Q4 2022 Laureate Education Inc Earnings Call

Good day, and thank you for standing by and welcome to the full year 20, twenty-two Laureate Education, Inc. Earnings Conference call. At this time, all participants sign a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session.

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Good morning, and thank you for joining us on today's call to discuss Laurie Education's fourth quarter and year end 2022 results.

Joining me on the call today, or Alex or <unk>, President and Chief Executive Officer, and Rick Buskirk, Chief Financial Officer.

Orange press releases available on the Investor Relations section of our website at <unk> Dot net.

We have also posted a supplementary presentation to the website, which will be referring to during today's call. The.

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 are providing today, including but not limited to our financial and operational guidance.

Suits forward looking statements within the meaning of applicable U S Security falls.

Forward looking statements are subject to risks and uncertainties that may change at any time and therefore are 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.

One Form 10-K fought with the U S Securities and Exchange Commission earlier this morning, as well as other filings made with the SEC.

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 and among others adjusted EBITDA and it's related margin total debt net of cash free cash flow are also detailed and reconciled to the gap counterparts, and our press release or supplementary presentation of it.

Let me now turn the call Rhode Island.

Thank you Adam and good morning, everyone.

Or a performance and 2022 demonstrated the resiliency of Laurie operating model.

But global macro headwinds, we deliver outstanding results.

Specifically for the year you in total enrollment grew 13, and 9% respectively versus prior year.

Revenues grew by 14 per cent and adjusted EBITDA increased by 34%.

It just it EBITDA modules were at 27% historic hyper laureates due to the scale of benefits for your boss growth and continued focus on operational efficiencies.

In addition to favorable operating performance or test Decretive business model and strong balance sheet in order to return over $500 million of capital to shareholders June 2022 through a combination of cash distributions and share repurchases.

The management team will continue to focus on delivery strong free cash flow performance going forward.

Our decision as to focus exclusively on the high growth potential mortgage of Mexico and Peru.

Expand our digital portfolio.

Proceed further efficiency initiatives across the company had proven to be an effective strategy for l'oreal evidence.

2022 results.

We expect this positive momentum to continue into 2023 and beyond.

Decelerated groups that we stayed in recent years is also driven by our leading brand positions in both markets.

In Mexico, and Peru or institutions are among the largest and most respected in the region.

I would like to say the faculty and staff of each of our institutions.

Wavering commitment to academic quality and innovation and working hard to make education more accessible.

Let me highlight just a few of the many academic accomplishments we achieved in 2022.

For the second consecutive year UPC in Peru was right. The number one education brand in the country.

Upenn, Peru was upgraded to forestall University ratings, but curious stars.

Independent universe, the ranking and raping organization.

This is in addition to the <unk> already achieved by UPN and the categories of Employability inclusiveness, social responsibility and online.

UBM in Mexico was recognized as a top university at the <unk>.

Q level, among both public and private universities.

With 255 programs within the high academic performance programme category as measured by the official exit exams taken by our students upon graduation.

And you need to take in Mexico was recognized as a top apply to University.

Incubator, but UBI global.

Unitech few medical school also welcomed the second incoming class.

As we look forward to full year 2023, I'm pleased to known strong guidance, specifically, we expect to grow revenues, but 8% to 10% on a constant currency basis, which is consistent with previously stated target range.

And we expect to drive adjusted EBITDA margin expansion by 100 basis points through continued efficiency programs and economies of scale.

Or confidence in the 2023 outlook is further bolstered by this text that we are nearing completion of the third quarter primary intake for Peru, and the smaller secondary intake for Mexico.

This index cycle represents approximately two thirds of truce two two new enrollment intake volume for the year and you are.

With 25% of Mexico's full year, you enrollment intake.

Upon the completion of this intake cycle.

We expect new enrollments for laureates to grow approximately 10% to 12% versus the same period last year.

Consumer behavior in Mexico, and Peru indicates that consumers unlikely to continue prioritizing the discretionary spending on higher education due to the significant earnings premium associated with having a university degree in this market.

As we look beyond 2023, we are confident or existing strategic priorities will enable us to remain successful.

Specifically, we intend to maintain our focus of Mexico, and Peru only.

Continued to prioritize capitalized growth opportunities such as online and hybrid delivery of quality education.

Continue to strive for the highest standards of academic quality at scale.

Maintain tight cost controls to enable us to offer affordable educational product to the emerging middle classes in our markets.

And leverage our strong management teams in Mexico, and Peru to continue a track record of execution.

In connection with these strategic priorities.

We strive to achieve the following financial profile within the next three to five years.

Maintain or organic revenue growth momentum of at least 8% to 10% on a constant currency basis.

Pursue capitalized expansion strategy with 40% to 60% of our teaching or Ah delivered online and the resulting in capex as a percentage of revenue to be below 5%.

And deliver adjusted EBITDA growth in the low teens.

On a constant currency basis, adjusted EBITDA margin to get to over 30% on a consolidated basis for Laura Yep.

And it just it EBITDA two unlevered free cash flow conversion or 50%.

Or success continues to be underpinned by our unwavering commitment to academic quality and innovation.

Along with an industry, leading approach to designing strong academic offerings and delivering positive student outcomes.

That concludes my prepared remarks, and then we'll know turn the call over to <unk> for a more comprehensive financial overview of the fourth quarter and full year 2022 performance as well as further detail on our 2000 twenty-three outlook Rick.

Thank you I left as a reminder, campus based higher education as a seasonal business.

The 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 are seasonally low periods 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.

Let's start with page 14, which highlight are strong operating and financial performance for the fourth quarter.

Total enrollment increased 9% when compared to the prior year with strong growth in both markets.

Revenue in the fourth quarter was $346 million and adjusted EBITDA with $95 million. Both matrix. We're ahead of the guidance, we provided three months ago.

Revenue outperformance was driven by enrollment volume and better price mix adjusted EBITDA outperformance followed the revenue trends.

On an organic constant currency basis revenue for the fourth quarter was up 13% year over year, driven by the growth in total enrollment volume.

Adjusted EBITDA for the fourth quarter was up 51% year over year aided by timing of expenses and revenue growth.

Now moving to full year results on page 15.

New enrollments increased 13% versus prior year in total enrollments were up 9%.

Full year of 2022 revenue was 124 $2 billion and adjusted EBITDA with $339 million.

This resulted in an adjusted EBITDA margin of 27.3%, which was a historic high for Laura yet.

On an organic constant currency basis revenue for the year increased by 13% and adjusted EBITDA was up 25%.

Our year over year adjusted EBITDA margin was aided by approximately 260 basis points of improvement driven by our focus on growth and operating efficiencies.

Let me know provide some additional color on the performance of Mexico, and Peru, starting with page 17.

Please note that all comparisons versus prior year are on an organic in constant currency basis.

Let's start with Mexico.

New enrollment increased 16% for the year driven by the strong enrollment performance starting the primary intake in the third quarter.

We experienced double digit new enrollment growth in both our premium brand it UBM and our value brand at Unitech 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 strong growth.

And fully online.

Mexico's revenue for the fourth quarter increased 14% compared to the prior year period as reported and 15% when adjusted for academic calendar timing.

Adjusted EBITDA for the fourth quarter was up 21% year over year as we continue to drive efficiencies in that market.

On a full year basis revenue in Mexico increased 12% compared to the prior year and adjusted EBITDA was up 13% driven by revenue flow through and cost efficiencies, partially offset by additional costs incurred as a return to campus operations.

Let's now transition to Peru on slide 18.

Both knew in total enrollment increased 8% for the year.

Volume growth and price makes it drove a 13% year over year increase in constant currency revenue for the fourth quarter or 11% when adjusted for academic calendar timing.

Adjusted EBITDA for the fourth quarter increased 29% year over year aided by favorable timing impacts.

On a full year basis revenue in Peru increased 14% over the prior year.

Year of year revenue growth for the first half of 2022 was aided by the high level of returning students in the second half of 2021 related to the Covid recovery.

Second half revenue in Peru pulse recovery still grew an impressive 11% year over year.

On a full year basis, adjusted EBITDA was up 6% versus prior year in Peru with revenue flow through partially offset by return to campus costs.

Let me now briefly discuss our balance sheet physician illustrated on page 19 of the earnings presentation.

Lori It ended the year with $85 million in cash and $234 million and growth that for a net debt position of $149 million.

Our strong balance sheet physician equate to less than a half turn of net leverage even after returning approximately $325 million a capital to shareholders in the fourth quarter through a combination of approximately $250 million or one dollar and 51 cents a share and.

Special cash distributions and dividend and $75 million in share repurchases or 8 million shares in connection with an underwritten secondary offering by certain stockholders.

Now, let's move to our outlook for 2023, starting on page 21.

<unk> alluded to in his opening remarks, we continue to execute on our growth agenda.

As a result of the momentum we are experiencing we anticipate a strong outlook for 2023, both in terms of top line growth as well as profitability.

Based on current spot F X Ray we expect full year 2000 twenty-three resolved to be as follows.

Total enrollment to be in the range of 447000 to 455000 students.

Slicing growth of 6% to 7% versus 2000 2000 to revenues to be in the range of 1.3 $72 billion.

2139, 7 billion, reflecting growth of 10% to 12% on an as reported basis and 8% to 10% on an organic constant currency basis versus 2022.

Adjusted EBITDA to be in the range of $387 million to $397 million, reflecting growth of 14% to 17% on an as reported basis and 12% to 15% on an organic constant currency basis versus 2022.

This would result in an increase in adjusted EBITDA margins of 100 basis points at the midpoint of our guidance.

Mainly to our anticipated margin improvement or volume growth and related closer margin of.

Efficiency initiatives, primarily in Mexico, and further reductions in our corporate expenses, partially offset by the final annualization effect of our churn to candidates expenses.

Lastly for 2023, we expect adjusted EBITDA on leather free cashflow conversion in the low to mid 40% range aided by a margin improvement and continued capital light growth model.

Please note that our cashless seasonality in 2023 will be different from what we experienced in 2022 and a bit more heavily weighted towards the second half of the year due to the timing of tax payments in Q1, and the seasonality of capital expenditures.

For the first quarter of 2023, our outlook reflect the seasonality of our business and the fact that most of our institutions are out of session for much of the quarter.

We therefore anticipated low revenue generation in Q1, but increased expenses driven by growth inflation and return to campus expenses previously noted.

For the first quarter of 2023, we expect.

Revenue between 230 and $235 million.

And adjusted EBITDA of approximately $16 million to $21 million.

Earnings growth for the year will start to accrue during the second quarter at classes are fully in session.

I'm handing it back to you for closing comments.

Thank you Rick.

Or a full year 2022, <unk> 2023 outlook demonstrates that we are on track to deliver on a strategic priorities.

We have the right management team the best brands and the powerful Omnichannel distribution network that we believe with the lowest to drive revenue growth and support or a 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 are so happy to take any questions from the participants.

And thank you.

And one moment as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please stand by while we compiled a Q&A roster.

And one moment my first question.

And our first question comes from Jeffrey Seidler from BMO capital markets. Your line is now open.

Thanks, Good morning, Thanks for taking my question.

My first question is just regarding some of the political upheaval that we've been seeing and hearing about in Peru.

Are you seeing any issues either in terms of impacting your enrollment trends and or potential regulatory changes that might be on the horizon.

Good morning, Jeff. This assignment we are seeing no ma'am.

In fact, two operations, Steve demonstrations have been relatively small three to 4000 demonstrators and they have been.

<unk>.

In the South of course, it's been some unfortunate draw supplies.

Associated with these demonstrations that test gained.

You know a significant amount of press coverage.

But our operation has been.

Essentially an impacted.

In terms of.

Regulatory.

Regulatory implications we see.

No changes in regulatory conditions for higher education that has not really been.

On the agenda or.

Point of protection.

Okay. That's that's good to hear can we shift gears to to the pricing environment in both countries can we just talk about what type of tuition increases are embedded in your guidance for this year and what you think will be sustainable going forward.

Thank you what type of.

Yeah, Hi, Jeff.

So in general in a normal inflationary environment, our targeted typically to price in line with our transition are translated inflation.

Is on our expense structure byproduct and buy brand.

This year, we expect the translation of a high inflationary market on our cost structure to be around 5%.

It'll be a bit higher than that in Mexico, it'll be a bit lower than that in Peru. The main difference between that is mainly driven by the fact that we lease most of our real estate in Mexico.

In terms of pricing given the pressure on the consumer we may be slightly below this on average, but we expect to be able to cover any gap with efficiency initiatives to maintain up our trends on our margins and that's how we felt of 2023 guidance.

Okay. That's really helpful. I appreciate it I'll just throw in one more okay. Uhm, obviously, you've got a strong balance sheet. The company continues to generate cash and can you talk about your capital allocation priority someone for.

Happy to do so we are focused on generating strong free textbooks smoke free cash flow from Russia.

We have a very discipline disciplined approach in terms of investing in the business and growing and.

Most of the investments in the business would it be uncap it light.

<unk> in terms of expanding our.

Digital and hybrid education.

That means that we would have.

Excess cash flow generated in the business of that.

Management team and the board will discuss how to deploy whether or not that would be you know.

You're saying that.

That.

Or returning Catholics to shareholders either.

Dividend or.

Stockpot effect.

But no further guidance on on.

Which.

Means we will be deploying.

We have made such decisions right in the air.

Okay I appreciate the call us thanks, so much.

Thank you <unk>.

And again, if you would like to ask a question that is star one one again, if you would like to ask a question that is star 111 moment, while the compile the Q&A roster.

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