Goodwill and Amortizable Intangible Assets

Goodwill and Amortizable Intangible Assets

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:



	Graduate Program Segment		Short Course Segment			Total
	(in thousands)
Balance as of December 31, 2017	$	—	$	71,988		$	71,988
Foreign currency translation adjustments	—		(9,033		)	(9,033		)
Balance as of September 30, 2018	$	—	$	62,955		$	62,955

Amortizable intangible assets consisted of the following as of:



		September 30, 2018							December 31, 2017
	Estimated Average Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(in thousands)
Capitalized technology	3-5	$	63,789	$	(14,593	)	$	49,196	$	27,108	$	(9,486	)	$	17,622
Capitalized content development	4-5	73,428		(28,758		)	44,670		55,872		(21,417		)	34,455
University client relationships	9	26,033		(3,616		)	22,417		29,443		(1,636		)	27,807
Trade names and domain names	10	16,852		(2,443		)	14,409		12,119		(1,242		)	10,877
Total amortizable intangible assets, net		$	180,102	$	(49,410	)	$	130,692	$	124,542	$	(33,781	)	$	90,761

The amounts presented above include $32.4 million and $15.6 million of in process capitalized technology and content development as of September 30, 2018 and December 31, 2017, respectively.

In the first half of 2018, the Company acquired certain third party technologies to enhance the Company’s proprietary operating system, 2UOS, for aggregate consideration of $9.5 million. These amounts are classified as capitalized technology within amortizable intangible assets, net, on the Company’s condensed consolidated balance sheets. Additionally, during the same period the Company purchased several active websites and additional domains for consideration of $5.7 million to support the marketing efforts of certain graduate programs. As of September 30, 2018, these acquired assets are classified in trade names and domain names within amortizable intangible assets, net, on the Company’s condensed consolidated balance sheets.

In the first quarter of 2018, the Company entered into an agreement with WeWork Companies, Inc. (“WeWork”) and Flatiron School, Inc., a wholly owned subsidiary of WeWork, to purchase a perpetual source code license for the Learn.co platform and certain integration software development services for $14.5 million. As of September 30, 2018, the Company has recorded capitalized technology of $13.2 million related to this agreement in amortizable intangible assets, net on the Company’s condensed consolidated balance sheets. The remaining $1.3 million is payable under the agreement upon the achievement of certain milestones related to the software development services. In addition, the Company entered into a multi-year agreement to purchase Global Access Memberships to WeWork spaces around the world that will be provided to students in 2U-powered online graduate programs, an agreement to offer $5 million in scholarships to certain WeWork community members and employees, and collaborate on additional mutually agreed upon projects.

The Company recorded amortization expense related to amortizable intangible assets of $6.4 million and $3.6 million for the three months ended September 30, 2018 and 2017, respectively. The Company recorded amortization expense related to amortizable intangible assets of $17.1 million and $8.7 million for the nine months ended September 30, 2018 and 2017, respectively. As of September 30, 2018, the estimated future amortization expense for amortizable intangible assets placed in service is as follows (in thousands):



Remainder of 2018	$	6,094
2019	23,015
2020	19,996
2021	15,503
2022	11,688
Thereafter	22,043
Total	$	98,339

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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