Laureate Education(LAUR) - 2019 Q2 - Quarterly Report

PART I. - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents Laureate Education, Inc.'s unaudited consolidated financial statements, including operations, balance sheets, and cash flows, with detailed notes Consolidated Statements of Operations (Three Months) Summarizes Laureate Education, Inc.'s consolidated statements of operations for the three months ended June 30, 2019 and 2018 Consolidated Statements of Operations (Three Months Ended June 30, in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenues | $1,001.8 | $1,017.2 | | Operating income | $213.7 | $218.2 | | Income from continuing operations | $104.5 | $173.9 | | Net income | $779.6 | $224.0 | | Net income attributable to Laureate Education, Inc. | $781.6 | $224.4 | | Basic earnings per share | $3.48 | $1.37 | | Diluted earnings per share | $3.48 | $1.00 | Consolidated Statements of Operations (Six Months) Summarizes Laureate Education, Inc.'s consolidated statements of operations for the six months ended June 30, 2019 and 2018 Consolidated Statements of Operations (Six Months Ended June 30, in millions) | Metric | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenues | $1,623.6 | $1,649.4 | | Operating income | $129.2 | $125.6 | | (Loss) income from continuing operations | $(5.8) | $8.2 | | Net income | $973.9 | $395.5 | | Net income attributable to Laureate Education, Inc. | $972.8 | $393.3 | | Basic earnings per share | $4.33 | $2.01 | | Diluted earnings per share | $4.33 | $1.75 | Consolidated Statements of Comprehensive Income (Three Months) Presents Laureate Education, Inc.'s consolidated statements of comprehensive income for the three months ended June 30, 2019 and 2018 Consolidated Statements of Comprehensive Income (Three Months Ended June 30, in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $779.6 | $224.0 | | Foreign currency translation adjustment, net | $10.2 | $(196.7) | | Unrealized (loss) gain on derivative instruments, net | $(10.6) | $10.1 | | Total other comprehensive loss | $(0.4) | $(186.5) | | Comprehensive income | $779.2 | $37.4 | | Comprehensive income attributable to Laureate Education, Inc. | $781.3 | $37.4 | Consolidated Statements of Comprehensive Income (Six Months) Presents Laureate Education, Inc.'s consolidated statements of comprehensive income for the six months ended June 30, 2019 and 2018 Consolidated Statements of Comprehensive Income (Six Months Ended June 30, in millions) | Metric | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $973.9 | $395.5 | | Foreign currency translation adjustment, net | $59.7 | $(113.3) | | Unrealized (loss) gain on derivative instruments, net | $(8.0) | $12.3 | | Total other comprehensive income (loss) | $51.8 | $(100.6) | | Comprehensive income | $1,025.7 | $294.9 | | Comprehensive income attributable to Laureate Education, Inc. | $1,024.7 | $292.5 | Consolidated Balance Sheets Details Laureate Education, Inc.'s consolidated balance sheets as of June 30, 2019, and December 31, 2018 Consolidated Balance Sheets (in millions) | Metric | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :------------------------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Cash and cash equivalents | $236.4 | $388.5 | | Total current assets | $1,120.9 | $1,217.1 | | Property and equipment, net | $1,238.5 | $1,278.9 | | Goodwill | $1,737.5 | $1,707.1 | | Total assets | $7,091.8 | $6,769.6 | | Liabilities & Equity | | | | Total current liabilities | $1,205.5 | $1,190.1 | | Long-term debt and finance leases, less current portion | $1,222.1 | $2,593.6 | | Total liabilities | $3,972.2 | $4,704.3 | | Total stockholders' equity | $3,107.1 | $2,050.9 | Consolidated Statements of Cash Flows Outlines Laureate Education, Inc.'s consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 Consolidated Statements of Cash Flows (in millions) | Metric | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $32.5 | $1.8 | | Net cash provided by investing activities | $1,102.4 | $264.3 | | Net cash used in financing activities | $(1,396.1) | $(393.1) | | Net change in Cash and cash equivalents and Restricted cash | $(164.4) | $(109.1) | | Cash and cash equivalents and Restricted cash at end of period | $425.4 | $423.7 | Notes to Consolidated Financial Statements Provides detailed explanations and disclosures supporting Laureate Education, Inc.'s consolidated financial statements Note 1. Description of Business Describes Laureate Education, Inc.'s business model, operations, and strategic focus on principal markets - 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[25] - The Company announced divestitures of subsidiaries in Europe, Asia, and Central America, classifying them as discontinued operations to strategically focus on principal markets: Brazil, Chile, Mexico, Peru, and the Online & Partnerships segment, along with institutions in Australia and New Zealand[26] Note 2. Significant Accounting Policies Outlines Laureate Education, Inc.'s key accounting policies, including consolidation of VIEs and lease accounting changes - Laureate consolidates certain internationally based educational organizations as Variable Interest Entities (VIEs) because it has the power to direct their activities and the right to receive significant economic benefits, despite some being not-for-profit in their home countries[29][30] Selected Consolidated Statements of Operations Information for VIEs (Continuing Operations, in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Revenues | $148.5 | $150.6 | $204.9 | $205.6 | | Operating income (loss) | $44.4 | $33.9 | $17.1 | $(5.5) | | Net income | $41.8 | $39.0 | $17.6 | $4.0 | - The New Higher Education Law in Chile, effective May 29, 2019, prohibits conflicts of interest and related party transactions, leading Laureate to evaluate its contractual relationships with Chilean non-profit universities and its accounting treatment for consolidation[32][33] - The Company adopted ASU 2016-02 (Leases) on January 1, 2019, under a modified retrospective method, resulting in the recognition of $937.884 million in ROU assets and $958.066 million in lease liabilities for operating leases as of June 30, 2019, and a $28.944 million cumulative-effect adjustment to retained earnings[34][35][36] Note 3. Revenue Details Laureate Education, Inc.'s revenue recognition policies and segment-wise revenue breakdown - Laureate's revenues primarily consist of tuition and educational service revenues, recognized net of scholarships, discounts, and refunds, following a five-step model prescribed by ASC Topic 606[39][40][41] Revenues by Reportable Segment (Three Months Ended June 30, in millions) | Segment | 2019 (in millions) | 2018 (in millions) | | :------------------ | :----------------- | :----------------- | | Brazil | $197.1 | $225.6 | | Mexico | $162.5 | $159.6 | | Andean | $423.0 | $409.5 | | Rest of World | $60.6 | $61.3 | | Online & Partnerships | $159.7 | $165.0 | | Corporate | $(1.1) | $(3.9) | | Total Revenues | $1,001.8 | $1,017.2 | Revenues by Reportable Segment (Six Months Ended June 30, in millions) | Segment | 2019 (in millions) | 2018 (in millions) | | :------------------ | :----------------- | :----------------- | | Brazil | $307.1 | $348.4 | | Mexico | $318.9 | $315.5 | | Andean | $561.9 | $544.6 | | Rest of World | $114.7 | $113.6 | | Online & Partnerships | $321.5 | $333.0 | | Corporate | $(0.6) | $(5.7) | | Total Revenues | $1,623.6 | $1,649.4 | - Contract assets (accounts receivable) increased to $531.390 million as of June 30, 2019, from $399.322 million at December 31, 2018, primarily due to enrollment cycles[45] - Contract liabilities (deferred revenue and student deposits) increased to $283.763 million from $193.226 million in the same period[46] Note 4. Discontinued Operations and Assets Held for Sale Reports on Laureate Education, Inc.'s divested operations and assets classified as held for sale - Laureate is divesting institutions in Europe, Asia, and Central America to focus on principal markets (Brazil, Chile, Mexico, Peru, Online & Partnerships, Australia, New Zealand), with these divestitures classified as discontinued operations[48] Summarized Operating Results of Discontinued Operations (in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Revenues | $147.9 | $230.7 | $350.6 | $483.8 | | Operating income | $34.1 | $47.6 | $96.9 | $112.7 | | Income from discontinued operations, net of tax | $33.6 | $38.1 | $90.2 | $56.9 | | Operating cash flows | $13.2 | $64.5 | $13.2 | $64.5 | | Investing cash flows | $(11.0) | $(22.0) | $(11.0) | $(22.0) | | Financing cash flows | $(25.7) | $(9.9) | $(25.7) | $(9.9) | Assets and Liabilities Classified as Held for Sale (in millions) | Category | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Total assets held for sale | $681.0 | $1,337.8 | | Total liabilities held for sale | $303.0 | $662.7 | - Laureate signed agreements to sell UniNorte (Brazil) for approximately $50.9 million and NewSchool of Architecture and Design, LLC (NSAD) for one dollar plus subsidies of up to $5.8 million, both pending regulatory approvals and expected to close in the second half of 2019[52][53][54] Note 5. Dispositions Summarizes gains and proceeds from Laureate Education, Inc.'s completed divestitures in the first half of 2019 - In Q1 2019, Laureate completed the sale of St. Augustine for $400 million, generating $346.4 million in net proceeds (used for debt repayment) and a gain of approximately $223 million[55] - The sale of Thailand operations in Q1 2019 yielded approximately $27.9 million in net proceeds from a $35.3 million purchase price, recognizing a gain of approximately $10.8 million[56] - An additional gain of approximately $13.7 million was recognized in Q1 2019 from the sale of China operations (LEILY) due to the settlement of a loss contingency with no cost to the Company[57][58] - The sale of Monash South Africa in April 2019 generated approximately $9 million in proceeds and a gain of approximately $2.3 million[59] - The sale of India operations in May 2019 for $145.6 million resulted in net proceeds of approximately $144.6 million (used for debt repayment) and a gain of approximately $19.5 million[60][61] - The sale of Spain and Portugal institutions in May 2019 for EUR 770 million (approx. $857 million) generated approximately $908 million in net proceeds (used for debt repayment) and a gain of approximately $618 million, including a tax benefit[62][63] Note 6. Due to Shareholders of Acquired Companies Details amounts owed to shareholders of acquired companies and changes in these obligations Amounts Due to Shareholders of Acquired Companies (in millions) | Company | June 30, 2019 (in millions) | December 31, 2018 (in millions) | Nominal Currency | Interest Rate % | | :------------------------------------------ | :-------------------------- | :-------------------------- | :--------------- | :-------------- | | Universidade Anhembi Morumbi (UAM Brazil) | $32.6 | $30.9 | BRL | CDI + 2% | | Faculdade Porto-Alegrense (FAPA) | $2.1 | $1.9 | BRL | IGP-M | | IADE Group | $1.1 | $1.1 | EUR | 3% | | University of St. Augustine for Health Sciences, LLC (St. Augustine) | $— | $11.4 | USD | 7% | | Total due to shareholders of acquired companies | $35.9 | $45.4 | | | | Less: Current portion | $14.2 | $23.8 | | | | Due to shareholders, less current portion | $21.6 | $21.6 | | | - The St. Augustine seller note was fully repaid during Q2 2019 following the resolution of legal matters[65] Note 7. Business and Geographic Segment Information Provides financial performance and asset information by Laureate Education, Inc.'s business and geographic segments - Laureate operates through six segments: Brazil, Mexico, Andean, Central America & U.S. Campuses, Rest of World, and Online & Partnerships, with campus-based segments focusing on professional-oriented fields in developing markets[66][67] - The Central America & U.S. Campuses segment and portions of the Rest of World segment are classified as discontinued operations[74] - Segment performance is evaluated based on Adjusted EBITDA, a non-GAAP measure that excludes certain non-operating and non-cash items, as well as expenses related to the Excellence-in-Process (EiP) initiative[76] Revenues by Reportable Segment (in millions) | Segment | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Brazil | $197.1 | $225.6 | $307.1 | $348.4 | | Mexico | $162.5 | $159.6 | $318.9 | $315.5 | | Andean | $423.0 | $409.5 | $561.9 | $544.6 | | Rest of World | $60.6 | $61.3 | $114.7 | $113.6 | | Online & Partnerships | $159.7 | $165.0 | $321.5 | $333.0 | | Corporate | $(1.1) | $(3.9) | $(0.6) | $(5.7) | | Total Revenues | $1,001.8 | $1,017.2 | $1,623.6 | $1,649.4 | Adjusted EBITDA of Reportable Segments (in millions) | Segment | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Brazil | $58.9 | $77.9 | $28.2 | $51.9 | | Mexico | $31.6 | $27.8 | $57.4 | $58.3 | | Andean | $186.7 | $184.2 | $153.5 | $144.8 | | Rest of World | $10.5 | $7.6 | $15.0 | $10.6 | | Online & Partnerships | $49.9 | $45.4 | $98.4 | $90.4 | | Corporate | $(40.2) | $(39.4) | $(76.8) | $(82.0) | | Total Adjusted EBITDA | $297.3 | $303.6 | $275.7 | $273.9 | Total Assets by Segment (in millions) | Segment | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | | Brazil | $1,189.1 | $1,011.4 | | Mexico | $1,300.9 | $971.3 | | Andean | $1,870.8 | $1,608.4 | | Rest of World | $250.7 | $231.4 | | Online & Partnerships | $1,245.1 | $1,308.9 | | Corporate and Discontinued Operations | $1,235.3 | $1,638.3 | | Total assets | $7,091.8 | $6,769.6 | Note 8. Goodwill Details changes in Laureate Education, Inc.'s goodwill carrying amount, including acquisitions and currency adjustments Change in Net Carrying Amount of Goodwill (in millions) | Metric | Brazil (in millions) | Mexico (in millions) | Andean (in millions) | Rest of World (in millions) | Online & Partnerships (in millions) | Total (in millions) | | :-------------------------- | :------------------- | :------------------- | :------------------- | :-------------------------- | :-------------------------- | :------------------ | | Balance at December 31, 2018 | $406.5 | $498.2 | $254.3 | $87.4 | $460.7 | $1,707.1 | | Acquisitions | $1.3 | $— | $— | $— | $— | $1.3 | | Currency translation adjustments | $5.7 | $19.2 | $5.1 | $(1.0) | $— | $29.0 | | Balance at June 30, 2019 | $413.5 | $517.4 | $259.3 | $86.5 | $460.7 | $1,737.5 | - Goodwill increased by $30.366 million from December 31, 2018, to June 30, 2019, primarily due to currency translation adjustments ($29.029 million) and a small acquisition in Brazil ($1.337 million)[79] Note 9. Debt Outlines Laureate Education, Inc.'s outstanding long-term debt, including repayments and extinguishment losses Outstanding Long-Term Debt (in millions) | Debt Type | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Senior Secured Credit Facility | $14.5 | $1,321.6 | | Senior Notes (stated maturity May 2025) | $800.0 | $800.0 | | Total senior long-term debt | $814.5 | $2,121.6 | | Other debt (Lines of credit, Notes payable) | $531.9 | $542.4 | | Finance lease obligations and sale-leaseback financings | $83.1 | $119.6 | | Total long-term debt and finance leases | $1,429.5 | $2,783.7 | | Long-term debt and finance leases, less current portion | $1,222.1 | $2,593.6 | - The Company recorded a Loss on debt extinguishment of $15.595 million for the three months and $26.217 million for the six months ended June 30, 2019, due to the repayment of the 2024 Term Loan and other notes payable, resulting in the write-off of deferred financing costs and debt discount[83][84][85] - As of June 30, 2019, Laureate was not subject to its Consolidated Senior Secured Debt to Consolidated EBITDA leverage ratio covenant, as conditions for its non-application were met[86] Note 10. Leases Presents Laureate Education, Inc.'s lease-related balance sheet information, terms, and cost components Supplemental Balance Sheet Information Related to Leases (in millions) | Metric | June 30, 2019 (in millions) | | :------------------------------------------ | :-------------------------- | | Operating lease right-of-use assets, net | $937.9 | | Buildings, Furniture, equipment and software, net (Finance) | $35.1 | | Total leased assets | $973.0 | | Current portion of operating leases | $95.7 | | Current portion of long-term debt and finance leases | $3.8 | | Long-term operating leases, less current portion | $862.4 | | Long-term debt and finance leases, less current portion | $34.3 | | Total lease liabilities | $996.1 | Lease Terms and Discount Rates (June 30, 2019) | Metric | Value | | :-------------------------- | :------ | | Weighted average remaining lease terms (Operating) | 9.5 years | | Weighted average remaining lease terms (Finance) | 10.5 years | | Weighted average discount rate (Operating) | 9.50% | | Weighted average discount rate (Finance) | 9.20% | Components of Lease Cost (Six Months Ended June 30, 2019, in millions) | Lease Cost Component | Amount (in millions) | | :-------------------------- | :------------------- | | Operating lease cost | $90.5 | | Amortization of leased assets (Finance) | $2.6 | | Interest on leased assets (Finance) | $1.5 | | Short-term lease costs | $2.0 | | Variable lease costs | $6.6 | | Sublease income | $(2.2) | | Total lease cost | $101.0 | Note 11. Commitments and Contingencies Details Laureate Education, Inc.'s various commitments, contingent liabilities, and legal exposures - As of June 30, 2019, the carrying value of all noncontrolling interest holder put arrangements was $10.779 million, with an estimated value of $10.779 million if all were exercised[92][93] - Laureate has recorded cumulative liabilities for taxes other-than-income tax of $53.603 million and for income tax contingencies of $54.823 million as of June 30, 2019[97][98] - The maximum potential amount of payments Laureate's Chilean institutions could be required to make under the government-sponsored CAE Program was approximately $516 million at June 30, 2019, with an estimated long-term guarantee liability of $37.743 million recorded[101] - As of June 30, 2019, Laureate had approximately $127 million in standby Letters of Credit (LOCs) in favor of the DOE, fully collateralized with restricted cash, and $22.503 million in surety bonds[107][109] Note 12. Financing Receivables Provides details on Laureate Education, Inc.'s financing receivables, allowances, and aging by country Financing Receivables, Net of Allowances (in millions) | Metric | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :-------------------------- | :-------------------------- | :-------------------------- | | Financing receivables | $36.2 | $16.5 | | Allowance for doubtful accounts | $(6.4) | $(6.4) | | Financing receivables, net of allowances | $29.8 | $10.1 | Aging of Financing Receivables by Country Portfolio (June 30, 2019, in millions) | Status | Chile (in millions) | Other (in millions) | Total (in millions) | | :-------------------------- | :------------------ | :------------------ | :------------------ | | Amounts past due less than one year | $9.9 | $1.1 | $11.0 | | Amounts past due one year or greater | $3.1 | $0.1 | $3.3 | | Total past due | $13.0 | $1.2 | $14.3 | | Not past due | $20.6 | $1.4 | $22.0 | | Total financing receivables | $33.6 | $2.6 | $36.2 | Rollforward of Allowance for Doubtful Accounts (Six Months Ended June 30, 2019, in millions) | Metric | Chile (in millions) | Other (in millions) | Total (in millions) | | :-------------------------- | :------------------ | :------------------ | :------------------ | | Balance at December 31, 2018 | $(6.1) | $(0.3) | $(6.4) | | Charge-offs | $1.1 | $0.5 | $1.6 | | Provision | $(0.7) | $(0.7) | $(1.4) | | Currency adjustments | $(0.1) | $0.0 | $(0.1) | | Balance at June 30, 2019 | $(5.9) | $(0.5) | $(6.4) | - During the six months ended June 30, 2019, 327 financing receivable accounts were modified under Troubled Debt Restructuring (TDR) terms, with pre-modification balances of $1.1 million and post-modification balances of $0.98 million[114] Note 13. Share-based Compensation Reports Laureate Education, Inc.'s share-based compensation expense for continuing and discontinued operations Share-based Compensation Expense (in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Stock options, net of estimated forfeitures | $1.3 | $2.0 | $2.2 | $(5.3) | | Restricted stock awards | $3.4 | $5.3 | $5.6 | $8.4 | | Total continuing operations | $4.7 | $7.3 | $7.7 | $3.2 | | Discontinued operations | $0.1 | $0.4 | $0.3 | $0.7 | | Total continuing and discontinued operations | $4.9 | $7.7 | $8.0 | $3.9 | Note 14. Stockholders' Equity Details changes in Laureate Education, Inc.'s stockholders' equity, including comprehensive income and stock transactions - Total Laureate Education, Inc. stockholders' equity increased from $2,061.079 million at December 31, 2018, to $3,118.214 million at June 30, 2019, driven by net income and foreign currency translation adjustments[21][117] - The adoption of ASU 2016-02 (Leases) resulted in a cumulative-effect adjustment to retained earnings of $28.944 million as of January 1, 2019[36][118] Accumulated Other Comprehensive Income (Loss) (in millions) | Component | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Foreign currency translation loss | $(1,067.9) | $(1,127.7) | | Unrealized gain on derivatives | $10.4 | $18.4 | | Minimum pension liability adjustment | $(3.3) | $(3.3) | | Accumulated other comprehensive loss | $(1,060.8) | $(1,112.7) | - In June 2019, Laureate's controlling stockholder, Wengen Alberta, Limited Partnership, converted Class B common stock to Class A and sold 10,955 shares in a secondary offering, with all net proceeds going to Wengen[122] Note 15. Derivative Instruments Explains Laureate Education, Inc.'s use of derivative instruments for managing market risks and their fair values - Laureate uses derivative instruments (foreign currency swaps, interest rate swaps) to manage exposure to foreign currency and interest rate fluctuations, reporting all derivatives at fair value[123][124][125] Fair Values of Derivative Instruments (in millions) | Metric | June 30, 2019 (in millions) | December 31, 2018 (in millions) | | :------------------------------------------ | :-------------------------- | :-------------------------- | | Total derivative instrument assets | $— | $3.3 | | Total derivative instrument liabilities | $— | $10.7 | - Cash flow hedge interest rate swaps related to the 2024 Term Loan were fully settled in August 2018, and amounts in AOCI were accelerated to earnings in Q2 2019 due to the full repayment of the loan, resulting in a gain of approximately $9.8 million[127] - Net investment hedge cross currency swaps were terminated in April 2019 for a net settlement of $7.679 million, with accumulated gains in AOCI deferred until the sale or liquidation of the hedged investee[128] - Derivatives not designated as hedging instruments, including EUR to USD foreign currency swaps for Spain and Portugal sales, resulted in a realized gain of $5.088 million and a realized loss of approximately $0.565 million from various settlements[133][134] Note 16. Income Taxes Describes Laureate Education, Inc.'s income tax accounting policies, including deferred taxes and uncertain tax positions - Laureate uses the liability method for income taxes, recognizing deferred income taxes for temporary differences and recording interest and penalties related to uncertain tax positions as a component of Income tax expense[142][143] - During the six months ended June 30, 2019, Laureate recognized $2.642 million in interest and penalties related to income taxes and derecognized $8.482 million of previously accrued amounts[143] - Approximately $25.848 million of unrecognized tax benefits, if recognized, would affect the effective income tax rate, with a reasonably possible decrease of up to $13.449 million within the next 12 months[143][144] Note 17. Earnings (Loss) Per Share Presents Laureate Education, Inc.'s basic and diluted earnings per share calculations and antidilutive instruments Basic and Diluted Earnings Per Share (Three Months Ended June 30) | Metric | 2019 | 2018 | | :------------------------------------------ | :--- | :--- | | Basic earnings per share | $3.48 | $1.37 | | Diluted earnings per share | $3.48 | $1.00 | Basic and Diluted Earnings Per Share (Six Months Ended June 30) | Metric | 2019 | 2018 | | :------------------------------------------ | :--- | :--- | | Basic earnings per share | $4.33 | $2.01 | | Diluted earnings per share | $4.33 | $1.75 | Antidilutive Stock Options, Restricted Stock, and RSUs (in thousands) | Metric | 3 Months Ended June 30, 2019 (in thousands) | 3 Months Ended June 30, 2018 (in thousands) | 6 Months Ended June 30, 2019 (in thousands) | 6 Months Ended June 30, 2018 (in thousands) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Stock options | 8,846 | 9,714 | 8,993 | 9,779 | | Restricted stock and RSUs | 14 | 131 | 915 | 169 | Note 18. Legal and Regulatory Matters Addresses Laureate Education, Inc.'s ongoing legal actions and management's assessment of their financial impact - Laureate is subject to legal actions in the ordinary course of business, with management believing adequate defenses and accruals are in place to prevent material impact on financial statements[150] Note 19. Fair Value Measurement Explains Laureate Education, Inc.'s fair value measurement hierarchy for financial assets and liabilities - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[151][153] Financial Assets and Liabilities Measured at Fair Value (June 30, 2019, in millions) | Asset/Liability | Total (in millions) | Level 1 (in millions) | Level 2 (in millions) | Level 3 (in millions) | | :------------------------------------------ | :------------------ | :-------------------- | :-------------------- | :-------------------- | | Derivative instruments (Assets) | $— | $— | $— | $— | | Equity securities - preferred stock investment | $11.1 | $— | $11.1 | $— | | Derivative instruments (Liabilities) | $— | $— | $— | $— | - As of June 30, 2019, Laureate's equity securities investment in preferred stock of a private education company was valued at an estimated fair value of $11.116 million (Level 2), based on interest from an existing investor and a recent financing round[153][154] Note 20. Supplemental Cash Flow Information Provides a reconciliation of Laureate Education, Inc.'s cash, cash equivalents, and restricted cash balances Reconciliation of Cash and Cash Equivalents and Restricted Cash (in millions) | Metric | June 30, 2019 (in millions) | June 30, 2018 (in millions) | December 31, 2018 (in millions) | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $236.4 | $249.9 | $388.5 | | Restricted cash | $188.9 | $173.9 | $201.3 | | Total Cash and cash equivalents and Restricted cash | $425.4 | $423.7 | $589.8 | Note 21. Subsequent Events Discloses significant events occurring after June 30, 2019, including divestiture agreements and stock repurchase plans - Subsequent to June 30, 2019, Laureate entered into an agreement to sell Universidad Interamericana de Panamá (UIP) for an expected enterprise value of approximately $86.75 million, pending regulatory approvals[157][158] - The closing of the Inti Education Holdings Sdn. Bhd. (Malaysia) transaction, scheduled for July 12, 2019, was disputed by the purchaser, who formally moved to terminate the agreement, which Laureate views as a repudiatory breach[159][160] - In July 2019, the Company's board approved a new stock repurchase program to acquire up to $150 million of Class A common stock, to be financed with operating cash flows and excess liquidity[161] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Laureate Education, Inc.'s financial performance, liquidity, and capital resources, highlighting strategic shifts and risks Forward-Looking Statements Highlights the inherent risks and uncertainties associated with Laureate Education, Inc.'s forward-looking statements - The report contains forward-looking statements regarding estimated earnings, costs, cash flows, growth rates, and planned divestitures, which are subject to various risks and uncertainties inherent in global operations, including foreign currency, political, legal, regulatory, and economic factors[163][164] Overview Provides an overview of Laureate Education, Inc.'s global operations, strategic focus, and key business drivers - Laureate Education, Inc. is the largest international network of degree-granting higher education institutions, primarily focused in Latin America, with 908,700 students across 38 institutions in 10 countries as of June 30, 2019[166] - The Company is undergoing a strategic shift, divesting subsidiaries in Europe, Asia, and Central America to focus on core markets (Brazil, Chile, Mexico, Peru, Online & Partnerships, Australia, New Zealand), with these divestitures classified as discontinued operations[168] Reportable Segments in Continuing Operations (as of June 30, 2019) | Segment | Countries | Institutions | Enrollment | Revenues YTD (in millions) | % Contribution to Revenues YTD | | :------------------ | :-------- | :----------- | :--------- | :------------------------- | :----------------------------- | | Brazil | 1 | 13 | 309,000 | $307.1 | 19% | | Mexico | 1 | 2 | 179,200 | $318.9 | 20% | | Andean | 2 | 8 | 340,900 | $561.9 | 34% | | Rest of World | 4 | 12 | 20,200 | $114.7 | 7% | | Online & Partnerships | 2 | 3 | 59,400 | $321.5 | 20% | | Total | 10 | 38 | 908,700 | $1,623.6 | 100% | - International operations face complex risks including foreign exchange fluctuations, political instability, and regulatory changes, particularly in Chile where a new Higher Education Law impacts related party transactions[176][178][179] - Enrollment is the primary revenue indicator, with varying cycles by region; the first and third calendar quarters generally coincide with Primary Intakes for different segments[180][181] Results from Discontinued Operations (in millions) | Metric | 3 Months Ended June 30, 2019 (in millions) | 3 Months Ended June 30, 2018 (in millions) | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Revenues | $147.9 | $230.7 | $350.6 | $483.8 | | Income from discontinued operations, net of tax | $33.6 | $38.1 | $90.2 | $56.9 | | Gain on sales of discontinued operations, net of tax | $641.5 | $12.0 | $889.5 | $330.3 | | Net income from discontinued operations | $675.1 | $50.1 | $979.7 | $387.3 | | Enrollments | 108,200 | 162,100 | 108,200 | 162,100 | - In the first half of 2019, Laureate completed sales of St. Augustine, Thailand, Monash South Africa, India, and Spain and Portugal operations, recognizing significant gains on these divestitures[195][196][197] Results of Operations Analyzes Laureate Education, Inc.'s consolidated and segment-level financial performance for the reporting periods - In the first half of 2019, Laureate repaid portions of its 2024 Term Loan and other notes payable using proceeds from asset sales, resulting in a total loss on debt extinguishment of $26.2 million for the six months ended June 30, 2019[200][201] Consolidated Results (Three Months Ended June 30, in millions) | Metric | 2019 (in millions) | 2018 (in millions) | % Change | | :------------------------------------------------- | :----------------- | :----------------- | :------- | | Revenues | $1,001.8 | $1,017.2 | (2)% | | Operating income | $213.7 | $218.2 | (2)% | | Interest expense, net of interest income | $(38.7) | $(57.5) | 33% | | Other non-operating income | $3.5 | $105.8 | (97)% | | Income from continuing operations before income taxes | $178.6 | $266.5 | (33)% | | Income tax expense | $(74.3) | $(92.7) | 20% | | Income from continuing operations | $104.5 | $173.9 | (40)% | | Net income | $779.6 | $224.0 | nm | | Net income attributable to Laureate Education, Inc. | $781.6 | $224.4 | nm | Consolidated Results (Six Months Ended June 30, in millions) | Metric | 2019 (in millions) | 2018 (in millions) | % Change | | :------------------------------------------------- | :----------------- | :----------------- | :------- | | Revenues | $1,623.6 | $1,649.4 | (2)% | | Operating income | $129.2 | $125.6 | 3% | | Interest expense, net of interest income | $(89.7) | $(117.6) | 24% | | Other non-operating (expense) income | $(6.2) | $69.8 | (109)% | | Income from continuing operations before income taxes | $33.3 | $77.8 | (57)% | | Income tax expense | $(39.3) | $(69.6) | 44% | | (Loss) income from continuing operations | $(5.8) | $8.2 | (171)% | | Net income | $973.9 | $395.5 | 146% | | Net income attributable to Laureate Education, Inc. | $972.8 | $393.3 | 147% | - Consolidated revenues decreased by $15.4 million (2%) for the three months and $25.8 million (2%) for the six months ended June 30, 2019, primarily due to negative foreign currency exchange impacts, partially offset by higher organic enrollment[205][215][217] - Adjusted EBITDA decreased by 2% to $297.3 million for the three months ended June 30, 2019, but increased by 1% to $275.7 million for the six months ended June 30, 2019, compared to the prior year periods[227][232] - Brazil segment's revenues decreased by 13% (three months) and 12% (six months) due to increased discounts and scholarships and declining FIES participation, despite organic enrollment growth[241][245][246] - Online & Partnerships segment's Adjusted EBITDA increased by 10% (three months) and 9% (six months) primarily due to reduced marketing expenses, despite a decrease in revenues[274][277] Liquidity and Capital Resources Assesses Laureate Education, Inc.'s cash flow, debt management, and ability to meet future financial obligations - Laureate anticipates sufficient cash flow from operations and available cash to meet operating requirements for at least the next 12 months, with primary cash sources from student tuition[283][284] - As of June 30, 2019, cash and cash equivalents totaled $236.4 million, excluding $124.4 million held by subsidiaries classified as held for sale[286] - The Company used proceeds from the sales of St. Augustine ($340 million), India ($144.6 million), and Spain and Portugal ($908 million) to repay significant portions of its long-term debt, including the full repayment of the 2024 Term Loan[287][290][291][298] - Liquidity is affected by restricted cash balances, totaling $188.9 million as of June 30, 2019, primarily for DOE LOCs and surety bonds[292][107][109] - As of June 30, 2019, senior long-term debt was $814.5 million, consisting of $14.5 million under the Senior Secured Credit Facility and $800.0 million in Senior Notes due 2025[296] - Capital expenditures decreased by 30% to $70.8 million for the six months ended June 30, 2019, driven by lower spending in Peru, Costa Rica, and Brazil, and reduced expenditures due to divestitures[304] - A new stock repurchase program was approved in July 2019 to acquire up to $150 million of Class A common stock, to be financed with operating cash flows and excess cash[307] Summary of Cash Flows (in millions) | Activity | 6 Months Ended June 30, 2019 (in millions) | 6 Months Ended June 30, 2018 (in millions) | | :-------------------------- | :------------------------------------------ | :------------------------------------------ | | Operating activities | $32.5 | $1.8 | | Investing activities | $1,102.4 | $264.3 | | Financing activities | $(1,396.1) | $(393.1) | | Effects of exchange rates changes on cash | $8.7 | $3.8 | | Change in cash included in current assets held for sale | $88.1 | $14.1 | | Net change in cash and cash equivalents and restricted cash | $(164.4) | $(109.1) | - Cash provided by operating activities increased by $30.7 million to $32.5 million for the six months ended June 30, 2019, primarily due to decreased cash paid for taxes and interest[310] - Cash provided by investing activities increased significantly by $838.1 million to $1,102.4 million, mainly due to higher cash receipts from sales of discontinued operations[311] - Cash used in financing activities increased by $1,003.0 million to $1,396.1 million, primarily due to higher net payments of long-term debt[312] Critical Accounting Policies and Estimates Discusses management's significant judgments and estimates used in preparing Laureate Education, Inc.'s financial statements - The preparation of financial statements requires management to make significant judgments and estimates, with no material changes to critical accounting policies during the six months ended June 30, 2019[313] Recently Issued Accounting Standards Refers to Note 2 for details on recently adopted accounting standards impacting Laureate Education, Inc - Refer to Note 2, Significant Accounting Policies, for details on recently issued accounting standards[314] Item 3. Quantitative and Qualitative Disclosures About Market Risk States 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[315] Item 4. Controls and Procedures Confirms the effectiveness of Laureate Education, Inc.'s disclosure controls and internal controls over financial reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2019[316] - There were no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2019[317] PART II. - OTHER INFORMATION Item 1. Legal Proceedings Updates on Laureate Education, Inc.'s legal proceedings, including settlements and favorable court affirmations - The Hemingway et al. v. University of St. Augustine for Health Sciences, Inc. lawsuit was settled without cost to Laureate, and a second suit, Johnson v. University of St. Augustine for Health Sciences, LLC, was dismissed[320] - The Supreme People's Court of China affirmed judgments in favor of Laureate affiliates, dismissing appeals in two cases related to Hunan International Economics University, involving claims by an heir of a minority shareholder and another minority shareholder[321][322] Item 1A. Risk Factors States no material changes to Laureate Education, Inc.'s previously disclosed risk factors from the 2018 Form 10-K - There have been no material changes in the Risk Factors included in Item 1A of the 2018 Form 10-K[323] Item 6. Exhibits Lists all exhibits filed with the report, including various agreements, certificates, and plans - The report includes a comprehensive list of exhibits, such as sale and purchase agreements, certificates of incorporation, debt indentures, stock incentive plans, and certifications, with many incorporated by reference from prior SEC filings[325][327][329][331][332] SIGNATURES Confirms the official signing of the report by Laureate Education, Inc.'s Executive Vice President and CFO, and Chief Accounting Officer - The report was signed on August 8, 2019, by Jean-Jacques Charhon, Executive Vice President and Chief Financial Officer, and Tal Darmon, Senior Vice President, Chief Accounting Officer and Global Controller[337][338]