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OFFON

LAUREATE EDUCATION, INC.

(LAUR)
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LAUREATE EDUCATION : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/06/2021 | 07:17am EDT
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 (i) our exploration of strategic alternatives and potential
future plans, strategies or transactions that may be identified, explored or
implemented as a result of such review process, (ii) our planned divestitures,
the expected proceeds generated therefrom, the expected reduction in revenue
resulting therefrom and any resulting litigation or dispute therewith, (iii)
anticipated share repurchases, and (iv) the potential impact of the COVID-19
pandemic on our business or the global economy as a whole, are forward­looking
statements. In addition, we, through our senior management, from time to time
make forward­looking public statements concerning our expected future operations
and performance and other developments. All of these forward­looking statements
are subject to risks and uncertainties that may change at any time, including,
with respect to our exploration of strategic alternatives, risks and
uncertainties as to the terms, timing, structure, benefits and costs of any
divestiture or separation transaction and whether one will be consummated at
all, and the impact of any divestiture or separation transaction on our
remaining businesses. Accordingly, our actual results may differ materially from
those we expected. We derive most of our forward­looking 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 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, 2020 (the 2020 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, foreign
currency, 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 successfully complete previously announced divestitures;
•the risks associated with our exploration of strategic alternatives, including
possible disruption to our ongoing businesses and increased transaction-related
expenses;
•the risks and uncertainties related to the long-term effect to the Company of
the COVID-19 pandemic and its resurgence, including, but not limited to, its
effect on student enrollment, tuition pricing, and collections in future
periods;
•our ability to effectively manage the growth of our business and increase our
operating leverage;
•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 on our business and results of operations from fluctuations in the
value of foreign currencies;
•our ability to attract and retain key personnel;
•the fluctuations in revenues due to seasonality;
•our ability to maintain proper and effective internal controls necessary to
produce accurate financial statements on a timely basis;
•our focus on a specific public benefit purpose and producing a positive effect
for society may negatively influence our financial performance; and
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•the future trading prices of our Class A 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 366,000 students enrolled
at five institutions in these two countries, which represent our Continuing
Operations as of March 31, 2021. 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: 1) Mexico; and 2) Peru (formerly Andean) for
reporting purposes.

COVID-19

In response to the COVID-19 pandemic, we have temporarily transitioned the
educational delivery method at all of our campus-based institutions to be online
and are leveraging our existing technologies and learning platforms to serve
students outside of the traditional classroom setting.

The outbreak of COVID-19 has caused domestic and global disruption in operations
for institutions of higher education. The long-term effect to the Company of the
COVID-19 pandemic depends on numerous factors, including, but not limited to,
the effect on student enrollment, tuition pricing, and collections in future
periods, which cannot be fully quantified at this time. In addition, regulatory
activity in response to COVID-19 could have an adverse effect on our business
if, for example, legislation was passed to suspend or reduce student tuition
payments in any of the markets in which we operate. As a result, the full impact
of COVID-19 and the scope of any adverse effect on the Company's operations,
including any potential impairments, which could be material, cannot be fully
determined at this time. See also "Item 1A-Risk Factors-An epidemic, pandemic or
other public health emergency, such as the recent outbreak of a novel strain of
coronavirus (COVID-19), could have a material adverse effect on our business,
financial condition, cash flows and results of operations" in our 2020 Form
10-K.
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Discontinued Operations


In 2017 and 2018, the Company announced the divestiture of certain subsidiaries
located in Europe, Asia and Central America, which were included in the
following segments: Peru (formerly Andean), Central America (formerly Central
America & U.S. Campuses), and Rest of World. The goal of the divestitures was to
create a more focused and simplified business model and generate proceeds to be
used for further repayment of long-term debt. This represented a strategic shift
that had a major effect on the Company's operations and financial results.
Accordingly, all of the divestitures that were part of this strategic shift, as
well as the Company's operations in the Kingdom of Saudi Arabia that were
managed under a contract that expired on August 31, 2019 and was not renewed,
were accounted for as Discontinued Operations for all periods presented in
accordance with Accounting Standards Codification (ASC) 205-20, "Discontinued
Operations" (ASC 205).

On January 27, 2020, we announced that our board of directors had authorized the
Company to explore strategic alternatives for each of its businesses to unlock
shareholder value. As a result of these efforts to explore strategic
alternatives, during the third quarter of 2020, the Company announced that it
had completed a sale of its operations in Chile and had signed agreements to
sell its operations in Brazil, Australia and New Zealand, as well as Walden
University, its fully online higher education institution in the United States.
This also represented a strategic shift that had a major effect on the Company's
operations and financial results. As such, Chile, Brazil, Australia and New
Zealand, and Walden also have been accounted for as Discontinued Operations for
all periods presented in accordance with ASC 205. The sale of our operations in
Australia and New Zealand was completed on November 3, 2020. For Laureate's
institutions in Mexico and Peru, the board decided after a thorough evaluation
of all strategic options, including a potential sale, to continue to operate
these assets under Laureate management. Accordingly, Mexico and Peru represent
our Continuing Operations. The decision to focus on a regional operating model
in Mexico and Peru at this time does not preclude further engagement with
potential buyers for those businesses. See Note 4, Discontinued Operations and
Assets Held for Sale, and Note 5, Dispositions, for more information. Unless
indicated otherwise, the information in the footnotes to the Consolidated
Financial Statements relates to Continuing Operations.

Because a number of our subsidiaries are included in Discontinued Operations,
they no longer meet the criteria for a reportable segment under ASC 280,
"Segment Reporting," and, therefore, are excluded from the segments information
for all periods presented. Unless indicated otherwise, the information in the
MD&A relates to Continuing Operations.

The Company began closing sale transactions in the first quarter of 2018. We
have not yet completed the divestitures of Brazil and Walden University, both of
which have signed sale agreements pending closure. See also Note 4, Discontinued
Operations and Assets Held for Sale, and Note 5, Dispositions, in our
consolidated financial statements included elsewhere in this Form 10-Q.

If the Company determines that the estimated fair value of any business is less
than its carrying value, the Company will be required to record a charge to
write down the carrying value to fair value and the amount of that charge could
be material. See Note 4, Discontinued Operations and Assets Held for Sale, in
our consolidated financial statements included elsewhere in this Form 10-Q for
disclosure of the valuation allowance that the Company recorded on the Brazil
disposal group in order to write down its carrying value to fair value.

The Company's Continuing Operations continue to be classified as held and used
and are evaluated for impairment under that model, based on the cash flows
expected to be generated by the use of those asset groups in operations. Should
the held-for-sale criteria be met, the long-lived assets will be recorded at the
lower of their carrying value or fair value, less cost to sell. Because
completing a sale, spin-off, or other transaction may be challenging due to the
regulatory environment, market conditions and other factors, the values that may
be realized from any potential transactions could be less than if these
businesses remained held and used.

If the held-for-sale criteria are met, the carrying value used to evaluate a
business for potential write down and to determine the gain or loss on sale will
include any accumulated foreign currency translation (FX) losses associated with
that business. In recent years, the U.S. dollar has strengthened against many
international currencies, including the Brazilian real and the Mexican peso. As
a result, the Company has significant FX losses recorded within stockholders'
equity, as a component of accumulated other comprehensive income. As of both
March 31, 2021 and December 31, 2020, the Company's consolidated FX loss totaled
approximately $1.0 billion. Upon the sale of a business, any FX loss related to
that business would be recognized as part of the gain or loss on sale.

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Presented in the table below are the Company's businesses, by asset
group/reporting unit, that carry the most significant FX losses:
Asset Group/ Reporting Unit                            Foreign Currency Translation Losses as of
(in millions)                                         March 31, 2021             December 31, 2020
Brazil                                            $               494          $               479
Mexico                                                            551                          509
Total Brazil and Mexico                           $             1,045          $               988



As discussed in Note 4, Discontinued Operations and Assets Held for Sale, in our
consolidated financial statements included elsewhere in this Form 10-Q, the
Company decided to sell its Brazil operations during the third quarter of 2020.
The Company recorded losses in both the third and fourth quarters of 2020 to
write down the carrying value of the Brazil disposal group to its estimated fair
value less costs to sell. During the first quarter of 2021, the Company recorded
an additional loss of approximately $32.4 million in order to write down the
carrying value of the Brazil disposal group to its estimated fair value less
costs to sell as of March 31, 2021. The sale of Brazil operations is targeted to
close during the second quarter of 2021. While the Company plans to continue
operating its institutions in Mexico, the substantial amounts of FX losses
attributable to the Mexico business would have a material effect on the amount
of gain or loss that would result from a sale.

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 are increasingly utilizing
online and hybrid (a combination of online and in-classroom) courses and
programs to deliver their curriculum. In response to the COVID-19 pandemic, we
have temporarily transitioned the educational delivery method at all of our
institutions to be online and are leveraging our existing technologies and
learning platforms to serve students outside of the traditional classroom
setting. The Mexico and Peru markets are characterized by what we believe is a
significant imbalance between supply and demand. The demand for higher education
is large and growing and is fueled by several demographic and economic factors,
including a growing middle class, global growth in services and
technology-related industries and recognition of the significant personal and
economic benefits gained by graduates of higher education institutions. The
target demographics are primarily 18- to 24-year-olds in the countries in which
we compete. We 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 of the
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 35% 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 institutions and is present throughout
the country with a footprint of over 35 campuses. Each institution in Mexico has
a national license. 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 72% of the total higher-education market. Laureate
owns three institutions in Peru.

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 is an internal source of capital and provides financial, human
resource, information technology, insurance, legal, and tax compliance services.
The Corporate segment also contains the eliminations of intersegment revenues
and expenses.

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The following information for our reportable segments in continuing operations is presented as of March 31, 2021:

2021 YTD Revenues ($ in % Contribution to 2021 YTD

                                   Institutions          Enrollment           millions)(1)                 Revenues
Mexico                                  2                  183,700       $              135.4                           70  %
Peru                                    3                  182,300                       57.5                           30  %
Total (1)                               5                  366,000       $              194.7                          100  %

(1) Amounts related to Corporate, partially offset by the elimination of intersegment revenues, totaled $1.8 million and are not separately presented.

Challenges


Our operations are subject to complex business, economic, legal, regulatory,
political, tax and foreign currency risks, which may be difficult to adequately
address. The majority of our operations are outside the United States. 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 the 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 2020 Form 10-K.
There are also risks associated with our decision to divest certain operations.
See "Item 1A-Risk Factors-Risks Relating to Our Business-Our exploration of
strategic alternatives and our activities related to previously announced
divestitures may disrupt our ongoing businesses, result in increased expenses
and present certain risks to the Company" in our 2020 Form 10-K. We plan to grow
our continuing 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," "Risk Factors-Risks Relating to Walden University, which
is included in our Discontinued Operations, and the Highly Regulated Higher
Education Industry in the United States," and "Item 1-Business-Industry
Regulation" in our 2020 Form 10-K for a detailed discussion of our different
regulatory environments.

Department of Justice Notice of Election to Decline Intervention


On April 28, 2021, the Company was notified that the Civil Division of the
United States Department of Justice (the "DOJ"), on behalf of the United States,
had filed a Notice of Election to Decline Intervention (the "Notice") with
respect to a civil qui tam action filed by third-party relators (the "Relators")
against Walden University and the Company. It was this action that prompted the
DOJ's examination of Walden University's Masters of Science in Nursing program.
The DOJ's investigation into this matter has now concluded. Further, as
previously disclosed by the Company, the Higher Learning Commission ("HLC") had
informed Walden University that a public "Governmental Investigation"
designation would be assigned to Walden University due to the DOJ inquiry; such
designation became effective on November 9, 2020. Effective as of May 3, 2021,
the HLC removed such designation.

Per the court order related to the Notice, the Relators may elect to continue to
pursue the action. The Company cannot predict how long it may take to resolve
this matter. The Company believes that the Relators' claims are without merit
and intends to defend vigorously against them.
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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. Most
institutions also have one or more smaller "Secondary Intake" periods. 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, other
discounts, refunds, waivers and the fair value of any guarantees made by
Laureate related to student financing programs. In addition to tuition revenues,
we generate other revenues from student fees, dormitory/residency 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. Conversely, as campuses expand, direct costs may grow
faster than enrollment growth as infrastructure investments are made in
anticipation of future enrollment growth.

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

Acquisitions


Our past experiences provide us with the expertise to further our mission of
providing high-quality, accessible and affordable higher education to students
by expanding into new markets if opportunities arise, primarily through
acquisitions. Acquisitions have historically affected the comparability of our
financial statements from period to period. Acquisitions completed during one
period impact comparability to a prior period in which we did not own the
acquired entity. Therefore, changes related to
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such entities are considered "incremental impact of acquisitions" for the first
12 months of our ownership. We have not made any acquisitions thus far in 2021,
and we did not make any acquisitions in 2020 related to our Continuing
Operations.

Dispositions


Any dispositions of our Continuing Operations affect the comparability of our
financial statements from period to period. Dispositions completed during one
period impact comparability to a prior period in which we owned the divested
entity. Therefore, changes related to such entities are considered "incremental
impact of dispositions" for the first 12 months subsequent to the disposition.
As discussed above, all of the divestitures that are part of the strategic
shifts are included in Discontinued Operations for all periods presented.

Foreign Exchange


Institutions in our Continuing Operations are located outside the United States.
These institutions enter into transactions in currencies other than USD and keep
their local financial records in a functional currency other than the USD. 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 USD is our reporting currency and our subsidiaries
operate in other functional currencies, namely the Mexican peso and Peruvian
nuevo sol. 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 2020 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
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 acquisitions, divestitures and other items, as described
in the segments results.

Seasonality

Institutions in our network 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, such as
the COVID-19 pandemic, which changed the academic calendar at many of our
institutions. See "Item 1A-Risk Factors-Risks Relating to Our Business-We
experience seasonal fluctuations in our results of operations" in our 2020 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 further impact 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, our tax-exempt
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 2020 Form 10-K.

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Results from the Discontinued Operations

The results of operations of our Discontinued Operations for the three months ended March 31, 2021 and 2020 were as follows:

    (in millions)                                                          

2021 2020

    Revenues                                                               

$ 239.8 $ 369.5

    Depreciation and amortization expense                                  

- (24.5)

    Share-based compensation expense                                       

(0.2) (0.4)

    Other direct costs                                                     

(201.2) (378.9)

    Loss on impairment of assets                                               (1.1)            -
    Other non-operating expense                                            

(11.2) (55.1)

    Loss on sale of discontinued operations before taxes, net              

(16.8) (23.6)

    Pretax income (loss) of discontinued operations                        

9.2 (113.0)

    Income tax (expense) benefit                                           

(9.7) 5.2

    Loss from discontinued operations, net of tax                          

$ (0.4) $ (107.8)

Enrollments at our Discontinued Operations as of March 31, 2021 and March 31, 2020 were 365,800 and 559,900, respectively.

Three Months Ended March 31, 2021

On March 8, 2021, we sold our operations in Honduras, which resulted in an after-tax gain of $0.5 million.


On January 25, 2018, we completed the sale of LEI Lie Ying Limited in China. At
the closing of the sale, a portion of the total transaction value was paid into
an escrow account, to be distributed to the Company pursuant to the terms and
conditions of the escrow agreement. During the first quarter of 2021, the
Company adjusted the final receivable balance from the escrow account of 168.3
million Hong Kong Dollars (approximately $21.7 million at the date of receipt in
April 2021), which resulted in a pre-tax gain of approximately $13.6 million.

During the first quarter of 2021, we recorded a loss of approximately
$32.4 million in order to adjust the carrying value of our Brazil disposal group
to its estimated fair value less costs to sell as of March 31, 2021. This loss
is included in Loss on sale of discontinued operations before taxes, net.

Three Months Ended March 31, 2020

On January 10, 2020, we sold our operations in Costa Rica, which resulted in a pre-tax loss of approximately $17.2 million.

On March 6, 2020, we sold the operations of NewSchool of Architecture and Design, LLC (NSAD), which resulted in a pre-tax loss of approximately $5.7 million.

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.

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Summary Comparison of Consolidated Results

Discussion of Significant Items Affecting the Consolidated Results for the Three Months Ended March 31, 2021 and 2020

Three Months Ended March 31, 2021


In March 2021, the Company decided that, during 2021, it would wind down certain
support functions related to the Laureate network and would no longer invest in
and support the tradename beyond 2021. As a result, the Company tested the asset
for impairment and estimated the fair value of the tradename asset using the
relief-from-royalty method, based on the projected revenues for each business
over the estimated remaining useful life of the asset. As a result of the
impairment test, the Company concluded that the estimated fair value of the
Laureate tradename was less than its carrying value by approximately $51.4
million and recorded an impairment charge for that amount.

Three Months Ended March 31, 2020

During the first quarter of 2020, the Company recorded an impairment charge of $3.8 million primarily related to the write-off of capitalized curriculum development costs for a program that the Company decided to stop developing.


Comparison of Consolidated Results for the Three Months Ended March 31, 2021 and
2020
                                                                                                     % Change
                                                                                                  Better/(Worse)
(in millions)                                            2021                2020                  2021 vs. 2020
Revenues                                             $    194.7          $    192.3                               1  %
Direct costs                                              181.8               220.6                              18  %
General and administrative expenses                        42.6                45.1                               6  %
Loss on impairment of assets                               56.7                 3.8                                 nm
Operating loss                                            (86.4)              (77.1)                            (12) %
Interest expense, net of interest income                  (22.8)              (24.7)                              8  %
Other non-operating income                                 57.5                77.6                             (26) %

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

                    (51.7)              (24.1)                           (115) %
Income tax (expense) benefit                             (112.9)              230.0                            (149) %
Equity in net income of affiliates, net of tax                -                 0.2                            (100) %
(Loss) income from continuing operations                 (164.5)              206.1                            (180) %
Loss from discontinued operations, net of tax              (0.4)             (107.8)                            100  %
Net (loss) income                                        (164.9)               98.3                                 nm
Net loss attributable to noncontrolling interests             -                 1.3                             100  %
Net (loss) income attributable to Laureate
Education, Inc.                                      $   (164.9)         $     99.6                                 nm


nm - percentage changes not meaningful

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

Comparison of Consolidated Results for the Three Months Ended March 31, 2021 to the Three Months Ended March 31, 2020


Revenues increased by $2.4 million to $194.7 million for the three months ended
March 31, 2021 (the 2021 fiscal quarter) from $192.3 million for the three
months ended March 31, 2020 (the 2020 fiscal quarter). The effect of changes in
tuition rates and enrollments in programs at varying price points ("product
mix"), pricing and timing increased revenues by $19.2 million for the 2021
fiscal quarter, attributable primarily to the academic calendar and the delay of
semester start dates in the Peru segment in 2020 as a result of the COVID-19
pandemic. Other Corporate and Eliminations changes accounted for an increase in
revenues of $0.2 million. These increases in revenues were partially offset by
lower average total organic enrollment at a majority of our institutions during
the 2021 fiscal quarter, which decreased revenues by $10.4 million compared to
the 2020 fiscal quarter.
                                       36
--------------------------------------------------------------------------------

Additionally, the effect of a net change in foreign currency exchange rates decreased revenues by $6.6 million, driven by the weakening of the Mexican Peso and the Peruvian Nuevo Sol against the USD.


Direct costs and general and administrative expenses combined decreased by $41.3
million to $224.4 million for the 2021 fiscal quarter from $265.7 million for
the 2020 fiscal quarter. The effect of operational changes decreased direct
costs by $33.7 million, mainly driven by cost-saving initiatives to preserve
liquidity. The effect of a net change in foreign currency exchange rates
decreased costs by $7.8 million. Other Corporate and Eliminations expenses
accounted for a decrease in costs of $6.6 million in the 2021 fiscal quarter,
related to cost-reduction efforts. Partially offsetting these decreases in
direct costs were changes in acquisition-related contingent liabilities for
taxes other-than-income tax, net of changes in recorded indemnification assets,
which resulted in a year-over-year increase in direct costs of $6.8 million.

Operating loss increased by $9.3 million to $86.4 million for the 2021 fiscal
quarter from $77.1 million for the 2020 fiscal quarter. This increase was
primarily a result of the impairment charges of $56.7 million recorded during
the 2021 fiscal quarter, partially offset by a lower operating loss at our Peru
segment.

Interest expense, net of interest income decreased by $1.9 million to $22.8 million for the 2021 fiscal quarter from $24.7 million for the 2020 fiscal quarter. The decrease in interest expense was primarily attributable to lower average debt balances.


Other non-operating income decreased by $20.1 million to $57.5 million for the
2021 fiscal quarter from $77.6 million for the 2020 fiscal quarter. This
decrease was attributable to less gain on foreign currency exchange of $50.5
million, partially offset by: (1) an increase in gain on derivative instruments
of $28.5 million; (2) a loss on disposal of subsidiaries of $1.8 million during
the 2020 fiscal quarter; and (3) other non-operating expense of $0.1 million
during the 2020 fiscal quarter.

Income tax (expense) benefit changed by $342.9 million to an expense of $(112.9)
million for the 2021 fiscal quarter from a benefit of $230.0 million for the
2020 fiscal quarter. This change was primarily attributable to a nonrecurring
discrete tax benefit of approximately $222 million that was recognized during
the 2020 fiscal quarter related to the tax-basis step up of certain intellectual
property that became subject to Dutch taxation in the Netherlands as well as
additional tax expense of approximately $46.5 million related to increases to
income tax reserves in the 2021 fiscal quarter, with the majority of the
remaining difference attributable to the change in pretax earnings.

Loss from discontinued operations, net of tax decreased by $107.4 million to
$0.4 million for the 2021 fiscal quarter from $107.8 million for the 2020 fiscal
quarter. This change was a result of the sales during 2020 of certain
Discontinued Operations that generated losses during the 2020 fiscal quarter.
See Overview for further detail on results of the Discontinued Operations.

Non-GAAP Financial Measure


We define Adjusted EBITDA as income (loss) from continuing operations, before
equity in net (income) loss of affiliates, net of tax, income tax expense
(benefit), (gain) loss on sale or disposal of subsidiaries, net, foreign
currency exchange (gain) loss, net, other (income) expense, net, loss (gain) on
derivatives, loss on debt extinguishment, interest expense and interest income,
plus depreciation and amortization, share-based compensation expense, loss on
impairment of assets and expenses related to implementation of our
Excellence-in-Process (EiP) initiative. When we review Adjusted EBITDA on a
segment basis, we exclude inter-segment revenues and expenses that eliminate in
consolidation. 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.

                                       37
--------------------------------------------------------------------------------


The following table presents Adjusted EBITDA and reconciles (loss) income from
continuing operations to Adjusted EBITDA for the three months ended March 31,
2021 and 2020:
                                                                                                     % Change
                                                                                                  Better/(Worse)
(in millions)                                           2021                2020                  2021 vs. 2020
(Loss) income from continuing operations            $   (164.5)         $    206.1                             (180) %

Plus:

Equity in net income of affiliates, net of tax               -                (0.2)                            (100) %
Income tax expense (benefit)                             112.9              (230.0)                            (149) %

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

                   (51.7)              (24.1)                            (115) %

Plus:

Loss on disposal of subsidiaries, net                        -                 1.8                              100  %
Foreign currency exchange gain, net                      (28.2)              (78.7)                             (64) %
Other expense, net                                           -                 0.1                              100  %
Gain on derivatives                                      (29.3)               (0.8)                                 nm

Interest expense                                          23.5                25.3                                7  %
Interest income                                           (0.7)               (0.6)                              17  %
Operating loss                                           (86.4)              (77.1)                             (12) %
Plus:
Depreciation and amortization                             22.8                19.7                              (16) %
EBITDA                                                   (63.6)              (57.4)                             (11) %
Plus:
Share-based compensation expense (a)                       1.3                 1.5                               13  %
Loss on impairment of assets (b)                          56.7                 3.8                                  nm
EiP implementation expenses (c)                           15.3                22.8                               33  %
Adjusted EBITDA                                     $      9.7          $    (29.4)                             133  %

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. For
further details, see "Discussion of Significant Items Affecting the Consolidated
Results for the Three Months Ended March 31, 2021."
(c) EiP implementation expenses are related to our enterprise-wide initiative to
optimize and standardize Laureate's processes, creating vertical integration of
procurement, information technology, finance, accounting and human resources. It
included the establishment of regional shared services organizations (SSOs)
around the world, as well as improvements to the Company's system of internal
controls over financial reporting. The EiP initiative also includes other back-
and mid-office areas, as well as certain student-facing activities, expenses
associated with streamlining the organizational structure, an enterprise-wide
program aimed at revenue growth, and certain non-recurring costs incurred in
connection with the planned and completed dispositions.
Comparison of Depreciation and Amortization, Share-based Compensation and EiP
Implementation Expenses for the Three Months Ended March 31, 2021 and 2020
Depreciation and amortization increased by $3.1 million to $22.8 million for the
2021 fiscal quarter from $19.7 million for the 2020 fiscal quarter. This
increase was primarily attributable to amortization of Laureate's tradename
which, during the third quarter of 2020, changed from being an indefinite-lived
intangible asset to being a finite-lived intangible asset. When combined with
other items, this change increased depreciation and amortization by $3.9
million. Partially offsetting this increase was the effect of foreign currency
exchange, which decreased depreciation and amortization expense by $0.8 million
for the 2021 fiscal quarter.

Share-based compensation expense decreased by $0.2 million to $1.3 million for the 2021 fiscal quarter from $1.5 million for the 2020 fiscal quarter.

                                       38
--------------------------------------------------------------------------------



EiP implementation expenses decreased by $7.5 million to $15.3 million for the
2021 fiscal quarter from $22.8 million for the 2020 fiscal quarter. This
decrease was primarily attributable to lower severance costs and lower legal and
consulting fees related to our divestiture activity.

Segment Results


We have two reportable segments: Mexico and Peru (formerly Andean), 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. Organic enrollment is based on
average total enrollment for the period. For a further description of our
segments, see Overview.

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

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