Laureate Education, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results are in U.S. dollars; amounts below are rounded to millions unless stated otherwise.
Business context
Laureate operates five higher-education institutions in Mexico and Peru, its continuing markets after completing planned divestitures. Enrollment was approximately 388,700 students: 182,800 in Mexico and 205,900 in Peru. Face-to-face instruction had resumed across campuses following pandemic-related online delivery.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $385.4 | $327.6 | $594.9 | $522.3 |
| Operating income (loss) | $126.6 | $57.7 | $135.7 | $(28.7) |
| Adjusted EBITDA | $144.1 | $107.1 | $171.3 | $116.8 |
| Income (loss) from continuing operations | $39.4 | $(115.9) | $(6.0) | $(280.4) |
| Net income (loss) attributable to Laureate | $43.4 | $(29.0) | $(0.8) | $(193.9) |
| Operating cash flow | Not presented by quarter | Not presented by quarter | $45.6 | $17.9 |
Q2 revenue rose 18% year over year, primarily from higher average enrollment; six-month revenue rose 14%. Q2 diluted EPS was $0.25; six-month basic and diluted EPS rounded to zero (continuing-operations loss per share of $0.03). Operating margin was approximately 32.9% for Q2 and 22.8% for the first half; Adjusted EBITDA margin was approximately 37.4% and 28.8%, respectively.
At June 30, cash and cash equivalents were $156.9 and restricted cash was $20.2, versus $324.8 and $20.8, respectively, at year-end. Total current assets were $400.5 and current liabilities $369.9. Debt and finance leases totaled $138.8, including $46.1 current; operating lease liabilities were $407.3. The $410.0 revolving facility had no borrowings. The company reported $45.6 operating cash flow, $2.0 investing cash flow and $226.2 financing cash outflow for the half-year. Financing included $206.3 of share repurchases.
Material changes and unusual items
- Q2 and first-half revenue growth was attributed mainly to enrollment gains; first-half average organic enrollment increased revenue by $63.0. Adjusted EBITDA rose 35% in Q2 and 47% for the first half.
- Comparisons benefited from prior-year charges: 2021 included a $51.4 tradename impairment, a $77.9 debt-extinguishment loss and derivative losses ($53.8 in Q2; $24.5 for the first half). Lower debt balances reduced interest expense.
- Despite $113.9 of first-half pretax income, continuing operations recorded a $6.0 loss, primarily reflecting $119.9 of income tax expense. The 2022 tax provision included approximately $32.5 of discrete tax expense for reserves related to U.S. Treasury regulations; the 2021 period included approximately $58.9 of discrete tax expense.
- Q2 discontinued-operations income was $4.1, mainly from completing the transfer of remaining divested assets and liabilities; first-half discontinued-operations income was $4.9. Prior-year periods included substantial divested-business results and sale gains, complicating comparisons of consolidated net income.
- Foreign-currency exchange losses were $18.1 for the first half. Foreign-currency translation adjustments increased other comprehensive income by $67.5 for the half-year.
Outlook, liquidity, and risks
Management stated that operating cash flow and available cash should cover operating requirements and liquidity needs for at least the next 12 months. No quantified revenue or earnings guidance was provided. Management cited plans for organic growth through new programs, expanded student demographics and added campus capacity; transition-services revenue was expected to end in 2022.
Key risks include enrollment, tuition pricing and collections; seasonality; competition; foreign exchange, political, economic, tax and regulatory conditions in Mexico and Peru; and possible effects of COVID-19. The company reported $122.9 of cumulative income-tax contingency liabilities at June 30, up from $91.6 at year-end, plus approximately $9.8 of other loss contingencies. Management said it did not expect ordinary-course legal matters to have a material impact. In July 2022, Spain’s Supreme Court declined Laureate’s appeal in a tax matter but admitted the Spanish tax authority’s appeal; Laureate did not expect a material financial-statement effect. The company reported compliance with applicable debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether enrollment growth, particularly in Peru, persists through subsequent intake periods and supports revenue and margins.
- How cash, working capital and repurchases evolve after the first-half $168.5 decrease in cash and restricted cash; note that only $0.9 of buyback authorization remained at June 30.
- The eventual cash and earnings effects of the $122.9 tax-contingency liability and the unusually high tax expense relative to pretax income.
- Foreign-exchange exposure and developments in local economic, political and regulatory conditions.
- That year-over-year reported earnings comparisons are affected by divestitures and significant prior-year impairment, debt-extinguishment and derivative charges.