Laureate Education, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unless stated otherwise, amounts are U.S. dollars. Laureate’s continuing business comprised five higher-education institutions in Mexico and Peru, with approximately 349,200 students. Results also include discontinued operations, which are reported separately following the company’s divestiture program.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $327.6 million | $303.9 million | $522.3 million | $496.2 million |
| Operating income (loss) | $57.7 million | $29.1 million | $(28.7) million | $(47.9) million |
| Adjusted EBITDA (non-GAAP) | $107.1 million | $94.1 million | $116.8 million | $64.7 million |
| Continuing-operations income (loss) | $(115.9) million | $(11.6) million | $(280.4) million | $194.5 million |
| Net income (loss), including discontinued operations | $(29.2) million | $(311.6) million | $(194.2) million | $(213.3) million |
| Operating cash flow | Not separately reported | Not separately reported | $17.9 million | $61.4 million |
Q2 operating margin was approximately 17.6%; six-month operating margin was approximately negative 5.5%. Adjusted EBITDA is a company-defined non-GAAP measure. Continuing-operations losses include substantial non-operating charges and, for the six months, a large income-tax expense.
Liquidity, debt and capital allocation
- At June 30, cash and cash equivalents were $427.1 million and restricted cash was $106.8 million. An additional $105.2 million of cash was classified within assets held for sale.
- Total debt and finance leases were $178.8 million, including $129.97 million of other debt and $48.8 million of finance leases. The $798.7 million of Senior Notes outstanding at year-end 2020 was fully repaid in Q2; the $410 million revolving facility had no borrowings.
- Operating lease liabilities were $479.6 million. The company reported compliance with applicable financial maintenance covenants and was not subject to the revolver’s leverage covenant at quarter-end.
- Six-month investing cash inflow was $650.0 million, principally reflecting divestiture proceeds; financing cash outflow was $1.163 billion, including debt repayments and share repurchases. Capital expenditures were $25.0 million for continuing and discontinued operations.
- Laureate repurchased $251.6 million of stock during the first half and had approximately $183.8 million remaining under its $500 million authorization at June 30.
Changes and segment performance
- Q2 revenue rose 8% year over year, primarily on higher enrollment in Peru; currency movements reduced revenue by $4.1 million. Q2 Adjusted EBITDA increased 14%.
- For the first half, revenue increased 5% and Adjusted EBITDA increased 81%. Peru revenue rose 16% and Adjusted EBITDA rose 73%; Mexico revenue declined 3% and Adjusted EBITDA declined 20%, reflecting lower enrollment and increased discounts and scholarships.
- Q2 operating income improved from $29.1 million to $57.7 million, helped by stronger Peru results and lower impairment charges. Q2 net loss narrowed substantially from 2020, primarily because 2020 included a $418 million Chile impairment in discontinued operations.
- First-half operating cash flow declined to $17.9 million from $61.4 million, mainly due to working-capital and divestiture effects and higher cash taxes.
Outlook, unusual items and risks
- Management said operating cash flow and available cash should be sufficient for operating needs and liquidity requirements for at least 12 months from the report’s issuance. It cautioned that prolonged COVID-19 disruption could weaken operating cash flow and require additional financing.
- Brazil operations were sold May 28 for approximately $625.5 million in net proceeds; the proceeds helped repay the Senior Notes. Laureate recorded a $77.9 million debt-extinguishment loss, including redemption premiums and financing-cost write-offs.
- Brazil-related foreign-exchange swaps produced a $24.5 million first-half derivative loss. Q2 also included a $15.5 million foreign-currency exchange loss.
- A $51.4 million Laureate tradename impairment was recorded in Q1 after the company decided to wind down network support and stop investing in the brand beyond 2021. The remaining tradename value is to be amortized through 2021.
- First-half income-tax expense was $126.0 million, versus a $221.3 million benefit in 2020. The comparison reflects a prior-year, approximately $222 million discrete tax benefit and 2021 increases to tax reserves, among other factors.
- The proposed $1.48 billion cash sale of Walden University was expected to close in Q3 2021, subject to regulatory and other conditions. A July amendment accepted a U.S. Department of Education notification as a pre-acquisition response and added post-closing indemnification for the buyer.
- COVID-19 continued to affect campus operations: instruction had shifted online, with limited in-person activity resumed at some Mexican campuses; Peru’s in-person instruction remained restricted. Enrollment, tuition pricing, collections, reopening timing, currency movements, regulation, competition and divestiture execution remain key risks.
- A Spanish tax-audit appeal remained unresolved after a July 22, 2021 court decision; further appeal or action by the tax authority was possible. Separately, Walden’s relators and the DOJ moved to dismiss a qui tam complaint in July; the company expected dismissal but noted possible refiling.
Most important facts for investors to verify
- Whether the Walden transaction closed, its final proceeds and adjustments, and satisfaction of Department of Education, accreditation and antitrust conditions.
- Enrollment and net tuition trends in Peru and Mexico, particularly Mexico’s enrollment decline and discounting, alongside currency effects.
- Cash generation after divestitures, ongoing share repurchases, restricted-cash availability and remaining debt and lease obligations.
- Resolution and potential financial exposure from the Spanish tax audits and other tax contingencies.
- The continuing effect of COVID-19 on campus access, enrollment, collections and future impairment estimates.