Laureate Education(LAUR) - 2019 Q1 - Quarterly Report

PART I. - FINANCIAL INFORMATION This part presents Laureate Education, Inc.'s unaudited consolidated financial statements and management's discussion for Q1 2019 Item 1. Financial Statements (Unaudited) This section presents Laureate Education, Inc.'s unaudited consolidated financial statements for the three months ended March 31, 2019 and 2018, including statements of operations, comprehensive income, balance sheets, and cash flows, along with detailed notes explaining significant accounting policies, segment information, debt, leases, and other financial disclosures Consolidated Statements of Operations This section details the company's revenues, operating loss, net income, and earnings per share for the three months ended March 31, 2019 and 2018 Consolidated Statements of Operations (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Revenues | $621,796 | $632,216 | (1.6%) | | Operating loss | $(84,529) | $(92,621) | 8.7% (Improvement) | | Loss from continuing operations | $(110,314) | $(165,635) | 33.4% (Improvement) | | Income from discontinued operations | $56,574 | $18,853 | 199.0% | | Gain on sales of discontinued operations | $248,005 | $318,327 | (22.1%) | | Net income | $194,265 | $171,545 | 13.2% | | Net income attributable to Laureate Education, Inc. | $191,243 | $168,879 | 13.2% | | Basic and diluted EPS | $0.85 | $0.59 | 44.1% | Consolidated Statements of Comprehensive Income This section presents the company's net income and other comprehensive income components, including foreign currency translation adjustments, for Q1 2019 and 2018 Consolidated Statements of Comprehensive Income (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Net income | $194,265 | $171,545 | 13.2% | | Foreign currency translation adjustment, net | $49,551 | $83,369 | (40.5%) | | Unrealized gain on derivative instruments, net | $2,609 | $2,210 | 18.1% | | Total other comprehensive income | $52,160 | $85,955 | (39.3%) | | Comprehensive income attributable to Laureate Education, Inc. | $243,373 | $255,113 | (4.6%) | Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2019, and December 31, 2018 Consolidated Balance Sheets (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (QoQ) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total current assets | $1,400,461 | $1,217,133 | 15.1% | | Property and equipment, net | $1,237,605 | $1,278,935 | (3.2%) | | Operating lease right-of-use assets, net | $952,890 | $0 | N/A | | Goodwill | $1,738,228 | $1,707,089 | 1.8% | | Total assets | $7,833,521 | $6,769,636 | 15.7% | | Total current liabilities | $1,601,672 | $1,190,087 | 34.6% | | Long-term operating leases, less current portion | $871,588 | $0 | N/A | | Long-term debt and finance leases, less current portion | $2,136,328 | $2,593,585 | (17.6%) | | Total liabilities | $5,491,706 | $4,704,294 | 16.7% | | Total stockholders' equity | $2,327,906 | $2,050,946 | 13.5% | Consolidated Statements of Cash Flows This section outlines the company's cash flows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018 Consolidated Statements of Cash Flows (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Net cash provided by (used in) operating activities | $44,974 | $(7,076) | $52,050 (Increase) | | Net cash provided by investing activities | $294,084 | $302,690 | (2.8%) | | Net cash used in financing activities | $(449,602) | $(368,999) | (21.8%) (Increased usage) | | Net change in Cash and cash equivalents and Restricted cash | $(107,375) | $(51,335) | (109.2%) (Increased decrease) | Notes to Consolidated Financial Statements This section details accounting policies, segment information, debt, leases, and other financial disclosures Note 1. Description of Business This note describes Laureate Education, Inc.'s business as an international higher education network and its strategic divestiture plans - Laureate Education, Inc. provides higher education programs through an international network of licensed universities and institutions, operating as a public benefit corporation since October 1, 2015[21] - The company is undergoing a strategic shift to divest subsidiaries in Europe, Asia, and Central America, focusing on Brazil, Chile, Mexico, Peru, and the Online & Partnerships segment, with these divestitures classified as discontinued operations[22] Note 2. Significant Accounting Policies This note outlines the company's key accounting policies, including consolidation of VIEs, adoption of new lease standards, and impacts of the Chilean Higher Education Law - Laureate consolidates certain internationally based educational organizations identified as Variable Interest Entities (VIEs), primarily in Brazil, Mexico, and Andean segments, due to control and economic benefit rights[25][26] Selected VIE Financial Information (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | VIE Revenues | $56,450 | $55,036 | | VIE Operating loss | $(27,335) | $(39,426) | | VIE Net loss | $(24,200) | $(34,994) | - Adoption of ASU 2016-02 (Leases) on January 1, 2019, materially impacted the balance sheet, recognizing $952.9 million in ROU assets and $969.1 million in lease liabilities for operating leases as of March 31, 2019[33] - The new Chilean Higher Education Law, effective May 29, 2019, prohibits conflicts of interest and related party transactions, prompting Laureate to modify relationships with Chilean universities and evaluate continued consolidation of non-profit universities[28][29][30] Note 3. Revenue This note details the company's revenue recognition policies and provides a breakdown of revenues by reportable segment - Revenues are primarily from tuition and educational services, recognized net of scholarships and discounts, following a five-step model[35][36] Revenues by Reportable Segment (3 months ended March 31) | Segment | 2019 (in thousands) | 2018 (in thousands) | % of Total 2019 | | :-------------------- | :------------------ | :------------------ | :-------------- | | Brazil | $109,969 | $122,792 | 18% | | Mexico | $156,464 | $155,899 | 25% | | Andean | $138,942 | $135,054 | 22% | | Rest of World | $54,156 | $52,274 | 9% | | Online & Partnerships | $161,774 | $168,031 | 26% | | Total Revenues | $621,796 | $632,216 | 100% | - Contract liabilities (deferred revenue and student deposits) increased significantly to $556.4 million as of March 31, 2019, from $193.2 million at December 31, 2018, primarily due to semester billings and advance payments for upcoming academic sessions[40] Note 4. Discontinued Operations and Assets Held for Sale This note outlines the company's strategic divestitures, presenting summarized operating results and assets/liabilities held for sale - Laureate is divesting institutions in Portugal, Spain, Central America & U.S. Campuses, and most of the Rest of World segment (excluding Australia, New Zealand, Saudi Arabia, and China) as part of a strategic shift to focus on Brazil, Chile, Mexico, and Peru[41] Summarized Operating Results of Discontinued Operations (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Revenues | $202,616 | $253,072 | (19.9%) | | Operating income | $62,806 | $65,159 | (3.6%) | | Income from discontinued operations, net of tax | $56,574 | $18,853 | 199.0% | | Operating cash flows of discontinued operations | $16,124 | $20,682 | (22.1%) | Assets and Liabilities Held for Sale (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total assets held for sale | $1,269,862 | $1,337,831 | | Total liabilities held for sale | $689,700 | $662,684 | Note 5. Dispositions This note details the gains and proceeds from the sales of University of St. Augustine, Thailand operations, and China operations - Sale of University of St. Augustine for Health Sciences completed on February 1, 2019, yielding approximately $346.4 million in net proceeds and a pre-tax gain of $223.5 million[45][46] - Sale of Thailand operations completed on February 12, 2019, with net proceeds of approximately $27.9 million and a pre-tax gain of $10.8 million[47] - An additional gain of approximately $13.7 million was recognized from the sale of China operations (LEILY) in Q1 2019 due to the reversal of a loss contingency[48] Note 6. Due to Shareholders of Acquired Companies This note presents the outstanding amounts owed to shareholders of acquired companies, including interest rates and nominal currencies Due to Shareholders of Acquired Companies (as of March 31, 2019 and December 31, 2018) | Company | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Nominal Currency | Interest Rate % | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :--------------- | :-------------- | | Universidade Anhembi Morumbi (UAM Brazil) | $31,744 | $30,912 | BRL | CDI + 2% | | University of St. Augustine for Health Sciences, LLC | $11,395 | $11,395 | USD | 7% | | Faculdade Porto-Alegrense (FAPA) | $2,030 | $1,943 | BRL | IGP-M | | IADE Group | $1,126 | $1,141 | EUR | 3% | | Total due to shareholders of acquired companies | $46,295 | $45,391 | | | Note 7. Business and Geographic Segment Information This note provides financial information by operating segment, including revenues and Adjusted EBITDA, and details the segment evaluation metric - Laureate's six operating segments are Brazil, Mexico, Andean, Central America & U.S. Campuses, Rest of World, and Online & Partnerships, with Central America & U.S. Campuses now fully in Discontinued Operations[51][59] - Segment performance is evaluated using Adjusted EBITDA, which excludes intercompany revenues and expenses[61][62] Revenues by Segment (3 months ended March 31) | Segment | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :-------------------- | :----------------- | :----------------- | :------------- | | Brazil | $110.0 | $122.8 | (10)% | | Mexico | $156.5 | $155.9 | 0% | | Andean | $138.9 | $135.1 | 3% | | Rest of World | $54.2 | $52.3 | 4% | | Online & Partnerships | $161.8 | $168.0 | (4)% | | Total Revenues | $621.8 | $632.2 | (2)% | Adjusted EBITDA by Segment (3 months ended March 31) | Segment | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Brazil | $(30.7) | $(26.0) | (18)% | | Mexico | $25.8 | $30.4 | (15)% | | Andean | $(33.2) | $(39.4) | 16% | | Rest of World | $4.5 | $3.0 | 50% | | Online & Partnerships | $48.6 | $45.0 | 8% | | Total Adjusted EBITDA | $15.0 | $13.0 | 15% | Note 8. Goodwill This note details the changes in goodwill, including acquisitions and currency translation adjustments, from December 31, 2018, to March 31, 2019 Change in Goodwill (December 31, 2018 to March 31, 2019) | Metric | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Balance at December 31, 2018 | $1,707,089 | | Acquisitions | $1,327 | | Currency translation adjustments | $29,812 | | Balance at March 31, 2019 | $1,738,228 | - A small acquisition in Brazil for BRL 5,000 ($1,327) was recorded as Goodwill, contributing to the increase[66] Note 9. Debt This note provides details on outstanding long-term debt, including senior secured credit facilities and notes, and debt repayment activities Outstanding Long-Term Debt (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (QoQ) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Senior Secured Credit Facility, net | $921,127 | $1,321,629 | (30.3%) | | Senior Notes (stated maturity May 2025) | $800,000 | $800,000 | 0% | | Total senior long-term debt | $1,721,127 | $2,121,629 | (18.9%) | | Total long-term debt and finance leases | $2,324,055 | $2,783,692 | (16.5%) | - Laureate repaid approximately $340 million of its 2024 Term Loan and $35 million of notes payable in Chile, resulting in a $10.6 million loss on debt extinguishment[69][70] - The company was not subject to its Consolidated Senior Secured Debt to Consolidated EBITDA leverage ratio covenant as of March 31, 2019, due to satisfying specific conditions[71] Note 10. Leases This note presents supplemental balance sheet information and components of lease cost following the adoption of the new lease accounting standard Supplemental Balance Sheet Information Related to Leases (as of March 31, 2019) | Metric | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Operating lease right-of-use assets, net | $952,890 | | Current portion of operating leases | $97,517 | | Long-term operating leases, less current portion | $871,588 | | Total lease liabilities | $994,573 | Components of Lease Cost (3 months ended March 31, 2019) | Metric | Amount (in thousands) | | :----------------------------------- | :-------------------- | | Operating lease cost | $45,716 | | Finance lease cost (amortization + interest) | $1,767 | | Short-term lease costs | $677 | | Variable lease costs | $3,848 | | Sublease income | $(959) | | Total lease cost | $51,049 | Note 11. Commitments and Contingencies This note details various financial commitments and contingent liabilities, including put arrangements, tax contingencies, and guarantees - Noncontrolling interest holder put arrangements had a carrying value of $12.2 million as of March 31, 2019, representing potential obligations to acquire minority interests[78][79] - Contingent liabilities for taxes (other-than-income tax) totaled $54.0 million, and for income tax contingencies, $62.3 million as of March 31, 2019[82][83] - Material guarantees under Chile's CAE Program could require maximum potential payments of approximately $509.0 million, with an estimated long-term guarantee liability of $37.4 million recorded[86] - Laureate had approximately $139.0 million in outstanding letters of credit (LOCs) in favor of the DOE, fully collateralized by restricted cash, to allow participation in Title IV programs[92][93] Note 12. Financing Receivables This note provides details on financing receivables, including the allowance for doubtful accounts and troubled debt restructurings Financing Receivables (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (QoQ) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Financing receivables | $25,816 | $16,531 | 56.2% | | Allowance for doubtful accounts | $(6,477) | $(6,395) | (1.3%) | | Financing receivables, net | $19,339 | $10,136 | 90.8% | Troubled Debt Restructurings (TDRs) (3 months ended March 31) | Metric | 2019 | 2018 | | :----------------------------------- | :--- | :--- | | Number of Financing Receivable Accounts | 296 | 409 | | Pre-Modification Balance Outstanding (in thousands) | $898 | $1,372 | Note 13. Share-based Compensation This note outlines the share-based compensation expense for stock options and restricted stock awards for the three months ended March 31 Share-based Compensation Expense (3 months ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Change (YoY) | | :----------------------------------- | :------------------ | :------------------ | :----------- | | Stock options, net | $823 | $(7,247) | N/A | | Restricted stock awards | $2,164 | $3,170 | (31.7%) | | Total continuing operations | $2,987 | $(4,077) | N/A | - The negative stock options expense in Q1 2018 was due to the correction of an immaterial error[101] Note 14. Stockholders' Equity This note details changes in total stockholders' equity and accumulated other comprehensive income (loss) as of March 31, 2019 Total Stockholders' Equity (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (QoQ) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total Laureate Education, Inc. stockholders' equity | $2,335,388 | $2,061,079 | 13.3% | | Total stockholders' equity | $2,327,906 | $2,050,946 | 13.5% | - The adoption of ASU 2016-02 resulted in a cumulative-effect adjustment to retained earnings of $28.9 million[103] Accumulated Other Comprehensive Income (Loss) (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Foreign currency translation loss | $(1,078,198) | $(1,127,719) | | Unrealized gain on derivatives | $20,975 | $18,366 | | Minimum pension liability adjustment | $(3,342) | $(3,342) | | Accumulated other comprehensive loss | $(1,060,565) | $(1,112,695) | Note 15. Derivative Instruments This note describes the company's use of derivative instruments to manage foreign currency and interest rate exposures, and their fair values - Laureate uses derivative instruments (foreign currency swaps, interest rate swaps) to manage foreign currency and interest rate exposures, not for speculative trading[107][109] Fair Values of Derivative Instruments (as of March 31, 2019 and December 31, 2018) | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Total derivative instrument assets | $9,974 | $3,259 | | Total derivative instrument liabilities | $1,223 | $10,677 | - In Q1 2019, Laureate settled CLP to UF cross currency and interest rate swaps in Chile for a net cash payment of approximately $8.2 million[120] - The company entered into EUR to USD swap agreements to mitigate foreign currency exposure on the sale proceeds for subsidiaries in Spain and Portugal[117][118] Note 16. Income Taxes This note provides information on income tax benefits, accrued interest and penalties, and unrecognized tax benefits as of March 31, 2019 - Income tax benefit for the three months ended March 31, 2019, was $35.1 million[10] - Accrued interest and penalties related to uncertain tax positions totaled $26.2 million as of March 31, 2019[127] - Approximately $23.8 million of unrecognized tax benefits, if recognized, would impact the effective income tax rate, with a possible decrease of up to $12.6 million within the next 12 months[127][128] Note 17. Earnings (Loss) Per Share This note presents the basic and diluted earnings per share, including contributions from continuing and discontinued operations Basic and Diluted Earnings (Loss) Per Share (3 months ended March 31) | Metric | 2019 | 2018 | Change (YoY) | | :----------------------------------- | :--- | :--- | :----------- | | Loss from continuing operations | $(0.50) | $(1.20) | 58.3% (Improvement) | | Income from discontinued operations | $1.35 | $1.79 | (24.6%) | | Basic and diluted earnings per share | $0.85 | $0.59 | 44.1% | | Basic and diluted weighted average shares outstanding | 224,655 | 187,765 | 19.6% | Note 18. Legal and Regulatory Matters This note provides an update on legal actions and regulatory environment, affirming no material impact on financial statements - Laureate is subject to legal actions in the ordinary course of business, with management believing any settlement would not materially impact financial statements[132] - No material changes to laws and regulations affecting higher education institutions have occurred since the 2018 Form 10-K[132] Note 19. Fair Value Measurement This note explains the fair value measurement hierarchy and classification of derivative instruments as Level 3 inputs - Fair value measurements are categorized into a three-level hierarchy, with Level 3 inputs being unobservable and supported by little or no market activity[133] - Laureate's derivative instruments are classified as Level 3, with the company's own credit risk being a significant unobservable input in their fair value measurement[134] Financial Assets and Liabilities Measured at Fair Value (as of March 31, 2019) | Metric | Total (in thousands) | Level 3 (in thousands) | | :----------------------------------- | :------------------- | :------------------- | | Derivative instruments (Assets) | $9,974 | $9,974 | | Derivative instruments (Liabilities) | $1,223 | $1,223 | Note 20. Supplemental Cash Flow Information This note reconciles cash and cash equivalents with restricted cash and explains the nature of restricted cash balances Reconciliation of Cash and Cash Equivalents and Restricted Cash (as of March 31, 2019 and 2018) | Metric | March 31, 2019 (in thousands) | March 31, 2018 (in thousands) | December 31, 2018 (in thousands) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cash and cash equivalents | $278,782 | $305,890 | $388,490 | | Restricted cash | $203,633 | $175,557 | $201,300 | | Total Cash and cash equivalents and Restricted cash | $482,415 | $481,447 | $589,790 | - Restricted cash primarily consists of cash equivalents held to collateralize standby letters of credit for DOE Title IV programs[137] Note 21. Subsequent Events This note details significant events occurring after the reporting period, including the sales of Monash South Africa and UniNorte - On April 8, 2019, Laureate completed the sale of Monash South Africa, receiving approximately $7.4 million and transferring $20.2 million in debt[138][139] - On April 16, 2019, an agreement was signed to sell UniNorte in Brazil for an enterprise value of BRL 194.8 million (approx. $49.9 million), including assumed net debt of BRL 9.8 million (approx. $2.5 million), with closing anticipated in the second half of 2019[140][141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Laureate Education, Inc.'s financial condition, results of operations, and cash flows for the three months ended March 31, 2019. It covers an overview of the business, challenges, regulatory environment, key business metrics, principal income statement components, factors affecting comparability, and detailed segment results, concluding with liquidity and capital resources Overview This section provides an overview of Laureate's international higher education network, student enrollment, and strategic divestiture focus - Laureate is the largest international network of degree-granting higher education institutions, with 921,500 students enrolled across 38 institutions in 10 countries as of March 31, 2019[146][154] - The company is strategically divesting certain subsidiaries in Europe, Asia, and Central America to focus on principal markets in Brazil, Chile, Mexico, Peru, and the Online & Partnerships segment[148] - As of March 31, 2019, Laureate's continuing operations include 13 institutions in Brazil (298,300 enrollment), 2 in Mexico (195,800 enrollment), 8 in Andean (345,900 enrollment), 12 in Rest of World (20,800 enrollment), and 3 in Online & Partnerships (60,700 enrollment)[154] Challenges This section discusses the complex risks associated with international operations, including foreign currency fluctuations and political instability - International operations are subject to complex risks including foreign currency fluctuations, economic and political instability, and varying tax laws[155] - The company plans to grow organically by adding new programs, expanding student demographics, and increasing capacity, which depends on effectively managing these international risks[155] Regulatory Environment and Other Matters This section highlights the regulatory landscape affecting the business, particularly the impact of the new Chilean Higher Education Law - The business is regulated by various agencies, and future changes in regulations could materially affect financial performance[156] - The new Chilean Higher Education Law, effective May 29, 2019, prohibits conflicts of interest and related party transactions, leading Laureate to modify relationships with Chilean universities and assess the continued consolidation of non-profit universities[157][159] Key Business Metrics This section identifies enrollment as the primary revenue indicator and explains the company's approach to tuition rate adjustments - Enrollment is the lead revenue indicator, driven by new and continuing students and acquisitions, offset by graduations, attrition, and dispositions[160] - Laureate proactively adjusts tuition rates based on market conditions to maintain competitiveness and optimize price and content combinations[164] Principal Components of Income Statement This section describes the main components of the income statement, including revenue sources, direct costs, and general and administrative expenses - The majority of revenue comes from tuition and educational services, recognized net of scholarships and discounts[165] - Direct costs are largely variable with enrollment, but may increase faster than enrollment due to infrastructure investments[166] - General and administrative expenses cover corporate functions like executive management, finance, and legal[167] Factors Affecting Comparability This section explains how acquisitions, dispositions, foreign exchange fluctuations, seasonality, and income tax variations impact financial comparability - Acquisitions and dispositions impact comparability; strategic divestitures are classified as discontinued operations[168][169] - Foreign exchange fluctuations significantly impact reported revenues and expenses, as most operations are outside the U.S. and use local functional currencies[170][171] - Revenues and profits are seasonal, with Q2 and Q4 typically stronger due to academic calendars, while operating expenses do not fully correlate[172] - Income tax expense fluctuates due to the mix of earnings across various tax-paying, tax-exempt, and loss-making entities in different jurisdictions[173] Results from the Discontinued Operations This section summarizes the financial results and enrollment figures for operations classified as discontinued, including gains from sales Results from Discontinued Operations (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :----------- | | Revenues | $202.6 | $253.1 | (19.9%) | | Income from discontinued operations, net of tax | $56.6 | $18.9 | 199.0% | | Gain on sales of discontinued operations, net of tax | $248.0 | $318.3 | (22.1%) | | Net income from discontinued operations | $304.6 | $337.2 | (9.6%) | Enrollment at Discontinued Operations (as of March 31) | Metric | 2019 | 2018 | Change (YoY) | | :----------------------------------- | :--- | :--- | :----------- | | Enrollment | 155,800 | 167,800 | (7.2%) | - Sales completed in Q1 2019 included St. Augustine (pre-tax gain $223.5 million), Thailand operations (pre-tax gain $10.8 million), and an additional $13.7 million gain from China operations due to a settled legal matter[174][175][177] Summary Comparison of Consolidated Results This section provides a consolidated overview of revenues, operating loss, and net income, highlighting key changes and their drivers Summary Comparison of Consolidated Results (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $621.8 | $632.2 | (2)% | | Operating loss | $(84.5) | $(92.6) | 9% (Better) | | Loss from continuing operations before income taxes | $(145.4) | $(188.7) | 23% (Better) | | Net income | $194.3 | $171.5 | 13% | - Revenues decreased by $10.4 million, primarily due to a $35.5 million negative impact from foreign currency exchange rates, partially offset by higher organic enrollment and product mix/pricing changes[183] - Interest expense, net of interest income, decreased by $9.0 million to $51.1 million, mainly due to lower average debt balances[186] Non-GAAP Financial Measure (Adjusted EBITDA) This section defines Adjusted EBITDA as a non-GAAP measure used by management to evaluate core operating performance and trends - Adjusted EBITDA is a non-GAAP measure used by management to evaluate core operating performance and trends, excluding items like income tax, foreign currency exchange, derivatives, debt extinguishment, interest, depreciation, amortization, share-based compensation, and EiP expenses[190][191] Adjusted EBITDA Reconciliation (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Loss from continuing operations | $(110.3) | $(165.6) | 33% (Better) | | Operating loss | $(84.5) | $(92.6) | 9% (Better) | | Depreciation and amortization | $47.6 | $57.0 | 16% (Better) | | Share-based compensation expense | $3.0 | $(4.1) | (173)% (Worse) | | EiP implementation expenses | $12.3 | $10.1 | (22)% (Worse) | | Adjusted EBITDA | $(21.6) | $(29.7) | 27% (Better) | - Depreciation and amortization decreased by $9.4 million, partly due to foreign currency effects and the classification of UniNorte as held-for-sale[193] - Share-based compensation expense increased by $7.1 million, mainly due to a correction of an immaterial error in Q1 2018[194] - EiP implementation expenses increased by $2.2 million, primarily due to higher severance and retention bonuses related to divestiture activities[195] Segment Results This section presents the financial performance of Laureate's operating segments, including revenues and Adjusted EBITDA Brazil This section details the financial performance of the Brazil segment, including revenues, Adjusted EBITDA, and enrollment trends Brazil Segment Financial Overview (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $110.0 | $122.8 | (10)% | | Adjusted EBITDA | $(30.7) | $(26.0) | (18)% | - Organic enrollment in Brazil increased by 3%, contributing $4.5 million to revenues, primarily from growth in lower-revenue distance learning programs[204] - Adjusted EBITDA decreased due to an increase in discounts and scholarships as a percentage of revenue, linked to the decline in FIES program participation[201] Mexico This section details the financial performance of the Mexico segment, including revenues, Adjusted EBITDA, and enrollment trends Mexico Segment Financial Overview (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $156.5 | $155.9 | 0% | | Adjusted EBITDA | $25.8 | $30.4 | (15)% | - Organic enrollment in Mexico decreased by 1%, leading to a $2.9 million reduction in revenues[209] Andean This section details the financial performance of the Andean segment, including revenues, Adjusted EBITDA, and the impact of foreign exchange rates Andean Segment Financial Overview (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $138.9 | $135.1 | 3% | | Adjusted EBITDA | $(33.2) | $(39.4) | 16% (Better) | - Organic enrollment in the Andean segment increased by 6%, adding $7.1 million to revenues[214] - Foreign exchange rates negatively impacted results due to the weakening of the Chilean Peso and Peruvian Nuevo Sol against the USD[212] Rest of World This section details the financial performance of the Rest of World segment, including revenues, Adjusted EBITDA, and enrollment growth Rest of World Segment Financial Overview (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $54.2 | $52.3 | 4% | | Adjusted EBITDA | $4.5 | $3.0 | 50% | - Organic enrollment in the Rest of World segment increased by 11%, contributing $5.8 million to revenues[217] - Foreign exchange results were affected by the weakening of the Australian Dollar relative to the USD[217] Online & Partnerships This section details the financial performance of the Online & Partnerships segment, including revenues, Adjusted EBITDA, and enrollment trends Online & Partnerships Segment Financial Overview (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $161.8 | $168.0 | (4)% | | Adjusted EBITDA | $48.6 | $45.0 | 8% | - Organic enrollment in the Online & Partnerships segment decreased by 3%, leading to a $3.0 million reduction in revenues[222] Corporate This section details the corporate operating results, including revenues, expenses, and Adjusted EBITDA, highlighting cost reductions Corporate Operating Results (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | % Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :------------- | | Revenues | $0.5 | $(1.8) | 128% | | Expenses | $37.1 | $40.8 | 9% (Better) | | Adjusted EBITDA | $(36.6) | $(42.6) | 14% (Better) | - The improvement in Corporate Adjusted EBITDA was mainly driven by a $6.9 million decrease in labor costs and other professional fees[231] Liquidity and Capital Resources This section discusses the company's liquidity sources, restrictions, and requirements, including cash flows and debt obligations Liquidity Sources This section identifies primary cash sources, available cash, and net proceeds from asset sales used for debt repayment - Cash flow from operations and available cash are expected to be sufficient for current operating requirements[224] - Primary cash source is tuition revenue, with $278.8 million in cash and cash equivalents as of March 31, 2019, excluding $215.8 million from held-for-sale subsidiaries[226][231] - Net proceeds from the sale of St. Augustine were approximately $346.4 million, used to repay debt[227] - Net proceeds from the sale of Thailand operations were approximately $27.9 million[228] - Net proceeds from the sale of Monash South Africa (subsequent event) were approximately $7.4 million, planned for debt reduction[229] Liquidity Restrictions This section details restricted cash balances and cash held by foreign subsidiaries deemed indefinitely reinvested outside the U.S - Restricted cash balances totaled $203.6 million as of March 31, 2019, impacting liquidity[230] - $247.0 million of cash and cash equivalents held by foreign subsidiaries (including $75.0 million by VIEs) are deemed indefinitely reinvested outside the U.S., with VIE cash generally restricted to VIE operations[231] Liquidity Requirements This section outlines short-term and long-term liquidity needs, including debt service, lease obligations, and capital expenditures - Short-term liquidity needs include debt service, operating lease obligations, payments to acquired company shareholders, working capital, and capital expenditures[232] - Long-term debt and finance leases totaled $2.32 billion as of March 31, 2019[234] - Capital expenditures for Q1 2019 were $35.8 million, a 25% decrease YoY, driven by lower spending in Brazil, Peru, Costa Rica, and Mexico, and reduced expenditures due to divestitures[242] Cash Flows This section summarizes cash flows from operating, investing, and financing activities, explaining the drivers of changes Summary of Cash Flows (3 months ended March 31) | Metric | 2019 (in millions) | 2018 (in millions) | Change (YoY) | | :----------------------------------- | :----------------- | :----------------- | :----------- | | Operating activities | $45.0 | $(7.1) | $52.1 (Increase) | | Investing activities | $294.1 | $302.7 | $(8.6) (Decrease) | | Financing activities | $(449.6) | $(369.0) | $(80.6) (Increased usage) | - Operating cash flow increase was primarily due to a $13.3 million decrease in cash paid for taxes and a $47.3 million increase from changes in operating assets and liabilities[247] - Investing cash flow decrease was mainly due to $28.5 million lower cash receipts from sales of discontinued operations, partially offset by decreased capital expenditures and derivative settlement payments[248] - Financing cash usage increased due to $88.7 million higher net payments of long-term debt and $5.1 million higher payments for debt issuance costs and redemption premiums[249] Critical Accounting Policies and Estimates This section states that financial statements rely on significant management judgments and estimates, with no material policy changes in Q1 2019 - Financial statements require significant management judgments and estimates, which could materially affect financial statements[250] - No significant changes to critical accounting policies occurred during the three months ended March 31, 2019[250] Recently Issued Accounting Standards This section refers to Note 2 for information on recently issued accounting standards relevant to the financial statements - Information on recently issued accounting standards is provided in Note 2, Significant Accounting Policies[251] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no significant changes in Laureate Education, Inc.'s market risk exposures since December 31, 2018 - No significant changes in market risk exposures have occurred since December 31, 2018[252] Item 4. Controls and Procedures This section details the evaluation of Laureate Education, Inc.'s disclosure controls and procedures, concluding their effectiveness as of March 31, 2019. It also notes no material changes in internal controls over financial reporting during the quarter, aside from implementing controls for the new lease standard Evaluation of Disclosure Controls and Procedures This section confirms that management, including the CEO and CFO, concluded the effectiveness of disclosure controls and procedures as of March 31, 2019 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2019[253] Changes in Internal Controls over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during Q1 2019, aside from controls for the new lease standard - No material changes in internal control over financial reporting occurred during Q1 2019[254] - Internal controls were implemented to assess the impact of adopting the new lease standard, but these did not result in significant changes to internal control over financial reporting[254] PART II. - OTHER INFORMATION This part provides updates on legal proceedings, risk factors, exhibits, and official signatures for the Form 10-Q Item 1. Legal Proceedings This section updates on legal proceedings, noting a settled civil proceeding and ongoing appeals related to China operations - A civil proceeding in China (Li Shihong and Hunan Lieying Education Investment Management Co Ltd vs. HIEU) was settled in Q1 2019 without cost to Laureate[257] - Two appeals related to China operations (Chen Zhengxian and Guangdong Nanbo Education Investment Co Ltd vs. LEI Lie Ying Limited) are ongoing at the Supreme People's Court[258][259] - Laureate has indemnified the purchaser of its HIEU interest against liabilities from these claims, with an aggregate cap of RMB 400 million (approximately $60 million)[260] Item 1A. Risk Factors This section confirms that there have been no material changes in the Risk Factors previously disclosed in Laureate Education, Inc.'s 2018 Form 10-K - No material changes to the Risk Factors have occurred since the 2018 Form 10-K[262] Item 6. Exhibits This section provides a comprehensive list of all exhibits filed with the Form 10-Q, including various agreements, corporate documents, and XBRL financial data files, some of which were previously filed and incorporated by reference - The exhibits include various agreements (e.g., sale and purchase agreements, credit agreements), corporate documents (e.g., certificate of incorporation, bylaws), and XBRL financial data files[263][265][267][270][271] SIGNATURES This section contains the official signatures for the Form 10-Q, signed by Jean-Jacques Charhon, Executive Vice President and Chief Financial Officer, and Tal Darmon, Senior Vice President, Chief Accounting Officer and Global Controller, on May 9, 2019 - The report was signed by Jean-Jacques Charhon (EVP & CFO) and Tal Darmon (SVP, Chief Accounting Officer & Global Controller) on May 9, 2019[275][276]