Laureate Education, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing reports full-year results, not a standalone fourth quarter. Unless noted, financial results below are consolidated and in U.S. dollars; continuing operations are principally Mexico and Peru.
Business context and strategic changes
At year-end, continuing operations comprised five institutions in Mexico and Peru, with approximately 336,500 students. In response to COVID-19, campuses moved to online instruction in March 2020 and remained online through year-end. The board chose to continue operating the Mexico and Peru businesses under Laureate management, while exploring strategic alternatives for the portfolio.
Laureate completed sales of Chile, Malaysia, and Australia and New Zealand during 2020. It had signed agreements to sell Walden University, Brazil, and Honduras; these businesses are presented as discontinued operations. The filing expected Brazil and Honduras closings in the first half of 2021 and the Walden closing in the second half of 2021, subject to approvals and other conditions.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue, continuing operations | $1,024.9 million | $1,212.1 million |
| Operating income (loss), continuing operations | $(329.3) million | $36.0 million |
| Net income (loss), consolidated | $(618.7) million | $937.7 million |
| Adjusted EBITDA, continuing operations | $205.7 million | $203.6 million |
| Cash provided by operating activities | $259.6 million | $339.8 million |
Continuing-operations revenue fell 15%, reflecting $81.8 million of unfavorable foreign-exchange effects, lower average enrollment ($62.3 million), and lower pricing/product mix and timing ($38.0 million), including increased discounts and scholarships. Mexico revenue declined 18% and Peru revenue declined 12%. Adjusted EBITDA was nearly flat; its margin increased to approximately 20.1% from 16.8%, while reported operating results were heavily affected by impairment charges.
Continuing-operations impairment expense was $352.0 million, including a $320.0 million impairment of the Laureate tradename. The tradename’s remaining $74.5 million carrying value is being amortized over five years. Net loss from discontinued operations was $298.1 million, including $438.3 million of impairment expense and gains and losses on divestitures. Consequently, consolidated net loss contrasts sharply with 2019 net income, which included substantial divestiture gains.
Operating cash flow declined $80.2 million year over year, primarily due to working-capital changes and the effect of divestitures. Cash and cash equivalents were $750.1 million, excluding $270.2 million held at subsidiaries classified as held for sale; restricted cash was $117.2 million. The company stated available cash and operating cash flow should cover operating needs and liquidity requirements for at least 12 months from the report’s issuance.
At December 31, 2020, senior and other debt totaled $996.4 million, plus $52.6 million of finance leases and sale-leaseback financing; the $410.0 million revolving facility had been fully repaid during the fourth quarter. Senior notes due 2025 had $798.7 million outstanding and carry an 8.25% coupon. The filing reported $171.5 million of debt and seller notes within liabilities held for sale. Continuing-operations operating lease liabilities had a present value of $519.1 million. Laureate reported compliance with applicable debt covenants.
Outlook, risks, contingencies, and unusual items
- Outlook: No quantified forward guidance is provided. Management said the pandemic’s future effects on enrollment, tuition pricing, and collections could not yet be determined. It planned to monitor campus reopening and pandemic developments.
- Pending transactions: Walden’s agreed cash purchase price is $1.48 billion, subject to adjustments and regulatory approvals; certain specified termination circumstances could trigger an $88 million fee. Brazil’s transaction was valued at approximately $765 million at signing, including cash consideration and assumed net indebtedness, with possible additional consideration. Honduras consideration is approximately $29.8 million cash, with the buyer also assuming about $29.5 million of debt.
- COVID-19 and demand: Enrollment and collections, student ability to pay, campus access, and the effectiveness and reliability of online delivery remain risks. FY2020 average enrollment declined, and both Mexico and Peru cited pandemic impacts.
- Regulatory and legal exposure: The DOJ was examining Walden’s nursing program and requested information; the filing says it made no allegations of wrongdoing and Laureate did not then expect a material financial effect. The inquiry’s HLC designation could delay or prevent approval of the Walden sale. Walden was provisionally certified for Title IV participation month-to-month, subject to Heightened Cash Monitoring 1 and an $83.6 million letter of credit following Laureate’s failure to meet the DOE financial-responsibility standard.
- Tax and currency: The filing reports $385.3 million in reserves for uncertain tax positions and estimates up to $49 million of reasonably possible unrecorded losses in Brazil for certain contingencies where Laureate is not indemnified. Spanish tax audits include a preliminary assessment of approximately $26.4 million, which the company intends to challenge. Foreign-currency translation losses totaled approximately $1.0 billion; a hypothetical 10% adverse currency move would reduce Adjusted EBITDA by approximately $31.8 million, excluding derivatives.
- Other unusual items: FY2020 included significant divestiture-related impairments and losses, a $130.1 million income tax benefit, and $89.6 million of Excellence-in-Process implementation expenses excluded from Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP results.
Most important facts for investors to verify
- Whether the Walden, Brazil, and Honduras sales close on the anticipated timelines, at expected proceeds, and with required regulatory approvals.
- Enrollment, tuition discounts, student collections, and campus reopening trends in Mexico and Peru after the pandemic disruption.
- Cash available for continuing operations versus cash held for sale or otherwise restricted, and the use of divestiture proceeds, including debt repayment and share repurchases.
- Future impairment charges, particularly if sale plans change or the carrying value of retained businesses is affected by accumulated foreign-currency losses.
- Developments in the DOJ inquiry, Walden’s Title IV status and letter-of-credit requirements, and the Spanish and other tax matters.