Q1 2023 Laureate Education Inc Earnings Call
Good day and thank you for standing by welcome to the Laureate Education incorporated first quarter 20 twenty-three earnings conference call. At this time, all participants are no listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During this session you'll need to press start.
111 of your telephone you will then hear an automated message advising their hand is race to remove yourself from the queue. Please press star one one again please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaking today at a more senior Vice President corporate Finance police begin.
Good morning, and thank you for joining us on today's call.
Sorry to education first quarter of 2023 years old.
Dreamy on the call or I left for example, President and Chief Executive Officer break plus her chief Financial Officer.
Earnings Press release is available on the Investor Relations section of our website.
Dot net.
I've also posted.
Three presentations to the website.
Which will be referring to during the day.
<unk> complete recording will be available after the call.
I would like to remind you that some of the information you provided today.
Putting but not limited to our financial and operational guidance.
Forward looking statements within the meaning of applicable securities law.
We're looking statements are subject to the redfin uncertainty that may change at any time, and therefore are actual results may differ materially from those be expected.
Important factors that could cause the actual results to differ materially from our expectations.
Dispose in our annual report on Form 10-K U.
U S Securities and Exchange Commission.
10-Q.
Earlier this morning.
As well as other filings me with yet.
In addition, all forward looking statements are based on current expectations as of the date of this conference calls.
And we undertake no obligation to update any forward looking statements.
Additionally, not yet measured that was discussed including among others adjust.
Suggested EBITDA.
Related Martin.
Total debt dash free cash flow or author detail and reconciled.
And our press release for supplementary presentation.
Let me know protocol, Rhode Island.
Thank you Adam and good morning, everyone.
We recently completed Orange Red with intake for the first quarter switching to the primary in things like it's a Bruce.
Intake for Mexico.
Pretty pretty pretty it's up to a very good dog.
New enrollment increased 17% year over year in total enrollment we're up 8%.
Continue the grocery man that'd be really experiencing over the past few years.
In addition to favorably volume growth pricing for the intake cycle.
In line with our expectations.
We are very encouraged by the strength of the first quarter interest despite the headwind so the macroeconomic conditions.
Its highlights at the consumer Mexican food or prototyping favor education, when allocating the discretionary spending even the life changing insight.
What's your education.
Today, we are known to be an upward revision to have him here politically free guidance.
Notably we have increased the lower end of the race for revenue and EBITDA political security basis.
Q will result.
Increasing our overall guidance through effects more favorable.
Foreign currency rate.
Or strategic decision to play with exclusively on the high growth markets Mexican food continued to deliver three result Gloria.
Specifically, we are benefiting from free brochure tailwind.
Sure the steady increase in participation rates.
Drives the both growth in demand for higher education in Mexico.
The neighbor for this increased demand is a significant waves premium by people with higher education.
Before the report to get subsidy degree.
Secondly, the private sector is critical for the advancement of higher education, given limited government Theresa.
On a combined basis over 60% of the University in Mexico, and Peru are provided by the private sector and the private sector.
For the majority of the growth in the market.
And still live.
There is significantly.
Illegal labor and both Mexico Andrew.
Mmm.
Recognized leader.
The quality is higher education in Mexico and.
And we distribute our products to face to face online and favorite delivery mode.
We remain committed to driving to achieve financial profile within the next three to five years.
First and foremost.
Maintained organic revenue growth momentum, but at least 8% to 10% on a constant currency David.
Secondly, pursuing capital light extensive strategies for 40% to 60% towards the hours are delivered online and those resulting in capital expenditure as a percentage of revenue to be below 5%.
And finally.
[noise] abusive EBITDA growth and the low T R Nicole debated.
This in turn will.
Will help drive the Joseph EBITDA Morton for over 30 per cent of the consolidated they Gloria.
Justin EBITDA to unnerve at free cash for conversion of 50% or more.
Oh success continues to be underpinned by our unwavering commitment to academic quality and innovation, along with industry, leading approach to designing from academic offerings and delivery attractive student outcomes.
Loretta committed to make a positive impact to society.
We recently published 2042 impact report and I encourage you to go to a website and downloaded carpet.
To learn more about the impacted our students faculty and institutions, having in their communities in Mexico into.
Just to touch on a few highlights.
<unk> have both been recognized especially response to the company.
Mexican center <unk> for the 14th and 30 consecutive year respectively.
Upcs and encourage them talk to most sustainable universe is according to the 2022 <unk>.
Ah responsibility ranking.
Which evaluate Latin America 400, sustainable companies say, some environmental doses and corporate governance that area.
UPN with the only university recognized in the 20th 22 confidence transforming relationship.
Providing over 44 posted.
Preventative health services to Wednesday.
One of the poorest abusive and Lima third.
We are very pro.
One of our institutions and the positive impact they are having.
So that concludes my prepared remarks, and then we'll know turn the call over to recall skirt for more detailed financial overview of the third quarter performance I feel it further details on our improved 12 43 full year outlook.
Rick.
Thank you Ireland as a reminder, campus pays higher education is a season of it.
The first and third quarters represent our two largest intake period, which account for for the 80% of our total new enrollment activity for the year from Ah P&L perfect. It those are seasonally low period as classes are out of session for both of those months <unk>.
In contrast.
Second and fourth quarters are not large enrollment intake period, but generate higher revenue and adjusted EBITDA for the year.
Let's start with page 12, which highlight are operating and financial performance for the first quarter.
During the intake cycle, just completed we continue to see resiliency in demand and pricing despite the challenging macroeconomic conditions.
New enrollment in total enrollment increased 17% and 8% respectively, when compared to the prior year quarter with strong growth in both market and across all five grand.
In addition to strong volume growth pricing for the intake was in line with our expectations specifically pricing recognized in both market was in line to cover our realized cost of inflation on our expense structure.
Let's now move on to the financial results.
Revenue in the seemingly low first quarter was $251 million and adjusted EBITDA with $33 million. Both metric for ahead of the guidance, we provided three months ago Rev.
Revenue and adjusted EBITDA outperformance was driven by higher new enrollment volume as well as some tiny items.
On an organic constant currency basis revenue for the first quarter, what's up 12% year over year.
Justin EBITDA for the first quarter with 3% due to revenue flow through and cost efficiency.
Actually offset by return to Kansas extended.
During a largely alpha dash headquarters.
Let me know provide some additional color on the performance of Mexico, and Peru, starting with page for us.
Please note that all comparison versus prior year quarter are on an organic in constant currency basis.
Let's start with Mexico.
First quarter represents a smaller secondary intake for Mexico. There are large intake occur each September and followed the northern hemisphere calendar.
During the first quarter, Mexico's new enrollment increased 22%.
We saw double digit growth across both brands as well as across both our camp and base and fully online program.
Total enrollment for up 9% versus the first quarter of prior years due to the favorable primary intake last fall as well as a robust new enrollment realized during the third quarter.
Mexico's revenue for the first quarter increased 16% compared to the prior year period, maybe for a strong value growth.
Adjusted EBITDA for the first quarter was up 17% year over year, where productivity gains more than offsetting increased cost per return debate debate operations that are candidates.
Let's now transition to Peru on 515.
The first quarter represents the primary intake for Peru.
They are a southern hemisphere institution.
During the quarter peruse, new enrollment increased 14% with all three brands contributing double digit growth.
Total enrollment were up 8% versus the first quarter of prior year Peru's revenue.
Hello, first quarter increased 6% year over year.
Please note that the first quarter of the prior year benefited from a high level of summer classes at <unk>.
He stepped out during COVID-19, we're catching up with their study.
Adjusted EBITDA for the quarter was a loss of 6 million primarily due to increased cost per return debate debate the operation at our campuses and higher costs during a largely out of session on her period.
Let me now briefly discuss our balance sheet physician.
Lori It ended March with $131 million in cash and $266 million in growth dead for a net debt position of $136 million or.
Are strong balance sheet physician acquaintance of less than a half turn of that leverage.
Moving onto our improved outlook for 2023, starting on page 17.
We are increasing the overall guidance range for revenue and adjusted EBITDA to reflect more favourable currency rate.
We are also raising the low end of the range on a constant currency basis by $10 million for revenue and $2 million for adjusted EBITDA as a result of our strong first quarter intake results.
Based on current spot at that rate, we now expect full year 2023 resolved to be followed.
Total enrollment to continue to be in the range of 447450, 5000 students, reflecting growth of 10% to 7% versus 2022.
Revenue to now be in the range of 1.412 billion to 1.427 billion reflect a growth of 14% to 15% honor as reported basis.
9% to 10% on an organic constant currency basis versus 2022.
Adjusted EBITDA to now be in the range of $398 million <unk>.
$406 million.
Reflecting growth of 17% to 20% on an as reported basis and 13% to 15% on an organic constant currency basis versus 2022.
We are maintaining an adjusted EBITDA margin improvement of 100 basis points at this point of our guidance.
The main driver of our anticipated margin improvement or increased revenue flow from volume growth.
Efficiency initiatives, primarily in Mexico, and further reduction in our corporate expenses.
Partially offsetting the drivers as a final material annualization effect of return to campus expenses, which will impact the first half of 2023.
As a result, the net margin improvement in 2023 are expected to be realized in second half of the year was the lap returned to campus defense.
Additionally for 2023, we continue to expect adjusted EBITDA Unlevered free cashflow conversion to be in the low to mid 40% range.
Aided by our margin improvement and continued capital light growth model.
Finally for a full year of 2023 guidance. There are two important for it regarding seasonality that I want to call to your attention.
First is regarding the first half versus second half revenue expectations.
In Peru, we anticipate revenue growth for the first half and second half of 2023 at similar year over year growth rate.
In Mexico, However, we anticipate revenue growth for the first half of 2023 and the higher than the second half.
This is driven by last year very strong primary you enrollment empty.
That was partially aided by students returning from Covid step out as well as timing for other revenue including graduation.
We expect to see a more normal first and second half growth pattern for Mexico in 2024.
Lastly, as discussed during our prior earnings call our cash flow seasonality of 2023 will differ from what we experienced in 2022 with a heavier weighting towards the second half of the year due to the timing of act payments in the first quarter seasonality of capital expenditure.
Now moving to the second quarter guidance.
For the second quarter of 2023, we expect.
Revenue to be in the range of $433 million to $440 billion.
Adjusted EBITDA to be in the range of $147 million to $151 million, which includes the final material annualization impact from returned to campus expenses.
That concludes my prepared remarks island about Canada back to you for closing comment.
Thank you Rick I continued to be very encouraged by the trends in our business.
Lorette is experiencing positive growth in monthly recruit bookmark, it and and all of our branch.
We are well positioned to capitalize on the growth opportunities in Mexico through through leverage leading brands and drove digital capability.
Focus on academic quality and student outcomes.
Operator that concludes the prepared remarks, and we're not happy to take any questions from the participants.
Thank you.
Cause the reminder to ask a question you'll need to press star one one on your telephone.
Try a question. Please press star one one again, please stand by while we compiled the Q&A roster.
One moment for our first question.
Our first question will come from the line of Jeffrey Silver with B M O capital markets. Your line is now open.
Thank you so much my first question is actually a two Carter.
You've been posting very impressive strong new enrollment growth can.
Can you share with us some data even at a high level, how the market is growing.
Swimming, you're gaining sharing if that's the case, what do you attribute that to.
Hey, Jeff This is I live good morning, and I apologize to everyone for static on the line during our prepared remarks, we have no switched lines. So hopefully you can hear it was a better.
No in terms of your question if a market growth.
The market it said growing because of the increasing stock of 18 to 24 year olds as well as the increasing participation rate the percentage of 18 to 24, you're all set participating in higher education, increasing that great drives 2% to 3% growth.
<unk> in the market.
And then the second big driver for growth is online expansion weren't lawyer, there's absolutely the leader in digital education about Mexico, and Peru, and that create new market opportunities voicemail really expanding the market.
Cause we are serving customers that wouldn't otherwise have access to quality higher education.
That mode of delivery and then I would say to your point. We are we are also taken.
Sure in the traditional undergraduate segment, we have superior brands in Mexico and through both in the premium in traditional space as well as the value brand segment and we are also the innovation lead to in terms of launching new product and product expansion, which I, enabling us to take.
Market share.
Okay. That's helpful. And then online I know you've got a goal to get this 50% to 60%.
Roughly where are you and how long do you think it will take you to get to that goal.
We are within that showed all of our universities are within that 40% to 60%.
Presenter we are averaging.
You know.
Just just below the midpoint.
Okay. That's that's helpful I'll jump back in the queue. Thanks, so much.
Yep.
Thank you as a reminder, ladies and gentlemen that star one one to ask your question.
At this time I'm showing no further questions at this time I would now like to in the conference call. Thank you for your participation. Today you may now disconnect everyone have a wonderful day.
Thank you all.
Mmm.
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