Laureate Education Reports Second Quarter and Six Months Ended June 30, 2017 Financial Results

08/08/2017


BALTIMORE, MARYLAND – August 8, 2017 – Laureate Education, Inc. (NASDAQ: LAUR), the global leader in higher education,today announced financial results for the second quarter and the six months ended June 30, 2017.

Second Quarter 2017 Highlights (compared to second quarter 2016):

  • Revenue increased 4% to $1,277.4 million; up 8% on an organic constant currency basis
  • Operating income increased by33.3 million to $243.9 million, including a22.8 million one-time charge related to the debt refinancing transactions that were completed during the second quarter of 2017
  • Net income for the quarter was117.1 million, as compared to net income of349.2 million in the second quarter of 2016, which included a243.3 million gain in 2016 related to the sale of the Swiss hospitality management schools
  • Adjusted EBITDA increased 11% to341.9 million and, on an organic constant currency basis, Adjusted EBITDA was up 22% excluding the22.8 million one-time charge associated with our debt refinancing transactions in the second quarter of 2017, and including some favorable timing impacts from class starts

Six Months Ended June 30, 2017 Highlights (compared to six months ended June 30, 2016):

  • New enrollments increased 2%
  • Total enrollments increased 2%, up 3% excluding asset dispositions made in 2016
  • Revenue decreased by5.0 million to $2,133.4 million; up 6% on an organic constant currency basis
  • Operating income decreased by18.4 million to $181.0 million, due primarily to a22.8 million one-time charge related to the debt refinancing transactions that were completed during the second quarter of 2017
  • Net loss for the six months was3.3 million, as compared to net income of246.8 million in the six months ended June 30, 2016, which included a243.3 million gain in 2016 related to the sale of the Swiss hospitality management schools
  • Adjusted EBITDA increased 2% to390.4 million and, on an organic constant currency basis, Adjusted EBITDA was up 22% excluding the22.8 million one-time charge associated with our debt refinancing transactions in the second quarter of 2017, and including some favorable timing impacts from class starts

“We are pleased to report favorable results for the second quarter of 2017,” said Douglas Becker, Laureate founder, chairman, and chief executive officer. “The operating momentum in the business demonstrates the quality of our institutions and the committed teams that lead them, all of whom have embraced our initiatives to gain the benefit of our collective scale. The growing global demand for higher education, particularly in emerging markets, positions us well for continued growth in the future.”

Second Quarter 2017 Results

Revenue in the second quarter of 2017 was1,277.4 million, a 4% increase compared to the second quarter of 2016. Operating income increased33.3 million compared to the second quarter of 2016, including a22.8 million one-time charge related to the debt refinancing transactions that were completed during the second quarter of 2017. Net income was117.1 million compared to a net income of349.2 million in the second quarter of the prior year which included a gain of approximately243.3 million in the 2016 fiscal quarter related to the sale of the Swiss hospitality management schools. Diluted earnings per share was0.28 for the second quarter of 2017.

Adjusted EBITDA was341.9 million in the second quarter of 2017, a 11% increase compared to the second quarter of 2016. On an organic (i.e., excluding acquisitions and asset dispositions) constant currency basis, revenue increased 8% and Adjusted EBITDA increased 22% compared to the second quarter of 2016, excluding the22.8 million one-time charge associated with our debt refinancing transactions in the second quarter of 2017, and including some favorable timing impacts from class starts.

As disclosed in our Quarterly report on Form 10-Q for the period ended June 30, 2017, effective August 1, 2017, we changed our operating segments in order to realign our segments according to how our chief operating decision maker will now allocate resources and assess performance. The segment changes will result in Laureate increasing its number of operating segments from three operating segments to six operating segments.

The change includes the creation of three operating segments (Brazil, Mexico and Andean & Iberian) from the current LatAm segment. Our institutions inSpain and Portugal (Iberian) will move from the Europe, Middle East, Africa and Asia Pacific (EMEAA) segment and combine with our institutions in Chile and Peru to form the Andean & Iberian segment. In addition, our institutions in Central America, which were previously part of the LatAm segment, will combine with our campus-based institutions in the United States, which were previously part of the Global Products and Services (GPS) segment, to form the Central America and U.S. Campuses segment. The Online & Partnerships segment will consist of the online institutions that were previously part of the GPS segment. In summary, our six operating segments will be as follows:

  • Brazil;
  • Mexico;
  • Andean & Iberian;
  • Central America & U.S. Campuses;
  • Online & Partnerships; and
  • EMEAA.

This change will be reflected in the segment information beginning in the third quarter of 2017, the period in which the change occurred.

Six Months Ended June 30, 2017 Results

New enrollments through year-to-date June 2017, excluding asset dispositions, increased 2% compared to our new enrollment activity through year-to-date June 2016. New enrollment growth reflects favorable performance in all Latin American markets exceptChile which was affected by regulatory changes made during 2016 in that market. A planned strategic shift in the second half of 2016 in EMEAA and GPS to longer length of stay students with higher revenue and contribution margins affected the comparability of the new enrollments through year-to-date June 2017 as compared to year-to-date June 2016 for those segments. Despite the resulting and planned reduction in new enrollment activity in EMEAA and GPS, both segments show favorable growth in organic constant currency revenue versus prior year-to-date June, reflecting the benefit of this strategic mix shift. Additionally, a summer intake in our GPS segment occurred in early July of 2017 as compared to late June 2016, affecting the year-over-year comparability, therefore we are showing new enrollment activity for the GPS segment on a timing adjusted basis in our table below which shows new enrollment performance.

Total enrollments at June 30, 2017 grew 2% compared to June 30, 2016. Excluding the impact from the divestiture in 2016 of our assets in France and Switzerland, total enrollments at June 30, 2017 increased by 3% compared to June 30, 2016.

For the six months ended June 30, 2017, revenue was $2,133.4 million, a decrease of5.0 million compared to the fiscal period 2016. Operating income decreased18.4 million compared to the 2016 fiscal period due primarily to a $22.8 million one-time charge related to the debt refinancing transactions that were completed during the second quarter of 2017. Net loss for the 2017 fiscal period was $3.3 million compared to a net income of246.8 million in the 2016 fiscal period which included a gain of approximately $243.3 million in the 2016 fiscal period related to the sale of the Swiss hospitality management schools. Diluted loss per share was(0.71) for the 2017 fiscal period.

Adjusted EBITDA was390.4 million in the 2017 fiscal period, a 2% increase compared to the 2016 fiscal period. On an organic (i.e., excluding acquisitions and asset dispositions) constant currency basis, revenue increased 6% and Adjusted EBITDA increased 22% compared to the 2016 fiscal period, excluding the22.8 million one-time charge associated with our debt refinancing transactions in the second quarter of 2017, and including some favorable timing impacts from class starts.

Balance Sheet and Capital Structure

Laureate ended the second quarter of 2017 with 367.2 million of cash on hand and 752.2 million in liquidity, including our undrawn revolver. In April 2017, Laureate completed a refinancing of its corporate debt obligations, extending the maturity and reducing the cost of those obligations.

On April 15, 2016, the Company entered into note exchange agreements pursuant to which we agreed to exchange250.0 million in aggregate principal amount of 9.250% Replacement Senior Notes due 2019 for shares of the Company's Class A common stock. On August 2, 2017, we sent notices to the holders of these notes indicating that the closing of the exchange contemplated by these note exchange agreements is expected to be consummated on Friday, August 11, 2017. At closing, these senior notes will be exchanged for a total of 18.7 million shares of the Company's Class A common stock and these senior notes will be canceled.

Outlook for Fiscal 2017

Laureate is updating its financial guidance for full-year 2017, reflecting the inclusion of our accelerator plan and a more favorable currency environment. The guidance for 2017 reflects the impact from the sale of our French and Swiss assets in 2016, which will unfavorably impact both year-over-year Revenue and Adjusted EBITDA by approximately (3%). Additionally, currency translation from foreign exchange rates, based on current rates, is now expected to have no material year-over-year impact in 2017 for Adjusted EBITDA, and a slightly below 1% favorable impact on Revenue is expected.

Based on the current foreign exchange spot rateswww.laureate.net.

Forward-Looking Statements

This press release includes statements that express Laureate’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, ‘‘forward-looking statements’’ within the meaning of the federal securities laws, which involve risks and uncertainties. Laureate’s actual results may vary significantly from the results anticipated in these forward-looking statements. 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 guidance, including total enrollments, estimated and projected Adjusted EBITDA and earnings, costs, expenditures (including capital expenditures), cash flows, growth rates and financial results 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, and, therefore, 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 are disclosed in our Annual Report on Form 10-K filed with the SEC on March 29, 2017, our Quarterly Reports on Form 10-Q filed and to be filed with the SEC and other filings made with the SEC. These forward-looking statements speak only as of the time of this release and we do not undertake to publicly update or revise them, whether as a result of new information, future events or otherwise, except as required by law.

Presentation of Non-GAAP Measures

In addition to the results provided in accordance with U.S. generally accepted accounting principles (GAAP) throughout this press release, Laureate has provided a non-GAAP measurement of Adjusted EBITDA. We have included Adjusted EBITDA because it 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 input into the formula 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. Adjusted EBITDA is reconciled from the respective measures under GAAP in the attached table “Non-GAAP Reconciliations.”

Key Metrics and Financial Tables(Dollars in millions, except per share amounts, and may not sum due to rounding)

New Enrollments Total Enrollments
YTD 2Q
2017
YTD 2Q
2016
Change As of
6/30/2017
As of
6/30/2016
Change
Total Organic Total Organic
LatAm 258,700 250,900 3 % 3 % 857,400 830,800 3 % 3 %
EMEAA (1) 18,100 18,900 (4 )% (3 )% 143,400 142,800 % 6 %
GPS (1) 19,100 21,300 (10 )% (8 )% 70,100 74,800 (6 )% (6 )%
Laureate 295,900 291,100 2 % 2 % 1,070,900 1,048,400 2 % 3 %
GPS adjusted (2) 19,100 20,100 (5 )% (2 )% 70,100 73,600 (5 )% (5 )%
(1) Enrollments affected by the sale of two business units in France (EMEAA segment) and Switzerland (GPS segment) during 2016.
(2) GPS adjusted for Walden new enrollment intake timing.

Consolidated Statements of Operations

For the three months ended For the six months ended
June 30, June 30,
IN MILLIONS 2017(3) 2016 Change 2017(3) 2016 Change
Revenues $ 1,277.4 $ 1,231.9 $ 45.5 $ 2,133.4 $ 2,138.4 $ (5.0 )
Costs and expenses:
Direct costs 942.2 963.8 (21.6 ) 1,795.5 1,833.6 (38.1 )
General and administrative expenses 91.3 57.5 33.8 156.9 105.4 51.5
Operating income 243.9 210.6 33.3 181.0 199.4 (18.4 )
Interest income 4.5 4.1 0.4 9.2 9.9 (0.7 )
Interest expense (99.0 ) (105.8 ) 6.8 (201.6 ) (209.6 ) 8.0
Loss on debt extinguishment (6.9 ) (1.7 ) (5.2 ) (8.4 ) (1.7 ) (6.7 )
Gain (loss) on derivatives 27.0 2.0 25.0 39.1 (8.8 ) 47.9
Other (expense) income, net (0.4 ) (1.3 ) 0.9 0.1 (1.3 ) 1.4
Foreign currency exchange (loss) gain, net (9.7 ) 26.3 (36.0 ) (7.4 ) 53.9 (61.3 )
(Loss) gain on sales of subsidiaries, net (0.2 ) 243.3 (243.5 ) (0.2 ) 243.3 (243.5 )
Income from continuing operations before income
taxes and equity in net income of affiliates
159.1 377.4 (218.3 ) 11.7 285.1 (273.4 )
Income tax expense (42.0 ) (28.4 ) (13.6 ) (14.9 ) (38.4 ) 23.5
Equity in net income of affiliates, net of tax 0.3 (0.3 )
Net income (loss) 117.1 349.2 (232.1 ) (3.3 ) 246.8 (250.1 )
Net income attributable to noncontrolling interests (0.7 ) (1.8 ) 1.1 (3.2 ) (2.6 ) (0.6 )
Net income (loss) attributable to Laureate Education, Inc. $ 116.4 $ 347.4 $ (231.0 ) $ (6.4 ) $ 244.2 $ (250.6 )
Accretion of Series A convertible redeemable
preferred stock and other redeemable
noncontrolling interests and equity
$ (69.2 ) $ (0.4 ) $ (68.8 ) $ (108.1 ) $ 1.1 $ (109.2 )
Net income (loss) available to common stockholders $ 47.2 $ 347.0 $ (299.8 ) $ (114.5 ) $ 245.3 $ (359.8 )

Basic and diluted earnings (loss) per share:
Basic weighted average shares outstanding 168,591 133,291 35,300 161,620 133,285 28,335
Dilutive weighted average shares outstanding 168,657 134,197 34,460 161,620 134,201 27,419
Basic earnings (loss) per share $ 0.28 $ 2.60 $ (2.32 ) $ (0.71 ) $ 1.84 $ (2.55 )
Diluted earnings (loss) per share $ 0.28 $ 2.59 $ (2.31 ) $ (0.71 ) $ 1.83 $ (2.54 )
(3) Financial results for 2017 as compared to 2016 were affected by the sale of two business units in France (EMEAA segment)
and Switzerland (GPS segment) during 2016.

Revenue and Adjusted EBITDA by segment

IN MILLIONS
% Change $ Variance Components
For the quarter ended
June 30,
2017 2016 Reported Organic
Constant
Currency(4)
Total Organic
Constant
Currency
One-
time
items
Acq/Div. FX
Revenues
LATAM $ 831.1 $ 733.3 13 % 10 % $ 97.8 $ 75.1 $ $ $ 22.7
EMEAA 245.5 261.1 (6 )% 8 % (15.6 ) 18.3 (22.8 ) (11.1 )
GPS 204.6 241.7 (15 )% 3 % (37.1 ) 5.1 (41.8 ) (0.4 )
Corporate & Eliminations (3.8 ) (4.1 ) 7 % 7 % 0.3 0.3
Total Revenues $ 1,277.4 $ 1,231.9 4 % 8 % $ 45.5 $ 98.9 $ $ (64.6 ) $ 11.2
Adjusted EBITDA
LATAM $ 300.0 $ 224.1 34 % 30 % $ 75.9 $ 66.8 $ $ $ 9.1
EMEAA 52.9 52.7 % 16 % 0.2 7.8 (3.2 ) (4.4 )
GPS 54.8 65.3 (16 )% (3 )% (10.5 ) (1.6 ) (9.0 ) 0.1
Corporate & Eliminations (65.9 ) (33.9 ) (94 )% (27 )% (32.0 ) (9.2 ) (22.8 )
Total Adjusted EBITDA $ 341.9 $ 308.2 11 % 22 % $ 33.7 $ 63.9 $ (22.8 ) $ (12.2 ) $ 4.8

IN MILLIONS
% Change $ Variance Components
For the six months ended
June 30,
2017 2016 Reported Organic
Constant
Currency(4)
Total Organic
Constant
Currency
One-
time
items
Acq/Div. FX
Revenues
LATAM $ 1,252.6 $ 1,137.2 10 % 8 % $ 115.4 $ 85.8 $ $ $ 29.6
EMEAA 472.7 505.1 (6 )% 8 % (32.4 ) 34.6 (46.1 ) (20.9 )
GPS 412.9 502.1 (18 )% 1 % (89.2 ) 5.3 (93.6 ) (0.9 )
Corporate & Eliminations (4.7 ) (5.9 ) 20 % 20 % 1.2 1.2
Total Revenues $ 2,133.4 $ 2,138.4 % 6 % $ (5.0 ) $ 126.9 $ $ (139.7 ) $ 7.8
Adjusted EBITDA
LATAM $ 264.2 $ 203.8 30 % 33 % $ 60.4 $ 67.4 $ $ $ (7.0 )
EMEAA 106.3 107.2 (1 )% 14 % (0.9 ) 14.2 (6.0 ) (9.1 )
GPS 118.4 135.0 (12 )% 6 % (16.6 ) 6.5 (23.1 )
Corporate & Eliminations (98.6 ) (63.9 ) (54 )% (19 )% (34.7 ) (11.9 ) (22.8 )
Total Adjusted EBITDA $ 390.4 $ 382.1 2 % 22 % $ 8.3 $ 76.3 $ (22.8 ) $ (29.1 ) $ (16.1 )
(4) Organic Constant Currency results exclude the period-over-period impact from currency fluctuations, acquisitions and divestitures. The "Organic Constant Currency" % changes are calculated by dividing the Organic Constant Currency amounts by the 2016 Revenues and Adjusted EBITDA amounts, excluding the impact of the divestitures and the one-time charge associated with our debt refinancing transactions in the second quarter of 2017.

Consolidated Balance Sheets

IN MILLIONS June 30, 2017 December 31, 2016 Change
Assets
Cash and cash equivalents $ 367.2 $ 465.0 $ (97.8 )
Receivables (current), net 499.4 334.8 164.6
Other current assets 375.9 316.0 59.9
Property and equipment, net 2,208.4 2,151.6 56.8
Goodwill and other intangible assets 3,397.8 3,288.8 109.0
Other long-term assets 520.9 506.3 14.6
Total assets $ 7,369.7 $ 7,062.5 $ 307.2
Liabilities and stockholders' equity
Accounts payable and accrued expenses $ 622.3 $ 695.2 $ (72.9 )
Deferred revenue and student deposits 380.2 362.9 17.3
Total long-term debt, including current portion 3,504.3 3,808.4 (304.1 )
Total due to shareholders of acquired companies, including current portion 215.5 211.0 4.5
Other liabilities 942.3 963.7 (21.4 )
Total liabilities 5,664.6 6,041.2 (376.6 )
Convertible redeemable preferred stock 232.0 333.0 (101.0 )
Redeemable noncontrolling interests and equity 25.5 23.9 1.6
Total stockholders' equity 1,447.6 664.4 783.2
Total liabilities and stockholders' equity $ 7,369.7 $ 7,062.5 $ 307.2

Consolidated Statements of Cash Flows

For the six months ended June 30,
IN MILLIONS 2017 2016 Change
Cash flows from operating activities
Net (loss) income $ (3.3 ) $ 246.8 $ (250.1 )
Depreciation and amortization 131.5 135.9 (4.4 )
Loss (gain) on sale of subsidiary and disposal of property and equipment 1.9 (243.3 ) 245.2
(Gain) loss on derivative instruments (39.4 ) 7.9 (47.3 )
Loss on debt extinguishment 8.4 1.7 6.7
Payment of redemption and call premiums and fees on debt modification (65.2 ) (65.2 )
Unrealized foreign currency exchange loss (gain) 11.8 (58.7 ) 70.5
Income tax receivable/payable, net (21.9 ) (21.9 )
Working capital, excluding tax accounts (338.3 ) (253.2 ) (85.1 )
Other non-cash adjustments 108.6 99.5 9.1
Net cash used in operating activities (205.7 ) (63.4 ) (142.3 )
Cash flows from investing activities
Purchase of property and equipment (86.8 ) (86.2 ) (0.6 )
Expenditures for deferred costs (8.2 ) (8.8 ) 0.6
Receipts from sale of subsidiary and property and equipment 1.0 340.1 (339.1 )
Investing other, net (1.6 ) (17.5 ) 15.9
Net cash used in investing activities (95.7 ) 227.7 (323.4 )
Cash flows from financing activities
(Decrease) increase in long-term debt, net (304.7 ) (214.3 ) (90.4 )
Payments of deferred purchase price for acquisitions (6.3 ) (7.7 ) 1.4
Proceeds from issuance of convertible redeemable preferred stock, net of issuance costs 55.3 55.3
Proceeds from initial public offering, net of issuance costs 456.6 456.6
Payments of debt issuance costs (11.2 ) (1.4 ) (9.8 )
Financing other, net (1.2 ) (27.8 ) 26.6
Net cash (used in) provided by financing activities 188.4 (251.3 ) 439.7
Effects of exchange rate changes on cash 15.1 14.4 0.7
Change in cash included in current assets held for sale (1.3 ) 1.3
Net change in cash and cash equivalents (97.8 ) (73.9 ) (23.9 )
Cash and cash equivalents at beginning of period 465.0 458.7 6.3
Cash and cash equivalents at end of period $ 367.2 $ 384.8 $ (17.6 )
Liquidity (including Undrawn Revolver) $ 752.2 $ 651.3 $ 100.9

Non-GAAP Reconciliation

For the three months ended For the six months ended
June 30, June 30,
IN MILLIONS 2017 2016 Change 2017 2016 Change
Net income (loss) $ 117.1 $ 349.2 $ (232.1 ) $ (3.3 ) $ 246.8 $ (250.1 )
Plus:
Equity in net income of affiliates, net of tax (0.3 ) 0.3
Income tax expense 42.0 28.4 13.6 14.9 38.4 (23.5 )
Income from continuing operations before
income taxes and equity in net income of affiliates
159.1 377.4 (218.3 ) 11.7 285.1 (273.4 )
Plus:
Loss (gain) on sale of subsidiaries, net 0.2 (243.3 ) 243.5 0.2 (243.3 ) 243.5
Foreign currency exchange loss (gain), net 9.7 (26.3 ) 36.0 7.4 (53.9 ) 61.3
Other expense (income), net 0.4 1.3 (0.9 ) (0.1 ) 1.3 (1.4 )
(Gain) loss on derivatives (27.0 ) (2.0 ) (25.0 ) (39.1 ) 8.8 (47.9 )
Loss on debt extinguishment 6.9 1.7 5.2 8.4 1.7 6.7
Interest expense 99.0 105.8 (6.8 ) 201.6 209.6 (8.0 )
Interest income (4.5 ) (4.1 ) (0.4 ) (9.2 ) (9.9 ) 0.7
Operating income 243.9 210.6 33.3 181.0 199.4 (18.4 )
Plus:
Depreciation and amortization 67.0 69.7 (2.7 ) 131.5 135.9 (4.4 )
EBITDA 310.9 280.3 30.6 312.5 335.3 (22.8 )
Plus:
Share-based compensation expense (a) 12.9 13.7 (0.8 ) 35.3 20.9 14.4
Loss on impairment of assets
EiP implementation expenses (b) 18.1 14.2 3.9 42.6 25.9 16.7
Adjusted EBITDA $ 341.9 $ 308.2 $ 33.7 $ 390.4 $ 382.1 $ 8.3
(a) Represents non-cash, share-based compensation expense pursuant to the provisions of ASC Topic 718.

(b) EiP implementation expenses are related to our enterprise-wide initiative to optimize and standardize our processes, creating vertical integration of procurement, information technology, finance, accounting and human resources. The first wave of EiP, which began in 2014, is expected to be substantially completed by 2017 and includes the establishment of regional SSOs around the world, as well as improvements to our system of internal controls over financial reporting. Given the success of the first wave of EiP, we now anticipate expanding the initiative into other back- and mid-office areas in order to generate additional efficiencies and create a more efficient organizational structure.