Laureate Education Inc.
02/19/2026 | Press release | Distributed by Public on 02/19/2026 06:16
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations with the audited historical consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Item 1A. Risk Factors" section of this Form 10-K. Actual results may differ materially from those contained in any forward-looking statements. See "Forward-Looking Statements" on page 2 of this Form 10-K.
Introduction
This Management's Discussion and Analysis of Financial Condition and Results of Operations (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-K. The consolidated financial statements included elsewhere in this Form 10-K are presented in U.S. dollars (USD) rounded to the nearest thousand, with the amounts in the 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 Issued Accounting Standards.
Overview
Our Business
We operate a portfolio of degree-granting higher education institutions in Mexico and Peru. Collectively, we have approximately 497,700 students enrolled at five institutions in these two countries. We believe that the higher education markets in Mexico and Peru present an attractive long-term opportunity, primarily because of the large and growing imbalance between the supply and demand for affordable, quality higher education in those markets. We believe that the combination of the projected growth in the middle class, limited government resources dedicated to higher education, and a clear value proposition demonstrated by the higher earnings potential afforded by higher education, creates substantial opportunities for high-quality private institutions to meet this growing and unmet demand. By offering high-quality, outcome-focused education, we believe that we enable students to prosper and thrive in the dynamic and evolving knowledge economy. We have two reportable segments as described below. We group our institutions by geography in Mexico and Peru for reporting purposes.
Our Segments
Our segments generate revenues by providing an education that emphasizes profession-oriented fields of study with undergraduate and graduate degrees in a wide range of disciplines. Our educational offerings utilize campus-based, online and hybrid (a combination of online and in-classroom) courses and programs to deliver their curriculum.The Mexico and Peru markets are characterized by what we believe is a significant imbalance between supply and demand. The demand for higher education is large and growing and is fueled by several demographic and economic factors, including a growing middle class, global growth in services and technology-related industries and recognition of the significant personal and economic benefits gained by graduates of higher education institutions.The target demographics are primarily 18- to 24-year-olds in the countries 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 in-country networks. 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 approximately 39% of the total higher-education market. The private sector plays a meaningful role in higher education, bridging supply and demand imbalances created by a lack of capacity at public universities. Laureate owns two nationally licensed institutions and is present throughout the country with a footprint of over 30 campuses.
•In Peru, private universities are increasingly providing the capacity to meet growing demand and constitute approximately 76% of the total higher-education market. Laureate owns three institutions in Peru, with a footprint of 20 campuses.
Corporate is a non-operating business unit whose purpose is to support operations. Its departments are responsible for establishing operational policies and internal control standards, implementing strategic initiatives, and monitoring compliance with policies and controls throughout our operations. Our Corporate segment provides financial, human resource, information technology, insurance, legal and tax compliance services. The Corporate segment also contains the eliminations of inter-segment revenues and expenses.
The following information for our reportable segments is presented as of December 31, 2025:
| Institutions | Enrollment |
2025 Revenues (in millions)(1)
|
% Contribution to 2025 YTD Revenues
|
|||||||||||
| Mexico | 2 | 269,400 | $ | 877.4 | 52 | % | ||||||||
| Peru | 3 | 228,300 | 824.4 | 48 | % | |||||||||
|
Total (1)
|
5 | 497,700 | $ | 1,701.9 | 100 | % | ||||||||
(1) Amounts related to Corporate totaled $0.1 million and are not separately presented.
Challenges
Our operations are outside of the United States and are subject to complex business, economic, legal, regulatory, political, tax and foreign currency risks, which may be difficult to adequately address. As a result, we face risks that are inherent in international operations, including: fluctuations in exchange rates, possible currency devaluations, inflation and hyper-inflation;
price controls and foreign currency exchange restrictions; potential economic and political instability in both countries in which we operate; expropriation of assets by local governments; key political elections and changes in government policies; subsequent changes to laws and regulatory regimes; 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." We plan to grow our operations organically by: 1) adding new programs and course offerings; 2) expanding target student demographics; and 3) increasing capacity at existing and new campus locations. Our success in growing our business will depend on the ability to anticipate and effectively manage these and other risks related to operating in various countries. See "Item IA-Risk Factors-Risks Relating to Our Business-If we do not effectively manage our growth and business, our results of operations may be materially adversely affected."
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 "Item 1A-Risk Factors-Risks Relating to Our Business-Our institutions are subject to uncertain and varying laws and regulations, and any changes to these laws or regulations or their application to us may materially adversely affect our business, financial condition and results of operations," and "Item 1-Business-Industry Regulation," for a detailed discussion of our different regulatory environments and Note 16, Legal and Regulatory Matters, in our consolidated financial statements included elsewhere in this Form 10-K.
Key Business Metric
Enrollment
Enrollment is our lead revenue indicator and represents our most important non-financial metric. We define "enrollment" as the number of students registered in a course on the last day of the enrollment reporting period. New enrollments provide an indication of future revenue trends. Total enrollment is a function of continuing student enrollments, new student enrollments and enrollments from acquisitions, offset by graduations, attrition and enrollment decreases due to dispositions. Attrition is defined as a student leaving the institution before completion of the program. To minimize attrition, we have implemented programs that involve assisting students in remedial education, mentoring, counseling and student financing.
Each of our institutions has an enrollment cycle that varies by geographic region and academic program. Each institution has a "Primary Intake" period during each academic year in which the majority of the enrollment occurs. Each institution also has a smaller "Secondary Intake" period. Our Peruvian institutions have their Primary Intake during the first calendar quarter and a Secondary Intake during the third calendar quarter. Institutions in our Mexico segment have their Primary Intake during the third calendar quarter and a Secondary Intake during the first calendar quarter. Our institutions in Peru are generally out of session in January, February and July, while institutions in Mexico are generally out of session in May through July. Revenues are recognized when classes are in session.
Principal Components of Income Statement
Revenues
The majority of our revenue is derived from tuition revenue from enrolled students. The amount of tuition generated in a given period depends on the price per credit hour and the total credit hours or price per program taken by the enrolled student population. The price per credit hour varies by program, by market and by degree level. Additionally, varying levels of discounts and scholarships are offered depending on market-specific dynamics and individual achievements of our students. Revenues are recognized net of scholarships and other discounts, refunds and waivers. In addition to tuition revenues, we generate other revenues from student fees, short courses, and other education-related activities. These other revenues are less material to our overall financial results and have a tendency to trend with tuition revenues. The main drivers of changes in revenues between periods are student enrollment and price. We continually monitor market conditions and carefully adjust our tuition rates to meet local demand levels. We proactively seek the best price and content combinations to remain competitive in all the markets in which we operate.
Direct Costs
Our direct costs include labor and operating costs associated with the delivery of services to our students, including the cost of wages, payroll taxes and benefits, depreciation and amortization, rent, utilities, bad debt expenses, and marketing and promotional costs to grow future enrollments. In general, a significant portion of our direct costs tend to be variable in nature and trend with enrollment, and management continues to monitor and improve the efficiency of instructional delivery.
General and Administrative Expenses
Our general and administrative expenses primarily consist of costs associated with corporate departments, including executive management, finance, legal, business development and other departments that do not provide direct operational services.
Factors Affecting Comparability
Foreign Exchange
While the USD is our reporting currency, our institutions are located in Mexico and Peru and operate in other functional currencies, namely the Mexican peso and Peruvian nuevo sol. We monitor the impact of foreign currency movements and the correlation between the local currency and the USD. Our revenues and expenses are generally denominated in local currency. The principal foreign exchange exposure is the risk related to the translation of revenues and expenses incurred in each country from the local currency into USD. See "Item 1A-Risk Factors-Risks Relating to Our Business-Our reported revenues and earnings may be negatively affected by the strengthening of the U.S. dollar and currency exchange rates." In 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 any acquisitions and divestitures.
Seasonality
Our institutions have a summer break during which classes are generally not in session and minimal revenues are recognized. In addition to the timing of summer breaks, holidays such as Easter also have an impact on our academic calendar. Operating expenses, however, do not fully correlate to the enrollment and revenue cycles, as the institutions continue to incur expenses during summer breaks. Given the geographic diversity of our institutions and differences in timing of summer breaks, our second and fourth quarters are stronger revenue quarters as the majority of our institutions are in session for most of these respective quarters. Our first and third fiscal quarters are weaker revenue quarters because our institutions have summer breaks for some portion of one of these two quarters. However, our primary enrollment intakes occur during the first and third quarters. Due to this seasonality, revenues and profits in any one quarter are not necessarily indicative of results in subsequent quarters and may not be correlated to new enrollment in any one quarter. Additionally, seasonality may be affected due to other events that could change the academic calendar at our institutions. See "Item 1A-Risk Factors-Risks Relating to Our Business-We experience seasonal fluctuations in our results of operations."
Income Tax Expense
Our consolidated income tax provision is derived based on the combined impact of federal, state and foreign income taxes. Our tax rate fluctuates from period to period due to changes in the mix of earnings between our tax-paying entities and our loss-making entities for which it is not 'more likely than not' that a tax benefit will be realized on the loss. See "Item 1A-Risk Factors-Risks Relating to Our Business-We may have exposure to greater-than-anticipated tax liabilities."
Many countries have enacted legislation and adopted policies to implement the global minimum tax resulting from the Organization for Economic Co-operation and Development's Base Erosion and Profit Shifting project. Significant details and guidance around compliance with the global minimum tax are still pending. For countries that have enacted the global minimum tax, such taxes generally became effective for the Company beginning in 2024, with filing requirements expected to begin in 2026. Income tax expense could be adversely affected as the legislation becomes effective in countries in which we do business. We continue to monitor pending legislation and implementation by individual countries in which we operate, and we do not expect the global minimum tax provisions to have a material impact on our results of operations, financial position or cash flows.
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.
Summary Comparison of Consolidated Results
Comparison of Consolidated Results for the Years Ended December 31, 2025, 2024 and 2023
| % Change | |||||||||||||||||||||||||||||
| Better/(Worse) | |||||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||||
| Revenues | $ | 1,701.9 | $ | 1,566.6 | $ | 1,484.3 | 9 | % | 6 | % | |||||||||||||||||||
| Direct costs | 1,219.8 | 1,146.9 | 1,089.8 | (6) | % | (5) | % | ||||||||||||||||||||||
| General and administrative expenses | 51.1 | 45.8 | 52.6 | (12) | % | 13 | % | ||||||||||||||||||||||
| Loss on impairment of assets | - | - | 3.1 | nm | 100 | % | |||||||||||||||||||||||
|
Operating income
|
431.1 | 374.0 | 338.8 | 15 | % | 10 | % | ||||||||||||||||||||||
| Interest expense, net of interest income | (3.6) | (10.0) | (11.9) | 64 | % | 16 | % | ||||||||||||||||||||||
|
Other non-operating (expense) income
|
(26.6) | 50.5 | (72.5) | (153) | % | 170 | % | ||||||||||||||||||||||
|
Income from continuing operations before income taxes and equity in net income of affiliates
|
400.9 | 414.5 | 254.5 | (3) | % | 63 | % | ||||||||||||||||||||||
|
Income tax expense
|
(117.3) | (119.0) | (137.6) | 1 | % | 14 | % | ||||||||||||||||||||||
| Equity in net income of affiliates, net of tax | 0.2 | 0.2 | 0.2 | - | % | - | % | ||||||||||||||||||||||
| Income from continuing operations | 283.8 | 295.7 | 117.0 | (4) | % | 153 | % | ||||||||||||||||||||||
|
(Loss) income from discontinued operations, net of tax
|
- | 0.7 | (9.8) | (100) | % | 107 | % | ||||||||||||||||||||||
|
Net income
|
283.8 | 296.4 | 107.3 | (4) | % | 176 | % | ||||||||||||||||||||||
|
Net (income) loss attributable to noncontrolling interests
|
(2.2) | 0.1 | 0.3 | nm | 67 | % | |||||||||||||||||||||||
|
Net income attributable to Laureate Education, Inc.
|
$ | 281.6 | $ | 296.5 | $ | 107.6 | (5) | % | 176 | % | |||||||||||||||||||
nm - percentage changes not meaningful
Comparison of Consolidated Results for the Year Ended December 31, 2025 to the Year Ended December 31, 2024
Revenues increased by $135.3 million to $1,701.9 million for 2025 from $1,566.6 million for 2024. The increase was attributable to: (1) higher average total organic enrollment at our institutions, which increased revenues by $92.4 million compared to 2024; (2) the effect of changes in tuition rates and enrollments in programs at varying price points ("product mix"), pricing and timing, which increased revenues by $40.5 million compared to 2024; and (3) the net effect of changes in foreign currency exchange rates, which increased revenues by $2.5 million. This net effect was the result of an increase in revenues of $45.4 million caused by the strengthening of the Peruvian nuevo sol against the USD compared to 2024, almost entirely offset by a decrease in revenues of $42.9 million caused by the weakening of the Mexican peso against the USD compared to 2024. These increases were partially offset by changes in Other Corporate and Eliminations which accounted for a decrease in revenues of $0.1 million.
Direct costs and general and administrative expenses combinedincreased by $78.2 million to $1,270.9 million for 2025 from $1,192.7 million for 2024. This increase in direct costs was driven by the effect of operational changes, which increased direct costs by $85.4 million compared to 2024, mostly attributable to the effect of higher enrollments at our institutions. This increase was partially offset by the net effect of changes in foreign currency exchange rates which decreased costs by $6.4 million. This net effect was the result of a decrease in costs of $33.3 million caused by the weakening of the Mexican peso against the USD compared to 2024, partially offset by an increase in costs of $26.9 million caused by the strengthening of the Peruvian nuevo sol against the USD compared to 2024. Additionally, other Corporate expenses decreased by $0.8 million.
Operating incomeincreased by $57.1 million to $431.1 million for 2025 from $374.0 million for 2024. This increase was primarily a result of higher operating income at our Mexico and Peru segments as compared to 2024.
Interest expense, net of interest incomedecreased by $6.4 million to $3.6 million for 2025 from $10.0 million for 2024. The decrease in interest expense was primarily attributable to lower average debt balances compared to 2024.
Other non-operating (expense) income changed by $77.1 million to an expense of $(26.6) million for 2025 from income of $50.5 million for 2024. This change in other non-operating (expense) income was primarily attributable to a loss on foreign currency exchange for 2025 compared to a gain for 2024 for a change of $85.2 million, mainly related to intercompany loan arrangements. This change was partially offset by: (1) an increase in other income of $6.8 million compared to 2024 due to the settlement of an insurance claim for business interruption events that occurred in 2019 and early 2020 at an operation that we have subsequently divested; and (2) a $1.3 million change in loss on disposal of subsidiaries attributable to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries in 2024.
Income tax expense decreased by $1.7 million to $117.3 million for 2025 from $119.0 million for 2024. The decrease is the net effect of a higher year-over-year discrete tax benefit recorded in 2025 related to the release of a legacy tax liability, mostly offset by higher taxable income during 2025 as compared to 2024, particularly in Peru.
Comparison of Consolidated Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Revenues increased by $82.3 million to $1,566.6 million for 2024 from $1,484.3 million for 2023. This increase was attributable to higher average total organic enrollment at our institutions, which increased revenues by $73.6 million compared to 2023. In addition, the effect of changes in product mix, pricing and timing increased revenues by $34.8 million compared to 2023. These increases in revenues were partially offset by the effect of a net change in foreign currency exchange rates, which decreased revenues by $26.3 million, mainly driven by the weakening of the Mexican peso against the USD compared to 2023. Other Corporate and Eliminations changes accounted for an increase in revenues of $0.2 million.
Direct costs and general and administrative expenses combinedincreased by $50.3 million to $1,192.7 million for 2024 from $1,142.4 million for 2023. This increase in direct costs was driven by the effect of operational changes, which increased direct costs by $76.9 million compared to 2023, mostly attributable to the effect of higher enrollments at our institutions. This increase was partially offset by the effect of a net change in foreign currency exchange rates which decreased costs by $21.4 million. Additionally, other Corporate expenses decreased by $5.2 million.
Operating income increased by $35.2 million to $374.0 million for 2024 from $338.8 million for 2023. This increase was a result of higher operating income at our Mexico segment, combined with lower operating costs at Corporate. This increase was partially offset by lower operating income at our Peru segment, due in part to higher bad debt expense compared to 2023.
Interest expense, net of interest incomedecreased by $1.9 million to $10.0 million for 2024 from $11.9 million for 2023. The decrease in interest expense was primarily attributable to lower average debt balances compared to 2023.
Other non-operating income (expense)changed by $123.0 million to an income of $50.5 million for 2024 from an expense of $(72.5) million for 2023. This change in other non-operating income was attributable to a gain on foreign currency exchange for 2024 compared to a loss for 2023 for a change of $126.4 million, mainly related to intercompany loan arrangements. Additionally, other income was higher by $1.5 million compared to 2023. These increases in non-operating income were partially offset by a loss on disposal of subsidiaries for 2024 compared to a gain for 2023 for a change of $4.9 million, primarily attributable to the release of accumulated foreign currency translation balances upon the liquidation of certain subsidiaries.
Income tax expense decreasedby $18.6 million to $119.0 million for 2024 from $137.6 million for 2023. This decrease was primarily attributable to a discrete tax benefit of approximately $37.9 million that was recorded during 2024 related to an entity restructuring, partially offset by a tax benefit recorded in 2023 of approximately $11.5 million for the release of valuation allowances in Mexico.
Income (loss) from discontinued operations, net of taxchanged by $10.5 million to income of $0.7 million for 2024 compared to a loss of $(9.8) million for 2023. This change was primarily attributable to the year-over-year effect of a reserve recorded in 2023 related to an indemnification claim received, as well as changes in estimates during 2023 regarding the realizability of certain receivables from previous divestitures.
Non-GAAP Financial Measure
We define Adjusted EBITDA as net income (loss), before (income) loss from discontinued operations, net of tax, equity in net (income) loss of affiliates, net of tax, income tax expense (benefit), (gain) loss on disposal of subsidiaries, net, foreign currency exchange (gain) loss, net, other (income) expense, net, interest expense, interest income, and loss on debt extinguishment, plusdepreciation and amortization, share-based compensation expense and loss on impairment of assets. Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.
Adjusted EBITDA is a key measure used by our management and Board of Directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating Adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Additionally, Adjusted EBITDA is a key financial measure used by the compensation committee of our Board of Directors and our Chief Executive Officer in connection with the payment of incentive compensation to our executive officers and other members of our management team. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board of Directors.
The following table presents Adjusted EBITDA and reconciles Net income to Adjusted EBITDA for the years ended December 31, 2025, 2024 and 2023:
| % Change | |||||||||||||||||||||||||||||
| Better/(Worse) | |||||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||||
| Net income | $ | 283.8 | $ | 296.4 | $ | 107.3 | (4) | % | 176 | % | |||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
| Loss (income) from discontinued operations, net of tax | - | (0.7) | 9.8 | 100 | % | (107) | % | ||||||||||||||||||||||
| Income from continuing operations | 283.8 | 295.7 | 117.0 | (4) | % | 153 | % | ||||||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
| Equity in net income of affiliates, net of tax | (0.2) | (0.2) | (0.2) | - | % | - | % | ||||||||||||||||||||||
|
Income tax expense
|
117.3 | 119.0 | 137.6 | 1 | % | 14 | % | ||||||||||||||||||||||
|
Income from continuing operations before income taxes and equity in net income of affiliates
|
400.9 | 414.5 | 254.5 | (3) | % | 63 | % | ||||||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
|
Loss (gain) on disposal of subsidiaries, net
|
- | 1.3 | (3.6) | 100 | % | (136) | % | ||||||||||||||||||||||
|
Foreign currency exchange loss (gain), net
|
34.6 | (50.7) | 75.7 | (168) | % | 167 | % | ||||||||||||||||||||||
|
Other (income) expense, net
|
(7.9) | (1.2) | 0.3 | nm | nm | ||||||||||||||||||||||||
| Interest expense | 10.7 | 18.1 | 21.0 | 41 | % | 14 | % | ||||||||||||||||||||||
| Interest income | (7.1) | (8.1) | (9.1) | (12) | % | (11) | % | ||||||||||||||||||||||
|
Operating income
|
431.1 | 374.0 | 338.8 | 15 | % | 10 | % | ||||||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
| Depreciation and amortization | 74.5 | 68.2 | 69.6 | (9) | % | 2 | % | ||||||||||||||||||||||
| EBITDA | 505.6 | 442.2 | 408.4 | 14 | % | 8 | % | ||||||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
|
Share-based compensation expense(a)
|
13.3 | 7.8 | 7.1 | (71) | % | (10) | % | ||||||||||||||||||||||
|
Loss on impairment of assets (b)
|
- | - | 3.1 | nm | 100 | % | |||||||||||||||||||||||
| Adjusted EBITDA | $ | 518.9 | $ | 450.1 | $ | 418.6 | 15 | % | 8 | % | |||||||||||||||||||
nm - percentage changes not meaningful
(a)Represents non-cash, share-based compensation expense pursuant to the provisions of ASC 718, "Stock Compensation."
(b)Represents non-cash charges related to impairments of long-lived assets.
Comparison of Share-based Compensation Expense for the for the Years Ended December 31, 2025 and 2024
Share-based compensation expenseincreased by $5.5 million to $13.3 million for 2025 from $7.8 million for 2024, which was primarily driven by executive retention awards of restricted stock units that were granted in May 2024 and January 2025 as well as increased expense related to performance-based awards.
Comparison of Depreciation and Amortization for the Years Ended December 31, 2025 and 2024
Depreciation and amortizationincreased by $6.3 million to $74.5 million for 2025 from $68.2 million for 2024, which was primarily attributable to equipment purchases and campus improvements in Mexico that resulted in a higher depreciable asset base compared to 2024.
Comparison of Depreciation and Amortization for the Years Ended December 31, 2024 and 2023
Depreciation and amortizationdecreased by $1.4 million to $68.2 million for 2024 from $69.6 million for 2023, which was primarily driven by the effects of changes in foreign currency exchange rates compared to 2023.
Segment Results
We have two reportable segments: Mexico and Peru, 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 and share-based compensation expense have been excluded. Organic enrollment is based on average total enrollment for the period. For a further description of our segments, see Overview.
The following tables, derived from our consolidated financial statements included elsewhere in this Form 10-K, present selected financial information of our reportable segments:
| (in millions) | % Change | ||||||||||||||||||||||||||||
| Better/(Worse) | |||||||||||||||||||||||||||||
| For the year ended December 31, | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Mexico | $ | 877.4 | $ | 841.2 | $ | 782.6 | 4 | % | 7 | % | |||||||||||||||||||
| Peru | 824.4 | 725.2 | 701.7 | 14 | % | 3 | % | ||||||||||||||||||||||
| Corporate | 0.1 | 0.2 | - | (50) | % | nm | |||||||||||||||||||||||
| Consolidated Total Revenues | $ | 1,701.9 | $ | 1,566.6 | $ | 1,484.3 | 9 | % | 6 | % | |||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||||||||
| Mexico | $ | 229.4 | $ | 206.5 | $ | 177.0 | 11 | % | 17 | % | |||||||||||||||||||
| Peru | 328.6 | 283.4 | 286.9 | 16 | % | (1) | % | ||||||||||||||||||||||
| Corporate | (39.1) | (39.8) | (45.2) | 2 | % | 12 | % | ||||||||||||||||||||||
| Consolidated Total Adjusted EBITDA | $ | 518.9 | $ | 450.1 | $ | 418.6 | 15 | % | 8 | % | |||||||||||||||||||
nm - percentage change not meaningful
Mexico
Financial Overview
Comparison of Mexico Results for the Year Ended December 31, 2025 to the Year Ended December 31, 2024
| (in millions) | Revenues | Direct Costs | Adjusted EBITDA | ||||||||||||||
| December 31, 2024 | $ | 841.2 | $ | 634.7 | $ | 206.5 | |||||||||||
|
Organic enrollment (1)
|
49.6 | ||||||||||||||||
|
Product mix, pricing and timing (1)
|
29.5 | ||||||||||||||||
| Organic constant currency | 79.1 | 44.6 | 34.5 | ||||||||||||||
| Foreign exchange | (42.9) | (31.3) | (11.6) | ||||||||||||||
| December 31, 2025 | $ | 877.4 | $ | 648.0 | $ | 229.4 | |||||||||||
(1)Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.
Revenues increased by $36.2 million, a 4% increase from 2024.
•On an organic constant currency basis, revenue increased by 9% compared to 2024.
•Revenues from our Mexico segment represented 52% of our consolidated total revenues for 2025 compared to 54% for 2024.
Adjusted EBITDA increased by $22.9 million, an 11% increase from 2024.
•On an organic constant currency basis, Adjusted EBITDA increased by 17% compared to 2024, primarily driven by revenue growth and productivity gains.
Comparison of Mexico Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
| (in millions) | Revenues | Direct Costs | Adjusted EBITDA | ||||||||||||||
| December 31, 2023 | $ | 782.6 | $ | 605.6 | $ | 177.0 | |||||||||||
|
Organic enrollment (1)
|
59.8 | ||||||||||||||||
|
Product mix, pricing and timing (1)
|
22.3 | ||||||||||||||||
| Organic constant currency | 82.1 | 48.3 | 33.8 | ||||||||||||||
| Foreign exchange | (23.5) | (19.2) | (4.3) | ||||||||||||||
| December 31, 2024 | $ | 841.2 | $ | 634.7 | $ | 206.5 | |||||||||||
(1)Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.
Revenues increased by $58.6 million, a 7% increase from 2023.
•On an organic constant currency basis, revenue increased by 10% compared to 2023.
•Revenues from our Mexico segment represented 54% of our consolidated total revenues for 2024 compared to 53% for 2023.
Adjusted EBITDA increased by $29.5 million, a 17% increase from 2023.
•On an organic constant currency basis, Adjusted EBITDA increased by 19% compared to 2023, primarily driven by higher revenues.
Peru
Financial Overview
Comparison of Peru Results for the Year Ended December 31, 2025 to the Year Ended December 31, 2024
| (in millions) | Revenues | Direct Costs | Adjusted EBITDA | ||||||||||||||
| December 31, 2024 | $ | 725.2 | $ | 441.8 | $ | 283.4 | |||||||||||
|
Organic enrollment (1)
|
42.8 | ||||||||||||||||
|
Product mix, pricing and timing (1)
|
11.0 | ||||||||||||||||
| Organic constant currency | 53.8 | 28.6 | 25.2 | ||||||||||||||
| Foreign exchange | 45.4 | 25.4 | 20.0 | ||||||||||||||
| December 31, 2025 | $ | 824.4 | $ | 495.8 | $ | 328.6 | |||||||||||
(1)Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.
Revenues increased by $99.2 million, a 14% increase from 2024.
•On an organic constant currency basis, revenue increased by 7% compared to 2024.
•Revenues from our Peru segment represented 48% of our consolidated total revenues for 2025 compared to 46% for 2024.
Adjusted EBITDA increased by $45.2 million, a 16% increase from 2024.
•On an organic constant currency basis, Adjusted EBITDA increased by 9% compared to 2024, primarily driven by higher revenues.
Comparison of Peru Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
| (in millions) | Revenues | Direct Costs | Adjusted EBITDA | ||||||||||||||
| December 31, 2023 | $ | 701.7 | $ | 414.8 | $ | 286.9 | |||||||||||
|
Organic enrollment (1)
|
13.8 | ||||||||||||||||
|
Product mix, pricing and timing (1)
|
12.5 | ||||||||||||||||
| Organic constant currency | 26.3 | 28.1 | (1.8) | ||||||||||||||
| Foreign exchange | (2.8) | (1.1) | (1.7) | ||||||||||||||
| December 31, 2024 | $ | 725.2 | $ | 441.8 | $ | 283.4 | |||||||||||
(1)Organic enrollment and product mix, pricing and timing are not separable for the calculation of direct costs and therefore are combined and defined as Organic constant currency for the calculation of Adjusted EBITDA.
Revenues increased by $23.5 million, a 3% increase from 2023.
•On an organic constant currency basis, revenue increased by 4% compared to 2023.
•Revenues from our Peru segment represented 46% of our consolidated total revenues for 2024 compared to 47% for 2023.
Adjusted EBITDA decreased by $3.5 million, a 1% decrease from 2023.
•On an organic constant currency basis, Adjusted EBITDA decreased by 1% compared to 2023, primarily due to higher marketing and bad debt expenses.
Corporate
Corporate revenues primarily represent miscellaneous other revenues, net of the elimination of intersegment revenues.
Operating results for Corporate for the years ended December 31, 2025, 2024 and 2023 were as follows:
| % Change | |||||||||||||||||||||||||||||
| Better/(Worse) | |||||||||||||||||||||||||||||
| (in millions) | 2025 | 2024 | 2023 | 2025 vs. 2024 | 2024 vs. 2023 | ||||||||||||||||||||||||
| Revenues | $ | 0.1 | $ | 0.2 | $ | - | (50) | % | nm | ||||||||||||||||||||
| Expenses | 39.2 | 40.0 | 45.2 | 2 | % | 12 | % | ||||||||||||||||||||||
| Adjusted EBITDA | $ | (39.1) | $ | (39.8) | $ | (45.2) | 2 | % | 12 | % | |||||||||||||||||||
nm - percentage change not meaningful
Comparison of Corporate Results for the Year Ended December 31, 2025 to the Year Ended December 31, 2024
Adjusted EBITDA increased by $0.7 million, a 2% increase from 2024, mainly driven by a decrease in operating expenses.
Comparison of Corporate Results for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Adjusted EBITDA increased by $5.4 million, a 12% increase from 2023, mainly driven by a decrease in labor costs and other professional fees.
Liquidity and Capital Resources
Liquidity Sources
We anticipate that cash flow from operations and available cash will be sufficient to meet our current operating requirements and manage our liquidity needs for at least the next 12 months from the date of issuance of this report.
Our primary source of cash is revenue from tuition charged to students in connection with our various education program offerings. Essentially all of our revenues are generated from private pay sources as there are no material government-sponsored loan programs in Mexico or Peru. We anticipate generating sufficient cash flow from operations in the countries in which we operate to satisfy the working capital and financing needs of our organic growth plans for each country. If our educational
institutions within one country were unable to maintain sufficient liquidity, we would consider using internal cash resources or reasonable short-term working capital facilities to accommodate any short- to medium-term shortfalls.
As of December 31, 2025, our cash and cash equivalents were $146.7 million. Our cash accounts are maintained with high-quality financial institutions. The Company also maintains a revolving credit facility (the "Senior Secured Credit Facility") with a syndicate of financial institutions as a source of liquidity. The Senior Secured Credit Facility, pursuant to the Third Amended and Restated Credit Agreement, dated as of October 7, 2019 (the "Credit Agreement", as amended by the First Amendment, dated as of July 20, 2020, the Second Amendment, dated as of December 23, 2022, and, as further amended by the Third Amendment, dated as of September 18, 2023, the "Amended Credit Agreement"), provides for borrowings of$155.0 million of revolving credit loans maturing in September 2028 (the "Revolving Credit Facility"). As a subfacility under the Revolving Credit Facility, the Amended Credit Agreement provides for letter of credit commitments in the aggregate amount of $10.0 million. From time to time, we draw down on the Revolving Credit Facility, and, in accordance with the terms of the credit agreement, any proceeds drawn on the Revolving Credit Facility may be used for general corporate purposes. As of December 31, 2025, the Company had no outstanding balance borrowed under the Revolving Credit Facility. In addition to the Revolving Credit Facility, our subsidiaries had approximately $64.7 million of available borrowing capacity under lines of credit and short-term borrowing arrangements as of December 31, 2025.
If certain conditions are satisfied, the Amended Credit Agreementalso provides for incremental revolving and term loan facilities, at the request of the Company and subject to lender approval, not to exceed (i) the greater of (a) $172.5 millionand (b) 50% of the Company's Consolidated EBITDA, plus (ii) additional amounts so long as both immediately before and after giving effect to such incremental facilities the Company's Consolidated Senior Secured Debt to Consolidated EBITDA ratio, as defined in the Amended Credit Agreement, on a pro forma basis, does not exceed 2.25 to 1.00, plus, (iii) the aggregate amounts of any voluntary repayments of term loans, if any, and aggregate amount of voluntary repayments of revolving credit facilities that are accompanied by a corresponding termination or reduction of revolving credit commitments.
Liquidity Restrictions
Our liquidity is affected by restricted cash balances, which totaled $5.4 millionand $6.5 million as of December 31, 2025and 2024, respectively. Restricted cash consists of cash equivalents held as assets for a supplemental employment retention agreement for a former executive.
Indefinite Reinvestment of Historical Foreign Earnings
We earn a significant portion of our income from subsidiaries located in countries outside the United States. As of December 31, 2025, $130.4 million of our total $146.7 million of cash and cash equivalents were held by foreign subsidiaries. As of December 31, 2024, $80.1 million of our total $91.4 million of cash and cash equivalents were held by foreign subsidiaries. As part of our business strategies, we have determined that the undistributed historical earnings of our foreign operations for which we have not already recorded taxes will be deemed indefinitely reinvested outside of the United States.
Liquidity Requirements
Our liquidity requirements include: funding for debt service (including finance leases); operating lease obligations; payments of deferred compensation; working capital; operating expenses; capital expenditures; stock repurchases; business development activities; and payments of other third-party obligations.
Debt
As of December 31, 2025, our debt obligations consisted of lines of credit and short-term borrowing arrangements of subsidiaries and notes payable, which totaled $65.6 million. In addition, our finance lease obligations were $63.5 million.
Senior Secured Credit Facility
As of December 31, 2025 and 2024, there was no balance outstanding under our Senior Secured Credit Facility.
Other Debt
Other debt includes lines of credit and short-term borrowing arrangements of subsidiaries and notes payable, the significant components of which are described below.
As of December 31, 2025 and 2024, the aggregate outstanding balances on our lines of credit were $43.3 million and $30.0 million, respectively.
One of our subsidiaries in Mexico holds an unsecured term loan which was scheduled to mature in June 2024. During the second quarter of 2024, we entered into a loan modification, which extended the maturity of the loan to June 2029. The loan carries a variable interest rate, plus an applicable margin, which is established based on the ratio of debt to EBITDA, as defined in the agreement (8.85% as of December 31, 2025). Under the loan modification agreement, the current quarterly payments on the loan total MXN $4.3 million ($0.2 million at December 31, 2025) and increase over the remaining term of the loan to MXN $23.4 million ($1.3 million at December 31, 2025), with a balloon payment of MXN 170.0 million ($9.5 million at December 31, 2025) due at maturity. As of December 31, 2025 and 2024, the outstanding balance of this loan was $22.3 million and $20.8 million, respectively.
Covenants
The Amended Credit Agreement provides that, solely with respect to the Revolving Credit Facility, the Company shall not permit its Consolidated Senior Secured Debt to Consolidated EBITDA ratio, as defined in the Amended Credit Agreement,to exceed 3 as of the last day of each quarter commencing with the quarter ending December 31, 2019 and thereafter. The Amended Credit Agreement also provides that ifless than 25% of the Revolving Credit Facility is utilized as of that date, then such financial covenant shall not apply. As of December 31, 2025, this condition was satisfied and, therefore, we were not subject to the leverage ratio. In addition, indebtedness at some of our locations contain financial maintenance covenants. We were in compliance with these covenants as of December 31, 2025.
Leases
We conduct a significant portion of our operations from leased facilities, including many of our higher education facilities and other office locations. As discussed in Note 9, Leases, in our consolidated financial statements included elsewhere in this Form 10-K, we have significant operating lease liabilities recorded related to our leased facilities, which will require future cash payments. As of December 31, 2025 and 2024, the present value of operating lease liabilities was $387.8 million and $327.1 million, respectively. Based on the operating leases outstanding at December 31, 2025, $98.8 million of minimum lease payments will be required during 2026. In addition, we had finance lease obligations of $63.5 million and $48.4 million as of December 31, 2025 and 2024, respectively.
Capital Expenditures
Capital expenditures primarily consist of purchases of property and equipment. Our capital expenditure program is a component of our liquidity and capital management strategy. This program includes discretionary spending, which we can adjust in response to economic and other changes in our business environment, to grow our network through the following: (1) capacity expansion at institutions to support enrollment growth; (2) new programs and campuses for institutions in our existing markets; and (3) information technology to increase efficiency and controls. Our non-discretionary spending includes the maintenance of existing facilities. We typically fund our capital expenditures through cash flow from operations and external financing. In the event that we are unable to obtain the necessary funding for capital expenditures, our long-term growth strategy could be significantly affected. We believe that our internal sources of cash and our ability to obtain additional third-party financing, subject to market conditions, will be sufficient to fund our investing activities.
Our total capital expenditures, excluding receipts from the sale of subsidiaries and property and equipment, were $103.0 million, $71.9 million and $56.5 million during 2025, 2024 and 2023, respectively. The 43% increase in capital expenditures for 2025 compared to 2024 was primarily driven by the purchase of land and construction costs for new campuses in Peru as well as an increase in equipment purchases and campus improvements in Mexico. The 27% increase in capital expenditures for 2024 compared to 2023 was primarily due to the purchase of a parcel of land and a new campus construction project that began in 2024, combined with higher spending in Mexico for campus consolidation related to the implementation of a real estate optimization plan.
Stock Repurchase Program
On September 13, 2024, the Company announced that its Board of Directors had approved a new stock repurchase program to acquire up to $100 million of the Company's common stock. On October 30, 2025, the Company announced that its Board of Directors had approved a $150 million increase to the authorization for the Company's stock repurchase program. As of December 31, 2025, the dollar value of shares yet to be repurchased under this stock repurchase program was $30.9 million. On February 19, 2026, the Company announced that its Board of Directors had approved an additional $150 million increase to the existing authorization for the Company's stock repurchase program. After giving effect to this new authorization and taking into account the cumulative repurchases through December 31, 2025, the Company may repurchase up to $180.9 million of its common stock under its stock repurchase program, which has no fixed expiration date.
The Company intends to finance the repurchases with free cash flow, excess cash and liquidity on-hand, including available capacity under its Revolving Credit Facility. The Company's proposed repurchases may be made from time to time on the open market at prevailing market prices, in privately negotiated transactions, in block trades and/or through other legally permissible means, depending on market conditions and in accordance with applicable rules and regulations promulgated under the Exchange Act. Repurchases may be effected pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act. The Company's Board of Directors will review the share repurchase program periodically and may authorize adjustment of its terms and size or suspend or discontinue the program.
Cash Flows
In the consolidated statements of cash flows, the changes in operating assets and liabilities are presented excluding the effects of exchange rate changes and reclassifications, as these effects do not represent operating cash flows. Accordingly, the amounts in the consolidated statements of cash flows do not agree with the changes of the operating assets and liabilities as presented in the consolidated balance sheets. The effects of exchange rate changes on cash are presented separately in the consolidated statements of cash flows.
The following table summarizes our cash flows from operating, investing, and financing activities for each of the past three fiscal years:
| (in millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Cash provided by (used in): | |||||||||||||||||
| Operating activities | $ | 366.2 | $ | 232.7 | $ | 250.8 | |||||||||||
| Investing activities | (102.6) | (57.5) | (51.9) | ||||||||||||||
| Financing activities | (222.5) | (166.9) | (201.9) | ||||||||||||||
| Effects of exchange rate changes on cash | 12.9 | (7.5) | 6.6 | ||||||||||||||
| Change in cash included in current assets held for sale | 0.3 | 0.3 | (0.5) | ||||||||||||||
| Net change in cash and cash equivalents and restricted cash | $ | 54.2 | $ | 1.0 | $ | 3.1 | |||||||||||
Comparison of Cash Flows for the Year Ended December 31, 2025 to the Year Ended December 31, 2024
Operating activities
Cash provided by operating activities increased by $133.5 million to $366.2 million for 2025, compared to $232.7 million for 2024. This increase in operating cash flows was attributable to: (1) higher operating income combined with the net effect of changes in operating assets and liabilities increased operating cash flows by $94.5 million compared to 2024; (2) lower cash paid for taxes of $31.4 million, from $194.8 million in 2024 to $163.4 million in 2025, which was primarily driven by taxes paid during 2024 as a result of the distribution of certain intercompany loans; and (3) lower cash paid for interest of $7.6 million, from $16.6 million in 2024 to $9.0 million in 2025, mostly due to lower average debt balances in 2025 compared to 2024.
Investing activities
Cash used in investing activities increased by $45.1 million to $(102.6) million for 2025 from $(57.5) million for 2024. This increase in investing cash outflows was primarily attributable to: (1) higher capital expenditures of $31.1 million compared to 2024, mainly driven by the purchase of land and construction costs for new campuses in 2025, and (2) a $17.7 million decrease in receipts from the sale of property and equipment in 2025 compared to 2024, primarily related to the sale of certain real estate in the United States and Mexico during 2024. This increase was partially offset by a $3.7 million year-over-year change in
investing cash flows due to run-out activity from previously sold discontinued operations, primarily related to a payment made in 2024 to settle an indemnification claim in connection with the 2021 sale of the Walden Group.
Financing activities
Cash used in financing activities increased by $55.6 million to $(222.5) million for 2025 from $(166.9) million for 2024. This increase in financing cash outflows was primarily attributable to an increase in common stock repurchases of $113.1 million during 2025. This increase was partially offset by $57.5 million of lower net payments of long-term debt during 2025 as compared to 2024.
Comparison of Cash Flows for the Year Ended December 31, 2024 to the Year Ended December 31, 2023
Operating activities
Cash provided by operating activities decreased by $18.1 million to $232.7 million for 2024, compared to $250.8 million for 2023. This decrease in operating cash inflows was attributable to an increase in cash paid for taxes of $23.5 million, from $171.3 million in 2023 to $194.8 million in 2024, which was primarily driven by taxes paid during 2024 as a result of the distribution of certain intercompany loans. This decrease in operating cash inflows was partially offset by lower cash paid for interest of $3.7 million, from $20.3 million in 2023 to $16.6 million in 2024, attributable to lower average debt balances in 2024 compared to 2023. In addition, higher operating income combined with the net effect of changes in operating assets and liabilities increased operating cash flows by $1.7 million compared to 2023.
Investing activities
Cash used in investing activities increased by $5.6 million to $(57.5) million for 2024 from $(51.9) million in 2023. This increase in investing cash outflows was primarily attributable to higher capital expenditures of $15.4 million compared to 2023, mainly driven by the purchase of land and construction costs for a new campus in 2024. In addition, the year-over-year change in cash flows related to run-out activity from previously sold discontinued operations decreased investing cash flows by $7.9 million to a cash outflow of $(3.6) million for 2024 from a cash inflow of $4.3 million for 2023, which was primarily driven by a payment in 2024 to settle an indemnification claim in connection with the 2021 sale of the Walden Group, combined with the year-over-year effect of the collection of an earnout receivable in 2023 related to the 2021 sale of our Brazilian operations. These increases in investing cash outflows were partially offset by higher cash proceeds from the sale of property and equipment of $17.7 million, which was primarily related to the sale of certain real estate in the United States and Mexico during 2024.
Financing activities
Cash used in financing activities decreased by $35.0 million to $(166.9) million for 2024 from $(201.9) million for 2023. This decrease in financing cash outflows was primarily attributable to lower payments of special dividends and distributions of $110.8 million, from $112.5 million in 2023 to $1.7 million in 2024. Additionally, net payments of long-term debt during 2024 as compared to 2023 were lower by $29.3 million. These decreases in financing cash outflows were partially offset by payments for common stock repurchases of $102.1 million during 2024. Other items accounted for the remaining difference of $3.0 million.
Critical Accounting Policies and Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. Our significant accounting policies are discussed in Note 2, Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Form 10-K. Our critical accounting policies require the most significant judgments and estimates about the effect of matters that are inherently uncertain. As a result, these accounting policies and estimates could materially affect our financial statements and are critical to the understanding of our results of operations and financial condition. Management has discussed the selection of these critical accounting policies and estimates with the Audit and Risk Committee of the Board of Directors.
Goodwill and Indefinite-lived Intangible Assets
We perform annual impairment tests of indefinite-lived intangible assets, including goodwill and tradenames, as of October 1st each year. We also evaluate these assets on an interim basis if events or changes in circumstances between annual tests indicate that the assets may be impaired. We have not made material changes to the methodology used to assess impairment loss on indefinite-lived tradenames during the past three fiscal years. If the estimates and related assumptions used in assessing the recoverability of our goodwill and indefinite-lived tradenames decline, we may be required to record impairment charges for those assets. We base our fair value estimates on assumptions that we believe to be reasonable but that are unpredictable and inherently uncertain. Actual results may differ from those estimates. In addition, we make certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of our reporting units.
Goodwill
On January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. This ASU requires entities to calculate goodwill impairment as the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Under this guidance, the Company continues to have the option of first performing a qualitative goodwill impairment assessment (i.e., step zero) in order to determine if a quantitative impairment test is necessary. A reporting unit is defined as a component of an operating segment for which discrete financial information is available and regularly reviewed by management of the segment. Based on the qualitative assessment, if we determine that it is more likely than not that the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is not required.
If we do not perform the qualitative assessment for a reporting unit or determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, a quantitative fair value-based test is performed. We estimate the fair value of each reporting unit, and, if the carrying amount of the reporting unit is less than the reporting unit's estimated fair value, then there is no goodwill impairment. If the carrying amount of the reporting unit exceeds its estimated fair value, then goodwill is impaired and the difference between the reporting unit's carrying amount and its fair value is recognized as a loss on impairment of assets in the Consolidated Statements of Operations. We completed our annual impairment testing, and no impairments of goodwill were identified.
Our valuation approach to estimate the fair value of a reporting unit has historically utilized a weighted combination of a discounted cash flow analysis and a market multiples analysis. The discounted cash flow analysis relies on historical data and internal estimates, which are developed as a part of our long-range plan process, and includes an estimate of terminal value based on these expected cash flows using the generally accepted Gordon Dividend Growth formula, which derives a valuation using an assumed perpetual annuity based on the reporting unit's residual cash flows. The discount rate is based on the generally accepted Weighted Average Cost of Capital methodology, and is derived using a cost of equity based on the generally accepted Capital Asset Pricing Model and a cost of debt based on the typical rate paid by market participants. The market multiples analysis utilizes multiples of business enterprise value to revenues, operating income and earnings before interest, taxes, depreciation and amortization of comparable publicly traded companies and multiples based on fair value transactions where public information is available. Significant assumptions used in estimating the fair value of each reporting unit include: (1) the revenue and profitability growth rates and (2) the discount rate.
If we perform a quantitative impairment test, we also evaluate the sensitivity of a change in assumptions related to goodwill impairment, assessing whether a 10% reduction in our estimates of revenue or a 1% increase in our estimated discount rates would result in impairment of goodwill.
We completed our initial public offering (IPO) on February 6, 2017 at an initial public offering price that was below the expected range, and since then our stock price at times has traded below the initial public offering price. While our market capitalization is currently in excess of the carrying value of our stockholders' equity, a significant decline in our stock price for an extended period of time could be considered an impairment indicator that would cause us to perform an interim impairment test that could result in additional impairments of goodwill or other intangible assets.
Indefinite-lived Intangible Assets
Indefinite-lived intangible assets include acquired indefinite-lived tradenames. Indefinite-lived tradenames are evaluated annually as of October 1st each year for impairment as well as on an interim basis if events or changes in circumstances between annual tests indicate that the asset may be impaired. The Company has the option of first performing a qualitative
impairment test to determine if a quantitative impairment test is necessary. Based on the qualitative assessment, if we determine that it is more likely than not that the fair value of the indefinite-lived intangible is greater than its carrying amount, the quantitative impairment test is not required. If required, the quantitative impairment test for indefinite-lived tradenames generally requires a new determination of the fair value of the intangible asset using the relief-from-royalty method. This method estimates the amount of royalty expense that we would expect to incur if the assets were licensed from a third party. We use publicly available information in determining certain assumptions to assist us in estimating fair value using market participant assumptions. If the fair value of the intangible asset is less than its carrying value, the intangible asset is adjusted to its new estimated fair value, and an impairment loss is recognized. Significant assumptions used in estimating the fair value of indefinite-lived tradenames include: (1) the revenue growth rates; (2) the discount rates; and (3) the estimated royalty rates.
Long-Lived Assets
We evaluate our long-lived assets, including property and equipment, to determine whether events or changes in circumstances indicate that the remaining estimated useful lives of such assets may warrant revision or that their carrying values may not be fully recoverable.
Indicators of impairment include, but are not limited to:
•a significant deterioration of operating results;
•a change in regulatory environment;
•a change in business plans; or
•an adverse change in anticipated cash flows.
If an impairment indicator is present, we evaluate recoverability by a comparison of the carrying amount of the assets to future undiscounted net cash flows expected to result from the use and eventual disposition of the assets. If the assets are determined to be impaired, the impairment recognized is the excess of the carrying amount over the fair value of the assets. Fair value is generally determined by the discounted cash flow method. The discount rate used in any estimate of discounted cash flows is the rate commensurate with a similar investment of similar risk. We use judgment in determining whether a triggering event has occurred and in estimating future cash flows and fair value. Changes in our judgments could result in impairments in future periods.
Income Taxes
We record the amount of income taxes payable or refundable for the current year, as well as deferred tax assets and liabilities for the expected future tax consequences of events that we have recognized in our consolidated financial statements or tax returns. We exercise judgment in assessing future profitability and the likely future tax consequences of these events.
Deferred Taxes
Estimates of deferred tax assets and liabilities are based on current tax laws, rates and interpretations, and, in certain cases, business plans and other expectations about future outcomes. We develop estimates of future profitability based upon historical data and experience, industry projections, forecasts of general economic conditions, and our own expectations. Our accounting for deferred tax consequences represents management's best estimate of future events that can be appropriately reflected in our accounting estimates. Changes in existing tax laws and rates, their related interpretations, as well as the uncertainty generated by the current economic environment, may impact the amounts of deferred tax liabilities or the valuations of deferred tax assets.
Tax Contingencies
We are subject to regular review and audit by both domestic and foreign tax authorities. We apply a more-likely-than-not threshold for tax positions, under which we must conclude that a tax position is more likely than not to be sustained in order for us to continue to recognize the benefit. This assumes that the position will be examined by the appropriate taxing authority and that full knowledge of all relevant information is available. In determining the provision for income taxes, judgment is used, reflecting estimates and assumptions, in applying the more-likely-than-not threshold. A change in the assessment of the outcome of a tax review or audit could materially adversely affect our consolidated financial statements.
See Note 12, Income Taxes, in our consolidated financial statements included elsewhere in this Form 10-K for details of our deferred taxes and tax contingencies.
Indefinite Reinvestment of Historical Foreign Earnings
We earn substantially all of our income from subsidiaries located in countries outside the United States. Deferred tax liabilities have not been recognized for undistributed historical foreign earnings that would be subject to tax because management believes that the historical retained earnings will be indefinitely reinvested outside the United States under the Company's planned tax-neutral methods. Our assertion that earnings from our foreign operations will be indefinitely reinvested is supported by projected working capital and long-term capital plans in each foreign subsidiary location in which the earnings are generated. Additionally, we believe that we have the ability to indefinitely reinvest foreign earnings based on our domestic operation's cash repatriation strategies, projected cash flows, projected working capital and liquidity, and the expected availability of capital within the debt or equity markets. If our expectations change based on future developments, such that some or all of the undistributed earnings of our foreign subsidiaries may be remitted to the United States in the foreseeable future, we will be required to recognize deferred tax expense and liabilities on any amounts that we are unable to repatriate in a tax-free manner.
Revenue Recognition
Our revenues primarily consist of tuition revenues from enrolled students. We also generate other revenues from student fees, short courses, 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. Revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. These revenues are recognized net of scholarships and other discounts, refunds and waivers. For further description, see also Note 3, Revenue, in our consolidated financial statements included elsewhere in this Form 10-K.
Allowance for Doubtful Accounts
Receivables are deemed to be uncollectible when they have been outstanding for two years, or earlier when collection efforts have ceased, at which time they are written off. Prior to that, we record an allowance for doubtful accounts to reduce our receivables to their net realizable value. Our allowance estimation methodology is based on the age of the receivables, the status of past-due amounts, historical collection trends, current economic conditions and student enrollment status. In the event that current collection trends differ from historical trends, an adjustment is made to the allowance account and bad debt expense.
Share-Based Compensation
We have granted performance-based restricted stock units for which the vesting is based on our annual performance metrics. For interim periods, we use our year-to-date actual results, financial forecasts, and other available information to estimate the probability of the award vesting based on the performance metrics. The related compensation expense recognized is affected by our estimates of the vesting probability of these performance awards. See Note 11, Share-based Compensation and Equity, in our consolidated financial statements included elsewhere in this Form 10-K for further discussion of these arrangements.
Recently Issued Accounting Standards
Refer to Note 2, Significant Accounting Policies, in our consolidated financial statements included elsewhere in this Form 10-K for recently issued accounting standards.
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