Business context and reporting period
Laureate Education, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. The company operates five higher-education institutions in Mexico and Peru, serving approximately 424,400 students. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Key financial results
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $462.1 | $385.4 | $713.3 | $594.9 |
| Operating income | $154.5 | $126.6 | $170.1 | $135.7 |
| Adjusted EBITDA (non-GAAP) | $175.4 | $144.1 | $208.9 | $171.3 |
| Income from continuing operations | $60.4 | $39.4 | $33.6 | $(6.0) |
| Net income attributable to Laureate | $56.2 | $43.4 | $29.6 | $(0.8) |
| Diluted EPS | $0.35 | $0.25 | $0.18 | $0.00 |
Q2 operating margin was 33.4% versus 32.9% a year earlier; Adjusted EBITDA margin was 38.0% versus 37.4%. First-half operating margin was 23.8% versus 22.8%, and Adjusted EBITDA margin was 29.3% versus 28.8%.
- Cash flow: First-half operating cash flow was $78.8, compared with $45.6 in 2022. Investing used $14.5, versus $2.0 generated; financing used $45.7, versus $226.2 used. Cash, cash equivalents and restricted cash totaled $120.5 at June 30, 2023.
- Liquidity and debt: Cash and cash equivalents were $111.7, including $103.9 held by foreign subsidiaries; restricted cash was $8.9. Debt and finance leases totaled $210.1, including $88.0 drawn on the $410.0 revolving facility, which matures October 7, 2024. Operating lease liabilities were $411.0. Management expects cash from operations and available cash to meet requirements for at least 12 months from the report’s issuance.
- Balance sheet: Total assets were $2,170.9 and total liabilities $1,198.3 at June 30, 2023. Current assets of $293.6 were below current liabilities of $413.4. Net receivables were $127.9; the allowance for doubtful accounts was $71.2.
Material changes and operating trends
- Q2 revenue rose 20%; management attributed the increase to higher organic enrollment ($28.2), pricing/product mix/timing ($25.7), and favorable currency translation ($24.5). First-half revenue also grew 20%, with enrollment contributing $47.3 and foreign exchange $41.4.
- Q2 organic enrollment increased 11% in Mexico and 7% in Peru. Mexico revenue rose 33% and segment Adjusted EBITDA rose 96%; Peru revenue rose 13% and Adjusted EBITDA rose 8%. For the first half, Mexico Adjusted EBITDA increased 54%, while Peru was nearly flat.
- First-half foreign-currency exchange loss increased to $61.3 from $18.1, substantially weighing on pretax income despite improved operating results. Interest expense, net of interest income, rose to $8.0 from $4.2.
- First-half income tax expense fell to $67.7 from $119.9; the prior-year period included approximately $32.5 of discrete tax expense related to GILTI tax reserves. Discontinued operations recorded a $4.1 loss in the first half, versus $4.9 income, reflecting revised estimates on receivables from prior divestitures and the absence of a prior-year lease-transfer gain.
- Capital expenditures were $14.9, up from $8.2, primarily for return-to-campus activity and health-science program equipment. Receivables used $57.1 of operating cash; bad-debt expense was $16.2, versus $8.2.
Outlook, risks and unusual items
- No specific revenue, earnings, or enrollment guidance is provided in the filing. Management describes organic growth plans including new programs, online and hybrid offerings, expanded demographics, and added campus capacity.
- Two Mexican subsidiaries operating K-12 programs were classified as held for sale in Q2; management said the planned sale is not a strategic shift and is not expected to materially affect results.
- Key risks include enrollment and tuition trends, competition, seasonality, private-pay student collections, currency movements, political/economic and regulatory conditions in Mexico and Peru, tax exposure, cybersecurity, and the ability to retain personnel. Management expects competition to increase as the markets mature.
- Income-tax contingency liabilities were $132.6. Recorded non-income-tax civil-action contingencies were approximately $12.7; reasonably possible unrecorded losses could total up to approximately $18.3. A Spanish Supreme Court ruling ended recourse on certain historical assessments; the company had paid approximately $40.8. A new Spanish tax audit was initiated in May 2023, and its outcome and impact are not yet predictable.
- The company retired all 73.8 million treasury shares during Q2, an equity reclassification; it did not repurchase common stock in the first half of 2023. Disclosure controls were reported effective; a new financial planning and consolidation system is being implemented.
Important facts for investors to verify
- Whether enrollment growth, pricing and collections continue to support revenue and segment profitability, particularly in Peru.
- How much reported growth reflects local-currency performance versus favorable exchange-rate translation, and the effect of currency losses on earnings and cash.
- Receivables aging, bad-debt trends and the unusually high allowance relative to gross receivables.
- Debt repayment/refinancing plans ahead of the revolving facility’s October 2024 maturity, alongside lease commitments and covenant conditions.
- Developments in Spanish tax audits, income-tax contingencies, and the sale of the Mexican K-12 businesses.