Business and Geographic Segment Information

6 Months Ended

Jun. 30, 2019

Business and Geographic Segment Information

Laureate’s educational services are offered through six operating segments: Brazil, Mexico, Andean, Central America & U.S. Campuses, Rest of World and Online & Partnerships. Laureate determines its operating segments based on information utilized by the chief operating decision maker to allocate resources and assess performance.

Our campus-based segments generate revenues by providing an education that emphasizes professional-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. Many of our largest campus-based operations are in developing markets which are experiencing a growing demand for higher education based on favorable demographics and increasing secondary completion rates, driving increases in participation rates and resulting in continued growth in the number of higher education students. Traditional higher education students (defined as 18-24 year olds) have historically been served by public universities, which have limited capacity and are often underfunded, resulting in an inability to meet the growing student demand and employer requirements. This supply and demand imbalance has created a market opportunity for private sector participants. Most students finance their own education. However, there are some government-sponsored student financing programs which are discussed below. The campus-based segments include Brazil, Mexico, Andean, Central America & U.S. Campuses and Rest of World. Specifics related to each of these campus-based segments and our Online & Partnerships segment are discussed below.

In Brazil, approximately 75% of post-secondary students are enrolled in private higher education institutions. While the federal government defines the national curricular guidelines, institutions are licensed to operate by city. Laureate owns 13 institutions in eight states throughout Brazil, with a particularly strong presence in the competitive São Paulo market. Many students finance their own education while others rely on the government-sponsored programs such as Prouni and FIES. As described in Note 4, Discontinued Operations and Assets Held for Sale, on April 16, 2019, the Company entered into an agreement to divest UniNorte, a traditional higher education institution in Manaus, Brazil.

Public universities in Mexico enroll approximately two thirds of students attending post-secondary education. However, many public institutions are faced with capacity constraints or the quality of the education is considered low. Laureate owns two institutions and is present throughout the country with a footprint of over 40 campuses. Each institution in Mexico has a national license. Students in our Mexican institutions typically finance their own education.

The Andean segment includes institutions in Chile and Peru. In Chile, private universities enroll approximately 80% of post-secondary students. In Peru, the public sector plays a significant role, but private universities are increasingly providing the capacity to meet growing demand. In Chile, there are government-sponsored student financing programs.

The Central America & U.S. Campuses segment includes institutions in Costa Rica, Honduras, Panama and the United States. Students in Central America typically finance their own education while students in the United States finance their education in a variety of ways, including U.S. Department of Education (DOE) Title IV programs. The entire Central America & U.S. Campuses segment is included in Discontinued Operations.

The Rest of World segment includes an institution in the European country of Turkey, as well as institutions in the Middle East and Asia Pacific consisting of campus-based institutions with operations in Australia, Malaysia and New Zealand. Additionally, the Rest of World segment manages eight licensed institutions in the Kingdom of Saudi Arabia and manages one additional institution in China through a joint venture arrangement. The institutions in Turkey and Malaysia are included in Discontinued Operations. The institutions in the Kingdom of Saudi Arabia are managed under a contract that expires at the end of August 2019 and will not be renewed.

The Online & Partnerships segment includes fully online institutions that offer professionally oriented degree programs in the United States through Walden University (Walden), a U.S.-based accredited institution, and through the University of Liverpool and the University of Roehampton in the United Kingdom. These online institutions primarily serve working adults with undergraduate and graduate degree program offerings. Students in the United States finance their education in a variety of ways, including Title IV programs. We no longer accept new enrollments at the University of Liverpool and the University of Roehampton.

As discussed in Note 1, Description of Business, and Note 4, Discontinued Operations and Assets Held for Sale, during the third quarter of 2018, a number of our subsidiaries met the requirements to be classified as discontinued operations, including the entire Central America & U.S. Campuses segment. As a result, the operations of the Central America & U.S. Campuses segment have been excluded from the segment information for all periods presented. In addition, the portion of the Rest of World reportable segment that is included in discontinued operations has also been excluded from the segment information for all periods presented.

Intersegment transactions are accounted for in a similar manner as third-party transactions and are eliminated in consolidation. The Corporate amounts presented in the following tables include corporate charges that were not allocated to our reportable segments and adjustments to eliminate intersegment items.

We evaluate segment performance based on Adjusted EBITDA, which is a non-GAAP performance measure defined as Income (loss) from continuing operations before income taxes and equity in net income of affiliates, adding back the following items: Gain (loss) on sales of subsidiaries, net, Foreign currency exchange gain (loss), net, Other income, net, Gain on derivatives, Loss on debt extinguishment, Interest expense, Interest income, Depreciation and amortization expense, Loss on impairment of assets, Share-based compensation expense and expenses related to our Excellence-in-Process (EiP) initiative. EiP is an enterprise-wide initiative to optimize and standardize Laureate’s processes, creating vertical integration of procurement, information technology, finance, accounting and human resources. It included the establishment of regional shared services organizations (SSOs) 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 and certain non-recurring costs incurred in connection with the planned dispositions described in Note 4, Discontinued Operations and Assets Held for Sale, and the completed dispositions described in Note 5, Dispositions.

When we review Adjusted EBITDA on a segment basis, we exclude intercompany revenues and expenses related to network fees and royalties between our segments, which eliminate in consolidation. We use total assets as the measure of assets for reportable segments.

The following tables provide financial information for our reportable segments, including a reconciliation of Adjusted EBITDA to Income from continuing operations before income taxes, as reported in the Consolidated Statements of Operations:



	For the three months ended						For the six months ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues
Brazil	$	197,106		$	225,599		$	307,074		$	348,391
Mexico	162,455			159,645			318,919			315,543
Andean	422,994			409,546			561,937			544,600
Rest of World	60,585			61,341			114,741			113,615
Online & Partnerships	159,715			164,955			321,489			332,986
Corporate	(1,053		)	(3,890		)	(562		)	(5,723		)
Revenues	$	1,001,802		$	1,017,196		$	1,623,598		$	1,649,412
Adjusted EBITDA of reportable segments
Brazil	$	58,856		$	77,934		$	28,200		$	51,918
Mexico	31,585			27,806			57,413			58,250
Andean	186,734			184,198			153,491			144,766
Rest of World	10,459			7,603			14,958			10,593
Online & Partnerships	49,859			45,427			98,435			90,401
Total Adjusted EBITDA of reportable segments	337,493			342,968			352,497			355,928
Reconciling items:
Corporate	(40,205		)	(39,368		)	(76,814		)	(81,994		)
Depreciation and amortization expense	(49,740		)	(52,885		)	(97,384		)	(109,854		)
Loss on impairment of assets	(470		)	—			(470		)	—
Share-based compensation expense	(4,748		)	(7,261		)	(7,735		)	(3,184		)
EiP expenses	(28,633		)	(25,234		)	(40,926		)	(35,297		)
Operating income	213,697			218,220			129,168			125,599
Interest income	2,844			2,588			6,397			5,856
Interest expense	(41,467		)	(60,110		)	(96,122		)	(123,445		)
Loss on debt extinguishment	(15,595		)	—			(26,217		)	(7,481		)
Gain on derivatives	2,632			111,596			7,815			92,256
Other income (expense), net	7,696			(91		)	8,055			2,506
Foreign currency exchange gain (loss), net	8,817			(5,668		)	4,158			(17,450		)
Income from continuing operations before income taxes	$	178,624		$	266,535		$	33,254		$	77,841



	June 30, 2019		December 31, 2018
Assets
Brazil	$	1,189,061	$	1,011,391
Mexico	1,300,938		971,309
Andean	1,870,780		1,608,406
Rest of World	250,662		231,421
Online & Partnerships	1,245,058		1,308,854
Corporate and Discontinued Operations	1,235,289		1,638,255
Total assets	$	7,091,788	$	6,769,636