Laureate Education Q1 2023 Earnings Call Transcript

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May 4, 2023

There are 5 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Laureate Education Incorporated First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Adam Morris, Senior Vice President, Corporate Finance.

Operator

Please begin.

Speaker 1

Good morning, and thank you for joining us on today's call to discuss X Rite Aid Education's Q1 2023 results. Joining me on the call are Eilif Serkantzen, President and Chief Executive Officer and Rick Buskirk, Chief Financial Officer. Our earnings press release is available on the Investor Relations section of our website atlauriet.net. We have also posted a supplementary presentation to the website, which we'll be referring to during today's call. The call is being webcast and a complete recording will be available after the call.

Speaker 1

I'd like to remind you that some of the information we are providing today, including but not limited to, our financial and operational guidance, constitute forward looking statements within the meaning of applicable U. S. Securities laws. Forward looking statements are subject to risks And uncertainties that may change at any time, and therefore, our actual results may differ materially from those we expected. Important factors that could cause Actual results to differ materially from our expectations are disclosed in our annual report on Form 10 ks filed with The U.

Speaker 1

S. Securities and Exchange Commission, our 10 Q called earlier this morning, as well as other filings made with the SEC. In addition, all forward looking statements are based on current expectations as of the date of this conference call, and Additionally, non GAAP measures that we discuss, including among Others, adjusted EBITDA and its related margin, total debt net of cash and free cash flow are also detailed and reconciled to our gas counterparts in our press release or supplementary presentation. Let me now turn the call over to Eilif.

Speaker 2

Thank you, Adam, and good morning, everyone. We recently completed our enrollment intake for the first Which includes the primary intake cycle for Peru and a smaller intake for Mexico. 2023 is off to a very good start. New enrollments increased 17% year over year and total enrollments were up 8%, continuing

Speaker 3

That we

Speaker 2

have been experiencing over the past 2 years. In addition to favorable volume growth, pricing for the Intake cycle was also in line with our expectations. We are very encouraged by the strength of the first quarter intake Despite the headwind from the macroeconomic conditions, it highlights that the consumers in Mexico higher education when allocating the discretionary spending given the life changing impact of such education. Today, we are announcing an upward revision to our full year 2023 guidance. Notably, We have increased the lower end of the range for revenue and EBITDA on a constant currency basis following the strong Q1 results as well as increasing The decision to focus exclusively on the high growth markets of Mexico and Peru continues to deliver strong results for Laureate.

Speaker 2

Specifically, we are benefiting from 3 structural tailwinds. 1st, the steady increase in participation rate, Which drives robust growth in demand for higher education in Mexico and Peru. The enabler for this increased demand is the Significant wage premium earned by people with higher education as well as the affordable cost to get such degrees. Secondly, the private sector is critical to the advancement of higher education given limited government resources. On a time basis, over 50% of the university seats in Mexico and Peru are provided by the private sector, and the private sector counts for the maturity of the growth in the market.

Speaker 2

And thirdly, there is significant need for upskilling of labor in both Mexico and Peru. BlueReyes is a recognized leader for affordable, quality higher education in Mexican schools, and we distribute our products through face to face, online and hybrid delivery mode. We remain committed to striving to a financial profile within the next 3 to 5 years in which, 1st and foremost, we maintain our organic revenue growth on a consolidated basis for Laureate and adjusted EBITDA to unlevered free cash flow conversion of 50% Our success continues to be underpinned by our unwavering commitment to academic quality and innovation Fluorad is committed to making a positive impact to society. We recently published our 2022 impact report, and I encourage you to go to our website and download Copy. To learn more about the impact that our students, faculty and institutions are having Just to touch on a few highlights.

Speaker 2

UVM and UNITEC have both been recognized UPC Essendon grew top 2 most sustainable universities according to the 2022 Merkle ESG And responsibility ranking, which evaluates Latin America's top 100 sustainable companies based on Environmental, social and corporate governance criteria. UPM was the only We are very proud of all of our institutions and the positive impact they are having. That concludes my prepared remarks, and I will now turn the call over to Rick Bostkar for a more detailed financial overview of

Speaker 3

Thank you, Eilif. As a reminder, campus based higher education is a seasonal business. The first and third quarters From a P and L perspective, both are seasonally low periods as classes are out of session for most of those months. In The second and fourth quarters are not large enrollment intake periods, but generate higher revenue During the intake cycle just completed, we continue to see resiliency in demand and pricing, In addition to strong volume growth, pricing for the intake was in line with our expectations, specifically Pricing recognized in both markets was in line to cover our realized cost of inflation on our expense structure. Let's now move on to the financial results.

Speaker 3

Revenue in the seasonally low Revenue and adjusted EBITDA outperformance was driven by higher new enrollment volume as well as some timing items. On On an organic constant currency basis, revenue for the Q1 was up 12% year over year. Adjusted EBITDA for the Q1 was up 3% due to revenue flow through and cost efficiencies, partially offset provide some additional color on the performance of Mexico and Peru, starting with Page 14. Please note that all comparisons The Q1 represents a smaller secondary intake for Mexico. Their large intake occurs each September and follows the northern hemisphere calendar.

Speaker 3

During the During the Q1, Mexico's new enrollments increased 22%. We saw double digit Growth across both brands as well as across both our campus based and fully online programs. Total enrollments were up 9% versus the Q1 of prior year due to the favorable primary intake last fall as well as the robust new enrollments realized Mexico's revenue for the Q1 increased 16% compared to the prior year period due to our strong volume growth. Adjusted EBITDA for the Q1 was up 17% year over year with productivity gains more than offsetting increased Let's now transition to Peru on Slide 15. The Q1 represents the primary intake for Peru as they are a Southern Hemisphere Institution.

Speaker 3

During the quarter, Peru's new enrollment increased 14% with all three brands contributing double digit growth. Total enrollments were up 8% versus the Q1 of prior year. Peru's revenue for the seasonally low 3 6% year over year. Please note that the Q1 of the prior year benefited from a high level of summer classes As students who stepped out during COVID were catching up with their studies. Adjusted EBITDA for the quarter was a loss of 6,000,000 Let me now briefly discuss our balance sheet position.

Speaker 3

Laureate ended March with $131,000,000 in cash and $266,000,000 in gross debt For a net debt position of $136,000,000 our strong balance sheet position equates to less than a half turn Moving on to our improved outlook for 2023, starting on Page We are also raising the low end of the range on a constant currency basis by $10,000,000 for revenue and $2,000,000 for adjusted EBITDA as a result of our strong first quarter intake results. Based on current spot FX rates, we now Full year 2023 results to be as follows. Total enrollments to continue to be in the range of 147,000 to 455,000 students reflecting growth of 6% to 7% versus 2022. Revenues to now be in the range of $1,412,000,000 to $1,427,000,000 reflecting growth of 15% to 15% on an as reported basis and 9% to 10% on an organic constant currency basis versus Adjusted EBITDA to now be in the range of $398,000,000 to $406,000,000 reflecting growth of 17% to 20% on an as reported basis and 13% to 15% on an organic constant currency basis versus 2022. We are maintaining an adjusted EBITDA margin Improvement of 100 basis points at the midpoint of our guidance.

Speaker 3

The main drivers of our anticipated margin improvement are increased revenue flow From volume growth, efficiency initiatives primarily in Mexico and further reduction in our corporate Partially offsetting those drivers is the final material annualization effect of return to campus expenses, which will impact the first half of twenty twenty three. As a result, the net margin improvement in 2023 are expected to be realized in the second half of the year once we lap those return to campus expenses. Additionally, for For 2023, we continue to expect adjusted EBITDA to unlevered free cash flow conversion to be in the low to mid-forty percent range, aided by our margin improvement and continued capital light growth model. Finally, For our full year 2023 guidance, there are 2 important points regarding seasonality that I want to call to your attention. First is regarding the first half versus second half revenue expectations.

Speaker 3

In Peru, we anticipate revenue growth for the first half and In Mexico, however, We anticipate revenue growth for the first half of twenty twenty three to be higher than the second half. This

Speaker 2

We expect to see a

Speaker 3

more normal first and second half growth pattern for Mexico in 2024. Lastly, as discussed during our prior earnings call, our cash flow seasonality in 2023 will differ From what we experienced in 2022 was a heavier weighting towards the second half of the year due to the timing of tax payments in the first quarter Thanks. Revenue to be in the range of $433,000,000 to $440,000,000

Speaker 2

adjusted Thank you, Rick. I continue to be very encouraged by the trends in our Laureate is experiencing positive growth momentum across both markets and in all of our brands. We are well positioned to capitalize on the growth opportunities in Mexico and Peru through leveraging our leading brands and strong digital And we're not happy to take any questions from the participants.

Operator

Thank you. Please stand by while we compile the Q and A roster. One moment for our first question. Our first question will come from the line of Jeffrey Silber with BMO Capital Markets. Your line is now open.

Speaker 4

Thank you so much. My first question is actually a 2 carder. You've been posting very impressive strong new enrollment growth. Can you share with us some data, even at a high level, how the market is growing? And I'm assuming you're gaining share.

Speaker 4

And if that's the case, what do you attribute that to?

Speaker 2

Hey, Jeff. This is Eilif. Good morning, and I apologize to everyone for static on the line during our prepared remarks. We have no switched lines. So hopefully, You can hear us better now.

Speaker 2

In terms of your question for market growth, The market is growing because of the increasing stock of 18 to 24 year olds As well as the increasing participation rate, I. E, the percentage of 18 to 24 year olds that are participating in higher education are increasing. That drives 2% to 3% growth in the market. Then the second big driver for our growth It's online expansion where Laureate is absolutely the leader in digital education in both Mexico and Peru And that creates new market opportunities for us. We're really expanding the market because we are serving customers That wouldn't otherwise have access to quality higher education without that mode of delivery.

Speaker 2

And then I would say, To your point, we are also taking share in the traditional undergraduate segment. We have superior brands in Mexico and Peru, both in the Premium and traditional space as well as the value brand segment. And we are also the innovation leader in terms of launching new product And product expansions, which are enabling us to take

Speaker 1

market share.

Speaker 4

Okay. That's helpful. And then on online,

Speaker 3

I know you've Got a goal

Speaker 4

to get to 50% to 60%. Roughly, where

Speaker 3

are you and how long you

Speaker 1

think it will take you to get to that goal?

Speaker 2

We are within that so all of our universities are within that 40% to 60% and we are averaging Just below the midpoint.

Speaker 4

Okay. That's helpful. I'll jump back in the queue. Thanks so much.

Speaker 2

Thanks, Jeff.

Operator

Thank you. At this time, I'm showing no further questions at this time. I would now like to end the conference call. Thank you for your participation today. You may now disconnect.

Operator

Everyone, have a wonderful day.

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