Laureate Education, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparison is with the three months ended March 31, 2023. Amounts are in U.S. dollars. Laureate operates five higher-education institutions in Mexico and Peru, with approximately 459,400 students. Results are seasonal, and Q1 is generally a weaker revenue quarter.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $275.4 million | $251.3 million |
| Operating income | $11.1 million; 4.0% margin | $15.6 million; 6.2% margin |
| Adjusted EBITDA (non-GAAP) | $30.6 million; 11.1% of revenue | $33.5 million; 13.3% of revenue |
| Net loss attributable to Laureate | $10.8 million; $(0.07) per share | $26.6 million; $(0.17) per share |
| Cash provided by operating activities | $33.2 million | $26.5 million |
| Cash used in investing activities | $16.0 million | $5.6 million |
Revenue increased 10%, but operating income fell 29% and Adjusted EBITDA fell 9%. Revenue growth reflected a $20.4 million favorable foreign-exchange effect and $14.9 million from higher average organic enrollment, partly offset by $11.1 million from pricing, program mix and timing. Adjusted EBITDA is a company-defined non-GAAP measure.
Segments and material changes
- Mexico: Revenue rose 18% to $214.1 million; organic enrollment increased 8%. Adjusted EBITDA rose 22% to $59.9 million.
- Peru: Revenue declined 12% to $61.2 million, mainly due to academic-calendar timing, despite 2% organic enrollment growth. Adjusted EBITDA worsened to a $20.7 million loss from a $6.5 million loss, reflecting lower revenue and higher operating expenses.
- Consolidated direct costs increased 13% to $254.0 million, outpacing revenue growth; general and administrative expense was essentially unchanged at $10.3 million.
- Net loss improved year over year largely because the foreign-currency exchange loss was $5.6 million versus $29.0 million in Q1 2023. The improvement was partly offset by a $3.1 million loss on disposal of subsidiaries, versus a $0.3 million gain a year earlier; the 2024 loss primarily reflected release of accumulated currency-translation balances upon liquidation of subsidiaries.
Liquidity, debt and capital allocation
At March 31, 2024, cash and cash equivalents were $126.2 million, plus $7.6 million of restricted cash; $121.3 million of cash and cash equivalents was held by foreign subsidiaries. Total debt and finance leases were $228.2 million, compared with $167.4 million at December 31, 2023; this included $121.0 million drawn under the secured credit facility. The $300 million revolving facility had $179 million of nominal capacity undrawn. The filing states the company was in compliance with its leverage and other financial covenants.
Operating cash flow increased by $6.7 million, primarily because cash taxes and interest paid were lower. Capital expenditures were $15.9 million, up from $5.8 million, mainly due to land purchased for a new campus. The company repurchased 2.607 million shares for $32.9 million at $12.62 per share under a newly authorized $100 million program; $67.1 million remained available. Management expects operating cash flow and available cash to meet operating and liquidity needs for at least 12 months from issuance of the report.
Outlook, risks and contingencies
- The filing gives no specific full-year revenue, earnings or cash-flow guidance. Management describes plans for organic growth through new programs, expanded student demographics and additional capacity.
- Management cites exposure to foreign exchange, political and economic conditions, regulation and tax, competition, enrollment and tuition trends, seasonality, cybersecurity, and access to financing. It expects competition to increase as the Mexican and Peruvian markets mature.
- Income tax expense was $9.9 million despite a pretax loss, reflecting the mix of earnings across jurisdictions and losses for which tax benefits could not be recognized. Management did not expect global minimum tax rules to have a material 2024 impact.
- Recorded income-tax contingency liabilities were $137.5 million. Accrued non-income-tax loss contingencies were approximately $20.1 million; additional reasonably possible, unrecorded losses could total up to approximately $23.2 million. Peruvian tax-assessment bank guarantees totaled approximately $12.6 million.
- Two Mexican K-12 subsidiaries and certain land parcels remained classified as held for sale; management did not expect the sales to materially affect financial results. Management reported no material new legal proceedings or material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Mexico’s enrollment and EBITDA growth can offset continued weakness and operating losses in Peru, and how much of Q1’s revenue growth was currency-driven.
- The causes and duration of Peru’s higher operating expenses and the effect of academic-calendar timing on upcoming quarters.
- Debt and liquidity after the increase in borrowings, including the October 2024 maturity of the facility’s $145 million tranche and covenant headroom.
- Progress and pricing of the remaining share repurchase program, including its effect on cash available for investment and debt management.
- Developments in tax assessments, recorded and unrecorded contingencies, and the planned held-for-sale transactions.