Laureate Education, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing reports full-year results, not standalone fourth-quarter results. Continuing operations comprise higher-education institutions in Mexico and Peru; prior-period divestitures, including Walden University, are reported as discontinued operations.
Business context
Laureate operated five institutions with approximately 423,000 students across Mexico and Peru: 222,800 in Mexico and 200,200 in Peru. The business is largely private-pay, with revenue primarily from tuition and educational services. Reported revenue was split roughly evenly between the two countries.
Key financial results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1,242.3 million | $1,086.7 million |
| Operating income (loss) | $270.0 million | $(4.6) million |
| Adjusted EBITDA | $338.9 million | $253.4 million |
| Income (loss) from continuing operations | $60.7 million | $(283.1) million |
| Net income attributable to Laureate | $69.6 million | $192.4 million |
| Cash from operating activities | $178.2 million | $(156.1) million |
- Revenue rose 14%, primarily from higher average enrollment; management cited enrollment growth, pricing and product mix, and favorable foreign-exchange translation. Average organic enrollment increased 9% in Mexico and 14% in Peru.
- Adjusted EBITDA increased 34%; its margin was approximately 27.3% of revenue, compared with 23.3% in 2021. Operating margin was approximately 21.7%.
- Net income attributable to Laureate declined from 2021, when results included a substantial gain on the Walden sale. Continuing operations improved to a profit, while 2022 also included $185.4 million of income tax expense.
- Operating cash flow improved by $334.3 million year over year. Cash taxes and interest paid declined from 2021, which included Walden-sale-related taxes and higher debt interest.
- Cash and cash equivalents were $85.2 million at year-end; restricted cash was $8.6 million. Total debt and finance leases were $234.2 million, including $100 million drawn on the $410 million revolving facility. The company also reported about $63.7 million of available subsidiary borrowing capacity. Operating lease liabilities were $415.9 million.
Material changes and unusual items
- Operating income rebounded from a 2021 loss, in part because 2021 included a $51.4 million Laureate tradename impairment and $75.4 million of Excellence-in-Process costs. The 2022 impairment charge was immaterial, and the improvement also reflected stronger segment results and lower corporate costs.
- Laureate reported $8.3 million of income from discontinued operations in 2022, versus $486.9 million in 2021, which included the Walden divestiture gain. The strategic review and planned divestitures are complete.
- FY 2022 financing cash flows included $253.2 million of special distributions and dividends and $282.2 million of share repurchases. The company reported special payments of $0.83 and $0.68 per share; it does not expect ordinary cash dividends in the foreseeable future.
- The company recorded $17.4 million of foreign-currency exchange loss in 2022. It estimated that a hypothetical 10% adverse currency-rate movement would reduce operating income by about $35.6 million and Adjusted EBITDA by about $41.3 million.
Outlook, risks and contingencies
Management expects operating cash flow and available cash to meet current operating needs and liquidity requirements for at least 12 months from the report’s issuance. No numerical revenue, earnings or enrollment guidance is provided. Management’s strategy emphasizes organic growth through new programs, expanded campus capacity and increased online or hybrid offerings; it targets 40%–60% of student credit hours online going forward.
- Key risks include enrollment and tuition pressure, student collections, competition, foreign-exchange volatility, economic and political conditions in Mexico and Peru, and changing education regulation and licensing requirements.
- Peruvian university licenses were extended by one year due to COVID-19; the filing describes regulatory developments concerning SUNEDU and pending CIBERTEC license renewal. Mexico’s higher-education rules may also change.
- Uncertain tax positions were $284.9 million at year-end and were identified as a critical audit matter. Separately, recorded income-tax contingency liabilities were $130.3 million. Management also estimated up to $11.9 million of reasonably possible unrecorded non-income-tax losses.
- The company disclosed a 30% Peruvian nonresident capital-gains tax that may apply to certain large share transfers, with potential joint liability for Peruvian subsidiaries if qualifying tax is unpaid. A Spanish tax-audit dispute remains subject to a pending court decision; the company does not expect a material financial-statement effect.
- Other risks include cyber and privacy incidents, disruptions from protests or natural disasters, tax-law changes, and impairment risk related to goodwill and intangible assets. Goodwill and other intangible assets had a combined net carrying value of approximately $735 million; annual goodwill testing identified no impairment in 2022.
The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of December 31, 2022.
Important facts for investors to verify
- Whether enrollment growth, retention and tuition pricing can be sustained, and whether reported growth persists after separating currency effects.
- Cash conversion and collections, including the allowance for doubtful accounts and the impact of private-pay funding on liquidity.
- Debt maturities and refinancing needs, particularly the revolving facility’s October 2024 maturity and subsidiary debt due in 2023–2024; also review lease obligations and variable-rate exposure.
- Developments in the $284.9 million uncertain-tax-position balance, other tax assessments and the Peruvian share-transfer tax exposure.
- Progress on Peruvian licensing and virtual-learning requirements, and the practical economics of the company’s online/hybrid targets and campus expansion plans.
- Capital returns and remaining liquidity after 2022 distributions and repurchases; the filing says no new repurchase program had been authorized after the prior authorization was exhausted.