Laureate Education, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022. Laureate operates higher-education institutions in Mexico and Peru, with approximately 437,900 students across five institutions. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $251.3 | $209.6 |
| Operating income | $15.6 | $9.0 |
| Operating margin | 6.2% | 4.3% |
| Adjusted EBITDA (non-GAAP) | $33.5 | $27.2 |
| Net loss attributable to Laureate | $(26.6) | $(44.2) |
| Basic and diluted loss per share | $(0.17) | $(0.25) |
| Cash from operating activities | $26.5 | $53.9 |
Revenue rose 20%, reflecting higher average organic enrollment, favorable foreign exchange translation, and product mix, pricing and timing. Operating margin improved, but net loss included a $29.0 million foreign-exchange loss, principally related to intercompany loans. Interest expense was $6.0 million versus $3.7 million, largely due to higher average debt. Income tax expense was $10.2 million, down from $48.0 million; the prior-year quarter included about $32.5 million of discrete tax expense related to GILTI reserves.
Mexico revenue increased 28% to $182.0 million, with organic enrollment up 11%; segment Adjusted EBITDA increased 32% to $48.9 million. Peru revenue rose 6% to $69.2 million, with organic enrollment up 8%, but Adjusted EBITDA declined to a $6.5 million loss from $3.8 million of income, primarily due to return-to-campus costs and higher fixed costs during a largely out-of-session quarter. Corporate Adjusted EBITDA loss narrowed to $9.0 million from $13.6 million.
Financial position and liquidity
At March 31, 2023, cash and cash equivalents were $130.6 million (plus $8.6 million restricted cash), versus $85.2 million and $8.6 million, respectively, at year-end 2022. Total debt and finance leases were $266.2 million, up from $234.2 million; this includes $138.0 million drawn on the $410.0 million revolving credit facility, which matures October 7, 2024. Operating lease liabilities totaled $427.9 million. The company reported total current assets of $279.4 million and current liabilities of $407.8 million.
Operating cash flow declined to $26.5 million, mainly because cash taxes paid increased to $43.4 million from $8.4 million. Investing activities used $5.6 million, including $5.8 million of capital expenditures. Financing activities provided $21.1 million, including $38.0 million of net debt issuance proceeds. Cash, cash equivalents and restricted cash increased by $45.5 million during the quarter. The company said cash, operating cash flow and available financing are expected to meet operating and liquidity needs for at least the next 12 months. It was in compliance with applicable debt covenants at quarter-end.
Changes, outlook and risks
- Revenue growth exceeded the increase in direct costs and G&A combined, supporting higher operating income and Adjusted EBITDA. The foreign-exchange loss substantially offset operating improvement at the pretax level.
- Management provided no specific numerical full-year guidance in the filing. It described organic growth plans including new programs, online and hybrid offerings, and capacity expansion.
- Results are seasonal: first and third quarters are generally weaker revenue periods, while academic calendars and enrollment intakes vary between Mexico and Peru.
- Key risks include enrollment and tuition trends, competition, foreign-currency movements, political, economic, tax and regulatory uncertainty in Mexico and Peru, changing higher-education rules, cybersecurity, and debt and liquidity risks. Peru’s SUNEDU was reviewing university regulations, with new regulations expected during 2023. Cibertec received a six-year higher-education colleges license on March 30, 2023, allowing it to offer four-year professional bachelor’s programs.
- Recorded income-tax contingency liabilities were $127.6 million. Accrued non-income-tax contingencies were approximately $12.5 million; management estimated up to $16.6 million of additional reasonably possible, unrecorded losses. Management said ordinary-course legal matters were not expected to have a material impact.
- Foreign currency translation contributed $72.8 million of other comprehensive income, distinct from the foreign-exchange loss recognized in earnings.
Investor verification priorities
- Assess whether enrollment and revenue growth, particularly in Mexico, can continue and whether Peru’s costs normalize after return-to-campus activity.
- Track the impact of currency movements and intercompany loan exposure on reported earnings and cash flows.
- Review debt maturities, revolver utilization and covenant headroom ahead of the October 2024 facility maturity.
- Monitor cash taxes, tax contingencies, and the potential outcomes of unrecorded contingencies.
- Follow SUNEDU’s regulatory review and verify progress on management’s growth and capital-spending plans.