Q2 2023 Laureate Education Inc Earnings Call
Good day and thank you for standing by welcome to the second quarter of 2023, Lori Yet Education, Inc Earnings Conference call.
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I would not like to hand, the conference over to your Speaker today, Adam Morris Senior Vice President Corporate Finance. Please go ahead.
Good morning, and thank you for joining us on today's call to discuss lower your education second quarter of 2023 results.
Judy me on the call today are Alex are canceling President and Chief Executive Officer, Rick Buskirk, Chief Financial Officer.
Earnings Press release is available on the Investor Relations section of our website.
<unk> dot net.
Also posted a supplementary presentation to the website.
Which will be referring to joined today's call.
The call is being webcast that complete recording will be available after the call.
I'd like to remind you that some of the information we are providing today, including but not limited to.
Financial and operational guidance constitutes forward looking statements within the meaning of applicable you at securities laws.
Forward looking statements are subject to risks and uncertainties.
Change it anytime therefore are actual results may differ materially from those we expected.
Important factors that could cause the actual results to differ materially from our expectations are.
Disclosed in our annual report on Form 10-K.
With a U S Securities and Exchange Commission.
Thank you fought earlier this morning as.
As well as other filings made with the S E C.
And we undertake no obligation to update any forward looking statements.
Additionally, non-GAAP measures that we discuss including among others adjusted EBITDA that's related margin.
Total debt cash and free cash flow are also detailed and reconciled to their gap counterparts, and our press release or supplementary presentation.
Let me know I'll turn the call over to Ireland.
Thank you Adam and good morning, everyone.
Today I'm pleased to report a strawberry second quarter performance with operating results ahead of our expectations.
Yeah today, you're in total enrollment has continued to trend well increasing by 30 per cent, a 9% respectively compared to June of last year.
In addition to favorably volume growth pricing.
In fact, it's completed in the first half of the year has been in line with two strikes.
Like the adults are realized cost of inflation.
We also continue to drive operating efficiencies and on track to deliver more than hundred basis put improvement adjusted EBITDA margin for the year.
In addition to stream operating performance, we are benefiting from favorite security trumps.
The Mexico peers, though.
<unk> have you appreciated by 12 per cent and five per cent, respectively versus a U S dollars during the first six months of the year.
This is resulting in higher than expected revenue adjusted EBITDA and feel free cash flow generation.
Based on these positive operating in foreign currency trials.
Raising the full year 2023 guidance at the midpoint by $70 million for revenue in $21 million for adjusted EBITDA.
Maria strategic focus on the high growth markets of Mexico.
Continue to deliver impressive results.
And is supported by three key factors.
First the steady increase in participation rates driving both demand for higher education in both countries.
Underpinned by the attractive wage premiums for individuals with higher education degrees.
The affordable cost to get them.
Second the vital right with the private sector is advancing higher education due to limited government resources with private institutions provide to go with 50 per cent of the combined universe defeats in Mexico and through.
And third.
Thanks for the nun for the upscaling of the Labor Force.
We expect.
Near sure you're trying to further intensify this demand in Mexico, providing a compelling opportunity for higher education institutions like Laurie out.
Loretta institutions are recognized leaders in affordable quality higher education in both Mexico and <unk>.
And redistribute drove product to face to face online and hybrid delivery mode.
We remain committed to pursuing financial profile within the next three to five years as follows.
First maintaining our organic revenue growth momentum of at least 8% to 10% on a constant currency basis.
Second perceiving kept it light expansion strategy.
Where 40% to 60% of our taught alright delivered online and thus, resulting in capital expenditures as a percentage of revenues to be below five per cent.
And finally, delivering adjusted EBITDA growth and the no cheese on a constant currency basis.
This in turn will help drive adjusted EBITDA Martin to over 30 per cent you consolidated basis for Laura yet and adjusted EBITDA Unlevered free Cashbook will version or 50 per cent or more.
Oh. This agenda is supported by our leading brands and unwavering commitment to academic excellence and innovation reflected in the program portfolios designed to meet the <unk> requirements of tomorrow.
At laureates or dedication go beyond just academia, and we aim to make a meaningful and positive impact on society.
Just to touch on a few recent highlights.
D. C has been recognized as one of the top two universities in Peru, working through the United Nations Sustainable development goals. According to the latest impact ranking by times higher education.
Furthermore.
La Repubblica recently reported that U P. C has the highest number of graduate with the best paid careers in the Peruvian labor market.
This is the day should be calling from the <unk> and carry out our platform, which is promoted by the ministry of labor and employment as well as the Ministry of Education.
In Mexico, we are delighted to introduce our new institutional rectorate Unitech, making history with a third woman to hold this prestigious position at that University.
Also at Uni Tech R. O T C. Pawn campus received a certificate of responsibility at the diamond reward level for environmental balance in the academic institution.
Category. This accomplishment makes you <unk> the first University in Mexico to achieve this level of award.
These accomplishments demonstrate our commitment to delivery outstanding educational outcomes and furthering positive impact in the community three Sir.
This concludes my prepared remarks, and I would know turn the call over to Rick Buskirk for more detailed financial overview of the second quarter adhere to date performance I spell. It further details on or improved 2023 full your outlook right.
Thank you I live as a reminder, campus based higher education is a seasonal business. Although the second quarter is not a large intake period. It represents a strong earnings quarter for the company is classes are in session for much of the period.
Let's start with pages 13, and 14, which highlight are operating and financial performance for the second quarter and year to date.
Total enrollment increased 9% when compared to the prior year quarter. This was driven by year to date, new enrollment growth, 13%, which included favorable results across all five brands.
In addition to strong volume growth pricing performance has been slightly ahead of expectations, allowing us to cover our realized cost of inflation on our expense structure and providing some outside to our outlook.
Revenue in the seasonally strong second quarter was $462 million and adjusted EBITDA was $175 million.
Both matrix. We're ahead of the guidance that we provided three months ago.
Revenue outperformance vs expectation was the result of favorable F X ray realized during the quarter and better volume and pricing during Mexico's secondary intake.
Ah Justin EBIT outperformance, followed the revenue trend and was additionally, aided by more than 10 million of expenses that were shifted to the second half of the year.
On an organic constant currency basis revenue for the second quarter was up 14% year over year and adjusted EBITDA increased 18%.
When combined with the first quarter still on an organic constant currency basis. Our overall performance for the first half of 2023 resulted in revenue and adjusted EBITDA growth of 13% and 15% respectively.
Let me know provide some additional color on the performance of Mexico, and Peru, starting with page 16.
Please note that all comparisons versus prior year are on an organic in constant currency basis.
Let's start with Mexico, where our portfolio is working well.
Both our premium and value brands are contributing to top line growth and improved levels of profitability for.
For the second quarter, Mexico's revenue grew 18% versus the prior year period, and adjusted EBITDA increased 73% 80 by favorable timing in tax.
On a year to date basis revenue growth of 17% was driven by a 10% increase in total enrollment when adjusted for timing and 7% a price Smith.
The price makes benefit was the result of pricing that was slightly ahead of our cost inflation during the secondary intake as well as the Angela <unk> attack from higher growth rates in undergraduate programs. During our primary intake last fall, which created a positive mix effect.
Ah Justin EBITDA increased 36% year to date versus the prior year period.
This was driven by revenue flow through productivity gains and timing benefits, partially offset by return to campus expenses we.
We believe that our strategy to expand margins in Mexico to about 25% in the next three to five years is well under way.
Let's now transition to Peru on slide 17.
As a reminder, the primary enrollment intake or Peru was completed this past March and all three brands contributed the double digit growth in new enrollment.
For the second quarter Peruse revenue growth was up 12% adjusted EBITDA increased 7%, reflecting the expected impact of return to campus expenses.
On a year to date basis revenue growth of 11% was driven by a 7% increase in total enrollment and a 4% increase of price mix as we were able to whole pricing at her realized cost of inflation during the primary intake completed in March.
Justin EBITDA was flat versus prior year to date with the decline in margins as expected as incremental revenue flow through was partially offset by expenses associated with return to face to face classes at our campuses.
Let me now briefly discuss our balance sheet physician Lorette ended June with 112 million in cash and 210 million in gross dead or a <unk> physician of $98 million.
A strong balance sheet physician equate to less than a half turn on that leverage.
Moving onto our improved outlook for 2023, starting on page 19.
We are increasing the overall guidance range for revenue and adjusted EBITDA to reflect more favorable operating a currency trends be improved outlook results in a 70 million dollar increase in revenue guidance add the bitcoin and a 21 million dollar increase in adjusted EBITDA at the mid point.
Based on current spot F X rays, we now expect full year 2023 resolved to be as follows.
Total enrollment to continue to be in the range of 447450, 5000 students, reflecting growth of 6% to 7% versus 2022.
Revenue to now be in the range of $1.483 billion to $1.495 billion, reflecting growth of 19 to 20 per cent on and as reported basis and 10% on an organic constant currency basis versus 2022.
Adjusted EBITDA to now be in the range of $419 million to $427 million, reflecting growth of 24% to 26% on an as reported basis and 14% to 16% on an organic constant currency basis versus 20.
22.
We are increasing our adjusted EBITDA margin improvement to 110 basis points at the mid point of our guidance.
10 basis point increase in margin expectations versus prior guidance is driven by revenue flow through resulting from slightly better pricing and the recent secondary intake for Mexico.
Additionally for 2023, we continue to expect adjusted EBITDA to Unlevered free cash flow conversion to be in the low to mid 40 per cent range 80 by our margin improvement and continued capital like Rose model.
Finally as discussed on our prior call I wanted to once again highlight a few items related to seasonality and our full year 2023 got it.
First is regarding the first half versus second half revenue expectations.
Peru, we anticipate revenue growth for the first half in second half of 2023 at somewhat similar year over year growth rate.
In Mexico, However, we anticipate revenue growth for the second half of 2023 to be lower than the first half.
This is driven by last year very strong primary new enrollment and take that was partially aided by students returning from Covid step out as well as timing for other revenue, including graduation fees.
We expect to see a more normal first half and second half broke pattern from Mexico in 2024.
Lastly, we expect our cash flow in 2023 to be more heavily weighted towards the second half of the year. This is due to the timing of tax payments in the first quarter and the seasonality of working capital.
Now moving to the third quarter got it.
For the third quarter of 2023, we expect revenue to be in the range of $357 million to $362 million adjusted EBITDA to be in the range of $77 million to $81 million <unk>.
That concludes my prepared remarks, I'll, if I'm handing it back to you for closing comments.
Thank you Reg I'm encouraged by a continued strong growth momentum and both Mexico, and Peru, driven by leading brands stroke digital capabilities and focus on academic quality and student outcomes.
We believe we're well positioned to capitalize on the growth opportunities ahead of us.
Brighter that concludes the prepared remarks that were not happy to take any questions for the participants.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you'll need to 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.
One moment, while the compile the CUNY roster.
Our first question comes from the line of chest silver with BMO capital markets to your line is open.
Thank you so much and congratulations on another solid quarter, just a couple of questions on the corner in your presentation, specifically regarding Mexico, you talk about the impact of the timing.
Of enrollment intake closes can you just remind us what that means but this last year was it this year, what you're looking for.
Yep This is <unk>.
<unk> last year of the sea to the smaller intake.
During the <unk> and Q2, while this year just due to the calendar and went into the first week of July . So would you look at the full C. Two intake.
That is what we are referencing when we are saying timing adjusted so it's just the the cutover of of the calendar.
Okay and roughly how many students are we talking about.
It's a relatively small cycling <unk> do you have that handy.
Yeah, it's it's around.
<unk> Yeah <unk>.
Okay, Great that's helpful.
I'm sorry go ahead, sorry, it's around three to $4000 three to $40 yeah. Okay.
I appreciate that I I think Rick you talked about in your prepared remarks about.
About shifting $10 million of expenses from the first half of the second half where was that.
Why was that done.
Yeah, yeah. Thank.
Thank you Jeff further question the majority of that ship was in Mexico, and the shift was occurring due to just expense seasonality shifts and professional services.
Project that simply shifted from the later part of of Q2 into Q3, and a little bit into Q4.
As we looked at the timing of those projects that we are implementing in Mexico.
Okay, Great that's helpful and.
In terms of the overall pricing environment.
Remind us what price increases you so far in the first half and what should we expect in a secondhand typically the the large intake period in Mexico.
<unk> sure.
Consistent with what we said at the beginning of the year, Jeff We talked about you know in an environment like this of entering the year with inflation around 8% or imply cost of inflation was much lower than that at around on average five per cent on the cost structure between Mexico.
And between Peru, slightly higher pricing or inflation in Mexico could be on the real estate and lower inflation in <unk> in Peru, where we on the real estate will be sent Mexicali <unk>. So we're really focused in an environment with heavy inflation and pressure on the consumer to simply pass around the.
The cost of inflation of that five per cent on our expert expense structure, and we were able to do that in the first half of the year with some slight advantage in pricing that we saw in Mexico in the in the smaller secondary intake, which is the reason for the favor ability that were passing through.
Pull your guidance on an <unk> basis.
And that will continue.
They can take care of it.
Obviously, we're early in on that intake and the C. Three which is the main intake in Mexico and the secondary and take you through but you know we don't have any expectations to to differ significantly from that and what our expectations are factored into our full year guidance in second half guidance.
Okay fantastic. Thanks, so much.
Thank you as a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
One moment for our next question.
Our next question comes from the line of Lucas Nagana with Morgan Stanley . Your line is open.
Hey, good morning, Thanks for taking our questions.
The first question is related to Mexico <unk>.
The convention was hard and you're expected.
You mentioned that part of this was due to the shifting timing of expensive, but I just wanted to understand how much is.
600, bitcoins expansion with <unk> <unk> <unk>.
Structural and how much was due to the particular effect this quarter.
Yeah. This is Rick Uhm, we continue to be as we noted in our opening remarks, I'm very encouraged about our opportunity to get Mexican margins at 25 per cent plus in the next three to five years.
We do see margin expansion as we talked about notable margin expansion occurring this year in Mexico.
We're gonna see that our expectation is around 22 per cent plus you saw a little bit heavier than that uhm occur in the first half simply because of the timing of expenses shifted a little bit into the second half, but overall, we're very pleased with our margin expansion progression in Mexico, we will.
See upside this year you know that's notable.
Okay.
Thanks.
And also on Mexico, you mentioned that there was a favourable impact from pricing mix could you explain again how to mix effect benefit is coke.
Sure So our our portfolio in Mexico, you think about it from two in two dimensions right. One dimension is we have value brands and we have a better price at about 50 per cent lower than premium brands and then we also have face to face.
<unk> and and online which is similar to 50 per cent discount versus one and then there's a third it was actually a third dimension, which is which really driving it we have undergraduate pricing traditional undergraduate pricing verses online pricing and what really happened last year.
N C. Three as you recall, we had a very significant successful intake in Mexico in the high teens for our primary intake in Mexico last year.
When that intake happened, we had a significant benefit in terms of the nicks effect of undergraduates on both the N R. A value brand in our premium brand particular in our premium brand and you'd be M and when you have that the relative waiting a stronger undergraduate including our premium brand essentially.
Create a price next benefit where we get higher growth of essentially D. T. The enrollment growth that you see in a quarter.
Or in the in the year to date basis.
[laughter].
That's very clear thank you Rick.
Mmm.
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That concludes our question and answer session. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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