What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 144 added, 132 removed, 461 unchanged (37% of the section changed)

82 unchanged sentences

The Corporate segment also contains the eliminations of inter-segment revenues and expenses.

The following information for our reportable segments is presented as of June 30, 2022:

The following information for our reportable segments is presented as of September 30, 2022:

Institutions Enrollment 2022 YTD Revenues

79 unchanged sentences

Results from the Discontinued Operations

The results of operations of our Discontinued Operations for the three and six months ended June 30, 2022 and 2021 were as follows:

For the three months ended For the six months ended

June 30, June 30,

The results of operations of our Discontinued Operations for the three and nine months ended September 30, 2022 and 2021 were as follows:

For the three months ended For the nine months ended

September 30, September 30,

(in millions) 2022 2021 2022 2021

4 unchanged sentences

Other non-operating expense — (4.9) — (20.5)

Gain on sale of discontinued operations before taxes, net 4.1 30.1 4.9 13.3

Pretax income of discontinued operations 4.1 85.6 4.9 94.8

Income tax benefit (expense) — 1.1 — (8.6)

Income from discontinued operations, net of tax $ 4.1 $ 86.7 $ 4.9 $ 86.2

(Loss) gain on sale of discontinued operations before taxes, net (0.8) 612.0 4.1 625.3

Pretax (loss) income of discontinued operations (0.8) 619.4 4.1 714.2

Income tax expense — (248.8) — (257.4)

(Loss) income from discontinued operations, net of tax $ (0.8) $ 370.5 $ 4.1 $ 456.8

We completed all of our planned divestitures in 2021.

Our remaining operations are included in continuing operations.

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

During the second quarter of 2022, we completed the transfer of the remaining assets and liabilities that were classified as held for sale as of December 31, 2021, which related to the divestiture of our operations in Chile.

This resulted in a gain of approximately $4.3 million.

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

On March 8, 2021, we sold our operations in Honduras, which resulted in an after-tax loss of $1.7 million, including a working capital adjustment during the second quarter of 2021.

3 unchanged sentences

During the first quarter of 2021, we recorded a loss of approximately $32.4 million in order to adjust the carrying value of our Brazil disposal group to its estimated fair value less costs to sell as of March 31, 2021.

This loss is included in Gain on sale of discontinued operations before taxes, net.

On May 28, 2021, we completed the sale of our operations in Brazil, which resulted in pre-tax gain of $27.5 million.

This loss is included in (Loss) gain on sale of discontinued operations before taxes, net.

On May 28, 2021, we completed the sale of our operations in Brazil, which resulted in pre-tax gain of $26.1 million, including a working capital adjustment during the third quarter of 2021.

On August 12, 2021, we completed the sale of Walden University, which resulted in a pre-tax gain of $615.2 million, as well as estimated tax expense of approximately $278.0 million.

Results of Operations

4 unchanged sentences

Summary Comparison of Consolidated Results

Discussion of Significant Items Affecting the Consolidated Results for the Six Months Ended June 30, 2021

Discussion of Significant Items Affecting the Consolidated Results for the Nine Months Ended September 30, 2021

In March 2021, the Company decided that, during 2021, it would wind down certain support functions related to the Laureate network and would no longer invest in and support the Laureate tradename beyond 2021.

1 unchanged sentence

As a result of the impairment test, the Company concluded that the estimated fair value of the Laureate tradename was less than its carrying value by approximately $51.4 million and recorded an impairment charge for that amount.

During the second quarter of 2021, we fully repaid the remaining balance outstanding under our Senior Notes due 2025 using a portion of the proceeds received from the sales of our operations in Australia and New Zealand and Brazil.

During the second quarter of 2021, the Company fully repaid the remaining balance outstanding under its Senior Notes due 2025 using a portion of the proceeds received from the sales of its operations in Australia and New Zealand and Brazil.

In connection with the debt repayment, the Company recorded a loss on debt extinguishment of $77.9 million, related to the redemption premium paid and the write off of the unamortized deferred financing costs associated with the repaid debt balances.

This loss is included in other non-operating expense in the tables below.

This loss is included in other non-operating expense in the year-to-date table below.

In November 2020, in connection with the signing of the sale agreement for our Brazil operations, the Company entered into six BRL-to-USD swap agreements to mitigate the risk of foreign currency exposure on the expected proceeds from the sale.

1 unchanged sentence

On June 2, 2021, the Company settled the swap agreements, which resulted in a realized loss on derivatives of $24.5 million.

This loss is included in other non-operating expense in the tables below.

Comparison of Consolidated Results for the Three Months Ended June 30, 2022 and 2021

This loss is included in other non-operating expense in the year-to-date table below.

Comparison of Consolidated Results for the Three Months Ended September 30, 2022 and 2021

Better/(Worse)

6 unchanged sentences

Interest expense, net of interest income (1.7) (2.4) 29 %

Other non-operating expense (12.8) (147.3) 91 %

Income (loss) from continuing operations before income taxes 111.4 (102.7) nm

Income tax expense (72.0) (13.2) nm

Income (loss) from continuing operations 39.4 (115.9) 134 %

Income from discontinued operations, net of tax 4.1 86.7 (95) %

Net income (loss) 43.6 (29.2) nm

Net (income) loss attributable to noncontrolling interests (0.1) 0.2 150 %

Net income (loss) attributable to Laureate Education, Inc.

$ 43.4 $ (29.0) nm

Other non-operating income 16.5 5.2 nm

Income from continuing operations before income taxes 71.1 37.7 89 %

Income tax expense (39.3) (48.1) 18 %

Income (loss) from continuing operations 31.9 (10.4) nm

(Loss) income from discontinued operations, net of tax (0.8) 370.5 (100) %

Net income 31.0 360.1 (91) %

Net loss attributable to noncontrolling interests 0.1 0.3 67 %

Net income attributable to Laureate Education, Inc.

$ 31.1 $ 360.4 (91) %

nm - percentage changes not meaningful

For further details on certain discrete items discussed below, see “Discussion of Significant Items Affecting the Consolidated Results.”

Comparison of Consolidated Results for the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Revenues increased by $57.8 million to $385.4 million for the three months ended June 30, 2022 (the 2022 fiscal quarter) from $327.6 million for the three months ended June 30, 2021 (the 2021 fiscal quarter).

Comparison of Consolidated Results for the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Revenues increased by $33.3 million to $301.0 million for the three months ended September 30, 2022 (the 2022 fiscal quarter) from $267.7 million for the three months ended September 30, 2021 (the 2021 fiscal quarter).

This increase in revenues was largely attributable to higher average total organic enrollment at our institutions during the 2022 fiscal quarter, increasing revenues by $24.1 million compared to the 2021 fiscal quarter.

1 unchanged sentence

Additionally, the effect of a net change in foreign currency exchange rates increased revenues by $5.1 million compared to the 2021 fiscal quarter.

Direct costs and general and administrative expenses combined decreased by $4.0 million to $258.7 million for the 2022 fiscal quarter from $262.7 million for the 2021 fiscal quarter.

Expenses related to the Excellence-in-Process (EiP) program were $12.3 million lower in the 2022 fiscal quarter as compared to the 2021 fiscal quarter, following the completion of the EiP program in the fourth quarter of 2021.

Depreciation and amortization expense was lower by $12.3 million, which was mostly attributable to the finite-lived tradename being fully amortized during 2021.

In addition, Corporate and Eliminations expenses accounted for a decrease in costs of $12.0 million, driven by cost-saving initiatives.

These decreases in direct costs were partially offset by the effect of operational changes, which increased costs by $31.0 million, primarily due to the effect of higher enrollment at our institutions.

The effect of a net change in foreign currency exchange rates also increased costs by $1.6 million compared to the 2021 fiscal quarter.

These increases in revenues were partially offset by other Corporate and Eliminations changes, which accounted for a decrease in revenues of $2.6 million.

Direct costs and general and administrative expenses combined increased by $15.4 million to $244.7 million for the 2022 fiscal quarter from $229.3 million for the 2021 fiscal quarter.

The increase in direct costs was primarily driven by the effect of operational changes, which increased costs by $46.4 million, primarily due to the result of higher enrollment at our institutions, as well as return-to-campus expenses.

The effect of a net change in foreign currency exchange rates increased costs by $2.3 million compared to the 2021 fiscal quarter.

In addition, changes in acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in indemnification assets, increased direct costs by $0.3 million compared to the 2021 fiscal quarter.

These increases in direct costs were partially offset by:

(1) a decrease of $9.4 million in expenses related to the Excellence-in-Process (EiP) program in the 2022 fiscal quarter as compared to the 2021 fiscal quarter, following the completion of the EiP program in the fourth quarter of 2021;

(2) lower depreciation and amortization expense of $11.5 million, which was mostly attributable to the finite-lived tradename being fully amortized during 2021;

and (3) a decrease of $12.7 million in Corporate and Eliminations expenses, driven by cost-reduction efforts.

Operating income increased by $21.2 million to $56.3 million for the 2022 fiscal quarter from $35.1 million for the 2021 fiscal quarter.

Operating income increased at both our Peru and Mexico segments, as compared to the 2021 fiscal quarter.

The increase in operating income was driven by cost-reduction efforts at Corporate, partially offset by lower operating income at both our Peru and Mexico segments, as compared to the 2021 fiscal quarter.

Interest expense, net of interest income decreased by $0.7 million to $1.7 million for the 2022 fiscal quarter from $2.4 million for the 2021 fiscal quarter.

The decrease in interest expense was primarily attributable to lower average debt balances as a result of debt repayments.

Other non-operating expense decreased by $134.5 million to $12.8 million for the 2022 fiscal quarter from $147.3 million for the 2021 fiscal quarter.

This decrease was attributable to:

(1) the year-over-year effect of a loss on debt extinguishment of $77.9 million during the 2021 fiscal quarter in connection with the repayment of the Senior Notes due 2025;

(2) the year-over-year effect of a loss on derivative instruments of $53.8 million during the 2021 fiscal quarter, related to the settlement of foreign currency swap agreements in connection with the sale of our Brazilian operations;

(3) higher gain on disposal of subsidiaries of $1.5 million during the 2022 fiscal quarter;

(4) a lower loss on foreign currency exchange of $1.0 million during the 2022 fiscal quarter;

and (5) an increase in other non-operating income of $0.3 million during the 2022 fiscal quarter.

Income tax expense increased by $58.8 million to $72.0 million for the 2022 fiscal quarter from $13.2 million for the 2021 fiscal quarter.

This increase in income tax expense was primarily due to changes in the mix of pre-tax book income attributable to taxable and non-taxable entities in various taxing jurisdictions.

Income from discontinued operations, net of tax decreased by $82.6 million to $4.1 million for the 2022 fiscal quarter from $86.7 million for the 2021 fiscal quarter.

Other non-operating income increased by $11.3 million to $16.5 million for the 2022 fiscal quarter from $5.2 million for the 2021 fiscal quarter.

This increase was attributable to:

(1) a higher gain on foreign currency exchange of $9.0 million during the 2022 fiscal quarter;

(2) other non-operating income of $1.4 million during the 2022 fiscal quarter;

and (3) the year-over-year effect of a loss on disposal of subsidiaries of $0.9 million during the 2021 fiscal quarter.

Income tax expense decreased by $8.8 million to $39.3 million for the 2022 fiscal quarter from $48.1 million for the 2021 fiscal quarter.

This decrease was primarily attributable to discrete return-to-provision adjustments recorded in 2021 for the final regulations addressing the high-tax exemption for global intangible low-tax income, partially offset by the tax effect of the increase in pretax income between the two fiscal quarters.

(Loss) income from discontinued operations, net of tax changed by $371.3 million to loss of $(0.8) million for the 2022 fiscal quarter from income of $370.5 million for the 2021 fiscal quarter.

This change was primarily attributable to the gain on sale of Walden University during the 2021 fiscal quarter.

See Overview for further detail on results of the Discontinued Operations.

Comparison of Consolidated Results for the Six Months Ended June 30, 2022 and 2021

Comparison of Consolidated Results for the Nine Months Ended September 30, 2022 and 2021

Better/(Worse)

4 unchanged sentences

Loss on impairment of assets 0.1 67.2 100 %

Operating income (loss) 135.7 (28.7) nm

Operating income 192.0 6.4 nm

Interest expense, net of interest income (6.0) (38.3) 84 %

Other non-operating expense (1.0) (84.7) 99 %

Income (loss) from continuing operations before income taxes and equity in net income of affiliates 113.9 (154.4) 174 %

Income (loss) from continuing operations before income taxes and equity in net income of affiliates 185.0 (116.6) nm

Income tax expense (159.2) (174.2) 9 %

Equity in net income of affiliates, net of tax 0.1 — nm

Loss from continuing operations (6.0) (280.4) 98 %

Income (loss) from continuing operations 25.9 (290.8) 109 %

Income from discontinued operations, net of tax 4.1 456.8 (99) %

Net loss (1.1) (194.2) 99 %

Net income 29.9 166.0 (82) %

Net loss attributable to noncontrolling interests 0.4 0.5 20 %

Net loss attributable to Laureate Education, Inc.

Net income attributable to Laureate Education, Inc.

$ 30.3 $ 166.5 (82) %

1 unchanged sentence

For further details on certain discrete items discussed below, see “Discussion of Significant Items Affecting the Consolidated Results.”

Comparison of Consolidated Results for the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Revenues increased by $72.6 million to $594.9 million for the six months ended June 30, 2022 (the 2022 fiscal period) from $522.3 million for the six months ended June 30, 2021 (the 2021 fiscal period).

Comparison of Consolidated Results for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Revenues increased by $105.9 million to $895.9 million for the nine months ended September 30, 2022 (the 2022 fiscal period) from $790.0 million for the nine months ended September 30, 2021 (the 2021 fiscal period).

Average total organic enrollment was higher at our institutions, increasing revenues by $86.7 million compared to the 2021 fiscal period.

1 unchanged sentence

In addition, the effect of a net change in foreign currency exchange rates increased revenues by $5.7 million compared to the 2021 fiscal period.

Other Corporate and Eliminations changes accounted for a decrease in revenues of $0.2 million.

These increases in revenues were partially offset by other Corporate and Eliminations changes, which accounted for a decrease in revenues of $3.0 million.

Direct costs and general and administrative expenses combined decreased by $12.5 million to $703.9 million for the 2022 fiscal period from $716.4 million for the 2021 fiscal period.

This decrease in direct costs was primarily related to:

This decrease in direct costs and administrative expenses was primarily related to:

(1) lower EiP implementation expense of $36.2 million in the 2022 fiscal period following the completion of our EiP program in 2021;

3 unchanged sentences

and (5) the effect of a net change in foreign currency exchange rates, which decreased costs by $0.2 million.

These decreases in direct costs were partially offset by the effect of operational changes, which increased direct costs by $52.3 million, mostly attributable to our Peru segment.

Operating income (loss) changed by $164.4 million to an income of $135.7 million for the 2022 fiscal period from a loss of $(28.7) million for the 2021 fiscal period.

This change was primarily a result of the impairment loss related to the Laureate tradename impairment that was recognized during the 2021 fiscal period, combined with higher operating income at our Mexico and Peru segments during the 2022 fiscal period.

These decreases in direct costs were partially offset by the effect of operational changes, which increased direct costs by $99.4 million, mostly attributable to the effect of higher enrollments at our institutions, as well as return-to-campus expenses.

Operating income increased by $185.6 million to $192.0 million for the 2022 fiscal period from $6.4 million for the 2021 fiscal period.

This increase was primarily a result of the impairment loss related to the Laureate tradename impairment that was recognized during the 2021 fiscal period, combined with higher operating income at our Mexico and Peru segments during the 2022 fiscal period.

In addition, cost-reduction efforts resulted in lower operating costs at Corporate compared to the 2021 fiscal period.

Interest expense, net of interest income decreased by $32.3 million to $6.0 million for the 2022 fiscal period from $38.3 million for the 2021 fiscal period.

The decrease in interest expense was primarily attributable to lower average debt balances as a result of debt repayments.

The decrease in interest expense was primarily attributable to lower average debt balances mainly driven by the full repayment of the Senior Notes due 2025 in the 2021 fiscal period.

Other non-operating expense decreased by $83.7 million to $1.0 million for the 2022 fiscal period from $84.7 million for the 2021 fiscal period.

This change was attributable to:

(1) the year-over-year effect of a loss on debt extinguishment of $77.9 million during the 2021 fiscal quarter in connection with the repayment of the Senior Notes due 2025;

This decrease was attributable to:

(1) the year-over-year effect of a loss on debt extinguishment of $77.9 million during the 2021 fiscal period in connection with the repayment of the Senior Notes due 2025;

(2) a loss on derivative instruments of $24.5 million during the 2021 fiscal period, driven by settlement of foreign currency swap agreements in connection with the sale of our Brazilian operations;

and (3) higher gain on disposal of subsidiaries of $1.5 million during the 2022 fiscal period.

These decreases in other non-operating expense were partially offset by a loss on foreign currency exchange in the 2022 fiscal period, compared to a gain in the 2021 fiscal period, for a change of $30.8 million and the period-over-period effect of other non-operating expense of $0.9 million during the 2022 fiscal period.

(3) a gain on disposal of subsidiaries during the 2022 fiscal period, compared to a loss during the 2021 fiscal period, for a change of $2.4 million;

and (4) the period-over-period effect of other non-operating income of $0.5 million during the 2022 fiscal period.

Income tax expense decreased by $15.0 million to $159.2 million for the 2022 fiscal period from $174.2 million for the 2021 fiscal period.

This decrease was primarily attributable to discrete tax expense recorded during the 2021 fiscal period of approximately $58.9 million for increases to income tax reserves, partially offset by discrete tax expense recorded during the 2022 fiscal period of approximately $32.5 million for additions to income tax reserves.

The remaining difference was primarily attributable to the change in pretax earnings.

This decrease was primarily attributable to discrete return-to-provision adjustments recorded in 2021 for the final regulations addressing the high-tax exemption for global intangible low-tax income and a net reduction in discrete expense attributable to changes in judgment for uncertain tax positions, partially offset by the tax effect of the increase in pretax income between the two periods.

Income from discontinued operations, net of tax decreased by $452.7 million to $4.1 million for the 2022 fiscal period from $456.8 million for the 2021 fiscal period.

This decrease was primarily attributable to the gain on sale of Walden University during the 2021 fiscal quarter.

See Overview for further detail on results of the Discontinued Operations.

Non-GAAP Financial Measure

We define Adjusted EBITDA as income (loss) from continuing operations, before equity in net (income) loss of affiliates, net of tax, income tax expense (benefit), foreign currency exchange (gain) loss, net, other (income) expense, net, loss (gain) on derivatives, loss on debt extinguishment, interest expense and interest income, plus depreciation and amortization, share-based compensation expense, loss on impairment of assets and expenses related to our Excellence-in-Process (EiP) initiative.

We define Adjusted EBITDA as income (loss) from continuing operations, before equity in net (income) loss of affiliates, net of tax, income tax expense (benefit), (gain) loss on disposal of subsidiaries, net,foreign currency exchange (gain) loss, net, other (income) expense, net, loss (gain) on derivatives, loss on debt extinguishment, interest expense and interest income, plus depreciation and amortization, share-based compensation expense, loss on impairment of assets and expenses related to our Excellence-in-Process (EiP) initiative.

Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.

3 unchanged sentences

Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.

The following table presents Adjusted EBITDA and reconciles income (loss) from continuing operations to Adjusted EBITDA for the three months ended June 30, 2022 and 2021:

The following table presents Adjusted EBITDA and reconciles income (loss) from continuing operations to Adjusted EBITDA for the three months ended September 30, 2022 and 2021:

Better/(Worse)

(in millions) 2022 2021 2022 vs.

Income (loss) from continuing operations $ 39.4 $ (115.9) 134 %

Income tax expense 72.0 13.2 nm

Income (loss) from continuing operations before income taxes 111.4 (102.7) nm

Gain on disposal of subsidiaries, net (1.5) — nm

Foreign currency exchange loss, net 14.5 15.5 6 %

Other (income) loss, net (0.2) 0.1 nm

Loss on derivatives — 53.8 100 %

Loss on debt extinguishment — 77.9 100 %

Income (loss) from continuing operations $ 31.9 $ (10.4) nm

Income tax expense 39.3 48.1 18 %

Income from continuing operations before income taxes 71.1 37.7 89 %

Loss on disposal of subsidiaries, net — 0.9 100 %

Foreign currency exchange gain, net (15.1) (6.1) 148 %

Other income, net (1.4) — nm

Interest expense 3.7 3.7 — %

Interest income (1.7) (0.5) nm

Interest income (2.0) (1.3) 54 %

Operating income 56.3 35.1 60 %

4 unchanged sentences

EiP implementation expenses (c)

0.3 12.6 98 %

Adjusted EBITDA $ 72.8 $ 75.9 (4) %

6 unchanged sentences

The EiP initiative was completed as of December 31, 2021, except for certain EiP expenses related to the run out of programs that began in prior periods.

Comparison of Depreciation and Amortization, Share-based Compensation and EiP Implementation Expenses for the Three Months Ended June 30, 2022 and 2021

Comparison of Depreciation and Amortization, Share-based Compensation and EiP Implementation Expenses for the Three Months Ended September 30, 2022 and 2021

Depreciation and amortization decreased by $11.4 million to $14.5 million for the 2022 fiscal quarter from $25.9 million for the 2021 fiscal quarter.

5 unchanged sentences

This decrease resulted from the completion of our EiP program in 2021, with exception of certain EiP expenses related to the run out of programs that began in prior periods.

The following table presents Adjusted EBITDA and reconciles loss from continuing operations to Adjusted EBITDA for the six months ended June 30, 2022 and 2021:

The following table presents Adjusted EBITDA and reconciles income (loss) from continuing operations to Adjusted EBITDA for the nine months ended September 30, 2022 and 2021:

Better/(Worse)

(in millions) 2022 2021 2022 vs.

Loss from continuing operations $ (6.0) $ (280.4) 98 %

Income (loss) from continuing operations $ 25.9 $ (290.8) 109 %

Equity in net income of affiliates, net of tax (0.1) — nm

Income tax expense 159.2 174.2 9 %

Income (loss) from continuing operations before income taxes and equity in net income of affiliates 113.9 (154.4) 174 %

Gain on disposal of subsidiaries, net (1.5) — nm

Foreign currency exchange loss (gain), net 18.1 (12.7) nm

Other expense, net 1.0 — nm

Income (loss) from continuing operations before income taxes and equity in net income of affiliates 185.0 (116.6) nm

(Gain) loss on disposal of subsidiaries, net (1.5) 0.9 nm

Foreign currency exchange loss (gain), net 2.9 (18.7) (116) %

Other (income) expense, net (0.4) 0.1 nm

Loss on derivatives — 24.5 100 %

1 unchanged sentence

Interest expense 11.6 40.8 72 %

Interest income (3.7) (1.2) nm

Operating income (loss) 135.7 (28.7) nm

Interest income (5.6) (2.5) 124 %

Operating income 192.0 6.4 nm

Depreciation and amortization 43.6 75.6 42 %

EBITDA 164.9 21.0 nm

EBITDA 235.6 82.0 187 %

Share-based compensation expense (a)

8 unchanged sentences

(b) Represents non-cash charges related to impairments of long-lived assets.

For further details, see “Discussion of Significant Items Affecting the Consolidated Results for the Six Months Ended June 30, 2021.”

For further details, see “Discussion of Significant Items Affecting the Consolidated Results for the Nine Months Ended September 30, 2021.”

(c) EiP implementation expenses are related to our enterprise-wide initiative to optimize and standardize Laureate’s processes, creating vertical integration of procurement, information technology, finance, accounting and human resources.

2 unchanged sentences

The EiP initiative was completed as of December 31, 2021, except for certain EiP expenses related to the run out of programs that began in prior periods.

Comparison of Depreciation and Amortization, Share-based Compensation and EiP Implementation Expenses for the Six Months Ended June 30, 2022 and 2021

Comparison of Depreciation and Amortization, Share-based Compensation and EiP Implementation Expenses for the Nine Months Ended September 30, 2022 and 2021

Depreciation and amortization decreased by $32.0 million to $43.6 million for the 2022 fiscal period from $75.6 million for the 2021 fiscal period.

15 unchanged sentences

Better/(Worse)

For the three months ended June 30, 2022 2021 2022 vs.

For the three months ended September 30, 2022 2021 2022 vs.

Mexico $ 147.8 $ 131.3 13 %

9 unchanged sentences

Better/(Worse)

For the six months ended June 30, 2022 2021 2022 vs.

For the nine months ended September 30, 2022 2021 2022 vs.

Mexico $ 435.0 $ 390.9 11 %

8 unchanged sentences

Financial Overview

Comparison of Mexico Results for the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Comparison of Mexico Results for the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

(in millions) Revenues Direct Costs Adjusted EBITDA

June 30, 2021 $ 124.3 $ 107.1 $ 17.2

September 30, 2021 $ 131.3 $ 104.3 $ 27.0

Organic enrollment (1)

2 unchanged sentences

Foreign exchange (1.6) (1.4) (0.2)

June 30, 2022 $ 144.7 $ 125.2 $ 19.5

September 30, 2022 $ 147.8 $ 124.4 $ 23.4

(1) Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.

(2) Other is composed of acquisition-related contingent liabilities for taxes other-than-income tax, net of changes in recorded indemnification assets.

Revenues increased by $16.5 million, a 13% increase from the 2021 fiscal quarter.

• Organic enrollment increased during the fiscal quarter by 10%, increasing revenues by $11.4 million.

• Revenues from our Mexico segment represented 38% of our consolidated total revenues for both the 2022 and 2021 fiscal quarters.

Adjusted EBITDA increased by $2.3 million, a 13% increase from the 2021 fiscal quarter.

Comparison of Mexico Results for the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

• Revenues from our Mexico segment represented 49% of our consolidated total revenues for the 2022 fiscal quarter, compared to 50% for the 2021 fiscal quarter.

Adjusted EBITDA decreased by $3.6 million, a 13% decrease from the 2021 fiscal quarter, partly attributable to return-to-campus expenses.

Comparison of Mexico Results for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

(in millions) Revenues Direct Costs Adjusted EBITDA

June 30, 2021 $ 259.7 $ 225.2 $ 34.5

September 30, 2021 $ 390.9 $ 329.4 $ 61.5

Organic enrollment (1)

3 unchanged sentences

— (13.0) 13.0

June 30, 2022 $ 287.2 $ 230.8 $ 56.4

September 30, 2022 $ 435.0 $ 355.2 $ 79.8

5 unchanged sentences

Financial Overview

Comparison of Peru Results for the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Comparison of Peru Results for the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

(in millions) Revenues Direct Costs Adjusted EBITDA

June 30, 2021 $ 201.7 $ 88.1 $ 113.6

September 30, 2021 $ 133.1 $ 62.3 $ 70.8

Organic enrollment (1)

2 unchanged sentences

Foreign exchange 6.7 3.6 3.1

June 30, 2022 $ 239.2 $ 102.9 $ 136.3

September 30, 2022 $ 152.5 $ 91.3 $ 61.2

1 unchanged sentence

• Organic enrollment increased during the 2022 fiscal quarter by 10%, increasing revenues by $12.7 million.

• Revenues from our Peru segment represented 62% of our consolidated total revenues for both the 2022 and 2021 fiscal quarters.

Adjusted EBITDA increased by $22.7 million, a 20% increase from the 2021 fiscal quarter.

Comparison of Peru Results for the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

• Revenues from our Peru segment represented 51% of our consolidated total revenues for the 2022 fiscal quarter, compared to 50% for the 2021 fiscal quarter.

Adjusted EBITDA decreased by $9.6 million, a 14% decrease from the 2021 fiscal quarter, partly attributable to return-to-campus expenses.

Comparison of Peru Results for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

(in millions) Revenues Direct Costs Adjusted EBITDA

June 30, 2021 $ 259.2 $ 134.0 $ 125.2

September 30, 2021 $ 392.3 $ 196.3 $ 196.0

Organic enrollment (1)

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Foreign exchange 7.7 2.4 5.3

June 30, 2022 $ 304.6 $ 164.5 $ 140.1

September 30, 2022 $ 457.1 $ 255.7 $ 201.4

Revenues increased by $45.4 million, an 18% increase from the 2021 fiscal period.

Revenues increased by $64.8 million, a 17% increase from the 2021 fiscal period.

• Organic enrollment increased during the 2022 fiscal period by 16%, increasing revenues by $58.8 million.

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Corporate revenues primarily include our transition services agreements related to divestitures, which are expected to end in 2022.

Comparison of Corporate Results for the Three Months Ended June 30, 2022 to the Three Months Ended June 30, 2021

Comparison of Corporate Results for the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

Better/(Worse)

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Adjusted EBITDA increased by $10.1 million, a 46% increase from the 2021 fiscal quarter, mainly driven by a decrease in labor costs and other professional fees related to cost-reduction efforts.

Comparison of Corporate Results for the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Comparison of Corporate Results for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Better/(Worse)

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If our educational institutions within one country were unable to maintain sufficient liquidity, we would consider using internal cash resources or reasonable short-term working capital facilities to accommodate any short- to medium-term shortfalls.

As of June 30, 2022, our secondary source of liquidity was cash and cash equivalents of $156.9 million.

Our cash accounts are maintained with high-quality financial institutions with no significant concentration in any one institution.

As of September 30, 2022, our secondary source of liquidity was cash and cash equivalents of $319.0 million.

Our cash accounts are maintained with high-quality financial institutions.

The Company also maintains a revolving credit facility (the Senior Secured Credit Facility) with a syndicate of financial institutions as a source of liquidity.

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If certain conditions are satisfied, the Third Amended and Restated Credit Agreement (the Third A&R Credit Agreement) also provides for an incremental revolving and term loan facilities, at the request of the Company, not to exceed (i) the greater of (a) $565.0 million and (b) 100% of the consolidated EBITDA of the Company, plus (ii) additional amounts so long as both immediately before and after giving effect to such incremental facilities the Company’s Consolidated Senior Secured Debt to Consolidated EBITDA ratio, as defined in the Third A&R Credit Agreement, on a pro forma basis, does not exceed 2.75x, plus, (iii) the aggregate amounts of any voluntary repayments of term loans, if any, and aggregate amount of voluntary repayments of revolving credit facilities that are accompanied by a corresponding termination or reduction of revolving credit commitments.

Completed Sale Transactions

At the closing of our sale of Walden University in 2021, a portion of the total transaction value was paid into an escrow account, to be released to the Company pursuant to the terms and conditions of the escrow agreement.

On August 23, 2022, the Company received approximately $71.7 million of the escrow amount.

As previously described, in connection with the adoption of a plan of a partial liquidation providing for the distribution of the net proceeds from the sale of Walden University, on October 12, 2022, the company paid a special cash distribution to shareholders of approximately $136.6 million, which consisted of the cash released from the escrow account plus remaining net proceeds that had yet to be distributed.

Liquidity Restrictions

Our liquidity is affected by restricted cash balances, which totaled $20.2 million and $20.8 million as of June 30, 2022 and December 31, 2021, respectively.

Indefinite Reinvestment of Foreign Earnings

Our liquidity is affected by restricted cash balances, which totaled $17.4 million and $20.8 million as of September 30, 2022 and December 31, 2021, respectively.

A portion of the restricted cash was released in October 2022, as described in Note 9, Commitments and Contingencies, in our consolidated financial statements included elsewhere in this Form 10-Q.

Indefinite Reinvestment of Historical Foreign Earnings

We earn a significant portion of our income from subsidiaries located in countries outside the United States.

As part of our business strategies, we have determined that all earnings from our foreign operations will be deemed indefinitely reinvested outside of the United States.

As of June 30, 2022, $104.7 million of our total $156.9 million of cash and cash equivalents were held by foreign subsidiaries.

As part of our business strategies, we have determined that the undistributed historical earnings of our foreign operations for which we have not already recorded taxes will be deemed indefinitely reinvested outside of the United States.

As of September 30, 2022, $153.1 million of our total $319.0 million of cash and cash equivalents were held by foreign subsidiaries.

As of December 31, 2021, $272.6 million of our total $324.8 million of cash and cash equivalents were held by foreign subsidiaries.

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capital expenditures;

payment of a special dividend;

and business development activities.

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and payments of other third-party obligations.

As of June 30, 2022, our debt obligations included lines of credit and short-term borrowing arrangements of subsidiaries and notes payable, which totaled $94.2 million.

As of September 30, 2022, our debt obligations included lines of credit and short-term borrowing arrangements of subsidiaries and notes payable, which totaled $83.1 million.

In addition, our finance lease obligations and sale-leaseback financings were $44.1 million.

Senior Secured Credit Facility

As of both June 30, 2022 and December 31, 2021, there was no balance outstanding under our Senior Secured Credit Facility.

As of both September 30, 2022 and December 31, 2021, there was no balance outstanding under our Senior Secured Credit Facility.

Under the Third A&R Credit Agreement, we are subject to a Consolidated Senior Secured Debt to Consolidated EBITDA financial maintenance covenant that applies only to the revolving credit facility (a leverage ratio covenant), as defined in the Third A&R Credit Agreement, unless certain conditions are satisfied.

As of June 30, 2022, those conditions were satisfied and, therefore, we were not subject to the leverage ratio.

As of September 30, 2022, those conditions were satisfied and, therefore, we were not subject to the leverage ratio.

The maximum ratio, as defined, is 3.50x as of the last day of each quarter commencing with the quarter ending December 31, 2019 and thereafter.

In addition, indebtedness at some of our locations contain financial maintenance covenants and we were in compliance with those covenants as June 30, 2022.

In addition, indebtedness at some of our locations contain financial maintenance covenants and we were in compliance with those covenants as September 30, 2022.

We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations.

As discussed in Note 8, Leases, in our consolidated financial statements included elsewhere in this Form 10-Q, we have significant operating lease liabilities.

As of June 30, 2022 and December 31, 2021, the present value of operating lease liabilities was $407.3 million and $415.3 million, respectively.

As of September 30, 2022 and December 31, 2021, the present value of operating lease liabilities was $384.5 million and $415.3 million, respectively.

Capital Expenditures

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(1) capacity expansion at institutions to support enrollment growth;

(2) new campuses for institutions in our existing markets;

(2) new programs and campuses for institutions in our existing markets;

and (3) information technology to increase efficiency and controls.

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We believe that our internal sources of cash and our ability to obtain additional third-party financing, subject to market conditions, will be sufficient to fund our investing activities.

Our total capital expenditures for our continuing and discontinued operations, excluding receipts from the sale of subsidiaries and property equipment, were $8.2 million and $25.0 million during the six months ended June 30, 2022 and 2021, respectively.

Our total capital expenditures for our continuing and discontinued operations, excluding receipts from the sale of subsidiaries and property equipment, were $17.1 million and $32.9 million during the nine months ended September 30, 2022 and 2021, respectively.

The 48% decrease in capital expenditures was primarily due to the year-over-year effect of divestitures completed in 2021 combined with lower spending in Mexico and Peru.

Special Cash Dividend

On October 24, 2022, the board of directors of the Company approved the payment of a special cash dividend (the Special Dividend) equal to $0.68 per each share of the Company’s common stock, par value $0.004 per share, to each holder of record on November 4, 2022.

The Special Dividend is scheduled to be paid on November 17, 2022.

Based on the current number of shares outstanding, the aggregate amount of the Special Dividend is expected to be approximately $112 million.

In the consolidated statements of cash flows, the changes in operating assets and liabilities are presented excluding the effects of exchange rate changes, acquisitions, and reclassifications, as these effects do not represent operating cash flows.

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The effects of exchange rate changes on cash are presented separately in the consolidated statements of cash flows.

The following table summarizes our cash flows from operating, investing, and financing activities for the six months ended June 30, 2022 and 2021:

The following table summarizes our cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021:

(in millions) 2022 2021

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Net change in cash and cash equivalents and restricted cash $ (9.1) $ 1,094.6

Comparison of Cash Flows for the Six Months Ended June 30, 2022 to the Six Months Ended June 30, 2021

Comparison of Cash Flows for the Nine Months Ended September 30, 2022 to the Nine Months Ended September 30, 2021

Operating Activities

Cash provided by operating activities increased by $100.7 million to $154.7 million for the 2022 fiscal period from $54.0 million for the 2021 fiscal period.

This increase in operating cash was primarily attributable to cash paid for interest, which decreased by $48.4 million, from $56.9 million for the 2021 fiscal period to $8.5 million for the 2022 fiscal period, attributable to lower average debt balances.

Additionally, cash paid for taxes decreased by $31.5 million, from $80.0 million for the 2021 fiscal period, primarily related to the payment of withholding taxes for intercompany loans that were capitalized during the 2021 fiscal period, to $48.5 million for the 2022 fiscal period.

These increases in operating cash flows were partially offset by a $52.2 million decrease resulting from the net effect of changes in working capital and the divestiture of subsidiaries that, in the aggregate, contributed positive operating cash flows during the 2021 fiscal period.

This increase in operating cash was attributable to:

(1) a decrease in cash paid for interest of $47.9 million, from $60.3 million for the 2021 fiscal period to $12.4 million for the 2022 fiscal period, attributable to lower average debt balances;

(2) a decrease in cash paid for taxes of $19.3 million, from $95.0 million for the 2021 fiscal period, primarily related to the payment of withholding taxes for intercompany loans that were capitalized during the 2021 fiscal period, to $75.7 million for the 2022 fiscal period;

and (3) a $33.5 million increase resulting from the net effect of changes in working capital and the divestiture of subsidiaries that, in the aggregate, contributed positive operating cash flows during the 2021 fiscal period.

Investing Activities

Cash provided by investing activities decreased by $1,988.1 million to $66.3 million for the 2022 fiscal period from $2,054.4 million for the 2021 fiscal period.

This decrease in investing cash flows was attributable to lower cash receipts from the sales of Discontinued Operations of $715.0 million, from $725.3 million during the 2021 fiscal period (primarily for the sale of our operations in Honduras and Brazil, and the receipt of portions of the purchase prices that were withheld in connection to the 2018 sale of our China operations and the 2020 sale of our Malaysia operations) to $10.3 million, net, during the 2022 fiscal period (primarily related to the collection of certain receivables from the sale of our Brazilian operations).

This decrease in investing cash flows was attributable to lower cash receipts from the sales of Discontinued Operations of $2,054.3 million, from $2,137.7 million during the 2021 fiscal period (primarily for the sale of Walden University, our operations in Honduras and Brazil, the receipt of the note receivable related to the 2020 divestiture of our Chilean operations, and the receipt of portions of the purchase prices that were withheld in connection to the 2018 sale of our China operations and the 2020 sale of our Malaysia operations) to $83.4 million, net, during the 2022 fiscal period (primarily related to the receipt of the escrow receivable related the 2021 sale of Walden University, and the collection of certain receivables from the sale of our Brazilian operations).

This decrease in investing cash flows was partially offset by payments of $50.3 million made during the 2021 fiscal period for derivative instruments related to foreign exchange swap agreements associated with the sale of our Brazilian operations.

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For a complete discussion of our critical accounting policies, see the “Critical Accounting Policies and Estimates” section of the MD&A in our 2021 Form 10-K.

During the six months ended June 30, 2022, there were no significant changes to our critical accounting policies.

During the nine months ended September 30, 2022, there were no significant changes to our critical accounting policies.

Recently Adopted Accounting Standards

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis