Laureate Education(LAUR) - 2023 Q3 - Quarterly Report

PART I. - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company's unaudited consolidated financial statements detail its operational results, financial position, and cash flows Consolidated Statements of Operations - Three months ended September 30, 2023 and September 30, 2022 Net income increased to $36.0 million in Q3 2023, driven by a 20% rise in revenues to $361.5 million | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $361,533 | $300,999 | 20.1% | | Operating income | $58,709 | $56,317 | 4.2% | | Income from continuing operations | $35,735 | $31,852 | 12.2% | | Net income | $35,981 | $31,036 | 16.0% | | Net income attributable to Laureate Education, Inc. | $36,158 | $31,117 | 16.2% | | Basic and diluted EPS | $0.23 | $0.19 | 21.1% | Consolidated Statements of Operations - Nine months ended September 30, 2023 and September 30, 2022 For the first nine months of 2023, net income grew significantly to $65.5 million on a 20% revenue increase | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $1,074,855 | $895,943 | 20.0% | | Operating income | $228,827 | $191,992 | 19.2% | | Income from continuing operations | $69,337 | $25,851 | 168.2% | | Net income | $65,532 | $29,915 | 119.0% | | Net income attributable to Laureate Education, Inc. | $65,728 | $30,329 | 116.7% | | Basic and diluted EPS | $0.42 | $0.17 | 147.1% | Consolidated Statements of Comprehensive Income - Three months ended September 30, 2023 and September 30, 2022 The company reported a comprehensive loss of $10.4 million for Q3 2023 due to foreign currency translation adjustments | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net income | $35,981 | $31,036 | | Foreign currency translation adjustment, net | $(46,371) | $(42,161) | | Total other comprehensive loss | $(46,371) | $(41,178) | | Comprehensive loss | $(10,390) | $(10,142) | | Comprehensive loss attributable to Laureate Education, Inc. | $(10,215) | $(10,060) | Consolidated Statements of Comprehensive Income - Nine months ended September 30, 2023 and September 30, 2022 Comprehensive income for the nine-month period reached $183.9 million, boosted by positive currency translation effects | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net income | $65,532 | $29,915 | | Foreign currency translation adjustment, net | $118,341 | $25,386 | | Total other comprehensive income | $118,341 | $26,383 | | Comprehensive income | $183,873 | $56,298 | | Comprehensive income attributable to Laureate Education, Inc. | $184,153 | $56,708 | Consolidated Balance Sheets - September 30, 2023 and December 31, 2022 Total assets grew to $2.1 billion while total liabilities decreased, resulting in a significant rise in stockholders' equity | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total assets | $2,097,274 | $1,972,237 | $125,037 | 6.3% | | Cash and cash equivalents | $130,862 | $85,167 | $45,695 | 53.7% | | Receivables, net | $95,749 | $80,709 | $15,040 | 18.6% | | Goodwill | $640,358 | $583,493 | $56,865 | 9.7% | | Total liabilities | $1,132,234 | $1,196,482 | $(64,248) | -5.4% | | Total stockholders' equity | $963,642 | $774,357 | $189,285 | 24.4% | Consolidated Statements of Cash Flows - Nine months ended September 30, 2023 and September 30, 2022 Cash from operations increased to $187.4 million, while financing cash use decreased due to lower stock repurchases | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $187,419 | $154,681 | $32,738 | | Net cash (used in) provided by investing activities | $(26,237) | $66,288 | $(92,525) | | Net cash used in financing activities | $(120,213) | $(236,505) | $116,292 | | Net change in Cash and cash equivalents and Restricted cash | $44,665 | $(9,088) | $53,753 | Notes to Consolidated Financial Statements These notes detail accounting policies and key financial events, including asset sales and a special cash dividend - Laureate Education, Inc. is a public benefit corporation providing higher education programs in Mexico and Peru through campus-based and online institutions[28] - Revenues are primarily from tuition and educational services, recognized net of scholarships and discounts, following a five-step model[29][30] Note 1. Description of Business - Laureate Education, Inc. operates higher education programs and services in Mexico and Peru, offering campus-based and online education[28] - The company is a public benefit corporation, listed on the Nasdaq Global Select Market under "LAUR"[28] Note 2. Revenue - Revenues are primarily from tuition and educational services, recognized net of scholarships and other discounts, refunds, and waivers[29] | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Accounts and notes receivable | $159,730 | $133,105 | $26,625 | 20.0% | | Deferred revenue and student deposits | $81,039 | $51,264 | $29,775 | 58.1% | - The increase in receivables and deferred revenue is primarily driven by enrollment cycles and advance payments for academic sessions[33][35] Note 3. Assets Held for Sale - Two K-12 educational program subsidiaries and a parcel of land in Mexico were classified as assets held for sale in Q2 and Q3 2023[36] - The sale is intended to allow the Mexico segment to focus on its core business and does not qualify as a discontinued operation[36] | Assets Held for Sale (Sep 30, 2023, in thousands) | Amount | | :--- | :--- | | Cash and cash equivalents | $314 | | Receivables, net | $408 | | Property and equipment, net | $1,683 | | Operating lease right-of-use assets, net | $8,839 | | Other assets | $15 | | Total assets held for sale | $11,259 | | Liabilities Held for Sale (Sep 30, 2023, in thousands) | Amount | | :--- | :--- | | Deferred revenue and student deposits | $906 | | Operating leases, including current portion | $8,956 | | Long-term debt, including current portion | $840 | | Other liabilities | $781 | | Total liabilities held for sale | $11,483 | Note 4. Business and Geographic Segment Information - Laureate's two reportable segments are Mexico and Peru, providing profession-oriented higher education through campus-based, online, and hybrid programs[37][38] - Segment performance is evaluated using Adjusted EBITDA, a non-GAAP measure[42][43] | Segment | Institutions | Enrollment (2023 YTD) | 2023 YTD Revenues (in millions) | % Contribution to 2023 YTD Revenues | | :--- | :--- | :--- | :--- | :--- | | Mexico | 2 | 248,500 | $559.5 | 52% | | Peru | 3 | 210,200 | $515.4 | 48% | | Total | 5 | 458,700 | $1,074.9 | 100% | Note 5. Goodwill | Metric | Mexico (in thousands) | Peru (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Balance at Dec 31, 2022 | $512,990 | $70,503 | $583,493 | | Currency translation adjustments | $56,207 | $658 | $56,865 | | Balance at Sep 30, 2023 | $569,197 | $71,161 | $640,358 | Note 6. Debt | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Senior Secured Credit Facility | $28,000 | $100,000 | $(72,000) | -72.0% | | Total long-term debt and finance leases | $134,661 | $234,173 | $(99,512) | -42.5% | - The company entered into the Third Amendment of its Senior Secured Credit Facility on September 18, 2023, establishing a new Series 2028 Tranche of revolving credit loans[48] - As of September 30, 2023, the company was in compliance with all debt covenants, including the Consolidated Senior Secured Debt to Consolidated EBITDA ratio, which did not apply due to satisfied conditions[52][157] Note 7. Leases - Laureate's operations rely significantly on leased facilities, classified as either finance leases (for property/equipment) or operating leases (primarily real estate)[53][54][55] - ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments[56] Note 8. Commitments and Contingencies - Laureate is involved in legal actions in the ordinary course of business, with management believing adequate defenses and accruals are in place[57] | Contingency Type | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | | Income tax contingencies | $135,805 | $130,323 | | Non-income tax loss contingencies | $15,800 | $11,400 | - Estimated reasonably possible loss for unrecorded non-income tax contingencies could be up to $17.8 million[60] Note 9. Stockholders' Equity | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Laureate Education, Inc. stockholders' equity | $965,931 | $776,226 | $189,705 | 24.4% | | Retained earnings | $104,972 | $39,244 | $65,728 | 167.5% | | Accumulated other comprehensive loss | $(323,999) | $(442,424) | $118,425 | 26.8% | - The Board of Directors approved the retirement of all 73,766 outstanding shares of treasury stock on May 24, 2023[64] - Share-based compensation expense for restricted stock unit awards was $1.8 million for the three months and $4.9 million for the nine months ended September 30, 2023[68] Note 10. Income Taxes | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $101,379 | $159,213 | $(57,834) | -36.3% | - The decrease in income tax expense was primarily due to a $32.5 million discrete tax expense in 2022 and changes in the jurisdictional mix of earnings[72] Note 11. Earnings (Loss) Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic and diluted EPS (continuing operations) | $0.23 | $0.19 | $0.44 | $0.15 | | Basic and diluted EPS (total) | $0.23 | $0.19 | $0.42 | $0.17 | - The number of stock options and restricted stock units excluded from diluted EPS calculations due to being antidilutive was negligible for the three months ended September 30, 2023, and minimal for the nine months[76] Note 12. Legal and Regulatory Matters - Peruvian regulatory agency SUNEDU is reviewing university regulations, with new rules expected[79] - Cibertec, Laureate's technical-vocational institute in Peru, received a six-year higher education colleges license in March 2023, allowing it to offer four-year professional bachelor degrees[80] Note 13. Supplemental Cash Flow Information | Metric | Sep 30, 2023 (in thousands) | Sep 30, 2022 (in thousands) | Dec 31, 2022 (in thousands) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $130,862 | $319,039 | $85,167 | | Restricted cash | $7,587 | $17,448 | $8,617 | | Total Cash and cash equivalents and Restricted cash shown in the Consolidated Statements of Cash Flows | $138,449 | $336,487 | $93,784 | - Restricted cash primarily consists of cash equivalents held for a supplemental employment retention agreement for a former executive[152] Note 14. Subsequent Events - A special cash dividend of $0.70 per share was approved on October 30, 2023, with an aggregate amount of approximately $110.0 million, payable on November 30, 2023[82] - Exercise prices of stock options will be reduced by $0.70 per share, and holders of restricted and performance stock units will receive $0.70 per unvested unit upon vesting[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue and net income growth driven by enrollment and currency effects Forward-Looking Statements The report contains forward-looking statements subject to risks in Mexico and Peru, including political and economic factors - The report contains forward-looking statements concerning strategy, plans, intentions, and financial results, which are subject to change and may differ materially from actual outcomes[84][86] - Key risks include operating in Mexico and Peru (business, political, legal, regulatory, tax, economic, foreign currency), ability to maintain tuition/enrollment, managing growth, brand value, regulatory changes, economic downturns, competition, and cybersecurity[85] Introduction This MD&A helps readers understand Laureate's operations, financial condition, and cash flows - The MD&A aims to assist readers in understanding Laureate Education, Inc.'s results of operations, financial condition, and cash flows[87] - Financial statements are presented in USD, rounded to the nearest thousand, with MD&A amounts rounded to the nearest tenth of a million[87] Overview Laureate operates five higher education institutions in Mexico and Peru, serving approximately 458,700 students - Laureate operates five degree-granting higher education institutions in Mexico and Peru, with approximately 458,700 students[88][93] - The company targets 18- to 24-year-olds and competes on price, educational quality, reputation, and location, believing it compares favorably due to its focus on quality and professional-oriented curriculum[90] - Two K-12 educational program subsidiaries in Mexico are classified as assets held for sale, not representing a strategic shift[89] Our Business - Laureate operates five degree-granting higher education institutions in Mexico and Peru, with a total enrollment of approximately 458,700 students[88][93] - The company aims to meet the growing demand for affordable, quality higher education in Mexico and Peru, driven by a growing middle class and the value proposition of higher earnings potential[88] Assets Held for Sale - Two K-12 educational program subsidiaries in Mexico are classified as assets held for sale as of September 30, 2023[89] - The sale is not a strategic shift and is not presented as a discontinued operation; it is not expected to materially affect financial results[89] Our Segments - Mexico and Peru segments provide profession-oriented higher education, utilizing campus-based, online, and hybrid courses[90] - Both markets are characterized by a significant imbalance between supply and demand for higher education, with demand fueled by a growing middle class and economic benefits of higher education[90] | Segment | Institutions | Campuses | Market Share (Private Sector) | Funding Source | | :--- | :--- | :--- | :--- | :--- | | Mexico | 2 | >35 | ~36% | Private pay | | Peru | 3 | 19 | ~73% | Private pay | Challenges - Operations in Mexico and Peru are subject to complex business, economic, legal, regulatory, political, tax, and foreign currency risks[94] - Risks include exchange rate fluctuations, economic/political instability, expropriation, changes in government policies, and conflicting tax laws[94] - Organic growth strategy involves adding new programs (online/hybrid), expanding target demographics, and increasing capacity at existing and new campuses[94] Regulatory Environment and Other Matters - Laureate's institutions are subject to uncertain and varying laws and regulations in local jurisdictions, which are subject to updates and changes[95] - Changes in these laws or their application could materially adversely affect the company's business, financial condition, results of operations, and cash flows[95] Key Business Metric Enrollment is the company's primary non-financial metric and a leading indicator of revenue - Enrollment is the most important non-financial metric and lead revenue indicator for Laureate Education, Inc[96] - Total enrollment is affected by new and continuing students, acquisitions, graduations, attrition, and dispositions. Programs are in place to minimize attrition[96] Enrollment - Enrollment is defined as the number of students registered in a course on the last day of the enrollment reporting period[96] - Peruvian institutions have primary intake in Q1 and secondary in Q3; Mexican institutions have primary intake in Q3 and secondary in Q1[97] - Revenues are recognized when classes are in session, with summer breaks impacting Q1 and Q3 for different regions[97] Principal Components of Income Statement The income statement comprises revenues, direct costs, and general and administrative expenses - The principal components of the income statement are Revenues, Direct Costs, and General and Administrative Expenses[98][99][100] Revenues - The majority of revenue comes from tuition and educational services, influenced by price per credit hour, total credit hours, and program pricing[98] - Revenues are recognized net of scholarships, discounts, refunds, and waivers[98] - Main drivers of revenue changes are student enrollment and price, with tuition rates adjusted based on market conditions[98] Direct Costs - Direct costs include labor, operating costs, depreciation, amortization, rent, utilities, bad debt, and marketing expenses[99] - A significant portion of direct costs are variable and tend to trend with enrollment[99] General and Administrative Expenses - General and administrative expenses primarily consist of costs associated with corporate departments like executive management, finance, legal, and business development[100] Factors Affecting Comparability Financial result comparability is affected by foreign exchange rates, seasonality, and income tax expense variations - Comparability of financial results is affected by foreign exchange rates, seasonality, and income tax expense[101][103][104] Foreign Exchange - Laureate's reporting currency is USD, but operations in Mexico and Peru use local functional currencies, leading to foreign exchange exposure from translation[101] - The strengthening of the Mexican peso against the USD significantly impacted reported revenues and expenses[109][110][115] - "Organic constant currency" is used to assess business performance by excluding the effects of foreign currency fluctuations[102] Seasonality - Laureate experiences seasonal fluctuations in results due to academic calendars, with summer breaks impacting Q1 and Q3 revenues[103] - Operating expenses do not fully correlate with revenue cycles, as institutions incur expenses during summer breaks[103] - Q2 and Q4 are stronger revenue quarters, while Q1 and Q3 are weaker due to summer breaks, but primary enrollment intakes occur in Q1 and Q3[103] Income Tax Expense - Income tax provision is based on federal, state, and foreign income taxes, and discrete items[104] - The tax rate fluctuates due to the mix of earnings between tax-paying and loss-making entities[104] - Proposed OECD tax principle changes may increase tax uncertainty and adversely affect the provision for income taxes[105] Results of Operations This section compares consolidated and segment financial results for Q3 and the first nine months of 2023 and 2022 - The results of operations section includes a summary comparison of consolidated results, non-GAAP financial measures (Adjusted EBITDA), and segment results[107] Summary Comparison of Consolidated Results for the Three Months Ended September 30, 2023 and 2022 | Metric (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $361.5 | $301.0 | 20% | | Direct costs | $291.1 | $229.4 | (27)% | | General and administrative expenses | $11.8 | $15.3 | 23% | | Operating income | $58.7 | $56.3 | 4% | | Net income attributable to Laureate Education, Inc. | $36.2 | $31.1 | 16% | - Revenue increase was driven by foreign currency exchange rates ($37.8 million, mainly Mexican peso), higher organic enrollment ($16.0 million), and product mix/pricing/timing ($7.4 million)[109] - Direct costs and G&A expenses increased by $58.2 million, primarily due to foreign currency exchange rates ($33.0 million) and higher enrollment-driven operational changes ($27.9 million)[110] Summary Comparison of Consolidated Results for the Nine Months Ended September 30, 2023 and 2022 | Metric (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,074.9 | $895.9 | 20% | | Direct costs | $810.4 | $655.1 | (24)% | | General and administrative expenses | $34.0 | $48.8 | 30% | | Operating income | $228.8 | $192.0 | 19% | | Net income attributable to Laureate Education, Inc. | $65.7 | $30.3 | 117% | - Revenue increase was driven by foreign currency exchange rates ($79.3 million, mainly Mexican peso), higher organic enrollment ($62.8 million), and product mix/pricing/timing ($40.7 million)[115] - Direct costs and G&A expenses increased by $140.5 million, primarily due to operational changes from higher enrollments and return-to-campus expenses ($87.8 million), and foreign currency exchange rates ($64.9 million)[116] Non-GAAP Financial Measure (Adjusted EBITDA) | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net income | $36.0 | $31.0 | 16% | | Operating income | $58.7 | $56.3 | 4% | | Adjusted EBITDA | $78.4 | $72.8 | 8% | | Metric (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Net income | $65.5 | $29.9 | 119% | | Operating income | $228.8 | $192.0 | 19% | | Adjusted EBITDA | $287.3 | $244.1 | 18% | - Adjusted EBITDA is a key measure for management and the Board to understand core operating performance, prepare budgets, and develop operational plans, excluding items like share-based compensation and impairment losses[123] Segment Results This section breaks down revenues and Adjusted EBITDA for the Mexico, Peru, and Corporate segments - Segment results are presented for Mexico, Peru, and Corporate, with "segment direct costs" excluding depreciation, amortization, impairment, share-based compensation, and EiP expenses[128] Mexico | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $185.4 | $147.8 | 25% | | Adjusted EBITDA | $21.9 | $23.4 | (6)% | | Metric (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $559.5 | $435.0 | 29% | | Adjusted EBITDA | $109.1 | $79.8 | 37% | - Mexico's organic enrollment increased by 9% for the three months and 10% for the nine months ended September 30, 2023[131][132] Peru | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $176.2 | $152.5 | 16% | | Adjusted EBITDA | $66.3 | $61.2 | 8% | | Metric (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $515.4 | $457.1 | 13% | | Adjusted EBITDA | $207.1 | $201.4 | 3% | - Peru's organic enrollment increased by 5% for the three months and 6% for the nine months ended September 30, 2023[144][145] Corporate | Metric (in millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $0.0 | $0.7 | (100)% | | Adjusted EBITDA | $(9.9) | $(11.9) | 17% | | Metric (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $0.0 | $3.8 | (100)% | | Adjusted EBITDA | $(28.8) | $(37.2) | 23% | - Corporate Adjusted EBITDA improvement was mainly driven by a decrease in contract labor expenses, other professional fees, and IT-related costs[146] Liquidity and Capital Resources Laureate anticipates sufficient cash flow and available cash to meet liquidity needs for the next 12 months - Laureate expects cash flow from operations and available cash to cover liquidity needs for at least the next 12 months[147] - Primary cash source is tuition revenue from private pay sources in Mexico and Peru, with no material government-sponsored loan programs[148] - The company has a $300.0 million revolving credit facility, with $28.0 million borrowed as of September 30, 2023[150] Liquidity Sources - Primary liquidity source is tuition revenue from private pay students in Mexico and Peru[148] | Metric | Sep 30, 2023 (in millions) | | :--- | :--- | | Cash and cash equivalents | $130.9 | | Revolving Credit Facility (total capacity) | $300.0 | | Revolving Credit Facility (drawn) | $28.0 | Liquidity Restrictions | Metric | Sep 30, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Restricted cash | $7.6 | $8.6 | - Restricted cash is not immediately available for current operations and is held for a supplemental employment retention agreement[152] Indefinite Reinvestment of Historical Foreign Earnings | Metric | Sep 30, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents held by foreign subsidiaries | $121.3 | $77.3 | | Total cash and cash equivalents | $130.9 | $85.2 | - Undistributed historical earnings of foreign operations are deemed indefinitely reinvested outside the U.S., with no taxes recorded on these amounts[153] Liquidity Requirements - Short-term liquidity requirements include debt service, operating lease obligations, deferred compensation, working capital, operating expenses, capital expenditures, special dividend, and business development[154] - Long-term liquidity requirements include payments on long-term debt, finance leases, operating lease obligations, deferred compensation, and other third-party obligations[155] Debt | Debt Component | Sep 30, 2023 (in millions) | | :--- | :--- | | Senior Secured Credit Facility | $28.0 | | Other debt (lines of credit, notes payable) | $49.1 | | Finance lease obligations and sale-leaseback financings | $57.6 | | Total debt obligations | $134.7 | Covenants - The Amended Credit Agreement includes a Consolidated Senior Secured Debt to Consolidated EBITDA financial maintenance covenant for the revolving credit facility[157] - As of September 30, 2023, Laureate was not subject to the leverage ratio covenant because conditions were satisfied, and the company was in compliance with all other financial maintenance covenants[157] Leases | Metric | Sep 30, 2023 (in millions) | Dec 31, 2022 (in millions) | | :--- | :--- | :--- | | Present value of operating lease liabilities | $393.2 | $415.9 | - Laureate conducts a significant portion of its operations from leased facilities, including higher education facilities and office locations[158] Capital Expenditures | Metric | 9 Months Ended Sep 30, 2023 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total capital expenditures | $26.7 | $17.1 | 56% | - The increase in capital expenditures was primarily due to investment in equipment for health science programs in Peru and campus expansion and digital innovation in Mexico[160] - Capital expenditure program includes discretionary spending for growth (capacity expansion, new programs/campuses, IT) and non-discretionary spending for maintenance[159] Special Cash Dividend - A special cash dividend of $0.70 per share was approved on October 30, 2023, with an aggregate amount of approximately $110.0 million, payable on November 30, 2023[161] Cash Flows | Cash Flow Activity (in millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (in millions) | | :--- | :--- | :--- | :--- | | Operating activities | $187.4 | $154.7 | $32.7 | | Investing activities | $(26.2) | $66.3 | $(92.5) | | Financing activities | $(120.2) | $(236.5) | $116.3 | - Operating cash increased due to higher operating income and changes in operating assets/liabilities, partially offset by increased cash paid for taxes and interest[164] - Investing cash flow decrease was mainly due to lower cash receipts from sales of discontinued operations and property/equipment ($82.9 million decrease) and increased capital expenditures ($9.6 million increase)[165] - Financing cash outflow decrease was primarily due to the absence of $207.2 million in common stock repurchases made in the prior year[166] Critical Accounting Policies and Estimates No significant changes were made to critical accounting policies during the first nine months of 2023 - Financial statement preparation involves significant management judgments and estimates[168] - No significant changes to critical accounting policies occurred during the nine months ended September 30, 2023[168] Recently Adopted Accounting Standards There were no recently adopted accounting standards to report - No recently adopted accounting standards were reported[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes in Laureate's market risk exposures since December 31, 2022 - No significant changes in market risk exposures have occurred since December 31, 2022[170] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and reports a non-material upgrade to internal control systems Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023[171] Changes in Internal Controls over Financial Reporting The company upgraded its financial consolidation system in Q3 2023, which was not in response to any control deficiency - The company upgraded to a new cloud-based system for planning and financial consolidation in Q3 2023[172] - This system implementation was not due to any identified deficiency or weakness in internal control over financial reporting[172] - No other material changes to internal control over financial reporting occurred during the fiscal quarter ended September 30, 2023[173] PART II. - OTHER INFORMATION Item 1. Legal Proceedings No new material legal proceedings have arisen, though a Spanish tax audit was initiated in May 2023 - No new material legal proceedings or developments were reported, except for specific tax matters[174] - The Spanish Supreme Court ruled in favor of the Spanish Taxing Authority in June 2023 regarding tax deductibility of financial expenses for 2006-2010, with no material effect on consolidated financial statements[175] - A new tax audit for corporate income tax (2018-2020) and non-resident income tax (2019-2020) was initiated by the Spanish Taxing Authority in May 2023[176] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the 2022 Form 10-K - No material changes to previously disclosed risk factors in the 2022 Form 10-K[177] Item 5. Other Information No directors or officers adopted, terminated, or modified Rule 10b5-1 trading arrangements during Q3 2023 - No directors or officers adopted, terminated, or modified Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended September 30, 2023[178] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and certifications - Exhibits include the Third Amendment to the Third Amended and Restated Credit Agreement, Fourth Amendment to Independent Contractor and Consultant Agreement, Section 302 and 906 Certifications, and XBRL documents[180] SIGNATURES The report was duly signed by the Chief Financial Officer and Global Controller on November 2, 2023 - The report was signed by Richard M. Buskirk (SVP and CFO) and Gerard M. Knauer (VP, Accounting and Global Controller) on November 2, 2023[184]