Q4 2021 Laureate Education Inc Earnings Call
Hello, and thank you for standing by welcome to the Q4 2021 Laureate Education, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone please be advised.
Today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Adam Morse Senior Vice President of Finance. Please go ahead.
Good morning, and thank you for joining us on today's call to discuss laureate Education's fourth quarter and year end 2021 results.
Joining me on the call today are outlets, our Camden, President and Chief Executive Officer and.
Great Buzz Kirk Chief Financial Officer.
Our earnings press release is available on the Investor Relations section of our website at <unk> Dot net.
<unk> 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.
I'd like to remind you that some of the information we're providing today.
Including but not limited to.
Our financial and operational guidance.
These 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.
Actors that could cause actual results to differ materially from our expectations are.
<unk> disclosed in our annual report on Form 10-K filed with the U S Securities and Exchange Commission earlier this morning.
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.
And we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discuss including among others.
<unk> EBITDA and its related margin.
Cash net of debt and free.
Free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation.
Let me now turn the call over to Ireland.
Thank you Adam and good morning, everyone.
2021 was a year of structural transformation for L'oreal, we completed all of our pending divestitures at very accretive multiples, we pay down our debt we significantly.
The increase both our margins and free cash flow generation.
And we returned nearly $1 8 billion U S dollars of capital to our shareholders.
No.
No as strong and focused leader in higher education, and Spanish speaking Latin America.
The growth agenda, we initiated during the first half of 2021 continues to drive strong performance.
Our fourth quarter results were ahead of guidance and for the full year 2021.
Constant currency revenue by 9% and adjusted EBITDA by an impressive 39%.
The past two years have tested the resilience and adaptability of our students faculty and staff as well as our entire organization.
I want to thank our faculty and staff once again for their agility and commitment to deliver on our promises to our students during another extraordinary year.
Though the pandemic is not over.
Infection rates are declining rapidly and both both Mexico, and Peru, and we have no wedding or temperatures poor return of students. This semester.
We look forward to welcoming students and faculty back on site and we'll be sure we do that in a safe and responsible manner.
We know our students are excited to get back to campus.
As we begin 2022, I'm very encouraged by the trends in the business.
Growth momentum.
We are seeing positive signs from a market perspective.
Of the effectiveness of our growth initiatives.
Let me briefly remind you of the market dynamics of higher education in Mexico and Peru.
Both countries are large and attractive market with a combined population of more than 160 million people.
Participation rates are growing but still well below the levels, we see in developed markets, thus providing significant headroom for growth.
The regulatory the regulatory conditions are clear and very conducive to private participation in higher education in both Mexico and Peru.
Over half the student population and the combined markets.
By the private sector and L'oreal is a quality operator at scale with approximately 200000 students in each of our markets.
We own the leading brands in both Mexico and Peru.
Institutions are among the most highly reputed university in their respective market.
We are operating an identical segmentation strategy for both countries.
We have brands in the premium market.
Another brand and what we call the value segment.
The pandemic has accelerated the adoption of <unk>.
Online education in these markets and L'oreal is a digital leader in Mexico and toward.
These favorable market dynamics combined with our growth momentum give us confidence to known strong outlook for 2022.
We anticipate top line revenue growth at high single digit to low double digits.
And for adjusted EBITDA to increase by over 20% during 2022.
In 2022, we will also continue to focus on closing the gap between the intrinsic value of our assets and the trading value of our stock.
<unk>.
In addition to driving growth, we will continue to prioritize return of capital.
We have cash accretive business model.
A strong balance sheet, which gives us plenty of options.
We currently have 132 million of remaining share repurchase authorization from our board.
We plan to distribute the remaining net proceeds from the Worldview sale, including what is released from the escrow and the second half of this year.
I will now turn the call over to Rick bolstered for a more detailed financial overview of the fourth quarter and full year 2021 performance as well as further detail on our 2022 outlook.
Rick.
Thank you very much either.
<unk> running through the results I want to remind investors of two factors that can impact our quarterly performance.
First is seasonality higher education is a seasonal business the first and third quarters represent our two largest intake periods, which accounted for more than 80% of our total new enrollment activity for the year.
From a P&L perspective, both our seasonally low period as classes are out of session for most of those months.
In contrast.
The second and fourth quarters are not large enrollment intake periods, but generate higher revenue and adjusted EBITDA for the year.
Second as you may recall from our discussions in prior quarters, the timing of our academic calendar can change entering year due to events such as the COVID-19 pandemic.
This timing difference can skew year over year comparability for our performance on a quarterly basis, but it washes out for the full year.
Let's now move on to the strong financial performance for the fourth quarter, starting on page 13.
Revenue in the fourth quarter was $297 million and adjusted EBITDA was $61 million.
Revenue and adjusted EBITDA were both ahead of the guidance that we provided three months ago.
As noted during our third quarter call and as anticipated in our guidance year over year performance in the fourth quarter reflected the following.
A timing shift of the academic calendar due to COVID-19 with shifted $8 million of revenue in the quarter as compared to the prior year phasing of certain expenses and a onetime catch up on deferred facility costs in preparation for a return to face to face campus operations.
Moving now to our full year 2021 results on page 14.
Revenue for the year was 1.87 billion and adjusted EBITDA was $253 million.
On an organic and constant currency basis revenue increased 9% year over year, and adjusted EBITDA grew 39% year over year.
Driven by strong operational performance and corporate G&A efficiencies.
Revenue performance during 2021 was led by Peru, which experienced 24% year over year constant currency growth in revenue.
<unk> performance was driven by new enrollments and improvements in retention, both of which were fueled by the Covid recovery.
Mexico's revenue growth for the year was more muted.
As discussed on our Q3 earnings call in November this was driven by two factors.
First Mexico had a strong main intake which occurred at the end of Q3 and resulted in 11% year over year, new enrollment growth.
The revenue annualized Asian effect from that intake will be realized in 2022, thereby contributing to our strong top line growth expectations provided in our guidance.
Second.
The carryforward impact from the increased level of discounts and scholarships are acquired in Mexico during the pandemic.
Increased levels of discounting began in Q3 of 2020 and continued through much of the pandemic. We were pleased to see that abate for new enrollments. During your primary intake in September last year and are seeing that trend continue to improve during our smaller intake that is occurring now.
That is very encouraging and we are focused on continuing to optimize on a go forward basis.
We do expect the carryforward effect of prior discounts to impact our revenue for the coming quarters as those cohorts knew through the system.
Let me now briefly discuss our balance sheet position illustrated on page 18.
As of December 31, we were in a net cash position of $168 million. In addition, $74 million of the Walton sale transaction value with Cade into an escrow account, which will be released in full or in part to Lori yet in August 2022 pursuant to the <unk>.
Terms and conditions of that agreement.
The strength of our balance sheet provides us with a lot of flexibility as we continue to think about our return of capital going forward and shareholder value optimization.
Yes.
Now, let's move to guidance starting on page 20.
As <unk> alluded to in his opening remarks, we continue to execute on our growth agenda.
The momentum we are experiencing is driving a strong outlook for 2022, both in terms of top line growth as well as profitability.
Based on current spot FX rates, we expect total enrollment to be in the range of 405000 to 415000 students reflecting growth of 5% to 7% on an organic basis versus 2021.
Revenues to be in the range of 1.1 dollars 69 billion to $1 194 billion, reflecting growth of 8% to 10% on an organic constant currency basis versus 2021, and finally adjusted EBITDA to be in the range of 320 to 330 million.
Reflecting growth of 19% to 22% on an organic constant currency basis versus 2021, or an increase of 26% to 30% on a reported basis, which includes the effect of the noncash Fas five charge in 2021.
Our guidance for 2020 to reflect a significant increase in profitability. Let me give some context to the anticipated 420 basis point improvement in margins. There are three factors to our expected margin accretion.
First is the right sizing of our corporate operations, which have been completed already this will drive significant cost savings as we optimize at the country level certain of these costs will now be incurred in market, but those expenses will be offset by local efficiency initiatives. Additionally, at the country level. We also.
Have the benefit of the noncash Fas five charge that occurred in 2021 and will not reoccur.
Second incremental flow through margin associated with first the annualized <unk> last September strong primary intake in Mexico as well as the flow through margin benefit from incremental new students in 2022 in both markets.
Lastly, as we return to face to face the operations in 2022, we will experience incremental costs related to facilities and cost of service.
And that will be a bit of an offset to previously noted margin gains.
Finally, I want to conclude my remarks by noting that our excellence and process EAP initiative has been completed.
The last significant portion of restructuring expense was recognized in the fourth quarter and was related to breakage cost on U S leases, including our corporate location.
The only remaining P&L expenses expected in 2022 are those corresponding to the run out of programs that began in prior periods such as final severance payments.
The P&L effect will at most be a few million dollars.
Cash flow impact will be higher as our already action 2021 severance agreements are not lump sum, but rather paid monthly and will tail into 2022 <unk>.
In conclusion the <unk>.
Program and associated add backs are done.
And therefore after the minor P&L tail activities mentioned this year, we will not see EAP expenses in 2023 and beyond.
Eilis I'm handing it back to you for closing comments.
Thank you Rick.
I continue to be very encouraged but lowering its future prospects, we have the right management team the.
The best brands and the <unk>.
Omnichannel distribution network that we believe will allow us to lift our revenue growth rate and further our vision to transform the lives of the students and the communities in Mexico, and Peru will provide increased access to affordable quality education.
Operator that concludes our prepared remarks, and we're now happy to take any questions from the participants.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Draw your question press the pound key.
Our first question comes from Jeff Silber with BMO.
BMO capital markets. You May proceed with your question.
Thanks, and good morning, everyone.
In your prepared remarks, I think you said you were readying for return of students. This semester can you just remind us when did this semester's began in both Mexico and Peru.
Hey, Jeff Good morning.
The main intake.
Four.
It is.
The southern Hemisphere School.
Starts in.
In late February and March so it's just it's just about to start start right now.
That will be in a face to face environment, Although we will be continuing.
Continuing to provide hybrid delivery flexibility could we expect approximately 50% of our students.
To show up in person.
In the face to face environment.
Mexico I would say.
Smaller and taking the first quarter.
Northern Hemisphere school so there.
Second semester.
Building or just about right now.
Okay, that's very helpful.
Can you remind us what percentage of hours. We're taught online in 2021, and where do you think thats heading into 2022 going forward yes.
Yes. Thank you. Thank you.
In 2015, we started investing in.
Online and hybrid delivery and we required all faculty to be trained for online delivery and we required all of our students.
<unk> one <unk>.
Course online.
It was in a very strong position when the pandemic hit because faculty with trained we had the technical infrastructure and studio square comfortable with.
Moving to online.
In 2019, 27%.
Teaching hours were delivered online.
And during the pandemic so all of 2020.
2000, 22021 was 100% online because our 10 participants out.
And no it wouldn't be a returning we expect to be approximately 50%.
And a prudential mode and 50%.
Hey.
On the digital mode.
And that is going to be pretty much the new operating model going forward, which of course provides us for significant productivity and efficiency and utilization of the physical plant the campuses.
Of course is a very important ingredient to our growth agenda.
Can continue to grow rapidly.
Without adding more physical.
Tempus space in Mexico, and Peru.
Alright, Thats very helpful. Let me just sneak one more in and I'll jump back into the queue.
I know in the U S. We're battling with inflation can you talk about what's going on from a cost perspective in both Peru, and Mexico, and how that relates to price increases or price changes for your schools there.
Yeah sure Hi, this is Rick.
In general the latest estimates that we have we obviously track that pretty closely both in terms of GDP expansion from a macro as well as inflation.
We are looking at multiple sources of inflation and we see that around 5%.
We take that in consideration when we do our annual planning at the end of the year and we track it on a quarterly basis.
I'll make the following couple of statements point number one is the actual inflation that we realize as an education company in our respective markets is lower than that and that has to do with a number of factors inclusive of our own real estate positions that we have.
That goes from inflation a bit.
And the second thing is as a principle, we try to optimize our pricing.
In a manner, which we factor in inflation and that was taken into consideration. When we did our year end annual planning and we haven't seen any substantial difference in that as we're sitting here right now today in our cost structure and our pricing strategy.
And roughly how much are you increasing prices in 2022.
We are increasing prices, Jon litt inflation or inflation plus.
Levels.
Okay. That's really helpful. Thanks, so much.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Shlomo Rosenbaum with Stifel. You May proceed with your question.
This is Adam on for Shlomo, how does the company plan to leverage the solid balance sheet and free cash flow generation for investor friendly returns within the next year should we expect significant share buybacks dividend recap or some other mechanism to leverage the balance sheet.
Yeah sure Hi, this is Rick again.
Right now sitting here at a balance sheet that we are with $325 million of cash on a gross basis and a net above a $150 million, we feel extremely comfortable about our position as a reminder out of that $325 million in cash that we have on the balance sheet.
We have about $130 million of that that is remaining stock buybacks. So it will be consuming $130 million of that approximately through the stock buyback authorization thats our intent.
Also have a minor amount of round and an additional $30 million.
Related to the Walden funds that we received on top of the 74 that we intend to receive related to the escrow. So that's just the starting point.
Beyond that look we feel very comfortable about our balance sheet. It can provide us a bunch of options that we can continue to evaluate.
We don't have any particular transactions right now, but in general we're completely focused on optimizing shareholder value or pursue all options available to us, including the strength of our balance sheet.
Yes, Jordan.
Return of capital.
Got it.
Stock buyback.
Ingredient that we have been.
You are seeing and we will continue to use with $130 million and the remaining capacity.
The board to be flexible.
If there are further accretive opportunity for us to increase us and we will of course return.
The final.
True up payment from the Walton.
Sure.
We will continue to be opportunistic.
To return capital to our shareholders.
Got it okay.
And can you provide more detail on how you're exposed to the promise of trends with Mexico improve throughout the year.
So it was.
Enrollment trends.
Yes.
Countries through the year, yes sure.
Enrollment performance.
We're very encouraged you saw the Mexico main intake.
Third quarter.
Really really strong you saw the main intake in.
In Peru last year, when they came really strongly back so no we are seeing a strong.
Recovery.
So to speak or new enrollments, both in Mexico, and Peru, We also see retention levels increasing.
The post pandemic environment.
Rippling students.
Two more.
Predictably stay in and compete there.
The degrees, so strong new enrollment strong re enrollment trends.
In both businesses.
And we expect that trend to continue.
Okay.
And what are some of the capital light expansion projects of the company is planned for the near term that can span enrollment without requiring a lot of capex.
Yes, we have.
Plenty of.
Excess capacity.
Physical plans, because we are lifting that mix of online zoning so pre pandemic.
About 2000.
26, 47% to 8% of our total delivered online no that it's going to be closer to 50%, which means that we're getting another 2025 percentage point of excess capacity in our campuses.
That becomes a very important source of growth for us because we had capacity constraints in the way that we used to be.
That gives us the ability to grow.
Capitalized manner, because it does require.
Sure.
Your Tempus bills.
The way, we're going to fill this capacity is to lift and shift programs from vault campus to another campus and vice versa. So we have very limited investment and the new <unk>.
Program development because.
Mexico, and Peru about 50% of all of our programs are common across campuses and 50% of our programs are unique to individual campuses. So then taking those.
Program set.
Not present in.
And one campus, but we havent another campus simply lift and shift it over to Jay.
Yes.
Closer to 90% coming out of the state of Florida for our programs across our campuses.
Second big driver.
Capital light growth.
Yes.
And education.
The pandemic relaxed the regulatory.
Constraints around online, particularly in Peru.
What's your neighbors has no to launch fully online.
Graham.
We have to do some post graduate students.
And that's going to be a very significant growth opportunity for us Similarly, the acceptance of online in Mexico.
It has been.
No.
Ernst and accept this level.
Irons and faculty.
Regulators and students in general.
And how to see the rapid growth that we've had on online students in Mexico over the last couple of years are going to get further accelerated.
59.
And our students.
In Mexico that makes us the clear market leader.
<unk>.
We expect that.
Pool of students to.
Grow double digit going forward.
Got it alright, thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A roster.
Okay.
And im not showing any further questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Everyone.
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Hello, and thank you for standing by welcome to the Q4 2021 Laureate Education, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's conference.
Is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Adam Morse Senior Vice President of Finance. Please go ahead.
Good morning, and thank you for joining us on today's call to discuss laureate Education's fourth quarter and year end 2021 results.
Joining me on the call today are <unk> <unk>, our Camden, President and Chief Executive Officer, and Rick <unk> 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 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.
I'd like to remind you that some of the 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 expected.
Important factors that could cause actual results to differ materially from our expectations are.
<unk> disclosed in our annual report on Form 10-K filed with the U S Securities and Exchange Commission earlier this morning.
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.
And we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discuss including among others.
Rested EBITDA tenants related margin.
Cash net of debt and free cash flow.
Are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation.
Let me now turn the call over to Ireland.
Thank you Adam and good morning, everyone.
2021 was a year of structural transformation for l'oreal.
Completed all of our pending divestitures at very accretive multiples.
We pay down our debt, we significantly increased both our margins and free cash flow generation.
And we returned nearly $1 8 billion U S dollars of capital to our shareholders.
Nora is new as strong improved as leader in higher education, and Spanish speaking Latin America.
The growth agenda, we initiated during the first half of 2021 continues to drive strong performance.
Our fourth quarter results were ahead of guidance and for the full year 2021, we grew organic constant currency revenue by 9% and adjusted EBITDA by an impressive 39%.
The past two years have tested the resilience and adaptability of our students faculty and staff as well as our entire organization.
I want to thank our faculty and staff once again for their agility and commitment to deliver on our promises to our students during another extraordinary year.
Though the pandemic is not over infection rates are declining rapidly and both both Mexico, and Peru, and we are no ready or temperatures for a return of students. This semester.
We look forward to welcoming students and faculty back on site.
And we'll ensure we do that in a safe and responsible manner.
We know our students are excited to get back to campus.
As we begin 2022, I'm very encouraged by the trends in the business and our growth.
Growth momentum.
We are seeing positive signs from a market perspective, and in terms of the effectiveness of our growth initiatives.
Let me briefly remind you of the market dynamics of higher education in Mexico and Peru.
Both countries are large and attractive market with a combined population of more than 160 million people.
Participation rates are growing but still well below the levels, we see in developed markets, thus providing significant headroom for growth.
The regulatory the regulatory conditions are clear and very conducive to private participation in higher education in both Mexico and Peru.
Over half the student population and the combined market is served by the private sector and L'oreal is a quality operator at scale with approximately 200000 students in each of our markets.
We own the leading brands in both Mexico and Peru.
And our institutions are among the most highly reputed university in their respective market.
We are operating an identical segmentation strategy for both countries.
We have brands in the premium market.
Another brand and what we call the value segment.
The pandemic has accelerated the adoption of online education in these markets and L'oreal is a digital leader in Mexico and Peru.
These favorable market dynamics combined with our growth momentum give us confidence to known a strong outlook for 2022.
We anticipate topline revenue growth at a high single digit to low double digits.
And for adjusted EBITDA to increase by over 20% during 2022.
In 2022, we will also continue to focus on closing the gap between the intrinsic value of our assets and the trading value of our stock.
In addition to driving growth, we will continue to prioritize return of capital.
We had cash accretive business model.
And a strong balance sheet, which gives us plenty of options.
We currently have $132 million of remaining share repurchase authorization from our board.
We plan to distribute the remaining net proceeds from the Worldview sale.
<unk> what is released from the escrow in the second half of this year.
I will now turn the call over to repulse Kurt for a more detailed financial overview of the fourth quarter and full year 2021 performance as well as further detail on our 2022 outlook.
Greg.
Thank you very much either.
For running through the results I want to remind investors of two factors that can impact our quarterly performance.
First the seasonality higher education is a seasonal business the first and third quarters represent our two largest intake periods, which accounted for more than 80% of our total new enrollment activity for the year.
From a P&L perspective, both our seasonally low period as classes are out of session for most of those months.
In contrast.
The second and fourth quarters are not large enrollment intake periods, but generate higher revenue and adjusted EBITDA for the year.
Second as you may recall from our discussions in prior quarters, the timing of our academic calendar can change entry year due to events such as the COVID-19 pandemic.
This timing difference can skew year over year comparability for our performance on a quarterly basis, but it washes out for the full year.
Let's now move on to the strong financial performance for the fourth quarter, starting on page 13.
Revenue in the fourth quarter was $297 million and adjusted EBITDA was $61 million.
Revenue and adjusted EBITDA were both ahead of the guidance that we provided three months ago.
As noted during our third quarter call and as anticipated in our guidance year over year performance in the fourth quarter reflected the following.
Timing shift of the academic calendar due to COVID-19 with shifted $8 million of revenue in the quarter as compared to the prior year.
Using a certain expenses and a onetime catch up on deferred facility costs in preparation for a return to face to face campus operations.
Moving now to our full year 2021 results on page 14.
Revenue for the year was 1.087 billion and adjusted EBITDA was $253 million.
On an organic and constant currency basis revenue increased 9% year over year, and adjusted EBITDA grew 39% year over year.
Driven by strong operational performance and corporate G&A efficiencies.
Revenue performance during 2021 was led by Peru, which experienced 24% year over year constant currency growth in revenue.
<unk> performance was driven by new enrollments and improvements in retention, both of which were fueled by the Covid recovery.
Mexico's revenue growth for the year was more muted.
As discussed on our Q3 earnings call in November this was driven by two factors.
Mexico had a strong main intake which occurred at the end of Q3 and resulted in 11% year over year, new enrollment growth.
The revenue annualized Asian effect from that intake will be realized in 2022, thereby contributing to our strong top line growth expectations provided in our guidance.
Second.
Does the carryforward impact from the increased level of discounts and scholarships are acquired in Mexico during the pandemic.
Increased levels of discounting began in Q3 of 2020 and continued through much of the pandemic. We were pleased to see that abate for new enrollments. During your primary intake in September last year and are seeing that trend continue to improve during our smaller intake that is occurring now.
That is very encouraging and we are focused on continuing to optimize on a go forward basis. We do expect the carryforward effect of prior discounts to impact our revenue for the coming quarters as those cohorts move through the system.
Yes.
Let me now briefly discuss our balance sheet position illustrated on page 18.
As of December 31, we were in a net cash position of $168 million. In addition, $74 million of the Walton sale transaction value with Cade into an escrow account, which will be released in full or in part to Lori yet in August 2022 pursuant to the <unk>.
Terms and conditions of that agreement.
The strength of our balance sheet provides us with a lot of flexibility as we continue to think about our return of capital going forward and shareholder value optimization.
Yes.
Now, let's move to guidance starting on page 20.
As <unk> alluded to in his opening remarks, we continue to execute on our growth agenda.
The momentum we are experiencing is driving a strong outlook for 2022, both in terms of top line growth as well as profitability.
Based on current spot FX rates, we expect total rap enrollments to be in the range of 405000 to 415000 students reflecting growth of 5% to 7% on an organic basis versus 2021.
Revenues to be in the range of 1.1 dollars 69 billion to $1 194 billion, reflecting growth of 8% to 10% on an organic constant currency basis versus 2021.
And finally, adjusted EBITDA to be in the range of $320 million to $330 million, reflecting growth of 19% to 22% on an organic constant currency basis versus 2021, or an increase of 26% to 30% on a reported basis, which includes the effect.
Of the noncash Fas five charge in 2021.
Our guidance for 2022 reflects a significant increase in profitability, let me give some context to the anticipated 420 basis point improvement in margins. There are three factors to our expected margin accretion.
First is the right sizing of our corporate operations, which have been completed already this will drive significant cost savings as we optimize at the country level certain of these costs will now be incurred in market, but those expenses will be offset by local efficiency initiatives. Additionally, at the country level. We also.
The benefit of the noncash Fas five charge that occurred in 2021 and will not reoccur.
Second incremental flow through margin associated with first the annualized Asia background last September strong primary intake in Mexico as well as the flow through margin benefit from incremental new students in 2022 in both markets.
Lastly, as we return to face to face the operations in 2022, we will experience incremental costs related to facilities and cost of service.
And that will be a bit of an offset to previously noted margin games.
Finally, I want to conclude my remarks by noting that our excellence and process EAP initiative has been completed.
The last significant portion of restructuring expense was recognized in the fourth quarter and was related to breakage cost on U S leases, including our corporate location.
Only remaining P&L expenses expected in 2022 are those corresponding to the run out of programs that began in prior periods such as final severance payments.
<unk> effect will at most be a few million dollars.
The cash flow impact will be higher as our already action 2021 severance agreements are not lump sum, but rather paid monthly and will tail into 2022.
In conclusion the <unk>.
Program and associated add backs are done.
And therefore after the minor P&L tail activities mentioned this year, we will not see EAP expenses in 2023 and beyond.
Eilis I'm handing it back to you for closing comments.
Thank you Rick.
I continue to be very encouraged but lorie at future prospects, we have the right management team the.
The best brands and the powerful Omnichannel distribution network that we believe will allow us to lift our revenue growth rate.
And further our vision to transform the lives of the students and the communities in Mexico, and Peru will provide increased access to affordable quality education.
Operator that concludes our prepared remarks, and we're now happy to take any questions from the participants.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Draw your question press the pound key.
Our first question comes from Jeff Silber with BMO.
BMO capital markets. You May proceed with your question.
Thanks, and good morning, everyone.
In your prepared remarks, I think you said you were readying for return of students. This semester can you just remind us when did this semesters begin in both Mexico and Peru.
Hey, Jeff Good morning.
The main intake.
Four.
It's a southern Hemisphere school.
<unk> and <unk>.
February March so it's just it's just about to start start right now.
That will be in a face to face environment, Although we will be.
To provide hybrid delivery for flexibility could we expect approximately 50% of our students.
So up in person in.
In the face to face environment.
Mexico I would say.
Smaller and taking the first quarter.
The Northern Hemisphere school so there.
Second semester.
Starting off just about right now.
Okay, that's very helpful.
Can you remind us what percentage of hours, we're taught online in 2021.
And where do you think thats heading into 2022 going forward yes.
Yes. Thank you. Thank you.
In 2015, we started investing in.
Online and hybrid delivery and we required all faculty to be trained for online delivery and we required all of our students.
<unk> one <unk>.
Of course online.
Very strong position when the pandemic hit because faculty with trained we had the technical infrastructure and studio square comfortable with.
Moving to online.
In 2019, 27% of our.
Teaching hours, we delivered online.
And during the pandemic so all of 2020.
All of 2000, 22021 was 100% online because our temperatures for cloud.
No. When we are returning we expect to be approximately 50%.
And a prudential mode and 50%.
Hey.
Online the digital mode.
And that is going to be pretty much the new operating model going forward, which of course provides us for significant productivity and efficiency and utilization of the physical plant the campuses.
Of course is a very important ingredient to our growth agenda.
Can continue to grow rapidly.
Without adding more physical.
Tempus, our space in Mexico and Peru.
Alright, Thats very helpful. Let me just sneak one more in and I'll jump back into the queue.
I know in the U S. We're battling with inflation can you talk about what's going on from a cost perspective in both Peru, and Mexico, and how that relates to price increases or price changes for your schools there.
Yeah sure Hi, this is Rick.
In general the latest estimates that we have we obviously track that pretty closely both in terms of GDP expansion from a macro as well as inflation.
We are looking at multiple sources of inflation and we see that around 5% we.
We take that in consideration when we do our annual planning at the end of the year and we track it on a quarterly basis.
I'll make a following a couple of statements point number one is the actual inflation that we realize as an <unk> company in our respective markets is lower than that and that has to do with a number of factors inclusive of our own real estate positions that we have that protect us from inflation a bit.
And the second thing is as a principle, we try to optimize our pricing.
In a manner, which we factor in inflation and that was taken in consideration when we did our year end annual planning and we haven't seen any substantial difference in that as we're sitting here right now today in our cost structure and our pricing strategy.
And roughly how much are you increasing prices in 2022.
We are increasing prices, John with inflation or inflation plus.
Levels.
Okay. That's really helpful. Thanks, so much.
Thank you and as a reminder to ask a question you will need to press star one on your telephone. Our next question comes from Shlomo Rosenbaum with Stifel. You May proceed with your question.
This is Adam on for Shlomo how.
How does the company plan to leverage the solid balance sheet and free cash flow generation for investor friendly returns within the next year should we expect significant share buybacks dividend recap or some other mechanism to leverage balance sheet.
Yeah sure Hi, this is Rick again.
Certainly right now sitting here at a balance sheet that we are with $325 million of cash on a gross basis and a net above a $150 million, we feel extremely comfortable about our position as a reminder out of that $325 million in cash that we have on the balance sheet.
We have about $130 million of that that is remaining stock buybacks. So it will be consuming $130 million and add approximately through the stock buyback authorization thats our intent.
We also have a minor amount of around and an additional $30 million.
Related to the Walden funds that we received on top of the 74 that we intend to receive related to the escrow.
So that's just the starting point.
Beyond that look we feel very comfortable about our balance sheet. It can provide us a bunch of options that we can continue to evaluate.
We don't have any particular transactions right now, but in general we're completely focused on optimizing shareholder value.
All options available to us, including the strength of our balance sheet.
Got it.
Sure.
Our return of capital is a priority.
Stock buyback.
Ingredient that we have been.
And we will continue to use the $130 million and the remaining capacity and expect the board to be flexible.
If there are further accretive opportunity for us to increase us.
We will of course return the final.
True up payment from the Walton.
Divestiture.
We will.
To be opportunistic.
To return capital to our shareholders.
Got it okay.
Can you provide more detail on how you expect the promise of trends with Mexico improve throughout the year.
So it was that.
Enrollment trends.
Yes.
Countries through year, yes sure.
Enrollment performance.
We encouraged you saw the Mexico main intake.
Third quarter.
Really really strong and you saw the main intake.
In Peru last year, when they came really strongly back so no we have seen a strong.
Recovery.
So to speak or new enrollments, both in Mexico, and Peru, We also see retention levels increasing.
The post pandemic environment.
As enabling students to more.
Predictably stay in and compete there.
The degrees, so strong new enrollment strong re enrollment trends.
In both businesses.
And we expect that trend to continue.
Okay.
And what are some of the capital expansion projects of the company is planned for the near term that can span enrollment without requiring a lot of capex.
Yes, we have.
Plenty of.
Excess capacity.
Physical plans, because we are lifting the mix of online zoning so pre pandemic.
About.
26%, 37% to 8% of our total darts were delivered online no that it's going to be closer to 50%, which means that we're getting another 2025 percentage point of excess capacity in our campuses.
As that becomes a very important source of growth for us because we have capacity constraints and the way that we used to be.
That gives us the ability to grow in a very capital light manner, because it does require.
Tempus bills.
We go in to fill this capacity is to lift and shift programs from vault campus to another campus and vice versa. So we have very limited investment in new program development because.
Mexico improved about 50% of all of our programs are common across campuses and 50% of our programs are unique to individual campuses. So then taking those.
Graham.
Not present in.
In one campus, but we havent another campus, we're simply lift and shift it over to Greg.
Yes.
Closer to 90% commonality of all of our programs across our campuses.
Second big driver for capitalized growth.
Online education.
The pandemic relaxed the regulatory.
Constraints around online, particularly in Peru.
Nabors is not to launch fully online programs.
<unk> towards graduate students in Peru, and Thats going to be a very significant growth opportunity for us.
Similarly, the acceptance of online in Mexico.
Has been.
No.
Spirit and the acceptance level by parents and faculty.
Regulators and students in general.
And honesty.
Rapid growth that we've had on online students in Mexico over the last couple of years ago into get further accelerated we have about 50.
Students.
In Mexico that makes us the clear market leader.
And.
We expect that.
Pool of students to.
Grow double digit going forward.
Got it alright, thank you.
Thank you and as a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A roster.
Yeah.
And im not showing any further questions at this time, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Everyone.