2U, Inc. - Annual Report: 2019 (Form 10-K)

☒	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

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

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

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

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

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

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

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

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

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

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

•	our ability to service our substantial indebtedness and comply with the financial and other restrictive covenants contained in the credit agreement governing our senior secured term loan facility;

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

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

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

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

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

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

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

•	our expectations regarding future expenses in relation to future revenue;

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

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

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•	the impact and cost of stockholder activism.

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•	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:

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◦	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.

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Recruiting.  We use third-party and proprietary technologies to support prospective students through the admissions process. We provide prospective students with transparent information regarding admissions requirements, the application process, curriculum, financial information, and time to completion. For our degree programs, while our clients make admissions decisions, we organize and route completed student application packages to the university’s admissions office.

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

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Customer Relationship Management.  We deploy a customer relationship management system for each degree program we enable. This system serves as the data hub for student recruiting activities, application progress, university admissions review, registration and student support. We and our university clients use this information to ensure proper coordination and support as a student progresses through the program.

◦	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.

◦	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.

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Learning Technology.  Our online learning platform is an end-to-end learning and teaching platform that allows our university clients to deliver high-quality educational content. For our degree programs, our online learning platform provides a live and engaging classroom environment that is accessible through proprietary web, mobile and TV applications, as well as offline for convenient consumption of asynchronous coursework. Our STEM-based education tools and collaborative annotation technology significantly enhance the learning experience for degree program students and instruction capabilities for faculty. Offerings in our Alternative Credential Segment are delivered through our proprietary learning platforms that share many of the core features of our degree program learning platform.

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

•	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

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•	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.

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Accessibility.  Our platform provides many features to accommodate the accessibility needs of students with disabilities, including clear navigation, flexible, robust content display, and compatibility with screen-reading and assistive keyboard technologies. Working with our university clients, we support certain accommodations requested by students with disabilities, including providing real-time sign language and captioning for live classes and audio descriptions of video content we produce.

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Student Success.  We augment each student’s academic experience by providing ongoing, personalized non-academic support. For degree programs, we provide a dedicated team to support and train university administration and faculty on how to use our platform to facilitate outstanding live instruction. In addition, we help our university clients succeed by assisting with faculty recruiting efforts, including attracting, cultivating and vetting a pool of faculty candidates for our university clients. In our boot camp offerings, we use a proprietary analytics platform to capture the sentiment of students in our classes. We use this data to improve our curricula, calibrate differences across classrooms and offer targeted support to students.

•	Extend Institutional Mission and Reach. Our platform enables our university clients to extend their brands and fulfill their missions by delivering high quality education offerings to students anywhere in the world, while maintaining their academic rigor and admissions standards.

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Low Financial Risk. We make the initial investment required to launch new offerings across our portfolio. In our Graduate Program Segment, in particular, we make significant investments in technology, integration, content production, marketing, student and faculty support, and other services. Our revenue-share model, combined with long contractual terms in this segment, enables us to make these investments without significant financial risk to our clients.

•	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.

•	Flexibility.  Many students require flexible learning environments to accommodate work and personal responsibilities. Often, these students are working adults who are looking to either complete a full degree, or who want to gain a credential to accelerate or change careers. Our spectrum of offerings provides students with the flexible, high-quality offerings they need to achieve their goals.

•	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.

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Support. High-quality student support is a central pillar of our platform. Prior to enrollment, our support teams work with prospective students as they consider and apply to a particular offering. Once enrolled, we augment each student’s academic experience by assigning a dedicated advisor to provide ongoing individualized non-academic support. We also help improve retention rates by using data analysis to predict when students may need additional support.

•	Adding Degree Programs. We intend to add degree programs in select academic disciplines where we believe we have a strategic advantage, such as degrees that require field placements to satisfy curriculum and accreditation requirements, as well as to continue to expand into the undergraduate market.

•	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.

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•	robustness and evolution of technology solutions and content;

•	brand awareness and reputation;

•	ability of online degree programs, short courses and boot camps to deliver desired student outcomes;

•	breadth and depth of service offering;

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

•	expertise in marketing, student acquisition and student retention;

•	student and faculty experience;

•	ease of deployment and use of technology solutions;

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

•	quality of university client base and track record of performance.

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

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

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

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

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

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

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

•	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.

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Negative perceptions about online learning programs.  As a non-traditional form of education delivery, prospective students will subject our university clients’ online offerings to increased scrutiny. Online offerings that we or our competitors provide may not be successful or operate efficiently, and new entrants to the field of online learning also may not perform well. Such underperformance could create the perception that online offerings in general are not an effective way to educate students, whether or not our offerings achieve satisfactory performance, which could make it difficult for us to successfully attract prospective students. Students may be reluctant to enroll in online educational offerings for fear that the learning experience may be substandard, that employers may be averse to hiring students who received their education online, or that organizations granting professional licenses or certifications may be reluctant to grant them based on degrees earned through online education.

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Unsuccessful marketing efforts.  We invest substantial resources in developing and implementing data-driven marketing strategies that focus on identifying the right potential student at the right time. These marketing efforts make substantial use of search engine optimization, paid search, social media and custom website development and deployment and we rely on a small number of internet search engines and marketing partners. If our execution of this strategy proves to be inefficient or unsuccessful in generating a sufficient quantity of qualified prospective students, or if the costs associated with the execution of this strategy increase, our revenue and ability to achieve profitability could be adversely affected.

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Damage to university client reputation.  Because we market a specific offering to each potential student and use the university client’s brand in connection with our marketing efforts, the reputations of our university clients are critical to our ability to enroll students. Many factors affecting our university clients’ reputations are beyond our control and can change over time, including their academic performance, ranking among nonprofit educational institutions and university leadership positions.

•	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.

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Our lack of control over our university clients’ admissions standards and admissions decisions for degree programs.  Even if we are able to identify prospective students for a degree program, there is no guarantee that students will be admitted to that program. In the Graduate Program Segment, the university clients retain complete discretion over setting admissions standards and making admissions decisions, and any changes to admissions

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Inability of students to secure funding.  Like traditional college and university students, many of the students in our university clients’ offerings, in particular degree programs, rely on the availability of third-party financing to pay for the costs of their educations, including tuition. This tuition assistance may include federal or private student loans, scholarships and grants, or benefits or reimbursement provided by the students’ employers. Any developments that reduce the availability of financial aid for higher education generally, or for our university clients’ offerings, could impair students’ abilities to meet their financial obligations, which in turn could result in reduced enrollment and harm our ability to generate revenue.

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General economic conditions.  Student enrollment in our offerings may be affected by changes in global economic conditions. An improvement in economic conditions and, in particular, an improvement in the economic conditions in the U.S. and the U.S. unemployment rate, may reduce demand among potential students for educational services, as they may find adequate employment without additional education. Conversely, a worsening of economic and employment conditions may reduce the willingness of employers to sponsor educational opportunities for their employees or discourage existing or potential students from pursuing additional education due to a perception that there are insufficient job opportunities, increased economic uncertainty or other factors, any of which could adversely impact our ability to attract qualified students to our offerings. If one or more of these factors reduces student demand for our offerings, enrollment could be negatively affected, our costs associated with student acquisition and retention could increase, or both, any of which could materially compromise our ability to grow our revenue or achieve profitability. These developments could also harm our reputation and make it more difficult for us to engage new and existing university clients for new offerings, which would negatively impact our ability to expand our business.

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

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

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

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

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

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

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

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

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•	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.

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•	effectively recruit, integrate, train and motivate a large number of new employees, including our marketing and technology teams, while retaining existing employees;

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

•	continue to improve our operational, financial and management controls;

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

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

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•	the diversion of management’s attention from ongoing business concerns and performance as a result of the devotion of management’s attention to acquisition or integration activities;

•	managing a larger combined company;

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

•	the possibility of faulty assumptions underlying expectations regarding the integration process;

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

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

•	coordinating geographically separate organizations;

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

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

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

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

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

•	issue additional equity securities that would dilute current shareholders;

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

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

•	incur large charges or substantial liabilities; or

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•	become subject to adverse tax consequences.

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

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

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

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

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

•	the burden of complying with a wide variety of laws, including those relating to labor and employment matters, education, data protection and privacy;

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

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

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

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

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

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

•	increased financial accounting and reporting burdens and complexities;

•	restrictions on the transfer of funds;

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

•	terrorist attacks, acts of violence or war and adverse environmental conditions;

•	unstable regional and economic political conditions; and

•	fluctuations in currency exchange rates or restrictions on foreign currency, and the resulting effect on our revenue and expenses.

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

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

•	expose us to increased interest rate risk as a significant portion of our indebtedness is subject to variable interest rates;

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

•	hinder our ability to adjust rapidly to changing market conditions;

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

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

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•	hurt our reputation;

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

•	cause delays or stoppages in providing our platform;

•	divert management’s attention and resources;

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

•	subject us to significant liabilities; and

•	require us to cease some or all of our activities.

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

•	seasonal variation driven by the semester schedules for our university clients’ degree programs, which may vary from year to year;

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

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

•	changes in tuition rates;

•	the timing and amount of our marketing and sales expenses;

•	costs necessary to improve and maintain our platform;

•	fluctuations in foreign currency exchange rates;

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

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

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

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•	actual or anticipated variations in our operating results;

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

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

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

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

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

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

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

•	capital commitments;

•	investors’ general perception of our company and our business;

•	actions instituted by activist shareholders or others;

•	lawsuits threatened or filed against us;

•	recruitment or departure of key personnel; and

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

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

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

•	stockholders are not permitted to take actions by written consent;

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

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

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

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*	We define working capital as current assets minus current liabilities.

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

•	In our Alternative Credential Segment, we provide premium online short courses and technical, skills-based boot camps through relationships with nonprofit colleges and universities. Students enrolled in these offerings are generally working professionals seeking career advancement through skills attainment.

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The risk of a data security breach or service disruption has increased as the frequency, intensity and sophistication of attempted attacks and intrusions from around the world have increased. While we make significant efforts to maintain the security and integrity of our services and computer systems, our cybersecurity measures and the cybersecurity measures taken by our third-party data center facilities may be unable to anticipate, detect or prevent all attempts to compromise our systems.

•	We and our university clients are subject to certain education regulations, such as the HEA, which are frequently revised, repealed or expanded. The re-authorization of the HEA is currently in process and the outcome 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.

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Our university clients have regular turnover in leadership positions. These changes can have a positive or negative impact on our business. If new leaders do not support online delivery of educational offerings, we may not be able to add additional offerings with the university client or the university client may not renew their relationship with us. New leaders may also make changes in university policies, which could result in changes to admissions standards or

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•	our ability to increase the number of degree programs and other offerings, either by adding new university clients or by expanding the number of offerings we provide with current university clients;

•	our ability to identify and attract prospective students to our degree programs and other offerings; and

•	our ability, and that of our university clients, to retain students.

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*	Not meaningful for comparative purposes.

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*	Immaterial amounts of intersegment revenue have been excluded from the above results for the years ended December 31, 2019 and 2018.

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*	Trilogy’s results of operations are included in our results of operations since the acquisition date.

**	The calculation of the Alternative Credential Segment’s average revenue per full course equivalent enrollment includes $11.2 million of revenue that was excluded from the results of operations in the year ended December 31, 2019, due to a deferred revenue fair value purchase accounting adjustment recorded in connection with the acquisition of Trilogy.

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

•	adjusted EBITDA (loss) does not reflect changes in, or cash requirements for, our working capital needs;

•	adjusted EBITDA (loss) does not reflect the impact of changes in foreign currency exchange rates;

•	adjusted EBITDA (loss) does not reflect acquisition related gains or losses such as, but not limited to, post-acquisition changes in the value of contingent consideration reflected in operations;

•	adjusted EBITDA (loss) does not reflect transaction costs, integration costs, restructuring-related costs, impairment charges, or shareholder activism costs;

•	adjusted EBITDA (loss) does not reflect the impact of deferred revenue fair value adjustments;

•	adjusted EBITDA (loss) does not reflect the potentially dilutive impact of equity-based compensation;

•	adjusted EBITDA (loss) does not reflect interest or tax payments that may represent a reduction in cash available to us; and

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

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•	Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

•	Level 2—Observable inputs, other than quoted prices in active markets, that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

•	Level 3—Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances.

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*	The Company has excluded immaterial amounts of intersegment revenue from the years ended December 31, 2019, 2018 and 2017.

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The Company defines segment profitability as net income or net loss, as applicable, before net interest income (expense), taxes, depreciation and amortization expense, foreign currency gains or losses, deferred revenue fair value adjustments, transaction costs, integration costs, restructuring-related costs, shareholder activism costs, impairment charges, and stock-based compensation expense. Some or all of these items may not be applicable in any given reporting period.

***	The Company defines segment profitability margin as segment profitability as a percentage of the respective segment’s revenue.

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•	should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

•	have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

•	may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

•	were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

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*	Portions of this exhibit, indicated by asterisks, have been omitted pursuant to a request for confidential treatment and have been separately filed with the Securities and Exchange Commission.

†	Indicates management contract or compensatory plan.