Laureate Education, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results. Unless otherwise noted, financial amounts are in millions of U.S. dollars. Laureate’s continuing operations comprise higher-education institutions in Mexico and Peru, with approximately 430,900 students across five institutions.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $301.0 | $267.7 | $895.9 | $790.0 |
| Operating income | $56.3 | $35.1 | $192.0 | $6.4 |
| Income (loss) from continuing operations | $31.9 | $(10.4) | $25.9 | $(290.8) |
| Net income attributable to Laureate | $31.1 | $360.4 | $30.3 | $166.5 |
| Adjusted EBITDA | $72.8 | $75.9 | $244.1 | $192.7 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $154.7 | $54.0 |
- Q3 operating margin was approximately 18.7%, versus 13.1% a year earlier. Nine-month operating margin was approximately 21.4%, versus 0.8%.
- Revenue rose 12% in Q3 and 13% year to date. Higher enrollment was the principal driver; reported revenue also benefited from foreign exchange and pricing/product mix. Q3 Adjusted EBITDA fell 4% despite revenue growth; nine-month Adjusted EBITDA increased 27%.
- At September 30, cash and cash equivalents were $319.0, restricted cash was $17.4, and current assets were $455.9 against current liabilities of $548.4. Current liabilities included a $140.0 special distribution payable, paid October 12, 2022.
- Debt and finance leases totaled $127.2, including $46.4 current; operating lease liabilities were approximately $384.5. No borrowings were outstanding under the $410.0 revolving facility, which matures in October 2024. The company reported covenant compliance and was not subject to the facility’s leverage-ratio covenant at quarter-end.
- Nine-month investing cash flow was $66.3, including $83.4 of net receipts from sales and related collections. Financing cash outflow was $236.5, including $207.2 of share repurchases and debt repayments. Cash, cash equivalents and restricted cash declined $9.1 from year-end to $336.5.
Material changes and drivers
- Q3 revenue increased at both segments: Mexico rose 13% to $147.8 and Peru rose 15% to $152.5. Organic enrollment increased 10% in each segment. Segment Adjusted EBITDA declined 13% in Mexico and 14% in Peru, partly reflecting return-to-campus costs.
- For the first nine months, Mexico revenue rose 11% to $435.0 and Peru rose 17% to $457.1. Segment Adjusted EBITDA rose 30% in Mexico to $79.8 and 3% in Peru to $201.4.
- Corporate cost reductions helped consolidated operating income. Lower depreciation and amortization and completion of the Excellence-in-Process initiative also reduced costs. Nine-month direct costs rose with enrollment and campus reopening, but combined direct and G&A expenses declined year over year.
- Prior-year comparisons are heavily affected by divestitures, especially the 2021 Walden University sale gain. Discontinued operations contributed $370.5 of Q3 2021 net income and $456.8 for the first nine months of 2021, versus a $0.8 loss and $4.1 gain, respectively, in 2022. The 2021 period also included a $51.4 tradename impairment, debt-extinguishment loss, and derivative loss. All planned divestitures are complete.
Outlook, commentary and risks
- Management expects operating cash flow and available cash to meet operating requirements and liquidity needs for at least 12 months from the report’s issuance. It cited organic growth plans, including new programs, expanded student demographics, and additional campus capacity, while noting that capital spending can be adjusted.
- Management identifies enrollment, tuition pricing, collections, seasonality and currency movements as important performance factors. The business relies predominantly on private-pay tuition in Mexico and Peru, and management expects competition to increase as those markets mature.
- International operating risks include currency volatility, political and economic changes, tax exposure, and evolving education regulation. Tax-contingency liabilities were $124.6 at September 30, 2022, up from $91.6 at year-end 2021. Management stated that Spanish tax matters were not expected to materially affect the financial statements.
- After quarter-end, the company approved a further $0.68-per-share special dividend, expected to total approximately $112, payable November 17, 2022. The October 12 distribution was $0.83 per share, approximately $136.6. The share-repurchase authorization reached its $650.0 limit in August.
- The company reported effective disclosure controls, no material change in internal controls, no material changes to previously disclosed risk factors, and no new material legal proceedings. It said the Inflation Reduction Act was not expected to have a material financial-statement impact.
Investor verification priorities
- Confirm that enrollment growth and tuition/pricing trends persist, and assess why Q3 Adjusted EBITDA fell while revenue grew.
- Review cash generation, the post-quarter dividend payments, foreign-subsidiary cash availability, and liquidity after distributions and buybacks.
- Evaluate tax-contingency balances and developments in Spanish tax proceedings, along with currency, regulatory and political exposures in Mexico and Peru.
- Separate continuing-operation performance from prior-year divestiture gains and other unusual items when comparing earnings and cash flows.