Business and Geographic Segment Information

3 Months Ended

Mar. 31, 2020

Business and Geographic Segment Information

Laureate’s educational services are offered through six operating segments: Brazil, Mexico, Andean, Central America, Rest of World and Online & Partnerships. Following the March 2020 sale of NSAD, Laureate’s last remaining U.S. campus-based institution, the Central America & U.S. Campuses segment is now called the Central America segment. 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 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 campus-based institutions to be online and are leveraging our existing technologies and learning platforms to serve students outside of the traditional classroom setting. 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. These campus-based segments include Brazil, Mexico, Andean, Central America, and Rest of World. Specifics related to each of these campus-based segments and our Online & Partnerships segment are discussed below.

In Brazil, approximately 73% 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 12 institutions in seven 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 Fundo de Financiamento Estudantil (FIES).

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 72% of post-secondary students and there are government-sponsored student financing programs. In Peru, the public sector plays a significant role, but private universities are increasingly providing the capacity to meet growing demand.

The Central America segment includes an institution in Honduras, which is included in Discontinued Operations. Students in Central America typically finance their own education

The Rest of World segment includes campus-based institutions in Asia Pacific with operations in Australia, Malaysia and New Zealand. Additionally, the Rest of World segment manages one institution in China through a joint venture arrangement. The institution in Malaysia is included in Discontinued Operations.

The Online & Partnerships segment includes fully online institutions that offer profession-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, which are in a teach-out process.

As discussed in Note 1, Description of Business, and Note 4, Discontinued Operations and Assets Held for Sale, a number of our subsidiaries have met the requirements to be classified as discontinued operations, including the entire Central America segment. As a result, the operations of the Central America segment has 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 sale or disposal of subsidiaries, Foreign currency exchange gain (loss), net, Other (expense) 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. Beginning in the third quarter of 2019, EiP also includes expenses associated with an enterprise-wide program aimed at revenue growth.

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 Loss from continuing operations before income taxes and equity in net income of affiliates, as reported in the Consolidated Statements of Operations:




For the three months ended March 31,	2020		2019
Revenues
Brazil	$	83,681	$	109,969
Mexico	154,207		156,464
Andean	89,508		138,942
Rest of World	43,576		33,432
Online & Partnerships	156,505		161,774
Corporate	1,080		491
Revenues	$	528,557	$	601,072
Adjusted EBITDA of reportable segments
Brazil	$	(19,199)	$	(30,656)
Mexico	23,310		25,828
Andean	(62,150)		(33,243)

Rest of World	4,837		(3,359)
Online & Partnerships	43,281		48,576
Total Adjusted EBITDA of reportable segments	(9,921)		7,146
Reconciling items:
Corporate	(26,953)		(36,720)
Depreciation and amortization expense	(44,161)		(47,209)
Loss on impairment of assets	(3,768)		—
Share-based compensation expense	(1,981)		(2,987)
EiP expenses	(30,351)		(12,259)
Operating loss	(117,135)		(92,029)
Interest income	2,667		3,553
Interest expense	(36,110)		(54,653)
Loss on debt extinguishment	—		(10,622)
Gain on derivatives	802		5,183
Other (expense) income, net	(102)		397
Foreign currency exchange gain (loss), net	35,944		(4,746)
Gain on sales of subsidiaries, net	2,729		—
Loss from continuing operations before income taxes and equity in net income of affiliates	$	(111,205)	$	(152,917)


	March 31, 2020		December 31, 2019
Assets
Brazil	$	883,050	$	1,068,362
Mexico	1,077,325		1,315,377
Andean	1,815,876		1,715,145

Rest of World	209,778		194,409
Online & Partnerships	1,253,547		1,303,811
Corporate and Discontinued Operations	1,257,506		918,524
Total assets	$	6,497,082	$	6,515,628