Business context and reporting period
Laureate Education, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2019. It provides higher education through an international network; continuing operations reported 908,700 students at 38 institutions in 10 countries. The company is exiting several markets and presents the related operations as discontinued operations. Unless noted, amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $1,001.8m | $1,017.2m | $1,623.6m | $1,649.4m |
| Operating income | $213.7m | $218.2m | $129.2m | $125.6m |
| Operating margin | 21.3% | 21.5% | 8.0% | 7.6% |
| Adjusted EBITDA (non-GAAP) | $297.3m | $303.6m | $275.7m | $273.9m |
| Continuing-operations income (loss) | $104.5m | $173.9m | ($5.8m) | $8.2m |
| Net income | $779.6m | $224.0m | $973.9m | $395.5m |
| Operating cash flow | — | — | $32.5m | $1.8m |
Net income was dominated by after-tax gains on divestitures: $641.5m in Q2 and $889.5m for the first half. Excluding these gains, reported net income does not represent recurring operating performance. Six-month revenue fell 2%, primarily because currency movements reduced revenue by $84.5m; higher organic enrollment added $53.1m. Six-month Adjusted EBITDA rose 1%, while Q2 Adjusted EBITDA fell 2%.
At June 30, cash and cash equivalents were $236.4m and restricted cash was $188.9m; cash at held-for-sale subsidiaries is excluded from the company’s stated available-cash figure. Current assets were $1,120.9m versus current liabilities of $1,205.5m. Long-term debt and finance leases totaled $1,429.5m, down from $2,783.7m at year-end 2018; operating lease liabilities were a further $958.1m. The company said cash flow and available cash should meet current operating requirements for at least 12 months.
Material changes, outlook and risks
- Divestiture proceeds funded substantial debt repayment, including full repayment of the 2024 Term Loan in June. Interest expense fell year over year; debt-extinguishment losses were $26.2m for the first half.
- Brazil was a notable weakness: first-half revenue declined 12% and Adjusted EBITDA 46%, with increased discounts and scholarships amid declining participation in the FIES student loan program. Andean revenue and Adjusted EBITDA increased 3% and 6%, respectively.
- Management provided no specific forward financial guidance. It cited seasonality, foreign-exchange exposure, enrollment and tuition trends, regulatory uncertainty, and execution of planned divestitures as important considerations.
- Chile’s new higher-education law brought related-party provisions into force in May. The company was evaluating its service arrangements and whether it could continue consolidating Chilean nonprofit universities; the regulator had not yet issued further interpretive guidance.
- Pending transactions included proposed sales of UniNorte, NSAD, and Panama operations. The Malaysia sale was disputed by the buyer after regulatory approval; Laureate said it was evaluating its options. In July, the board authorized a share repurchase program of up to $150m.
- Contingencies include Chilean student-loan guarantees with a maximum potential exposure of approximately $516m and recorded estimated liabilities of $37.7m, plus reasonably possible unrecorded Brazil contingencies estimated at up to $43m. Management said it did not expect ordinary-course legal matters to have a material impact.
Important facts for investors to verify
- How much of reported earnings and cash generation is attributable to completed divestitures versus continuing operations, and whether future proceeds and debt reductions match plans.
- Availability and location of cash, including restricted balances, foreign-held funds, VIE cash, and cash in subsidiaries classified as held for sale.
- Enrollment, discounting, and student-financing trends—particularly in Brazil—and whether organic growth can offset currency headwinds.
- Outcomes of the Malaysia dispute and pending sales, and the effect of Chilean regulatory developments on operations and consolidation.
- Debt, lease commitments, covenant conditions, and potential guarantee or tax-contingency exposures; the filing states the company was not subject to its revolving-credit leverage covenant at quarter-end.