LAUREATE EDUCATION, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report on Form 10-Q (this Form 10-Q) contains “forward‑looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. You can identify forward‑looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or similar expressions that concern our strategy, plans or intentions. All statements we make relating to estimated and projected earnings, costs, expenditures, cash flows, growth rates and financial results, and all statements we make relating to our current growth strategy and other future plans, strategies or transactions that may be identified, explored or implemented and any litigation or dispute resulting from any completed transaction are forward-looking statements. In addition, we, through our senior management, from time to time make forward‑looking public statements concerning our expected future operations and performance and other developments. All of these forward‑looking statements are subject to risks and uncertainties that may change at any time, including with respect to our current growth strategy and the impact of any completed divestiture or separation transaction on our remaining businesses. Accordingly, our actual results may differ materially from those we expected. We derive most of our forward‑looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. 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 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: • the risks associated with operating our portfolio of degree-granting higher education institutions in Mexico and Peru, including complex business, political, legal, regulatory, tax and economic risks; • our ability to maintain and, subsequently, increase tuition rates and student enrollments in our institutions; • our ability to effectively manage the growth of our business and increase our operating leverage; • the risks associated with maintaining the value of our brands and our reputation; • the effect of existing international and U.S. laws and regulations governing our business or changes to those laws and regulations or in their application to our business; • changes in the political, economic and business climate in the markets in which we operate; • risks of downturns in general economic conditions and in the educational services and education technology industries that could, among other things, impair our goodwill and intangible assets; • possible increased competition from other educational service providers; • market acceptance of new service offerings by us or our competitors and our ability to predict and respond to changes in the markets for our educational services; • the effect of greater than anticipated tax liabilities; • the effect on our business and results of operations from fluctuations in the value of foreign currencies; • the fluctuations in revenues due to seasonality; • the risks associated with disruptions to our computer networks and other cybersecurity incidents, including misappropriation of personal or proprietary information; • the risks and uncertainties associated with an epidemic, pandemic or other public health emergency including, but not limited to, effects on student enrollment, tuition pricing, and collections in future periods; • the risks associated with protests, strikes or natural or other disasters; • our ability to attract and retain key personnel; • our ability to maintain proper and effective internal controls necessary to produce accurate financial statements on a timely basis; • the risks associated with indebtedness and disruptions to credit and equity markets; • our focus on a specific public benefit purpose and producing a positive effect for society may negatively influence our financial performance; and 22 • the future trading prices of our common stock and the impact of any securities analysts’ reports on these prices. We caution you that the foregoing list of important factors may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Form 10-Q may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. Introduction This Management’s Discussion and Analysis of Financial Condition and Results of Operations (the MD&A) is provided to assist readers of the financial statements in understanding the results of operations, financial condition and cash flows of Laureate Education, Inc. This MD&A should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Form 10-Q. The consolidated financial statements included elsewhere in this Form 10-Q are presented in U.S. dollars (USD) rounded to the nearest thousand, with the amounts in MD&A rounded to the nearest tenth of a million. Therefore, discrepancies in the tables between totals and the sums of the amounts listed may occur due to such rounding. Our MD&A is presented in the following sections: • Overview; • Results of Operations; • Liquidity and Capital Resources; • Critical Accounting Policies and Estimates; and • Recently Adopted Accounting Standards. Overview Our Business We operate a portfolio of degree-granting higher education institutions in Mexico and Peru. Collectively, we have approximately 483,300 students enrolled at five institutions in these two countries. We believe that the higher education markets in Mexico and Peru present an attractive long-term opportunity, primarily because of the large and growing imbalance between the supply and demand for affordable, quality higher education in those markets. We believe that the combination of the projected growth in the middle class, limited government resources dedicated to higher education, and a clear value proposition demonstrated by the higher earnings potential afforded by higher education, creates substantial opportunities for high-quality private institutions to meet this growing and unmet demand. By offering high-quality, outcome-focused education, we believe that we enable students to prosper and thrive in the dynamic and evolving knowledge economy. We have two reportable segments as described below. We group our institutions by geography in Mexico and Peru for reporting purposes. Assets Held for Sale 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, 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 and 2024, several parcels of land and buildings 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 sales of certain real estate in the United States and Mexico were completed during 2024. The completion of the remaining sales is not expected to have a material effect on our financial results. Our Segments 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 campus-based, online and 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 23 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. 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: • Private education providers in Mexico constitute approximately 37% of the total higher-education market. 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 30 campuses. Students in our Mexican institutions typically finance their own education. • In Peru, private universities are increasingly providing the capacity to meet growing demand and constitute approximately 74% of the total higher-education market. Laureate owns three institutions in Peru, with a footprint of 19 campuses. Corporate is a non-operating business unit whose purpose is to support operations. Its departments are responsible for establishing operational policies and internal control standards, implementing strategic initiatives, and monitoring compliance with policies and controls throughout our operations. Our Corporate segment provides financial, human resource, information technology, insurance, legal, and tax compliance services. 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, 2024: Institutions Enrollment 2024 YTD Revenues ($ in millions) (1) % Contribution to 2024 YTD Revenues Mexico 2 266,600 $ 615.2 54 % Peru 3 216,700 528.0 46 % Total (1) 5 483,300 $ 1,143.2 100 % (1) Amounts related to Corporate were immaterial and are not separately presented. Challenges 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. As a result, we face risks that are inherent in international operations, including: fluctuations in exchange rates, possible currency devaluations, inflation and hyper-inflation; price controls and foreign currency exchange restrictions; potential economic and political instability in both countries in which we operate; expropriation of assets by local governments; key political elections and changes in government policies; multiple and possibly overlapping and conflicting tax laws; and compliance with a wide variety of foreign laws. See “Item 1A—Risk Factors—Risks Relating to Our Business—We operate a portfolio of degree-granting higher education institutions in Mexico and Peru and are subject to complex business, economic, legal, political, tax and foreign currency risks, which risks may be difficult to adequately address,” in our 2023 Form 10-K. We plan to grow our operations organically by: 1) adding new programs and course offerings; 2) expanding target student demographics; and 3) increasing capacity at existing and new campus locations. Our success in growing our business will depend on the ability to anticipate and effectively manage these and other risks related to operating in various countries. Regulatory Environment and Other Matters Our business is subject to varying laws and regulations based on the requirements of local jurisdictions. These laws and regulations are subject to updates and changes. We cannot predict the form of the rules that ultimately may be adopted in the future or what effects they might have on our business, financial condition, results of operations and cash flows. We will continue to develop and implement necessary changes that enable us to comply with such laws and regulations. See also “Item 1A—Risk Factors—Risks Relating to Our Business—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,” and “Item 1—Business—Industry Regulation” in our 2023 Form 10-K for a detailed discussion of our different regulatory environments. 24 Key Business Metric Enrollment Enrollment is our lead revenue indicator and represents our most important non-financial metric. We define “enrollment” as the number of students registered in a course on the last day of the enrollment reporting period. New enrollments provide an indication of future revenue trends. Total enrollment is a function of continuing student enrollments, new student enrollments and enrollments from acquisitions, offset by graduations, attrition and enrollment decreases due to dispositions. Attrition is defined as a student leaving the institution before completion of the program. To minimize attrition, we have implemented programs that involve assisting students in remedial education, mentoring, counseling and student financing. Each of our institutions has an enrollment cycle that varies by geographic region and academic program. Each institution has a “Primary Intake” period during each academic year in which the majority of the enrollment occurs. Each institution also has a smaller “Secondary Intake” period. Our Peruvian institutions have their Primary Intake during the first calendar quarter and a Secondary Intake during the third calendar quarter. Institutions in our Mexico segment have their Primary Intake during the third calendar quarter and a Secondary Intake during the first calendar quarter. Our institutions in Peru are generally out of session in January, February and July, while institutions in Mexico are generally out of session in May through July. Revenues are recognized when classes are in session. Principal Components of Income Statement Revenues The majority of our revenue is derived from tuition and educational services. The amount of tuition generated in a given period depends on the price per credit hour and the total credit hours or price per program taken by the enrolled student population. The price per credit hour varies by program, by market and by degree level. Additionally, varying levels of discounts and scholarships are offered depending on market-specific dynamics and individual achievements of our students. Revenues are recognized net of scholarships and other discounts, refunds and waivers. In addition to tuition revenues, we 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. The main drivers of changes in revenues between periods are student enrollment and price. We continually monitor market conditions and carefully adjust our tuition rates to meet local demand levels. We proactively seek the best price and content combinations to remain competitive in all the markets in which we operate. Direct Costs Our direct costs include labor and operating costs associated with the delivery of services to our students, including the cost of wages, payroll taxes and benefits, depreciation and amortization, rent, utilities, bad debt expenses, and marketing and promotional costs to grow future enrollments. In general, a significant portion of our direct costs tend to be variable in nature and trend with enrollment, and management continues to monitor and improve the efficiency of instructional delivery. General and Administrative Expenses Our general and administrative expenses primarily consist of costs associated with corporate departments, including executive management, finance, legal, business development and other departments that do not provide direct operational services. Factors Affecting Comparability Foreign Exchange While the USD is our reporting currency, our institutions are located in Mexico and Peru and operate in other functional currencies, namely the Mexican peso and Peruvian nuevo sol. We monitor the impact of foreign currency movements and the correlation between the local currency and the USD. Our revenues and expenses are generally denominated in local currency. The principal foreign exchange exposure is the risk related to the translation of revenues and expenses incurred in each country from the local currency into USD. See “Item 1A—Risk Factors—Risks Relating to Our Business—Our reported revenues and earnings may be negatively affected by the strengthening of the U.S. dollar and currency exchange rates” in our 2023 Form 10‑K. 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 25 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. Seasonality Our institutions have a summer break during which classes are generally not in session and minimal revenues are recognized. In addition to the timing of summer breaks, holidays such as Easter also have an impact on our academic calendar. Operating expenses, however, do not fully correlate to the enrollment and revenue cycles, as the institutions continue to incur expenses during summer breaks. Given the geographic diversity of our institutions and differences in timing of summer breaks, our second and fourth quarters are stronger revenue quarters as the majority of our institutions are in session for most of these respective quarters. Our first and third fiscal quarters are weaker revenue quarters because our institutions have summer breaks for some portion of one of these two quarters. However, our primary enrollment intakes occur during the first and third quarters. Due to this seasonality, revenues and profits in any one quarter are not necessarily indicative of results in subsequent quarters and may not be correlated to new enrollment in any one quarter. Additionally, seasonality may be affected due to other events that could change the academic calendar at our institutions. See “Item 1A—Risk Factors—Risks Relating to Our Business—We experience seasonal fluctuations in our results of operations” in our 2023 Form 10-K. Income Tax Expense 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 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. 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 became 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 The following discussion of the results of our operations is organized as follows: • Summary Comparison of Consolidated Results; • Non-GAAP Financial Measure; and • Segment Results. 26 Summary Comparison of Consolidated Results Comparison of Consolidated Results for the Three Months Ended September 30, 2024 and 2023 % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Revenues $ 368.6 $ 361.5 2 % Direct costs 286.0 291.1 2 % General and administrative expenses 10.6 11.8 10 % Operating income 72.0 58.7 23 % Interest expense, net of interest income (2.6) (2.4) (8) % Other non-operating income 15.4 13.2 17 % Income from continuing operations before income taxes 84.9 69.5 22 % Income tax benefit (expense) 0.5 (33.7) 101 % Income from continuing operations 85.3 35.7 139 % Income from discontinued operations, net of tax — 0.2 (100) % Net income 85.3 36.0 137 % Net loss attributable to noncontrolling interests 0.1 0.2 50 % Net income attributable to Laureate Education, Inc. $ 85.5 $ 36.2 136 % Comparison of Consolidated Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023 Revenues increased by $7.1 million to $368.6 million for the three months ended September 30, 2024 (the 2024 fiscal quarter) from $361.5 million for the three months ended September 30, 2023 (the 2023 fiscal quarter). This increase in revenues was attributable to higher average total organic enrollment at our institutions during the 2024 fiscal quarter, which increased revenues by $18.7 million compared to the 2023 fiscal quarter. In addition, the effect of changes in tuition rates and enrollments in programs at varying price points (product mix), pricing and timing increased revenues by $12.2 million compared to the 2023 fiscal quarter. These increases in revenues were partially offset by the effect of a net change in foreign currency exchange rates, which decreased revenues by $23.8 million compared to the 2023 fiscal quarter. Direct costs and general and administrative expenses combined decreased by $6.3 million to $296.6 million for the 2024 fiscal quarter from $302.9 million for the 2023 fiscal quarter. This decrease in direct costs was primarily driven by the effect of a net change in foreign currency exchange rates that decreased costs by $21.1 million compared to the 2023 fiscal quarter, partially offset by the effect of operational changes, which increased costs by $16.4 million, primarily due to the result of higher enrollment at our institutions. Other Corporate expenses accounted for a decrease in costs of $1.6 million for the 2024 fiscal quarter compared to the 2023 fiscal quarter. Operating income increased by $13.3 million to $72.0 million for the 2024 fiscal quarter from $58.7 million for the 2023 fiscal quarter. The increase in operating income was mainly driven by higher operating income at our Peru segment. Other non-operating income increased by $2.2 million to $15.4 million for the 2024 fiscal quarter from $13.2 million for the 2023 fiscal quarter. This increase in other non-operating income was primarily attributable to an increase of $4.7 million in the gain on foreign currency exchange for the 2024 fiscal quarter as compared to the 2023 fiscal quarter, mainly related to intercompany loan arrangements. In addition, other income was higher by $0.8 million compared to the 2023 fiscal quarter. These year-over-year increases were partially offset by a year-over-year decrease of $3.3 million in gain on disposal of subsidiaries, which was primarily attributable to the release of an accumulated foreign currency translation gain upon the liquidation of a subsidiary during the 2023 fiscal quarter. Income tax benefit (expense) changed by $34.2 million to a benefit of $0.5 million for the 2024 fiscal quarter from an expense of $(33.7) million for the 2023 fiscal quarter. This change was primarily attributable to a discrete tax benefit of approximately $37.9 million that was recorded during the 2024 fiscal quarter related to an entity restructuring. 27 Comparison of Consolidated Results for the Nine Months Ended September 30, 2024 and 2023 % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Revenues $ 1,143.2 $ 1,074.9 6 % Direct costs 858.9 810.4 (6) % General and administrative expenses 34.6 34.0 (2) % Loss on impairment of assets — 1.6 100 % Operating income 249.8 228.8 9 % Interest expense, net of interest income (8.5) (10.3) 17 % Other non-operating income (expense) 33.8 (47.8) 171 % Income from continuing operations before income taxes 275.0 170.7 61 % Income tax expense (72.5) (101.4) 29 % Income from continuing operations 202.5 69.3 192 % Income (loss) from discontinued operations, net of tax 0.3 (3.8) 108 % Net income 202.8 65.5 nm Net loss attributable to noncontrolling interests — 0.2 100 % Net income attributable to Laureate Education, Inc. $ 202.8 $ 65.7 nm Comparison of Consolidated Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023 Revenues increased by $68.3 million to $1,143.2 million for the nine months ended September 30, 2024 (the 2024 fiscal period) from $1,074.9 million for the nine months ended September 30, 2023 (the 2023 fiscal period). This increase in revenues was attributable to: (1) higher average total organic enrollment at our institutions, which increased revenues by $52.8 million compared to the 2023 fiscal period; (2) the effect of changes in product mix, pricing and timing, which increased revenues by $14.2 million for the 2024 fiscal period; (3) the effect of a net change in foreign currency exchange rates, which increased revenues by $1.2 million compared to the 2023 fiscal period; and (4) other Corporate changes, which accounted for an increase in revenues of $0.1 million. Direct costs and general and administrative expenses combined increased by $49.1 million to $893.5 million for the 2024 fiscal period from $844.4 million for the 2023 fiscal period. This increase in direct costs was driven by the effect of operational changes, which increased direct costs by $49.8 million compared to the 2023 fiscal period, primarily due to the result of higher enrollment at our institutions. This increase was partially offset by the effect of a net change in foreign currency exchange rates, which decreased direct costs by $0.6 million compared to the 2023 fiscal period. Other Corporate expenses accounted for a decrease in costs of $0.1 million for the 2024 fiscal period compared to the 2023 fiscal period. Operating income increased by $21.0 million to $249.8 million for the 2024 fiscal period from $228.8 million for the 2023 fiscal period. This increase was a result of higher operating income at both our Mexico and Peru segments. Other non-operating income (expense) changed by $81.6 million to income of $33.8 million for the 2024 fiscal period from expense of $(47.8) million for the 2023 fiscal period. This increase in other non-operating income was attributable to a gain on foreign currency exchange for the 2024 fiscal period compared to a loss for the 2023 fiscal period for a change of $88.0 million, mainly related to intercompany loan arrangements. Additionally, other income was higher by $0.3 million compared to the 2023 fiscal period. These increases in other non-operating income were partially offset by a loss on disposal of subsidiaries for the 2024 fiscal period compared to a gain for the 2023 fiscal period for a change of $6.7 million related to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries. Income tax expense decreased by $28.9 million to $72.5 million for the 2024 fiscal period from $101.4 million for the 2023 fiscal period. This decrease was primarily attributable to a discrete tax benefit of approximately $37.9 million that was recorded during the 2024 fiscal period related to an entity restructuring, partially offset by a tax benefit recorded in the 2023 fiscal period related to the release of a valuation allowance. 28 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 and loss on impairment of assets. 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. 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. The following table presents Adjusted EBITDA and reconciles Net income to Adjusted EBITDA for the three months ended September 30, 2024 and 2023: % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Net income $ 85.3 $ 36.0 137 % Plus: Income from discontinued operations, net of tax — (0.2) (100) % Income from continuing operations 85.3 35.7 139 % Plus: Income tax (benefit) expense (0.5) 33.7 101 % Income from continuing operations before income taxes 84.9 69.5 22 % Plus: Gain on disposal of subsidiaries, net — (3.3) (100) % Foreign currency exchange gain, net (14.5) (9.8) 48 % Other income, net (0.9) (0.1) nm Interest expense 5.0 5.2 4 % Interest income (2.4) (2.8) (14) % Operating income 72.0 58.7 23 % Plus: Depreciation and amortization 16.6 17.9 7 % EBITDA 88.6 76.6 16 % Plus: Share-based compensation expense (a) 2.8 1.8 (56) % Adjusted EBITDA $ 91.4 $ 78.4 17 % nm - percentage changes not meaningful (a) Represents non-cash, share-based compensation expense pursuant to the provisions of ASC 718, “Stock Compensation.” 29 The following table presents Adjusted EBITDA and reconciles Net income to Adjusted EBITDA for the nine months ended September 30, 2024 and 2023: % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Net income $ 202.8 $ 65.5 nm Plus: (Income) loss from discontinued operations, net of tax (0.3) 3.8 108 % Income from continuing operations 202.5 69.3 192 % Plus: Income tax expense 72.5 101.4 29 % Income from continuing operations before income taxes 275.0 170.7 61 % Plus: Loss (gain) on disposal of subsidiaries, net 3.1 (3.6) (186) % Foreign currency exchange (gain) loss, net (36.4) 51.6 171 % Other income, net (0.5) (0.2) 150 % Interest expense 14.8 17.3 14 % Interest income (6.3) (6.9) (9) % Operating income 249.8 228.8 9 % Plus: Depreciation and amortization 52.1 52.0 — % EBITDA 301.9 280.8 8 % Plus: Share-based compensation expense (a) 7.1 4.9 (45) % Loss on impairment of assets (b) — 1.6 100 % Adjusted EBITDA $ 308.9 $ 287.3 8 % 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. 30 Segment Results We have two reportable segments: Mexico and Peru. 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, present selected financial information of our segments: (in millions) % Change Better/(Worse) For the three months ended September 30, 2024 2023 2024 vs. 2023 Revenues: Mexico $ 182.5 $ 185.4 (2) % Peru 186.1 176.2 6 % Corporate — — nm Consolidated Total Revenues $ 368.6 $ 361.5 2 % Adjusted EBITDA: Mexico $ 20.0 $ 21.9 (9) % Peru 79.8 66.3 20 % Corporate (8.3) (9.9) 16 % Consolidated Total Adjusted EBITDA $ 91.4 $ 78.4 17 % (in millions) % Change Better/(Worse) For the nine months ended September 30, 2024 2023 2024 vs. 2023 Revenues: Mexico $ 615.2 $ 559.5 10 % Peru 528.0 515.4 2 % Corporate 0.1 — nm Consolidated Total Revenues $ 1,143.2 $ 1,074.9 6 % Adjusted EBITDA: Mexico $ 128.1 $ 109.1 17 % Peru 209.4 207.1 1 % Corporate (28.6) (28.8) 1 % Consolidated Total Adjusted EBITDA $ 308.9 $ 287.3 8 % nm - percentage changes not meaningful 31 Mexico Financial Overview Comparison of Mexico Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023 (in millions) Revenues Direct Costs Adjusted EBITDA September 30, 2023 $ 185.4 $ 163.5 $ 21.9 Organic enrollment (1) 14.8 Product mix, pricing and timing (1) 2.0 Organic constant currency 16.8 16.4 0.4 Foreign exchange (19.7) (17.4) (2.3) September 30, 2024 $ 182.5 $ 162.5 $ 20.0 (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. Revenues decreased by $2.9 million, a 2% decrease from the 2023 fiscal quarter. • The revenue decrease was driven by the weakening of the Mexican peso against the USD compared to the 2023 fiscal quarter. • Organic enrollment increased during the fiscal quarter by 9%, increasing revenues by $14.8 million. • Revenues from our Mexico segment represented 50% of our consolidated total revenues for the 2024 fiscal quarter, compared to 51% for the 2023 fiscal quarter. Adjusted EBITDA decreased by $1.9 million, a 9% decrease from the 2023 fiscal quarter. Comparison of Mexico Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023 (in millions) Revenues Direct Costs Adjusted EBITDA September 30, 2023 $ 559.5 $ 450.4 $ 109.1 Organic enrollment (1) 44.4 Product mix, pricing and timing (1) 4.9 Organic constant currency 49.3 35.3 14.0 Foreign exchange 6.4 1.4 5.0 September 30, 2024 $ 615.2 $ 487.1 $ 128.1 (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. 32 Revenues increased by $55.7 million, a 10% increase from the 2023 fiscal period. • Organic enrollment increased during the 2024 fiscal period by 9%, increasing revenues by $44.4 million. • Revenue for the 2024 fiscal period was unfavorably affected by the timing of the academic calendar as compared to the 2023 fiscal period. • Revenues from our Mexico segment represented 54% of our consolidated total revenues for the 2024 fiscal period, compared to 52% for the 2023 fiscal period. Adjusted EBITDA increased by $19.0 million, a 17% increase from the 2023 fiscal period. Peru Financial Overview Comparison of Peru Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023 (in millions) Revenues Direct Costs Adjusted EBITDA September 30, 2023 $ 176.2 $ 109.9 $ 66.3 Organic enrollment (1) 3.9 Product mix, pricing and timing (1) 10.1 Organic constant currency 14.0 (1.1) 15.1 Foreign exchange (4.1) (2.5) (1.6) September 30, 2024 $ 186.1 $ 106.3 $ 79.8 (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. Revenues increased by $9.9 million, a 6% increase from the 2023 fiscal quarter. • Organic enrollment increased during the 2024 fiscal quarter by 2%, increasing revenues by $3.9 million. • Revenues from our Peru segment represented 50% of our consolidated total revenues for the 2024 fiscal quarter, compared to 49% for the 2023 fiscal quarter. Adjusted EBITDA increased by $13.5 million, a 20% increase from the 2023 fiscal quarter. 33 Comparison of Peru Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023 (in millions) Revenues Direct Costs Adjusted EBITDA September 30, 2023 $ 515.4 $ 308.3 $ 207.1 Organic enrollment (1) 8.4 Product mix, pricing and timing (1) 9.4 Organic constant currency 17.8 12.5 5.3 Foreign exchange (5.2) (2.2) (3.0) September 30, 2024 $ 528.0 $ 318.6 $ 209.4 (1) Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA. Revenues increased by $12.6 million, a 2% increase from the 2023 fiscal period. • Organic enrollment increased during the 2024 fiscal period by 2%, increasing revenues by $8.4 million. • Revenues from our Peru segment represented 46% of our consolidated total revenues for the 2024 fiscal period compared to 48% for the 2023 fiscal period. Adjusted EBITDA increased by $2.3 million, a 1% increase from the 2023 fiscal period. Corporate Corporate revenues primarily represent miscellaneous other revenues, net of the elimination of intersegment revenues. Comparison of Corporate Results for the Three Months Ended September 30, 2024 to the Three Months Ended September 30, 2023 % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Revenues $ — $ — nm Expenses 8.3 9.9 16 % Adjusted EBITDA $ (8.3) $ (9.9) 16 % nm - percentage changes not meaningful Adjusted EBITDA increased by $1.6 million, a 16% increase from the 2023 fiscal quarter, mainly driven by a reduction in labor and professional services costs. Comparison of Corporate Results for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023 % Change Better/(Worse) (in millions) 2024 2023 2024 vs. 2023 Revenues $ 0.1 $ — nm Expenses 28.7 28.8 — % Adjusted EBITDA $ (28.6) $ (28.8) 1 % nm - percentage changes not meaningful Adjusted EBITDA increased by $0.2 million, a 1% increase from the 2023 fiscal period. 34 Liquidity and Capital Resources Liquidity Sources We anticipate that cash flow from operations and available cash will be sufficient to meet our current operating requirements and manage our liquidity needs for at least the next 12 months from the date of issuance of this report. Our primary source of cash is revenue from tuition charged to students in connection with our various education program offerings. Essentially all of our revenues are generated from private pay sources as there are no material government-sponsored loan programs in Mexico or Peru. We anticipate generating sufficient cash flow from operations in both countries in which we operate to satisfy the working capital and financing needs of our organic growth plans for each country. 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, 2024, our secondary source of liquidity was cash and cash equivalents of $134.4 million. Our cash accounts are maintained with high-quality financial institutions. As of September 30, 2024, the Company also maintained a revolving credit facility under its credit agreement (the Amended Credit Agreement) that provided for $145.0 million of revolving credit loans, which matured on October 7, 2024, and $155.0 million of revolving credit loans maturing September 2028 for a $300.0 million aggregate revolving credit facility (the Revolving Credit Facility). Accordingly, effective October 7, 2024, the borrowing capacity of the Revolving Credit Facility is $155.0 million. 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 September 30, 2024, the Company had borrowed $66.0 million of the 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 $6.3 million as of September 30, 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. Indefinite Reinvestment of Historical Foreign Earnings We earn a significant portion of our income from subsidiaries located in countries outside the United States. As of September 30, 2024, $112.3 million of our total $134.4 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. As part of our business strategies, we have determined that the undistributed historical earnings of our foreign operations for which we have not already recorded taxes will be deemed indefinitely reinvested outside of the United States. Liquidity Requirements Our short-term liquidity requirements include: funding for debt service (including finance leases); operating lease obligations; payments of deferred compensation; working capital; operating expenses; capital expenditures; stock repurchases; and business development activities. Long-term liquidity requirements include: payments on long-term debt (including finance leases); operating lease obligations; capital expenditures; payments of deferred compensation; stock repurchases; and payments of other third-party obligations. 35 Debt As of September 30, 2024, our debt obligations consisted of $66.0 million of borrowings under the Senior Secured Credit Facility and $38.0 million of other debt. Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable. In addition, our finance lease obligations and sale-leaseback financings were $50.9 million. Loan modification In December 2017, one of our subsidiaries in Mexico entered into an agreement with a bank for a loan of MXN 1,700.0 million (approximately $89.0 million at the time of the loan). The loan was scheduled to mature in June 2024. During the second quarter of 2024, our Mexico subsidiary entered into a loan modification agreement with the bank, which extended the maturity of the loan to June 2029. The loan carries a variable interest rate, plus an applicable margin, which is established based on the ratio of debt to EBITDA, as defined in the agreement (12.24% as of September 30, 2024). Under the loan modification agreement, quarterly principal repayments will resume in December 2024, beginning at MXN 4.3 million ($0.2 million at September 30, 2024) and increasing to MXN 23.4 million ($1.2 million at September 30, 2024), with a balloon payment of MXN 170.0 million ($8.7 million at September 30, 2024) due at maturity. As of September 30, 2024 and December 31, 2023, the outstanding balance of this loan was $21.7 million and $29.5 million, respectively. Covenants 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. 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 September 30, 2024, these conditions were satisfied and, therefore, we were not subject to 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, 2024. Leases We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations. As of September 30, 2024 and December 31, 2023, the present value of operating lease liabilities was $347.3 million and $417.6 million, respectively. Capital Expenditures Capital expenditures primarily consist of purchases of property and equipment. Our capital expenditure program is a component of our liquidity and capital management strategy. This program includes discretionary spending, which we can adjust in response to economic and other changes in our business environment, to grow our business through the following: (1) capacity expansion at institutions to support enrollment growth; (2) new programs and campuses for institutions in our existing markets; and (3) information technology to increase efficiency and controls. Our non-discretionary spending includes the maintenance of existing facilities. We typically fund our capital expenditures through cash flow from operations and external financing. In the event that we are unable to obtain the necessary funding for capital expenditures, our long-term growth strategy could be significantly affected. 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 and equipment, were $34.6 million and $26.7 million during the nine months ended September 30, 2024 and 2023, respectively. The increase in capital expenditures was primarily due to the purchase of a parcel of land for a new campus. Additionally, capital expenditures in Mexico were higher due to campus consolidation costs related to the implementation of a real estate optimization plan. Share Repurchase Programs 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. This program was completed in September 2024. On September 13, 2024, the Company announced that its Board of Directors had approved a new 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 36 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 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 September 30, 2024, no shares were repurchased under this new program. The Company intends to finance the 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. Cash Flows 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. Accordingly, the amounts in the consolidated statements of cash flows do not agree with the changes of the operating assets and liabilities as presented in the consolidated balance sheets. 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, 2024 and 2023: (in millions) 2024 2023 Cash provided by (used in): Operating activities $ 192.0 $ 187.4 Investing activities (30.5) (26.2) Financing activities (111.7) (120.2) Effects of exchange rates changes on cash (6.2) 4.0 Change in cash included in current assets held for sale 0.2 (0.3) Net change in cash and cash equivalents and restricted cash $ 43.8 $ 44.7 Comparison of Cash Flows for the Nine Months Ended September 30, 2024 to the Nine Months Ended September 30, 2023 Operating Activities Cash provided by operating activities increased by $4.6 million to $192.0 million for the 2024 fiscal period from $187.4 million for the 2023 fiscal period. This increase in operating cash flows was attributable to higher operating income combined with the net effect of changes in operating assets and liabilities, which increased operating cash by $12.0 million compared to the 2023 fiscal period. Additionally, cash paid for interest decreased by $3.2 million from $16.3 million for the 2023 fiscal period to $13.1 million for the 2024 fiscal period, mostly due to lower average debt balances. These increases in operating cash were partially offset by higher cash paid for taxes of $10.6 million, from $120.0 million for the 2023 fiscal period to $130.6 million for the 2024 fiscal period, primarily related to taxes paid during the 2024 fiscal period as a result of the distribution of certain intercompany loans. Investing Activities Cash used in investing activities increased by $4.3 million to $(30.5) million for the 2024 fiscal period from $(26.2) million for the 2023 fiscal period. This increase in investing cash outflows was primarily attributable to higher capital expenditures of $7.8 million during the 2024 fiscal period compared to the 2023 fiscal period, mainly driven by the purchase of a parcel of land for a new campus. This increase in investing cash outflows was partially offset by higher cash proceeds from the sale of property and equipment of $3.0 million, mainly related to the sale of a parcel of land in the United States during the second quarter of 2024. In addition, the year-over-year change in cash flows related to run out activity from previously sold discontinued operations increased investing cash flows by $0.5 million. Financing Activities Cash used in financing activities decreased by $8.5 million to $(111.7) million for the 2024 fiscal period from $(120.2) million for the 2023 fiscal period. This decrease in financing cash outflows was primarily attributable to lower net payments of long-term debt during the 2024 fiscal period of $110.7 million compared to the 2023 fiscal period. This decrease in financing cash outflows was partially offset by payments for common stock repurchases of $100.0 million during the 2024 period, as well as 37 lower proceeds from the exercise of stock options of $3.0 million compared to the 2023 fiscal period. Other items accounted for the remaining difference of $0.8 million. Critical Accounting Policies and Estimates The preparation of the consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, of the audited consolidated financial statements included in our 2023 Form 10-K. Our critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect our financial statements and are critical to the understanding of our results of operations and financial condition. 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, 2024, there were no significant changes to our critical accounting policies. Recently Adopted Accounting Standards None. Item 3. Quantitative and Qualitative Disclosures About Market Risk For information regarding our exposure to certain market risks, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2023 Form 10-K. There have been no significant changes in our market risk exposures since our December 31, 2023 fiscal year end.