UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 | Results of Operations and Financial Condition |
On July 28, 2022, 2U, Inc. (the “Company”) issued a press release announcing its results for the quarter ended June 30, 2022. A copy of the press release is furnished as Exhibit 99.1 hereto and incorporated by reference herein.
The information in this Item 2.02, and Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any of the Company’s filings under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, regardless of any incorporation language in such a filing, except as expressly set forth by specific reference in such a filing.
Item 2.05 | Costs Associated with Exit or Disposal Activities |
On July 28, 2022, the Company announced a plan to accelerate its transition to a platform company (the “2022 Strategic Realignment Plan”). The plan is designed to reorient the Company around the edX platform, allowing the Company to pursue a portfolio-based marketing strategy that drives traffic to the edX marketplace. The plan is designed to achieve durable growth that increases profitability by simplifying the current executive structure to reduce silos, reducing employee headcount, optimizing marketing spend and rationalizing the company’s real estate footprint. The Company committed to the Strategic Realignment Plan on June 29, 2022.
The Company expects that implementation of the headcount reductions will be completed in the third quarter of 2022 while the remainder of the plan is expected to be completed by the end of 2022. The Company expects that it will generate approximately $70 million of annualized savings through headcount reduction and reduced real estate costs.
The Company estimates that it will incur aggregate restructuring costs associated with the 2022 Strategic Realignment Plan ranging from approximately $35 million to $40 million. The major components of the restructuring costs will include (i) severance and employee-related costs of approximately $16 million, (ii) real estate exist costs of ranging from approximately $17 million to $20 million, and (iii) fees for professional services of approximately $3 million. The Company recorded $15.8 million in restructuring charges related to the 2022 Strategic Realignment Plan during each of the three and six months ended June 30, 2022, primarily related to severance and employee-related costs and professional fees.
Item 5.02 | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers |
On July 27, 2022, Mark Chernis resigned from his position as Chief Operating Officer of the Company to pursue other professional opportunities. Mr. Chernis’ resignation was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
In connection with his resignation, Mr. Chernis and the Company have entered into a Separation, Consulting and Release Agreement, effective as of July 27, 2022 (the “Consulting Agreement”), pursuant to which Mr. Chernis will remain an employee through October 3, 2022, and thereafter shall serve as a consultant providing advisory and transition services to the Company until January 1, 2024 (such 15-month period, the “Consulting Period”). Pursuant to the Consulting Agreement, as compensation for these consulting services, the Company has agreed to pay Mr. Chernis a consulting fee of $187,500, paid in equal monthly installments over the Consulting Period, and a one-time payment of $200,000 following the successful completion of the Consulting Period.
The description of the Consulting Agreement set forth above does not purport to be complete and is qualified in its entirety by reference to the full text of the Consulting Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated herein to this Item 5.02.
Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits
Exhibit |
Exhibit Description | |
10.1 | Separation, Consulting and Release Agreement, dated as of July 27, 2022, by and between 2U, Inc. and Mark Chernis. | |
99.1 | Press release, dated July 28, 2022. | |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Forward-Looking Statements
This Current Report on Form 8-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements regarding the 2022 Strategic Realignment Plan, the Company’s expectations regarding the charges and costs associated with the 2022 Strategic Realignment Plan, the Company’s expectations regarding the period in which such charges and costs will be recorded and statements regarding Mr. Chernis’ resignation. Investors are cautioned that any such forward-looking statements speak only as of the date they are made, are not guarantees of future performance and involve risks, uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Important risk factors regarding the Company may be found under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ending December 31, 2021, and subsequent quarterly reports on Form 10-Q, and are incorporated herein by reference. Furthermore, the Company undertakes no obligation to update any written or oral forward-looking statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein, to reflect any changes in its expectations with regard thereto or any changes in events, conditions, circumstances or assumptions underlying such statements, except as required by law.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
2U, INC. | ||
By: | /s/ Paul S. Lalljie | |
Name: | Paul S. Lalljie | |
Title: | Chief Financial Officer |
Date: July 28, 2022
Exhibit 10.1
SEPARATION, CONSULTING AND RELEASE AGREEMENT
This SEPARATION, CONSULTING AND RELEASE AGREEMENT (together with any Exhibits hereto, this Agreement) is entered into by and between 2U, Inc. (the Company) and Mark Chernis (Executive and, together with the Company, the Parties), dated as of July 27, 2022.
WHEREAS, Executive, as of the date set forth below, hereby enters into this Agreement with and for the benefit of the Company;
WHEREAS, Executive participates in the 2U, Inc. Severance Pay and Change in Control Plan (the Plan) as a Tier II Participant;
WHEREAS, Executives employment with the Company will terminate on October 3, 2022 (the Separation Date), and such termination of employment will constitute a Qualifying Termination pursuant to, and in accordance with, the terms of the Plan;
WHEREAS, the effectiveness of this Agreement pursuant to Section 14(a) is a condition precedent to Executive receiving the benefits set forth in this Agreement and the Plan; and
WHEREAS, capitalized terms and phrases used but not defined herein shall the meanings ascribed to them in the Plan.
NOW, THEREFORE, the Company and Executive, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed, and intending to be legally bound, hereby agree as follows:
1. Resignation of Employment. The Parties agree that Executives employment will terminate effective as of the Separation Date. Effective as of the Separation Date, Executive hereby resigns from all positions Executive holds as an officer, director or otherwise with respect to the Company, its subsidiaries and its affiliates. Upon request of the Company, Executive agrees to execute any additional documents and take such additional actions as may be necessary or desirable to effectuate the foregoing.
2. Consulting Period.
(a) Provided that this Agreement becomes effective pursuant to Section 14(a), for the period of time beginning on the Separation Date through January 3, 2024 (the Consulting Period), Executive shall provide consulting services to the Company as an independent contractor, to provide transition services and work on special projects as requested by the Company (the Services). Executive shall be available to provide such Services as reasonably requested by the Company at mutually agreed upon times; provided, however, that the Parties reasonably expect that the performance of the Services shall not require Executive to provide more than twenty percent (20%) of the average level of services rendered by Executive to the Company, its subsidiaries and its affiliates during the thirty-six (36) months immediately preceding the Separation Date and the provision of Services shall not preclude Executive from performing other employment or consulting duties for other entities; subject to any Restrictive Covenants (as defined below). During the Consulting Period, the Company shall pay Executive a monthly consulting fee of $12,500.00 (prorated for partial months).
(b) During the Consulting Period, the Parties agree that Executive is and shall act as an independent contractor under this Agreement, and not as an employee of the Company. Subject only to such specific limitations as are contained in this Agreement, the manner, means, details or methods by which Executive performs the Services shall be solely within Executives discretion. Executive acknowledges and agrees that Executive shall be solely responsible for all income, business or other taxes such as social security and unemployment payable as a result of fees paid for the Services under this Section 2.
(c) The Consulting Period may be terminated by the Company for Cause. If the Company terminates the Consulting Period for Cause, Executives outstanding equity awards shall immediately cease vesting as of the effective date of Executives termination.
3. Payments and Benefits.
(a) Provided that this Agreement becomes effective in accordance with Section 14(a) of this Agreement and Executive complies with his obligations under this Agreement and the Plan, (i) Executive shall have incurred a Qualifying Termination effective as of the Separation Date and shall, as a Tier II Participant, be the severance amounts, payments and benefits provided under Section 2.2 or Section 2.3 of the Plan in accordance with the terms of, and at the time(s) provided in, the Plan and (ii) subject to the terms and conditions of the applicable equity incentive plan and corresponding award agreement, Executive shall continue to vest in Executives outstanding equity awards during the Consulting Period; provided, however, if this Agreement does not become effective in accordance with Section 14(a), the Consulting Period shall immediately terminate and Executive shall not be entitled to the payments and benefits set forth in this Section 3. Each of Executives outstanding awards under the Companys equity incentive plan and corresponding award agreements shall be treated in accordance with their terms as of the Separation Date
(b) Provided that this Agreement becomes effective in accordance with Section 14(b) of this Agreement, Executive complies with Executives obligations under this Agreement and the Consulting Period is not terminated for Cause, the Company agrees to pay Executive $200,000, which amount shall be paid to Executive as soon as administratively practicable after this Agreement becomes effective in accordance with Section 14(b) and if the time provided therein spans two calendar years, the payment shall be made in the second calendar year.
4. Release.
(a) Executive, on behalf of Executive and Executives heirs, executors, administrators, successors and assigns, hereby voluntarily irrevocably and unconditionally releases the Company, its parent entities, affiliates, subsidiaries, predecessors, successors and assigns, and all of their present and former shareholders, owners, partners, directors, board of managers, officers, employees, agents, attorneys and anyone acting on their behalf (collectively,
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the Company Releasees) of and from any and all actions, causes of action, claims, charges, complaints, compensation, costs, demands, damages, debts, obligations, expenses, injuries, liabilities, and losses of whatsoever nature, known or unknown (collectively, Claims) which Executive or Executives heirs, executors, administrators, successors or assigns ever had, now have or hereafter can, will or may have (either directly, indirectly, derivatively or in any other representative capacity) by reason of any matter, fact or cause whatsoever against the Company Releasees: (a) arising from the beginning of time through the date upon which Executive signs this Agreement, including, but not limited to, (i) any such Claims relating in any way to Executives employment relationship or consulting relationship, as applicable, with the Company or any other Company Releasee or the termination of such relationship, whether based on contract, understanding, promise, tort, public policy, common law or any other basis, and (ii) any such Claims arising under any federal, local or state statute or regulation, including, but not limited to, the following (all statutory references include any amendments thereto): the Age Discrimination in Employment Act of 1967 (if applicable); the Older Workers Benefit Protection Act; 42 U.S.C. § 1981 (if applicable); the Federal Civil Rights Acts of 1866, 1870, 1871, 1964, 1972, 1988, and 1991; Title VII of the Civil Rights Act of 1964; the National Labor Relations Act; the Labor Management Relations Act, 1947; the Equal Pay Act of 1963; the Rehabilitation Act of 1973; the Consolidated Omnibus Budget Reconciliation Act of 1985; the Americans With Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment and Retraining Notification Act; the Fair Labor Standards Act; the Employee Retirement Income Security Act; any applicable Executive Order Programs; and any other applicable federal, state, or local laws; including but limited to the New York State Human Rights Law, the New York Labor Law (including but not limited to the New York State Worker Adjustment and Retraining Notification Act, all provisions prohibiting discrimination and retaliation, and all provisions regulating wage and hour law), the New York State Correction Law, the New York State Civil Rights Law, Section 125 of the New York Workers Compensation Law and the New York City Human Rights Law. Nothing in this Release shall be deemed to release or impair or any rights that cannot be waived under applicable law, including as to unemployment compensation or workers compensation benefits, or Employees right to report possible violations of federal law or regulation to any governmental agency or entity in accordance with the provisions of and rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation. Executive represents and warrants that Executive has no complaints, charges, or lawsuits pending against the Company Releasees. Executive understands and agrees that nothing in this Release is intended to, or shall, interfere with or affect Executives right to participate or cooperate in any federal, state, or local administrative or government agency (such as the Equal Employment Opportunity Commission or Securities Exchange Commission) proceeding or investigation or to file a charge or Claim with such an agency. Executive further covenants and agrees that, except to the extent prohibited by applicable law, neither Executive nor Executives heirs, executors, administrators, successors, or assigns will be entitled to any personal recovery or relief in any proceeding of any nature whatsoever against the Company Releasees arising out of any of the matters released in this Agreement.
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Notwithstanding the foregoing, this Agreement does not limit Executives right to receive an award for information provided to the SEC. In addition, this Agreement does not limit or release Executives rights (a) to benefits accrued and vested prior to the Separation Date under any employee benefit plan, policy or arrangement maintained by the Company, (b) to the Accrued Amounts (as defined in the Plan), (c) as a shareholder or in respect of outstanding equity awards pursuant to the applicable equity plan and award agreement, (d) to indemnification under contract, applicable corporate law, the by-laws or certificate of incorporation of the Company, any Company benefit plan, or as an insured under any directors and officers liability insurance policy, or (e) under this Agreement.
(b) Executive acknowledges and agrees that the Company and the Company Releasees have fully satisfied any and all obligations owed to Executive arising out of or relating to Executives employment or engagement, as applicable, with the Company, and no further sums, payments or benefits are owed to Executive by the Company or any of the Company Releasees arising out of or relating to Executives employment or engagement, as applicable, with the Company, except as expressly provided in this Agreement.
5. Continuing Obligations. Executive represents and warrants that he has fully complied with the Employee Intellectual Property, Non-Competition, and Non-Solicitation Agreement, dated as of April 26, 2022, which is attached as Exhibit A (the Restrictive Covenant Agreement) and Executive agrees that he will continue to comply with the Restrictive Covenant Agreement, as modified below, during and after the Consulting Period. Executive and the Company agree that during the Consulting Period and thereafter the terms of the Restrictive Covenant Agreement are modified as follows: (a) the restrictions set out in Section 7 (Non-Interference and Non-Solicitation of Employees) will not extend to former employees of the Company whose employment was terminated without cause; (b) the restrictions set out in Section 5(a) (Non-Competition During and After Employment) will be limited to a list of companies set forth separately in writing; and (c) the restrictions set out in Section 5(a) (Non-Competition During and After Employment) will terminate on January 1, 2024.
6. Permitted Disclosures. Pursuant to 18 U.S.C. § 1833(b), Executive understands that he will not be held criminally or civilly liable under any Federal or State trade secret law for the disclosure of a trade secret of the Company that (a) is made (i) in confidence to a Federal, State, or local government official, either directly or indirectly, or Executives attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (b) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Executive understands that if he files a lawsuit for retaliation by the Company for reporting a suspected violation of law, he may disclose the trade secret to Executives attorney and use the trade secret information in the court proceeding if he (I) files any document containing the trade secret under seal, and (II) does not disclose the trade secret, except pursuant to court order. Nothing in this Agreement, or any other agreement that Executive has with the Company, is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by such section. Further, nothing in this Agreement or any other agreement that Executive has with the Company shall prohibit or restrict Executive from making any voluntary disclosure of information or documents related to any violation of law to any governmental agency or legislative body, or any self-regulatory organization, in each case, without advance notice to the Company.
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7. Non-Disparagement by the Executive. As a material inducement to the Company to enter into this Agreement, while Christopher J. Paucek is serving as the Companys Chief Executive Officer (the Non-Disparagement Period), Executive agrees not to make any disparaging or derogatory statements, in any manner or form, to any person or entity about the Company, its employees (including, without limitation, Mr. Paucek), agents, directors, officers, subsidiaries, affiliates or University partners including, without limitation, the making of any disparaging or derogatory statements to any current or former employee of the Company, to any contractor or vendor of the Company, to any current or prospective university partner(s) of the Company, to any applicant for employment with the Company, and to any member of the print or broadcast media (print and broadcast to be interpreted with the broadest possible definitions, including online), and/or to otherwise attempt to injure or interfere with the Companys business. The Company agrees to instruct its executive officers to refrain, during the Non-Disparagement Period, from making, any disparaging or derogatory statements, in any manner or form, to any person or entity about Executive. Nothing in this paragraph (or otherwise in this Agreement) is intended or shall be construed to suggest or imply that Executive or the Company cannot provide truthful information in response to a government investigation, a court and/or administrative agency-issued subpoena, or other valid legal process, or otherwise exercise any protected rights that cannot be waived by agreement.
8. Cooperation. During and after the Consulting Period, Executive agrees that, upon reasonable notice and without the necessity of the Company obtaining a subpoena or court order, Executive shall provide reasonable cooperation in connection with any suit, action or proceeding (or any appeal from any suit, action or proceeding), and any investigation and/or defense of any claims asserted against the Company or any of its affiliates, that relates to events occurring during the Executives employment with the Company as to which Executive may have relevant information (including but not limited to furnishing relevant information and materials to the Company or its designee and/or providing testimony at depositions and at trial), provided that the Company agrees to reimburse Executive for out-of-pocket expenses reasonably incurred in connection with any such cooperation, and provided that any such cooperation shall be scheduled to the extent reasonably practicable so as not to unreasonably interfere with Executives business or personal affairs.
9. Return of Property. Executive represents that he has returned or has agreed with the Company to a plan to return, as of the expiration or earlier termination of the Consulting Period, to the Company all Company property which was in Executives possession, custody or control, including, but not limited to, documents, files, forms, customer information and lists, confidential business information, keys, and Company-issued credit cards. Notwithstanding the foregoing, Executive shall be permitted to retain any computer equipment such as laptop computers and printers, cell phones, and similar handheld devices; provided that the Company is given full access to such devices to ensure that all Confidential Information has been removed.
10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to the application of any choice-of-law rules that would result in the application of another states laws. The Parties irrevocably agree that the competent courts of the State of Delaware are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement.
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11. Legally Authorized. Each Party represents that it is competent to enter into this Agreement and has the requisite authority to enter into this Agreement. No Party has agreed or promised to do or omit to do any act or thing not herein set forth, and the Parties further understand that a purpose of this Agreement is to compromise and terminate all Claims of whatever nature, known or unknown, held by Executive.
12. Joint Preparation. This Agreement shall be deemed to have been prepared jointly by the Parties. Any uncertainty or ambiguity existing herein shall not be interpreted against any Party.
13. No Admission. Executive understands that this Agreement shall not in any way be construed as an admission by the Company or any other Company Releasee of any wrongdoing whatsoever against Executive. The Company specifically disclaims any liability for any wrongdoing against Executive and denies any such wrongdoing, on the part of itself, or its employees, its agents, or any of the other Company Releasees.
14. Advice of Counsel/Revocation Period.
(a) Executive hereby acknowledges that he has been advised to seek the advice of independent counsel. Executive acknowledges that Executive is acting of his own free will, that Executive has been afforded a reasonable time to read and review the terms of the Agreement, especially the release set forth in Section 4 herein, and that Executive is voluntarily entering into this Agreement with full knowledge of its provisions and effects. Executive intends that this Agreement shall not be subject to any claim for duress. Executive further acknowledges that Executive has been given at least forty-five (45) days within which to consider this Agreement (including the Older Workers Benefit Protection Act disclosure attached hereto as Exhibit B) and that if Executive decides to execute this Agreement before the forty-five day period has expired, Executive does so voluntarily and waives the opportunity to use the full review period. Executive also acknowledges that Executive has seven (7) days following his execution of this Agreement to revoke acceptance of the Agreement. This Agreement will not become effective until the eighth (8th) calendar day after the date it is executed. If Executive revokes Executives consent within such seven (7) calendar day period, the Companys offer of the payments and benefits set forth in Section 3 above shall be null and void, and Section 4 above shall be of no force or effect. Executive acknowledges that, absent the execution of this Agreement, Executive would not be entitled to the payments and benefits set forth in Section 3.
(b) Notwithstanding anything in this Agreement to the contrary, Executive must again re-execute this Agreement following the expiration of the Consulting Period in order to be entitled to the payments and benefits in Paragraph 3(b). Executive acknowledges that Executive has been given at least twenty-one (21) days following the expiration of the Consulting Period within which to consider this Agreement and that if Executive decides to re-execute this Agreement before the twenty-one day period has expired, Executive does so voluntarily and waives the opportunity to use the full review period; provided, however, that Executive may not re-execute this Agreement prior to the end of the Consulting Period. Executive also acknowledges that Executive has seven (7) days following his re-execution of this Agreement to revoke his re-execution of the Agreement. This Agreement will not become effective until the eighth (8th) calendar day after the date it is re-executed by Executive. If Executive revokes his consent within such seven (7) calendar day period, the Companys offer of the payments and benefits set forth in Section 3(b) above shall be null and void. Executives failure to re-execute
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this Agreement under this Section 14(b) on or within twenty-one (21) days following the end of the Consulting Period in no way affects Executives prior release of claims under this Agreement. By Executives re-execution of this Agreement, the release set forth in Paragraph 4 shall be deemed to cover any Claims which Executive has, may have had, or thereafter may have against the Company or any other Releasee by reason of any matter, cause or thing whatsoever arising from the beginning of time until the date on which Executive re-executes this Agreement.
15. Acknowledgement. Executive acknowledges and agrees that he remains subject to the restrictive covenants contained in (a) this Agreement, (b) the Plan, (c) any equity award documents, (d) any employment agreement between Executive and the Company and (e) the Restrictive Covenant Agreement (collectively, the Restrictive Covenants) and that Executive has complied with such Restrictive Covenants and will continue to do so following the date hereof, to the extent required by such Restrictive Covenants as modified by this Agreement.
16. Representations. Executive represents and agrees that: Executive has disclosed to the Company any information Executive has which Executive believes concerns any fraudulent or unlawful conduct involving the Company or any Company Releasee, or any conduct that violates the Companys policies; Executive has not formally or informally raised or asserted any claims of sexual harassment or sexual abuse against the Company or any Company Releasee, and represents and acknowledges that Executive has no such claims; Executive is receiving valuable consideration in exchange for executing this Agreement, and agrees that Executive will not argue that the Agreement, in whole or in part, is not supported by sufficient consideration; and Executive has no known work-related injuries, illnesses, or occupational diseases arising out of or related to Executives employment with the Company.
17. Section 409A. The intent of the Parties is that the payments provided hereunder comply with Section 409A of the Internal Revenue Code of 1986, as amended (Section 409A), to the extent subject thereto. The Company makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A and makes no undertaking to preclude Section 409A from applying to any such payment.
18. Miscellaneous.
(a) This Agreement sets forth the entire agreement of the Parties in respect of Executives resignation of employment and the Services to be provided by Executive to the Company following the Separation Date and, except as explicitly stated herein, supersedes all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by either Party or any officer, employee or representative of either Party hereto with respect to such subject matter, other than as set forth in Section 6 above. This Agreement shall not be modified or amended except by written agreement of Executive and the Company.
(b) The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Parties and their respective successors and assigns. Nothing in this Agreement shall be construed to give any rights to any third parties to enforce or benefit under the terms of this Agreement.
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(c) No waiver of any one or more of the terms, conditions or obligations of this Agreement, and no partial waiver thereof, shall be construed as a waiver of any succeeding breach of any of such terms, conditions or obligations or of any of the other terms, conditions or obligations of this Agreement. No failure or delay by either Party at any time to enforce one or more of the terms, conditions or obligations of this Agreement shall constitute a waiver of such terms, conditions or obligations or shall preclude such Party from requiring performance by the other Party at any time.
(d) The headings of this Agreement are inserted for convenience only and neither constitute a part of this Agreement nor affect in any way the meaning or interpretation of this Agreement. When a reference in this Agreement is made to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated.
(e) This Agreement may be executed in one or more counterparts, including emailed. .pdf-ed or telecopied facsimiles, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
(f) Executive agrees that the Company would suffer irreparable harm if he were to breach, or threaten to breach, any material provision of this Agreement and that the Company would by reason of such breach, or threatened breach, be entitled to seek injunctive relief in a court of appropriate jurisdiction, without the need to post any bond. This section shall not, however, diminish the right of the Company to claim and recover damages in addition to injunctive relief.
(g) In the event that any one or more of the provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Moreover, if any one or more of the provisions contained in this Agreement shall be held to be excessively broad as to duration, activity or subject, such provisions shall be construed by limiting and reducing them so as to be enforceable to the maximum extent allowed by applicable law. Furthermore, a determination in any jurisdiction that this Agreement, in whole or in part, is invalid, illegal or unenforceable shall not in any way affect or impair the validity, legality or enforceability of this Agreement in any other jurisdiction.
(h) Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable law then in effect.
(i) The Company shall be entitled to withhold (or to cause the withholding of) the amount, if any, of all taxes of any applicable jurisdiction required to be withheld by an employer with respect to any amount paid to Executive hereunder. The Company, in its sole and absolute discretion, shall make all determinations as to whether it is obligated to withhold any taxes hereunder and the amount thereof.
[signature page to follow]
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IN WITNESS WHEREOF, the Parties, acknowledging that they are acting of their own free will, have caused the execution of this Agreement as of this day and year written below. The Parties also acknowledge that they have had a sufficient opportunity to read and review the terms of this Agreement and that they have each received the advice of their respective counsel with respect hereto.
Execution pursuant to Section 14(a)
Mark Chernis | 2U, Inc. | |||||
/s/ Mark Chernis |
By: | /s/ Paul S. Lalljie | ||||
Name: Paul S. Lalljie Title: Chief Financial Officer | ||||||
Dated: July 27, 2022 | Dated: July 27, 2022 |
Re-Execution pursuant to Section 14(b): |
Mark Chernis
|
|
Dated: _______ __, 202_ |
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Exhibit A
Employee Intellectual Property, Non-Competition, and Non-Solicitation Agreement
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Exhibit B
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Exhibit 99.1
2U Reports Results for Second Quarter 2022
Implements Plan to Accelerate Platform Strategy and Deliver Sustainable Profitability
Expects Increased Marketing Efficiency and an Additional $70 Million in Annual Operating Expense Savings
LANHAM, Md. July 28, 2022 2U, Inc. (Nasdaq: TWOU), a leading online education platform company, today reported financial and operating results for the quarter ended June 30, 2022. The company also announced a realignment of its operations to accelerate its platform strategy and drive sustainable profitability and free cash flow. As part of this plan, the company implemented a new marketing framework, resulting in lower marketing spend late in the second quarter, which impacted results in the period.
Results for Second Quarter 2022 Compared to Second Quarter 2021
| Revenue increased 2% to $241.5 million |
| Degree Program Segment revenue decreased 2% to $143.1 million |
| Alternative Credential Segment revenue increased 8% to $98.4 million |
| Net loss increased $41.0 million to $62.9 million, or $0.82 per share |
Non-GAAP Results for Second Quarter 2022 Compared to Second Quarter 2021
| Adjusted EBITDA increased $4.8 million to $21.9 million |
| Adjusted net loss increased $0.8 million to $7.5 million, or $0.10 per share |
We are taking significant action to accelerate 2Us transition to a platform company under the edX brand and unify our product and marketing strategy to create the worlds leading free-to-degree online learning marketplace, said 2U Co-Founder and CEO Christopher Chip Paucek. Operating as one powerful brand and platform enables the company to pursue sustainable profitability, while building a stronger, more agile business that we believe will deliver greater value for learners, partners, and shareholders and drive the future of education for the long term.
Paul Lalljie, 2Us Chief Financial Officer, added, In the second quarter we took important steps to align our organizational and cost structure to deliver sustained profitable growth and free cash flow. Our results for the quarter and our updated guidance reflect the shift in focus to more profitable growth resulting from the acceleration of our platform strategy. We expect that this plan will drive significant improvement to adjusted EBITDA for full-year 2022 and will generate positive free cash flow for full-year 2023.
Discussion of Second Quarter 2022 Results
Revenue for the second quarter totaled $241.5 million, a 1.8% increase from $237.2 million in the second quarter of 2021. This increase includes $10.0 million from edX, acquired in the fourth quarter of 2021. Revenue from the Degree Program Segment decreased $3.1 million, or 2.1%, primarily due to a 1.9% decrease in average revenue per FCE enrollment, from $2,420 to $2,373. Revenue from the Alternative Credential Segment increased $7.4 million, or 8.1%, primarily due to the addition of edX offerings and a 1.2% increase in average revenue per FCE enrollment, from $3,843 to $3,891, partially offset by a decrease in FCE enrollments of 236, or 1.0%.
Costs and expenses for the second quarter totaled $289.4 million, a 5.5% increase from $274.3 million in the second quarter of 2021. This increase includes $17.1 million of operating expense related to edX. The remaining change was primarily driven by higher restructuring charges associated with the realignment plan, partially offset by lower personnel and personnel-related expense and marketing spend.
As of June 30, 2022, the companys cash, cash equivalents, and restricted cash totaled $237.8 million, a decrease of $12.1 million from $249.9 million as of December 31, 2021. Cash provided by operations of $28.6 million for the six months ended June 30, 2022 was offset by cash used in investing activities of $35.2 million and cash used in financing activities of $3.0 million. Unlevered cash flow for the last twelve months ended June 30, 2022 was $11.5 million, a $45.6 million improvement compared to a negative unlevered cash flow of $34.1 million for the last twelve months ended March 31, 2022.
Business Outlook for Fiscal Year 2022
The company provided updated guidance for the full-year 2022 for the following metrics:
| Revenue to exceed $960 million, representing growth of 2% |
| Net loss to range from $240 million to $230 million |
| Adjusted EBITDA to range from $105 million to $115 million, representing growth of 65% at the midpoint |
Strategic Update
2U also announced today the implementation of a plan to accelerate its transition to a platform company and align its cost structure and strategy. The plan reorients the company around the edX platform, allowing it to pursue a portfolio-based marketing strategy that drives traffic to the edX marketplace. The plan is designed to achieve durable growth that increases profitability by simplifying the current executive structure to reduce silos, reducing employee headcount, optimizing marketing spend and rationalizing the companys real estate footprint.
As part of the plan, Harsha Mokkarala, 2Us current Chief Data Scientist, will now serve as the companys Chief Revenue Officer, and Anant Agarwal, founder of edX and 2Us current Chief Open Education Officer, will serve as Chief Platform Officer. In their new roles, Mr. Mokkarala will focus on optimizing marketing spend while continuing to drive growth and Mr. Agarwal will be responsible for leading the companys unified product and technology strategy.
The company expects that implementation of the headcount reductions will be completed in the third quarter of 2022 while the remainder of the plan is expected to be completed by the end of 2022. The company expects to generate marketing efficiency and an additional $70 million in annualized cost savings, primarily due to savings associated with headcount reduction and reduced real estate costs. The company estimates it will incur aggregate restructuring costs associated with the plan ranging from approximately $35 million to $40 million.
Additional Leadership Update
The companys Chief Operating Officer, Mark Chernis, has also decided to step down from his role at the company to pursue other professional opportunities, effective October 3, 2022, at which time he will transition to a consulting capacity.
On behalf of 2Us Board of Directors, executive management and employees, I would like to thank Mark for his 14 years of service to the company, first as a director then as an officer. Mark has been a great friend and colleague and his leadership and contributions have been integral in making 2U the company that it is today, said Mr. Paucek.
Non-GAAP Measures
To provide investors and others with additional information regarding 2Us results, the company has disclosed the following non-GAAP financial measures: adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share. The company has provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure. The company defines adjusted EBITDA (loss) as net income or net loss, as applicable, before net interest income (expense), other income (expense), net, taxes, depreciation and amortization expense, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense. The company defines unlevered free cash flow as net cash provided by (used in) operating activities, less capital expenditures, payments to university clients, certain non-ordinary cash payments, and cash interest payments on debt. The company defines adjusted net income (loss) as net income or net loss, as applicable, before other income (expense), net, acquisition-related gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, stockholder activism costs, certain litigation-related costs, consisting of fees for certain non-ordinary course litigation and other proceedings, impairment charges, losses on debt extinguishment, and stock-based compensation expense. Adjusted net income (loss) per share is calculated as adjusted net income (loss) divided by diluted weighted-average shares of common stock outstanding for periods that result in adjusted net income, and basic weighted-average shares outstanding for periods that result in an adjusted net loss. Some of the adjustments described in the definitions of adjusted EBITDA (loss), unlevered free cash flow, and adjusted net income (loss) may not be applicable in any given reporting period and they may vary from period to period.
The companys management uses these non-GAAP financial measures to understand and compare operating results across accounting periods, to understand cash that is generated by or available for operational expenses and investment in the business after capital expenditures, for internal budgeting and forecasting purposes, for short- and long-term operating plans, and to evaluate the companys financial performance. Management believes these non-GAAP financial measures reflect the companys ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of trends in the companys business as they exclude expenses that are not reflective of ongoing operating results. Management also believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the companys operating results and prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies.
The use of adjusted EBITDA (loss), unlevered free cash flow, adjusted net income (loss), and adjusted net income (loss) per share measures has certain limitations, as they do not reflect all items of income and expense that affect the companys operations. The company compensates for these limitations by reconciling the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP financial measures should be considered in addition to, not as a substitute for or in isolation from, measures prepared in accordance with GAAP. Further, these non-GAAP measures may differ from the non-GAAP information used by other companies, including peer companies, and therefore comparability may be limited. Management encourages investors and others to review the companys financial information in its entirety and not rely on a single financial measure.
Conference Call Information
What: |
2Us second quarter 2022 financial results conference call | |
When: |
Thursday, July 28, 2022 | |
Time: |
4:30 p.m. ET | |
Live Call: |
(888) 330-2446 | |
Conference ID #: |
1153388 | |
Webcast: |
investor.2U.com |
About 2U, Inc. (Nasdaq: TWOU)
For more than a decade, 2U, Inc. has been the digital transformation partner of choice to great non-profit colleges and universities delivering high-quality online education at scale. As the parent company of edX, a leading global online learning platform, 2U provides over 45 million learners with access to world-class education in partnership with more than 230 colleges, universities, and corporations. Our people and technology are powering more than 4,000 digital education offerings from free courses to full degrees and helping unlock human potential. To learn more: visit 2U.com.
Cautionary Language Concerning Forward-Looking Statements
This press release contains forward-looking statements regarding 2U, Inc.s future business expectations, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this press release, including statements regarding future results of operations and financial position of 2U, including financial targets, business strategy, and plans and objectives for future operations, are forward-looking statements. 2U has based these forward-looking statements largely on its estimates of its financial results and its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs as of the date of this press release. The company undertakes no obligation to update these statements as a result of new information or future events. These forward-looking statements are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from the results predicted, including, but not limited to:
| trends in the higher education market and the market for online education, and expectations for growth in those markets; |
| the acceptance, adoption and growth of online learning by colleges and universities, faculty, students, employers, accreditors and state and federal licensing bodies; |
| the impact of competition on the companys industry and innovations by competitors; |
| the companys ability to comply with evolving regulations and legal obligations related to data privacy, data protection and information security; |
| the companys expectations about the potential benefits of its cloud-based software-as-a-service technology and technology-enabled services to university clients and students; |
| the companys dependence on third parties to provide certain technological services or components used in its platform; |
| the companys expectations about the predictability, visibility and recurring nature of its business model; |
| the companys ability to meet the anticipated launch dates of its degree programs, executive education offerings and boot camps; |
| the companys ability to acquire new university clients and expand its degree programs, executive education offerings and boot camps with existing university clients; |
| the companys ability to successfully integrate the operations of its acquisitions, including the edX acquisition, to achieve the expected benefits of its acquisitions and manage, expand and grow the combined company; |
| the companys ability to refinance its indebtedness on attractive terms, if at all, to better align with its focus on profitability; |
| the companys ability to service its substantial indebtedness and comply with the covenants and conversion obligations contained in the indenture governing its convertible senior notes and the term loan agreement governing its term loan facility; |
| the companys ability to generate sufficient future operating cash flows from recent acquisitions to ensure related goodwill is not impaired; |
| the companys ability to execute its growth strategy in the international, undergraduate and non-degree alternative markets; |
| the companys ability to continue to recruit prospective students for its offerings; |
| the companys ability to maintain or increase student retention rates in its degree programs; |
| the companys ability to attract, hire and retain qualified employees; |
| the companys expectations about the scalability of its cloud-based platform; |
| potential changes in regulations applicable to the company or its university clients; |
| the companys expectations regarding the amount of time its cash balances and other available financial resources will be sufficient to fund its operations; |
| the impact and cost of stockholder activism; |
| the impact of the significant decline in the market price of our common stock, including the impairment of goodwill and indefinite-lived assets; |
| the timing, structure and expected impact of our realignment plan and the estimated savings and amounts expected to be incurred in connection therewith; |
| the impact of any natural disasters or public health emergencies, such as the coronavirus disease 2019 (COVID-19) pandemic; |
| the companys expectations regarding the effect of the capped call transactions and regarding actions of the option counterparties and/or their respective affiliates; and |
| other factors beyond the companys control. |
These and other potential risks and uncertainties that could cause actual results to differ from the results predicted are more fully detailed under the heading Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, and other SEC filings. Moreover, 2U operates in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for 2U management to predict all risks, nor can 2U assess the impact of all factors on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements 2U may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this press release may not occur and actual results could differ materially and adversely from those anticipated.
Investor Relations Contact: investorinfo@2U.com
Media Contact: media@2U.com
2U, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
June 30, 2022 |
December 31, 2021 |
|||||||
(unaudited) | ||||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 220,807 | $ | 232,932 | ||||
Restricted cash |
16,978 | 16,977 | ||||||
Accounts receivable, net |
69,844 | 67,287 | ||||||
Other receivables, net |
30,938 | 29,439 | ||||||
Prepaid expenses and other assets |
80,400 | 47,217 | ||||||
|
|
|
|
|||||
Total current assets |
418,967 | 393,852 | ||||||
Other receivables, net, non-current |
21,284 | 21,568 | ||||||
Property and equipment, net |
50,731 | 48,650 | ||||||
Right-of-use assets |
71,282 | 76,841 | ||||||
Goodwill |
788,021 | 834,539 | ||||||
Intangible assets, net |
611,886 | 665,523 | ||||||
Other assets, non-current |
71,063 | 68,033 | ||||||
|
|
|
|
|||||
Total assets |
$ | 2,033,234 | $ | 2,109,006 | ||||
|
|
|
|
|||||
Liabilities and stockholders equity |
||||||||
Current liabilities |
||||||||
Accounts payable and accrued expenses |
$ | 150,081 | $ | 164,723 | ||||
Deferred revenue |
132,472 | 91,926 | ||||||
Lease liability |
11,934 | 13,985 | ||||||
Accrued restructuring liability |
16,385 | 1,735 | ||||||
Other current liabilities |
93,089 | 61,138 | ||||||
|
|
|
|
|||||
Total current liabilities |
403,961 | 333,507 | ||||||
Long-term debt |
927,746 | 845,316 | ||||||
Deferred tax liabilities, net |
1,142 | 1,726 | ||||||
Lease liability, non-current |
94,094 | 98,666 | ||||||
Other liabilities, non-current |
641 | 636 | ||||||
|
|
|
|
|||||
Total liabilities |
1,427,584 | 1,279,851 | ||||||
|
|
|
|
|||||
Stockholders equity |
||||||||
Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued |
| | ||||||
Common stock, $0.001 par value, 200,000,000 shares authorized, 77,219,835 shares issued and outstanding as of June 30, 2022; 75,754,663 shares issued and outstanding as of December 31, 2021 |
77 | 76 | ||||||
Additional paid-in capital |
1,668,282 | 1,735,628 | ||||||
Accumulated deficit |
(1,046,453 | ) | (890,638 | ) | ||||
Accumulated other comprehensive loss |
(16,256 | ) | (15,911 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
605,650 | 829,155 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 2,033,234 | $ | 2,109,006 | ||||
|
|
|
|
2U, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited, in thousands, except share and per share amounts)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue |
$ | 241,464 | $ | 237,209 | $ | 494,793 | $ | 469,682 | ||||||||
Costs and expenses |
||||||||||||||||
Curriculum and teaching |
32,145 | 34,788 | 65,375 | 67,936 | ||||||||||||
Servicing and support |
37,061 | 34,865 | 76,685 | 68,049 | ||||||||||||
Technology and content development |
45,616 | 42,509 | 96,673 | 85,433 | ||||||||||||
Marketing and sales |
116,350 | 114,644 | 247,332 | 227,881 | ||||||||||||
General and administrative |
41,523 | 46,160 | 91,758 | 92,787 | ||||||||||||
Restructuring charges |
16,753 | 1,334 | 17,540 | 1,819 | ||||||||||||
Impairment charges |
| | 58,782 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total costs and expenses |
289,448 | 274,300 | 654,145 | 543,905 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss from operations |
(47,984 | ) | (37,091 | ) | (159,352 | ) | (74,223 | ) | ||||||||
Interest income |
241 | 352 | 498 | 714 | ||||||||||||
Interest expense |
(13,906 | ) | (8,188 | ) | (27,796 | ) | (16,069 | ) | ||||||||
Loss on debt extinguishment |
| (1,101 | ) | | (1,101 | ) | ||||||||||
Other income (expense), net |
(1,367 | ) | 24,070 | (2,397 | ) | 23,155 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Loss before income taxes |
(63,016 | ) | (21,958 | ) | (189,047 | ) | (67,524 | ) | ||||||||
Income tax benefit |
164 | 127 | 415 | 129 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (62,852 | ) | $ | (21,831 | ) | $ | (188,632 | ) | $ | (67,395 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share, basic and diluted |
$ | (0.82 | ) | $ | (0.29 | ) | $ | (2.46 | ) | $ | (0.91 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares of common stock outstanding, basic and diluted |
77,059,157 | 74,421,911 | 76,667,681 | 74,051,220 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) |
||||||||||||||||
Foreign currency translation adjustments, net of tax of $0 for all periods presented |
(7,674 | ) | 2,977 | (345 | ) | 2,172 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive loss |
$ | (70,526 | ) | $ | (18,854 | ) | $ | (188,977 | ) | $ | (65,223 | ) | ||||
|
|
|
|
|
|
|
|
2U, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Six Months Ended June 30, |
||||||||
2022 | 2021 | |||||||
Cash flows from operating activities |
||||||||
Net loss |
$ | (188,632 | ) | $ | (67,395 | ) | ||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
Non-cash interest expense |
5,664 | 11,447 | ||||||
Depreciation and amortization expense |
65,757 | 51,409 | ||||||
Stock-based compensation expense |
46,773 | 49,723 | ||||||
Non-cash lease expense |
11,405 | 8,644 | ||||||
Provision for credit losses |
4,610 | 3,551 | ||||||
Loss on debt extinguishment |
| 1,101 | ||||||
Gain on sale of investment |
| (27,875 | ) | |||||
Impairment charges |
58,782 | | ||||||
Other |
2,920 | 1,759 | ||||||
Changes in operating assets and liabilities, net of assets and liabilities acquired: |
||||||||
Accounts receivable, net |
(6,632 | ) | (58,847 | ) | ||||
Other receivables, net |
(2,790 | ) | (14,738 | ) | ||||
Prepaid expenses and other assets |
2,585 | (1,030 | ) | |||||
Accounts payable and accrued expenses |
3,484 | 15,888 | ||||||
Deferred revenue |
45,549 | 34,697 | ||||||
Other liabilities, net |
(20,831 | ) | (10,528 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
28,644 | (2,194 | ) | |||||
Cash flows from investing activities |
||||||||
Purchase of a business, net of cash acquired |
5,010 | | ||||||
Additions of amortizable intangible assets |
(34,854 | ) | (29,867 | ) | ||||
Purchases of property and equipment |
(5,218 | ) | (2,452 | ) | ||||
Purchase of investment |
| (1,000 | ) | |||||
Proceeds from sale of investment |
| 37,875 | ||||||
Advances made to university clients |
(310 | ) | | |||||
Advances repaid by university clients |
200 | 200 | ||||||
Other |
(7 | ) | 56 | |||||
|
|
|
|
|||||
Net cash (used in) provided by investing activities |
(35,179 | ) | 4,812 | |||||
Cash flows from financing activities |
||||||||
Proceeds from debt |
385 | 469,595 | ||||||
Payments on debt |
(3,793 | ) | (703 | ) | ||||
Payment of debt issuance costs |
| (10,258 | ) | |||||
Tax withholding payments associated with settlement of restricted stock units |
(1,741 | ) | (14,114 | ) | ||||
Proceeds from exercise of stock options |
892 | 4,270 | ||||||
Proceeds from employee stock purchase plan share purchases |
1,282 | 1,773 | ||||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(2,975 | ) | 450,563 | |||||
Effect of exchange rate changes on cash |
(2,614 | ) | (713 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
(12,124 | ) | 452,468 | |||||
Cash, cash equivalents and restricted cash, beginning of period |
249,909 | 518,866 | ||||||
|
|
|
|
|||||
Cash, cash equivalents and restricted cash, end of period |
$ | 237,785 | $ | 971,334 | ||||
|
|
|
|
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA to net loss for each of the periods indicated.
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
(in thousands, except share and per share amounts) | ||||||||||||||||
Net loss |
$ | (62,852 | ) | $ | (21,831 | ) | $ | (188,632 | ) | $ | (67,395 | ) | ||||
Stock-based compensation expense |
22,349 | 24,776 | 46,773 | 49,723 | ||||||||||||
Other (income) expense, net |
1,367 | (24,070 | ) | 2,397 | (23,155 | ) | ||||||||||
Amortization of acquired intangible assets |
15,838 | 10,560 | 33,329 | 21,032 | ||||||||||||
Income tax benefit on amortization of acquired intangible assets |
(440 | ) | (301 | ) | (875 | ) | (594 | ) | ||||||||
Impairment charges |
| | 58,782 | | ||||||||||||
Loss on debt extinguishment |
| 1,101 | | 1,101 | ||||||||||||
Restructuring charges |
16,753 | 1,334 | 17,540 | 1,819 | ||||||||||||
Other* |
(558 | ) | 1,671 | 4,682 | 2,132 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net loss |
(7,543 | ) | (6,760 | ) | (26,004 | ) | (15,337 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net interest expense |
13,665 | 7,836 | 27,298 | 15,355 | ||||||||||||
Income tax expense |
276 | 174 | 460 | 465 | ||||||||||||
Depreciation and amortization expense |
15,504 | 15,862 | 32,428 | 30,377 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted EBITDA |
$ | 21,902 | $ | 17,112 | $ | 34,182 | $ | 30,860 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per share, basic and diluted |
$ | (0.82 | ) | $ | (0.29 | ) | $ | (2.46 | ) | $ | (0.91 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Adjusted net loss per share, basic and diluted |
$ | (0.10 | ) | $ | (0.09 | ) | $ | (0.34 | ) | $ | (0.21 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average shares of common stock outstanding, basic and diluted |
77,059,157 | 74,421,911 | 76,667,681 | 74,051,220 | ||||||||||||
|
|
|
|
|
|
|
|
* | Includes (i) transaction and integration expense of $1.0 million and $1.7 million for the three months ended June 30, 2022 and 2021, respectively, and $3.4 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively, and (ii) stockholder activism and litigation-related (recoveries) expense of $(1.6) million and zero for the three months ended June 30, 2022 and 2021, respectively, and $1.3 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively. |
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA (loss) to net loss by segment for each of the periods indicated.
Degree Program Segment |
Alternative Credential Segment |
Consolidated | ||||||||||||||||||||||
Three Months Ended June 30, |
Three Months Ended June 30, |
Three Months Ended June 30, |
||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Net (loss) income |
$ | (10,488 | ) | $ | 13,491 | $ | (52,364 | ) | $ | (35,322 | ) | $ | (62,852 | ) | $ | (21,831 | ) | |||||||
Adjustments: |
||||||||||||||||||||||||
Stock-based compensation expense |
12,270 | 16,897 | 10,079 | 7,879 | 22,349 | 24,776 | ||||||||||||||||||
Other (income) expense, net |
695 | (27,745 | ) | 672 | 3,675 | 1,367 | (24,070 | ) | ||||||||||||||||
Net interest expense (income) |
13,732 | 7,835 | (67 | ) | 1 | 13,665 | 7,836 | |||||||||||||||||
Income tax expense (benefit) |
13 | 75 | (177 | ) | (202 | ) | (164 | ) | (127 | ) | ||||||||||||||
Depreciation and amortization expense |
13,610 | 13,752 | 17,732 | 12,670 | 31,342 | 26,422 | ||||||||||||||||||
Loss on debt extinguishment |
| 1,101 | | | | 1,101 | ||||||||||||||||||
Restructuring charges |
10,252 | 1,154 | 6,501 | 180 | 16,753 | 1,334 | ||||||||||||||||||
Other |
(545 | ) | 1,413 | (13 | ) | 258 | (558 | ) | 1,671 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total adjustments |
50,027 | 14,482 | 34,727 | 24,461 | 84,754 | 38,943 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total adjusted EBITDA (loss) |
$ | 39,539 | $ | 27,973 | $ | (17,637 | ) | $ | (10,861 | ) | $ | 21,902 | $ | 17,112 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA (loss) to net loss by segment for each of the periods indicated.
Degree Program Segment |
Alternative Credential Segment |
Consolidated | ||||||||||||||||||||||
Six Months Ended June 30, |
Six Months Ended June 30, |
Six Months Ended June 30, |
||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Net (loss) income |
$ | (21,270 | ) | $ | 929 | $ | (167,362 | ) | $ | (68,324 | ) | $ | (188,632 | ) | $ | (67,395 | ) | |||||||
Adjustments: |
||||||||||||||||||||||||
Stock-based compensation expense |
25,635 | 33,420 | 21,138 | 16,303 | 46,773 | 49,723 | ||||||||||||||||||
Other (income) expense, net |
1,247 | (27,683 | ) | 1,150 | 4,528 | 2,397 | (23,155 | ) | ||||||||||||||||
Net interest expense (income) |
27,434 | 15,415 | (136 | ) | (60 | ) | 27,298 | 15,355 | ||||||||||||||||
Income tax expense (benefit) |
(89 | ) | 150 | (326 | ) | (279 | ) | (415 | ) | (129 | ) | |||||||||||||
Depreciation and amortization expense |
27,503 | 27,259 | 38,254 | 24,150 | 65,757 | 51,409 | ||||||||||||||||||
Impairment charges |
| | 58,782 | | 58,782 | | ||||||||||||||||||
Loss on debt extinguishment |
| 1,101 | | | | 1,101 | ||||||||||||||||||
Restructuring charges |
10,941 | 1,427 | 6,599 | 392 | 17,540 | 1,819 | ||||||||||||||||||
Other |
3,956 | 1,843 | 726 | 289 | 4,682 | 2,132 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total adjustments |
96,627 | 52,932 | 126,187 | 45,323 | 222,814 | 98,255 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total adjusted EBITDA (loss) |
$ | 75,357 | $ | 53,861 | $ | (41,175 | ) | $ | (23,001 | ) | $ | 34,182 | $ | 30,860 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of unlevered free cash flow to net cash (used in) provided by operating activities for each of the twelve-month periods indicated.
Twelve Months Ended | ||||||||||||||||
June 30, 2022 |
March 31, 2022 |
December 31, 2021 |
September 30, 2021 |
|||||||||||||
(in thousands) | ||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 12,765 | $ | (25,766 | ) | $ | (18,074 | ) | $ | 33,325 | ||||||
Additions of amortizable intangible assets |
(65,533 | ) | (63,814 | ) | (60,546 | ) | (61,213 | ) | ||||||||
Purchases of property and equipment |
(12,555 | ) | (10,716 | ) | (9,788 | ) | (6,398 | ) | ||||||||
Payments to university clients |
7,025 | 7,150 | 6,800 | 8,800 | ||||||||||||
Non-ordinary cash payments* |
25,229 | 23,943 | 22,193 | 11,199 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Free cash flow |
(33,069 | ) | (69,203 | ) | (59,415 | ) | (14,287 | ) | ||||||||
Cash interest payments on debt |
44,532 | 35,082 | 25,537 | 9,046 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Unlevered free cash flow |
$ | 11,463 | $ | (34,121 | ) | $ | (33,878 | ) | $ | (5,241 | ) | |||||
|
|
|
|
|
|
|
|
* | Includes transaction, integration, restructuring-related, stockholder activism, and litigation-related expense. |
2U, Inc.
Reconciliation of Non-GAAP Measures
(unaudited)
The following table presents a reconciliation of adjusted EBITDA guidance to net loss guidance, at the midpoint of the ranges provided by the company, for the period indicated.
Year Ending December 31, 2022 |
||||
(in millions) | ||||
Net loss |
$ | (235.0 | ) | |
Stock-based compensation expense |
79.0 | |||
Other expense, net |
2.0 | |||
Amortization of acquired intangible assets |
65.0 | |||
Impairment charges |
59.0 | |||
Restructuring |
24.0 | |||
Other |
2.0 | |||
|
|
|||
Adjusted net loss |
(4.0 | ) | ||
|
|
|||
Net interest expense |
60.0 | |||
Income tax benefit |
(1.0 | ) | ||
Depreciation and amortization expense |
55.0 | |||
|
|
|||
Adjusted EBITDA |
$ | 110.0 | ||
|
|
2U, Inc.
Key Financial Performance Metrics
(unaudited)
Full Course Equivalent Enrollments
Degree Program Segment*
The following table presents FCE enrollments and average revenue per FCE enrollment in the companys Degree Program Segment for the last eight quarters.
Q2 22 | Q1 22 | Q4 21 | Q3 21 | Q2 21 | Q1 21 | Q4 20 | Q3 20 | |||||||||||||||||||||||||
Degree Program Segment FCE enrollments |
60,303 | 62,609 | 58,967 | 57,842 | 60,429 | 60,007 | 58,425 | 47,842 | ||||||||||||||||||||||||
Degree Program Segment average revenue per FCE enrollment |
$ | 2,373 | $ | 2,462 | $ | 2,585 | $ | 2,555 | $ | 2,420 | $ | 2,431 | $ | 2,234 | $ | 2,551 |
Alternative Credential Segment**
The following table presents FCE enrollments and average revenue per FCE enrollment in the companys Alternative Credential Segment for the last eight quarters.
Q2 22 | Q1 22 | Q4 21 | Q3 21 | Q2 21 | Q1 21 | Q4 20 | Q3 20 | |||||||||||||||||||||||||
Alternative Credential Segment FCE enrollments |
23,443 | 22,664 | 21,153 | 20,174 | 23,679 | 21,078 | 22,190 | 23,067 | ||||||||||||||||||||||||
Alternative Credential Segment average revenue per FCE enrollment |
$ | 3,891 | $ | 4,012 | $ | 4,312 | $ | 4,193 | $ | 3,843 | $ | 4,108 | $ | 3,821 | $ | 3,426 |
* | FCE enrollments and average revenue per FCE enrollment include enrollments in edX degree offerings and revenue from these offerings of $2.8 million and $5.5 million for the three and six months ended June 30, 2022, respectively. |
** | FCE enrollments and average revenue per FCE enrollment exclude the impact of enrollments in edX offerings and the related revenue of $7.1 million and $15.4 million for the three and six months ended June 30, 2022, respectively. |
Document and Entity Information |
Jun. 29, 2022 |
---|---|
Cover [Abstract] | |
Entity Incorporation State Country Code | DE |
Amendment Flag | false |
Entity Central Index Key | 0001459417 |
Document Type | 8-K |
Document Period End Date | Jun. 29, 2022 |
Entity Registrant Name | 2U, INC. |
Entity File Number | 001-36376 |
Entity Tax Identification Number | 26-2335939 |
Entity Address, Address Line One | 7900 Harkins Road |
Entity Address, City or Town | Lanham |
Entity Address, State or Province | MD |
Entity Address, Postal Zip Code | 20706 |
City Area Code | (301) |
Local Phone Number | 892-4350 |
Written Communications | false |
Soliciting Material | false |
Pre Commencement Tender Offer | false |
Pre Commencement Issuer Tender Offer | false |
Security 12b Title | Common Stock, $0.001 par value per share |
Trading Symbol | TWOU |
Security Exchange Name | NASDAQ |
Entity Emerging Growth Company | false |
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