordance with U.S. GAAP. Our use of adjusted EBITDA (loss) has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of ~~these~~the limitations are:

Because of these and other limitations, you should consider adjusted EBITDA (loss) alongside other U.S. GAAP-based financial performance measures, including various cash flow metrics, net income (loss) and our other U.S. GAAP results. The following table presents a reconciliation of ~~net loss to~~ adjusted EBITDA (loss) to net loss for each of the periods ~~indicated:~~indicated.

As of December 31, ~~2019,~~2022, our principal sources of liquidity were cash and cash equivalents totaling ~~$170.6~~$167.5 million, which were held for working capital and general corporate purposes.

OnIn April 2020, we 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. 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 ~~22, 2019,~~1 and November 1 of each year, beginning on November 1, 2020. The 2025 Notes mature on May 1, 2025, unless repurchased, redeemed or converted in accordance with their terms prior to such date. Prior to November 1, 2024, the 2025 Notes are convertible only upon satisfaction of certain conditions, and thereafter at any time until the close of business on the second scheduled trading date immediately before the maturity date. In connection with the 2025 Notes, we entered into privately negotiated capped call transactions with a premium cost of approximately $50.5 million. The capped call transactions are generally expected to reduce the potential dilution to our common stock upon any conversion of the 2025 Notes and/or to offset any cash payments we are required to make in excess of the principal amount of the converted 2025 Notes, with such reduction and/or offset subject to the cap. The net proceeds from the issuance of the 2025 Notes were $319.0 million after deducting the initial purchasers’ discount, offering expenses and the cost of the capped call transactions. As of December 31, 2022, the conditions allowing holders of the 2025 Notes to convert had not been met and we have the right under the 2025 Indenture to determine the method of settlement at the time of conversion, and the 2025 Notes, therefore, are classified as a non-current on the consolidated balance sheets. Refer to Note 10 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information regarding our 2025 Notes.

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

On June 25, 2020, we entered into a $50 million credit agreement with Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain other lenders party thereto that provided for ~~a $250~~$50 million ~~senior secured~~in revolving loans. In connection with entering into the Term Loan ~~which matures on May 22, 2024 (refer~~Agreement (as defined below) in June 2021, we terminated our $50 million credit agreement with Morgan Stanley Senior Funding, Inc. Refer to Note 910 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

On August 6, 2020, we sold 6,800,000 shares of our common stock to the public. We received net proceeds of $299.8 million, which we use for working capital and other general corporate purposes.

In June 2021, we entered into a Term Loan Credit and Guaranty Agreement, dated June 28, 2021 (“the Term Loan Agreement”), with Alter Domus (US) LLC as administrative agent and collateral agent, to make term loans to us in the aggregate principal amount of $475 million (the “2021 Term Loan Facilities”), which have an initial maturity date of December 28, 2024. Loans under this facility bear interest at a per annum rate equal to a base rate or adjusted Eurodollar rate, as applicable, plus the applicable margin of 4.75% in the case of the ~~notes~~base rate loans and 5.75% in the case of the Eurodollar loans. We used the proceeds of the 2021 Term Loan Facilities to ~~our consolidated financial statements~~fund a portion of the edX Acquisition and to pay related costs, fees and expenses. On November 4, 2021, we entered into a First Amendment to Term Loan Credit and Guaranty Agreement and a Joinder Agreement, which amended the Term Loan Agreement (collectively, the “Amended Term Loan Facilities”) primarily to provide for an incremental facility to us in an original principal amount of $100 million. The proceeds of the Amended Term Loan Facilities may be used for general corporate purposes. Refer to Note 10 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more ~~information).~~information regarding our Amended Term Loan Facilities.

In January 2023, we 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”) and issued the 2030 Notes. Refer to Note 10 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for more information.

~~To date, we~~We have financed our operations primarily through payments from university clients and students for our technology and services, the Amended Term Loan Facilities, the 2025 Notes, and public and private equity financings. We believe that our existing cash and cash equivalents, together with cash generated from operations and available borrowing capacity under the Amended Term Loan Facilities, will be sufficient to meet our working capital and capital expenditure requirements for the next 12 months. We regularly evaluate our liquidity position, debt obligations, maturity schedule, and anticipated cash needs, and

Our operations require us to make capital expenditures for content development, capitalized technology, and property and equipment and to service our debt. During the ~~year~~years ended December 31, ~~2019 were $81.4 million, primarily due to $66.2 million of capitalized technology~~2022 and ~~content development, $8.1 million of leasehold improvements, $3.7 million of furniture and equipment and $2.9 million of other property and equipment. The $81.4 million of~~2021, our capital asset additions ~~consisted of $78.3~~were $75.4 million and $72.0 million, respectively.

We or our affiliates may, at any time and from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in ~~cash capital expenditures~~open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and ~~$3.1 million of non-cash capital expenditures, primarily related to the acquisition of certain long-lived assets for which~~at such prices as we have an accrued liability. Due to extended payment terms associated with the timing of cash capital expenditures made more than 90 days after the date of purchase, an additional $2.2 million was classified as cash flows from financing activities in the consolidated statement ofmay determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

The following table summarizes our cash flows for the year ended December 31, 2019. In 2020, we expect new capital asset additions of approximately $93 to $97 million, of which approximately $2.5 to $4.5 million will be funded from landlord leasehold improvement allowances.periods indicated (in thousands).

Cash flows from operating activities have typically been generated from our net income (loss) and by changes in our operating assets and liabilities, ~~particularly from accounts receivable,~~ adjusted for non-cash expense items such as ~~amortization~~depreciation and ~~depreciation~~amortization expense and stock-based compensation expense.

The following sections set forth the components of our $10.9 million ~~increase in accounts payable and accrued expenses due to growth in our business.~~

From December 31, 2021 to December 31, 2022:

Our investing activities primarily consist of strategic acquisitions, divestitures and purchases of property and equipment to support the overall growth of our business. We expect our investing cash flows to be affected by the timing of payments we make for capital expenditures and the strategic acquisition or other growth opportunities we decide to pursue.

During the year ended December 31, 2022, net cash used in investing activities was $69.4 million. This use of cash ~~acquired, $64.9~~was driven by cash outflows of $62.4 million ~~of additions~~for the addition of amortizable intangible assets ~~$13.4~~and $11.8 million offor purchases of property ~~plant~~ and equipment, partially offset by ~~$15.0 million~~a purchase price adjustment related to a change in net working capital which reduced the preliminary purchase price of ~~proceeds from net investment activity.~~the edX Acquisition by $5.0 million.

Our financing activities ~~for~~primarily consist of long-term debt borrowings, the repayment of principal on long-term debt, tax withholding payments associated with the settlement of restricted stock units and the exercise of stock options.

During the year ended December 31, 2018 was $102.5 million, primarily consisting of $65.2 million of additions of amortizable intangible assets, $12.0 million of purchases of property, plant and equipment and $25.0 million related to investing activities.

The following table summarizes our obligations under ~~our Term Loan,~~the 2025 Notes, deferred government grant obligations, non-cancelable operating leases, commitments to certain of our university clients in exchange for contract extensions and various marketing and other rights, and purchase obligations as of December 31, ~~2019.~~2022. Future events could cause actual payments to differ from these amounts.

We have entered into agreements with certain of our university clients in our ~~Graduate~~Degree Program Segment ~~under which we would be obligated~~that require us to make future minimum payments in the event that certain program metrics are not achieved on an annual basis. We recognize any estimated contingent payments under these agreements as contra revenue over the period into which they relate, and record a liability in other current liabilities on ~~the~~our consolidated balance sheets.

In the first quarter of 2019, we entered into an agreement to make investments in an education technology company of up to $15.0 million, upon demand by the investee. During the second quarter of 2021, we sold our investment in this education technology company and were released from any further obligation to make additional investments.

See Note 7 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 and “Legal Proceedings” contained in Part I, Item 3 of this Annual Report on Form 10-K for additional information regarding contingencies.

This management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates if conditions differ from our assumptions.

While our significant accounting policies are more fully described in Note 2 in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following accounting policies are critical to the process of making significant judgments and estimates in preparation of our consolidated financial statements.

We identified the ~~evaluation~~impairment of ~~the~~ goodwill ~~impairment analysis of the boot camp~~for a reporting unit within the Alternative Credential Segment and an indefinite-lived intangible asset as a critical audit matter. A high degree of subjectivity was required to evaluate the forecasted ~~reporting unit cash flow~~revenue growth rates, including the terminal growth rate, margins and discount rate assumptions used in each of the income-based ~~estimation methodology.~~methodologies. Changes to these assumptions could have a substantial impact on the fair value of the ~~boot camp~~ reporting unit and indefinite-lived intangible asset and the amount of the impairment ~~charge.~~charges.

The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s goodwill and indefinite-lived intangible asset impairment analysis process, including controls related to the forecasted ~~reporting unit cash flow~~revenue growth rates, including the terminal growth rate, margins and the development of the discount rate assumptions. We ~~performed sensitivity analyses to assess the impact of reasonably possible changes to forecasted cash flow and discount rate assumptions on the reporting unit fair value. We~~ evaluated the Company’s forecasted revenue growth rates ~~included in the forecasted reporting unit cash flows~~and margins by comparing ~~to those of the Company’s peers. We compared the Company’s forecasted reporting unit cash flows~~them to historical actual ~~results.~~results of the Company and its peers. In addition, we involved a valuation ~~professional~~professionals with specialized skills and knowledge, who assisted in:

2U, Inc. (together with its subsidiaries, the “Company”) is a leading ~~provider~~online education platform company. The Company’s mission 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. Through edX, its education consumer marketplace with 48 million registered learners, the Company hosts a comprehensive range of education ~~technology for nonprofit colleges and universities.~~ offerings, from free courses to degree programs.

The Company has 2two reportable segments: the ~~Graduate~~Degree Program Segment and the Alternative Credential ~~Segment (formerly known as the Short Course Segment).~~ Segment.

The Company’s ~~Graduate~~Degree Program Segment ~~includes~~provides the technology and services ~~provided~~ 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 ~~includes the~~provides premium online ~~short~~open courses, ~~and~~executive education programs, technical, skills-based boot camps ~~provided~~and micro-credential programs through relationships with nonprofit colleges and ~~universities.~~universities and other leading organizations. Students enrolled in these offerings are generally ~~working professionals~~ seeking to reskill or upskill for career advancement or personal development through ~~skills attainment.~~

The accompanying consolidated financial statements include the accounts of the Company and its ~~wholly-owned~~wholly owned subsidiaries and have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and include the assets, liabilities, results of operations and cash flows of the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company has reclassified prior period amounts to conform to the current period’s presentation of restructuring charges. On the consolidated balance sheet, the Company reclassified $1.7 million from accounts payable and accrued liabilities to accrued restructuring liability. On the consolidated statement of operations, the Company reclassified $8.5 million and $6.8 million from general and administrative expense to restructuring charges for the years ended December 31, 2021, and 2020, respectively. On the consolidated statement of cash flows, the Company reclassified $0.2 million and $0.3 million from changes in prepaid expenses and other assets to restructuring for the years ended December 31, 2021, and 2020, respectively. This reclassification had no impact on previously reported operating cash flows for either period.

The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported herein. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances. Significant items subject to such estimates ~~and assumptions~~include, but are ~~inherent in the analysis and~~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.~~assets, and the fair value of the convertible senior notes. Due to the inherent uncertainty involved in making estimates, actual results

The Company generates substantially all of its revenue from contractual arrangements, with either its university clients or students, to provide a comprehensive platform of tightly integrated technology and technology-enabled services that support its offerings.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period, and if necessary, the Company adjusts its estimate of the overall transaction price. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

The ~~Graduate~~Degree Program Segment derives revenue primarily from contractually specified percentages of the amounts the Company’s university clients receive from their students in 2U-enabled degree programs for tuition and fees, less credit card fees and other specified charges the Company has agreed to exclude in certain university contracts. The Company’s contracts with university clients in this segment typically have terms of 10 to 15 years and have a single performance obligation, as the promises to provide a platform of tightly integrated technology and services that university clients need to attract, enroll, educate and support students are not distinct within the context of the contracts. The single performance obligation is delivered as the university clients receive and consume benefits, which occurs ratably over a series of academic terms. The amounts received from university clients over the term of the arrangement are variable in nature in that they are dependent upon the number of students that are enrolled in the program within each academic term. These amounts are allocated to and are recognized ratably over the related academic term, defined as the period beginning on the first day of classes through the last. Revenue is recognized net of an allowance, which is established for the Company’s expected obligation to refund tuition and fees to university clients.

The Alternative Credential Segment derives revenue primarily from contracts with students for the tuition and fees paid to enroll in, and progress through, the Company’s ~~short courses~~executive education programs and boot camps. The Company’s ~~short courses~~executive education programs run between ~~six~~two and 16 weeks, while boot camps run between 12 and 24 weeks. In this segment, the Company’s contracts with students include the delivery of the educational and related student support services and are treated as either a single performance obligation or multiple performance obligations, depending upon the offering being delivered. All performance obligations are satisfied ratably over the same presentation period, which is defined as the period beginning on the first day of the course through the last. The Company recognizes the proceeds received, net of any applicable pricing concessions, from the students enrolled and shares contractually specified amounts received from students with the associated university client, in exchange for licenses to use the university brand name and other university trademarks. These amounts are recognized as curriculum and teaching ~~costs~~expenses on the Company’s consolidated statements of operations and comprehensive loss. The Company’s contracts with university clients in this segment are typically shorter and less restrictive than the Company’s contracts with university clients in the ~~Graduate~~Degree Program Segment.

The Company does not disclose the value of unsatisfied performance obligations for the ~~Graduate~~Degree Program Segment because the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation. The Company does not disclose the value of unsatisfied performance obligations for the Alternative Credential Segment because the performance obligations are part of contracts that have original durations of less than one year.

The Company pays commissions to certain of its employees to obtain contracts with university clients in the ~~Graduate~~Degree Program Segment. These costs are capitalized and recorded on a contract-by-contract basis and amortized using the straight-line method over the expected life, which is generally the length of the contract.

With respect to contract acquisition costs in the Alternative Credential Segment, the Company has elected to apply the practical expedient in ~~ASC~~Accounting Standards Codification (“ASC”) Topic 606 to expense these costs as incurred, as the terms of contracts with students in this segment are less than one year.

Pursuant to certain of the Company’s contracts in the ~~Graduate~~Degree Program Segment, the Company has made, or is obligated to make, payments to university clients at either the execution of a contract or at the extension of a contract in exchange

Balance sheet items related to contracts consist of accounts receivable, net, other receivables, net, and deferred revenue on the Company’s consolidated balance sheets. ~~Included in accounts~~Accounts receivable, net ~~are~~includes trade accounts receivable, which are comprised of billed and unbilled revenue. The Company’s trade accounts receivable balances have terms of less than one year. Accounts receivable, net is stated at amortized cost net ~~realizable value, and~~of provision for credit losses. The Company’s methodology to measure the ~~Company utilizes~~provision for credit losses requires an estimation of loss rates based upon historical loss experience adjusted for factors that are relevant to determining the ~~allowance method to provide for doubtful accounts based on management’s evaluation of the~~expected collectability of ~~the amounts due.~~accounts receivable. Some of these factors include current market conditions, delinquency trends, aging behavior of receivables and credit and liquidity quality indicators for industry groups, customer classes or individual customers. The Company’s estimates are reviewed and revised periodically based on ~~historical collection experience and a review~~the ongoing evaluation of ~~the current status of accounts receivable, net.~~credit quality indicators. Historically, actual write-offs for uncollectible accounts have not significantly differed from prior estimates.

The Company recognizes unbilled revenue when revenue recognition occurs in advance of billings. Unbilled revenue is recognized in the ~~Graduate~~Degree Program Segment because billings to university clients do not occur until after the academic term has commenced and final enrollment information is available. Unbilled accounts receivable is recognized in the Alternative Credential segment once the presentation period commences for amounts to be invoiced to students under installment plans that are paid over the same presentation period. The Company’s unbilled revenue ~~and accounts receivable represent~~represents contract assets.

Other receivables, net are comprised of amounts due under tuition payment plans with extended payment terms from students enrolled in certain of the Company’s alternative credential offerings. These plans, which are managed and serviced by third-party providers, are designed to assist students with covering tuition costs after all other student financial assistance and scholarships have been applied. The associated receivables generally have payment terms that range from 12 to 42 months and are recorded net of any implied pricing concessions, which are determined based on our collections history, market data and any time value of money component. There are no fees or origination costs included in these receivables.

Deferred revenue represents the excess of amounts billed or received as compared to amounts recognized in revenue on the Company’s consolidated statements of operations and comprehensive loss as of the end of the reporting period, and such amounts are reflected as a current liability on the Company’s consolidated balance sheets. The Company’s deferred revenue represents contract liabilities. The Company generally receives payments ~~for its share of tuition and fees~~ from ~~degree program~~Degree Program Segment university clients early in each academic term and from ~~short course and boot camp~~Alternative Credential Segment students, either in full upon registration for the course or in full before the end of the course based on a payment plan, prior to completion of the service period. These payments are recorded as deferred revenue until the services are delivered or until the Company’s obligations are otherwise met, at which time revenue is recognized.

The ~~majority of the~~Company’s marketing and sales costs ~~incurred by~~relate to activities to attract students to offerings across both of the ~~Company are directly related to recruiting students~~Company’s segments. This includes the cost of Search Engine Optimization, Search Engine Marketing and Social Media Optimization, as well as personnel and personnel-related expense for ~~its university clients’ degree programs, with lesser amounts related to recruiting students for its short courses and boot camps and~~the Company’s marketing and ~~advertising efforts related to the Company’s own brand.~~recruiting teams. For the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017, costs~~2020, expense related to the Company’s marketing and advertising efforts of its own brand were not material. All such costs are expensed as incurred and reported in marketing and sales expense on the Company’s consolidated statements of operations and comprehensive loss.

The Company provides stock-based compensation awards consisting of restricted stock units (“RSUs”), performance restricted stock units (“PRSUs”) and stock options to employees, ~~independent contractors~~directors and ~~directors.~~consultants. The Company measures all stock-based compensation awards at fair value as of the grant date. The fair values of RSUs and PRSUs containing performance-based vesting conditions are based on the fair value of the Company’s ~~stock.~~stock on the date of grant. The Company uses a Monte Carlo valuation model to estimate the fair value of PRSUs containing market-based vesting conditions and uses a Black-Scholes option pricing model to measure the fair value of stock option grants. The Company also ~~provides for an employee stock purchase plan (“ESPP”~~maintains the 2017 Employee Stock Purchase Plan (the “ESPP”) and estimates the fair value of each purchase right thereunder as of the grant date using a Black-Scholes option pricing model.

For awards subject only to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the awards’ requisite service period. For awards subject to both service and performance-based vesting conditions, the Company recognizes stock-based compensation expense using an accelerated recognition method when it is probable that the performance condition will be achieved. For awards subject to both service and market-based vesting conditions, the Company recognizes stock-based compensation expense using an accelerated recognition method over the requisite service period beginning with the date of the grant and ending upon completion of the service period, with stock-based compensation expense being recognized irrespective of the achievement of the market condition. The Company accounts for forfeitures as they occur. For shares subject to the ESPP, the Company uses the straight-line method to record stock-based compensation expense over the respective offering period.

Prior to April 1, 2017, the Company estimated expected volatility based on the historical volatilities of comparable publicly-traded companies over the expected life of the award. Effective April 1, 2017, the Company began to estimate expected volatility based on the historical volatilities of the Company’s common stock.

Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that are included in the financial statements. Under this method, the deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of the assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on the deferred tax assets and liabilities is recognized in earnings in the period when the new rate is enacted. Deferred tax assets are subject to periodic recoverability assessments. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount that more likely than not will be realized. The Company considers all positive and negative evidence relating to the realization of the deferred tax assets in assessing the need for a valuation allowance. The Company currently maintains a full valuation allowance against deferred tax assets in the U.S. and certain entities in the foreign jurisdictions.

The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The Company accounts for uncertainty in income taxes using a two-step approach for evaluating tax positions. Step one, recognition, occurs when the Company concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more likely than not to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. ~~De-recognition~~Derecognition of a tax position that was previously recognized would occur if the Company subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the consolidated statements of operations and comprehensive loss.

Cash and cash equivalents consist of bank checking accounts, money market accounts, investments in certificates of deposit that have an original maturity of three months or less and highly liquid marketable securities with maturities at the time of purchase of three months or less.

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.

The carrying amounts of certain assets and liabilities, including cash and cash equivalents, ~~accounts receivable,~~receivables, advances to university clients, accounts payable and accrued expenses and other current liabilities, approximate their respective fair values due to their short-term nature.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in the absence of a principal, most advantageous, market for the specific asset or liability.

U.S. GAAP provides for a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. Generally, assets are recorded at fair value on a non-recurring basis as a result of impairment charges. The Company remeasures non-financial assets such as goodwill, intangible assets and other long-lived assets at fair value when there is an indicator of impairment, and records them at fair value only when recognizing an impairment loss. The fair value hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. Refer to Notes 4 and 5 for further discussion of assets measured at fair value on a nonrecurring basis. The three tiers are defined as follows:

The Company reviews long-lived assets, which consist of property and equipment, capitalized technology, ~~costs,~~ capitalized content development ~~costs~~ and acquired finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. In order to assess the recoverability of the capitalized technology and content development, ~~costs,~~ the ~~costs~~amounts are grouped by the lowest level of independent cash flows. Recoverability of a long-lived asset is measured by a comparison of the carrying value of an asset or asset group to the future undiscounted net cash flows expected to be generated by that asset or asset group. If such assets are not recoverable, the impairment to be recognized is measured by the amount by which the carrying value of an asset exceeds the estimated fair value (discounted cash flow) of the asset or asset group. The Company’s impairment analysis is based upon cumulative results and forecasted performance.

~~During the year ended December 31, 2019, the~~The Company had non-cash capital asset additions of ~~$81.4~~$1.2 million and $1.8 million in property and equipment, and capitalized technology and content development, of which $3.1 million consisted of non-cash capital expenditures, primarily related to landlord funded leasehold improvements. Due to extended payment terms associated withduring the timing of cash capital expenditures made more than 90 days after the date of purchase, an additional $2.2 million was classified as cash flows from financing activities in the consolidated statement of cash flows for the yearyears ended December 31, ~~2019.~~2022 and 2021, respectively.

The purchase price of ~~$87.4 million in property and equipment and capitalized technology and content development, of which $5.3 million consisted of non-cash capital expenditures, primarily related~~an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of ~~certain long-lived~~the cost of an acquired entity, net of the amounts assigned to the assets acquired and liabilities assumed, is recognized as goodwill. The net assets and results of operations of an acquired entity are included on the Company’s consolidated financial statements from the acquisition date.

The Company reviews goodwill and other indefinite-lived intangible assets for ~~which a liability was accrued. Due to extended payment terms associated with~~impairment annually, as of October 1, and more frequently if an event occurs or circumstances change that would more likely than not reduce the ~~timing~~fair value of ~~cash capital expenditures made more than 90 days after the date~~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, ~~and~~ Trilogy in May 2019. The Company reviews goodwill at least annually, as of October 1. Between annual tests, goodwill is reviewed for possible impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.2019 and edX in November 2021. The Company tests goodwill at the reporting unit level, which is an operating segment or one level below an operating segment. The Company initially assesses qualitative factors to determine if it is necessary to perform a quantitative goodwill impairment review. The Company reviews goodwill for impairment using a quantitative approach if it decides to bypass the qualitative assessment or determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value based on a qualitative assessment. Upon completion of a quantitative assessment, the Company may be required to recognize an impairment based on the difference between the carrying value and the fair value of the reporting unit.

The Company determines the fair value of a reporting unit by utilizing a weighted combination of the income-based and market-based approaches.

The income-based approach requires the Company to make significant assumptions and estimates. These assumptions and estimates primarily include, but are not limited to, ~~the selection of appropriate peer group companies,~~ discount rates, terminal growth rates, and forecasts of revenue ~~operating income, depreciation~~ and ~~amortization expense, capital expenditures and future working capital requirements.~~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~~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.

InDuring both the first and third quarter of 2022, the Company experienced a significant decline in its market capitalization. Management deemed these declines triggering events related to the Company’s goodwill and indefinite-lived intangible asset. As a result, the Company performed interim impairment assessments as of March 1, 2022 and September 30, 2022.

For each of the interim impairment assessments, the Company utilized a weighted combination of the income-based approach and market-based approach to determine the fair value of each reporting unit and the income-based approach to determine the fair value of its long-lived intangible asset. Key assumptions used in the income-based approach included discount rates, terminal growth rates, and forecasts of revenue and margins 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. 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.

For the interim impairment assessment performed as of September 30, 2022, management determined the carrying value for two of the reporting units within the Company’s Alternative Credential Segment and the carrying value of an indefinite-lived intangible asset exceeded their respective estimated fair value. As a result, during the third quarter of ~~2019,~~2022, the Company recorded an impairment ~~charge~~charges of ~~$70.4~~$50.2 million and $29.3 million to goodwill and the indefinite-lived intangible asset, respectively, both within the Company’s Alternative Credential Segment. These charges are included within operating expense on the Company’s consolidated ~~statement~~statements of ~~operations and comprehensive loss (see Note 5).~~ operations. The estimated fair value of each of the remaining reporting units exceeded their respective carrying value by approximately 10% or more.

Other than the reporting ~~unit~~units impaired in the third quarter of ~~2019,~~2022, based on the qualitative assessment performed as of October 1, 2022, 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%. Based upon the Company’s qualitative assessments performed as of October 1 ~~2019,~~in 2020 and 2021, the ~~date~~Company believes that the estimated fair values of the ~~annual goodwill impairment assessment.~~reporting units exceeded their carrying values by no less than 10%. It is possible that future changes in the Company’s circumstances or in the variables associated with the judgments, assumptions and estimates used in assessing the fair value of ~~our~~the Company’s reporting units, could require the Company to record additional impairment charges in the future.

The Company’s indefinite-lived intangible asset was acquired in November 2021 and represents the established edX trade name.

As of December 31, ~~2019,~~2020, the Company had a $10.0 million investment in an education technology company recorded within ~~university payments and~~ other assets, non-current on the consolidated balance ~~sheet.~~sheets. This investment ~~does~~did not have a readily determinable fair value, and iswas accounted for as a cost method investment, which iswas subject to fair value remeasurement upon the occurrence of an observable event. AsDuring the second quarter of ~~December 31, 2019, there were no events that would require~~2021, the Company sold its investment in this education technology company and recorded a ~~change in the fair value~~gain on sale of ~~this investment.~~$27.8 million. Refer to Note 7 for further information.

The Company offers a variety of benefits to its employees (e.g., health care, gym memberships and tuition reimbursement). The Company accounts for costs related to providing employee benefits as incurred, unless there is a service requirement, in which case, such costs are recognized over the service commitment period.

~~Government grants awarded~~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 10 for more information regarding the 2025 Notes.

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 910 for further information about the Company’s debt.

For the Company’s operating leases, an assessment is performed to determine if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As the information necessary to determine the rate implicit in the Company’s leases is not readily available, the Company determines its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments made, less lease incentives. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the

The Company has elected, as an accounting policy for its leases of real estate, to account for lease and non-lease components in a contract as a single lease component. In addition, the recognition requirements are not applied to leases with a term of 12 months or less. Rather, the lease payments for short-term leases are recognized on the consolidated statements of operations and comprehensive loss on a straight-line basis over the lease term.

Variable payments that depend on an index or a rate are initially measured using the index or rate at the lease commencement date. Such variable payments are included in the total lease payments when measuring the lease liabilities and ROU assets. The Company will only remeasure variable payments that depend on an index or a rate when the Company is remeasuring the lease liabilities due to any of the following occurring: (i) the lease is modified and the modification is not accounted for as a separate contract; (ii) a contingency, upon which some or all of the variable lease payments that will be paid over the remainder of the lease term are based, is resolved; (iii) there is a change in lease term; (iv) there is a change in the probability of exercising a purchase option; or (v) there is a change in the amount probable of being owed under residual value guarantees. Until the lease liabilities are remeasured due to one of the aforementioned events, additional payments for an increase in the index or rate will be recognized in the period in which they are incurred. Variable payments that do not depend on an index or a rate are excluded from the measurement of the lease liabilities and recognized in the consolidated statements of operations and comprehensive loss in the period in which the obligation for those payments is incurred.

The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. Acquisition-related costs are expensed as incurred. The excess of the cost of an acquired entity, net of the amounts assigned to the assets acquired and liabilities assumed, is recognized as goodwill. The net assets and results of operations of an acquired entity are included on the Company’s consolidated financial statements from the acquisition date.

For the portion of the Company’s non-U.S. business where the local currency is the functional currency, operating results are translated into U.S. dollars using the average rate of exchange for the period, and assets and liabilities are converted at the closing rates on the period end date. Gains and losses on translation of these accounts are accumulated and reported as a separate component of stockholder’s equity and comprehensive loss.

For any transaction that is in a currency different from the entity’s functional currency, the Company records a gain or loss based on the difference between the exchange rate at the transaction date and the exchange rate at the transaction settlement date (or rate at period end, if unsettled) as other income (expense), net on the consolidated statements of operations and comprehensive loss.

Financial instruments that subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. All of the Company’s cash is held at financial institutions that management believes to be of high credit quality. The Company’s bank accounts exceed federally insured limits at times. The Company has not experienced any losses on cash to date. The Company maintains an allowance for doubtful accounts, if needed, based on collection history.

~~In July 2018, the FASB issued ASU No. 2018-09,~~ ~~Codification Improvements~~, which clarifies and corrects unintended applications of guidance, and makes improvements to several Accounting Standards Codification topics. The applicable amendments in this ASU are effective for the Company in annual periods beginning after December 15, 2018. The Company adopted this ASU on a modified retrospective basis in the first quarter of 2022, effective as of January 1, ~~2019.~~2022. As a result of the adoption, long-term debt increased $81.7 million, additional paid-in capital decreased $114.6 million, deferred tax liabilities decreased $22.1 million, and the Company recorded a cumulative-effect adjustment to opening accumulated deficit of $32.8 million. Adoption of this ASU requires the use of the if-converted method for all convertible notes in the diluted net income (loss) per share calculation and the inclusion of the effect of potential share settlement of the convertible notes, if the effective is more dilutive. There was no impact to the number of potentially dilutive shares as a result of the adoption. Adoption of this standard did not have a material impact on the Company’s liquidity or cash flows.

On November 16, 2021, pursuant to the Membership Interest Purchase Agreement, dated June 28, 2021 (the “Purchase Agreement”), by and among the Company, edX Inc., a Massachusetts nonprofit corporation (“edX Inc.”) and edX LLC (f/k/a Circuit Sub LLC), a Delaware limited liability company and a wholly owned subsidiary of edX Inc. (“edX”), edX Inc. contributed substantially all of its assets to edX and the Company acquired 100% of the outstanding membership interests of edX (the “edX Acquisition”) including the edX brand, website, and marketplace.

The total preliminary purchase price was $773.0 million in cash consideration, of which $23.0 million was distributed to an escrow account to satisfy indemnification claims and purchase price adjustments, as applicable. As of December 31, 2022, $8.4 million remained in escrow. During the year ended December 31, 2022, the Company recorded working capital adjustments of $5.0 million, reducing the final purchase price to $768.0 million.

The transaction was accounted for under the acquisition method of accounting and revenue and operating expense have been included in the Company’s consolidated ~~financial statements or~~statement of operations since the date of acquisition. The Company recorded $14.8 million and $0.3 million of acquisition costs in general and administrative expense related ~~disclosures.~~to this acquisition during the years ended December 31, 2021 and 2020, respectively.

Of the total purchase price, the Company allocated $255.0 million and $133.7 million to indefinite-lived intangibles and definite-lived intangibles, respectively. The estimated values of ~~Trilogy~~the definite-lived intangibles is being amortized on a straight-line basis over the estimated useful lives. The methodologies utilized to determine the estimated fair values of the acquired intangible assets are Level 3 measurements.

The acquired indefinite-lived intangible asset represents the established edX trade name that the Company expects to be the primary brand for the Company’s marketplace, educational offerings and services. Acquired client relationships represent agreements with existing clients as of the acquisition date. The fair values of the trade name and the client relationships were determined using the discounted cash flow method. Under this method, the Company’s significant assumptions and estimates included expected future cash flows and the weighted-average cost of capital.

The acquired developed technology represents technology that had reached technological feasibility and for which development had been completed as of the date of the ~~acquisition:~~

Estimated Average
Useful Life (in years) Purchase Price
Allocation
(in thousands)
Cash and cash equivalents $ 35,320
Current assets 30,081
Property and equipment, net 2,411
Other non-current assets 6,276
Amortizable intangible assets:
Developed technology 3 48,096
Developed content 4 48,050
University client relationships 10 84,150
Trade names and domain names 5 7,100
Goodwill 425,346
Current liabilities (57,010 )
Non-current liabilities (21,224 )
$ 608,596

The fair value of university client relationships was determined using the multi-period excess earnings method under the income approach based on discounted projected cash flows associated with the net earnings attributable to the acquired customer relationships. These projected cash flows are estimated over the remaining economic life of the intangible asset and are considered from a market participant perspective. Significant estimates and assumptions required under this method include growth rates for revenue attributable to the existing university partnership base, forecasted margins, attrition and renewal rates, a discount rate, and contributory asset charges.

~~Property~~The following table presents the components of property and equipment, net ~~consisted~~on the Company’s consolidated balance sheets as of each of the ~~following as of:~~dates indicated.

Depreciation expense of property and equipment was ~~$11.6~~$11.3 million, ~~$8.9~~$12.5 million and ~~$5.5~~$13.4 million for the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, respectively.

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

The following tables present the components of operations and comprehensive loss in the third quarter of 2019. For purposes of testing the Company’s goodwill for impairment, fair value measurements were determined primarily using a weighted combination of the income-based and market-based approaches. The income-based approach largely relied on inputs that were not observable to active markets, which would be deemed “Level 3” fair value measurements, as defined in the Fair Value Measurements section of Note 2. These inputs included the Company’s expectations about future revenue growth, profitability, income tax rates, cash flows and the rate at which cash flows should be discounted, in order to determine this fair value estimate. The primary input used in the market-based approach was publicly-available data on the financial ratios of the Company’s competitors.

The amounts presented in the table above include ~~$30.7~~$53.9 million and ~~$40.3~~$46.3 million of in process capitalized technology and content development as of December 31, ~~2019~~2022 and December 31, ~~2018,~~2021, respectively. ~~Amortizable intangible assets recognized in connection with the acquisition~~

The Company recorded amortization expense related to amortizable intangible assets of ~~$58.3~~$116.9 million, ~~$23.9~~$95.9 million and ~~$14.0~~$83.1 million for the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, respectively. ~~As of December 31, 2019,~~

The following table presents the estimated future amortization expense ~~for~~of the Company’s amortizable intangible assets placed in service is as ~~follows (in thousands):~~of December 31, 2022.

As of December 31, 2022 and 2021, the Company had balances of $20.5 million and $23.0 million, respectively, of prepaid assets within prepaid expenses and other assets on the consolidated balance sheets.

~~Included within~~The following table presents the components of accounts payable and accrued expenses on the Company’s consolidated balance ~~sheet~~sheets as of ~~December 31, 2019 was $23.4 million~~each of accrued university and head tutor compensation and $22.1 million of accrued marketing costs. Also included within accounts payable and accrued expenses as of December 31, 2019 was $4.4 million of accrued transaction, integration and restructuring-related costs, of which $0.5 million related to an employee termination benefits reserve for a September 2019 organizational restructuring.the dates indicated.

As of December 31, ~~2018, accounts~~2022 and 2021, the Company had balances of $14.7 million and $21.9 million, respectively, within other current liabilities on the 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.

In response to COVID-19, various government programs have been announced to provide financial relief for affected businesses. Under the Coronavirus Aid, Relief, and ~~accrued expenses included $10.3~~Economic Security Act (the “CARES Act”), which was enacted in the United States on March 27, 2020, the Company is allowed to defer payment of the employer’s share of Social Security taxes incurred from March 27, 2020 through December 31, 2020. In addition, the CARES Act provides eligible employers with an employee retention tax credit for employees whose services were impacted by COVID-19. As of December 31, 2021, the amount of payroll taxes subject to deferred payment, net of employee retention tax credits of $0.5 million, was approximately $5.0 million and is recorded within other current liabilities on the consolidated balance sheets. These payroll taxes were paid in the fourth quarter of ~~accrued marketing costs.~~2022.

The Company is involved in various claims and legal proceedings arising in the ordinary course of business. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. While the Company does not expect that the ultimate resolution of any existing claims and proceedings (other than the specific ~~matter~~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 August 7 and 9, 2019, Aaron Harper and Anne M. Chinn filed putative class action complaints against the Company, Christopher J. Paucek, the Company’s CEO, and Catherine A. Graham, the Company’s former CFO, in the United States District Court for the Southern District of New ~~York. The district court consolidated the two actions on August 27, 2019, under the caption~~ ~~In re 2U, Inc., Securities Class Action~~, No. 1:19-cv-7390 (S.D.N.Y.). On November 26, 2019, the court transferred the case to the United States District Court for the District of Maryland, and the docket number is now 8:19-cv-3455 (D. Md.). The complaints allegeYork, alleging violations of ~~Section~~Sections 10(b) and 20(a) of the ~~Securities~~ Exchange Act, ~~of 1934,~~ and ~~SEC~~ Rule 10b-5 promulgated thereunder, based upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. The district court transferred the cases to the United States District Court for the District of Maryland, consolidated them under docket number 8:19-cv-3455 (D. Md.), and appointed Fiyyaz Pirani as the lead plaintiff in the consolidated action. On July 30, 2020, Mr. Pirani filed a consolidated class action complaint (“CAC”), adding Harsha Mokkarala, the Company’s former Chief Marketing Officer and current Chief Revenue Officer, as a defendant. The CAC also asserts claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, as amended, against Mr. Paucek, Ms. Graham, members of the Company’s board of directors, and the Company’s underwriters, based on allegations related to the Company’s secondary stock offering on May 23, 2018. The proposed class consists of all persons who acquired the Company’s securities between February 26, 2018 and July 30, 2019. The parties agreed to settle the Securities Class Action for, among other things, a payment to the settlement class in the amount of $37.0 million (the “Settlement Amount”). The Court approved the settlement and entered final judgment on December 9, 2022. The Company’s insurance carriers paid the Settlement Amount to the settlement class following the Court’s approval in mid-December 2022.

On April 30, 2020, Richard Theis filed a stockholder derivative complaint purportedly on behalf of the Company and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, and the Company’s board of directors in the United States District Court for the Southern District of New York, with docket number 20-cv-3360. The complaint alleges claims for breaches of fiduciary duty, insider sales and misappropriation of information, unjust enrichment, and violations of Section 14(a) of the Exchange Act, based upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. On July 22, 2020, the court entered a joint stipulation staying the case pending resolution of the securities class action, which stay the court extended on multiple occasions to allow the parties to discuss settlement. The most recent stay concludes on March 24, 2023. Due to the complex nature of the legal and factual issues involved, the outcome of this matter is not presently determinable.

On August 21, 2020, Thomas Lucey filed a stockholder derivative complaint purportedly on behalf of the Company and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, Harsha Mokkarala, the Company’s former Chief Marketing Officer and current Chief Revenue Officer, and the Company’s board of directors in the United States District Court for the District of Maryland, with docket number 1:20-cv-02424-GLR. The complaint alleges claims for breaches of fiduciary duty, insider trading, and contribution for alleged violations of Sections 10(b) and 21D of the Exchange Act, based upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. On September 3, 2020, the court entered a joint stipulation staying the case pending resolution of the securities class action, which stay the court extended on multiple occasions to allow the parties to discuss settlement. The most recent stay concludes on March 24, 2023. Due to the complex nature of the legal and factual issues involved, the outcome of this matter is not presently determinable.

On November 30, 2020, Leo Shumacher filed a stockholder derivative complaint purportedly on behalf of the Company and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, Harsha Mokkarala, the Company’s former Chief Marketing Officer and current Chief Revenue Officer, and the Company’s board of

On September 14, 2022, Daniel Sebagh filed a stockholder derivative complaint purportedly on behalf of the Company and against Christopher J. Paucek, the Company’s CEO, Catherine A. Graham, the Company’s former CFO, James Kenigsberg, the Company’s former CTO, and the Company’s board of directors in the United States District Court for the District of Delaware, with docket number 1:22-cv-01205-UNA. The complaint alleges claims for breaches of fiduciary duty, unjust enrichment, waste of corporate assets, insider trading and alleged violations of Section 14(a) of the Exchange Act based upon allegedly false and misleading statements regarding the Company’s business prospects and financial projections. On January 26, 2023, the court entered a joint stipulation staying the case until March 24, 2023 to allow the parties to continue to discuss settlement. Due to the complex nature of the legal and factual issues involved, the outcome of this matter is not presently determinable.

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 2U, Inc. (“2U”) 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.” Compl. ¶ 135. Plaintiffs purport to allege violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17500, California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, Violations of Civil Code § 1770 (CLRA), and a Quasi-Contract Claim for Restitution for unjust enrichment related to the use of the USC Rossier school’s rankings in certain marketing materials. The claims seek declaratory relief, actual damages, incidental damages, consequential damages, compensatory damages, punitive damages, and attorneys’ fees and costs.

Certain ~~of the~~ agreements entered into between the Company and its university clients in the ~~Graduate~~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 ~~of the~~ agreements in the ~~Graduate~~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.

Pursuant to certain of the Company’s contracts in the ~~Graduate~~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. AsGenerally, these amounts are capitalized as other assets on the Company’s consolidated balance sheets, and amortized as contra revenue over the life of ~~December 31, 2019,~~ the ~~future minimum payments~~contract, commencing on the later of when payment is due ~~to university clients were as follows (in thousands):~~or when contract revenue recognition begins.

The following table presents the estimated future minimum payments due to university clients as of December 31, 2022.

The Company has entered into agreements with certain of its university clients in the ~~Graduate~~Degree Program Segment ~~under which~~that require the Company ~~would be obligated~~ to make future minimum payments in the event that certain program metrics are not achieved on an annual basis. The Company recognizes any estimated contingent payments under these agreements as contra revenue over the period into which they relate, and records a liability in other current liabilities on the 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.

The Company anticipates that it will incur aggregate restructuring charges associated with the 2022 Strategic Realignment Plan of approximately $35 million to $40 million. The Company recorded $30.7 million in restructuring charges related to the 2022 Strategic Realignment Plan for the year ended December 31, ~~2019,~~2022. The majority of the ~~Company had an obligation~~estimated remaining restructuring charges relate to ~~make an additional investment in an education technology company~~leased facilities and will be recognized as expense over the remaining lease terms, ranging from 1 to 9 years.

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

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

In October 2020, the Company entered into an agreement with an unrelated party to sublease a portion of the Company’s office space in the United States. In October 2021, the Company entered into an agreement with the same party to sublease additional office space in the same facility. The ~~Company also leases office equipment under non-cancelable leases. The Company did not have any subleases as~~agreements are coterminous. As of December 31, ~~2019.~~2022, the subleases were classified as operating leases and each had a remaining term of 0.8 years, with scheduled annual rent increases and no option to extend or renew the sublease term. Sublease income is recognized on a straight-line basis over the term of the subleases as a reduction to expense incurred by the Company under the associated head lease.

In August 2021, the Company entered into an agreement with an unrelated party to sublease a portion of the Company’s office space in Denver, Colorado, as part of its overall real estate management strategy. As of December 31, 2022, this sublease was classified as an operating lease and had a remaining term of 1.9 years with scheduled annual rent increases and no option to extend or renew the sublease term. Sublease income is recognized on a straight-line basis over the sublease term as a reduction to expense incurred by the Company under the associated master lease. In connection with the execution of this agreement, the Company recognized a non-cash loss on sublease of $4.8 million in the third quarter of 2021.

The following table presents the components of lease expense ~~consisted~~on the Company’s consolidated statements of operations and comprehensive loss for each of the ~~following for the period presented:~~periods indicated.

As of December 31, ~~2019,~~2022, for the Company’s operating leases, the weighted-average remaining lease term was ~~7.9~~6.9 years and the weighted-average discount rate was ~~12.3%~~10.7%. For the ~~year~~years ended December 31, ~~2019,~~2022 and 2021, cash paid for amounts included in the measurement of operating lease liabilities was ~~$13.5 million.~~$24.5 million and $21.7 million, respectively. For the years ended December 31, 2022 and 2021, lease liabilities arising from obtaining right-of-use assets were $15.5 million and $28.0 million, respectively.

The following table presents the maturities of the Company’s operating lease liabilities ~~were~~ as ~~follows:~~of the date indicated, and excludes the impact of future sublease income totaling $3.1 million in aggregate.

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

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.~~

The Company’s cash interest payments, net of amounts capitalized, were $43.8 million, $25.5 million and $10.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.

The Company entered into a Term Loan Credit and Guaranty Agreement, dated June 28, 2021 (the “Term Loan Agreement”), among the Company, as borrower, the subsidiaries of the Company party thereto, as guarantors, the lenders party thereto, and Alter Domus (US) LLC as administrative agent and collateral agent. Pursuant to the Term Loan Agreement, the lenders thereunder made term loans to the Company on June 29, 2021 (the “Funding Date”) in the aggregate principal amount of $475 million (the “2021 Term Loan Facilities”). The 2021 Term Loan Facilities have an initial maturity date of December 28, 2024 (the “Maturity Date”). Commencing on the Funding Date, loans under the 2021 Term Loan Facilities will bear interest at a per annum rate equal to a base rate or adjusted Eurodollar rate, as applicable, plus the applicable margin of 4.75% in the case of the base rate loans and 5.75% in the case of the Eurodollar loans. The Term Loan Agreement requires the Company to make quarterly principal repayments equal to 0.25% of the $475 million aggregate principal amount, beginning September 2021. If the loans under the 2021 Term Loan Facilities are prepaid prior to the second anniversary, subject to certain customary exceptions, the Company shall pay the Applicable Premium (as defined in the Term Loan Agreement) on the amount of the loans so prepaid.

On November 4, 2021, the Company entered into a First Amendment to Term Loan Credit and Guaranty Agreement and a Joinder Agreement (the “First Amended Term Loan Agreement”), which amended the Term Loan Agreement (collectively, the “First Amended Term Loan Facility”) primarily to provide for an incremental facility to the Company in an original principal amount of $100 million (together with the 2021 Term Loan Facilities, the “Amended Term Loan Facilities”). The Company is required to make quarterly principal repayments equal to 0.25% of this original principal amount beginning in December 2021. The proceeds of the First Amended Term Loan Agreement may be used for general corporate purposes.

The associated effective interest rate of the Amended Term Loan Facilities for the years ended December 31, 2022 and 2021 was approximately 9.10% and 7.56%, respectively, and the associated interest expense was approximately $51.2 million and $19.5 million, respectively.

The obligations under the Amended Term Loan Facilities are guaranteed by certain of the Company’s subsidiaries (the Company and the guarantors, collectively, the “Credit Parties”). The obligations under the Amended Term Loan Facilities 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 Amended Term Loan Facilities contain 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 Amended Term Loan Facilities contain 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 Amended Term Loan Facilities contain a financial covenant that requires the Company to maintain minimum Recurring Revenues (as defined in the First Amended Term Loan Agreement) as of the last day of any period of four consecutive fiscal quarters of the Company commencing with fiscal quarter ending September 30, 2021 through the Maturity Date. The Amended Term Loan Facilities also provide 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 Amended Term Loan Facilities); failure of any material provision of the Amended Term Loan Facilities 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 Amended Term Loan Facilities.

If an event of default under the Amended Term Loan Facilities occurs and is continuing, then, at the request (or with the consent) of the lenders holding a majority of the commitments and loans under the Amended Term Loan Facilities, upon notice by the administrative agent to the borrowers, the obligations under the Amended Term Loan Facilities 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 Amended Term Loan Facilities will automatically become immediately due and payable.

On ~~May 22, 2019,~~June 25, 2020, the Company entered into a credit agreement (the “Credit Agreement”) with ~~Owl Rock Capital Corporation,~~Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent, and certain other lenders party thereto that ~~provides~~provided for ~~a $250~~$50 million ~~senior secured term loan facility~~in revolving loans (the ~~“Term Loan”~~“Loans”). ~~Subject to certain exceptions, the Term Loan under the~~The Credit Agreement ~~may be increased or new term loans may be established~~allowed for incremental borrowings from time to time in an aggregate amount for all such incremental amounts not to exceed (i) the lesser of (x) $50 million and (y) an amount such that the aggregate principal amount of the lenders’ commitments under the revolving credit facility does not exceed $100 million, plus (ii) ~~the amount~~certain specified prepayments of ~~certain prepayments made by the Company~~indebtedness, plus (iii) an unlimited amount subject to ~~the achievement~~satisfaction of ~~either~~ a ~~certain First Lien LQA University Segment Revenue Leverage Ratio (as defined in the Credit Agreement) or a certain First Lien Net Leverage Ratio (as defined in the Credit Agreement), as applicable.~~

The Credit Agreement governing the Term Loan requires the Company to comply with several customary financial and other restrictive covenants, such as maintaining leverage ratios in certain situations, maintaining insurance coverage, and restricting the Company’s ability to make certain investments. The Company is also required to maintain liquidity of $25.0 million of unrestricted cash as of the last day of each fiscal quarter. The Credit Agreement also includes covenants that require the Company to maintain minimum: (i) annualized last quarter Graduate Program Segment revenue (“Minimum Graduate LQAR”) and (ii) Alternative Credential Segment revenue for the last four consecutive fiscal quarters (“Minimum Alternative Credential LTMR”). For the quarter and four consecutive fiscal quarters ended December 31, 2019, the Company’s Minimum Graduate LQAR and Minimum Alternative Credential LTMR were $432.9 million and $218.8 million, respectively, which exceeded the requirements of $397.8 million and $185.0 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.

The 2025 Notes are the senior, unsecured obligations of the Company and are equal in right of payment with the Company’s ~~accrued interest balance associated with~~senior unsecured indebtedness, senior in right of payment to the ~~Credit Agreement was $0.1 million.~~Company’s indebtedness that is expressly subordinated to the 2025 Notes, effectively subordinated to the Company’s senior secured indebtedness (including indebtedness under the Amended Term Loan Facilities), to the extent of the value of the collateral securing that indebtedness, and structurally

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 2.8%. The interest expense related to the 2025 Notes for the years ended December 31, 2022 and 2021 was $10.6 million and $30.9 million, respectively.

Holders may convert their 2025 Notes at their option in the following circumstances:

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. As of December 31, 2022, the if-converted value of the 2025 Notes did not exceed the principal amount.

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

As of December 31, 2022, 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 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.

Government grants awarded to the Company in the form of forgivable loans are recorded within long-term debt on the Company’s consolidated balance sheets until all contingencies are resolved and the grants are determined to be realized. The Company has a total of 2two 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~~

In July 2020, the Company amended its conditional loan agreement with Prince George’s County to modify the ~~State~~terms of ~~Maryland has a maturity date of December 31, 2026, and~~ the employment level thresholds. The conditional loan with Prince George’s County ~~Maryland~~ has a maturity date of June 22, 2027. ~~As of December 31, 2019,~~

In January 2021, the Company ~~did not meet the employment level threshold set forth in the~~amended its conditional loan agreement with ~~Prince George’s County,~~the State of Maryland ~~and a $0.6 million portion~~to modify the terms of the ~~$1.5 million principal balance~~employment level thresholds and ~~$0.1 million of accrued interest as of that~~extend the maturity date ~~were no longer subject~~ to ~~forgiveness and became payable upon demand. The Company is in discussions with Prince George’s County, Maryland to amend the employment conditions under this conditional loan agreement.~~ June 30, 2028.

The interest expense related to these loans for the years ended December 31, ~~2019~~2022 and ~~2018~~2021 was immaterial. As of December 31, ~~2019~~2022 and ~~2018,~~2021, the Company’s combined accrued interest balance associated with the deferred government grant obligations was ~~$0.3~~$0.6 million and ~~$0.2~~$0.5 million, respectively.

Certain of the Company’s operating lease agreements entered into require security deposits in the form of cash or an unconditional, irrevocable letter of credit. As of December 31, ~~2019,~~2022, the Company has entered into standby letters of credit totaling ~~$18.4~~$14.2 million as security deposits for the applicable leased facilities and in connection with the deferred government grant obligations.

The Company maintains restricted cash as collateral for standby letters of credit for the Company’s leased facilities and in connection with the deferred government grant obligations.

Future principal payments under the Amended Term Loan Facilities, the 2025 Notes, and the government grants, as of the date indicated are as follows:

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 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 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).

Loans under the Second Amended Credit Agreement will 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.

The obligations under the Second Amended Credit Agreement are guaranteed by 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

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.

On January 11, 2023, the Company issued the notes (the “2030 Notes”) in an aggregate principal amount of $147.0 million. The 2030 Notes are governed by an indenture (the “2030 Indenture”) 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 us or converted. 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.

Holders may convert their 2030 Notes at their option 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, including 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 the selected settlement of which would cause such holders to beneficially own shares of Common Stock in excess of the Ownership Cap (as defined in the 2030 Indenture).

The initial conversion rate for the 2030 Notes will be 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 will be 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 following table presents the components of other income (expense) on the Company’s consolidated statements of operations and comprehensive loss for each of the periods indicated.

The following table presents the components of loss before income ~~taxes:~~taxes on the Company’s consolidated statements of operations and comprehensive loss for each of the periods indicated.

The following table presents the components of the income tax benefit (provision) ~~benefit:~~on the Company’s consolidated statements of operations and comprehensive loss for each of the periods indicated.

AThe following table presents a reconciliation between the Company’s statutory federal income tax rate and the effective tax rate ~~is presented below:~~for each of the periods indicated.

The following table presents the significant components of ~~the Company’s~~ deferred tax assets and liabilities ~~are~~on the Company’s consolidated balance sheets as ~~follows:~~of each of the dates indicated.

As of December 31, ~~2019,~~2022, the Company had a U.S. net operating loss (“NOL”) carryforward of approximately ~~$627.7~~$832.4 million, of which $265.0 million expires between 2029 and 2037. In accordance with the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), U.S. NOLs arising in a tax year ending after 2017 will not expire. The Company has generated ~~$362.7~~$567.4 million of U.S. NOLs in tax years ending after 2017. The gross amount of the state NOL carryforwards is equal to or less than the federal NOL carryforwards and expires over various periods based on individual state tax laws. The Company also ~~had~~has an NOL carryforward of ~~$14.5~~$33.6 million in its foreign jurisdictions, of which ~~does~~$0.8 million begins to expire in 2038 and the remainder will not expire. A full valuation allowance has been established to offset its net deferred tax assets in the U.S., and certain foreign jurisdictions as the Company has not generated taxable income since inception and does not have sufficient deferred tax

A one-time tax benefit of approximately $17.5 million related to the acquisition of Trilogy was included in the Company’s income tax benefit for the year ended December 31, 2019. This one-time benefit relates to the release of the

The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations by tax authorities for the years prior to ~~2016,~~2019, though the NOL carryforwards can be adjusted upon audit and could impact taxes owed in open tax years. ~~NaN~~No income tax returns are currently under examination by the taxing authorities.

The Tax Act includes Global Intangible Low-Taxed Income (“GILTI”) provisions that require a company to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. Due to foreign subsidiary losses, this provision did not apply to the Company in ~~2019.~~2022. Another significant section of the Tax Act, the Base Erosion Anti-Abuse Tax (“BEAT”), did not apply to the Company’s ~~2019~~2022 tax year as the ~~Company did not meet~~Company’s base erosion payments are less than 3% of the ~~minimum revenue requirements under the BEAT.~~Company’s total deductions. As these taxes may become applicable in the future, the Company will continue to monitor the potential impact.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Currently, the Company does not expect this legislation will have a material impact on its consolidated financial statements.

As of December 31, ~~2019,~~2022, the Company was authorized to issue 205,000,000 total shares of capital stock, consisting of 200,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of December 31, ~~2019,~~2022, there were 78,334,666 shares of common stock outstanding, and the Company had reserved a total of ~~14,178,107~~28,727,505 of its authorized shares of common stock for future issuance as follows:

A total of 2,800,000 shares of the Company’s common stock were initially reserved for issuance pursuant to the 2014 Plan. In addition, the shares reserved for issuance under the 2014 Plan include (a) those shares reserved but unissued under the 2008 Plan, and (b) shares returned to the 2008 Plan as the result of expiration or termination of awards (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to (a) and (b) is 5,943,348 shares). The number of shares of the Company’s common stock that may be issued under the 2014 Plan will automatically increase on January 1st of each year, for a period of ten years, from January 1, 2015 continuing through January 1, 2024, by 5% of the total number of shares of the Company’s common stock outstanding on December 31st of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. The shares available for future issuance under the 2014 Plan increased by ~~3,175,011~~3,916,733 and ~~2,896,365~~3,782,719 on January 1, ~~2020~~2023 and ~~2019,~~2022, respectively, pursuant to the automatic share reserve increase provision ~~under~~in the 2014 Plan.

In addition, shares subject to outstanding stock awards granted under the 2008 Plan and 2014 Plan that (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company; or (iii) are reacquired or withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award, return to the 2014 Plan’s share reserve and become available for future grant under the 2014 Plan, up to the maximum number of shares of 5,943,348.

As of December 31, ~~2019,~~2022, the Company had ~~5,296,333~~3,753,633 shares ~~reserved~~available for issuance under the 2014 Plan. Further, as of December 31, ~~2019,~~2022, under the 2014 Plan, options to purchase ~~3,249,445~~4,673,230 shares of the Company’s common stock were outstanding at a weighted-average exercise price of ~~$44.14~~$27.25 per share, and ~~3,694,915 restricted stock units~~4,739,861 RSUs and 1,651,864 PRSUs were also outstanding.

In October 2008, the Company’s stockholders approved the Company’s 2008 Plan. The 2008 Plan was most recently amended on May 8, 2013. The 2008 Plan provided for the grant of incentive stock options to the Company’s employees and the employees of the Company’s subsidiaries, and for the grant of nonstatutory stock options, restricted stock awards and deferred stock awards to the Company’s employees, directors and consultants. The Company ceased granting equity awards under the 2008 Plan, and accordingly, as of January 30, 2014, 0no shares were available for future grant under the 2008 Plan. However, the 2008 Plan will continue to govern the terms and conditions of outstanding awards granted thereunder.

As of December 31, ~~2019,~~2022, options to purchase ~~1,124,450~~522,308 shares of the Company’s common stock were outstanding under the 2008 Plan at a weighted-average exercise price of ~~$5.66~~$7.70 per share.

During the ~~year~~years ended December 31, ~~2019,~~2022 and 2021, an aggregate of ~~123,365~~136,039 and 150,685 shares, respectively, of ~~2U’s~~the Company’s common stock were purchased in accordance with the ESPP. Net proceeds from the issuance of these shares ~~of 2U’s common stock under the ESPP~~were $1.3 million and $3.6 million for the ~~year~~years ended December 31, ~~2019 were $3.4 million.~~2022 and 2021, respectively. As of December 31, ~~2019, 812,964~~2022, 379,670 shares ~~remain~~remained available for purchase under the ESPP.

The following table presents stock-based compensation expense related to the Stock Plans and the ESPP, contained on the following line items on the Company’s consolidated statements of operations and comprehensive loss for each of the periods indicated. The Company accounts for forfeitures as they occur.

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

The total fair value of RSUs vested during the years ended December 31, 2022, 2021 and 2020, was $33.9 million, $57.8 million, and $25.0 million, respectively. The total compensation cost related to the unvested RSUs not yet recognized as of December 31, 2022 was $43.2 million and will be recognized over a weighted-average period of approximately 1.9 years.

During the fourth quarter of 2019, the Company granted 1.3 million PRSUs with a weighted-average grant date fair value per share of $22.94 to certain of its employees. These PRSU awards are subject to vesting over a period of three years, based on the Company’s stock price achieving predetermined total shareholder return targets relative to that of companies comprising the Russell 3000 Index during each of the one, two and three-year vesting periods. The PRSU award agreements provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities, depending on the achievement of market-based targets. The expense recognized each period is determined at the time of grant and is not subject to fluctuation due to the achievement of market-based targets. For the first and second performance periods, 200% of the eligible PRSUs were earned. For the third performance period, 0% of the eligible PRSUs were earned.

~~Stock-Based Compensation Expense~~During the first quarter of 2020, as part of its annual equity awards cycle, the Company awarded 1.9 million PRSUs with an aggregate intrinsic value of $37.8 million. The PRSU award agreements provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities for each of the performance periods, depending on the achievement of market-based targets, which are established annually. The PRSUs vest at the end of each of three one-year performance periods, based on the Company’s stock price achieving predetermined total shareholder return targets relative to that of companies comprising the Russell 3000 Index. The expense recognized each period is determined at the time of grant and not subject to fluctuation due to the achievement of market-based targets. Of the PRSUs awarded, 0.6 million were granted in January 2020 with a weighted-average grant date fair value per share of $22.45, 0.6 million were granted in January 2021 with a weighted-average grant date fair value per share of $61.14, and 0.7 million were granted in January 2022 with a weighted-average grant date fair value per share of $23.46. For the first performance period, 200% of the eligible PRSUs were earned. For the second and third performance periods, 0% of the eligible PRSUs were earned.

~~Stock-based~~During the first quarter of 2021, as part of its annual equity awards cycle, the Company awarded 0.4 million PRSUs with an aggregate intrinsic value of $20.0 million. 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, 0.1 million were granted in March 2021 with a weighted-average grant date fair value per share of $40.69 and 0.1 million were granted in January 2022 with a weighted-average grant date fair value per share of $20.07. 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 performance period, 112.7% of the eligible PRSUs were earned. For the second performance period, 100% of the eligible PRSUs were earned.

During the first quarter of 2021, as part of its annual equity awards cycle, the Company granted 0.2 million PRSUs with an aggregate intrinsic value of $9.1 million and a weighted-average grant date fair value of $61.94. These PRSU awards vest at the end of a single three-year period, based on the Company’s stock price achieving predetermined total shareholder return targets relative to that of companies comprising the Russell 3000 Index. The PRSU award agreements provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities for the performance period, depending on the achievement of market-based targets. The expense recognized each period is determined at the time of grant and not subject to fluctuation due to the achievement of market-based targets.

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. 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 performance period, 100% of the eligible PRSUs were earned.

During the first quarter of 2022, as part of its annual equity awards cycle, the Company granted 0.7 million PRSUs with an aggregate intrinsic value of $8.9 million and a weighted-average grant date fair value of $14.53. These PRSU awards are subject to vesting over a single three-year period, based on the Company’s stock price achieving predetermined total shareholder return targets relative to that of companies comprising the Russell 3000 Index. The PRSU award agreements provide that the quantity of units subject to vesting may range from 200% to 0% of the granted quantities for the performance period, depending on the achievement of market-based targets. The expense recognized each period is determined at the time of grant and not subject to fluctuation due to the achievement of market-based targets.

The Company values PRSUs subject to market-based vesting conditions using a Monte Carlo valuation model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life, expected stock price volatility and dividend yield. The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the performance period. The expected life is consistent with the performance period of the awards. Expected volatility is based on the historical volatility of the Company’s common stock over the estimated expected life. The Company assumes no dividend yield because dividends are not expected to be paid in the near future, which is consistent with the Company’s history of not declaring or paying dividends to date.

The following table summarizes the assumptions used for estimating the fair values of the PRSUs subject to market-based vesting conditions that were granted for the periods presented.

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

The total fair value of PRSUs vested during the years ended December 31, 2022, 2021 and 2020, was $1.9 million, $71.9 million, and $28.5 million, respectively. The total compensation ~~expense~~cost related to ~~stock-based awards,~~the unvested PRSUs not yet recognized as ~~well as~~of December 31, 2022 was $10.5 million and will be recognized over a weighted-average period of approximately 1.8 years.

The Stock Plans provide for the ~~ESPP,~~issuance of stock options to eligible participants. Stock options issued under the Stock Plans generally are exercisable for periods not to exceed 10 years.

The Company values stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life of the option, expected stock price volatility and dividend yield. The risk-free interest rate assumption is ~~included~~based upon observed interest rates for constant maturity U.S. Treasury securities consistent with the expected term of the Company’s employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the “simplified method.” Under the “simplified method,” the expected life of an option is presumed to be the mid-point between the vesting date and the end of the contractual term. The Company uses the “simplified method” due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on the historical volatility of the Company’s common stock over the estimated expected life of the stock options. The Company assumes no dividend yield

The following ~~line items on~~table summarizes the ~~accompanying consolidated statements~~assumptions used for estimating the fair value of ~~operations~~the stock options granted for the periods presented. No stock options were granted during the year ended December 31, 2021.

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

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2022 and ~~comprehensive loss:~~2020 was $6.98 and $11.48 per share, respectively.

Year Ended December 31,
2019 2018 2017
(in thousands)
Curriculum and teaching $ 45
$ 14
$ 3
Servicing and support 8,915
4,764
4,036
Technology and content development 8,241
4,094
3,306
Marketing and sales 7,021
2,743
1,742
General and administrative 27,282
19,795
12,843
Total stock-based compensation expense $ 51,504
$ 31,410
$ 21,930

The aggregate intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $3.3 million, $6.8 million and $8.7 million, respectively.

The total unrecognized compensation cost related to the unvested options as of December 31, 2022 was $15.0 million and will be recognized over a weighted-average period of approximately 2.0 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 ~~years ended December 31, 2019, 2018 and 2017:~~periods indicated.

~~Basic~~The following table presents the calculation of the Company’s basic and diluted net loss per share ~~is calculated as follows:~~for each of the periods indicated.

For the ~~year~~years ended December 31, ~~2019, one~~2022 and 2021, no university ~~client~~clients accounted for 10% or more ~~of the Company’s consolidated revenue, with $83.5 million, or approximately 15%~~ of the Company’s consolidated revenue. For the year ended December 31, ~~2018, three~~2020, one university ~~clients each~~client in the Degree Program Segment accounted for 10% or more of the Company’s consolidated revenue, ~~as follows: $86.9~~contributing $74.6 million, ~~$54.2 million and $42.7 million, which equaled 21%, 13% and~~or approximately 10% of the Company’s consolidated ~~revenue, respectively. For the year ended~~revenue.

As of December 31, ~~2017, four~~2022, one university ~~clients each~~client in the Degree Program Segment accounted for 10% or more of the Company’s consolidated ~~revenue,~~accounts receivable, net balance, as follows: ~~$77.6 million, $48.2 million, $30.1 million and $28.3~~$7.3 million, which equaled ~~27%, 17%, 11% and 10%~~12% of the Company’s consolidated ~~revenue, respectively.~~

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

The following table presents a reconciliation of the Company’s total segment profitability to net loss for each of the periods 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 ~~$40.8~~$107.2 million, ~~$33.9~~$98.5 million and ~~$10.0~~$73.0 million for the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017, respectively, substantially~~2020, respectively. Substantially all of ~~which~~the Company’s non-U.S. revenue for each of the aforementioned periods was sourced from the Alternative Credential Segment’s operations outside of the U.S. The Company’s long-lived tangible assets in non-U.S. countries as of December 31, ~~2019~~2022 and ~~2018~~2021 totaled approximately ~~$2.7~~$4.5 million and ~~$1.2~~$3.3 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 consolidated balance sheets. The following table presents the Company’s trade accounts receivable in each segment as of each of the dates indicated.

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

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 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 December 31, 2022, 83% 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.

The Company’s deferred revenue represents contract liabilities. The Company generally receives payments from Degree Program Segment university clients early in each academic term and from Alternative Credential Segment students, either in full upon registration for the course or in full before the end of the course based on a payment plan, prior to completion of the service period. These payments are recorded as deferred revenue until the services are delivered or until the Company’s obligations are otherwise met, at which time revenue is recognized. The following table presents the Company’s contract liabilities in each segment as of each of the dates indicated.

For the Degree Program Segment, revenue recognized during the years ended December 31, 2022 and 2021 that was included in the deferred revenue balance that existed at the end of each preceding year was $1.5 million and $1.7 million, respectively.

For the Alternative Credential Segment, revenue recognized during the years ended December 31, 2022 and 2021 that was included in the deferred revenue balance that existed at the end of each preceding year was $77.9 million and $71.9 million, respectively.

The Degree Program Segment had $0.5 million and $0.5 million of net capitalized contract acquisition costs recorded primarily within other assets, non-current on the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively. For the years ended December 31, 2022 and 2021, the Company capitalized an immaterial amount of contract acquisition costs and recorded an immaterial amount of associated amortization expense in the Degree Program Segment.

The Company has established a 401(k) plan for eligible employees to contribute up to 100% of their compensation, limited by the IRS-imposed maximum contribution amount. The Company matches ~~33%~~100% of the first 2% of each employee’s contribution, ~~up to 6%~~and 50% of the next 4% of each employee’s ~~salary deferral~~contribution, each plan year. For the years ended December 31, ~~2019, 2018~~2022, 2021 and ~~2017,~~2020, the Company made employer contributions of ~~$3.0~~$9.7 million, ~~$2.1~~$7.8 million and ~~$1.3~~$3.6 million, respectively.

~~16. Quarterly Financial Information (Unaudited)~~



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



	Year Ended December 31,
	2019			2018			2017			2016			2015
	(in thousands, except share and per share amounts)
Consolidated Statements of Operations Data:
Revenue	$	574,671		$	411,769		$	286,752		$	205,864		$	150,194
Costs and expenses
Curriculum and teaching	63,270			23,290			6,609			—			—
Servicing and support	98,890			67,203			50,767			40,982			32,047
Technology and content development	115,473			63,812			45,926			33,283			27,211
Marketing and sales	342,395			221,015			150,923			106,610			82,911
General and administrative	131,020			82,989			62,665			46,021			34,123
Impairment charge	70,379			—			—			—			—
Total costs and expenses	821,427			458,309			316,890			226,896			176,292
Loss from operations	(246,756		)	(46,540		)	(30,138		)	(21,032		)	(26,098		)
Interest income	5,800			5,173			371			383			167
Interest expense	(13,419		)	(108		)	(87		)	(35		)	(552		)
Other expense, net	(707		)	(1,722		)	(866		)	—			(250		)
Loss before income taxes	(255,082		)	(43,197		)	(30,720		)	(20,684		)	(26,733		)
Income tax benefit	19,860			4,867			1,297			—			—
Net loss	$	(235,222	)	$	(38,330	)	$	(29,423	)	$	(20,684	)	$	(26,733	)
Net loss per share, basic and diluted	$	(3.83	)	$	(0.69	)	$	(0.60	)	$	(0.44	)	$	(0.63	)
Weighted-average common shares outstanding used in computing net loss per share, basic and diluted	61,393,666			55,833,492			49,062,611			46,609,751			42,420,356



	As of December 31,
	2019		2018		2017		2016		2015
	(in thousands)
Consolidated Balance Sheets Data:
Cash and cash equivalents	$	170,593	$	449,772	$	223,370	$	168,730	$	183,729
Working capital*	104,994		453,200		190,053		143,629		160,310
Goodwill and amortizable intangible assets, net	751,425		198,457		162,749		34,131		25,024
Total assets	1,186,830		807,354		482,062		244,320		231,041
Total liabilities	475,580		102,345		94,230		49,083		35,252
Additional paid-in capital	1,197,379		957,631		588,289		371,455		351,324
Total stockholders’ equity	$	711,250	$	705,009	$	387,832	$	195,237	$	195,789



	Year Ended December 31,
	2019					2018					Period-to-Period Change
	Amount			Percentage of Revenue		Amount			Percentage of Revenue		Amount			Percentage
	(dollars in thousands)
Revenue	$	574,671		100.0	%	$	411,769		100.0	%	$	162,902		39.6	%
Costs and expenses
Curriculum and teaching	63,270			11.0		23,290			5.7		39,980			171.7
Servicing and support	98,890			17.2		67,203			16.3		31,687			47.2
Technology and content development	115,473			20.1		63,812			15.5		51,661			81.0
Marketing and sales	342,395			59.6		221,015			53.7		121,380			54.9
General and administrative	131,020			22.8		82,989			20.2		48,031			57.9
Impairment charge	70,379			12.2		—			—		70,379			*
Total costs and expenses	821,427			142.9		458,309			111.4		363,118			79.2
Loss from operations	(246,756		)	(42.9	)	(46,540		)	(11.4	)	(200,216		)	430.2
Interest income	5,800			1.0		5,173			1.3		627			12.1
Interest expense	(13,419		)	(2.3	)	(108		)	—		(13,311		)	*
Other expense, net	(707		)	(0.1	)	(1,722		)	(0.4	)	1,015			(58.9	)
Loss before income taxes	(255,082		)	(44.3	)	(43,197		)	(10.5	)	(211,885		)	490.5
Income tax benefit	19,860			3.5		4,867			1.2		14,993			308.1
Net loss	$	(235,222	)	(40.8	)%	$	(38,330	)	(9.3	)%	$	(196,892	)	513.7	%


	Year Ended December 31,
	2022				2021				Period-to-Period Change
	Amount		Percentage of Revenue		Amount		Percentage of Revenue		Amount		Percentage

	(dollars in thousands)
Revenue	$	963,080	100.0	%	$	945,682	100.0	%	$	17,398	1.8	%
Costs and expenses
Curriculum and teaching	129,886		13.5		130,817		13.8		(931)		(0.7)
Servicing and support	147,797		15.3		138,548		14.7		9,249		6.7
Technology and content development	190,472		19.8		179,061		18.9		11,411		6.4
Marketing and sales	422,147		43.8		456,096		48.2		(33,949)		(7.4)
General and administrative	159,418		16.6		200,054		21.2		(40,636)		(20.3)
Restructuring charges	33,239		3.5		8,544		0.9		24,695		289.0
Impairment charges	138,291		14.4		—		—		138,291		*
Total costs and expenses	1,221,250		126.9		1,113,120		117.7		108,130		9.7
Loss from operations	(258,170)		(26.9)		(167,438)		(17.7)		(90,732)		54.2
Interest income	1,165		0.1		1,475		0.2		(310)		(21.1)
Interest expense	(62,234)		(6.5)		(51,222)		(5.4)		(11,012)		21.5
Loss on debt extinguishment	—		—		(1,101)		(0.1)		1,101		(100.0)
Other income (expense), net	(3,815)		(0.4)		22,324		2.4		(26,139)		117.1
Loss before income taxes	(323,054)		(33.7)		(195,962)		(20.6)		(127,092)		64.9
Income tax benefit	903		0.1		1,196		0.1		(293)		(24.4)
Net loss	$	(322,151)	(33.6)	%	$	(194,766)	(20.5)	%	$	(127,385)	65.4	%


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


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


•	~~Technology Infrastructure~~. We use a variety of proprietary technologies to unify our suite of applications and automate the setup of technology infrastructure for new degree programs. We also have proprietary technology that translates school-specific code into a common language to streamline launching new degree programs with multiple schools.


•	~~Marketing. We use data analytics and proprietary algorithms to develop digital marketing campaigns to engage prospective students efficiently. Our marketing services include the following:~~


◦	~~Attract Prospective Students~~ ~~- Our marketing team uses best-in-class digital marketing strategies to attract prospective students, including Search Engine Optimization, Search Engine Marketing and Social Media Optimization.~~


◦	~~Brand Identity~~ ~~- Our brand marketing team works with each university client to develop offering-specific content and ensure that the right message is presented to the consumer.~~


◦	~~Data Analysis~~ - Using data analytics and machine learning techniques, we focus our marketing efforts on finding prospective students for appropriate offerings at times when conversion is more likely. We also believe that our continuously expanding selection of educational offerings increases our marketing efficiency across our portfolio.


•	~~Compliance~~. Many of our degree programs are subject to authorization requirements in states in which students reside. We typically work with our university clients to identify and comply with a complex array of state authorization requirements to ensure that students can enroll in our degree programs no matter where they live.


•	~~Technology Tools.~~ ~~The following systems and applications automate and simplify admissions-related processes for our university clients:~~


◦	~~University Systems Integration Applications~~. We use a proprietary application to integrate our technology with our university clients’ student information systems. This application automates the student enrollment process, allowing for efficient and timely student enrollments.


•	~~Live classes. Our offerings feature live, online, face-to-face classes, in addition to asynchronous content and coursework.~~


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


◦	~~Admissions Application Processing Portal~~. Our proprietary admissions application system, known as the Online Application and Recommendation System, or OARS, automates the admissions application process for degree programs. OARS is customized to meet each degree program’s unique application requirements.


•	~~Curriculum~~. For many of our offerings, our production staff and course developers collaborate with faculty to produce high-quality, engaging, online coursework and content. We use a content management system that facilitates reviewing and deploying asynchronous content. ~~For our boot camp offerings, we use an application to make real-time updates to~~


•	~~Placements~~. Using our global network of clinics, hospitals, schools and other sites, our field placement team secures local placements for students enrolled in degree programs such as nursing, social work, teaching and other programs that require field placements to satisfy curriculum and accreditation requirements.


•	~~Hybrid Experiences~~. Many of our university clients’ degree programs require students to attend in-person immersions. These experiences provide students with collaborative learning experiences where they develop invaluable personal and professional relationships. We provide the resources and technology to support our clients in facilitating these experiences.


•	Turnkey Solution. Our platform provides a broad set of capabilities that would otherwise require universities to purchase multiple, disparate point solutions, and significantly increase headcount in marketing, data analytics, technology and other areas.


•	~~Qualified Student Enrollment. Our robust marketing capabilities enable us to find qualified students for our university clients’ degree programs who meet the university’s admissions criteria.~~


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


•	~~Lower Cost-Burden.~~ ~~Students do not need to move or quit their jobs to enroll in our offerings. As a result, many students incur lower total costs than they otherwise would on-campus.~~


•	~~Adding Alternative Credential Offerings. We intend to add short courses with globally recognized universities and broadly deploy our existing boot camp offerings across our university client base.~~


•	~~Expanding our Reach~~. We believe that there are significant opportunities to provide multiple types of offerings to our current university clients and prospective students. We also intend to provide short course and boot camp offerings to enterprise clients looking to offer valuable training and reskilling opportunities to their employees.


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


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


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


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


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


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


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


•	Student dissatisfaction. Enrolled students may drop out of our offerings based on their individual perceptions of the value they are getting from the offering. For example, we may face retention challenges as a result of students’


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


•	•stockholders are not entitled to remove directors other than by a 66 2/3% vote and only for cause; •^2/3~~% vote and only for cause;~~