Laureate Education, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Dollar amounts below are U.S. dollars. Unless noted, operating results refer to continuing operations, principally Laureate’s five institutions in Mexico and Peru. The company reported approximately 366,000 students enrolled at quarter-end. Brazil, Walden University and other businesses were classified as discontinued operations or held for sale.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Continuing-operations revenue | $194.7 million | $192.3 million |
| Operating loss | $86.4 million | $77.1 million |
| Loss from continuing operations | $164.5 million | Income of $206.1 million |
| Net loss attributable to Laureate | $164.9 million | Net income of $99.6 million |
| Basic and diluted loss per share | $0.82 | Earnings per share of $0.47 |
| Adjusted EBITDA, non-GAAP | $9.7 million | $(29.4) million |
| Cash from operating activities | $11.3 million | $(3.5) million |
| Net change in cash and restricted cash | $(199.3) million | $242.8 million |
Revenue increased 1%. Mexico revenue declined 12% to $135.4 million, while Peru revenue increased 58% to $57.5 million, largely reflecting pandemic-related academic-calendar timing in the prior-year quarter. Adjusted EBITDA was $17.3 million in Mexico, $11.6 million in Peru and $(19.2) million at Corporate.
Direct costs were $181.8 million, down from $220.6 million, and general and administrative expenses were $42.6 million, down from $45.1 million. The operating loss widened despite lower costs, principally due to a $56.7 million impairment charge. Reported results also included a $29.3 million derivative gain and a $28.2 million foreign-exchange gain.
Income tax expense was $112.9 million, versus a $230.0 million benefit in Q1 2020. The prior-year benefit included an approximately $222 million nonrecurring benefit related to a Netherlands tax-basis step-up. Q1 2021 tax expense included approximately $46.5 million related to prior-year tax positions and a $12.4 million out-of-period adjustment, which management said was immaterial to current and prior periods.
At March 31, cash and cash equivalents were $561.3 million, excluding $272.1 million held at subsidiaries classified as held for sale; restricted cash was $106.6 million. Total assets were $4.48 billion and total liabilities were $2.59 billion. Long-term debt and finance leases were $1.00 billion, including $798.7 million of 8.250% Senior Notes due 2025. The $410 million revolving facility was undrawn. The company reported compliance with applicable debt covenants and was not subject to its credit-facility leverage-ratio covenant at quarter-end.
Material changes and unusual items
- Laureate recorded a $51.4 million impairment of its tradename after deciding to wind down certain network support functions and cease investing in the brand beyond 2021. The remaining $18.7 million carrying value was to be amortized over the rest of 2021.
- Brazil, Walden and other divested businesses generated $239.8 million of discontinued-operations revenue, compared with $369.5 million a year earlier. Discontinued operations reported a net loss of $0.4 million versus a $107.8 million loss in Q1 2020. Brazil’s held-for-sale disposal group incurred an additional $32.4 million write-down.
- Cash from operations improved by $14.8 million year over year, primarily reflecting working-capital changes and collections, partly offset by higher cash taxes. Financing cash outflow included approximately $145 million of share repurchases and $53.7 million of long-term debt payments.
- Foreign-currency translation losses in accumulated other comprehensive loss were approximately $1.0 billion. The filing identifies currency movements as a risk to reported results and potential disposition gains or losses.
Outlook, transactions and risks
- Management expected operating cash flow and available cash to cover operating needs and liquidity requirements for at least 12 months from the report’s issuance. It cautioned that prolonged COVID-19 disruption could affect enrollment, tuition pricing, collections, cash flow and asset values. No numerical earnings or revenue guidance was provided.
- The Brazil sale was targeted for Q2 2021, subject to regulatory approval. The agreement’s stated transaction value was approximately 4.4 billion Brazilian reals, including approximately 3.8 billion reals in cash consideration, subject to adjustments and assumption of net indebtedness; additional contingent consideration could be available.
- The Walden sale was for $1.48 billion in cash, subject to adjustments and regulatory and other closing conditions, with closing expected toward year-end 2021. The DOJ had declined to intervene in a Walden-related qui tam action, but relators could continue the case; Laureate said it would defend the claims. The Higher Learning Commission removed its “Governmental Investigation” designation effective May 3, 2021.
- After quarter-end, on May 4, Laureate redeemed $500 million of Senior Notes for $521.0 million, funded with cash from the Australia and New Zealand sale. Redemption of the remaining $298.7 million was announced but contingent, among other conditions, on the Brazil sale. Completion would retire all Senior Notes.
- The board increased the share repurchase authorization by $200 million on April 30, to a total of up to $500 million. The company repurchased 10.4 million shares for approximately $145.8 million during Q1.
- Other risks include competition, seasonal revenue patterns, foreign exchange, regulatory changes and tax exposures. The filing estimates up to approximately $50 million of reasonably possible losses on certain unrecorded contingencies in Brazil if all unfavorable outcomes occurred. Management said it expected no material effect from ordinary-course legal proceedings.
Important facts for investors to verify
- Whether the Brazil and Walden transactions close on expected terms and timing, and the resulting cash proceeds, debt reduction and disposition accounting.
- Whether Mexico enrollment, discounts and scholarships stabilize; Mexico’s Q1 organic enrollment fell 7%, while Peru’s fell 4%.
- The sustainability of positive Adjusted EBITDA and operating cash generation, given the quarter’s reliance on cost reductions, collections and timing effects.
- The cash and debt position after the Senior Note redemptions, transaction-related costs, share repurchases and any remaining restrictions on cash.
- The impact of tax reserves, foreign-currency movements, COVID-19 developments and remaining legal or regulatory matters on future results.