Q1 2024 Laureate Education Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Laureate Education First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Morse, Senior Vice President of Finance. Please go ahead.
Yeah.
Speaker Change: Good day and thank you for standing by welcome to the Laureate Education first quarter 2024 earnings Conference call.
Speaker Change: At this time, all participants are in listen only mode.
Speaker Change: After the Speakers' presentation, there'll be a question and answer session.
Speaker Change: I ask a question. During this session you will need to press star one on your telephone you will then hear an automated message.
Speaker Change: To withdraw your question. Please press star one again, please be advised that today's conference is being recorded on I'd like to hand, the conference over to your first speaker today at Morris.
Morris: Senior Vice President of Finance. Please go ahead.
Adam Morse: Good morning, and thank you for joining us on today's call to discuss Laureate Education's first quarter 2024 results. Joining me on the call today are Eilif Serckanson, President and Chief Executive Officer, and Rick Buskirk, Chief Financial Officer. Our Inks press release is available on the Investor Relations section of our website at laureate.net. We've also posted a supplementary presentation to the website, which we will be referring to during today's call. The call is being webcast, and a complete recording will be available after the call.
Morris: Good morning, and thank you for joining us on today's call to discuss laureate Education's first quarter 2024 results.
Morris: Joining me on the call today are Alistair cancer, President and Chief Executive Officer, and Rick Bus Kirk Chief Financial Officer.
Morris: Our earnings press release is available on the Investor Relations section of our website at <unk> Dot net.
Morris: We have also posted a supplementary presentation to the website.
Morris: Which we'll be referring to during today's call.
Morris: The call is being webcast and a complete recording will be available after the call.
Adam Morse: I'd like to remind you that some of the information we are providing today, including, but not limited to, our financial and operational guidance, constitutes forward-looking statements within the meaning of applicable U.S. securities law. 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 expect. Important factors that could cause action 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.
Morris: Okay.
Morris: Like to remind you that so many information we're providing today.
Morris: <unk>, but not limited to our financial and operational guidance.
Morris: Forward looking statements within the meaning of applicable U S Securities laws.
Morris: Forward looking statements are subject to risks and uncertainties that may change at any time.
Morris: And therefore, our actual results may differ materially from those we expected.
Morris: 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 Exchange Commission.
Adam Morse: 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 EBITDA, Net Related Margin, Total Debt, Net of Cash, and Free Cash Flow, are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. I will now turn the call over to Eilif.
Morris: 10-Q filed earlier this morning.
Morris: Well as other filings made with the SEC.
Morris: In addition, all forward looking statements are based on current expectations as of the date of this conference call.
Morris: And we undertake no obligation to update any forward looking statements.
Morris: Additionally, non-GAAP measures that we discuss including among others adjusted EBITDA that's related margin total debt net of cash and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation.
Eilif Serck: Thank you, Adam, and good morning, everyone. We recently completed our enrollment intake for the first quarter, which includes the primary intake cycle for Peru and a smaller secondary intake for Mexico. Enrollment results came in line with expectations, and we are on track to deliver on our operational outlook for the year. In addition, foreign currency rates continue to trend favorably. As a result, we are announcing an upward revision to our full year 2024 guidance of $13 million for revenues and $5 million for adjusted EBITDA.
Morris: Now I'll turn the call over to islands.
Islands: Thank you Adam and good morning, everyone.
Islands: Recently completed enrollment intake for the first quarter, which includes the primary intake cycle for Peru, and it's more of a secondary intake for Mexico.
Islands: Enrollment results came in line with expectations and we are on track to deliver on our operational outlook for the year. In addition.
Islands: Foreign currency rates continue to trend favorable.
Islands: As a result, we are announcing an upward revision to our full year 2024 guidance by $13 million for revenues and $5 million for adjusted EBITDA.
Eilif Serck: As discussed during our previous call in February, we expect 2024 to be a story of two halves due to the differing market conditions in Mexico versus Peru. The macroeconomic backdrop in Mexico is favorable, with robust manufacturing and construction sectors. Growth in Real Wages, increased consumer spending, and the impact of nearshoring bolstering the growth process. We expect Mexico to deliver strong performance throughout all of 2024. To accelerate our margin progression in this market, we are implementing strategic restructuring initiatives in the first half of the year.
Islands: As discussed during our previous call in February we expect 2020 for it to be a story of two halves.
Islands: Due to the differing market conditions in Mexico versus Peru.
Islands: The macroeconomic backdrop in Mexico is favorable with robust manufacturing and construction sectors.
Islands: Both in real wages increased consumer spending.
Islands: The impact of near shoring bolstering growth prospect.
Islands: We expect Mexico to delivered strong performance throughout all of 2024.
Islands: To accelerate our margin progression in this market.
Islands: Implementing strategic restructuring initiatives in the first half of the year as a result, we expect our margin expansion to be more backend loaded towards the second half of 2024.
Eilif Serck: As a result, we expect our margin expansion to be more backend loaded towards the second half of 2024. However, the market conditions in Peru are softer than those in Mexico. During 2023, Peru experienced its first economic contraction in over 20 years outside of the COVID-19 pandemic, and this economic downturn had lingering effects through the first quarter of this year. This resulted in a relatively flat primary enrollment intake for both volume and pricing, which was in line with our expectations.
Islands: The market conditions in Peru are softer than those in Mexico.
Islands: During 2023, Peru experienced its current economic contraction has over 20 years outside of the COVID-19 pandemic.
Islands: And this economic downturn had lingering effects to the first quarter of this year.
Islands: This resulted in a relatively flat primary enrollment intake, who both volume and pricing, which was in line with our expectations.
Eilif Serck: Given that the primary intake cycle in Peru contributes roughly 2 3rd of the new enrollment activity for the year, we expect this primary intake to mute our growth aspirations for Peru for most of 2024. However... Like most economists, we continue to anticipate an economic recovery in Peru during the second half of 2024. That recovery should begin to benefit us in the fourth quarter, following Peru's smaller intake in September.
Islands: Given that the primary intake cycle improve.
Islands: Contributes roughly two thirds of the new enrollment activity for the year. We expect this primary intake to mute our growth explorations for Peru for most of 2024.
Islands: However.
Islands: Like most economies, we continue to anticipate an economic recovery in Peru during the second half of 2024.
Islands: That recovery should begin to benefit in the fourth quarter following a smaller intake.
Islands: In September.
Eilif Serck: As we move into 2025, we do expect to return to higher growth rates that are more aligned to our targeted 8 to 10% top line growth profile. We are the leading higher education company in Mexico and Peru, which we believe to be the two most attractive private education markets in Latin America. We continue to see favorable sector growth momentum in both these markets. This growth is driven by the expansion of the middle class, which in turn is fueling the rising participation rate in higher education.
Islands: September.
Islands: As we move into 2025.
Islands: We do expect to return to higher growth rate that is more aligned to our targeted 8% to 10% top line growth profile.
Islands: We are the leading higher education company in Mexico, and Peru, which we believe to be the two most attractive private education market in Latin America.
Islands: We continue to see favorable sector growth momentum in both these markets.
Islands: This growth is driven by the expansion of middle class.
Islands: In turn is fueling the rising participation rate in higher education.
Eilif Serck: As the largest private higher education operator in Mexico and Peru, we are well positioned to serve this growth. We have five institutions positioned at differentiated levels in the education sector, all with leading brand positioning in their respective markets. Our institutions enable affordable, high-quality education through an innovative mix of face-to-face, hybrid, and fully online delivery modes, with a strong emphasis on health sciences, STEM, and business courses. And we continue to focus on product innovation through program extensions, the rollout of our digital product portfolio for working adults, as well as targeted campus expansion in new and adjacent markets.
Islands: As the largest private higher education, operator in Mexico, and Peru, we are well positioned to serve this growth.
Islands: We have five institutions precision at differentiated levels in the education spectrum.
Islands: All with leading brand positioning in their respective markets.
Islands: All of our institutions enable affordable high quality education through innovative mix of face to face hybrid and fully online delivery mode with a strong emphasis on health Sciences.
Islands: And business courses.
Islands: And we continue to focus on product innovation through program extensions.
Islands: The rollout of our digital product portfolio for working adults as well as targeted campus expansion in new and adjacent markets.
Eilif Serck: Our predictable revenue stream is supported by an average program length of four years, stable retention levels, and the private pay model. Additionally, our operating discipline, supported by our omni-channel distribution capability, has resulted in a robust, profitable, and capital-light business model with strong cash flow generation.
Speaker Change: Oh, a predictable revenue stream.
Islands: Supported by an average program length of four years.
Islands: Stable retention levels.
Islands: And the private pay model.
Islands: Additionally, our operating discipline.
Islands: Routed by our Omnichannel distribution capabilities has resulted in a robust profitable and capital light business model with strong cash flow generation.
Eilif Serck: Our future has never been brighter. On April 1st, we celebrated Laureate's 25th anniversary. Throughout the past 25 years, we have positively influenced millions of lives and broadened access to quality higher education. My sincere gratitude goes out to all faculty and staff, past and present, who have played a significant role in our success. As we look forward, we recognize the opportunity to build upon this legacy and further the positive impact we have on society for many more decades to come.
Islands: Our future has never been brighter.
Islands: On April 1st we celebrated Lori at 25th anniversary.
Islands: Throughout the past 25 years, we have positively influenced millions of lives and broadened access to quality higher education.
Islands: My sincere gratitude goes out to all faculty and staff.
Islands: And present, who have played a significant role in our success.
Islands: As we look forward, we recognize the opportunity to build upon this legacy.
Islands: And further the positive impact we haven't society for many more decades to come.
Eilif Serck: I encourage you to visit our website and download a copy of our recently published 2023 Impact Report. Here, you can learn more about the outstanding work our students, faculty, and institutions are currently doing in their communities throughout Mexico and Peru. Here, I will touch on just a few highlights.
Islands: I encourage you to visit our website and download a copy of.
Islands: Our recently published 2023 impact report.
Islands: Here you can learn more about the outstanding work our students faculty and institutions are currently doing in their communities through Mexico and Peru.
Islands: Just to touch on a few highlights.
Eilif Serck: UVM and Unitech have both been recognized as socially responsible companies by the Mexican Center for Philanthropy for the 15th and the 14th consecutive year, respectively. UBC was rated the most sustainable university in Peru according to the 2023 Merkle ESG Responsibility Ranking, which evaluates Latin America's top 100 sustainable companies based on environmental, social, and corporate governance criteria. UPN was recognized as a top six university for environmental sustainability in Peru by the Inter-University Environmental Network, based on UPM's implementation of sustainable practices and policies.
Islands: UBM and unitek have both been recognized as a socially responsible companies by the Mexican center for philanthropy for the 15th and the 14th consecutive year respectively.
Islands: UPC was rated the most sustainable University in Peru. According to the 2023 Merkel ESG responsibility ranking.
Islands: Which evaluates Latin America's top 100, sustainable companies based on environmental social and corporate governance criteria.
Islands: UPN with recognized as a top six university for environmental sustainability in Peru.
Islands: The inter University environmental network based on UPN implementation of sustainable practices and policies.
Eilif Serck: In addition to our success at the institution level, our students across both Mexico and Peru continued to meaningfully impact their communities in 2023. In Mexico alone, we provided essential medical and dental services to 168,000 community members. Meanwhile, in Peru, our health clinic provided 189,000 hours of free or low-cost medical and dental care to members of our communities that otherwise would not have had access to affordable, quality health care.
Islands: In addition to our success at the institution level all students across both Mexico, and Peru continued to meaningfully impact the communities in 2023 by contributing over 1 million volunteer service hours.
Islands: In Mexico alone.
Islands: We provide essential medical and dental services 268 certain community members.
Islands: Meanwhile, in Peru, our health clinic provided 189.
Islands: Alright.
Islands: Free or low cost medical and dental care to members of our communities that otherwise would not have had access to affordable quality healthcare.
Eilif Serck: I am so proud to be part of Laureate and to have colleagues who care so deeply about expanding the middle classes in Mexico and Peru by providing quality higher education at affordable prices. This concludes my prepared remarks, and I will now turn the call over to Rick Buskirk for a more detailed financial overview of our first quarter performance, as well as further details on our 2024 full year outlook.
Speaker Change: I am so proud to be part of laureate and to have colleagues.
Speaker Change: Care, so deeply about expanding the middle classes in Mexico, and Peru by providing quality higher education at affordable prices.
Speaker Change: This concludes my prepared remarks, and I will now turn the call over to Rick both Kurt for a more detailed financial overview of our first quarter performance as well as further details.
Rick: On our 2020 for full year outlook.
Richard M. Buskirk: Thank you, Eilif. Before I discuss our financial performance for the quarter, let me provide a few important reminders about seasonality. First, campus-based higher education is a seasonal business. The first and third quarters represent our two largest intake periods. The two intake periods account for more than 80 percent of our total new enrollment activity for the year. From a P&L perspective, both are seasonalally low periods as classes are out of session for most of those months.
Rick: Rick.
Rick: Thank you, Iowa before I discuss our financial performance for the quarter, Let me provide a few important reminders on seasonality.
Richard M. Buskirk: In contrast, the 2nd and 4th quarters are not large enrollment intake periods but generate higher revenue and adjusted EBITDA. In addition, the timing of the start of our classes can shift year over year depending on various factors, such as when holidays occur. This in turn affects the timing of revenue recognition and quarter over quarter comparability. In 2024, the beginning of classes for working adult programs in Peru and health science programs in Mexico started later versus 2023.
Rick: Campus based higher education is a seasonal business the first and third quarters represent our two largest intake period.
Rick: The two intake periods account for more than 80% of our total new enrollment activity for the year from a P&L perspective, tulloch, 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, but generate higher revenue and adjust.
Rick: EBITDA for the year.
Rick: In addition, the timing of the start of our classes can shift year over year, depending on various factors such as when holidays occur.
Rick: This in turn affects the timing of revenue recognition and quarter over quarter comparability.
Rick: In 2020 for the beginning of classes are working with our programs in Peru, and health Science programs in Mexico started later versus 2023.
Richard M. Buskirk: This will shift approximately $14 million of revenue and $11 million in adjusted EBITDA from the first quarter to the second half of the fiscal year. As I discuss operating results for the first quarter and our guidance expectations, I will provide additional color on these timing impacts. Let me now move to the Operating and Financial Performance for the first quarter, starting on page 11. To begin, enrollment results and associated pricing were in line with our expectations in both markets.
Rick: This will shift approximately $14 million of revenue and $11 million and adjusted EBITDA from the first quarter to the second half of the year as I just got the operating results for the first quarter and our guidance expectations I will provide additional color on the timing impact.
Richard M. Buskirk: We continue to see strong growth in Mexico and resiliency in Peru. New and total enrollment volumes increased 1% and 5%, respectively, when compared to the prior year quarter, with growth led by Mexico. Revenue in the seasonally low first quarter was $275 million, and adjusted EBITDA was $31 million.
Rick: Let me now move to the operating and financial performance for the first quarter starting on page 11.
Rick: To begin enrollment results and associated pricing were in line with our expectations in both markets. We continue to see strong growth in Mexico and resiliency in Peru.
Rick: New and total enrollment volumes increased 1% and 5%, respectively, when compared to the prior year quarter with growth led by Mexico.
Rick: Revenue in the seasonally low first quarter with $275 million and adjusted EBITDA was $31 million.
Richard M. Buskirk: Both metrics were ahead of the guidance provided three months ago with operational performance within the guidance range while FX provided some additional upload. On an organic constant currency basis and adjusted for the academic calendar shift discussed earlier, revenue for the first quarter was up 7% year-over-year, and adjusted EBITDA increased by 11%. Let me now provide some additional color on the performance of Mexico and Peru, starting with page 13. Please note that all comparisons versus the prior year quarter are on an organic and constant currency basis. Let's start with Mexico.
Rick: Both metrics were ahead of the guidance provided three months ago with the operational performance within the guidance range, while FX provided some additional uplift.
Rick: On an organic constant currency basis, and adjusted for the academic calendar shift discussed earlier revenue for the first quarter was up 7% year over year and adjusted EBITDA increased by 11%.
Rick: Let me now provide some additional color on the performance of Mexico, and Peru, starting with page 13.
Rick: Please note that all comparisons versus prior year quarter or on an organic and constant currency basis.
Richard M. Buskirk: The first quarter represents a smaller secondary intake. The large intake occurs each September and follows the Northern Hemisphere calendar. During the first quarter, Mexico's new enrollments increased 7% versus the prior year period, led by strong growth and working adult-focused, fully online programs. Total enrollments were up 9% versus the first quarter of the previous year due to the favorable primary intake last fall and the growth in new enrollments realized during the intake. Adjusted for the timing of the academic calendar, Mexico's revenue for the first quarter increased 10% compared to the prior year period due to its strong volume growth.
Rick: Let's start with Mexico. The first quarter represents a smaller secondary intake. There are large intake occurs each September and follows the northern hemisphere calendar.
Rick: During the first quarter, Mexico's new enrollment increased 7% versus the prior year period led by strong growth in working adult focused fully online programs.
Total enrollments were up 9% versus the first quarter of prior year due to the favorable primary intake last fall and the growth in new enrollments realized during the intake.
Rick: Adjusted for timing of the academic calendar Mexico's revenue for the first quarter increased 10% compared to the prior year period due to its strong volume growth.
Richard M. Buskirk: Adjusted EBITDA for the first quarter, adjusted for the timing of the academic calendar, was up 20% versus the prior year period, led by productivity gains and volume growth. A portion of the restructuring activities we had initially planned for the first quarter are now expected to be carried out in the second quarter. Let's now transition to Peru on slide 14.
Rick: Adjusted EBITDA for the third quarter adjusted for timing of the academic calendar was up 20% versus the prior year period led by productivity gains and volume growth a portion of the restructuring activity. We had initially planned for the first quarter are now expected to be carried out in the second quarter.
Rick: Let's now I'll transition to Peru on slide 14.
Richard M. Buskirk: The first quarter represents the primary intake for Peru as they are a Southern Hemisphere institution. For the first quarter, new and total enrollments came in line with our expectations. New enrollments declined slightly by 2% for the intake cycle, and negative 3% for the reported quarter, while total enrollments increased by 1% compared to the first quarter of the prior year.
Rick: The first quarter represents the primary intake for Peru, as they are a southern hemisphere institution.
Richard M. Buskirk: For the first quarter, new and total enrollment came in line with our expectations.
Richard M. Buskirk: New enrollments declined slightly by 2% for the intake cycle negative 3% for the reported quarter, while total enrollments increased by 1% compared to the first quarter of the prior year growth in total enrollment was led by the strength of our re enrollment campaign in that market.
Richard M. Buskirk: Growth in total enrollments was led by the strength of our re-enrollment campaign in that market. Adjusted for timing of the academic calendar, Peru's revenue for the seasonally low first quarter increased 1% versus the prior year period, driven by volume growth on relatively high prices. In Peru, we recognize the economic challenges currently faced by our students.
Richard M. Buskirk: Adjusted for timing of the academic calendar peruse revenue for the seasonally low first quarter increased 1% versus the prior year period, driven by volume growth on relatively type pricing.
Richard M. Buskirk: In Peru, we recognize the economic challenges currently paid by our students.
Richard M. Buskirk: For this intake cycle, as planned, we responded by enhancing our discounts and scholarships. This provided essential support during this recovery period and resulted in essentially flat year-over-year pricing during the intake. Adjusted EBITDA for the quarter, adjusted for timing of the academic calendar, was down $7 million compared to the prior year period, largely due to seasonality. The first quarter in Peru is largely an out-of-session summer period with fixed costs
Richard M. Buskirk: So this intake cycle as planned we responded by enhancing our discounts and scholarships.
Richard M. Buskirk: This provided essential support during this recovery period and resulted in essentially flat year over year pricing during the intake.
Richard M. Buskirk: Adjusted EBIT for the quarter adjusted for timing of the academic calendar was down $7 million compared to the prior year period, largely due to seasonality.
Richard M. Buskirk: The first quarter in Peru is largely out of session summer period with fixed costs.
Richard M. Buskirk: Let me now briefly discuss our balance sheet position. Laureate ended March with $126 million in cash and $228 million in gross debt for a net debt position of $102 million. The $24 million increase in net debt versus year-end is primarily attributable to the $33 million of stock repurchases executed during the quarter under our newly announced $100 million stock repurchase authorization. Our balance sheet remains strong with less than a quarter turn of net leverage.
Speaker Change: Let me now briefly discuss our balance sheet position.
Richard M. Buskirk: Laura It ended March with $126 million in cash and $228 million at gross debt for a net debt position of $102 million the $24 million increase in net debt versus year end is primarily attributable to the $33 million of stock repurchases.
Richard M. Buskirk: Executing during the quarter under our newly announced $100 million stock repurchase authorization.
Richard M. Buskirk: Our balance sheet remains strong with less than a quarter turn of net leverage.
Richard M. Buskirk: Moving on to our outlook for 2024, starting on page six, we are increasing the overall guidance range by $13 million for revenue and $5 million for adjusted EBIT to reflect more favorable currency. Based on current spot FX rates, we now expect full-year 2024 results to be as follows. Total enrollment to continue to be in the range of 467,000 to 473,000 students, reflecting growth of 4-5% versus 2023.
Richard M. Buskirk: Moving on to our outlook for 2024, starting on page 16.
Richard M. Buskirk: We are increasing the overall guidance range by $13 million for revenue and $5 million of our adjusted EBIT to reflect more favorable currency rate.
Richard M. Buskirk: Based on current spot FX rate, we now expect full year 2024 results to be as follows.
Richard M. Buskirk: Total enrollment to continue to be in the range of 467000 to 473000 dividends, reflecting growth of 4% to 5% versus 2023.
Richard M. Buskirk: Revenues are now expected to be in the range of $1.566 billion to $1.581 billion, reflecting growth of 6% to 7% on an as-reported basis and 5% to 6% on an organic constant currency basis versus 2023. Adjusted EBITDA is now expected to be in the range of $446 million to $456 million, reflecting growth of 6% to 9% on both an as-reported and organic constant currency basis versus 2023 We continue to expect adjusted EBITDA to unlevered free cash flow conversion to be in the high 30% range on a reported basis for 2020. As we have discussed on prior calls, we are still in the process of winding down Legacy Laureate and noted that those activities would run through the end of this year.
Richard M. Buskirk: Revenues are now expected to be in the range of one $5 6 billion to $1 581 billion, reflecting growth of 6%, 7% on an as reported basis and 5% to 6% on an organic constant currency basis versus 2023.
Richard M. Buskirk: Adjusted EBITDA is now expected to be in the range of 446 million to $456 million, reflecting growth of 9% on both an as reported and organic constant currency basis versus 2023.
Richard M. Buskirk: We continue to expect adjusted EBITDA to Unlevered free cash flow conversion to be in the high 30% range on a reported basis for 2024.
Richard M. Buskirk: As we have discussed on prior calls we are still in the process of winding down legacy Lora and noted that those activities would run through the end of this year.
Richard M. Buskirk: Our 2024 cash flow expectations include one-time Legacy Laureate payments of approximately $45 million, primarily related to deferred tax, a large portion of which will be paid during the second quarter. As these cleanup items are adjusted, EBITDA to unlevered free cash flow conversion is still expected to reach approximately 50% in 2024, on par with the level we achieved in 2023 and our stated target profile. Now moving to the guidance for the second quarter and first half of the year.
Richard M. Buskirk: Our 2024 Cashflow expectations include one time legacy l'oreal payments of approximately $45 million primarily related to deferred taxes.
Richard M. Buskirk: A large portion of that will be paid during the second quarter.
Richard M. Buskirk: Absent these cleanup items, our adjusted EBITDA to Unlevered free cash flow conversion is still expected to reach approximately 50% in 2024 on par with the level, we achieved in 2023 and our stated target profile.
Richard M. Buskirk: For the second quarter of 2024, we expect revenue between $480 million and $486 million, and adjusted EBITDA of approximately $172 million to $175 million, which includes $4 million of restructuring costs in Mexico related to our margin optimization plan. This would result in first half constant currency revenue growth of 5% to 6%. As expected, from an adjusted EBITDA margin perspective, margins for the first half of the year are anticipated to be down roughly 230 basis points versus the first half of 2023.
Richard M. Buskirk: Now moving to the guidance for the second quarter and first half of the year for the second quarter of 2024, we expect revenue between $480 million and $486 million.
Richard M. Buskirk: Adjusted EBITDA of approximately $172 million to $175 million, which includes $4 million of restructuring costs in Mexico related to our margin optimization plan. This will result in first half constant currency revenue growth of 5% to 6%.
Richard M. Buskirk: As expected from an adjusted EBITDA margin perspective margins for the first half of the year are anticipated to be down roughly 230 basis points versus the first half of 2023.
Richard M. Buskirk: This is due to the timing of the academic calendar, one-time restructuring costs in Mexico, and relatively flat pricing during the primary enrollment period in Peru. For the second half of the year, we do expect significant margin expansion of approximately 300 basis points as compared to the second half of 2023, as we recover the academic calendar timing impact, return to growth in Peru following the anticipated macro recovery, and pass the one-time restructuring costs incurred in the first half.
Richard M. Buskirk: This is due to the timing of the academic calendar onetime restructuring cost in Mexico, and relatively flat pricing during the primary enrollment intake in Peru.
Richard M. Buskirk: For second half of the year, we do expect significant margin expansion of approximately 300 basis points as compared to the second half of 2023 as we recover the academic calendar timing impact returned to growth in Peru, following the anticipated macro recovery and past the onetime restructuring.
Richard M. Buskirk: Cost incurred in the first half.
Richard M. Buskirk: For the full year 2024, that would result in an anticipated reported net margin gain of approximately 40 basis points, approximately 50 basis points FX neutral, continuing our progression towards our 30% adjusted EBITDA margin target. That concludes my prepared remarks. Eilif, I'm handing it back to you for closing comments.
Richard M. Buskirk: For the full year 2024 that would result in an anticipated reported net margin gain of approximately 40 basis points.
Eilif Serck: So a 50 basis point FX neutral continue our progression towards our 30% adjusted EBITDA margin target.
Eilif Serck: That concludes my prepared remarks island I'm handing it back to you for closing comments.
Eilif Serck: Thank you, Rick. We are on track to deliver on our commitment for 2024 with some potential upside from favorable foreign exchange rates. We continue to experience robust operating performance in Mexico, and all signs point to continued strong growth opportunities in that market. In Peru, our performance during the primary intake just completed underscores the resiliency of our business model. We delivered modest growth in total enrollment despite Peru experiencing its first recession in over two decades.
Eilif Serck: Thank you Rick we are on track to deliver on our commitments for 2024 with some potential upside from favorable foreign exchange rates.
Eilif Serck: We continue to experience robust operating performance in Mexico, and all signs point to continued strong growth opportunities in that market.
Eilif Serck: In Peru or performance during the primary intake just completed underscores the resiliency of our business model.
Eilif Serck: We delivered modest growth in total enrollments, despite peru experiencing its first recession in over two decades.
Eilif Serck: We are encouraged by the early indications of an economic recovery in Peru and expect to return to more normalized growth rates as we exit 2024. We believe that our leading brands, strong digital capabilities, and unwavering commitment to academic quality and student outcomes position us well for continued growth. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants.
Eilif Serck: We are encouraged by the early indications of an economic recovery improve and expect to return to more normalized growth rate as we exit 2024.
Eilif Serck: We believe that our leading brands strong digital capabilities and unwavering commitment to academic quality and student outcomes positions us well for continued growth.
Eilif Serck: Operator that concludes our prepared remarks, and we now happy to take any questions from the participants.
Operator: Thank you. At this time, we'll conduct the question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Jess Silber of BMO Capital Markets. Your line is now open.
Speaker Change: Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced toward charter a question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: Okay.
Jeffrey Marc Silber: Our first question comes from the line of Jeff Silber of BMO capital markets. Your line is now open.
Jeffrey Marc Silber: Thanks so much. I wanted to start on Peru. You talked about the expected economic recovery in the second half, and, you know, I'm assuming that you're relying on economists for that, and that's fine. But even if that does happen, isn't there going to be some sort of lag between that happening and, you know, enrollment starting to increase?
Jeffrey Marc Silber: Thanks, so much.
Jeffrey Marc Silber: To start on Peru, you talked about the expected economic recovery in the second half and I'm, assuming that you're relying on economies for that and that's fine but.
Jeffrey Marc Silber: Even if that does happen.
Jeffrey Marc Silber: They're going to be some sort of lag between that happening and enrollment starting to inflect.
Eilif Serck: Yeah, that's correct. You're seeing economic data that is already improving. The first quarter was a positive GDP quarter for Peru. We are seeing an increase in real wages. We're seeing an increase in employment. We're seeing an increase in consumer confidence. And when we're tracking key indicators such as credit card spending by the different categories of where disposable income goes, we're seeing, also, bottoming out or slight improvement in certain categories. So that indicates that the economy is already improving.
Jeffrey Marc Silber: Okay.
Jeffrey Marc Silber: Yes.
Eilif Serck: Correct Youre seeing economic data.
Eilif Serck: Already improving first quarter was.
Eilif Serck: It's a positive positive GDP quarter for Peru.
Eilif Serck: We are seeing increase in.
Eilif Serck: In real wages were seeing an increase in employment, we are seeing increase in consumer confidence and when we are tracking.
Eilif Serck: Key indicators, such as credit card spending by the different category of.
Eilif Serck: Where disposable income goes we are seeing also bottomed bottoming out or slight improvement in certain certain categories. So that indicates that the economy has already improved improving.
Eilif Serck: But there is a bit of a lag effect before our customers have been able to replenish their coffers sufficiently in order to, you know, attend college. So we saw, you know, a lot of students and prospects during our C1 intake during the first quarter that, you know, just simply were not ready yet to commit and deferred to the second intake in September. So, you know, we're looking at the top of the funnel.
Eilif Serck: But there is a bit of a lag effect before.
Eilif Serck: Customers have been able to replenish their coffers sufficiently in order to.
Eilif Serck: At 10 College do we saw.
Eilif Serck: A lot of <unk>.
Eilif Serck: Students and prospects during our C. One intake of during the first quarter.
Eilif Serck: Just simply it was not ready yet to commit and deferred to the second intake in September.
Eilif Serck: We're looking at the, you know, interest and have, you know, high expectations that the second half of 2024 will be more, you know, normalized. And at that point, the lag effect will have caught up.
Eilif Serck: So we're looking at the top of the funnel we're looking at.
Eilif Serck: The interest.
Eilif Serck: Yeah.
Eilif Serck: <unk> high expectations.
Eilif Serck: Second half of 2024 will be more normalized and at that point the lag effect.
Eilif Serck: And when you say normalize, do you think you'd have new enrollment growth in that second intake period in Peru this year? correct Okay, good. That's helpful. And then just one quick question. You mentioned, and Rick mentioned restructuring a few times. I just want to make sure that we're talking about the restructuring that you did in Mexico previously, not a new program that you're just announcing?
Eilif Serck: Caught up.
Eilif Serck: And when you say normalized do you think you would have new enrollment growth in that second intake period in Peru. This year.
Speaker Change: Yes, correct.
Eilif Serck: Okay. Great. That's helpful. And then just one quick question you mentioned, Rick mentioned restructuring a few times I just want to make sure. We're talking about the restructuring that you did in Mexico previously not a new program that you are just announcing.
Eilif Serck: That's correct. This relates to the consolidation of certain campuses to get more scale and a better student experience out of some of our smaller, more fragmented campuses. Okay, great.
Eilif Serck: That's correct as it relates to the consolidation of certain.
Eilif Serck: Campuses to get more scale and better student experience out of some of our smaller more fragmented campuses.
Jeffrey Marc Silber: Okay, great. Just wanted to confirm that. I'll jump back in the queue. Thanks.
Speaker Change: Okay, Great just wanted to confirm that I'll jump back in the queue.
Operator: Thank you one moment for our next question. Again, as a reminder to ask a question, you'll need to press star 1-1 on your telephone. Our next question comes from the line of Mauricio Zepeda of Morgan Stanley. Your line is now open.
Jeff: Thanks, Jeff.
Speaker Change: Thank you William for next question.
Operator: Again as a reminder to ask a question you will need to press star one on your telephone.
Mauricio Zepeda: Our next question comes from the line of Mauricio Cepeda of Morgan Stanley. Your line is now open.
Mauricio Zepeda: Hello, good morning. Thank you. Thank you for the opportunity to ask the questions. A question on Peru, in fact. I understand that... There is a seasonal effect there, and there is pressure on fixed costs. But if we consider the variations in revenues and the variation in EBITDA in terms of absolute EBITDA, it seems that there is much more loss of EBITDA than gain of revenues. So if you could comment if there is any other kind of cost pressure in Peru that is in absolute terms, not just an operation deleveraging there, I think it would be great. And if you could also comment about Mexico, if you already see any kind of nearshoring effects on the intakes, or if there is anything concrete that is happening in Mexico regarding nearshoring.
Mauricio Zepeda: Hello. Good morning. Thank you. Thank you for the opportunity for your questions.
Eilif Serck: Thank you.
Eilif Serck: A question on Peru effects I understand that.
Eilif Serck: There was a seasonal effect there there is a pressure off six its costs.
Eilif Serck: But to be considered.
Eilif Serck: The variations in revenues and the variation in EBITDA in terms of absolute EBITDA seems that there is much more loss of EBITDA then.
Eilif Serck: Revenues so.
Eilif Serck: If you could comment if there is any other kind of cost pressure in Peru.
Eilif Serck: That is in terms of NAV terms not just.
Eilif Serck: On operation deleveraging there.
Eilif Serck: I think it would be great and if you also could comment about Mexico.
Eilif Serck: You already see any kind of near shoring effects on being takes already if there is any anything concrete that is happening in Mexico regarding near Sherry. Thank you.
Richard M. Buskirk: Hey Mauricio, this is Eilif. I'll take the second, and Rick will comment on the seasonality and Peru being out of session for the first quarter. But in Mexico, yes, we're seeing an uplift in demand that we believe is related to nearshoring. We are seeing, you know, more demand for our undergraduate program than we've seen in the past. It's a little hard to say what part of that is directly related to nearshoring versus what is related to just, you know, a stronger GDP performance in Mexico over the last 12 months versus, you know, the last decade.
Speaker Change: Hey, Moshe this is <unk> I'll take the second.
Richard M. Buskirk: Rick will comment on this is not true.
Richard M. Buskirk: <unk> auto session for the first quarter.
Richard M. Buskirk: But in Mexico, Yes, we are seeing.
Richard M. Buskirk: An uplift in demand that we believe is related to near shoring.
Richard M. Buskirk: We are seeing more demand for undergraduate program than what we've seen in the past, it's little hard to say what part of that is directly related to near shoring versus what is related to just a stronger GDP performance.
Richard M. Buskirk: Mexico over the last 12 months versus.
Richard M. Buskirk: The last decade.
Richard M. Buskirk: But I think also those two things are somewhat related we are also seeing a significant increase in <unk>.
Richard M. Buskirk: But I think those two things are somewhat related. We are also seeing, you know, a significant increase in demand and interest among working adults for our fully online product. And again, I assume some of that is linked to nearshoring. But also, I think some of that is related to the fact that, during COVID, Laureate was seen to deliver high quality, fully online products in a very convenient manner for the working adult.
Richard M. Buskirk: Mind and interest among working adults for our.
Richard M. Buskirk: Fully online product.
Richard M. Buskirk: Again.
Richard M. Buskirk: I assume some of that is linked to near shoring, but also I think some of that is related to the fact that during COVID-19.
Richard M. Buskirk: Laurie it would seem to deliver high quality fully online product in a very convenient manner for the working adult.
Richard M. Buskirk: Society has been trained that that quality education can be delivered.
Richard M. Buskirk: In a fully online manner for the working adult student.
Richard M. Buskirk: And society has been trained that quality education can be delivered in a fully online manner for the working adult student. So, you know, some of it is the economy-related, some of it is, you know, product and innovation-related, but also, I think some of it is the fact that the GDP in Mexico is being boosted from the ushering in, and I think that is likely to be more of a macro trend as opposed to just, you know, a seasonal blip in the economic cycle.
Richard M. Buskirk: <unk>.
Richard M. Buskirk: Some of it.
Richard M. Buskirk: Economy related some of it is product and innovation related but also I think some of it is the fact that the GDP in Mexico is being boosted.
Richard M. Buskirk: From near Shoring and I think that is.
Richard M. Buskirk: Like it to be more of a.
Richard M. Buskirk: In macro trend as opposed to just.
Richard M. Buskirk: Seasonal.
Richard M. Buskirk: ZIP in the economic cycle.
Mauricio Zepeda: I'll pause there and see if that answers your question about Eilif, and then I can move on and answer your second question about Peru.
Speaker Change: Yes, Hi, Mary So I will take care of pause there and see if that answer your question for <unk> and then I can move on to answer your second question on Peru.
Eilif Serck: No, no, no. It's very clear.
Mauricio Zepeda: Right.
Richard M. Buskirk: Okay, great. I think your question on Peru is related to EBITDA, the down EBITDA in the first quarter in Peru. So there are really three effects going on there. The first effect is a change in the academic calendar where we shifted ten million dollars of revenue out of the first quarter that will be realized in the second half, and that is associated with seven million dollars in adjusted EBITDA. The second factor that happened is that obviously, our expense structure has a lag time lag effect on inflation, and our costs increased over four percent in Peru in the first quarter relative to last year, which is pushing it down when we took flat pricing.
Speaker Change: Very clear.
Speaker Change: Okay, Great I think on your question on Peru is related to the EBITDA down EBITDA in the first quarter in Peru, So theres really three effects going on there.
Richard M. Buskirk: The first effect is a change in the academic calendar.
Richard M. Buskirk: We shifted $10 million of revenue out of the first quarter.
Richard M. Buskirk: That will be realized in the second half.
Richard M. Buskirk: That is the associated $7 million and adjusted EBITDA. The second factor that happened is that obviously our expense structure is a lagging has a lagging effect of inflation in our costs increased over 4%.
Richard M. Buskirk: <unk> in the first quarter relative to last year, that's pushing it down when we took flat pricing.
Richard M. Buskirk: And then there was a third effect where, as expected, we anticipated a bit higher bad debt this year in that market. That was the lag effect of the C2 in the second half that we saw last year in the recession, so we expected that to roll forward and impact us in the beginning part of this year, and that was reflected in the guidance that we provided earlier in the year and it was reinforced today.
Richard M. Buskirk: And then there was a third effect, where as expected we anticipated a bit higher bad debt. This year in that market that was the lag effect of the <unk> and second half that we saw last year of the of the.
Richard M. Buskirk: Recession, so we expected that to roll forward impact us in the beginning of this year and that was reflected in the guidance that we provided earlier in the year and our reinforced today.
Richard M. Buskirk: The point is that, in absolute terms, I understand that there is this kind of revenue shift. It explains the revenues, but the absolute cost, there was an increase. So, per your answer, I understand there is to be an inflation lag and a kind of a provision for doubtful debts, right? That transition as well, if I understand correctly. That's correct.
Speaker Change: Okay I understand yes. Thank you.
Richard M. Buskirk: In absolute terms or as I understand that there is this kind of revenue shift is explains the revenues, but the absolute costs. There was an increase so for answering center there is two effects and inflation lagged and.
Richard M. Buskirk: A kind of a provision for doubtful debts right that transition as well.
Richard M. Buskirk: and you'll see that our financials in Q1 were bad, but they were up a little bit year over year in the first quarter.
Richard M. Buskirk: That's correct.
Richard M. Buskirk: Okay, and Youll see that in our financials in Q1 was bad debt was up a little bit year over year in the first quarter.
Richard M. Buskirk: Perfect, perfect. Thank you.
Speaker Change: Perfect perfect. Thank you.
Operator: I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Im showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Operator: Okay.
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