Laureate Education, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. Unless noted, operating results below refer to continuing operations in Mexico and Peru. The company sold Walden University and its Brazil operations during 2021; those businesses are reported as discontinued operations.
Business context
Laureate operates five higher-education institutions across Mexico and Peru, with approximately 388,500 students and more than 50 campuses at year-end. Revenue is primarily tuition-funded by students and families. Most students studied online during 2021 amid COVID-19, while campuses began a phased reopening where safe and permitted.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $1,086.7 million | $1,024.9 million |
| Operating income (loss) | $(4.6) million | $(329.3) million |
| Adjusted EBITDA (non-GAAP) | $253.4 million | $205.7 million |
| Loss from continuing operations | $(283.1) million | $(320.6) million |
| Net income (loss), including discontinued operations | $203.8 million | $(618.7) million |
| Cash from operating activities | $(156.1) million | $259.6 million |
| Cash and cash equivalents at year-end | $324.8 million | $750.1 million |
Revenue increased 6%; Adjusted EBITDA rose 23%, equal to approximately 23.3% of revenue. The GAAP operating margin was approximately negative 0.4%. Net income included $486.9 million of after-tax income from discontinued operations, principally gains on divestitures; continuing operations remained loss-making.
Peru revenue increased 11% to $537.1 million, with organic enrollment up 16%; Peru Adjusted EBITDA rose 30% to $245.7 million. Mexico revenue increased 1% to $540.4 million, but Adjusted EBITDA decreased 15% to $95.8 million, reflecting discounts and scholarships, among other factors.
Liquidity, debt and capital allocation
- Year-end cash was $324.8 million, including $272.6 million held by foreign subsidiaries; restricted cash was a further $20.8 million.
- Total debt and finance-lease obligations were $157.3 million, including $112.1 million of senior and other debt and $45.1 million of finance leases. The $410 million revolving credit facility had no borrowings outstanding and matures in October 2024.
- Operating lease liabilities totaled $415.3 million; scheduled 2022 operating lease payments were $77.1 million.
- Operating cash outflow of $156.1 million reflected working-capital and divestiture-related effects, $251.1 million of cash taxes paid, and $46.8 million of lease-termination payments. Investing cash inflow included divestiture proceeds.
- After selling Walden, the company paid approximately $1.375 billion in special distributions. It repurchased approximately $380.5 million of stock during 2021; $156.7 million remained under the $600 million authorization at year-end.
Material changes and unusual items
- Revenue rose by $61.8 million year over year, driven mainly by enrollment growth in Peru and partly offset by $34.8 million of adverse foreign-exchange effects.
- Operating loss improved substantially from 2020, primarily because impairment charges were lower. FY2021 included $72.5 million of impairment charges, including a $51.4 million charge for the Laureate tradename. The remaining tradename carrying value was fully amortized by year-end.
- The company fully repaid its 8.25% Senior Notes due 2025 using divestiture proceeds. The redemption and write-off of financing costs resulted in a $77.9 million debt-extinguishment loss. A $24.5 million realized loss on Brazil-sale currency swaps also affected non-operating results.
- Walden generated approximately $1.404 billion in net cash proceeds and a $619.4 million pretax gain; the company recorded estimated tax expense of approximately $278 million on the sale. Brazil generated approximately $625 million in net proceeds and a $33 million pretax gain.
Outlook, risks and contingencies
Management stated that operating cash flow and available cash were expected to meet operating requirements and liquidity needs for at least 12 months from issuance of the report. No specific revenue or earnings guidance was provided. The company expects to complete remaining share repurchases in the first half of 2022, subject to market conditions, and intends to distribute any remaining net Walden escrow proceeds after release, before the end of 2022.
Key risks include enrollment, tuition pricing and collections; the duration and effects of COVID-19 and campus reopening; foreign-exchange exposure (a hypothetical 10% adverse exchange-rate move was estimated to reduce Adjusted EBITDA by $36.6 million); regulation and licensing in Mexico and Peru; competition; cybersecurity and privacy; and political, economic and tax uncertainty. Management reported cash and operating resources sufficient for the near term but cautioned that prolonged disruption could require additional liquidity.
Spanish tax assessments remain under appeal. The company had approximately $10.7 million of cash collateral posted for related letters of credit at year-end, and expected their release in the first half of 2022 following payments to the Spanish Taxing Authorities. The filing also describes Peruvian tax exposure associated with certain transfers of company shares. Management said it did not expect the Spanish matter to materially affect the consolidated financial statements.
Investor verification points
- Reconcile continuing-operations performance with reported net income, which was materially affected by divestiture gains and discontinued-operation taxes.
- Assess the sustainability of Peru’s enrollment and EBITDA growth and the recovery of Mexico’s segment profitability.
- Review the drivers of negative operating cash flow, including working capital, tax payments and lease settlements, and the accessibility of cash held overseas.
- Confirm the timing and final amount of Walden escrow proceeds and any additional shareholder distribution, as well as execution of the repurchase plan.
- Monitor Spanish tax appeals, Peruvian share-transfer tax exposure, currency sensitivity, and regulatory and pandemic-related developments.