Q1 2022 Laureate Education Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q1 2022, lower yet Education, Inc. Earnings call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll 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 this call is recorded if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your host today.
Adam Moore Senior Vice President of Finance you.
You may begin.
Good morning, and thank you for joining us on today's call to discuss laureate Education's first quarter 2022 results.
Joining me on the call today are <unk> Canton, President and Chief Executive Officer.
Rick plus Kirk Chief Financial Officer.
Our 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.
It 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 that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U S Securities and Exchange Commission.
Our 10-Q filed earlier this morning as.
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 we undertake no obligation to update any forward looking statements.
Furthermore, non-GAAP measures that we discuss including among others adjusted EBITDA and its 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.
<unk> completed our enrollment in <unk> for the first quarter, which includes the primary intake cycle for Peru.
Smaller intake for Mexico.
Very pleased to report that 2022 is off to a great start.
New enrollments increased 9% year over year, and total enrollments were up 11% continuing the solid momentum for the growth agenda that we initiated last year.
Our first quarter results were ahead of expectations and very encouraging.
On the strength of our Q1 performance, we are increasing our full year 2022 guidance with top line revenue now expected to grow double digits.
We continue to benefit from the Covid recovery in Mexico, and Peru, and are seeing positive results from our investments in new programs as well as digital offerings.
Growth in digital learning in Mexico, and Peru.
But increased student demand.
Instruction methodologies the decline for the online medium and growing employer and regulatory acceptance of degrees obtained through online and hybrid modalities.
Going forward, we expect to provide between 40 and 60% of our total hours online across our five institutions, which we believe will allow us to continue to grow in a more capital light manner.
Greater numbers of students can be accommodated.
Our existing physical campus space.
At the core of our growth agenda is our mission, which is to deliver affordable high quality education to prepare students for successful careers and lifelong achievement.
Our strong brands and highly reputable institutions in Mexico and Peru.
Illegally position us to deliver on that promise.
A few recent examples that I would like to highlight are as follows.
First UPC has been recognized as the University with the best reputation all of Peru for 2021. According to recent study conducted by MRSA reputation ranking.
UPC ranked first in the education sector and with ranked number 17 overall among all organizations across four.
This incredible achievement.
Sort of the tireless work done by our teachers academic leaders deals and staff.
And I wish to congratulate them all.
Secondly, we have applied research all of our institutions.
This month, we will inaugurate.
<unk> clean energy laboratory at wonderful UBM campuses in Mexico.
In addition to our internally developed a set of algorithms and scientific sensors UBM is playing a leading role in the water leak detection project that will be launched in Mexico. Later this year.
We continue to invest in our institutions to ensure that we provide high quality education.
Our institutions and program to regularly or some of the highest accreditation is available in our markets.
Salt the laureate brands are highly differentiated and position us for continued success in Mexico and Peru.
In addition to driving our growth agenda, we continue to prioritize return of capital.
We have been active with our stock buyback program this year.
Through the first four months of 2022, we repurchased approximately 14 million shares at what we believe to be very accretive levels for our shareholders.
We currently have approximately $40 million of remaining share purchase authorization from our board and we expect to utilize this capacity during the remaining.
2022.
And as a reminder, we also plan to distribute the remaining net proceeds from the <unk> sale in the second half of this year. Once these amounts are released from the escrow.
Our cash accretive business model as well as our strong balance sheet provides us with a lot of flexibility as we continue to think about return of capital going forward and shareholder value optimization efforts.
That concludes my prepared remarks, and I will now turn the call over to Rick <unk> for a more detailed financial overview of the first quarter 2022 performance as well as.
Further details on our improved 2022 full year outlook.
Rick.
Thank you very much islet before running through the results I want to remind investors that higher education is a seasonal business.
First and third quarters represent our two largest intake periods, which account 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 generate higher revenue and adjusted EBITDA for the year.
Let's now move on to the strong financial performance for the first quarter starting on page 11.
Revenue in this seasonally low first quarter was $210 million and adjusted EBITDA was 27 million. Both metrics were ahead of the guidance that we provided three months ago outperformance versus expectations was led by a more favorable enrollment into.
<unk> cycle as well as some timing of expenses.
On an organic and constant currency basis revenue increased 9% year over year and adjusted EBIT grew 37% year over year when adjusting for timing of the academic calendar in Mexico revenue was up 13% on enrollment volume growth of 11%.
Revenue performance was led by Peru.
Which experienced 17% year over year constant currency growth through strong year over year performance was driven by favorable retention rates in the second half of last year as well as their primary new enrollment intake in Q1 to add further light to their recent primary intake performance.
Peru is 49000, new enrollments were very impressive on a year over year basis growth was 5%. However, last year had the benefit of a COVID-19 recovery.
This intake into better context, peruse Q1, new enrollments were 19% and greater than they were pre Covid Q1 2019 intake.
In Mexico revenue growth for the quarter of 6% on a constant currency basis was impacted by the timing of class starts.
Adjusted for timing of the academic calendar Mexico's revenue growth was up 13%. This was driven by the annualized <unk> of last fall's strong primary intake as well as the 15% growth in new enrollments achieved during their smaller secondary intake in Q1.
The $18 million increase in adjusted EBITDA for the quarter was the result of corporate G&A savings operational efficiencies and a noncash <unk> charge, we incurred in Q1 of 2021, partially offsetting these favorable impacts were incremental costs incurred during the quarter as we.
Prepared our campuses for reopening.
Let me now briefly discuss our balance sheet position illustrated on page 16 of the earnings presentation.
As of March 31.
We were in a net cash position of $138 million. In addition, $74 million of the Walton sale transaction was paid into an escrow account.
It will be released in full or in part to laureate in August 2022, pursuant to the terms and conditions of that agreement.
Now, let's move to our updated outlook for 2022, starting on page 18.
As <unk> alluded to in his opening remarks, we continue to execute on our growth agenda. The strong intake during the first quarter gives us the confidence to increase our outlook for 2022 at the midpoint by 3000 students.
$16 million for revenue and $5 million for adjusted EBITDA.
Our updated guidance incorporates the anticipated impact from increasing inflationary pressures in Peru, and Mexico as.
As Lori Ed as a services business, our main exposure to rising inflation rates on the cost side labor expense and contractual relationships with vendors.
Both components the impact is expected to be very manageable in 2022 is the majority of our wage increases and inflation index contracts.
Already set at the beginning of the year.
For the smaller remaining portion of our cost structure, our increased top line expectations and additional efficiency actions undertaken are expected to offset any potential impacts.
Based on current spot FX rates, we now expect.
Total enrollment to be in the range of 410000 to 416000 students, reflecting growth of 6% to 7% on an organic basis versus 2021.
Revenues to be in the range of $1 190 to 120 6 billion, reflecting growth of 9% to 11% on an organic constant currency basis versus 2021, and adjusted EBITDA to be in the range of 326 to 300.
34 million, reflecting growth of 22% to 25% on an organic constant currency basis versus 2021, or an increase of 29% to 32% on a reported basis, which includes the effect of the noncash <unk> charge in 2021.
As discussed on our prior call our guidance for 2020 to reflect a significant increase in profitability.
Let me quickly remind you of the three main factors driving our guided margin accretion.
First we have significantly right size, our corporate operation at the end of last year.
You can see this benefit starting in Q1 and it will continue through the year driving significant cost savings.
Second incremental flow through margin associated with first the annualized nation effect from last September strong primary intake in Mexico as well as the flow through margin benefit from incremental new students in 2022, and both markets Lastly, as we return to face to face operations in 2022.
Two we will experienced incremental costs related to facilities and cost of service and that will be a bit of an offset to previously noted margin gains.
I live I'm handing it back to you for closing comments.
Thank you Rick.
Continued to be very encouraged by the trends in our business.
We are seeing positive growth momentum in all segments as well as strong returns from our efficiency and innovation investments.
The favorable secular trends for higher education in Mexico, and Peru will continue to drive increased demand for higher education, and we believe that laureate is uniquely positioned to serve these markets through our strong brands.
Digital capabilities and focus on quality as well as student outcomes.
Operator that concludes our prepared remarks, and we don't happy to take any questions from the participants.
Thank you <unk>.
Binder to ask a question you will need to press star one on your telephone to withdraw your question press. The pound key please stand by we compile the Q&A roster and once again that is star one if you would like to ask a question and our first question comes from Jeff Seidler from BMO capital markets. Your line is now open.
Thanks, so much.
On slide nine you talk about the percentage of teaching hour delivered online and you talk about 2022 and going forward to 40% to 60% can you just remind us where you are now I know students have been returning to campus I'm just curious what that looks like now and what kind of trends when should we expect going forward.
Yeah.
Hey, good morning, Jeff this assignment.
We opened up its emphasis.
In a face to face low post pandemic.
The economic model riskier to that 40% to 60% depending on the institution. So we are where we are today, where we would like to be going forward.
Is there any issue I know in the U S. We're starting to see some cases to some COVID-19 cases rise and certainly I'm not as close to the story in both Mexico and Peru can you just tell us what's going on there.
There are cases of course in those countries just like we have in the us, but we are still operating.
The full schedule and of course, taking precautions as needed for safety of Paul Packer against that.
Okay great.
Sorry.
You had also talked a little bit about wage inflation and I'm not sure. If I got the gist of the remarks, we've just talking about the contracts in Peru or was this something that you are also seeing in Mexico as well.
No we were talking about is when we look at inflation.
In our markets right now and what the impact is to our business as it relates to our full year guidance.
The benefit is being a service company with Lori yet that the majority of our cost structure, 70% of our cost structure is essentially <unk>.
Contractual base with our labor agreements.
With <unk> it services and with the rental contracts that we pay in Mexico. Those contracts were set and locked at the end of last year at the beginning of this year. So it provides us good visibility and a lack of exposure the majority of our P&L.
Which makes our ability to react to inflation this year very manageable.
Okay. Great then I'll, just ask one more and jump back in the queue I know you've got a large intake period coming up in the third quarter in Mexico can you give us any indications, how thats going and what type of tuition increases.
Embedded in that <unk> period. Thanks.
So secret intake in Mexico is off to a good start we are about 2025% of the way.
On a curve.
Executing as expected so far but it's really too early.
To conclude you win.
Provide a better update.
Next.
Earnings report.
Okay, and how about tuition increases planned for this fall.
We.
Continue to.
I have price expectations as we have done.
In the first.
<unk> in Peru, and Mexico.
Creation of inflation plus.
For all of our brands.
Of course going to be a little bit of the mix mix shift.
Between Mexico, and Peru, and also between the value brand in the.
Premium brands.
Each of the institutions, we had pricing of inflation or inflation plus.
That's great to hear thanks, so much.
Thank you.
And our next question comes from Shlomo Rosenbaum from Stifel. Your line is now open.
Great. Thank you for taking my questions Hey, just piggybacking off of Jeff's last question can you discuss the level of discounting or scholarships in the Peru market that you had in your primary intake.
This last quarter versus what you had in the last couple of years.
How different was it.
Peru has I mean relative to Mexico, the structural way the market works, we have smaller discounts as a percentage of revenue.
That discount and scholarship based in Peru was in line with prior periods.
And we felt pretty good about it and as I mentioned, we were able to create that inflation.
That we experienced on our cost structure.
Okay great.
And then could you give us some thoughts on what to expect for this year's free cash flow and then also with all the moving parts between Covid recovery and disposition of assets can you provide just a little bit more color on seasonality of free cash flow of the business as it stands.
Sure Let me, let me start with seasonality.
Because I appreciate that last year and our full year results they were consolidated.
Counted as discontinued operations.
The way, we should take a step back and think about free cash flow with our remaining businesses in Mexico, and Peru is they follow our intakes right. So Q1, and Q3 are going to be our larger.
Free cash flow in Q3 being larger.
Q1, this year was impacted a little bit by the tail activities of our restructuring that we did as we noted on our earlier call.
So a little lower than it will be on a run rate basis.
Q2 tends to run a bit negative.
All of our free cash flow in Q4 is positive, but not as large as Q1 and Q3.
Okay, and what about how to think about the free cash flow for the full year. There is some basic parameters you can give us or just a range.
Yes, I would say.
Well, we don't guide on free cash flow, but on a run rate basis.
We're targeting to get to around 50% free cash flow conversion.
EBITDA.
And we will be lower than that this year.
Due to the tail that we have particularly in the first quarter of what I mentioned, plus a bit of higher tax expense due to the tail wind down activities of legacy Lori yet.
Got it.
Yes.
And then you mentioned something about favorable timing of expenses in this last quarter could you just give us a little more color what that was.
Yes, specifically that was related to Mexico, and every year the academic calendar shift a couple of weeks.
Potentially in some of our markets depending on the calendar.
This year, we had a few weeks in Mexico.
Shifting from Q1.
Into Q2 and that resulted in $8 million of less revenue being booked.
In Q1, this year, which that's why in the earnings presentation that you see.
That basically you need to adjust for the.
Timing of the calendar shift and is around 13% when you adjust for that.
Got it great. Thank you very much.
Okay.
And thank you and if you have a question that is star one again, if you would like to ask a question that is star one.
Sure.
And I am showing no further questions. This concludes today's conference call.
Thank you for participating you may now disconnect.
Thanks, everyone.
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