Q1 2020 Earnings Call
Welcome to the laureate education first quarter Twentytwenty earnings Conference call. At this time, all participants are in listen only mode.
The speakers presentation, there will be a question and answer session to participate on that portion of the cool well need to fresh start warrant on your telephone keypad. Please be advised that today's conference is being recorded if you're required Andy perjury assistance. Please press star in Seattle, now I will turn to coal to yours.
Because I am more.
Hello, everyone and thank you for joining us on todays call discussed Marty indications first quarter 2020 result.
And updates on our response to the Cobot 19 pandemic and our previously announced strategic review process.
Joining me on the call today are I left or Canton, President and Chief Executive Officer, and Jewish around Chief Financial Officer.
Earnings Press release is available on the Investor Relations section of our website at <unk> Dot net.
We have also posted a supplementary presentation to the web site.
Which we'll be referring to during today's call.
Being webcast a complete recording will be available after the call.
I like to remind you that somebody information, we're providing today, including but not limited to our financial and operational guidance constitutes 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 expect.
Important factors that could cause actual results could differ materially from our expectations.
Our disclosed in our quarterly report on form 10-Q.
But the U.S. Securities Exchange Commission this morning.
In addition, all forward looking statements are based on current expectations as of the data This conference call.
And we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discussed including adjusted EBITDA adjusted EBITDA margin and free cash flow are also detailed and reconciled to their GEP counterparts in our press release, we're supplementary presentation.
With that let me turn the call over an island.
Thank you Adam and good morning, everyone on behalf of the entire organization I'd like to sheer or deepest sympathies <unk> those who have been affected by this global pandemic.
We sincerely thank those who had been working hard to keep office safe through the crisis, particularly those on the front line in the health care community across all our markets.
During these unprecedented times norio support it is the homes and what Beagle for students faculty and stuff well delivering on or promise of delivering high quality educational offerings.
We understand the importance of higher education to the more than 870. So some students we serve and the poleward has to transform good lives and prepare them to positively contribute to their communities.
Well I want to think or faculty and staff with the flexibility.
<unk> <unk> and resilience.
That's true Gelber, we do everything possible.
It is challenging times to continue to deliver well no promises.
In order to prevent this wrote off the virus interest Judy communities.
Provide an update on race strategic review process.
The rationale for embarking on the strategic review process has not changed however.
And if you if the <unk> 19 pandemic and it's continuing effect on market conditions.
The various divestiture processes and potential business combinations are progressing at a slower pace than previously anticipated.
No turning our attention to sliding a benign and a deep dive on a transition to online learning for traditional face to face institutions.
For the past five years, we've invested in building capacity to deliver high quality digital learning experiences for our students.
Today laureate is the leader in online teaching.
I noticed students erodes the world are familiar with this mode of delivery I know faculty understands the importance of harnessing the power of technology to create authentic personal an innovative learning experiences for students.
Or commitment to digital teaching and learning has been manifested three significant investments in court acknowledges as well as in human resources training and development activities.
These investments have an instrumental in establishing a deep level of expertise in online education, facilitating the design and delivery of high quality effective and differentiated online courses.
When it <unk> 19 pandemic hit.
These competencies load laureates too quickly transition all all universities to fully online in a matter of weeks, resulting in minimal disruptions for our students.
Or capabilities have enabled us to provide differentiated and highly competitive online offerings in the market we operate.
Oh students I know taking classes in an innovative learning environment enabled by a common learning management systems that we operate across the vast majority of our universities.
Or expertise in digital instruction.
Cooper with our ongoing commitment to quality online learning.
And though is to complement synchronous real time instruction with the benefits of high quality engaging students construction delivered through asynchronous means.
Price with a covert 19 crisis, 28% of the teaching hours a crossover network of campus based institutions were already being taught on line as we deliver or educational offerings through a hybrid delivery model.
This provided us with a strong starting point when we had to pivot to fully online delivery in middle of March.
For any institutions to be successful under these conditions faculty need to be appropriately trained in digital deliver it as well as online teaching methodology.
Given our digital expertise much about faculty had already been trained prior to the covert 19 outbreak.
And we supplemented that training when needed during the months of March and April.
In addition, all our institutions undertaking regular and consistent communications with regulators faculty and staff to determine how to best continue to evolve and enhance the online learning environment.
We are also monitoring key indicators to ensure high levels of student engagement and satisfaction and the results to date or very encouraging.
In instances, where students were at risk of not being able to continue their learning online due to limited connectivity.
We have stepped in and provided support.
More than 6000 students in Chile alone have received equipment and connectivity assistance as well as hostess of all the students across Latin American network.
It is difficult to predict the lasting effects of this pandemic.
But is it safe to say that many industries will forever be changed.
Within education online teaching will become an essential competency for all educational institutions.
And in that environment, there will be those but thrive and those that are unable to adopt.
Laureate isn't as strong leadership position for online education, you know markets.
In large part things to the investments we have made over the past five years, you know infrastructure.
You know a digital products solutions in our faculty preparedness.
And in or students support models.
<unk>, we are well positioned for the new normal poster crisis.
We are committed to serving or students with innovative and effective learning tools. During the covert 19 crisis as well as maintaining or leadership position in hybrid digital higher education for years to come.
Oh, we'll know turn the call over to J.J. for more detailed financial overview of the first quarter I know revised outlook for 2020.
Thank you I left I will begin by providing you an overview of off a national performance.
First quarter, starting on page 14.
As a reminder campus based higher education is seasonal business.
The first quarter represents the largest intake cycle for the southern hemisphere, but ask classes are out of session for most of the peer at any they easily low quarter from revenue and income standpoint.
This year, that's he's now he was even more canals for the Indian region as Yakking <unk> push additional days of classes into the second quarter.
Let's start to enrollment.
It could be 19 crisis hit during the final two weeks of the intake cycle, which impact the volume of new enrollment in Brazil, and you know a larger schools of Indian region.
No enrollment for the first quarter timing adjusted declined by 6% as compared to the same period a year ago.
Total enrollment for the same pure was only down 2% aided by Holly we enrollments across all segments.
Rather be in the first quarter was $529 million and <unk> was a lot of $37 million.
Although comparable basis and that costs and currency or revenue and adjusted <unk> declined by four and 35% respectively.
So you're over a decline was fully attributed to it it can be counter timing, which shifted for approximately 30 million over a revenue and $20 million of adjust that'd be that'd between the first and second quarter.
I, often utilizing the impact of our county counter changes, but revenue and adjust the it'd be that were slightly up versus trying you're on a comparable basis and at constant currency.
And compare to guidance often national performance was affected by two primary drivers first unfavorable effects as a dollar strengthened by an average of 8% against the parents you have to geography is where where we operate.
Seconds, an additional delay in the start of the Academy your duty could be 19 or value private institution, Peru U.P.N.
Please refer to slide 15, and 16 for a detailed bridge of R. Q1 financial performance to the guidance. We provided at the end of February.
As well as an overview of all the shift India can be calendar for this year when compared to 2000 Nike.
In short on a comparable basis and not constant currency often actual performance in q. want well solid.
It was not yet materially affected by could be 19.
They may not provide you some additional color on all first quarter performance by segment starting on page 17.
Please note that as I review, the financial performed by saying that I will be discussing results on an organic and constant currency basis.
Let's start with Brazil.
Enrollment declined by 1% versus pry, your and you enrollment decreased 9%.
Or distance learning segment increase stolen role in the by 14% Yorba you're on the back of strong you enrollment trends in the second half of last year.
Torn enrollments far face to face segment continues to be negatively affected by the unwinding of the C.F. program revenue was doll, 1% versus par you're however, adjust it'd be that showed improvement as the cost action taking in the second half a 2019 continue to yield strong dividend.
You know engine segment as we indicated earlier, new enrollment where impacted by the coffee 19 crisis and <unk> as a result, we're down 8%.
The impact on total enrollment was more limited to minus 3% aided by solid reenrollment.
Revenue and adjust the it'd be that performance were affected by the timing item discussed in by opening remarks.
Adjusted for the next all semester start date revenue was <unk> I think in line with last year.
Adjusted EBITDA was below prior year, you to increase bad that expenses in Chile and Peru.
In Mexico adjust that grew 10% of the first quarter, resulting from the strong intake at unitek in the fall of last year.
Arrest of the world's segment, which is Australia and New Zealand continues to scam quickly and is experiencing strong double digit growth in enrollment and revenue.
Finally.
In our online and partnership segments or court domestic market perform well.
New enrollments group persons and touring walnuts worse actually fly.
Overall total enrollment we're down 6% as we continue to de emphasize or international partnership business, which represented only 7% of our total portfolio into one.
Adjusted EBITDA was below prior as a result of additional investors in marketing we're now in conjunction with our 2019 Q. for earnings call.
Now moving to all liquidity position as noted on slide 19.
Given the Unprecedent economic impact and uncertainty associated with coffee 19, one of our top priorities from the financial standpoint is to maintain a strong liquidity position.
Over the last two years execution of our portfolio simplification strategy as allow us to bring our net leverage below two times and in the process also turned round or free cash flow performance dramatically.
Consequently, we feel that lower yet is now facing the crisis from a much stronger position.
At the end of March all liquidity position stood at $547 million.
In addition, we have practically implemented a number of actions to preserve cash, including a reduction of more than $100 million in operating expenses and instituted a freeze avant non essential capital expenditures until visibility improves.
Finally, I would like to add.
Structure is flexible in terms of that covenants and would allow an increase of all that leverage if needed.
I mean, I'll conclude my prepared remarks, we'd all 2020 guidance starting on page 21.
Given a higher level of visibility you know near term outlook, let me start with you too.
For the second quarter, where are getting as follows revenue between 768 $800 million adjusted EBITDA is estimated to be between 210 and $230 million.
For the full year, we believe that off an actual performance will be impacted by how quickly our schools will be allowed to resume their face to face operation.
[noise] where'd visits to primary scenarios.
The first one <unk>.
Most campuses reopening occurs in the second half as the virus is finally contain and all major setback occurs during the remainder of the here.
The second scenario.
Fumes ivars resurgence in the second half and the delay of the reopening of most of our campuses you 24.
Please note that full both scenarios, we're expecting can see foreign exchange in 2020, consistent with what we have seen since the beginning of March.
We that context in mind or revise guidance for 2020 is as follows.
Scenario, one assuming most campuses reopen and the second half.
Hold on enrollment estimated to be approximately 830000 students.
Revenues estimated it should be between 2 billion 675 and $2.775 billion.
Adjusted EBITDA estimated to be between 545, and $575 million and free cash flow estimated to be between 160, and $180 million, which which which would add the meat point.
There'll be a slight increase versus 2019.
For scenario to.
Assuming most campuses remained close for the remainder of the.
Total enrollment estimated to be approximately 780000 students.
Revenues estimated to be between 2 billion 575 and $2.675 billion.
Or just the that'd be down estimated to be between 485.
$550 million and finally free cash flow estimated to be between 100 and $120 million.
I live now back to you for the wrap up.
Thank you J.J.
We knew that all of you are dealing with disruptions and your professional and personal lives, resulting from the covert 19 pandemic and I'd like to thank you for began to recall today and was you and your family's good health.
That'd be also once again, cinco, a tremendous faculty and stuff for their commitment flexibility and resilience.
During these unprecedented times.
I'd also like to recognize pull a singer who runs or online business.
She has been instrumental in helping died the online activation of international campus based institutions and she's also overseeing the academic quality assurance offers across the network.
Pool is underlined today.
And would help answer some of your questions.
Undoubtedly there will be challenges ahead, but we are prepared to take them Hadow and we will continue to be proactive in serving or students and protecting or business as the situation evolves.
Operator, that's computes are prepared remarks, and we'll know happy to take any questions.
Thank you.
<unk> if you have a question at this time press start then one on your telephone keypad.
To withdraw your question press, the pound or high school.
Again to ask a question just crestar than one please standby while we compiled <unk> then.
I mean, we have our first question from my cell phone calls <unk> J.P. Morgan.
Hi, Good morning, <unk> I don't I hope your Oh, well.
I have two questions. The first is regarding that the longer term potential impacts that you mentioned in your presentation.
Do you think just could really increased acceptance of online learning, let 'em both by students by by regulators in which countries do think we could see most opportunity after the crisis over to fold in this direction.
The first question. The second question is have you put forward programs to support students there cannot be there to <unk>, what's the size of these programs and and what's the main form it and the facts to laureate. If you did so thank you.
Hey, Marcello this is I live I'll take the first and a lot J.J. to comment on a student support program and financing programs.
In terms of the impact.
Oh no. This is for online in the near term low to medium term it wouldn't be challenging about for the for the longer term I think it would be very positive online education will be.
Generally accepted across Latin America regulators already getting much more used to it was to see a lot of flexibility in you know run the regulatory framework and I can see where traditional 18 to 20.
18 to 24 Y'all students, we'll do you know couple of days two or three days after learning online an only spending a couple of days the campuses, which was which will of course significantly improve the utilization of or physical plant.
<unk> working adults will most likely migrate much more to fully online immortal. So do you think that over the over the longer term that's going to be very positive in their medium term, we are dealing with some connectivity challenges and also the fact that some students.
Just not comfortable yet to do 100% off their learning online.
Poster if you if there was any follow questions on that first part otherwise I handed it over to J. did for the second part.
No just follow up would be there in specific country, where you think expenses could be more important.
Is there any regional differences that could be interesting to highlight who any comes to don't like learning.
The D.L. program is already very well established and it's probably the most advanced market when it comes to digital on on on doing.
In Mexico <unk> further behind.
And you know, we're seeing probably more traction in the mid term in Mexico, and then it <unk> lagging a little bit.
Thank you.
<unk>, let me answer your questions on a financing programs as you know it starkly. This is not something we have done in select situations. We have offered payment plan for some students all those actions are.
Selective in nature and really directed at students that have a strong track records from a pain standpoint, and also of U.C.L. keeping up where'd. The classes. We we all understand that this is an evolving situation.
And that you know this could be a mean of actually managing attrition and securing you enrollment volume. So clearly those those options on dirt evaluations, but no commitment I'd be made at this point in time and so we have not.
Pouring time change our current practices.
Perfect it's very much.
[noise] <unk> our next question.
<unk> from Ryan Landmark wouldn't bark team. Please go ahead.
Hey, guys. Thanks for taking the question I'm just curious as very good bread. Some color on how you came up with the scenario too, particularly the enrollment side.
Yeah, I guess what are the sensitivity you kind of cross to get to a 50000 additional role, but just give them.
It's a resurgence in a long lasting recession, you know just trying to understand how you're right that that number.
<unk> Oh.
Yeah, I'll take that one we believe that the.
You know the lack of opening of our campuses would have really to impacts on on enrollments first of all we're seeing certain students that you know prefer a face to face experience and while I think the transition online was extremely successful and I've been praised students inside.
Certain markets, they're still a strong preference to continue their education using his face to face experience and so I'm sure that's not be temporary nature, meaning that the campuses will not reopen that would impact that segment of the population and then the the second part is read the comics situation and the fact that.
We're catering to social comical classes that all directly impacted by the lack of jobs when when there's a lock down and so therefore, you know on your involvement would be affected as a result of that so it's a combination of a reenrollment weakness in this particular case.
In this in the second semester as well as I continued new enrollments a weakness that we would see in the second and third intake, which is going to happen second half.
Got it and are you seeing any push back at all on on Christ. You know people, who are part of something I paid for personal experience and now that it's online it shouldn't be the same kind of price point.
Well, it's it's always a.
A discussion I mean, I think is devalue proposition ultimately for student. We believe is still very very strong and you know we are continue to provide probably older than the face to face slaps you know in clinical rotation for a medical programs I think a what we believe is a comparable experience.
But you know, there's obviously a little bit more <unk> pressure, particularly for students that that cannot afford and this is where I think some the programs.
Around payment terms is a really important to make sure that we respond to some of the specific situation that the students are facing.
Thank you.
Thank you.
<unk> if you have a question or comment yes, Crestar then one on your telephone keypad. That's start one can then look here.
In our next question any <unk>, let's go ahead.
Hi, Good morning sent you for taking my questions <unk> I listen she just wants to get your thoughts on the enrollment and is there any kind of pent up demand from people not making enrollments cycles for really want to so that when things kind of opened up there's.
Actually potential for you know more students to join.
At that point in time or do you view it as more of a you know the economics.
Conditions are poorer than that really won't happen.
Think about them trying to figure out if there's you think about it in terms of kind of pause with a resurgence or if it's just kind of we're at a lower base and then you kind of slowly built back up from there.
Hey, slow Mo. This is I live for a good morning, we've you it more to be a matter of pent up demand, but it's not certain when we will get we would catch up with just a month.
Take your stuff like the students that we didn't get in the at first didn't take that we had <unk> expected to get there were two reasons. One is the financial abilities are given they they were all in on a on the look up at home or their parents may have been without a job, but without the name.
The student themselves wasn't able to work part time to support situation.
The other <unk> you know certain sure didn't felt that they have the ability or willingness to do all the fun doing online. They may also have been you know technical issues connected with it and lack of equipment.
So the as soon as we are back face to face the the ticket.
Issue will of course you'd be result.
We should get those students back you relatively quickly there was you couldn't afford it as soon as they have gotten their life back together, whether that is going to be a semester delay or.
It's hard to see but do you expect you to both pools of them to come back over time.
Okay, great and slow Mo.
Provides.
Sorry, I said well, let me provide also <unk> clarification as to what we're expecting in the various scenario associated with that quantum demand full synar, you want and two we're not expecting any at the demand to occur in the second half that would be upside to a boat scenarios, where I'm assuming <unk>.
Give late that the twin the trends were saying on total enrollments in the first Apple can t. and the second half and then of course would further degrades in the second half the scenario too.
Okay <unk>. Thanks for sharing that and then we should we think about 30 is really though there's really large segments of the students that are foreign nationals and encounter with the lockdowns is they're going to be.
You are transmitting a a huge adverse impacts in terms of duty to travel and things like that over there.
It just radio there is a hot divorce students or domestic and half of them or a form of the foreign students. Some of them are coming directly from an overseas location and some of them are coming from another university within Australia.
Clearly during the the main intake, which was really looks and noted just before the covert <unk> outbreak enabled us to to really have minimal impact in Australia.
For the.
The second intake which is in in June.
There's there could be some pressure on the news.
Goldman from overseas locations, Oh that is a very small portion because the majority of the overseas students are coming in the made intake in in in February or March So <unk> right in the second intake and then it depends on which to know or we are under for the main intake in February two.
The 21.
Okay, great. Thank you.
Thank you.
I'm, sorry, I'm, not showing any part of our questions and Mickey or.
Well that's great.
Just one.
We won for participating if there's only four <unk>.
<unk> today's conference. Thank you for participating.
Grade that remain noun disconnect.
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