LAUREATE EDUCATION INC

Previous wording

We operate a portfolio of degree-granting higher education institutions in Mexico and Peru. Collectively, we have approximately 459,400 students enrolled at five institutions in these two countries. We believe that the higher education markets in Mexico and Peru present an attractive long-term opportunity, primarily because of the large and growing imbalance between the supply and demand for affordable, quality higher education in those markets. We believe that the combination of the projected growth in the middle class, limited government resources dedicated to higher education, and a clear value proposition demonstrated by the higher earnings potential afforded by higher education, creates substantial opportunities for high-quality private institutions to meet this growing and unmet demand. By offering high-quality, outcome-focused education, we believe that we enable students to prosper and thrive in the dynamic and evolving knowledge economy. We have two reportable segments as described below. We group our institutions by geography in Mexico and Peru for reporting purposes.

Current wording

We operate a portfolio of degree-granting higher education institutions in Mexico and Peru. Collectively, we have approximately 444,200 students enrolled at five institutions in these two countries. We believe that the higher education markets in Mexico and Peru present an attractive long-term opportunity, primarily because of the large and growing imbalance between the supply and demand for affordable, quality higher education in those markets. We believe that the combination of the projected growth in the middle class, limited government resources dedicated to higher education, and a clear value proposition demonstrated by the higher earnings potential afforded by higher education, creates substantial opportunities for high-quality private institutions to meet this growing and unmet demand. By offering high-quality, outcome-focused education, we believe that we enable students to prosper and thrive in the dynamic and evolving knowledge economy. We have two reportable segments as described below. We group our institutions by geography in Mexico and Peru for reporting purposes.

Previous wording

As discussed in Note 3, Assets Held for Sale, of our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the Company has undertaken a process to sell two of our subsidiaries in Mexico that operate K-12 educational programs. As such, these subsidiaries are classified as assets held for sale as of March 31, 2024. The planned sale of this disposal group does not represent a strategic shift and therefore does not qualify for presentation as a discontinued operation in the consolidated financial statements. In addition, during 2023, two parcels of land at campuses in Mexico and a parcel of land in the United States met the criteria for classification as held for sale under ASC 360-10-45-9. The completion of these sales is not expected to have a material effect on our financial results.

Current wording

As discussed in Note 3, Assets Held for Sale, of our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the Company has undertaken a process to sell two of our subsidiaries in Mexico that operate K-12 educational programs. As such, these subsidiaries are classified as assets held for sale as of June 30, 2024. The planned sale of this disposal group does not represent a strategic shift and therefore does not qualify for presentation as a discontinued operation in the consolidated financial statements. In addition, during 2023 and 2024, several parcels of land and buildings at campuses in Mexico and a parcel of land in the United States met the criteria for classification as held for sale under ASC 360-10-45-9. The sale of the parcel of land in the United States was completed during the second quarter of 2024. The completion of the remaining sales is not expected to have a material effect on our financial results.

Previous wording

Many countries have enacted legislation and adopted policies to implement the global minimum tax resulting from the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. Significant details and guidance around the global minimum tax provisions are still pending. For countries that have enacted the global minimum tax, such taxes generally become effective for the Company beginning in 2024. Income tax expense could be adversely affected as the legislation becomes effective in countries in which we do business. We will continue to monitor pending legislation and implementation by individual countries in which we operate, and we do not expect the global minimum tax provisions to have a material impact on our results of operations, financial position or cash flows in 2024.

Current wording

Many countries have enacted legislation and adopted policies to implement the global minimum tax resulting from the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project. Significant details and guidance around the global minimum tax provisions are still pending. For countries that have enacted the global minimum tax, such taxes generally became effective for the Company beginning in 2024. Income tax expense could be adversely affected as the legislation becomes effective in countries in which we do business. We will continue to monitor pending legislation and implementation by individual countries in which we operate, and we do not expect the global minimum tax provisions to have a material impact on our results of operations, financial position or cash flows in 2024.

Previous wording

Revenues increased by $24.1 million to $275.4 million for the three months ended March 31, 2024 (the 2024 fiscal quarter) from $251.3 million for the three months ended March 31, 2023 (the 2023 fiscal quarter). This increase was primarily attributable to the effect of a net change in foreign currency exchange rates, which increased revenues by $20.4 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2023 fiscal quarter. In addition, higher average total organic enrollment at our institutions increased revenues by $14.9 million compared to the 2023 fiscal quarter. These increases in revenues were partially offset by the effect of changes in tuition rates and enrollments in programs at varying price points (product mix), pricing and timing, which decreased revenues by $11.1 million for the 2024 fiscal quarter. Other Corporate changes accounted for a decrease in revenues of $0.1 million.

Current wording

Revenues increased by $37.1 million to $499.2 million for the three months ended June 30, 2024 (the 2024 fiscal quarter) from $462.1 million for the three months ended June 30, 2023 (the 2023 fiscal quarter). This increase in revenues was attributable to: (1) higher average total organic enrollment at our institutions during the 2024 fiscal quarter, which increased revenues by $18.3 million compared to the 2023 fiscal quarter; (2) the effect of changes in tuition rates and enrollments in programs at varying price points (product mix), pricing and timing, which increased revenues by $14.1 million compared to the 2023 fiscal quarter; and (3) the effect of a net change in foreign currency exchange rates, which increased revenues by $4.6 million, mainly due to the strengthening of the Mexican peso against the USD compared to the 2023 fiscal quarter. Other Corporate changes accounted for an increase in revenues of $0.1 million.

Previous wording

Direct costs and general and administrative expenses combined increased by $28.7 million to $264.3 million for the 2024 fiscal quarter from $235.6 million for the 2023 fiscal quarter. The effect of a net change in foreign currency exchange rates increased direct costs by $16.3 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2023 fiscal quarter. Additionally, the effect of operational changes increased direct costs by $12.9 million compared to the 2023 fiscal quarter. These increases in direct costs were partially offset by other Corporate expenses, which accounted for a decrease in costs of $0.5 million in the 2024 fiscal quarter compared to the 2023 fiscal quarter.

Current wording

Direct costs and general and administrative expenses combined increased by $55.3 million to $596.9 million for the 2024 fiscal period from $541.6 million for the 2023 fiscal period. This increase in direct costs was driven by the effect of operational changes, which increased direct costs by $33.6 million compared to the 2023 fiscal period, primarily due to the result of higher enrollment at our institutions. Additionally, the effect of a net change in foreign currency exchange rates increased direct costs by $20.4 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2023 fiscal period. Other Corporate expenses accounted for an increase in costs of $1.3 million for the 2024 fiscal period compared to the 2023 fiscal period.

Previous wording

Operating income decreased by $4.5 million to $11.1 million for the 2024 fiscal quarter from $15.6 million for the 2023 fiscal quarter. This decrease was primarily a result of higher operating loss at our Peru segment, partially offset by higher operating income at our Mexico segment compared to the 2023 fiscal quarter.

Current wording

Operating income increased by $7.6 million to $177.7 million for the 2024 fiscal period from $170.1 million for the 2023 fiscal period. This increase was as a result of higher operating income at our Mexico segment, partially offset by lower operating income at our Peru segment compared to the 2023 fiscal period, due in part to higher bad debt expense, as well as higher operating costs at Corporate.

Previous wording

Interest expense, net of interest income decreased by $1.0 million to $2.8 million for the 2024 fiscal quarter from $3.8 million for the 2023 fiscal quarter. The decrease in interest expense was primarily attributable to lower average debt balances compared to the 2023 fiscal quarter.

Current wording

Interest expense, net of interest income decreased by $2.1 million to $5.9 million for the 2024 fiscal period from $8.0 million for the 2023 fiscal period. The decrease in interest expense was primarily attributable to lower average debt balances compared to the 2023 fiscal period.

Previous wording

Other non-operating expense decreased by $19.2 million to $9.2 million for the 2024 fiscal quarter from $28.4 million for the 2023 fiscal quarter. This decrease was attributable to a lower loss on foreign currency exchange of $23.4 million compared to the 2023 fiscal quarter, mainly related to intercompany loan arrangements. This decrease in other non-operating expense was partially offset by a loss on disposal of subsidiaries for the 2024 fiscal quarter compared to a gain for the 2023 fiscal quarter, primarily attributable to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries, for a change of $3.4 million. Additionally, other expense was higher by $0.8 million compared to the 2023 fiscal quarter.

Current wording

Other non-operating income (expense) changed by $79.2 million to income of $18.3 million for the 2024 fiscal period from expense of $(60.9) million for the 2023 fiscal period. This increase in other non-operating income was attributable to a gain on foreign currency exchange for the 2024 fiscal period compared to a loss for the 2023 fiscal period for a change of $83.1 million, mainly related to intercompany loan arrangements. This increase in other non-operating income was partially offset by a loss on disposal of subsidiaries for the 2024 fiscal period compared to a gain for the 2023 fiscal period, primarily attributable to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries, for a change of $3.4 million. Additionally, other expense was higher by $0.5 million compared to the 2023 fiscal period.

Previous wording

The following table presents Adjusted EBITDA and reconciles Net loss to Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

Current wording

The following table presents Adjusted EBITDA and reconciles Net income to Adjusted EBITDA for the three months ended June 30, 2024 and 2023:

Previous wording

The following table, derived from our consolidated financial statements included elsewhere in this Form 10-Q, presents selected financial information of our segments:

Current wording

The following tables, derived from our consolidated financial statements included elsewhere in this Form 10-Q, present selected financial information of our segments:

Previous wording

•Revenues from our Mexico segment represented 78% of our consolidated total revenues for the 2024 fiscal quarter, compared to 72% for the 2023 fiscal quarter.

Current wording

•Revenues from our Mexico segment represented 44% of our consolidated total revenues for the 2024 fiscal quarter, compared to 42% for the 2023 fiscal quarter.

Previous wording

•Revenue for the quarter was unfavorably affected by the timing of the academic calendar as compared to the 2023 fiscal quarter.

Current wording

•Revenue for the 2024 fiscal period was unfavorably affected by the timing of the academic calendar as compared to the 2023 fiscal period.

Previous wording

•Revenues from our Peru segment represented 22% of our consolidated total revenues for the 2024 fiscal quarter compared to 28% for the 2023 fiscal quarter.

Current wording

•Revenues from our Peru segment represented 56% of our consolidated total revenues for the 2024 fiscal quarter, compared to 58% for the 2023 fiscal quarter.

Previous wording

•Organic enrollment increased during the 2024 fiscal quarter by 2%, increasing revenues by $1.1 million.

Current wording

•Organic enrollment increased during the 2024 fiscal period by 2%, increasing revenues by $4.5 million.

Previous wording

Adjusted EBITDA increased by $0.4 million, a 4% increase from the 2023 fiscal quarter, mainly driven by a decrease in contract labor expenses and other professional fees.

Current wording

Adjusted EBITDA decreased by $1.6 million, a 16% decrease from the 2023 fiscal quarter, mainly driven by an increase in labor costs and other professional fees.

Previous wording

As of March 31, 2024, our secondary source of liquidity was cash and cash equivalents of $126.2 million. Our cash accounts are maintained with high-quality financial institutions.

Current wording

As of June 30, 2024, our secondary source of liquidity was cash and cash equivalents of $128.8 million. Our cash accounts are maintained with high-quality financial institutions.

Previous wording

The Company also maintains a revolving credit facility under its credit agreement (the Amended Credit Agreement) that provides for $145.0 million of revolving credit loans maturing October 2024 (the Series 2024 Tranche) and $155.0 million of revolving credit loans maturing September 2028 (the Series 2028 Tranche) for a $300.0 million aggregate revolving credit facility (the Revolving Credit Facility). The credit available to be borrowed under the Amended Credit Agreement, whether as revolving loans or term loans, if any, are referred to herein collectively as the “Senior Secured Credit Facility.” In accordance with the terms of the credit agreement, any proceeds drawn on the Revolving Credit Facility may be used for general corporate purposes. As of March 31, 2024, the Company had borrowed $121.0 million of the $300.0 million of available capacity.

Current wording

The Company also maintains a revolving credit facility under its credit agreement (the Amended Credit Agreement) that provides for $145.0 million of revolving credit loans maturing October 2024 (the Series 2024 Tranche) and $155.0 million of revolving credit loans maturing September 2028 (the Series 2028 Tranche) for a $300.0 million aggregate revolving credit facility (the Revolving Credit Facility). The credit available to be borrowed under the Amended Credit Agreement, whether as revolving loans or term loans, if any, are referred to herein collectively as the “Senior Secured Credit Facility.” In accordance with the terms of the credit agreement, any proceeds drawn on the Revolving Credit Facility may be used for general corporate purposes. As of June 30, 2024, the Company had borrowed $134.0 million of the $300.0 million of available capacity.

Previous wording

We earn a significant portion of our income from subsidiaries located in countries outside the United States. As of March 31, 2024, $121.3 million of our total $126.2 million of cash and cash equivalents were held by foreign subsidiaries. As of December 31, 2023, $82.7 million of our total $89.4 million of cash and cash equivalents were held by foreign subsidiaries. As part of our business strategies, we have determined that the undistributed historical earnings of our foreign operations for which we have not already recorded taxes will be deemed indefinitely reinvested outside of the United States.

Current wording

We earn a significant portion of our income from subsidiaries located in countries outside the United States. As of June 30, 2024, $109.8 million of our total $128.8 million of cash and cash equivalents were held by foreign subsidiaries. As of December 31, 2023, $82.7 million of our total $89.4 million of cash and cash equivalents were held by foreign subsidiaries. As part of our business strategies, we have determined that the undistributed historical earnings of our foreign operations for which we have not already recorded taxes will be deemed indefinitely reinvested outside of the United States.

Previous wording

As of March 31, 2024, our debt obligations consisted of $121.0 million of borrowings under the Senior Secured Credit Facility and $45.2 million of other debt. Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable. In addition, our finance lease obligations and sale-leaseback financings were $62.0 million.

Current wording

As of June 30, 2024, our debt obligations consisted of $134.0 million of borrowings under the Senior Secured Credit Facility and $44.2 million of other debt. Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable. In addition, our finance lease obligations and sale-leaseback financings were $54.3 million.

Previous wording

We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations. As of March 31, 2024 and December 31, 2023, the present value of operating lease liabilities was $402.1 million and $417.6 million, respectively.

Current wording

We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations. As of June 30, 2024 and December 31, 2023, the present value of operating lease liabilities was $372.4 million and $417.6 million, respectively.

Previous wording

Our total capital expenditures, excluding receipts from the sale of subsidiaries and property equipment, were $15.9 million and $5.8 million during the three months ended March 31, 2024 and 2023, respectively. The increase in capital expenditures was primarily due to the purchase of a parcel of land for a new campus.

Current wording

Our total capital expenditures, excluding receipts from the sale of subsidiaries and property and equipment, were $26.6 million and $14.9 million during the six months ended June 30, 2024 and 2023, respectively. The increase in capital expenditures was primarily due to the purchase of a parcel of land for a new campus. Additionally, capital expenditures in Mexico were higher due to campus consolidation costs related to the implementation of a real estate optimization plan.

Previous wording

On February 22, 2024, the Company announced that its Board of Directors had approved a stock repurchase program to acquire up to $100 million of the Company’s common stock. The Company’s repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Repurchases may also be effected pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act. The Company’s Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size or suspend or discontinue the program. As of March 31, 2024, the approximate dollar value of shares yet to be purchased under this stock repurchase program was $67.1 million. The Company intends to finance the remaining repurchases with free cash flow, excess cash and liquidity and liquidity on-hand, including available capacity under its Revolving Credit Facility, or a combination thereof.

Current wording

On February 22, 2024, the Company announced that its Board of Directors had approved a stock repurchase program to acquire up to $100 million of the Company’s common stock. The Company’s repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations promulgated under the Exchange Act. Repurchases may also be effected pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act. The Company’s Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size or suspend or discontinue the program. As of June 30, 2024, the approximate dollar value of shares yet to be purchased under this stock repurchase program was $28.3 million. The Company intends to finance the remaining repurchases with free cash flow, excess cash and liquidity and liquidity on-hand, including available capacity under its Revolving Credit Facility, or a combination thereof.

Previous wording

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023:

Previous wording

Comparison of Cash Flows for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Current wording

Comparison of Cash Flows for the Six Months Ended June 30, 2024 to the Six Months Ended June 30, 2023

Previous wording

Cash provided by operating activities increased by $6.7 million to $33.2 million for the 2024 fiscal quarter from $26.5 million for the 2023 fiscal quarter. This increase in operating cash was largely attributable to lower cash paid for taxes of $22.3 million, from $43.4 million for the 2023 fiscal quarter to $21.1 million for the 2024 fiscal quarter, due primarily to higher cash taxes paid during the 2023 fiscal quarter for Mexico and the Netherlands. In addition, cash paid for interest decreased by $1.1 million, from $5.3 million for the 2023 fiscal quarter to $4.2 million for the 2024 fiscal quarter, mostly due to lower average debt balances. These increases in operating cash were partially offset by the net effect of changes in operating assets and liabilities combined with lower operating income, which decreased operating cash by $16.7 million compared to the 2023 fiscal quarter.

Current wording

Cash provided by operating activities decreased by $5.4 million to $73.4 million for the 2024 fiscal period from $78.8 million for the 2023 fiscal period. This decrease in operating cash flows was attributable to higher cash paid for taxes of $13.0 million, from $78.8 million for the 2023 fiscal period to $91.8 million for the 2024 fiscal period, primarily related to taxes paid during the 2024 fiscal period as a result of the distribution of certain intercompany loans. This decrease in operating cash flows was partially offset by the net effect of changes in operating assets and liabilities combined with higher operating income, which increased operating cash by $4.4 million compared to the 2023 fiscal period. Additionally, cash paid for interest decreased by $3.2 million from $11.4 million for the 2023 fiscal period to $8.2 million for the 2024 fiscal period, mostly due to lower average debt balances.

Previous wording

Cash used in investing activities increased by $10.4 million to $(16.0) million for the 2024 fiscal quarter from $(5.6) million for the 2023 fiscal quarter. This increase in cash used in investing activities was primarily attributable to higher capital expenditures of $10.1 million during the 2024 fiscal quarter compared to the 2023 fiscal quarter, mainly driven by the purchase of a parcel of land for a new campus. In addition, the year-over-year change in cash flows related to run out activity from previously sold discontinued operations decreased investing cash flows by $0.5 million. Other items accounted for the remaining difference of $0.2 million.

Current wording

Cash used in investing activities increased by $8.1 million to $(22.6) million for the 2024 fiscal period from $(14.5) million for the 2023 fiscal period. This increase in cash used in investing activities was primarily attributable to higher capital expenditures of $11.8 million during the 2024 fiscal period compared to the 2023 fiscal period, mainly driven by the purchase of a parcel of land for a new campus. This increase in investing cash outflows was partially offset by higher cash proceeds from the sale of property and equipment of $3.1 million, mainly related to the sale of a parcel of land in the United States during the second quarter of 2024. In addition, the year-over-year change in cash flows related to run out activity from previously sold discontinued operations increased investing cash flows by $0.5 million. Other items accounted for the remaining difference of $0.1 million.

Previous wording

Cash provided by financing activities decreased by $2.7 million to $18.4 million for the 2024 fiscal quarter from $21.1 million for the 2023 fiscal quarter. This decrease in financing cash inflows was primarily attributable to payments for common stock repurchases of $32.9 million during the 2024 fiscal quarter. In addition, proceeds from the exercise of stock options were lower by $1.4 million compared to the 2023 fiscal quarter. These decreases in financing cash flows were partially offset by higher net proceeds of long-term debt during the 2024 fiscal quarter of $31.8 million. Other items accounted for the remaining difference of $0.2 million.

Current wording

Cash used in financing activities decreased by $37.4 million to $(8.3) million for the 2024 fiscal period from $(45.7) million for the 2023 fiscal period. This decrease in financing cash outflows was primarily attributable to higher net proceeds of long-term debt during the 2024 fiscal period of $110.7 million, partially offset by higher payments for common stock repurchases of $71.4 million compared to the 2023 fiscal period. Other items accounted for the remaining difference of $1.9 million.

Previous wording

The preparation of the consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, of the audited consolidated financial statements included in our 2023 Form 10-K. Our critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect our financial statements and are critical to the understanding of our results of operations and financial condition. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies and Estimates” section of the MD&A in our 2023 Form 10-K. During the three months ended March 31, 2024, there were no significant changes to our critical accounting policies.

Current wording

The preparation of the consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, of the audited consolidated financial statements included in our 2023 Form 10-K. Our critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect our financial statements and are critical to the understanding of our results of operations and financial condition. For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies and Estimates” section of the MD&A in our 2023 Form 10-K. During the six months ended June 30, 2024, there were no significant changes to our critical accounting policies.