LAUREATE EDUCATION, INC. 10-Q

Item 1. Financial Statements (Unaudited) LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Operations IN THOUSANDS, except per share amounts For the three months ended September 30, 2022 2021 (Unaudited) (Unaudited) Revenues $ 300,999 $ 267,691 Costs and expenses: Direct costs 229,361 181,978 General and administrative expenses 15,321 47,315 Loss on impairment of assets — 3,292 Operating income 56,317 35,106 Interest income 1,970 1,268 Interest expense ( 3,694 ) ( 3,736 ) Other income (expense), net 1,393 ( 46 ) Foreign currency exchange gain, net 15,146 6,085 Loss on disposal of subsidiaries, net — ( 949 ) Income from continuing operations before income taxes 71,132 37,728 Income tax expense ( 39,280 ) ( 48,118 ) Income (loss) from continuing operations 31,852 ( 10,390 ) (Loss) income from discontinued operations, net of tax expense of $ 0 and $ 248,838 , respectively ( 816 ) 370,527 Net income 31,036 360,137 Net loss attributable to noncontrolling interests 81 269 Net income attributable to Laureate Education, Inc. $ 31,117 $ 360,406 Basic and diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.19 $ ( 0.06 ) Income from discontinued operations — 2.00 Basic and diluted earnings per share $ 0.19 $ 1.94 The accompanying notes are an integral part of these consolidated financial statements. 2 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Operations IN THOUSANDS, except per share amounts For the nine months ended September 30, 2022 2021 (Unaudited) (Unaudited) Revenues $ 895,943 $ 789,971 Costs and expenses: Direct costs 655,055 577,141 General and administrative expenses 48,752 139,270 Loss on impairment of assets 144 67,161 Operating income 191,992 6,399 Interest income 5,623 2,456 Interest expense ( 11,589 ) ( 40,795 ) Loss on debt extinguishment — ( 77,940 ) Loss on derivatives — ( 24,517 ) Other income (expense), net 413 ( 67 ) Foreign currency exchange (loss) gain, net ( 2,906 ) 18,749 Gain (loss) on disposal of subsidiaries, net 1,461 ( 922 ) Income (loss) from continuing operations before income taxes and equity in net income of affiliates 184,994 ( 116,637 ) Income tax expense ( 159,213 ) ( 174,163 ) Equity in net income of affiliates, net of tax 70 — Income (loss) from continuing operations 25,851 ( 290,800 ) Income from discontinued operations, net of tax expense of $ 0 and $ 257,440 , respectively 4,064 456,770 Net income 29,915 165,970 Net loss attributable to noncontrolling interests 414 508 Net income attributable to Laureate Education, Inc. $ 30,329 $ 166,478 Basic and diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.15 $ ( 1.51 ) Income from discontinued operations 0.02 2.37 Basic and diluted earnings per share $ 0.17 $ 0.86 The accompanying notes are an integral part of these consolidated financial statements. 3 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income IN THOUSANDS For the three months ended September 30, 2022 2021 (Unaudited) (Unaudited) Net income $ 31,036 $ 360,137 Other comprehensive income: Foreign currency translation adjustment, net of tax of $ 0 for both periods ( 42,161 ) ( 22,627 ) Minimum pension liability adjustment, net of tax of $ 0 for both periods 983 — Total other comprehensive loss ( 41,178 ) ( 22,627 ) Comprehensive (loss) income ( 10,142 ) 337,510 Net comprehensive loss attributable to noncontrolling interests 82 248 Comprehensive (loss) income attributable to Laureate Education, Inc. $ ( 10,060 ) $ 337,758 The accompanying notes are an integral part of these consolidated financial statements. 4 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income IN THOUSANDS For the nine months ended September 30, 2022 2021 (Unaudited) (Unaudited) Net income $ 29,915 $ 165,970 Other comprehensive income (loss): Foreign currency translation adjustment, net of tax of $ 0 for both periods 25,386 428,055 Minimum pension liability adjustment, net of tax of $ 0 for both periods 997 ( 141 ) Total other comprehensive income 26,383 427,914 Comprehensive income 56,298 593,884 Net comprehensive loss attributable to noncontrolling interests 410 507 Comprehensive income attributable to Laureate Education, Inc. $ 56,708 $ 594,391 The accompanying notes are an integral part of these consolidated financial statements. 5 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Balance Sheets IN THOUSANDS, except per share amounts September 30, 2022 December 31, 2021 Assets (Unaudited) Current assets: Cash and cash equivalents $ 319,039 $ 324,801 Restricted cash 17,448 20,774 Receivables: Accounts and notes receivable 125,922 117,987 Other receivables 5,824 96,229 Allowance for doubtful accounts ( 56,535 ) ( 62,226 ) Receivables, net 75,211 151,990 Income tax receivable 24,642 30,474 Prepaid expenses and other current assets 19,543 16,280 Total current assets 455,883 544,319 Property and equipment: Land 122,323 121,173 Buildings 333,842 328,343 Furniture, equipment and software 472,370 459,189 Leasehold improvements 111,559 106,813 Construction in-progress 6,493 9,622 Accumulated depreciation and amortization ( 560,275 ) ( 525,623 ) Property and equipment, net 486,312 499,517 Operating lease right-of-use assets, net 365,527 384,344 Goodwill 553,275 546,795 Tradenames 144,429 142,848 Deferred costs, net 5,939 5,981 Deferred income taxes 47,465 38,713 Other assets 39,933 42,629 Long-term assets held for sale — 6,164 Total assets $ 2,098,763 $ 2,211,310 The accompanying notes are an integral part of these consolidated financial statements. 6 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Balance Sheets (continued) IN THOUSANDS, except per share amounts September 30, 2022 December 31, 2021 Liabilities and stockholders' equity (Unaudited) Current liabilities: Accounts payable $ 31,193 $ 26,870 Accrued expenses 59,537 65,558 Accrued compensation and benefits 80,569 90,454 Deferred revenue and student deposits 74,274 43,959 Current portion of operating leases 38,677 38,149 Current portion of long-term debt and finance leases 46,403 49,082 Income taxes payable 56,691 38,705 Special cash distribution payable 139,995 6,932 Other current liabilities 21,096 11,165 Current liabilities held for sale — 1,054 Total current liabilities 548,435 371,928 Long-term operating leases, less current portion 345,845 377,104 Long-term debt and finance leases, less current portion 78,359 104,588 Deferred compensation 10,619 11,896 Income taxes payable 127,381 96,463 Deferred income taxes 90,601 73,624 Other long-term liabilities 27,266 24,640 Long-term liabilities held for sale — 9,795 Total liabilities 1,228,506 1,070,038 Redeemable equity 1,398 1,714 Stockholders' equity: Preferred stock, par value $ 0.001 per share – 50,000 shares authorized, no shares issued and outstanding as of September 30, 2022 and December 31, 2021 — — Common stock, par value $ 0.004 per share – 700,000 shares authorized, 230,444 shares issued and 164,649 shares outstanding as of September 30, 2022 and 228,831 shares issued and 180,611 shares outstanding as of December 31, 2021 922 915 Additional paid-in capital 2,268,879 2,388,783 Retained earnings 45,852 15,523 Accumulated other comprehensive loss ( 493,825 ) ( 520,204 ) Treasury stock at cost ( 65,795 shares held at September 30, 2022 and 48,220 shares held at December 31, 2021) ( 951,272 ) ( 744,174 ) Total Laureate Education, Inc. stockholders' equity 870,556 1,140,843 Noncontrolling interests ( 1,697 ) ( 1,285 ) Total stockholders' equity 868,859 1,139,558 Total liabilities and stockholders' equity $ 2,098,763 $ 2,211,310 The accompanying notes are an integral part of these consolidated financial statements. 7 LAUREATE EDUCATION, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows IN THOUSANDS For the nine months ended September 30, 2022 2021 Cash flows from operating activities (Unaudited) (Unaudited) Net income $ 29,915 $ 165,970 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 43,628 75,617 Amortization of operating lease right-of-use assets 22,200 35,797 Loss on impairment of assets 144 68,429 Gain on sales and disposal of subsidiaries and property and equipment, net ( 5,797 ) ( 625,532 ) Loss on derivative instruments — 24,517 Loss on debt extinguishment — 77,999 Non-cash interest expense 1,127 6,129 Non-cash share-based compensation expense 6,971 7,175 Bad debt expense 14,194 17,672 Deferred income taxes 8,152 267,551 Unrealized foreign currency exchange gain ( 2,169 ) ( 11,240 ) Non-cash loss from non-income tax contingencies 419 11,976 Other, net 120 ( 71 ) Changes in operating assets and liabilities: Receivables ( 22,011 ) ( 9,632 ) Prepaid expenses and other assets ( 11 ) ( 20,021 ) Accounts payable and accrued expenses ( 16,866 ) ( 47,175 ) Income tax receivable/payable, net 53,588 63,151 Deferred revenue and other liabilities 21,077 ( 54,272 ) Net cash provided by operating activities 154,681 54,040 Cash flows from investing activities Purchase of property and equipment ( 16,754 ) ( 27,578 ) Expenditures for deferred costs ( 363 ) ( 5,371 ) Receipts from sales of discontinued operations, net of cash sold, and property and equipment 83,405 2,137,673 Payments on derivatives related to sale of discontinued operations — ( 50,341 ) Net cash provided by investing activities 66,288 2,054,383 Cash flows from financing activities Proceeds from issuance of long-term debt, net of original issue discount 235,181 46,493 Payments on long-term debt ( 270,413 ) ( 933,213 ) Payment of dividend equivalent rights for vested share-based awards ( 4,572 ) — Proceeds from exercise of stock options 11,888 1,160 Withholding of shares to satisfy tax withholding for vested stock awards and exercised stock options ( 1,438 ) ( 1,718 ) Payments to repurchase common stock ( 207,151 ) ( 364,275 ) Payments of call premiums and debt issuance costs — ( 32,980 ) Net cash used in financing activities ( 236,505 ) ( 1,284,533 ) Effects of exchange rate changes on Cash and cash equivalents and Restricted cash 6,448 ( 14,360 ) Change in cash included in current assets held for sale — 285,027 Net change in Cash and cash equivalents and Restricted cash ( 9,088 ) 1,094,557 Cash and cash equivalents and Restricted cash at beginning of period 345,575 867,298 Cash and cash equivalents and Restricted cash at end of period $ 336,487 $ 1,961,855 The accompanying notes are an integral part of these consolidated financial statements. 8 Laureate Education, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Dollars and shares in thousands) Note 1. Description of Business Laureate Education, Inc. and subsidiaries (hereinafter Laureate, we, us, our, or the Company) provide higher education programs and services to students through licensed universities and higher education institutions (institutions). Laureate's programs are provided through institutions that are campus-based and through electronically distributed educational programs (online). In response to the COVID-19 pandemic, we temporarily transitioned the educational delivery method at all of our campus-based institutions to be online, leveraging our existing technologies and learning platforms to serve students outside of the traditional classroom setting. Face-to-face educational activities have now resumed across our campuses. We are domiciled in Delaware as a public benefit corporation, a demonstration of our long-term commitment to our mission to benefit our students and society. The Company completed its initial public offering (IPO) on February 6, 2017, and its shares are listed on the Nasdaq Global Select Market under the symbol “LAUR.” Discontinued Operations As a result of the strategic review first announced in January 2020, during the third quarter of 2020, the Company completed a sale of its operations in Chile and signed agreements to sell its operations in Brazil, Australia and New Zealand, as well as Walden University in the United States. Additionally, prior to 2020, the Company had announced the divestiture of certain other subsidiaries in Europe, Asia and Central America, which has been completed. These announcements represented strategic shifts that had a major effect on the Company’s operations and financial results. Accordingly, all of the divestitures that were part of these strategic shifts were accounted for as Discontinued Operations for all periods presented in accordance with Accounting Standards Codification (ASC) 205-20, “Discontinued Operations” (ASC 205). All planned divestitures have now been completed, and the Company has concluded its strategic review process. The Company’s continuing operations are Mexico and Peru. All other markets have been divested (the Discontinued Operations). See Note 3, Discontinued Operations and Assets Held for Sale, and Note 4, Dispositions, for more information. Unless indicated otherwise, the information in the footnotes to the Consolidated Financial Statements relates to continuing operations. The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, these financial statements include all adjustments considered necessary to present a fair statement of our consolidated results of operations, financial position and cash flows. Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. These unaudited Consolidated Financial Statements should be read in conjunction with Laureate's audited Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the 2021 Form 10-K). Note 2. Revenue Revenue Recognition Laureate's revenues primarily consist of tuition and educational service revenues. We also generate other revenues from student fees and other education-related activities. These other revenues are less material to our overall financial results and have a tendency to trend with tuition revenues. Revenues are recognized when control of the promised goods or services is transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. These revenues are recognized net of scholarships and other discounts, refunds and waivers. Laureate's institutions have various billing and academic cycles. 9 We determine revenue recognition through the five-step model prescribed by ASC Topic 606, Revenue from Contracts with Customers , as follows: • Identification of the contract, or contracts, with a customer; • Identification of the performance obligations in the contract; • Determination of the transaction price; • Allocation of the transaction price to the performance obligations in the contract; and • Recognition of revenue when, or as, we satisfy a performance obligation. We assess collectibility on a portfolio basis prior to recording revenue. Generally, students cannot re-enroll for the next academic session without satisfactory resolution of any past-due amounts. If a student withdraws from an institution, Laureate's obligation to issue a refund depends on the refund policy at that institution and the timing of the student's withdrawal. Generally, our refund obligations are reduced over the course of the academic term. We record refunds as a reduction of deferred revenue as applicable. The following table shows the components of Revenues by reportable segment and as a percentage of total revenue for the three months ended September 30, 2022 and 2021: Mexico Peru Corporate (1) Total 2022 Tuition and educational services $ 178,733 $ 147,982 $ — $ 326,715 109 % Other 32,750 15,493 670 48,913 16 % Gross revenue 211,483 163,475 670 375,628 125 % Less: Discounts / waivers / scholarships ( 63,701 ) ( 10,928 ) — ( 74,629 ) ( 25 ) % Total $ 147,782 $ 152,547 $ 670 $ 300,999 100 % 2021 Tuition and educational services $ 160,117 $ 129,715 $ — $ 289,832 108 % Other 25,813 12,959 3,309 42,081 16 % Gross revenue 185,930 142,674 3,309 331,913 124 % Less: Discounts / waivers / scholarships ( 54,669 ) ( 9,553 ) — ( 64,222 ) ( 24 ) % Total $ 131,261 $ 133,121 $ 3,309 $ 267,691 100 % (1) Includes the elimination of inter-segment revenues. The following table shows the components of Revenues by reportable segment and as a percentage of total revenue for the nine months ended September 30, 2022 and 2021: Mexico Peru Corporate (1) Total 2022 Tuition and educational services $ 541,744 $ 451,570 $ — $ 993,314 111 % Other 80,869 41,841 3,848 126,558 14 % Gross revenue 622,613 493,411 3,848 1,119,872 125 % Less: Discounts / waivers / scholarships ( 187,622 ) ( 36,307 ) — ( 223,929 ) ( 25 ) % Total $ 434,991 $ 457,104 $ 3,848 $ 895,943 100 % 2021 Tuition and educational services $ 483,854 $ 386,189 $ — $ 870,043 110 % Other 67,139 35,405 6,751 109,295 14 % Gross revenue 550,993 421,594 6,751 979,338 124 % Less: Discounts / waivers / scholarships ( 160,052 ) ( 29,315 ) — ( 189,367 ) ( 24 ) % Total $ 390,941 $ 392,279 $ 6,751 $ 789,971 100 % (1) Includes the elimination of inter-segment revenues. 10 Contract Balances The timing of billings, cash collections and revenue recognition results in accounts receivable (contract assets) and Deferred revenue and student deposits (contract liabilities) on the Consolidated Balance Sheets. We have various billing and academic cycles and recognize student receivables when an academic session begins, although students generally enroll in courses prior to the start of the academic session. Receivables are recognized only to the extent that it is probable that we will collect substantially all of the consideration to which we are entitled in exchange for the goods and services that will be transferred to the student. We receive advance payments or deposits from our students before revenue is recognized, which are recorded as contract liabilities in deferred revenue and student deposits. Payment terms vary by university with some universities requiring payment in advance of the academic session and other universities allowing students to pay in installments over the term of the academic session. All of our contract assets are considered accounts receivable and are included within the Accounts and notes receivable balance in the accompanying Consolidated Balance Sheets. Total accounts receivable from our contracts with students were $ 125,922 and $ 117,987 as of September 30, 2022 and December 31, 2021, respectively. The increase in the contract assets balance at September 30, 2022 compared to December 31, 2021 was primarily driven by our enrollment cycles. The first and third calendar quarters generally coincide with the primary and secondary intakes for our larger institutions. All contract asset amounts are classified as current. Contract liabilities in the amount of $ 74,274 and $ 43,959 were included within the Deferred revenue and student deposits balance in the current liabilities section of the accompanying Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021, respectively. The increase in the contract liability balance during the period ended September 30, 2022 was the result of semester billings and cash payments received in advance of satisfying performance obligations, partially offset by revenue recognized during that period. Revenue recognized for the nine months ended September 30, 2022 that was included in the contract liability balance at the beginning of the year was approximately $ 38,000 . Note 3. Discontinued Operations and Assets Held for Sale As discussed in Note 1, Description of Business, the Company’s remaining principal markets are Mexico and Peru. All other markets have been divested. Summarized operating results and cash flows of the Discontinued Operations are presented in the following tables: For the three months ended September 30, 2022 2021 Revenues $ — $ 70,787 Share-based compensation expense — ( 371 ) Other direct costs — ( 58,123 ) Other non-operating expense — ( 4,938 ) (Loss) gain on sale of discontinued operations before taxes, net ( 816 ) 612,010 Pretax (loss) income of discontinued operations ( 816 ) 619,365 Income tax benefit — ( 248,838 ) (Loss) income from discontinued operations, net of tax $ ( 816 ) $ 370,527 11 For the nine months ended September 30, 2022 2021 Revenues $ — $ 542,650 Share-based compensation expense — ( 1,198 ) Other direct costs — ( 430,789 ) Loss on impairment of assets — ( 1,268 ) Other non-operating expense — ( 20,489 ) Gain on sale of discontinued operations before taxes, net 4,064 625,304 Pretax income of discontinued operations 4,064 714,210 Income tax expense — ( 257,440 ) Income from discontinued operations, net of tax $ 4,064 $ 456,770 Operating cash flows of discontinued operations $ — $ 16,420 Investing cash flows of discontinued operations $ — $ ( 11,161 ) Financing cash flows of discontinued operations $ — $ ( 18,054 ) During the second quarter of 2022, the Company completed the transfer of the remaining assets and liabilities of the Discontinued Operations that were classified as held for sale as of December 31, 2021, which resulted in a gain of approximately $ 4,300 . The carrying amounts of the major classes of assets and liabilities that were classified as held for sale as of December 31, 2021 are presented in the following table: September 30, 2022 December 31, 2021 Assets of Discontinued Operations Operating lease right-of-use assets, net $ — $ 6,164 Total assets held for sale $ — $ 6,164 Liabilities of Discontinued Operations Operating leases, including current portion $ — $ 10,849 Total liabilities held for sale $ — $ 10,849 Not e 4. Dispositions Receipt of Escrow Receivable from Sale of Walden On August 12, 2021, pursuant to the Membership Interest Purchase Agreement (the Walden Purchase Agreement) with Adtalem Global Education Inc. (the Walden Purchaser), the Company sold to the Walden Purchaser all of the issued and outstanding equity interest in Walden e-Learning, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (Walden), and its subsidiary, Walden University, LLC, a Florida limited liability company and an indirect wholly owned subsidiary of the Company (together with Walden, the Walden Group). At the closing date of August 12, 2021, the Walden Purchaser paid an additional $ 74,000 of the sale transaction value into an escrow account, which was to be released in full or in part to the Company one year following the closing of the transaction pursuant to the terms and conditions of the escrow agreement. On August 23, 2022, the Company received approximately $ 71,700 of the escrow amount. Note 5. Business and Geographic Segment Information Laureate’s educational services are offered through two reportable segments: Mexico and Peru. Laureate determines its segments based on information utilized by the chief operating decision maker to allocate resources and assess performance. Our segments generate revenues by providing an education that emphasizes profession-oriented fields of study with undergraduate and graduate degrees in a wide range of disciplines. Our educational offerings utilize hybrid (a combination of online and in-classroom) courses and programs to deliver their curriculum. The Mexico and Peru markets are characterized by what we believe is a significant imbalance between supply and demand. The demand for higher education is large and growing and is fueled by several demographic and economic factors, including a growing middle class, global growth in services and technology-related industries and recognition of the significant personal and economic benefits gained by graduates of higher education institutions. The target demographics are primarily 18- to 24-year-olds in the countries in which we compete. We 12 compete with other private higher education institutions on the basis of price, educational quality, reputation and location. We believe that we compare favorably with competitors because of our focus on quality, professional-oriented curriculum and the competitive advantages provided by our network. There are a number of private and public institutions in Mexico and Peru, and it is difficult to predict how the markets will evolve and how many competitors there will be in the future. We expect competition to increase as the Mexican and Peruvian markets mature. Essentially all of our revenues were generated from private pay sources as there are no material government-sponsored loan programs in Mexico or Peru. Specifics related to both of our reportable segments are discussed below. In Mexico, the private sector plays a meaningful role in higher education, bridging supply and demand imbalances created by a lack of capacity at public universities. Laureate owns two nationally licensed institutions and is present throughout the country with a footprint of over 35 campuses. Students in our Mexican institutions typically finance their own education. In Peru, private universities are increasingly providing the capacity to meet growing demand in the higher-education market. Laureate owns three institutions in Peru. As discussed in Note 1, Description of Business, in prior periods a number of our subsidiaries met the requirements to be classified as Discontinued Operations. As a result, the Discontinued Operations have been excluded from the segment information for all periods presented. Inter-segment transactions are accounted for in a similar manner as third-party transactions and are eliminated in consolidation. The Corporate amounts presented in the following tables include corporate charges that were not allocated to our reportable segments and adjustments to eliminate inter-segment items. We evaluate segment performance based on Adjusted EBITDA, which is a non-GAAP performance measure defined as Income (loss) from continuing operations before income taxes and equity in net income of affiliates, adding back the following items: (Loss) gain on disposal of subsidiaries, net, Foreign currency exchange gain (loss), net, Other income (expense), net, Loss on derivatives, Loss on debt extinguishment, Interest expense, Interest income, Depreciation and amortization expense, Loss on impairment of assets, Share-based compensation expense and expenses related to our Excellence-in-Process (EiP) initiative. Our EiP initiative was completed as of December 31, 2021, except for certain EiP expenses related to the completion of programs that began in prior periods. EiP was an enterprise-wide initiative to optimize and standardize Laureate’s processes, creating vertical integration of procurement, information technology, finance, accounting and human resources. It included the establishment of regional shared services organizations (SSOs), as well as improvements to the Company's system of internal controls over financial reporting. The EiP initiative also included other back- and mid-office areas, as well as certain student-facing activities, expenses associated with streamlining the organizational structure, an enterprise-wide program aimed at revenue growth, and certain non-recurring costs incurred in connection with the dispositions. Adjusted EBITDA is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial measure used by the compensation committee of our Board of Directors and our Chief Executive Officer in connection with the payment of incentive compensation to our executive officers and other members of our management team. 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. We use total assets as the measure of assets for reportable segments. 13 The following tables provide financial information for our reportable segments, including a reconciliation of Adjusted EBITDA to Income (loss) from continuing operations before income taxes and equity in net income of affiliates, as reported in the Consolidated Statements of Operations: For the three months ended For the nine months ended September 30, September 30, 2022 2021 2022 2021 Revenues Mexico $ 147,782 $ 131,261 $ 434,991 $ 390,941 Peru 152,547 133,121 457,104 392,279 Corporate 670 3,309 3,848 6,751 Revenues $ 300,999 $ 267,691 $ 895,943 $ 789,971 Adjusted EBITDA of reportable segments Mexico $ 23,442 $ 27,047 $ 79,848 $ 61,503 Peru 61,223 70,791 201,363 196,016 Total Adjusted EBITDA of reportable segments 84,665 97,838 281,211 257,519 Reconciling items: Corporate ( 11,860 ) ( 21,955 ) ( 37,156 ) ( 64,866 ) Depreciation and amortization expense ( 14,471 ) ( 25,872 ) ( 43,628 ) ( 75,617 ) Loss on impairment of assets — ( 3,292 ) ( 144 ) ( 67,161 ) Share-based compensation expense ( 1,849 ) ( 2,026 ) ( 6,971 ) ( 5,977 ) EiP expenses ( 168 ) ( 9,587 ) ( 1,320 ) ( 37,499 ) Operating income 56,317 35,106 191,992 6,399 Interest income 1,970 1,268 5,623 2,456 Interest expense ( 3,694 ) ( 3,736 ) ( 11,589 ) ( 40,795 ) Loss on debt extinguishment — — — ( 77,940 ) Loss on derivatives — — — ( 24,517 ) Other income (expense), net 1,393 ( 46 ) 413 ( 67 ) Foreign currency gain (loss), net 15,146 6,085 ( 2,906 ) 18,749 (Loss) gain on disposal of subsidiaries, net — ( 949 ) 1,461 ( 922 ) Income (loss) from continuing operations before income taxes and equity in net income of affiliates $ 71,132 $ 37,728 $ 184,994 $ ( 116,637 ) September 30, 2022 December 31, 2021 Assets Mexico $ 1,144,840 $ 1,251,791 Peru 580,737 598,862 Corporate and Discontinued Operations 373,186 360,657 Total assets $ 2,098,763 $ 2,211,310 Note 6. Goodwill The change in the net carrying amount of Goodwill from December 31, 2021 through September 30, 2022 was composed of the following items: Mexico Peru Total Balance at December 31, 2021 $ 479,223 $ 67,572 $ 546,795 Currency translation adjustments 5,875 605 6,480 Balance at September 30, 2022 $ 485,098 $ 68,177 $ 553,275 14 Note 7. Debt Outstanding long-term debt was as follows: September 30, 2022 December 31, 2021 Senior long-term debt: Senior Secured Credit Facility (stated maturity date October 2024) $ — $ — Other debt: Lines of credit 4,895 10,131 Notes payable and other debt 78,168 102,003 Total senior and other debt 83,063 112,134 Finance lease obligations and sale-leaseback financings 44,104 45,124 Total long-term debt and finance leases 127,167 157,258 Less: total unamortized deferred financing costs 2,405 3,588 Less: current portion of long-term debt and finance leases 46,403 49,082 Long-term debt and finance leases, less current portion $ 78,359 $ 104,588 Senior Secured Credit Facility Under our Third Amended and Restated Credit Agreement (the Third A&R Credit Agreement), the Company maintains a revolving credit facility (the Senior Secured Credit Facility) that has a borrowing capacity of $ 410,000 and a maturity date of October 7, 2024. As of September 30, 2022 and December 31, 2021, no amounts were borrowed on this facility. Estimated Fair Value of Debt As of September 30, 2022 and December 31, 2021, the estimated fair value of our debt approximated its carrying value. Certain Covenants As of September 30, 2022, our Third A&R Credit Agreement contained certain negative covenants including, among others: (1) limitations on additional indebtedness; (2) limitations on dividends; (3) limitations on asset sales, including the sale of ownership interests in subsidiaries and sale-leaseback transactions; and (4) limitations on liens, guarantees, loans or investments. The Third A&R Credit Agreement provides, solely with respect to the revolving credit facility, that the Company shall not permit its Consolidated Senior Secured Debt to Consolidated EBITDA ratio, as defined in the Third A&R Credit Agreement, to exceed 3.50 x as of the last day of each quarter commencing with the quarter ending December 31, 2019 and thereafter. The agreement also provides that if (i) the Company’s Consolidated Total Debt to Consolidated EBITDA ratio, as defined in the Third A&R Credit Agreement, is not greater than 4.75 x as of such date and (ii) less than 25 % of the revolving credit facility is utilized as of that date, then such financial covenant shall not apply. As of September 30, 2022, these conditions were satisfied and, therefore, we were not subject to the leverage ratio. In addition, indebtedness at some of our locations contain financial maintenance covenants. We were in compliance with these covenants as of September 30, 2022. Note 8. Leases Laureate conducts a significant portion of its operations at leased facilities, including many of Laureate's higher education facilities and other office locations. In accordance with ASC Topic 842, “Leases,” Laureate analyzes each lease agreement to determine whether it should be classified as a finance lease or an operating lease. Finance Leases Our finance lease agreements are for property and equipment. The lease assets are included within buildings as well as furniture, equipment and software and the related lease liability is included within debt and finance leases on the Consolidated Balance Sheets. 15 Operating Leases Our operating lease agreements are primarily for real estate space and are included within operating lease right-of-use (ROU) assets and operating lease liabilities on the Consolidated Balance Sheets. The terms of our operating leases vary and generally contain renewal options. Certain of these operating leases provide for increasing rent over the term of the lease. Laureate also leases certain equipment under noncancellable operating leases, which are typically for terms of 60 months or less. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. Our variable lease payments consist of non-lease services related to the lease. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. Rental expense for lease payments related to operating leases is recognized on a straight-line basis over the lease term. On occasion, Laureate has entered into sublease agreements for certain leased office space; however, the sublease income from these agreements is immaterial. Note 9. Commitments and Contingencies Loss Contingencies Laureate is subject to legal actions arising in the ordinary course of its business. In management's opinion, we have adequate legal defenses, insurance coverage and/or accrued liabilities with respect to the eventuality of such actions. We do not believe that any settlement would have a material impact on our Consolidated Financial Statements. Contingent Liabilities for Taxes As of September 30, 2022 and December 31, 2021, Laureate had recorded cumulative liabilities for income tax contingencies of $ 124,591 and $ 91,585 , respectively. Other Loss Contingencies Laureate has accrued liabilities for certain civil actions against our institutions, a portion of which existed prior to our acquisition of these entities. Laureate intends to vigorously defend against these matters. As of September 30, 2022 and December 31, 2021, approximately $ 10,100 and $ 7,200 , respectively, of loss contingencies were included in Other long-term liabilities and Other current liabilities on the Consolidated Balance Sheets. Guarantees In connection with a loan agreement entered into by a Laureate subsidiary in Peru, all of the shares of Universidad Privada del Norte, one of our universities, were pledged to the third-party lender as a guarantee of the payment obligations under the loan. During the first quarter of 2021, one of our Peruvian institutions issued a bank guarantee in order to appeal a preliminary tax assessment received related to tax audits of 2014 and 2015. As of September 30, 2022 and December 31, 2021, the amount of the guarantee was $ 5,937 and $ 5,885 , respectively. 16 Letter of Credit As of September 30, 2022 and December 31, 2021, we had approximately $ 9,000 and $ 10,700 , respectively, posted as cash collateral for a letter of credit related to the Spanish tax audits. This was recorded in Continuing Operations and classified as Restricted cash on our September 30, 2022 and December 31, 2021 Consolidated Balance Sheets. The cash collateral was related to final assessments issued by the Spanish Taxing Authority (STA) in October 2018 and January 2020 to Iniciativas Culturales de España, S.L. (ICE), our former Spanish holding company. During the second quarter of 2020, ICE was migrated to the Netherlands, and its name was changed to Laureate Netherlands Holding B.V. In October 2021, the Company made a payment to the STA of approximately $ 9,300 , in order to reduce the amount of future interest that could be incurred as the appeals process continues. Following the payment, the letter of credit was no longer required and the cash was subsequently released in October 2022. Note 10. Share-based Compensation Share-based compensation expense was as follows: For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Continuing operations Stock options, net of estimated forfeitures $ — $ 72 $ — $ 349 Restricted stock awards 1,849 1,954 6,971 5,628 Total continuing operations 1,849 2,026 6,971 5,977 Discontinued operations Share-based compensation expense for discontinued operations — 371 — 1,198 Total continuing and discontinued operations $ 1,849 $ 2,397 $ 6,971 $ 7,175 17 Note 11. Stockholders’ Equity The components of net changes in stockholders’ equity for the fiscal quarters of 2022 are as follows: Laureate Education, Inc. Stockholders Common stock Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive loss Treasury stock at cost Non-controlling interests Total stockholders’ equity Shares Amount Balance at December 31, 2021 180,611 $ 915 $ 2,388,783 $ 15,523 $ ( 520,204 ) $ ( 744,174 ) $ ( 1,285 ) $ 1,139,558 Non-cash stock compensation — — 2,762 — — — — 2,762 Purchase of treasury stock at cost ( 9,485 ) — — — — ( 112,874 ) — ( 112,874 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 1,379 6 10,716 — — — — 10,722 Equitable adjustments to stock-based awards — — ( 189 ) — — — — ( 189 ) Net loss — — — ( 44,211 ) — — ( 469 ) ( 44,680 ) Foreign currency translation adjustment, net of tax of $ 0 — — — — 49,573 — 2 49,575 Minimum pension liability adjustment, net of tax of $ 0 — — — — 14 — — 14 Balance at March 31, 2022 172,505 $ 921 $ 2,402,072 $ ( 28,688 ) $ ( 470,617 ) $ ( 857,048 ) $ ( 1,752 ) $ 1,044,888 Non-cash stock compensation — — 2,360 — — — — 2,360 Purchase of treasury stock at cost ( 8,013 ) — — — — ( 93,362 ) — ( 93,362 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 171 1 ( 472 ) — — — — ( 471 ) Equitable adjustments to stock-based awards — — ( 35 ) — — — — ( 35 ) Change in noncontrolling interests — — 2 — — — ( 2 ) — Reclassification of redeemable equity to non-redeemable equity — — 316 — — — — 316 Net income — — — 43,423 — — 136 43,559 Foreign currency translation adjustment, net of tax of $ 0 — — — — 17,969 — 3 17,972 Balance at June 30, 2022 164,663 $ 922 $ 2,404,243 $ 14,735 $ ( 452,648 ) $ ( 950,410 ) $ ( 1,615 ) $ 1,015,227 Non-cash stock compensation — — 1,849 — — — — 1,849 Purchase of treasury stock at cost ( 77 ) — — — — ( 862 ) — ( 862 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 63 — 199 — — — — 199 Special cash distribution accrued on outstanding common stock — — ( 136,642 ) — — — — ( 136,642 ) Equitable adjustments to stock-based awards — — ( 770 ) — — — — ( 770 ) Net income — — — 31,117 — — ( 81 ) 31,036 Foreign currency translation adjustment, net of tax of $ 0 — — — — ( 42,160 ) — ( 1 ) ( 42,161 ) Minimum pension liability adjustment, net of tax of $ 0 — — — — 983 — — 983 Balance at September 30, 2022 164,649 $ 922 $ 2,268,879 $ 45,852 $ ( 493,825 ) $ ( 951,272 ) $ ( 1,697 ) $ 868,859 18 The components of net changes in stockholders’ equity for the fiscal quarters of 2021 are as follows: Laureate Education, Inc. Stockholders Class A common stock Class B common stock Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Treasury stock at cost Non-controlling interests Total stockholders’ equity Shares Amount Shares Amount Balance at December 31, 2020 115,119 $ 548 90,792 $ 363 $ 3,760,029 $ ( 176,822 ) $ ( 941,986 ) $ ( 365,316 ) $ ( 12,882 ) $ 2,263,934 Beginning retained earnings adjustment — — — — — ( 101 ) — — — ( 101 ) Non-cash stock compensation — — — — 1,576 — — — — 1,576 Conversion of Class B shares to Class A shares 17,248 69 ( 17,248 ) ( 69 ) — — — — — — Purchase of treasury stock at cost ( 10,401 ) — — — — — — ( 145,806 ) — ( 145,806 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 247 1 — — ( 1,223 ) — — — — ( 1,222 ) Accretion of redeemable noncontrolling interests and equity — — — — ( 20 ) — — — — ( 20 ) Net loss — — — — — ( 164,928 ) — — ( 15 ) ( 164,943 ) Foreign currency translation adjustment, net of tax of $ 0 — — — — — — ( 59,743 ) — ( 18 ) ( 59,761 ) Minimum pension liability adjustment, net of tax of $ 0 — — — — — — ( 168 ) — — ( 168 ) Balance at March 31, 2021 122,213 $ 618 73,544 $ 294 $ 3,760,362 $ ( 341,851 ) $ ( 1,001,897 ) $ ( 511,122 ) $ ( 12,915 ) $ 1,893,489 Non-cash stock compensation — — — — 3,202 — — — — 3,202 Conversion of Class B shares to Class A shares 2 — ( 2 ) — — — — — — — Purchase of treasury stock at cost ( 7,548 ) — — — — — — ( 105,786 ) — ( 105,786 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 119 1 — — 359 — — — — 360 Accretion of redeemable noncontrolling interests and equity — — — — ( 68 ) — — — — ( 68 ) Reclassification of redeemable noncontrolling interests and equity — — — — — — — — ( 1 ) ( 1 ) Net loss — — — — — ( 29,000 ) — — ( 224 ) ( 29,224 ) Foreign currency translation adjustment, net of tax of $ 0 — — — — — — 510,445 — ( 2 ) 510,443 Minimum pension liability adjustment, net of tax of $ 0 — — — — — — 27 — — 27 Balance at June 30, 2021 114,786 $ 619 73,542 $ 294 $ 3,763,855 $ ( 370,851 ) $ ( 491,425 ) $ ( 616,908 ) $ ( 13,142 ) $ 2,272,442 Non-cash stock compensation — — — — 2,397 — — — — 2,397 Conversion of Class B shares to Class A shares 7,188 29 ( 7,188 ) ( 29 ) — — — — — — Purchase of treasury stock at cost ( 7,110 ) — — — — — — ( 112,994 ) — ( 112,994 ) Exercise of stock options and vesting of restricted stock, net of shares withheld to satisfy tax withholding 119 — — — 304 — — — — 304 Change in noncontrolling interests — — — — 90 — — — — 90 Special cash distribution accrued on outstanding common stock — — — — ( 1,271,790 ) — — — — ( 1,271,790 ) Net income — — — — — 360,406 — — ( 269 ) 360,137 Foreign currency translation adjustment, net of tax of $0 — — — — — — ( 22,648 ) — 21 ( 22,627 ) Balance at September 30, 2021 114,983 $ 648 66,354 $ 265 $ 2,494,856 $ ( 10,445 ) $ ( 514,073 ) $ ( 729,902 ) $ ( 13,390 ) $ 1,227,959 Effective October 29, 2021, each share of Company Class A common stock and each share of Company Class B common stock automatically converted into one share of common stock of the Company. Following the conversion, the Company has only one class of common stock outstanding. 19 Stock Repurchase Program On March 14, 2022, the Company announced that its Board of Directors had approved an increase of $ 50,000 to the existing authorization to repurchase shares of the Company’s common stock under its share repurchase program, for a total authorization of $ 650,000 . The authorizations do not have an expiration date. The Company’s repurchases may be made on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Repurchases may be effected pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act. The Company’s Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size or suspend or discontinue the program. The Company expects to finance the repurchases with free cash flow, from excess cash and liquidity on-hand, or from its revolving credit facility, or a combination thereof. During the nine months ended September 30, 2022, the Company repurchased 17,575 shares of its outstanding common stock for a total purchase price of $ 207,098 , and its repurchases reached the total authorized limit of $ 650,000 . Special Cash Distribution On September 14, 2022, the Company announced that its Board of Directors approved, pursuant to the previously announced adoption of a Partial Liquidation Plan related to the distribution of net proceeds from the Company’s sale of Walden e-Learning LLC (the Walden Sale), the payment of a special cash distribution (the October 2022 Distribution) equal to $ 0.83 per each share of the Company’s common stock, par value $ 0.004 per share, to each holder of record on September 28, 2022. The proceeds that were distributed were attributable to the release during the third quarter of 2022 of $ 71,700 of escrowed funds from the Walden Sale, plus remaining net proceeds that had yet to be distributed. This is anticipated to be the final distribution pursuant to the Plan. The October 2022 Distribution was paid on October 12, 2022. During the third quarter of 2022, the Company recorded additional dividend payable of approximately $ 136,600 , based on the number of shares outstanding at the record date. In connection with the October 2022 Distribution, the Board of Directors approved certain required adjustments under the Company’s equity award compensation plans. The ex-dividend date was September 27, 2022, and therefore these required equitable adjustments were recorded in the consolidated financial statements during the third quarter of 2022. The exercise prices of the Company’s stock options were reduced by $ 0.83 per share, and holders of restricted and performance stock units will receive an amount in cash equal to $ 0.83 per unvested stock unit, payable when such unit vests. As of September 30, 2022 , the Company recorded a payable of approximately $ 770 related to the equitable adjustments for the equity award compensation plans. As previously disclosed in the 2021 Form 10-K, in September 2021, the Board approved the payment of a special cash distribution pursuant to the Partial Liquidation Plan equal to $ 7.01 per each share of the Company’s common stock, par value $ 0.004 per share, to each holder of record on October 6, 2021. The distribution was paid on October 29, 2021. As of December 31, 2021, there were dividends payable of $ 6,932 for equitable adjustments related to restricted stock awards that had not yet vested. In the December 31, 2021 balance sheet that was included in our 2021 Form 10-K, this amount was classified within Other current liabilities. In order to conform with the presentation in the September 30, 2022 balance sheet presented in this Form 10-Q, this $ 6,932 has been reclassified within Special cash distribution payable on the comparative December 31, 2021 balance sheet. 20 Accumulated Other Comprehen sive Income (Loss) Accumulated other comprehensive income (loss) (AOCI) in our Consolidated Balance Sheets includes the accumulated translation adjustments arising from translation of foreign subsidiaries’ financial statements, the unrealized gain on a derivative designated as an effective net investment hedge, and the accumulated net gains or losses that are not recognized as components of net periodic benefit cost for our minimum pension liability. The AOCI related to the net investment hedge will be deferred from earnings until the sale or liquidation of the hedged investee. The components of these balances were as follows: September 30, 2022 December 31, 2021 Laureate Education, Inc. Noncontrolling Interests Total Laureate Education, Inc. Noncontrolling Interests Total Foreign currency translation adjustment $ ( 504,090 ) $ 950 $ ( 503,140 ) $ ( 529,472 ) $ 946 $ ( 528,526 ) Unrealized gain on derivatives 10,416 — 10,416 10,416 — 10,416 Minimum pension liability adjustment ( 151 ) — ( 151 ) ( 1,148 ) — ( 1,148 ) Accumulated other comprehensive loss $ ( 493,825 ) $ 950 $ ( 492,875 ) $ ( 520,204 ) $ 946 $ ( 519,258 ) Note 12. Derivative Instruments In the normal course of business, our operations are exposed to fluctuations in foreign currency values and interest rate changes. We may seek to control a portion of these risks through a risk management program that includes the use of derivative instruments. Prior to their repayment, Laureate’s senior long-term debt arrangements were primarily in USD. Our ability to make debt payments was subject to fluctuations in the value of the USD against foreign currencies, since a majority of our operating cash used to make these payments was generated by subsidiaries with functional currencies other than USD. As part of our overall risk management policies, Laureate has at times entered into foreign currency swap contracts and floating-to-fixed interest rate swap contracts. For example, in November 2020 we entered into the BRL to USD foreign currency swap described below. In addition, we occasionally enter into foreign exchange forward contracts to reduce the impact of other non-functional currency-denominated receivables and payables. We do not enter into speculative or leveraged transactions, nor do we hold or issue derivatives for trading purposes. We generally intend to hold our derivatives until maturity. Laureate reports all derivatives at fair value. These contracts are recognized as either assets or liabilities, depending upon the derivative’s fair value. Gains or losses associated with the change in the fair value of these swaps are recognized in our Consolidated Statements of Operations on a current basis over the term of the contracts, unless designated and effective as a hedge. For swaps that are designated and effective as cash flow hedges, gains or losses associated with the change in fair value of the swaps are recognized in our Consolidated Balance Sheets as a component of AOCI and amortized into earnings as a component of Interest expense over the term of the related hedged items. Upon early termination of an effective interest rate swap designated as a cash flow hedge, unrealized gains or losses are deferred in our Consolidated Balance Sheets as a component of AOCI and are amortized as an adjustment to Interest expense over the period during which the hedged forecasted transaction affects earnings. For derivatives that are both designated and effective as net investment hedges, gains or losses associated with the change in fair value of the derivatives are recognized on our Consolidated Balance Sheets as a component of AOCI. Laureate did not hold any derivatives as of September 30, 2022 and December 31, 2021. 21 BRL to USD Foreign Currency Swaps In November 2020, in connection with the signing of the sale agreement for its Brazilian operations, Laureate entered into six BRL-to-USD swap agreements. The purpose of these swaps was to mitigate the risk of foreign currency exposure on the expected proceeds from the sale. Two of the swaps were deal contingent, with the settlement date occurring on the second business day following the completion of the sale. On the settlement date, Laureate would deliver the combined notional amount of BRL 1,900,000 (BRL 950,000 for each swap) and receive an amount in USD equal to each swap's notional amount multiplied by each swap's contract rate of exchange at the settlement date. The remaining four swaps were originally put/call options with a maturity date of May 13, 2021, where Laureate could put the combined notional amount of BRL 1,875,000 and call a combined USD amount of $ 343,783 at an exchange rate of 5.4540 BRL per 1 USD. The terms of these options included deferred premium payments from Laureate to the counterparties of $ 18,294 , which were paid in full in January 2021. During the second quarter of 2021, all four of these swaps were converted to be deal contingent, with the settlement date occurring on the second business day following the aforementioned sale. This conversion resulted in cash proceeds to Laureate of $ 1,663 . On the settlement date, Laureate would deliver the combined notional amount of BRL 1,875,000 and receive an amount in USD equal to each swap’s notional amount multiplied by each swap’s contract rate of exchange at the settlement date. The sale of Laureate’s Brazilian operations closed on May 28, 2021. Per the terms of the agreements, the swaps were settled on June 2, 2021, which resulted in a realized loss and net settlement amount paid to the counterparties at closing of $ 33,710 . These swaps were not designated as hedges for accounting purposes. There was no gain or loss on derivatives in the Consolidated Statements of Operations for the three months ended September 30, 2022 and 2021. Components of the reported Loss on derivatives not designated as hedging instruments in the Consolidated Statements of Operations for the nine months ended September 30, 2022 and 2021 were as follows: For the nine months ended September 30, 2022 2021 Cross currency swaps Unrealized gain $ — $ 25,824 Realized loss — ( 50,341 ) Loss on derivatives, net $ — $ ( 24,517 ) Credit Risk and Credit-Risk-Related Contingent Features Derivatives expose us to credit risk to the extent that the counterparty may possibly fail to perform its contractual obligation. The amount of our credit risk exposure is equal to the fair value of the derivative when any of the derivatives are in a net gain position. Laureate limits its credit risk by only entering into derivative transactions with highly rated major financial institutions. We have not entered into collateral agreements with our derivatives’ counterparties. As of September 30, 2022 and December 31, 2021, we did not hold any derivatives in a net gain position, and thus had no credit risk. Laureate’s agreements with its derivative counterparties typically contain a provision under which the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to a default on the indebtedness. As of September 30, 2022 and December 31, 2021, the Company did not have any outstanding derivative agreements. Note 13. Income Taxes Laureate's income tax provisions for all periods consist of federal, state and foreign income taxes. The tax provisions for the nine months ended September 30, 2022 and 2021 are based on estimated full-year effective tax rates, adjusted for discrete income tax items related specifically to the interim periods. Laureate has operations in multiple countries at various statutory tax rates and other operations that are loss-making entities for which it is not more likely than not that a tax benefit will be realized on the loss. For the nine months ended September 30, 2022, the Company recognized income t ax expense of $ 159,213 , as compared to $ 174,163 in the prior year period. 22 Income tax expense for the nine months ended September 30, 2022 was attributable to pretax income, the jurisdictional mix of earnings, pretax losses for which the Company cannot recognize a tax benefit, and discrete tax expense of approximately $ 32,500 that was recorded for income tax reserves related to the application of the high-tax exception to global intangible low-taxed income. Income tax expense for the nine months ended September 30, 2021 was primarily driven by jurisdictional mix of earnings, changes in income tax reserves and withholding taxes. In addition, during the nine months ended September 30, 2021, the Company recorded discrete tax expense of approximately $ 35,700 for changes in estimate associated with provision-to-return adjustments for the amended tax returns for 2018 and 2019 and the tax return for 2020, specifically related to the final regulations that were released by the U.S. Treasury Department in July 2020 for the high-tax exception to global intangible low-taxed income. Inflation Reduction Act of 2022 On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which implemented a 15% minimum tax on book income of certain large corporations, a 1% excise tax on stock repurchases and tax incentives to promote clean energy, among other provisions. The Company does not believe that this legislation will have a material impact on the financial statements and will continue to monitor regulatory developments to assess potential impacts to the Company. 23 Note 14. Earnings (Loss) Per Share Effective October 29, 2021, each share of the Company's Class A common stock and each share of the Company's Class B common stock automatically converted into one share of common stock of the Company. Following the conversion, the Company has only one class of common stock outstanding. Prior to that, our common stock had a dual class structure, consisting of Class A common stock and Class B common stock. Other than voting rights, the Class B common stock had the same rights as the Class A common stock, and therefore both were treated as the same class of stock for purposes of the earnings per share calculation. Laureate computes basic earnings per share (EPS) by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted EPS reflects the potential dilution that would occur if share-based compensation awards, contingently issuable shares, or convertible securities were exercised or converted into common stock. To calculate the diluted EPS, the basic weighted average number of shares is increased by the dilutive effect of stock options, restricted stock, restricted stock units, and any contingently issuable shares determined using the treasury stock method, and any convertible securities using the if-converted method. The following tables summarize the computations of basic and diluted earnings (loss) per share: For the three months ended September 30, 2022 2021 Numerator used in basic and diluted earnings (loss) per common share for continuing operations: Income (loss) from continuing operations $ 31,852 $ ( 10,390 ) Loss (income) attributable to noncontrolling interests 81 ( 17 ) Net income (loss) from continuing operations for basic and diluted earnings (loss) per share $ 31,933 $ ( 10,407 ) Numerator used in basic and diluted earnings (loss) per common share for discontinued operations: (Loss) income from discontinued operations, net of tax $ ( 816 ) $ 370,527 Loss attributable to noncontrolling interests — 286 Net (loss) income from discontinued operations for basic and diluted earnings (loss) per share $ ( 816 ) $ 370,813 Denominator used in basic and diluted earnings (loss) per common share: Basic weighted average shares outstanding 164,645 185,569 Dilutive effect of stock options 221 — Dilutive effect of restricted stock units 149 — Diluted weighted average shares outstanding 165,015 185,569 Basic and diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.19 $ ( 0.06 ) Income from discontinued operations — 2.00 Basic and diluted earnings per share $ 0.19 $ 1.94 24 For the nine months ended September 30, 2022 2021 Numerator used in basic and diluted earnings (loss) per common share for continuing operations: Income (loss) from continuing operations $ 25,851 $ ( 290,800 ) Loss attributable to noncontrolling interests 414 9 Income (loss) from continuing operations attributable to Laureate Education, Inc. 26,265 ( 290,791 ) Accretion of redemption value of redeemable noncontrolling interests and equity — ( 88 ) Net income (loss) from continuing operations for basic and diluted earnings (loss) per share $ 26,265 $ ( 290,879 ) Numerator used in basic and diluted earnings (loss) per common share for discontinued operations: Income from discontinued operations, net of tax $ 4,064 $ 456,770 Loss attributable to noncontrolling interests — 499 Net income from discontinued operations for basic and diluted earnings (loss) per share $ 4,064 $ 457,269 Denominator used in basic and diluted earnings (loss) per common share: Basic weighted average shares outstanding 169,885 192,543 Dilutive effect of stock options 302 — Dilutive effect of restricted stock units 173 — Diluted weighted average shares outstanding 170,360 192,543 Basic and diluted earnings (loss) per share: Income (loss) from continuing operations $ 0.15 $ ( 1.51 ) Income from discontinued operations 0.02 2.37 Basic and diluted earnings per share $ 0.17 $ 0.86 The following table summarizes the number of stock options and shares of restricted stock units that were excluded from the diluted EPS calculations because the effect would have been antidilutive: For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Stock options 14 2,845 54 3,162 Restricted stock units 284 687 239 698 Note 15. Legal and Regulatory Matters Laureate is subject to legal proceedings arising in the ordinary course of business. In management’s opinion, we have adequate legal defenses, insurance coverage, and/or accrued liabilities with respect to the eventuality of these actions. Management believes that any settlement would not have a material impact on Laureate’s financial position, results of operations, or cash flows. Our institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition and results of operations. There have been no material changes to the laws and regulations affecting our higher education institutions that are described in our Annual Report on Form 10-K for the year ended December 31, 2021. 25 Note 16. Supplemental Cash Flow Information Reconciliation of Cash and cash equivalents and Restricted cash The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets, as well as the September 30, 2021 balance. The September 30, 2022 and September 30, 2021 balances sum to the amounts shown in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021: September 30, 2022 September 30, 2021 December 31, 2021 Cash and cash equivalents $ 319,039 $ 1,856,856 $ 324,801 Restricted cash 17,448 104,999 20,774 Total Cash and cash equivalents and Restricted cash shown in the Consolidated Statements of Cash Flows $ 336,487 $ 1,961,855 $ 345,575 Restricted cash represents cash that is not immediately available for use in current operations and includes cash held to collateralize a letter of credit and cash restricted for a benefit plan. As described in Note 9, Commitments and Contingencies, a portion of the restricted cash was reclassified to Cash and cash equivalents in October 2022, following the release of the letter of credit. Note 17. Subsequent Events 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 $ 112,000 . In connection with the Special Dividend, the Board approved certain required adjustments under the Company’s equity award compensation plans. Subject to the payment of the Special Dividend, the exercise price of the Company’s options will be reduced by $ 0.68 per share, and holders of restricted and performance stock units will receive an amount in cash equal to $ 0.68 per unvested stock unit held payable when such unit vests. If all outstanding stock units vest, the aggregate amount to be paid in respect of the units will be approximately $ 635 . Spanish Tax Audits-Spanish Supreme Court Appeal and Mutual Agreement Procedure As previously reported, during the third quarter of 2021, both the Company and the Spanish Taxing Authority (STA) appealed the Spanish National Court’s decision regarding the STA’s audits of Iniciativas Culturales de España, S.L. (ICE), our former Spanish holding company, for the fiscal years 2006-2007 and 2008-2010. In July 2022, the Spanish Supreme Court decided not to admit the Company’s appeal. However, the Spanish Supreme Court has decided to admit the STA’s appeal, which the Company believes will provide resolution of the same issues raised in the Company’s appeal. In addition, in October 2022, the review pursuant to the Mutual Agreement Procedure between the STA and Dutch tax authorities related to the STA’s audits of the Company for fiscal years 2011 through 2013 was completed, and it was determined that the Company does not have the option to seek treaty relief against double taxation for those fiscal years. The Company does not expect that these matters will have a material effect on its consolidated financial statements. 26