Laureate Education(US:LAUR)2023-08-03 11:17Part I - Financial Information Financial Statements (Unaudited) For the second quarter of 2023, Laureate Education reported significant growth, with revenues increasing 20% year-over-year to $462.1 million and net income rising to $56.3 million from $43.6 million, while for the six-month period, revenues grew 20% to $713.3 million, and the company swung to a net income of $29.6 million from a net loss of $1.1 million in the prior year, with the balance sheet strengthening as total assets increased to $2.17 billion and stockholders' equity rose to $971.2 million, and operating cash flow for the six months improved to $78.8 million Consolidated Statements of Operations (Q2 2023 vs Q2 2022, in millions) | For the three months ended June 30, | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $462.1 | $385.4 | | Operating income | $154.5 | $126.6 | | Income from continuing operations | $60.4 | $39.4 | | Net income | $56.3 | $43.6 | | Net income attributable to Laureate | $56.2 | $43.4 | | Diluted earnings per share | $0.35 | $0.25 | Consolidated Statements of Operations (Six Months Ended June 30, in millions) | For the six months ended June 30, | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $713.3 | $594.9 | | Operating income | $170.1 | $135.7 | | Income (loss) from continuing operations | $33.6 | $(6.0) | | Net income (loss) | $29.6 | $(1.1) | | Net income (loss) attributable to Laureate | $29.6 | $(0.8) | | Basic and diluted earnings per share | $0.18 | $— | Consolidated Balance Sheet Highlights (in millions) | As of | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $111.7 | $85.2 | | Total assets | $2,170.9 | $1,972.2 | | Total liabilities | $1,198.3 | $1,196.5 | | Total stockholders' equity | $971.2 | $774.4 | - In Q2 2023, two K-12 educational programs in Mexico were classified as held for sale, with total assets of $11.1 million and liabilities of $11.7 million, a move intended to allow the Mexico segment to focus on its core higher education business33 - On May 24, 2023, the Board of Directors approved the retirement of all 73,766 outstanding shares of treasury stock59 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes the strong performance in the first half of 2023 to higher organic enrollment, favorable product mix and pricing, and positive foreign currency effects, particularly from the Mexican peso, with total enrollment reaching approximately 424,400 students and Adjusted EBITDA increasing by 22% to $175.4 million for Q2 and $208.9 million for the six-month period, anticipating sufficient cash flow for at least the next 12 months Overview Laureate operates five degree-granting higher education institutions in Mexico and Peru, serving approximately 424,400 students, focusing on markets with significant demand for quality, affordable higher education, while managing risks inherent in international operations - The company operates five institutions in Mexico and Peru with a total enrollment of approximately 424,400 students8186 Segment Overview (as of June 30, 2023) | Segment | Institutions | Enrollment | YTD Revenues ($ millions) | % of YTD Revenues | | :--- | :--- | :--- | :--- | :--- | | Mexico | 2 | 205,100 | $374.1 | 52% | | Peru | 3 | 219,300 | $339.2 | 48% | | Total | 5 | 424,400 | $713.3 | 100% | - Enrollment is the company's most important non-financial metric and a lead indicator for revenue, with primary intake periods in Q1 for Peru and Q3 for Mexico, leading to revenue seasonality with Q2 and Q4 typically being stronger899096 Results of Operations For Q2 2023, consolidated revenues increased by 20% to $462.1 million, driven by organic enrollment growth, pricing/mix, and favorable foreign exchange, with operating income growing 22% to $154.5 million, and Adjusted EBITDA for the six months growing 22% to $208.9 million Q2 2023 vs. Q2 2022 Consolidated Results (in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $462.1 | $385.4 | 20% | | Operating income | $154.5 | $126.6 | 22% | | Income from continuing operations | $60.4 | $39.4 | 53% | | Net income attributable to Laureate | $56.2 | $43.4 | 29% | Six Months 2023 vs. 2022 Consolidated Results (in millions) | Metric | YTD 2023 | YTD 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $713.3 | $594.9 | 20% | | Operating income | $170.1 | $135.7 | 25% | | Income (loss) from continuing operations | $33.6 | $(6.0) | nm | | Net income (loss) attributable to Laureate | $29.6 | $(0.8) | nm | Adjusted EBITDA Reconciliation (in millions) | Period | Adjusted EBITDA 2023 | Adjusted EBITDA 2022 | % Change | | :--- | :--- | :--- | :--- | | Three months ended June 30 | $175.4 | $144.1 | 22% | | Six months ended June 30 | $208.9 | $171.3 | 22% | Segment Results The Mexico segment showed exceptional growth, with Q2 Adjusted EBITDA surging 96% to $38.2 million, driven by an 11% increase in organic enrollment and favorable currency translation, while the Peru segment also grew, with Q2 Adjusted EBITDA up 8% to $147.2 million, supported by a 7% rise in organic enrollment, and corporate expenses decreased Mexico Segment Performance (Q2 2023 vs Q2 2022, in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $192.1 | $144.7 | 33% | | Adjusted EBITDA | $38.2 | $19.5 | 96% | - Mexico's Q2 revenue growth was driven by an 11% increase in organic enrollment ($15.0 million), pricing/mix ($10.6 million), and a significant positive foreign exchange impact ($21.8 million)127130 Peru Segment Performance (Q2 2023 vs Q2 2022, in millions) | Metric | Q2 2023 | Q2 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $270.0 | $239.2 | 13% | | Adjusted EBITDA | $147.2 | $136.3 | 8% | - Peru's Q2 revenue growth was driven by a 7% increase in organic enrollment ($13.2 million) and pricing/mix ($14.9 million)133136 Liquidity and Capital Resources The company's primary liquidity source is tuition revenue, with $111.7 million in cash and cash equivalents and access to a $410.0 million revolving credit facility, and net cash from operating activities for the first six months of 2023 increased significantly to $78.8 million from $45.6 million in the prior year, primarily due to the absence of stock repurchases - Primary liquidity sources are cash from operations, $111.7 million in cash and cash equivalents, and a $410.0 million Senior Secured Credit Facility with $322.0 million of available capacity as of June 30, 2023143144145 Summary of Cash Flows (Six Months Ended June 30, in millions) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Cash from Operating Activities | $78.8 | $45.6 | | Cash from Investing Activities | $(14.5) | $2.0 | | Cash from Financing Activities | $(45.7) | $(226.2) | - The significant decrease in cash used for financing activities was primarily due to no common stock repurchases in the 2023 period, compared to $206.3 million in repurchases during the 2022 period159 - Capital expenditures increased to $14.9 million for the first six months of 2023, up from $8.2 million in the prior-year period, mainly due to return-to-campus activities and investments in health science programs154 Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no significant changes in its market risk exposures since the end of its 2022 fiscal year - There have been no significant changes in market risk exposures since December 31, 2022162 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2023, with the company currently upgrading to a new cloud-based system for financial planning and consolidation - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the quarter163 - The company is in the process of upgrading to a new cloud-based system for its planning and financial consolidation processes164 Part II - Other Information Legal Proceedings The company provided an update on its ongoing tax audits with the Spanish Taxing Authority (STA), with the Spanish Supreme Court ruling in favor of the STA regarding tax years 2006 to 2010, resulting in approximately $40.8 million in assessments, and a new audit initiated for January 2018 to May 2020 - In June 2023, the Spanish Supreme Court ruled in favor of the Spanish Taxing Authority (STA) regarding tax assessments for years 2006-2010, for which the company has paid approximately $40.8 million and has no further recourse168 - In May 2023, the STA initiated a new audit of the company's former Spanish holding company for corporate income tax (Jan 2018 - May 2020) and non-resident income tax (May 2019 - May 2020)169 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors were reported for the period170