Q4 2024 Laureate Education Inc Earnings Call
In listen only mode. After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message advising your hand as rate. So withdraw your question Press Star. One again, please be advised that today's conference is being recorded I would now like.
To hand, the conference over to your Speaker, Adam Morse Senior Vice President of Finance.
Speaker Change: Good day and welcome to the Fiscal Year 2024 Laureate Education, Inc. Earnings Conference Call.
Please go ahead.
Adam Morse: Good morning, and thank you for joining us on today's call to discuss Lord Education's fourth quarter and yearend 2024 results.
Speaker Change: At this time, all participants will be in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star-one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, 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 speaker, Adam Morse, Senior Vice President of Finance.
Speaker Change: Joining me on the call today are islands for Kimpton, President and Chief Executive Officer, and Rick Baas, Kirk Chief Financial Officer.
Speaker Change: Earnings Press release is available on the Investor Relations section of our website at laureate doesn't it.
Speaker Change: We have also posted a supplementary presentation to the website, which we'll be referring to during today's call.
Speaker Change: The call is being webcast and a complete recording will be available after the call.
Speaker Change: I would like to remind you that some of the information, we're providing today, including but not limited to our financial and operational guidance constitutes forward looking statements within the meaning of applicable U S Securities laws.
Speaker Change: Forward looking statements are subject to risks and uncertainties that may change at any time.
Speaker Change: And therefore, our actual results may differ materially from those we expected.
Speaker Change: 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 and Exchange Commission earlier this morning, as well as other filings made with the SEC.
Speaker Change: In addition, all forward looking statements are based on current expectations as of the date of this conference call.
Speaker Change: And we undertake no obligation to update any forward looking statements.
Speaker Change: Additionally, non-GAAP measures that we discuss including and among others adjusted EBITDA and its related margin adjusted net income and adjusted earnings per share 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.
Speaker Change: Patient.
Speaker Change: Let me now turn the call over to iOS.
Speaker Change: Thank you Adam and good morning, everyone. I am pleased to report another strong year for laureate in 2024, we continued to deliver on our commitments to all stakeholders.
Speaker Change: Through disciplined execution, we achieved robust operating results.
Speaker Change: Driving our margin profile through new historic high and further reinforcing our dedication to continued growth and enhanced profitability.
Speaker Change: Oh testing accretive business model and strong balance sheet enabled us to return more than $100 million of capital to shareholders in 2024.
Speaker Change: At the end of the year, we were essentially net debt free.
Speaker Change: And we remain well positioned to execute on our growth plans, while prioritizing return of excess capital to shareholders.
Speaker Change: We are the largest higher education provider in both Mexico, and Peru, and we have proven that excellence and scale can go hand in hand.
Speaker Change: In 2024, we continue to strengthen our academic offerings and made further investments in our health Sciences portfolio. This included the opening of six new medical schools at our campuses throughout Mexico, and Peru, along with two new dental schools and one new Veterinary school.
Speaker Change: Or institutions are consistently ranked among the top universities in their respective countries and recognized for their leadership in academic excellence.
Speaker Change: Today, I am proud to share our latest ratings from <unk>, one of the world's leading independent University ranking and rating organizations for the second consecutive year, all universities in Mexico, and Peru have achieved five star rating, the highest rating attainable and employability.
Speaker Change: <unk> learning inclusiveness and social impact.
Speaker Change: In addition to cure star ratings or institutions continued to earn recognition in the local market for academic excellence and brand leadership.
Speaker Change: A few examples from this past year include.
Speaker Change: In Peru for the fourth consecutive year UPC was ranked the number one education brand in the country by Marco and even more impressively. It was ranked number 11, among all foreign and domestic consumer goods brands in the country and we ranked ahead of companies such as Toyota and Microsoft and just behind Google.
Speaker Change: <unk>.
Speaker Change: In Mexico UBM was ranked the number two best private University. According to Reader's Digest 2024 ranking second only to take the Monterey.
Speaker Change: Additionally, our value brands in both markets UPN in Peru, and Unitek in Mexico are no ranked in the top 10 in their respective countries by the same.
Speaker Change: Ranking agencies.
Speaker Change: I extend my deepest gratitude to our faculty and staff for their continued commitment to academic excellence and I congratulate them on these outstanding recognitions.
Speaker Change: Looking ahead to 2025, we see continued growth opportunities in our local markets, including building and outfitting four new campuses for our value brands two of which we plan to open during 2025.
Speaker Change: This represents our first new tempers launches since 2019.
Speaker Change: We are also expanding our reach through continued investment in digital education.
Speaker Change: We remain confident that the demand for quality higher education in both Mexico, and Peru will continue to increase.
Speaker Change: This demand is fueled by rising participation rates strong waste premiums for graduate and the affordability of our programs.
Speaker Change: Additionally, the private sector, which accounts for over 55% of the combined University seats in the two countries.
Speaker Change: A critical role in the market due to limited public resources.
Speaker Change: Despite some geopolitical uncertainties in Mexico, particularly the recent tariff threats and the related trade complications with the United States, we remain cautiously optimistic.
Speaker Change: Mexico has strong historical ties to the United States that are important to both countries.
Speaker Change: Mexico also favors a more dovish monetary policy and it maintains a strong fiscal discipline in its 2025 national budget.
Speaker Change: All these factors provide what we believe to be a solid base for growth in the coming years.
In Peru, the economy has recovered from the recent recession, which began in mid 2023.
Speaker Change: GDP growth for 2025 is expected to reach approximately 3%.
Speaker Change: You should benefit from a favorable macro backdrop, including low interest rates stable inflation and the currency that is highly correlated to U S dollar denominated commodity prices.
Speaker Change: We closely monitor political and external development in both markets, especially as the U S and Mexico trade discussions evolve we do expect continued volatility in the Mexican peso in the coming months.
Speaker Change: And based on current exchange rates, we anticipate significant foreign currency translation headwinds.
Speaker Change: Our 2025 reported financial results.
Speaker Change: As a reminder, we are not exposed to any material transaction risks from foreign currency as our revenues and operating expenses unmatched in local markets.
Speaker Change: But as the U S dollar denominated reporting company, we are subject to translation impacts.
Speaker Change: Our guidance.
The case that we will be flat to slightly down year over year. It reported revenues for 2025. However, we still expect to deliver U S. Dollar reported growth in both adjusted EBITDA and Unlevered free cash flow due to the stability of the Peruvian Sol robust momentum in local <unk>.
Speaker Change: Currency revenue growth and our continued margin expansion efforts.
Speaker Change: That concludes my prepared remarks, and I will now turn the call over to Rick <unk> for a more comprehensive financial overview of the fourth quarter and the full year 2020 for performance as well as further detail on our 2025 outlook.
Speaker Change: Rick.
Speaker Change: Thank you I lift as a reminder, our higher education is a seasonal business.
Speaker Change: Although the fourth quarter is not a large intake period. It represents a strong earnings quarter for the company as classes are in session for much of the period.
Speaker Change: Let's start with page 11, which highlights our strong operating and financial performance for the fourth quarter.
Speaker Change: Revenue in the fourth quarter was $423 million and adjusted EBITDA was $141 million.
Speaker Change: On an organic constant currency basis revenue for the fourth quarter was up 10% year over year, driven by 5% and total enrollment volume.
Speaker Change: And favorable price mix.
Speaker Change: Adjusted EBITDA for the fourth quarter was up 14% year over year on an organic constant currency basis with strong flow through margins on revenue growth.
Speaker Change: Adjusted EBITDA for timing of the academic calendar the comparable growth for both revenue and adjusted EBITDA was 8% for the fourth quarter, which includes the deferral of some costs from the third quarter as discussed on our last call.
Speaker Change: Now moving to page 12, and full year results for 2020 for both new and total enrollment increased 5% versus prior year.
Speaker Change: Full year revenue was $1 $5 $67 billion and adjusted EBITDA was $450 million.
Speaker Change: This resulted in an adjusted EBITDA margin of 28, 7%, which is a new historic high for Lori yet.
Speaker Change: On an organic constant currency basis revenue for the year increased by 7% and adjusted EBITDA was up 9%.
Speaker Change: <unk> and a 43 basis point improvement in margins led by 176 basis point increase in Mexico.
Speaker Change: Full year net income was $296 million, resulting in earnings per share of $1 92 per share.
Today, we are also introducing new non-GAAP metrics for our adjusted net income and adjusted earnings per share for our investors.
Speaker Change: We believe these metrics will provide a clearer picture of the company's underlying profitability and a more accurate reflection of our core performance.
Speaker Change: And help shareholders better compare our performance over time.
Speaker Change: Calculation and reconciliation of these metrics to their nearest GAAP counterpart can be found in our earnings release and earnings presentation.
Speaker Change: Core adjustments you will see for 2024, and which we plan to adjust for in the future related to discrete tax items as well as the non cash FX gain or loss on intercompany balances.
Speaker Change: For 2024, our full year adjusted net income was $209 million and adjusted earnings per share was $1 35 per share.
Speaker Change: We hope you find these metrics helpful. As you evaluate our reported results going forward.
Speaker Change: Let me now provide some additional color on the performance of Mexico, and Peru, starting with page 14.
Speaker Change: Please note that all comparisons versus prior year are on an organic and constant currency basis.
Speaker Change: Let's start with Mexico.
Speaker Change: New enrollments increased 4% for the year led by growth in fully online programs focused on working adults across both our premium and value brands.
Speaker Change: Pricing for the year was slightly above our cost of inflation for both traditional face to face and fully online products.
Speaker Change: Mexico's revenue for the fourth quarter increased 15% compared to the prior year period.
Speaker Change: Adjusted EBITDA for the fourth quarter was up 29% year over year due to strong operating leverage on revenue growth and productivity gains.
Speaker Change: When adjusted for timing of the academic calendar fourth quarter revenue was up 12% and adjusted EBITDA increased 20%.
Speaker Change: For full year of 2020 for revenue growth of 10% was driven by an 8% increase in average total enrollments and 2% of price mix.
Speaker Change: Adjusted EBITDA increased 19% in 2024 versus the prior year period, expanding Mexico's margins by 176 basis points to 24, 5%. We are on track to not only achieve but exceed our 25% margin target in that market.
Speaker Change: Let's now transition to Peru on slide 15.
New enrollments increased 6% for the year driven by strong enrollment performance during the secondary intake cycle in September following peruse macroeconomic recovery.
Speaker Change: In addition to pent up demand from students who deferred during the previous intake cycle. We also experienced strong growth in fully online as we continue to scale up that model.
Speaker Change: Revenue growth for the fourth quarter was 5% adjusted.
Speaker Change: Adjusted EBITDA for the fourth quarter declined 9% year over year, primarily due to the cost deferral from the third quarter that I referenced earlier as well as higher bad debt associated with the tail effects of the recession from the first half of the year.
Speaker Change: When adjusted for timing of academic calendar fourth quarter revenue increased 3%, while adjusted EBIT declined 11%.
Speaker Change: For full year of 2020 for revenue in Peru increased 4% over the prior year driven by a 2% increase in average total enrollments and 2% of price mix.
Speaker Change: Adjusted EBITDA decreased 1% for the year versus the prior year with the decline in margins as expected as incremental revenue flow through was partially offset by enhanced discounts and scholarships from the first quarter intake.
Speaker Change: And higher levels of bad debt provisioning, both resulting from the softer macroeconomic conditions in the first half of the year and an increase in marketing expenses.
Speaker Change: Let me now briefly discuss our balance sheet position.
Speaker Change: Lorie had ended the year with $91 million in cash and $102 million and gross debt for a net debt position of $11 million.
Speaker Change: During 2024, we've returned $102 million to shareholders through accretive share repurchases and still have $98 million of unused authorization remaining.
Speaker Change: Since 2019, we have returned nearly $3 billion of capital to shareholders through share repurchases cash distributions and cash dividend.
Speaker Change: With a strong balance sheet and cash accretive model, we anticipate continuing to return excess capital to shareholders. This year.
Speaker Change: Let's now transition to our discussion on guidance.
Speaker Change: Laurie I went through a significant transformation from 2019 through 2021.
Speaker Change: Coming out of that process, we were a different company and believed it was important to give investors insight into our new profile and growth trajectory.
Speaker Change: At that time, we outlined a targeted financial profile over a three to five year period with the objective of delivering a compound annual growth rate of 5% to 7% for total enrollment.
Speaker Change: Compound annual growth rate of 8% to 10% for revenue on a constant currency basis.
Speaker Change: Adjusted EBITDA margins at 30% or above and adjusted EBITDA to Unlevered free cash flow conversion of 50% plus.
Speaker Change: Based on the 2025 guidance, we were priding today, we will have achieved that targeted profile of a remarkable accomplishment for our organization.
Speaker Change: And Lori yet we have built a strong foundation for revenue growth with an improved financial position and a continuing unwavering commitment to academic quality that aims to deliver strong outcomes for all our stakeholders.
Speaker Change: Having achieved our new financial profile and with L'oreal now better understood by the market instead of providing a new three to five year targeted profile, we will focus on annual and quarterly guidance as noted on page 19.
Speaker Change: We remain excited about the growth opportunities in Mexico, and Peru, and expect continued operating momentum in both markets on a local currency basis during 2025.
Speaker Change: Before providing our specific guidance ranges I wanted to note a few important factors affecting our outlook for the year.
First we have made good progress on our campus consolidation initiatives in Mexico as a result of those initiatives we.
Speaker Change: We do expect a onetime revenue loss in 2025, a $13 million or an approximately 1% impact to year over year revenue growth.
Speaker Change: However, our more streamlined campus footprint, we will continue to allow us to be more efficient and you will see that reflected in our strong margin growth expectations for 2025.
Speaker Change: Second as I noted, we are closely monitoring political and external factors in Mexico, particularly in respect to the recent volatility in the Mexican peso. The peso continued to weaken in the fourth quarter with current spot FX rate approximately 12% weaker than the 2024 average.
Speaker Change: Creating an expected translation impact on our as reported dollar guidance.
Speaker Change: With the significance of the movement in the Mexican peso, we do expect our reported revenue in 2025 to be flat to slightly down versus 2024, however, given local currency revenue growth margin momentum in the business and a stable Peruvian Sol, we still expect to deliver growth.
Speaker Change: In both U S dollar reported adjusted EBITDA and cash flow based on current exchange rates.
Speaker Change: Lastly, we are anticipating an intra year shift in the academic calendar in both markets as further detailed on page number 22.
In summary, approximately $27 million in revenue and related profitability is expected to shift from the first to the fourth quarter due to classes starting one to two weeks later this year as compared to last.
Speaker Change: Now, let me move on to our guidance ranges.
Speaker Change: Based on current FX rates, we expect full year 2025 results to be as follows.
Speaker Change: Total enrollments to be in the range of 489000 to 495000 students, reflecting growth of 4% to 5% versus 2024.
Speaker Change: Revenues to be in the range of 154 5 billion to $1 $5 seven zero billion, reflecting flat to down 1% performance on an as reported basis, but growth of 6% to 7% on an organic constant currency basis versus 2024 or 7% to eight person.
Speaker Change: <unk>, excluding the impact from campus consolidations in Mexico.
Speaker Change: Adjusted EBITDA to be in the range of 467 million to $477 million, reflecting growth of 4% to 6% on an as reported basis and 11% to 13% on an organic constant currency basis versus 2024.
Speaker Change: This would result in an increase in adjusted EBITDA margins of approximately 150 basis points at the midpoint of our guidance.
Speaker Change: We anticipate further margin expansion to be driven by operating leverage from revenue growth our campus consolidations in Mexico and lower corporate expenses.
Speaker Change: Lastly for 2025, we expect adjusted EBITDA to Unlevered free cash flow conversion of approximately 50% on a reported basis, which would imply a strong double digit growth in U S. Dollar reported cash flows.
Speaker Change: Now turning to our first quarter guidance as a reminder, Q1 is a seasonally low quarter as classes are largely out of session in January and much of February. In addition, our guidance reflects the inter year seasonality change I discussed earlier.
Speaker Change: For the first quarter of 2025, we expect revenue between $221 million and $226 million.
Speaker Change: Justice EBITDA between negative $7 million to negative $4 million.
Speaker Change: That concludes my prepared remarks, I left I'm handing it back to you for closing comments.
Speaker Change: Thank you Rick.
Speaker Change: The largest private provider of higher education in both of our markets, we are well positioned to capitalize on growth opportunities with our leading brands.
Speaker Change: <unk> digital capabilities and focus on academic quality and student outcomes.
Speaker Change: And as an established emerging market company with a developed market governance. We are looking forward to another strong year in which we continued to create value for all stakeholders.
Speaker Change: Our focus remains on transforming the lives of the students in all markets, but providing greater access to affordable quality higher education.
Speaker Change: Operator that concludes our prepared remarks and are happy to take any questions from the participants.
Speaker Change: Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star One again, one moment, while we compile the Q&A roster.
Speaker Change: And our first question will come from the line of Jeff Silber with BMO capital markets.
Speaker Change: Thank you so much.
Speaker Change: Wanted to start with Mexico.
Speaker Change: You just mentioned you know what's going on in the environment, there and I know like specifically with some of the noise about tariffs. It doesn't really have a direct impact on your business, but has this made the economic environment a bit more uncertain and could this impact enrollments going forward.
Jeff: Good morning, Jeff.
Speaker Change: You are right that we are a local business.
Jeff: And.
Jeff: Not directly impacted by the GOP.
Jeff: Political.
Jeff: Discussions around tariffs and trade however.
Jeff: In good economic times when GDP.
Jeff: Our strong and robust we do get some tailwind.
Jeff: And so what we saw in.
Jeff: In the latter part of last year, we saw a little bit of a slowdown in foreign direct investment and.
Jeff: Capex spend by.
Jeff: Hi.
Jeff: Foreign companies as well.
Jeff: We'll wait to get rid of a wait and see attitude towards the U S trade discussions.
Jeff: That slowed down GDP, a little bit from being.
Jeff: In the first half of the year at about 3% to about 1% in the second half and of course that impacts our business somewhat.
Jeff: Consumer discretionary also slow down a little bit with the overall economy, but as we have proven we are doing.
Jeff: Extraordinarily well during strong economic times, and we're doing pretty good pretty well.
Jeff: Economic time, just because of the strong value proposition.
Jeff: We offer our customers so.
Jeff: Hopefully that provides some additional.
Jeff: Color for you.
Jeff: If I could just drill down a little bit on there are you assuming an acceleration in GDP growth in Mexico are just at the current environment.
Jeff: Right here.
Jeff: So we are.
Jeff: Our guidance is based on the current consensus GDP of about 1% GDP growth for 2025 so.
Jeff: Pretty pretty benign economic environment in 2025, we do expect that there will be volatility in 2025 as the trade discussions.
Jeff: Being wrapped up.
Jeff: And we are more bullish.
Jeff: For 2026 and beyond.
Jeff: Okay. That's helpful. If I could just sneak in one more you talk about.
Speaker Change: Returning excess capital to shareholders remains a priority can we get a little bit more color on that and maybe we could just step back what is your current capital allocation policy.
Jeff: So we.
Jeff: We have.
Jeff: Talked about for last couple of years.
Jeff: An objective of delivering 50% free cash flow conversion on our EBITDA on an unlevered basis.
Jeff: That's been a little bit of noise in that number loss last year.
Jeff: As we were wrapping up some.
Jeff: Tail liabilities related to those due to taxes.
Jeff: Our.
Jeff: Legacy structure that is now behind us.
Jeff: We expect to deliver.
Jeff: Free cash flow conversion of 50%.
Jeff: And that is after supporting growth in the business.
Jeff: Around 5% of revenues in Capex to support.
Jeff: Our growth momentum of 567%.
Jeff:
Jeff: Volume growth.
And.
Jeff: So therefore, you should take it that 50% of the Unlevered free cash flow will be returned to shareholders.
Speaker Change: 50% of our.
Speaker Change: EBITDA all available free cash flow will be returned to shareholders.
Speaker Change: Okay. That's really helpful. Thanks, so much.
Speaker Change: Thank you as a reminder, if you have a question. Please press star one one.
Speaker Change: I'm showing no further questions in the queue at this time actually we do have one from Lucas Nagano with Morgan Stanley. Your line is open.
Lucas Nagano: Either Rick Thanks for the space here I have two questions, especially as related to the tax rate.
Speaker Change: Chris substantially.
Speaker Change: It is far too high 30, even if we exclude the one off impact.
Speaker Change: Q3.
Speaker Change: So do you see this level as the run rate for now and the second question is.
Speaker Change: Related to the flu.
Speaker Change: Intake.
Speaker Change: First half's intake this year has kind of a similar baseline.
Speaker Change: Second half of last year.
Speaker Change: So given the positive performance last year do you see.
Speaker Change: Names.
Speaker Change: Verbal environment It is Brian thank.
Speaker Change: Thank you.
Rick Baas: Great Rick do you want take the tax rate and I can pick up on the printed yes. Good morning.
Rick Baas: On a reported basis, our book effective tax rate was around 29% you're right.
Rick Baas: You need to adjust for the noncash FX gain loss on the pre tax.
Rick Baas: Number so that that was over $70 million and then you need to adjust for the.
Rick Baas: The reversal of an accrual of a discrete tax item of around 38 on the tax side. If you adjust for those two you get to around 40%, which is what we said our run rate is below 40%.
Rick Baas: The tax rate.
Rick Baas: Great.
Rick Baas: Lucas and your second question.
Speaker Change: Or a little more than two thirds through our main intake in Peru, which means that the next four to six weeks a very important period for us as we are wrapping up our promotional campaigns.
Speaker Change: The market is improving as evidenced by robust GDP expectations of <unk>.
Speaker Change: Three plus percent for GDP growth in 2025.
Peru that said, we do see some lingering effects of the recession, particularly in the more price sensitive value segment.
Speaker Change: Yeah.
Speaker Change: Does that.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Very helpful.
Speaker Change: Great. Thank you.
Speaker Change: Thank you and Im showing no further questions in the queue. At this time. This concludes today's program. Thank you all for participating you may now disconnect.