Laureate Education, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Laureate operates higher-education institutions in Mexico and Peru, its continuing businesses, with approximately 405,100 students at five institutions. All planned divestitures were completed in 2021.
Financial results
Amounts below are in millions of U.S. dollars unless otherwise noted.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $209.6 | $194.7 |
| Operating income (loss) | $9.0 | $(86.4) |
| Net loss attributable to Laureate | $(44.2) | $(164.9) |
| Basic and diluted loss per share | $(0.25) | $(0.82) |
| Adjusted EBITDA (non-GAAP) | $27.2 | $9.7 |
| Cash from operating activities | $53.9 | $11.3 |
Revenue rose 8%, driven primarily by higher average organic enrollment (+$19.6 million), partly offset by foreign exchange (-$3.0 million) and pricing, mix, and timing (-$1.5 million). Operating margin was approximately 4.3%, versus approximately negative 44.4% a year earlier; Adjusted EBITDA margin was approximately 13.0%, versus 5.0%.
Mexico revenue was $142.5 million (+5%) and Adjusted EBITDA was $37.0 million (+114%). Peru revenue was $65.4 million (+14%), while Adjusted EBITDA fell 67% to $3.8 million, partly reflecting campus reopening costs in a largely out-of-session quarter. Corporate Adjusted EBITDA loss improved to $13.6 million from $19.2 million.
Cash, debt, and liquidity
At March 31, cash and cash equivalents were $293.8 million, with an additional $20.6 million of restricted cash. Total debt and finance leases were $155.9 million, including $109.8 million of other debt and $46.1 million of finance leases; no borrowings were outstanding on the $410 million revolving credit facility. Operating lease liabilities totaled $412.8 million. The company reported $53.9 million of operating cash flow and $7.9 million of investing cash inflow, while financing used $104.1 million. Cash and restricted cash declined $31.1 million during the quarter.
Management said cash, operating cash flow, and available liquidity were expected to meet operating requirements for at least the next 12 months. Of cash and cash equivalents, $214.8 million was held by foreign subsidiaries and deemed indefinitely reinvested. Capital expenditures were $1.3 million, compared with $13.6 million in Q1 2021.
Material changes and unusual items
- Net loss improved substantially year over year, but results remained loss-making. The comparison reflects the absence of the prior-year $56.7 million impairment charge, including a $51.4 million Laureate tradename impairment, and lower interest expense following debt repayments.
- Q1 2022 included $32.5 million of discrete tax expense related to income tax reserves following retrospective U.S. Treasury regulations. Total income tax expense was $48.0 million despite pretax income of $2.4 million. Q1 2021 included approximately $58.9 million of discrete tax expense.
- Other non-operating results shifted from $57.5 million of income in Q1 2021 to $4.8 million of expense in Q1 2022. The prior-year period included a $29.3 million derivative gain; foreign currency results also swung from a $28.2 million gain to a $3.6 million loss.
- Operating cash flow benefited from lower tax and interest payments; management attributed the year-over-year increase mainly to tax payments declining by $44.0 million and interest payments by $6.2 million.
- Laureate repurchased 9.485 million shares for $112.9 million during the quarter and increased its repurchase authorization to $650 million. Approximately $94.1 million remained available at March 31.
- Cumulative income tax contingency liabilities were $124.2 million, up from $91.6 million at year-end 2021. Management stated it did not expect ordinary-course legal proceedings to materially affect the financial statements.
Outlook, commentary, and risks
No numerical revenue or earnings guidance is provided in the filing. Management described plans for organic growth through new programs, expanded student demographics, and additional campus capacity. It expects transition-services revenue related to divestitures to end in 2022. The company noted that results are seasonal, with first and third quarters generally weaker, and that quarterly results may not indicate full-year performance.
Key risks include enrollment, tuition pricing and collections; COVID-19 effects; currency fluctuations; political, economic, tax, and regulatory uncertainty in Mexico and Peru; increasing competition; and the ability to manage growth and maintain effective controls. Management said face-to-face education had resumed at most campuses. It reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter.
Investor verification priorities
- Assess whether enrollment gains translate into sustainable revenue and margins, particularly in Peru, where costs rose sharply.
- Review the drivers and potential recurrence of the $32.5 million discrete tax charge, tax contingency balances, and the unusually high effective tax expense.
- Monitor cash generation, foreign-held cash availability, debt maturities, lease commitments, and compliance with credit covenants.
- Evaluate the pace and funding of share repurchases relative to operating cash needs and growth investment.
- Check future results for currency impacts, seasonality, post-pandemic enrollment and collections, and the end of transition-services revenue.