What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-11-02 · 118 added, 238 removed, 295 unchanged (55% of the section changed)

9 unchanged sentences

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results.

Important factors that could cause actual results to differ materially from our expectations, including, without limitation, in conjunction with the forward-looking statements and risk factor included in this Form 10-Q, are disclosed in “Item 1—Business,” and “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the 2022 Form 10-K).

Important factors that could cause actual results to differ materially from our expectations, including, without limitation, in conjunction with the forward-looking statements and risk factors included in this Form 10-Q, are disclosed in “Item 1—Business,” and “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the 2023 Form 10-K).

Some of the factors that we believe could affect our results include:

42 unchanged sentences

As discussed in Note 3, Assets Held for Sale, of our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, the Company has undertaken a process to sell two of our subsidiaries in Mexico that operate K-12 educational programs.

As such, these subsidiaries are classified as assets held for sale as of September 30, 2023.

The planned sale does not represent a strategic shift and therefore does not qualify for presentation as a discontinued operation in the consolidated financial statements.

The completion of the sale is not expected to have a material effect on our financial results.

As such, these subsidiaries are classified as assets held for sale as of March 31, 2024.

The planned sale of this disposal group does not represent a strategic shift and therefore does not qualify for presentation as a discontinued operation in the consolidated financial statements.

In addition, during 2023, two parcels of land at campuses in Mexico and a parcel of land in the United States met the criteria for classification as held for sale under ASC 360-10-45-9.

The completion of these sales is not expected to have a material effect on our financial results.

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.

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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 both countries in which we compete.

We compete with other private higher education institutions on the basis of price, educational quality, reputation and location.

The target demographics are primarily 18- to 24-year-olds in the countries in which we compete.

We 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 both countries in which we operate, and it is difficult to predict how the markets will evolve and how many competitors there will be in the future.

There are a number of private and public institutions in both countries in which we operate, 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.

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

The following information for our reportable segments is presented as of September 30, 2023:

The following information for our reportable segments is presented as of March 31, 2024:

Institutions Enrollment 2024 YTD Revenues

($ in millions) % Contribution to 2023 YTD Revenues

($ in millions) (1)

% Contribution to 2024 YTD Revenues

Mexico 2 233,700 $ 214.1 78 %

Peru 3 225,700 61.2 22 %

Total 5 458,700 $ 1,074.9 100 %

5 459,400 $ 275.4 100 %

(1) Amounts related to Corporate were immaterial and are not separately presented.

Our operations are outside of the United States and are subject to complex business, economic, legal, regulatory, political, tax and foreign currency risks, which may be difficult to adequately address.

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We plan to grow our operations organically by:

1) adding new programs and course offerings, including online and hybrid offerings;

1) adding new programs and course offerings;

2) expanding target student demographics;

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In order to provide a framework for assessing how our business performed excluding the effects of foreign currency fluctuations, we present organic constant currency in our segment results, which is calculated using the change from prior-year

average foreign exchange rates to current-year average foreign exchange rates, as applied to local-currency operating results for the current year, and then excludes the impact of other items, as described in the segments’ results.

average foreign exchange rates to current-year average foreign exchange rates, as applied to local-currency operating results for the current year, and excludes the impact of acquisitions and divestitures.

Our institutions have a summer break during which classes are generally not in session and minimal revenues are recognized.

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Our consolidated income tax provision is derived based on the combined impact of federal, state and foreign income taxes.

Also, discrete items can arise in the course of our operations that can further impact the Company’s effective tax rate for the period.

Also, discrete items can arise in the course of our operations that can affect the Company’s effective tax rate for the period.

Our tax rate fluctuates from period to period due to changes in the mix of earnings between our tax-paying entities and our loss-making entities for which it is not 'more likely than not' that a tax benefit will be realized on the loss.

See “Item 1A—Risk Factors—Risks Relating to Our Business—We may have exposure to greater-than-anticipated tax liabilities” in our 2023 Form 10-K.

The Organization for Economic Co-operation and Development (OECD) has proposed changes to numerous long-standing tax principles.

These proposals, if finalized and adopted by its member countries, will likely increase tax uncertainty, and may adversely affect our provision for income taxes.

The Company will continue to monitor regulatory developments to assess potential impacts to the Company.

Many countries have enacted legislation and adopted policies to implement the global minimum tax resulting from the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting project.

Significant details and guidance around the global minimum tax provisions are still pending.

For countries that have enacted the global minimum tax, such taxes generally become effective for the Company beginning in 2024.

Income tax expense could be adversely affected as the legislation becomes effective in countries in which we do business.

We will continue to monitor pending legislation and implementation by individual countries in which we operate, and we do not expect the global minimum tax provisions to have a material impact on our results of operations, financial position or cash flows in 2024.

Results of Operations

3 unchanged sentences

• Segment Results.

Comparison of Consolidated Results for the Three Months Ended September 30, 2023 and 2022

Better/(Worse)

(in millions) 2023 2022 2023 vs.

Revenues $ 361.5 $ 301.0 20 %

Direct costs 291.1 229.4 (27) %

General and administrative expenses 11.8 15.3 23 %

Operating income 58.7 56.3 4 %

Interest expense, net of interest income (2.4) (1.7) (41) %

Other non-operating income 13.2 16.5 (20) %

Income from continuing operations before income taxes 69.5 71.1 (2) %

Income tax expense (33.7) (39.3) 14 %

Income from continuing operations 35.7 31.9 12 %

Income (loss) from discontinued operations, net of tax

0.2 (0.8) 125 %

Net income 36.0 31.0 16 %

Net loss attributable to noncontrolling interests 0.2 0.1 (100) %

Net income attributable to Laureate Education, Inc.

$ 36.2 $ 31.1 16 %

Comparison of Consolidated Results for the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Revenues increased by $60.5 million to $361.5 million for the three months ended September 30, 2023 (the 2023 fiscal quarter) from $301.0 million for the three months ended September 30, 2022 (the 2022 fiscal quarter).

This increase in revenues was attributable to:

(1) the effect of a net change in foreign currency exchange rates, which increased revenues by $37.8 million, mainly due to the strengthening of the Mexican peso against the USD compared to the 2022 fiscal quarter;

(2) higher average total organic enrollment at our institutions during the 2023 fiscal quarter, which increased revenues by $16.0 million compared to the 2022 fiscal quarter;

and (3) the effect of changes in tuition rates and enrollments in programs at varying price points (product mix), pricing and timing, which increased revenues by $7.4 million compared to the 2022 fiscal quarter.

These increases in revenues were partially offset by other Corporate changes, which accounted for a decrease in revenues of $0.7 million.

Direct costs and general and administrative expenses combined increased by $58.2 million to $302.9 million for the 2023 fiscal quarter from $244.7 million for the 2022 fiscal quarter.

The increase in direct costs was primarily driven by the effect of a net change in foreign currency exchange rates, which increased costs by $33.0 million, mainly due to the strengthening of the Mexican peso against the USD compared to the 2022 fiscal quarter.

In addition, the effect of operational changes increased costs by $27.9 million, primarily due to the result of higher enrollment at our institutions.

These increases in direct costs were partially offset by a decrease of $2.7 million in Corporate expenses.

Operating income increased by $2.4 million to $58.7 million for the 2023 fiscal quarter from $56.3 million for the 2022 fiscal quarter.

The increase in operating income was mainly driven by higher operating income at our Peru segment, combined with lower operating costs at Corporate, partially offset by lower operating income at our Mexico segment that was partly due to lease exit costs.

Interest expense, net of interest income increased by $0.7 million to $2.4 million for the 2023 fiscal quarter from $1.7 million for the 2022 fiscal quarter.

The increase in interest expense was primarily attributable to higher average debt balances compared to the 2022 fiscal quarter.

Other non-operating income decreased by $3.3 million to $13.2 million for the 2023 fiscal quarter from $16.5 million for the 2022 fiscal quarter.

This decrease was primarily attributable to a lower gain on foreign currency exchange of $5.3 million compared to the 2022 fiscal quarter, mainly related to intercompany loan arrangements.

In addition, other income was lower by $1.3 million compared to the 2022 fiscal quarter.

These decreases in other non-operating income were partially offset by a gain on disposal of subsidiaries of $3.3 million during the 2023 fiscal quarter, which was primarily attributable to the release of accumulated foreign currency translation gain upon the liquidation of a subsidiary.

Income tax expense decreased by $5.6 million to $33.7 million for the 2023 fiscal quarter from $39.3 million for the 2022 fiscal quarter.

This decrease was primarily attributable to changes in the jurisdictional mix of earnings.

Summary Comparison of Consolidated Results

Comparison of Consolidated Results for the Nine Months Ended September 30, 2023 and 2022

Comparison of Consolidated Results for the Three Months Ended March 31, 2024 and 2023

Better/(Worse)

3 unchanged sentences

General and administrative expenses 10.3 10.3 — %

Loss on impairment of assets 1.6 0.1 nm

Operating income 11.1 15.6 (29) %

Interest expense, net of interest income (2.8) (3.8) 26 %

Other non-operating expense (47.8) (1.0) nm

Income from continuing operations before income taxes and equity in net income of affiliates 170.7 185.0 (8) %

Other non-operating expense (9.2) (28.4) 68 %

Loss from continuing operations before income taxes and equity in net income of affiliates

(0.9) (16.6) 95 %

Income tax expense (9.9) (10.2) 3 %

Equity in net income of affiliates, net of tax — 0.1 (100) %

Income from continuing operations 69.3 25.9 168 %

(Loss) income from discontinued operations, net of tax (3.8) 4.1 (193) %

Net income 65.5 29.9 119 %

Loss from continuing operations (10.8) (26.7) 60 %

Loss from discontinued operations, net of tax

Net loss (10.8) (26.8) 60 %

Net loss attributable to noncontrolling interests 0.1 0.2 50 %

Net income attributable to Laureate Education, Inc.

Net loss attributable to Laureate Education, Inc.

$ (10.8) $ (26.6) 59 %

nm - percentage changes not meaningful

Comparison of Consolidated Results for the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Revenues increased by $179.0 million to $1,074.9 million for the nine months ended September 30, 2023 (the 2023 fiscal period) from $895.9 million for the nine months ended September 30, 2022 (the 2022 fiscal period).

This increase was attributable to:

(1) the effect of a net change in foreign currency exchange rates, which increased revenues by $79.3 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2022 fiscal period;

(2) higher average total organic enrollment at our institutions, which increased revenues by $62.8 million compared to the 2022 fiscal period;

and (3) the effect of product mix, pricing and timing, which increased revenues by $40.7 million for the 2023 fiscal period.

These increases in revenues were partially offset by other Corporate changes, which accounted for a decrease in revenues of $3.8 million.

Direct costs and general and administrative expenses combined increased by $140.5 million to $844.4 million for the 2023 fiscal period from $703.9 million for the 2022 fiscal period.

The effect of operational changes, mostly attributable to the effect of higher enrollments at our institutions as well as return-to-campus expenses, increased direct costs by $87.8 million compared to the 2022 fiscal period.

Additionally, the effect of a net change in foreign currency exchange rates increased costs by $64.9 million compared to the 2022 fiscal period.

These increases in direct costs were partially offset by other Corporate expenses, which accounted for a decrease in costs of $12.2 million in the 2023 fiscal period.

Operating income increased by $36.8 million to $228.8 million for the 2023 fiscal period from $192.0 million for the 2022 fiscal period.

This increase was primarily a result of higher operating income at both our Mexico and Peru segments, combined with lower operating costs at Corporate, as compared to the 2022 fiscal period.

Interest expense, net of interest income increased by $4.3 million to $10.3 million for the 2023 fiscal period from $6.0 million for the 2022 fiscal period.

The increase in interest expense was primarily attributable to higher average debt balances compared to the 2022 fiscal period.

Other non-operating expense increased by $46.8 million to $47.8 million for the 2023 fiscal period from $1.0 million for the 2022 fiscal period.

This increase was attributable to a higher loss on foreign currency exchange of $48.7 million compared to the 2022 fiscal period, mainly related to intercompany loan arrangements.

Additionally, other income was lower by $0.2 million compared to the 2022 fiscal period.

These increases in other non-operating expense were partially offset by higher gain on disposal of subsidiaries of $2.1 million, primarily attributable to the release of accumulated foreign currency translation gains upon the liquidation of certain subsidiaries.

Income tax expense decreased by $57.8 million to $101.4 million for the 2023 fiscal period from $159.2 million for the 2022 fiscal period.

This decrease was primarily attributable to a discrete tax expense recorded during the 2022 fiscal period of approximately $32.5 million for income tax reserves related to the application of the high-tax exception to global intangible low-taxed income.

The remaining difference was primarily attributable to the change in the jurisdictional mix of earnings.

(Loss) income from discontinued operations, net of tax changed by $7.9 million to a loss of $(3.8) million for the 2023 fiscal period from income of $4.1 million for the 2022 fiscal period.

This change was primarily attributable to changes in estimates during the 2023 fiscal period regarding the realizability of certain receivables from previous divestitures, combined with the year-over-year impact of a gain recognized during the 2022 fiscal period upon completion of the transfer of certain leases related to our former operations in Chile.

Comparison of Consolidated Results for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Revenues increased by $24.1 million to $275.4 million for the three months ended March 31, 2024 (the 2024 fiscal quarter) from $251.3 million for the three months ended March 31, 2023 (the 2023 fiscal quarter).

This increase was primarily attributable to the effect of a net change in foreign currency exchange rates, which increased revenues by $20.4 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2023 fiscal quarter.

In addition, higher average total organic enrollment at our institutions increased revenues by $14.9 million compared to the 2023 fiscal quarter.

These increases in revenues were partially offset by the effect of changes in tuition rates and enrollments in programs at varying price points (product mix), pricing and timing, which decreased revenues by $11.1 million for the 2024 fiscal quarter.

Other Corporate changes accounted for a decrease in revenues of $0.1 million.

Direct costs and general and administrative expenses combined increased by $28.7 million to $264.3 million for the 2024 fiscal quarter from $235.6 million for the 2023 fiscal quarter.

The effect of a net change in foreign currency exchange rates increased direct costs by $16.3 million, mostly driven by the strengthening of the Mexican peso against the USD compared to the 2023 fiscal quarter.

Additionally, the effect of operational changes increased direct costs by $12.9 million compared to the 2023 fiscal quarter.

These increases in direct costs were partially offset by other Corporate expenses, which accounted for a decrease in costs of $0.5 million in the 2024 fiscal quarter compared to the 2023 fiscal quarter.

Operating income decreased by $4.5 million to $11.1 million for the 2024 fiscal quarter from $15.6 million for the 2023 fiscal quarter.

This decrease was primarily a result of higher operating loss at our Peru segment, partially offset by higher operating income at our Mexico segment compared to the 2023 fiscal quarter.

Interest expense, net of interest income decreased by $1.0 million to $2.8 million for the 2024 fiscal quarter from $3.8 million for the 2023 fiscal quarter.

The decrease in interest expense was primarily attributable to lower average debt balances compared to the 2023 fiscal quarter.

Other non-operating expense decreased by $19.2 million to $9.2 million for the 2024 fiscal quarter from $28.4 million for the 2023 fiscal quarter.

This decrease was attributable to a lower loss on foreign currency exchange of $23.4 million compared to the 2023 fiscal quarter, mainly related to intercompany loan arrangements.

This decrease in other non-operating expense was partially offset by a loss on disposal of subsidiaries for the 2024 fiscal quarter compared to a gain for the 2023 fiscal quarter, primarily attributable to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries, for a change of $3.4 million.

Additionally, other expense was higher by $0.8 million compared to the 2023 fiscal quarter.

Income tax expense decreased by $0.3 million to $9.9 million for the 2024 fiscal quarter from $10.2 million for the 2023 fiscal quarter.

Non-GAAP Financial Measure

We define Adjusted EBITDA as net income (loss), before (income) loss from discontinued operations, net of tax, 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, 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.

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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 Net income to Adjusted EBITDA for the three months ended September 30, 2023 and 2022:

The following table presents Adjusted EBITDA and reconciles Net loss to Adjusted EBITDA for the three months ended March 31, 2024 and 2023:

Better/(Worse)

(in millions) 2024 2023 2024 vs.

Net income $ 36.0 $ 31.0 16 %

(Income) loss from discontinued operations, net of tax (0.2) 0.8 125 %

Income from continuing operations 35.7 31.9 12 %

Net loss $ (10.8) $ (26.8) 60 %

Loss from discontinued operations, net of tax 0.1 — nm

Loss from continuing operations (10.8) (26.7) 60 %

Income tax expense 9.9 10.2 3 %

Income from continuing operations before income taxes 69.5 71.1 (2) %

Gain on disposal of subsidiaries, net (3.3) — nm

Foreign currency exchange gain, net (9.8) (15.1) (35) %

Other income, net (0.1) (1.4) (93) %

Loss from continuing operations before income taxes

(0.9) (16.6) 95 %

Loss (gain) on disposal of subsidiaries, net 3.1 (0.3) nm

Foreign currency exchange loss, net 5.6 29.0 81 %

Other expense (income), net 0.5 (0.3) nm

Interest expense 4.7 6.0 22 %

4 unchanged sentences

Share-based compensation expense (a)

EiP implementation expenses (b)

1.4 1.1 (27) %

Adjusted EBITDA $ 30.6 $ 33.5 (9) %

1 unchanged sentence

(a) Represents non-cash, share-based compensation expense pursuant to the provisions of ASC 718, “Stock Compensation.”

(b) 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.

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 that were incurred in connection with previous dispositions.

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 for the Three Months Ended September 30, 2023 and 2022

Comparison of Depreciation and Amortization for the Three Months Ended March 31, 2024 and 2023

Depreciation and amortization increased by $1.4 million to $18.1 million for the 2024 fiscal quarter from $16.7 million for the 2023 fiscal quarter.

1 unchanged sentence

Other items increased depreciation and amortization by $0.3 million.

The following table presents Adjusted EBITDA and reconciles Net income to Adjusted EBITDA for the nine months ended September 30, 2023 and 2022:

Better/(Worse)

(in millions) 2023 2022 2023 vs.

Net income $ 65.5 $ 29.9 119 %

Loss (income) from discontinued operations, net of tax 3.8 (4.1) (193) %

Income from continuing operations 69.3 25.9 168 %

Equity in net income of affiliates, net of tax — (0.1) (100) %

Income tax expense 101.4 159.2 36 %

Income from continuing operations before income taxes and equity in net income of affiliates 170.7 185.0 (8) %

Gain on disposal of subsidiaries, net (3.6) (1.5) 140 %

Foreign currency exchange loss, net 51.6 2.9 nm

Other income, net (0.2) (0.4) (50) %

Interest expense 17.3 11.6 (49) %

Interest income (6.9) (5.6) 23 %

Operating income 228.8 192.0 19 %

Depreciation and amortization 52.0 43.6 (19) %

EBITDA 280.8 235.6 19 %

Share-based compensation expense (a)

Loss on impairment of assets (b)

EiP implementation expenses (c)

Adjusted EBITDA $ 287.3 $ 244.1 18 %

nm - percentage changes not meaningful

(a) Represents non-cash, share-based compensation expense pursuant to the provisions of ASC 718, “Stock Compensation.”

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

(c) EiP implementation expenses were 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.

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 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, and Share-based Compensation Expense for the Nine Months Ended September 30, 2023 and 2022

Depreciation and amortization increased by $8.4 million to $52.0 million for the 2023 fiscal period from $43.6 million for the 2022 fiscal period.

The effects of foreign currency exchange increased depreciation and amortization expense by $4.0 million for the 2023 fiscal period.

Other items increased depreciation and amortization by $4.4 million.

Share-based compensation expense decreased by $2.1 million to $4.9 million for the 2023 fiscal period from $7.0 million for the 2022 fiscal period.

The decrease is primarily related to accelerated vesting of unvested equity awards that occurred during the 2022 fiscal period for employees terminated in connection with the now-completed strategic review process.

Segment Results

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Mexico and Peru, as discussed in Overview.

For purposes of the following comparison of results discussion, “ segment direct costs ” represent direct costs incurred by the segment as they are included in Adjusted EBITDA, such that depreciation and amortization expense, loss on impairment of assets, share-based compensation expense and our EiP implementation expenses have been excluded.

For purposes of the following comparison of results discussion, “ segment direct costs ” represent direct costs incurred by the segment as they are included in Adjusted EBITDA, such that depreciation and amortization expense, loss on impairment of assets and share-based compensation expense have been excluded.

Organic enrollment is based on average total enrollment for the period.

For a further description of our segments, see Overview.

The following tables, derived from our consolidated financial statements included elsewhere in this Form 10-Q, presents selected financial information of our segments:

(in millions) % Change

Better/(Worse)

For the three months ended September 30, 2023 2022 2023 vs.

Mexico $ 185.4 $ 147.8 25 %

Peru 176.2 152.5 16 %

Corporate — 0.7 (100) %

Consolidated Total Revenues $ 361.5 $ 301.0 20 %

Adjusted EBITDA:

Mexico $ 21.9 $ 23.4 (6) %

Peru 66.3 61.2 8 %

Corporate (9.9) (11.9) 17 %

Consolidated Total Adjusted EBITDA $ 78.4 $ 72.8 8 %

The following table, derived from our consolidated financial statements included elsewhere in this Form 10-Q, presents selected financial information of our segments:

(in millions) % Change

Better/(Worse)

For the nine months ended September 30, 2023 2022 2023 vs.

For the three months ended March 31, 2024 2023 2024 vs.

Mexico $ 214.1 $ 182.0 18 %

4 unchanged sentences

Mexico $ 59.9 $ 48.9 22 %

Peru 207.1 201.4 3 %

Peru (20.7) (6.5) nm

Corporate (8.6) (9.0) 4 %

Consolidated Total Adjusted EBITDA $ 30.6 $ 33.5 (9) %

nm - percentage changes not meaningful

Financial Overview

Comparison of Mexico Results for the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Comparison of Mexico Results for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

(in millions) Revenues Direct Costs Adjusted EBITDA

September 30, 2022 $ 147.8 $ 124.4 $ 23.4

March 31, 2023 $ 182.0 $ 133.1 $ 48.9

Organic enrollment (1)

2 unchanged sentences

Foreign exchange 19.3 13.9 5.4

September 30, 2023 $ 185.4 $ 163.5 $ 21.9

March 31, 2024 $ 214.1 $ 154.2 $ 59.9

(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 $37.6 million, a 25% increase from the 2022 fiscal quarter.

Revenues increased by $32.1 million, an 18% increase from the 2023 fiscal quarter.

• Organic enrollment increased during the 2024 fiscal quarter by 8%, increasing revenues by $13.8 million.

• Revenue for the quarter was unfavorably affected by the timing of the academic calendar as compared to the 2023 fiscal quarter.

• Revenues from our Mexico segment represented 78% of our consolidated total revenues for the 2024 fiscal quarter, compared to 72% for the 2023 fiscal quarter.

Adjusted EBITDA decreased by $1.5 million, a 6% decrease from the 2022 fiscal quarter, partly due to lease exit costs.

Comparison of Mexico Results for the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

(in millions) Revenues Direct Costs Adjusted EBITDA

September 30, 2022 $ 435.0 $ 355.2 $ 79.8

Organic enrollment (1)

Product mix, pricing and timing (1)

Organic constant currency 56.5 41.4 15.1

Foreign exchange 68.0 54.2 13.8

September 30, 2023 $ 559.5 $ 450.4 $ 109.1

(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 $124.5 million, a 29% increase from the 2022 fiscal period.

• Organic enrollment increased during the 2023 fiscal period by 10%, increasing revenues by $40.0 million.

• Revenues from our Mexico segment represented 52% of our consolidated total revenues for the 2023 fiscal period, compared to 49% for the 2022 fiscal period.

Adjusted EBITDA increased by $29.3 million, a 37% increase from the 2022 fiscal period, mainly driven by higher revenues, partially offset by higher costs associated with return-to-campus expenses.

Adjusted EBITDA increased by $11.0 million, a 22% increase from the 2023 fiscal quarter.

Financial Overview

Comparison of Peru Results for the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Comparison of Peru Results for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

(in millions) Revenues Direct Costs Adjusted EBITDA

September 30, 2022 $ 152.5 $ 91.3 $ 61.2

March 31, 2023 $ 69.2 $ 75.7 $ (6.5)

Organic enrollment (1)

2 unchanged sentences

Foreign exchange 1.1 1.3 (0.2)

September 30, 2023 $ 176.2 $ 109.9 $ 66.3

March 31, 2024 $ 61.2 $ 81.9 $ (20.7)

Revenues increased by $23.7 million, a 16% increase from the 2022 fiscal quarter.

Revenues decreased by $8.0 million, a 12% decrease from the 2023 fiscal quarter.

• Revenues decreased primarily due to timing of the academic calendar compared to the 2023 fiscal quarter.

• Organic enrollment increased during the 2024 fiscal quarter by 2%, increasing revenues by $1.1 million.

• Revenues from our Peru segment represented 22% of our consolidated total revenues for the 2024 fiscal quarter compared to 28% for the 2023 fiscal quarter.

Adjusted EBITDA increased by $5.1 million, an 8% increase from the 2022 fiscal quarter.

Comparison of Peru Results for the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

(in millions) Revenues Direct Costs Adjusted EBITDA

September 30, 2022 $ 457.1 $ 255.7 $ 201.4

Organic enrollment (1)

Product mix, pricing and timing (1)

Organic constant currency 47.0 45.9 1.1

Foreign exchange 11.3 6.7 4.6

September 30, 2023 $ 515.4 $ 308.3 $ 207.1

Revenues increased by $58.3 million, a 13% increase from the 2022 fiscal period.

• Organic enrollment increased during the 2023 fiscal period by 6%, increasing revenues by $22.8 million.

• Revenues from our Peru segment represented 48% of our consolidated total revenues for the 2023 fiscal period compared to 51% for the 2022 fiscal period.

Adjusted EBITDA increased by $5.7 million from the 2022 fiscal period, which was net of higher costs associated with return-to-campus expenses.

Adjusted EBITDA decreased by $14.2 million from the 2023 fiscal quarter, primarily due to lower revenues related to academic calendar timing and higher operating expenses.

Corporate revenues primarily represent miscellaneous other revenues, net of the elimination of intersegment revenues.

In 2022, corporate revenues also included transition services agreements related to previous divestitures.

Comparison of Corporate Results for the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

Better/(Worse)

(in millions) 2023 2022 2023 vs.

Revenues $ — $ 0.7 (100) %

Expenses 9.9 12.6 21 %

Adjusted EBITDA $ (9.9) $ (11.9) 17 %

Comparison of Corporate Results for the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Comparison of Corporate Results for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Better/(Worse)

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Adjusted EBITDA $ (8.6) $ (9.0) 4 %

Adjusted EBITDA increased by $8.4 million, a 23% increase from the 2022 fiscal period, mainly driven by a decrease in contract labor expenses and other professional fees, as well as a reduction in IT-related costs.

Adjusted EBITDA increased by $0.4 million, a 4% increase from the 2023 fiscal quarter, mainly driven by a decrease in contract labor expenses and other professional fees.

Liquidity and Capital Resources

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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 September 30, 2023, our secondary source of liquidity was cash and cash equivalents of $130.9 million.

As of March 31, 2024, our secondary source of liquidity was cash and cash equivalents of $126.2 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.

The Senior Secured Credit Facility, pursuant to the Third Amended and Restated Credit Agreement, dated as of October 7, 2019 (the “Credit Agreement”, as amended by the First Amendment, dated as of July 20, 2020, the Second Amendment, dated as of December 23, 2022, and, as further amended by the Third Amendment, dated as of September 18, 2023, the “Amended Credit Agreement”), provides for borrowings of $145.0 million of revolving credit loans maturing October 2024 (the Series 2024 Tranche) and $155.0 million of revolving credit loans maturing in September 18, 2028 (the Series 2028 Tranche) for a $300.0 million aggregate revolving credit facility (the revolving credit facility) .

From time to time, we draw down on the revolver and, in accordance with the terms of the credit agreement, any proceeds drawn on the revolving credit facility may be used for general corporate purposes.

As of September 30, 2023, the Company had borrowed $28.0 million of the $300.0 million of available capacity.

The Company also maintains a revolving credit facility under its credit agreement (the Amended Credit Agreement) that provides for $145.0 million of revolving credit loans maturing October 2024 (the Series 2024 Tranche) and $155.0 million of revolving credit loans maturing September 2028 (the Series 2028 Tranche) for a $300.0 million aggregate revolving credit facility (the Revolving Credit Facility).

The credit available to be borrowed under the Amended Credit Agreement, whether as revolving loans or term loans, if any, are referred to herein collectively as the “Senior Secured Credit Facility.” In accordance with the terms of the credit agreement, any proceeds drawn on the Revolving Credit Facility may be used for general corporate purposes.

As of March 31, 2024, the Company had borrowed $121.0 million of the $300.0 million of available capacity.

If certain conditions are satisfied, the Amended 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) $172.5 million and (b) 50% 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 Amended Credit Agreement, on a pro forma basis, does not exceed 2.25x, 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.

Liquidity Restrictions

Our liquidity is affected by restricted cash balances, which totaled $7.6 million as of September 30, 2023 and $8.6 million as of December 31, 2022.

Our liquidity is affected by restricted cash balances, which totaled $7.6 million as of March 31, 2024 and $7.5 million as of December 31, 2023.

Restricted cash consisted of cash equivalents held as assets for a supplemental employment retention agreement for a former executive.

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

As of September 30, 2023, $121.3 million of our total $130.9 million of cash and cash equivalents were held by foreign subsidiaries.

As of March 31, 2024, $121.3 million of our total $126.2 million of cash and cash equivalents were held by foreign subsidiaries.

As of December 31, 2023, $82.7 million of our total $89.4 million of cash and cash equivalents were held by foreign subsidiaries.

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capital expenditures;

payment of a special dividend;

stock repurchases;

and business development activities.

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operating lease obligations;

capital expenditures;

payments of deferred compensation;

stock repurchases;

and payments of other third-party obligations.

As of September 30, 2023, our debt obligations consisted of $28.0 million of borrowings under the Senior Secured Credit Facility and $49.1 million of other debt.

As of March 31, 2024, our debt obligations consisted of $121.0 million of borrowings under the Senior Secured Credit Facility and $45.2 million of other debt.

Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable.

1 unchanged sentence

Under the Amended 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 Amended Credit Agreement, unless certain conditions are satisfied.

As of September 30, 2023, those conditions were satisfied and, therefore, we were not subject to the leverage ratio covenant.

The maximum ratio, as defined, is 3.00x as of the last day of each quarter commencing with the quarter ending December 31, 2019 and thereafter.

The agreement also provides that if less than 25% of the revolving credit facility is utilized as of that date, then such financial covenant shall not apply.

As of March 31, 2024, more than 25% of the revolving credit facility was utilized and we were in compliance with the leverage ratio covenant.

In addition, indebtedness at some of our locations contain financial maintenance covenants.

We were in compliance with those covenants as of September 30, 2023.

We were in compliance with those covenants as of March 31, 2024.

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 7, Leases, of our consolidated financial statements included elsewhere in this Form 10-Q, we have significant operating lease liabilities.

As of September 30, 2023 and December 31, 2022, the present value of operating lease liabilities was $393.2 million and $415.9 million, respectively.

As of March 31, 2024 and December 31, 2023, the present value of operating lease liabilities was $402.1 million and $417.6 million, respectively.

Capital Expenditures

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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, excluding receipts from the sale of subsidiaries and property equipment, were $26.7 million and $17.1 million during the nine months ended September 30, 2023 and 2022, respectively.

The 56% increase in capital expenditures was primarily due to investment in equipment for health science programs in Peru as well as campus expansion and digital innovation in Mexico.

Special Cash Dividend

On October 30, 2023, the Board of Directors of the Company approved the payment of a special cash dividend (the 2023 Special Dividend) equal to $0.70 per each share of the Company’s common stock, par value $0.004 per share, to each holder of record on November 15, 2023.

The 2023 Special Dividend is scheduled to be paid on November 30, 2023.

Based on the current number of shares outstanding, the aggregate amount of the 2023 Special Dividend is expected to be approximately $110.0 million.

Our total capital expenditures, excluding receipts from the sale of subsidiaries and property equipment, were $15.9 million and $5.8 million during the three months ended March 31, 2024 and 2023, respectively.

The increase in capital expenditures was primarily due to the purchase of a parcel of land for a new campus.

Share Repurchase Program

On February 22, 2024, the Company announced that its Board of Directors had approved a stock repurchase program to acquire up to $100 million of the Company’s common stock.

The Company’s repurchases may be made from time to time 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 also 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.

As of March 31, 2024, the approximate dollar value of shares yet to be purchased under this stock repurchase program was $67.1 million.

The Company intends to finance the remaining repurchases with free cash flow, excess cash and liquidity and liquidity on-hand, including available capacity under its Revolving Credit Facility, or a combination thereof.

In the consolidated statements of cash flows, the changes in operating assets and liabilities are presented excluding the effects of exchange rate changes 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 nine months ended September 30, 2023 and 2022:

The following table summarizes our cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023:

(in millions) 2024 2023

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Net change in cash and cash equivalents and restricted cash $ 36.9 $ 45.5

Comparison of Cash Flows for the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

Comparison of Cash Flows for the Three Months Ended March 31, 2024 to the Three Months Ended March 31, 2023

Operating Activities

Cash provided by operating activities increased by $32.7 million to $187.4 million for the 2023 fiscal period from $154.7 million for the 2022 fiscal period.

This increase in operating cash was attributable to higher operating income, combined with the net effect of changes in operating assets and liabilities, which increased operating cash by $80.9 million compared to the 2022 fiscal period.

This increase in operating cash was partially offset by an increase in cash paid for taxes of $44.3 million, from $75.7 million for the 2022 fiscal period to $120.0 million for the 2023 fiscal period, which was a result of higher tax prepayments during the 2023 fiscal period in Mexico and Peru, partially offset by tax refunds in the United States.

Additionally, cash paid for interest increased by $3.9 million, from $12.4 million for the 2022 fiscal period to $16.3 million for the 2023 fiscal period, primarily due to higher average debt balances.

Cash provided by operating activities increased by $6.7 million to $33.2 million for the 2024 fiscal quarter from $26.5 million for the 2023 fiscal quarter.

This increase in operating cash was largely attributable to lower cash paid for taxes of $22.3 million, from $43.4 million for the 2023 fiscal quarter to $21.1 million for the 2024 fiscal quarter, due primarily to higher cash taxes paid during the 2023 fiscal quarter for Mexico and the Netherlands.

In addition, cash paid for interest decreased by $1.1 million, from $5.3 million for the 2023 fiscal quarter to $4.2 million for the 2024 fiscal quarter, mostly due to lower average debt balances.

These increases in operating cash were partially offset by the net effect of changes in operating assets and liabilities combined with lower operating income, which decreased operating cash by $16.7 million compared to the 2023 fiscal quarter.

Investing Activities

Cash flows from investing activities decreased by $92.5 million to a cash outflow of $(26.2) million for the 2023 fiscal period from a cash inflow of $66.3 million for the 2022 fiscal period.

This decrease in investing cash flows was attributable to lower cash receipts from the sales of Discontinued Operations and property and equipment of $82.9 million, from $83.4 million, net, during the 2022 fiscal period (primarily related to the receipt of the escrow receivable in connection with the 2021 sale of Walden University and the collection of certain receivables from the 2021 sale of our Brazilian operations) to $0.5 million during the 2023 fiscal period.

Additionally, cash used for capital expenditures increased by $9.6 million during the 2023 fiscal period, as compared to the 2022 fiscal period, mainly driven by investment in equipment for health science programs in Peru as well as campus expansion and digital innovation in Mexico.

Cash used in investing activities increased by $10.4 million to $(16.0) million for the 2024 fiscal quarter from $(5.6) million for the 2023 fiscal quarter.

This increase in cash used in investing activities was primarily attributable to higher capital expenditures of $10.1 million during the 2024 fiscal quarter compared to the 2023 fiscal quarter, mainly driven by the purchase of a parcel of land for a new campus.

In addition, the year-over-year change in cash flows related to run out activity from previously sold discontinued operations decreased investing cash flows by $0.5 million.

Other items accounted for the remaining difference of $0.2 million.

Financing Activities

Cash used in financing activities decreased by $116.3 million to $(120.2) million for the 2023 fiscal period from $(236.5) million for the 2022 fiscal period.

This decrease in financing cash outflows was attributable to the period-over-period effect of $207.2 million of payments made during the 2022 fiscal period for common stock repurchases.

In addition, payments of dividend equivalent rights for vested share-based awards were lower by $2.3 million for the 2023 fiscal period compared to

2022 fiscal period.

These decreases in financing cash outflows were partially offset by:

(1) higher net payments of long-term debt during the 2023 fiscal period of $83.8 million;

(2) lower proceeds from the exercise of stock options of $8.7 million compared to the 2022 fiscal period;

and (3) payments of $1.3 million during the 2023 fiscal period in connection with the amendment of our Senior Secured Credit Facility.

Cash provided by financing activities decreased by $2.7 million to $18.4 million for the 2024 fiscal quarter from $21.1 million for the 2023 fiscal quarter.

This decrease in financing cash inflows was primarily attributable to payments for common stock repurchases of $32.9 million during the 2024 fiscal quarter.

In addition, proceeds from the exercise of stock options were lower by $1.4 million compared to the 2023 fiscal quarter.

These decreases in financing cash flows were partially offset by higher net proceeds of long-term debt during the 2024 fiscal quarter of $31.8 million.

Other items accounted for the remaining difference of $0.2 million.

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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 2023 Form 10-K.

During the nine months ended September 30, 2023, there were no significant changes to our critical accounting policies.

During the three months ended March 31, 2024, 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