Laureate Education, Inc. — Q3 2023 Form 10-Q
Business and period: Laureate operates five higher-education institutions in Mexico and Peru, with approximately 458,700 students. This unaudited filing covers the quarter and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts below are U.S. dollars in millions unless noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $361.5 | $301.0 | $1,074.9 | $895.9 |
| Operating income | $58.7 | $56.3 | $228.8 | $192.0 |
| Operating margin | 16.2% | 18.7% | 21.3% | 21.4% |
| Adjusted EBITDA (non-GAAP) | $78.4 | $72.8 | $287.3 | $244.1 |
| Net income attributable to Laureate | $36.2 | $31.1 | $65.7 | $30.3 |
| Diluted EPS | $0.23 | $0.19 | $0.42 | $0.17 |
Revenue rose 20% in both comparisons. Management attributed the nine-month increase to foreign exchange ($79.3 million), higher average organic enrollment ($62.8 million), and product mix, pricing and timing ($40.7 million). Reported revenue growth therefore includes a substantial currency translation benefit. Nine-month Adjusted EBITDA increased 18%; its margin was approximately 26.7%, versus 27.2% a year earlier. Q3 Adjusted EBITDA margin was approximately 21.7%, versus 24.2%.
Q3 revenue gains reflected higher enrollment and stronger currencies, but direct costs and general and administrative expenses together rose $58.2 million, nearly matching the $60.5 million revenue increase. Mexico Q3 Adjusted EBITDA declined 6% to $21.9 million, partly due to lease exit costs; Peru rose 8% to $66.3 million. For the first nine months, Mexico Adjusted EBITDA rose 37% to $109.1 million and Peru rose 3% to $207.1 million.
Nine-month income from continuing operations was $69.3 million, versus $25.9 million. The improvement included lower income tax expense ($101.4 million versus $159.2 million), including the absence of approximately $32.5 million of prior-year discrete tax expense related to GILTI tax reserves. It also occurred despite a $51.6 million foreign-exchange loss, compared with a $2.9 million loss in 2022. Q3 included a $9.8 million foreign-exchange gain, versus $15.1 million in the prior-year quarter. Nine-month discontinued operations were a $3.8 million loss, compared with $4.1 million of income, mainly reflecting revised estimates on receivables from prior divestitures and the prior-year Chile lease-transfer gain.
Cash, debt and liquidity
- Nine-month operating cash flow was $187.4 million, up from $154.7 million. Investing used $26.2 million, including $26.7 million of capital expenditures; financing used $120.2 million. Cash, cash equivalents and restricted cash ended at $138.4 million, up from $93.8 million at year-end 2022.
- Cash and cash equivalents were $130.9 million, of which $121.3 million was held by foreign subsidiaries; restricted cash was $7.6 million. Current assets were $280.0 million and current liabilities $431.5 million.
- Total debt and finance leases were $134.7 million at September 30, versus $234.2 million at December 31, 2022. The company repaid $167.2 million of long-term debt and issued $48.1 million during the nine-month period. Operating lease liabilities had a present value of $393.2 million.
- The amended revolving facility totals $300 million, with $28 million drawn at quarter-end. Its maturity is September 2028 for the new $155 million tranche and October 2024 for the $145 million tranche. The company said it met the conditions that exempted it from the facility’s leverage covenant; it reported compliance with other applicable debt covenants.
Outlook, material events 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. No numeric earnings or revenue guidance is provided in the filing text.
- After quarter-end, the board approved a special dividend of $0.70 per share, expected to total approximately $110 million, payable November 30, 2023. The dividend is a material planned cash use.
- Two Mexico subsidiaries operating K-12 programs and a campus land parcel were classified as held for sale. Management said the K-12 sale is not a strategic shift, is not presented as discontinued operations, and is not expected to materially affect financial results.
- Key risks include foreign-currency volatility, enrollment and tuition trends, seasonality, competition, changing regulations and political or economic conditions in Mexico and Peru, tax exposure, and reliance on private-pay student revenues. Peru’s SUNEDU is reviewing university regulations. Cibertec received a six-year higher-education-college license in March 2023.
- Income-tax contingency liabilities were $135.8 million. Recorded non-income-tax loss contingencies were approximately $15.8 million; reasonably possible unrecorded losses could total up to approximately $17.8 million. A Spanish tax audit initiated in 2023 has an uncertain outcome. Management stated that ordinary-course legal matters are not expected to materially affect the financial statements.
- Management and the CEO and CFO concluded disclosure controls were effective. The company implemented a new cloud-based planning and financial consolidation system in Q3 and said it was not prompted by an identified control deficiency.
Most important facts for investors to verify
- How much of reported growth and future performance depends on exchange rates versus organic enrollment, pricing and product mix.
- Whether enrollment growth converts into improved margins, given Q3 cost growth and weaker Mexico segment EBITDA.
- The cash and liquidity impact of the approximately $110 million special dividend, alongside debt service, lease obligations and capital spending.
- Developments in Peru’s regulatory review and the Spanish tax audit, and any changes to recorded or reasonably possible tax and legal contingencies.