Q3 2022 Laureate Education Inc Earnings Call
Okay.
Thank you for standing by and welcome to Laureate Education's third quarter 2022 results 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.
Star one one on your telephone I would now like to hand, the call over to Adam Morse Senior VP corporate Finance. Please go ahead.
Good morning, and thank you for joining us on today's call to discuss laureate Education's third quarter 2020 results.
Joining me on the call today are Alistair Camden, President and Chief Executive Officer.
But as Kirk Chief Financial Officer.
Our earnings press release is available on the Investor Relations section of our website at.
At laureate Dot net.
We have also posted a supplementary presentation to the website, which we'll be referring to during today's call.
Call is being webcast and a complete recording will be available after the call.
I would like to remind you that some of the information we're providing today <unk>.
Including but not limited to our financial and operational guidance constitutes forward looking statements within the meaning of applicable us 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.
Our 10-Q filed 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 we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discuss including among others adjusted.
Adjusted EBITDA Thats related margin total cash net of debt and free cash flow.
We're 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.
We recently completed our primary intake cycle in Mexico, and there are secondary intake in Peru, and I am pleased to report strong new enrollment trends in both markets.
In Mexico, New enrollments increased 17% versus third quarter of last year with double digit growth.
Both brands.
In Peru, you enrollments grew 8% versus third quarter of last year with favorable performance at all three institutions.
On the strength of these index, we are increasing our full year 2020 outlook.
Later in our prepared remarks, Rick will walk you through the updated guidance for the year.
We continue to believe that the best way to create value for all of our stakeholders is to accelerate our revenue growth through a highly focused set of growth initiatives supported by favorable secular trends for higher education in our market, including the acceleration of digital learning.
Our financial and operational results through the first nine months of the year demonstrate that our growth agenda is taking hold.
We are on track to deliver on our medium term forecast of 8% to 10% topline growth.
Following the completion of the recent intake and we continue to drive margin expansion.
<unk> success is driven by three key factors.
First and foremost our market, leading brands and their commitment to <unk>.
<unk> quality.
Secondly is focused approach to to scale markets.
And lastly.
Our strong digital capabilities with a powerful omnichannel distribution model that allows us to deliver quality education in a variety of formats, including face to face fully online and hybrid delivery.
In addition to delivering on our.
Growth in quality commitments, we continue to prioritize return of capital for our shareholders.
As of September 30th.
Net cash position was $192 million.
On October 12, we paid a special cash distribution of $137 million or <unk> <unk> per share related to the remaining net proceeds from the sale of Walden University.
On October 24th we announced the $112 million was <unk> 68 per share special cash dividend to be paid on November 17th.
Our cash accretive business model and our strong balance sheet provide us with a lot of flexibility as we continue to think through future return of capital strategies and shareholder value optimization efforts.
That concludes my prepared remarks, and I will now turn the call over to Rick postcard for comprehensive financial overview of the third quarter and year to date performance as well as further details on our improved 2022 outlook.
Rick.
Thank you Ireland as a reminder, campus based higher education is a seasonal business.
The third quarter represents the primary intake cycle for Mexico, a northern hemisphere market and a smaller secondary intake cycle for Peru, which is the southern hemisphere market.
Although the third quarter as a large intake period from a P&L perspective. It is seasonally low as classes are out of session for much of the quarter.
Let's start with page 12, which highlights our strong operating and financial performance for the third quarter.
New enrollment increased 14% and total enrollments were up 10% when compared to the prior year period revenue in the third quarter was $301 million and adjusted EBITDA was $73 million.
Both metrics were ahead of the guidance, we provided three months ago revenue outperformance was driven by new enrollment results, which exceeded expectations for the recent intake cycle adjusted.
Mmm.
Please note that all comparisons versus prior year on an endemic in constant currency basis, let's.
Let's start with Mexico.
Mexico, just completed his primary intake for the year and the results were very strong.
New enrollments increased 17% during the third quarter when compared to the same period last year, we experienced double digit new enrollment growth in both our premium brand it UBM and our value brand that you had a tech.
Across product lines, we saw double digit increases in our face to face and hybrid offerings. As most students have now returned to Presedential studies, and we continue to experience growth and fully online.
Mexico's revenue for the third quarter increased 14% compared to the prior year period, and 10% when adjusted for academic calendar timing.
The strong September intake will be fully realized in Mexico's revenue growth during the fourth quarter.
Adjusted EBITDA for the third quarter was down 11% year over year as anticipated and God is due to return to campus expenses incurred during a largely out of session quarter and certain timing item.
On a year to date basis revenue in Mexico increased 12% compared to the prior year period, and adjusted EBITDA was up 8%.
Let's now transition of Peru on slide 16.
We continue to have strong performance in Peru, new enrollments during Peru's secondary intake was up 8% in the third quarter compared to the prior year period about a year to date basis, including the primary intake completed in the first quarter, new enrollments increased 7% year over year.
Volume growth and favorable price mix drove a 10% year over year increase in constant currency revenue for the third quarter or 12% when adjusted for the academic calendar timing.
Adjusted EBITDA for the third quarter decreased 18% year over year as anticipated and got it due to return to campus expenses and certain tiny items during a low seasonal quarter.
On a year to date basis.
Revenue in Peru increased 15% over the prior year period.
Year over year revenue growth for the first nine months of 2022 was aided by the high level of returning students in the second half of 2021 related to the Covid recovery.
This benefit has now laughs, a full year impact and going forward, we expect revenue growth in Peru to be more in line with our top line growth targets.
About a year to date basis, adjusted EBITDA was flat with prior year with revenue flow through partially offset by additional costs incurred this year as we return to campus operations in Peru.
Let me now briefly discuss our balance sheet illustrated on page 17 of the earnings presentation.
The third quarter as a seasonally high cash flow period for lauria strong free cash flow generation of $100 million in the third quarter combined with the collection of the final escrow payment related to the self Walden resulted in a net cash position of $192 million <unk>.
As of September 30th.
As I looked noted in his opening remarks, we.
We distribute $137 million of that cash to investors in October through a special cash distribution and we will distribute another 112 million to investors on November 17th.
Special cash dividend, which was declared on October 24th.
Now, let's move on to our updated outlook for 2022 on page 19.
On the strength of Laureus third quarter intake cycle.
We are increasing our 2022 full year outlook at the mid 0.5 6000 students.
$15 million per revenue and $1 million for adjusted EBITDA.
The increase in our adjusted EBITDA guidance does not fully reflect flow through margins on incremental revenue for two reasons.
First we are taking the opportunity to reinvest some of our revenue outperformance in the fourth quarter to set us up for a more favorable 2023 outlook.
This includes investments and digital initiatives and the acceleration of efficiency projects.
Second we have some additional one time costs associated with the corporate wind down there are impacting us in the second half of this year.
This is resulting in a slightly slower rammed down in corporate cough versus initial expectation.
However, we are still on track to achieve the corporate right sizing previously discussed with investors and you will see that reflected or a guidance for 2023, which will be provided in February .
Based on current spot F X rays are updated guidance for the full year 2022 is as follows.
Total enrollment to be in the range of 420000 to 423000 students reflecting growth of 9% on an organic basis versus 2021.
Revenue to be in the range of $1.22321231 billion, reflecting growth of 12% on our organic constant currency basis, and 13% on a reported basis versus 2021.
And adjusted EBITDA to be in the range of $331 million to $337 million, reflecting growth of 23% to 25% on an organic constant currency basis versus 2021, or an increase of 31% to 33% on a real.
Ported basis, which includes the effect of the non-cash satisfy charge in 2021.
I live I'm handing it back to you for closing comments.
Thank you rich.
Or yesterday Drusilla demonstrated trying to deliberately those strategic objectives remain very encouraged my lawyer future prospects.
We have the right management team the best brands and it pulls one channel distribution network that we believe will knows too dragged revenue growth.
In support of a vision of transforming the lives of students in communities in Mexico.
Providing greater access to affordable quality education.
Operator that concludes so prepared remarks, and we don't have to take any questions from the participants.
As a reminder to ask a question you won't need to press Star one one on your telephone again, that's star one one on your telephone to ask a question. Please stand by while we compile the Q&A roster.
Our first question comes from the line I'm, Jeff Silver BMO. Please go ahead.
Thank you so much for taking my question the Din new enrollment resulted in Mexico were phenomenal and I'm. Just wondering if you can get a little bit more color why that strength in it just easier comps and it is this type of amendment expect it to continue.
Good morning, Jeff. This is the islands were very pleased with our performance in Mexico, and we are particularly pleased that both gramza contributing to strong double digit growth.
You will recall in the past Ah Ah unitech or value brand.
Which we did the growth engine in Mexico, while you be what's a slower grower.
We have been able to get both of these.
[noise] situtions to become a robust.
Boston sustainable.
Growth and you're just with the company and we expect that to continue however, the 17% growth in your enrollment during the quarter.
Well somewhat aided.
Hi, <unk>.
Pent up demand from 2021, when when someone for students deferred due to the Covid pandemic, so that probably gave us a couple of percentage points and incremental growth.
In in Mexico that I wouldn't.
Projected to continue.
Alright, that's very helpful. You have a slide in your presentation about the progress that the company has been making in terms of teaching hours delivered online alright are you at that 40% to 60% target right now if not when do you think you're going to get there.
So we we are the obviously at 40% to 60% right no depending on the brands and continued to expect to continue to be in that in that show and what is what is really going on is the working adult students.
I've gone from you know largely face to face a couple of years ago to know being essentially fully online postgrad is increasingly going online.
And young student is primarily.
Primarily taste to face.
But instead of being 100 per cent and face to face. They are you know.
70% face to face.
And Ah so do 30% in a digital format since the combination of those three factors that are giving us that 40 to 60.
Per cent mixed.
Mix of online delivery at five institutions.
Okay. That's very helpful. If I could just sneak in one more.
We talk about the pricing environment I know last quarter, you discuss a little bit about some inflationary cost I'm. Just wondering are you able to price to recoup the inflation I'm wondering how did that go to this semester and what should we expect going forward.
Yeah, Hey, Jeff. Thanks for the question. This is wrecked buskirk, we've talked about it before that we try to price through our implied inflation.
In general any good years, we tried to do implied inflation plus as I talked about on the last earnings call. We're fortunate this year that albeit we saw 8% inflation in our market or imply temptation was significantly lower than that because we established labor rate increases in the prior year and we had fixed costs associated.
Our real estate, mainly in Mexico throughout the years, so our inflation plied inflation was around 3% to 4%. We were successful in implementing inflation implied inflation pricing in our antiques and we met or exceeded expectations. So we're satisfied with help pricing win and obviously.
We are looking at how that will apply on a go forward basis into 2023.
Alright, that's great to hear all locked jump back in the queue. Thanks, so much.
Thanks, Jeff.
Thank you once again to ask a question. Please press star one one on your telephone again, that's star one one on your telephone to ask a question.
Our next question comes from the line of Adam Barrington of Stifel. Please go ahead.
Hi, <unk>, how much longer do you expect to return the campus clubs and what is the biggest.
The cost of that time period.
And then we went a little bit more or less on that.
We are fully back to to operations during the second half of during the third quarter. So there will be a little bit of an irritation in fact impact.
In the first half of next year before we have left the cycle.
Okay.
Yeah.
[noise]. Thank you. This does conclude the Q&A session and today's conference call. Thank you for participating you may now disconnect.
Thank you all.
[noise].
[music].
Thank you for standing by and welcome to Laureate Education's third quarter 'twenty to 'twenty two results 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 one.
On your telephone I would now like to hand, the call over to Adam Morse Senior VP corporate Finance. Please go ahead.
Good morning, and thank you for joining us on today's call to discuss laureate Education's third quarter 2022 results.
Joining me on the call today are Alistair Canton, President and Chief Executive Officer and.
Rick bus Kirk Chief Financial Officer.
Our earnings press release is available on the Investor Relations section of our website at laureate 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 would 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.
Our disclosed in our annual report.
<unk> Form 10-K filed with the U S Securities and Exchange Commission.
Our 10-Q filed 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.
And we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discuss including among others adjusted.
Adjusted EBITDA Thats related margin total cash net of debt and free cash flow.
We 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.
We recently completed our primary intake cycle in Mexico, and our secondary intake in Peru, and I am pleased to report strong new enrollment trends in both foreign markets.
In Mexico, you enrollments increased 17% versus third quarter of last year with double digit growth.
Both brands.
In Peru, you've enrollments grew 8% versus third quarter of last year with favorable performance at all three institutions.
On the strength of these index, we are increasing our full year 2020 outlook.
Later in our prepared remarks, Rick will walk you through the updated guidance for the year.
We continue to believe that the best way to create value for all of our stakeholders is to accelerate our revenue growth through a highly focused set of growth initiatives supported by favorable secular trends for higher education in our market, including the acceleration of digital learning.
Our financial and operational results through the first nine months of the year demonstrate that our growth agenda is taking hold.
We are on track to deliver on our medium term forecast of 8% to 10% top line growth.
Following the completion of the recent intake and we continue to drive margin expansion.
<unk> success is driven by three key factors.
First and foremost our market, leading brands and their commitment to that.
Academic quality.
Secondly, a focused approach to to scale markets.
And lastly.
Our strong digital capabilities with a powerful omnichannel distribution model that allows us to deliver quality education, and a variety of formats, including face to face.
Full year, nine and hybrid delivery.
In addition to delivering on our <unk>.
Both in quality commitments, we continue to prioritize return of capital for our shareholders.
As of September 30th.
<unk> cash position was $192 million.
On October 12, we paid a special cash distribution of $137 million or <unk> 83 per share related to the remaining net proceeds from the sale of Walden University.
On October 24th we announced the $112 million was <unk> 68 per share special cash dividend to be paid on November 17th.
Cash accretive business model and our strong balance sheet provide us with a lot of flexibility as we continue to see through future return of capital strategies and shareholder value optimization efforts.
That concludes my prepared remarks, and I will now turn the call over to Rick postcard for comprehensive financial overview of the third quarter and year to date performance as well as further details.
Our improved 2022 outlook.
Rick.
Thank you Ireland as a reminder.
Our campus based higher education is a seasonal business.
Third quarter represents the primary intake cycle for Mexico, a northern hemisphere market and a smaller secondary intake cycle for Peru, which is a southern hemisphere market.
Although the third quarter as a large intake period from a P&L perspective. It is seasonally low as classes are out of session for much of the quarter.
Let's start with page 12, which highlights our strong operating and financial performance for the third quarter.
New enrollment increased 14% and total enrollments were up 10% when compared to the prior year period revenue in the third quarter with $301 million and adjusted EBITDA was $73 million.
Both metrics were ahead of the guidance, we provided three months ago.
Revenue outperformance was driven by new enrollments.
<unk>, which exceeded expectations for the recent intake cycle.
Adjusted EBITDA outperformance, followed the revenue trend and was aided by the shifting of some expenses to the fourth quarter of the year.
On an organic constant currency basis revenue for the third quarter was up 11% year over year driven by the growth in total enrollment volume adjusted.
Adjusted EBITDA for the third quarter was down 8% year over year as expected and as we had previously guided.
This was due to return to campus expenses and are largely out of session quarter as well as certain timing items.
When combined with the first half on an organic constant currency basis, our overall year to date performance through September resulted in year over year revenue and adjusted EBIT growth of 13% and 17% respectively.
Let me now provide some additional color on the performance of Mexico, and Peru, starting with page 15.
Please note that all comparisons versus prior year on an organic and constant currency basis.
Let's start with Mexico.
Mexico, just completed its primary intake for the year and the results were very strong.
New enrollment increased 17% during the third quarter when compared to the same period last year, we experienced double digit new enrollment growth in both our premium brand at UBM and our value brand at unitek.
Across product lines, we saw double digit increases in our face to face and hybrid offerings. As most students have now returned to Prudential studies and we continue to experience growth in fully online.
Mexico's revenue for the third quarter increased 14% compared to the prior year period, and 10% when adjusted for academic calendar timing.
The strong September intake will be fully realized in Mexico's revenue growth during the fourth quarter.
Adjusted EBITDA for the third quarter was down 11% year over year as anticipated and guided due to return to campus expenses incurred during a largely out of session quarter and certain timing items.
On a year to date basis revenue in Mexico increased 12% compared to the prior year period, and adjusted EBITDA was up 8%.
Let's now transition to Peru on slide 16.
We continue to have strong performance in Peru, new enrollments during current secondary intake was up 8% in the third quarter compared to the prior year period.
Year to date basis, including the primary intake completed in the first quarter, new enrollments increased 7% year over year.
Volume growth and favorable price mix drove a 10% year over year increase in constant currency revenue for the third quarter or 12% when adjusted for the academic calendar timing.
Adjusted EBITDA for the third quarter decreased 18% year over year as anticipated and guided due to return to campus expenses and certain timing items during a low seasonal quarter.
On a year to date basis.
Revenue in Peru increased 15% over the prior year period.
Year over year revenue growth for the first nine months of 2022 was aided by the high level of returning students in the second half of 2021 related to the Covid recovery.
This benefit has now lapped a full year impact and going forward, we expect revenue growth in Peru to be more in line with our top line growth targets.
On a year to date basis, adjusted EBITDA was flat with prior year with revenue flow through partially offset by additional costs incurred this year as we return to campus operations in Peru.
Let me now briefly discuss our balance sheet illustrated on page 17 of the earnings presentation.
The third quarter is a seasonally high cash flow period for Lori yet strong free cash flow generation of $100 million in the third quarter combined with the collection of the final escrow payment related to the self Walden.
<unk> in a net cash position of $192 million as of September 30th.
The island noted in his opening remarks.
We distributed $137 million of that cash to investors in October through a special cash distribution and we will distribute another $112 million to investors on November 17th via a special cash dividend, which was declared on October 24.
Now, let's move on to our updated outlook for 2022 on page 19.
On the strength of laureate third quarter intake cycle.
We are increasing our 2022 full year outlook at the midpoint by 6000 students.
$15 million for revenue and $1 million for adjusted EBITDA.
The increase in our adjusted EBITDA guidance does not fully reflect flow through margins on incremental revenue for two reasons.
First we are taking the opportunity to reinvest some of our revenue outperformance in the fourth quarter to set us up for a more favorable 2023 outlook.
This includes investments in digital initiatives and the acceleration of efficiency projects.
Second we have some additional onetime costs associated with the corporate wind down that are impacting us in the second half of this year.
This is resulting in a slightly slower ramp down and corporate cost versus initial expectation.
However, we are still on track to achieve the corporate right sizing previously discussed with investors and you will see that reflected in our guidance for 2023, which will be provided in February .
Based on current spot FX rates, our updated guidance for the full year 2022 is as follows.
Total enrollment to be in the range of 420000.
The 423000 students, reflecting growth of 9% on an organic basis versus 2021.
Revenue to be in the range of one to two three to one to three $1 billion, reflecting growth of 12% on an organic constant currency basis, and 13% on a reported basis versus 2021.
And adjusted EBITDA to be in the range of $331 million to $337 million, reflecting growth of 23% to 25% on an organic constant currency basis versus 2021, or an increase of 31% to 33% on a.
Our reported basis, which includes the effect of the noncash Fas five charge in 2021.
Pilot I'm handing it back to you for closing comments.
Thank you Rick.
Year to date results demonstrate that we own track to deliver on our strategic objectives and I remain very encouraged by Laurie its future prospects.
We have the right management team the best brands and a powerful omni channel distribution network that we believe will allow us to drive revenue growth and support our vision of transforming the lives of students in communities in Mexico, and Peru, but providing greater access to affordable quality.
Education.
Operator that concludes our prepared remarks, and we now happy to take any questions from the participants.
As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Jeff Silber BMO. Please go ahead.
Thanks, so much for taking my question.
We did new enrollment results at Mexico were phenomenal and I'm. Just wondering if you can get a little bit more color why that strength.
Is it just easier comps and is this type of momentum we expect it to continue.
Okay.
Hey, Good morning, Jeff. This is <unk>, we're very pleased with our performance in Mexico, and we are particularly pleased that both brands are contributing to strong double digit growth.
You will recall in the past.
Unit take a value brand that was really the growth engine in Mexico, while UBM, what's a slower grower.
No we have been able to get both of these.
Institutions to become a robust and sustainable.
Growth engines for the company and we expect that to continue however.
The 17% growth in new enrollments during the quarter.
Was somewhat aided.
Bye.
Pent up demand from 2021, when some of our students deferred due to the Covid pandemic, so that probably gave us a couple of percentage points and incremental growth.
In Mexico that I wouldn't.
Projected to continue.
Alright, Thats very helpful.
Have a slide in your presentation about the progress that the company has been making in terms of teaching hours delivered online.
Are you at that 40% to 60% target right now if not when do you think youre going to get there.
So we are obviously.
Obviously at that 40% to 60% right now depending on the brands.
We continue to expect to continue to be in that and Thats shown what is what is really going on is.
The working adult students.
Have gone.
Largely face to face a couple of years ago to know being essentially fully online.
<unk> is increasingly going online and young student.
Primarily face to face.
But instead of being 100% in face to face they are.
70% face to face.
And so.
30% in a digital format since the combination of those three factors that are giving us that 40 to 60.
Percent.
Mix of online delivery.
All five institutions.
Okay. That's very helpful. If I could just sneak in one more.
If we talk about the pricing environment I know last quarter, you discussed a little bit about some inflationary cost I'm. Just wondering are you able to price to recoup the inflation I'm wondering how did that go to this semester and what should we expect going forward.
Yeah, Hey, Jeff. Thanks for the question. This is Rick bus Carrick, we've talked about it before that we try to price through our implied inflation in general any good years, we tried to do implied inflation plus.
I talked about on the last earnings call. We were fortunate this year that albeit we saw 8% inflation in our market our implied inflation was significantly lower than that because we established labor rate increases in the prior year and we had fixed costs associated with our real estate, mainly in Mexico throughout the year. So our inflation implied inflation was around.
3% to 4% we were successful in implementing it.
Inflation implied inflation pricing in our intakes and we met or exceeded expectations. So we're satisfied with how our pricing went and obviously.
We are looking at how that will apply on a go forward basis into 2023.
Alright, thats, great to hear I'll jump back in the queue. Thanks, so much.
Thanks, Jeff.
Thank you once again to ask a question. Please press star one one on your telephone again Thats Star one one on your telephone.
<unk>.
Our next question comes from the line of Adam Parrington of Stifel. Please go ahead.
Hi, there I don't want personnel, how much longer do you expect to return the conference call collapse.
The fixed cost over that time period.
Are there more left on that.
We will.
Totally back to opt.
Operations during the second half of <unk>.
The third quarter, so there will be a little bit about utilization in fact impact.
In the first half of next year before we have left the cycle.
Thanks.
Yes.
Thank you. This does conclude the Q&A session and today's conference call. Thank you for participating you may now disconnect.
Thank you all.