Q1 2025 Laureate Education Inc Earnings Call
Okay.
Good day, everyone and thank you for standing by welcome to the Laureate Education first quarter 2025 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
Speaker Change: You would need to press star one on your telephone you will then hear an automated message advising your hand, just raised to withdraw your question. Please 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 today, Adam Moore Senior Vice.
President of finance please.
Speaker Change: Please go ahead.
Speaker Change: Good morning, and thank you for joining us on today's call to discuss its already Education's first quarter 2025 results joining.
Speaker Change: Joining me on the call today are all of our Camden, President and Chief Executive Officer, and Rick Bus Kirk Chief Financial Officer.
Speaker Change: Our earnings press release is available on the Investor Relations section of our website at laureate Dot net.
Speaker Change: <unk> also posted a supplementary presentation to the website, which we'll be referring to during today's call. The.
Speaker Change: The call is being webcast and a complete recording will be available after the call.
Speaker Change: I'd like to remind you that suddenly information, we're providing today, including but not limited to our financial and operational guidance.
Speaker Change: 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 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. Our 10-Q filed 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 among others adjusted EBITDA and its related margin adjusted net income and adjusted earnings per share.
Speaker Change: Debt net of cash and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation.
Ireland: Now I'll turn the call over to Ireland.
Ireland: Thank you Adam and good morning, everyone 2025 is off to a good start and we are encouraged by the solid results from our recently completed intake cycles, which included peruse primary intake and the smaller secondary intake for Mexico.
Ireland: Enrollment results came in line with our expectations for both market with year over year, new enrollment growth of 8% for Mexico, and 6% in Peru through the completion of the intake cycles by middle of April.
Ireland: With the intake know finalized with good visibility into the remainder of the year and we are tightening the range of our full year guidance effectively raising the midpoint for total enrollment revenue and adjusted EBITDA.
Ireland: The result from this intake cycle further validates the resiliency of our business model.
Ireland: Our historical performance demonstrates that our business model is usually correlated with economic cycles.
Ireland: During more robust economic times and periods of GDP growth, we benefited from both strong volume growth and pricing power.
Ireland: In slower and more uncertain economic times as we are currently experiencing or business model has consistently proven to be resilient.
Ireland: Families tend to prioritize education over other forms of discretionary spending.
Ireland: Due to the Sterling wage premium from having a higher education degree.
Ireland: For the ability of our programs and this drove return on educational investment we deliver to our students.
Ireland: This resiliency was also demonstrated during the global financial crisis in 2008 to 2010, the COVID-19 pandemic and even more recently during the 2023 recession in Peru.
Ireland: For that reason, we remain confident in the growing demand for quality higher education in both Mexico and Peru.
Ireland: With our leading brands and strong digital capabilities, we feel very well positioned to capitalize on these secular growth trends in our markets.
Ireland: In the near term from a macro perspective, we continue to closely monitor.
Ireland: Political and external development in both markets, particularly as the U S Mexico trade discussions evolve.
Ireland: All the GDP growth and foreign direct investment has recently slowed we remain cautiously optimistic given Mexico's strategic position as the U S seeks to reduce its reliance on China.
Ireland: While recent trade tensions have introduced some uncertainty Mexico, Australia economic ties to the U S.
Ireland: Zone, physical discipline and more dovish monetary policy set the stage for solid foundation for growth in the coming years.
Ireland: In Peru, the recovery from the mid 2023 recession continues to gain traction with GDP growth projected at approximately 3% for 2025.
Ireland: Previous less affected by U S tariff policies.
Ireland: I just had a favorable macro backdrop due to low interest rates stable inflation and the currency that is correlated with U S dollar denominated commodity prices, such as copper gold and agricultural products.
Ireland: While the current macroeconomic backdrop in both Mexico, and Peru remains largely stable. We do anticipate continued volatility in the coming months and recognize that the evolving global trade dynamics may introduce near term pressures on GDP growth and foreign exchange rates.
Ireland: Both markets.
Ireland: As a reminder, our businesses our local businesses with revenues and expenses naturally much within each market.
Ireland: This insulates us from any material foreign currency transaction risks, we do face translation impacts as the U S dollar reporting company.
Ireland: At laureate our mission is to deliver affordable high quality education to prepare students for successful careers and lifelong achievement, while building Pride Trust and respect and our communities.
Ireland: For more than 25 years, we are honored that mission and positively influenced millions of lives, but by broadening access to quality higher education license.
Ireland: My sincere gratitude goes out to all faculty and staff, who have played a significant draw in our success. The impact we've had on society is profound and we measure that in many ways, including access to education student outcomes and affordability and quality of our offerings.
Ireland: We also take tremendous pride in tracking the magnitude of our institutions support to our local communities through free or low cost health services.
Ireland: Volunteering hours.
Ireland: In early April we published our 2024 impact to report and I encourage you to visit our website and download a copy to learn more about the impact and the outstanding work of our students faculty and institutions.
Ireland: Throughout the communities in Mexico and Peru.
Ireland: Just to touch on a few highlights.
Ireland: All four institutions are all placed star rated by Qs stars the highest weighting attainable in the categories of Employability inclusiveness online learning and social impact.
Ireland: 47% of our students are first generation University goers by <unk>.
Ireland: Expanding access to higher education return ambition into opportunity, enabling these students.
Ireland: Surpass their parents' economic stages and create lasting change for their families and communities.
Ireland: And nine out of 10 of our job seeking graduates are employed within 12 months of graduation.
Ireland: Our academic programs emphasize health Sciences.
Ireland: And business discipline careers, where there are large and growing demand by employers.
Ireland: I'm very honored to be part of an organization, which care, so deeply but 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 Buskirk for a more detailed financial overview of our first quarter performance as well as further details on our 2025 full year outlook Rick.
Rick Buskirk: Thank you <unk> before I discuss our financial performance for the quarter, Let me provide a few important reminders on seasonality.
Rick Buskirk: 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 approximately 80% of our total new enrollment activity for the year from.
Rick Buskirk: From a P&L perspective, both 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 on adjusted EBITDA for the year.
Rick Buskirk: In addition, the timing of the start of our classes can shift year over year, depending on various factors such as when public universities begin classes are when holidays occur.
Rick Buskirk: This in turn affects the timing of enrollments and revenue recognition and quarter over quarter comparability in 2025 at the beginning of classes, particularly in Peru started later versus 2024.
Rick Buskirk: Standing enrollment cycle into mid April and beyond the first quarter cut off as a result, approximately $26 million of revenue and $23 million and adjusted EBITDA will shift from the first quarter to the second half of the year.
Rick Buskirk: As I review, our operating results for the first quarter I will provide additional color on these timing related impacts and discuss enrollments in context of the cycles completion through mid April.
Rick Buskirk: Let me now move to the operating and financial performance for the first quarter starting on page 11.
Rick Buskirk: Enrollment results and associated pricing for the cycle, we're in line with our expectations in both markets.
Rick Buskirk: Adjusted for timing of semester starts new and total enrollment volumes increased 7% and 6% respectively. These growth rates represent completion of the intake cycles as compared to the corresponding intake period in the prior year.
Rick Buskirk: Revenue in the seasonally low first quarter was $236 million and adjusted EBITDA was $5 million. Both metrics were ahead of the guidance provided three months ago.
Rick Buskirk: On an organic constant currency basis, and adjusted for the academic calendar shift discussed earlier revenue for the first quarter was up 10% year over year and adjusted EBITDA increased by 132%, albeit from a small base.
Rick Buskirk: First quarter net loss was $20 million, resulting in a loss per share of <unk> 13.
Rick Buskirk: First quarter adjusted net loss was $17 million and adjusted loss per share was <unk> 11.
Rick Buskirk: Let me now provide some additional color on the performance of Mexico, and Peru, starting with page 13.
Rick Buskirk: Please note that all comparisons versus the prior year quarter or on an organic and constant currency basis.
Rick Buskirk: Let's start with Mexico.
Rick Buskirk: The first quarter represents a smaller secondary intake theyre large intake occurs each September and follows the northern hemisphere calendar.
Rick Buskirk: Mexico's new enrollment increased 8% versus the comparable intake cycle period in prior year led by strong growth in working adult focused fully online programs total enrollments were up 7% for the cycle.
Rick Buskirk: Pricing for the intake was in line with our cost of inflation for traditional face to face offerings.
Rick Buskirk: And our fully online product, we prioritized higher volume growth and kept pricing relatively flat.
Rick Buskirk: Adjusted for timing of the academic calendar Mexico's revenue for the first quarter increased by 11% compared to the prior year period due to volume growth and adjusted EBITDA was up 22% led by productivity gains and revenue flow through.
Rick Buskirk: Let's now transition to Peru on slide 14.
Rick Buskirk: The first quarter represents the primary intake for Peru is there.
Rick Buskirk: Our southern Hemisphere institution.
Rick Buskirk: For the first quarter, new and total enrollment came in line with our expectations underscoring a more favorable operating environment as Peru moves beyond last year's recession.
Rick Buskirk: Peruse, new enrollments increased 6% versus last year's comparable intake led by strong growth in young students and our premium brand and working adult focused fully online programs total enrollments were up 5% for the cycle pricing for our traditional face to face product during the intake was it.
Rick Buskirk: In line with inflation, we do expect a mix effect as we grew fully online programs faster than our face to face offerings.
Rick Buskirk: Adjusted for timing of the academic calendar peruse revenue for the seasonally low first quarter increased by 5% versus the prior year period.
Rick Buskirk: Adjusted EBITDA for the quarter adjusted for timing of the academic calendar was down $2 million compared to the prior year period due to seasonality. The first quarter in Peru is largely out of session summer period with limited revenue recognition, while we still incur fixed expenses as well as the investments for <unk>.
Rick Buskirk: <unk>.
Rick Buskirk: Let me now briefly discuss our balance sheet position.
Rick Buskirk: Laureate ended March with $110 million in cash and $115 million and gross debt for a net debt position of $5 million our balance sheet remains strong.
Rick Buskirk: During the quarter, we repurchased $42 million of stock and at quarter end had $56 million remaining under our stock repurchase authorization.
Rick Buskirk: Supported by a strong balance sheet and our cash accretive business model, we remain committed to continuing to return excess capital to shareholders.
Rick Buskirk: Moving onto our outlook for 2025, starting on page 18.
Rick Buskirk: As referenced earlier by island with the first intake now finalized and increased visibility into the year. We are tightening our full year 2025 guidance range by increasing the low end of the operational range and flowing through the FX benefit realized in the first quarter.
Rick Buskirk: The resulting impact to our 2025 guidance midpoint expectations are.
Rick Buskirk: One student increase and total enrollments.
Rick Buskirk: $10 million increase in revenues and approximately $5 million increase in adjusted EBITDA.
Rick Buskirk: I also want to remind you that in addition to the approximately $26 million shift in revenue and related profitability from Q1 to the second half of the year due to academic calendar timing. There are two additional factors to be aware of in our 2025 outlook.
Rick Buskirk: First our campus consolidations and Mexico are progressing well as a result of those activities. We do expect a one time revenue loss in 2025 of approximately $8 million.
Rick Buskirk: However, our more streamlined campus footprint will continue to allow us to be more efficient. We have continued to raise margins in Mexico and you will see that reflected in our strong consolidated margin growth expectations for 2025.
Rick Buskirk: Second with the significance of the movement in the Mexican peso, we do expect our reported revenues in 2025 to be flat to slightly up versus 2024, however, given local currency revenue growth margin momentum in the business and its stable Peruvian Sol we still.
Rick Buskirk: Expect to deliver growth in both U S dollar reported adjusted EBITDA and cash flow based on guided exchange rates. While we do know that we have seen a very recent improvement and the strength of the Mexican peso. We are maintaining at 25 euro peso to dollar rate in our guidance as was used in our February <unk>.
Rick Buskirk: <unk> for the remainder of the year given overall volatility.
Rick Buskirk: As a reminder, as a local business our revenues and expenses are naturally hedged within each market, while we anticipate continued FX volatility.
Rick Buskirk: Main impact to our business will be limited to U S dollar translation.
Rick Buskirk: We now expect our full year 2025 results to be as follows total enrollment to be in the range of 491000 to 495000 students reflecting growth of 4% to 5% versus 2024.
Rick Buskirk: Revenue to be in the range of one 560 billion to $1 $5 $75 billion, reflecting flat performance to growth of 1% on an as reported basis and growth of 6% to 7% on an organic constant currency basis versus 2024 or <unk>.
Rick Buskirk: 7% to 8%, excluding the impact from campus consolidations in Mexico.
Rick Buskirk: Adjusted EBITDA to be in the range of 473 million to $480 million, reflecting growth of 5% to 7% on an as reported basis.
Rick Buskirk: The 11% to 13% on an organic constant currency basis versus 2024.
Rick Buskirk: This would result in an increase in adjusted EBITDA margins of approximately 150 basis points at the midpoint of our guidance.
Rick Buskirk: We anticipate further margin expansion to be driven by operating leverage from revenue growth our campus consolidations in Mexico and lower corporate expenses.
Rick Buskirk: Lastly for 2025, we expect adjusted EBITDA to Unlevered free cash flow conversion of approximately 50% on a reported basis.
Rick Buskirk: This implies strong double digit year over year growth in U S dollar reported cash flows.
Rick Buskirk: Now turning to our second quarter guidance for the second quarter of 2025, we expect revenue.
Rick Buskirk: Revenue between $499 million and $504 million.
Rick Buskirk: Adjusted EBITDA between $191 million to $194 million.
Rick Buskirk: That concludes my prepared remarks, I'll, let if I'm handing it back to you for closing comments.
Speaker Change: Thank you Rick.
Speaker Change: Let me close by saying that market dynamics remained favorable in Mexico, and Peru, even with the backdrop of macroeconomic uncertainty.
Speaker Change: Both markets are attractive with significant growth opportunities participation.
Speaker Change: Participation rates and higher education are growing and still well below developed markets and the private sector plays a critical role, but providing over half of the total seat capacity in both markets on a combined basis.
Speaker Change: With a strong balance sheet best in class universities and resilient business model. We are confident in our continued ability to grow faster than the overall market and deliver great value to our shareholders.
Speaker Change: Operator that concludes our prepared remarks, and we're now happy to take any questions from the participants. Thank you as a reminder, if you have a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby while we can.
Paul: Paul the Q&A roster.
Speaker Change: And our first question comes from Jeff Silber of BMO capital markets. Your line is open.
Jeff Silber: Good morning, and thanks for taking my questions.
Jeff Silber: In your prepared remarks, you talked about the uncertain environment and the backdrop, but the fact that your business tends to be resilient.
Speaker Change: I'm just curious are you seeing any hesitancy from potential students given what's going on and I'm, specifically interested in Mexico in terms of the upcoming fall intake period.
Jeff Silber: Okay. Thanks, Jeff.
Speaker Change: We've just completed our search.
Speaker Change: Secondly, your intake, which is largely working adult students program.
Speaker Change: And that students, but it's an issue.
Speaker Change: Is less dependent on wholesale income because it is funded by <unk>.
Speaker Change: <unk> professional so we saw very robust demand during this intake.
Speaker Change: We do expect the.
Speaker Change: The primary intake.
Speaker Change: In the third quarter to mirror more.
Speaker Change: Of last year.
Speaker Change: At the same time, which was 45%. So we will see how it goes it's way too early to give any specific guidance.
Speaker Change: Yes.
Speaker Change: We are assuming similar economic environment.
Four four.
Speaker Change: This didn't take as we saw at the end of last year when the slowdown in the economy had already started in Mexico.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: And our next question comes from Mauricio Cepeda of Morgan Stanley. Your line is open.
Mauricio Cepeda: Hi, good morning, Thanks for the opportunity here I have two questions. The first one about the intake again, sorry for insisting on debt. So.
Mauricio Cepeda: So I understand there was a kind of a time shifts between 24 and 25 in terms of which was the peak cycle.
Mauricio Cepeda: But judging from the numbers in the release it seems that there was a lot of intake that are happening in April.
Mauricio Cepeda: For for that growth to happen. So is due to the rising interpretation.
Mauricio Cepeda: Or is there any order kind of normalization you may just a numbers.
Mauricio Cepeda: Try to compare apples to apples in respect to the intake cycle.
Mauricio Cepeda: And and the second question is a little bit about effects.
Mauricio Cepeda: So I understand that you were using the effects from Q1.
Mauricio Cepeda: And this guidance.
Mauricio Cepeda: Let's see Republishing.
Mauricio Cepeda: But he would give naturally a room in terms of effects because of it.
Mauricio Cepeda: It affects us more favorable to you know why the decision to use the fast effects rather than.
Mauricio Cepeda: Guidance publication date.
Mauricio Cepeda: FX. Thank you.
Mauricio Cepeda: Hey, Marci I'm happy to take.
Mauricio Cepeda: First on that both of those questions, let's start first with E enrollment engaged.
Mauricio Cepeda: So normalized for the academic calendar change.
Mauricio Cepeda: <unk>, 7%, new enrollment, 8% in Mexico, and 6% in Peru.
We then 8% in if we deconstruct that by market.
Mauricio Cepeda: We actually closed our intake cycle in Mexico in Q1, So you will see not only.
Mauricio Cepeda: On a reported basis, but also on normalized basis does the theme of 8% intake for the quarter.
Mauricio Cepeda: It happened in Peru, where the academic calendar started two weeks later.
Mauricio Cepeda: And Thats, where the normalization our curves and it's simply that just the delay of two weeks.
Mauricio Cepeda: Our academic calendar enrollment start in Peru, which takes Peru from a reported basis that you will see in the guided presentation of.
Mauricio Cepeda: Negative 9% to.
Mauricio Cepeda: <unk> an adjustment for those two weeks of 6%.
Mauricio Cepeda: There is no other normalization to other than in two weeks.
Mauricio Cepeda: The deferral on the enrollment intake second quarter.
Mauricio Cepeda: I'll pause there and see if that answers your question.
Mauricio Cepeda: Yes.
Mauricio Cepeda: So if I understood. The point is that the beginning of the cycle was later so it's not that you are adding up.
Mauricio Cepeda: The April we intake to compose the begin to anting take for each year.
Mauricio Cepeda: Joe.
Thank you put this way instead of having the.
Mauricio Cepeda: <unk>.
Mauricio Cepeda: The main.
Mauricio Cepeda: The first semester start in late March it started in the second week of April.
Mauricio Cepeda: And that view aligns to.
Mauricio Cepeda: Two market needs in the EU.
Mauricio Cepeda: A market known in the market.
Mauricio Cepeda: Okay understood.
Mauricio Cepeda: Thank you.
Mauricio Cepeda: Thank you and your second question on that.
Mauricio Cepeda: Sorry, your second question on FX.
Mauricio Cepeda: To your point, we guided at 2050 rate of the peso to the dollar in February.
Mauricio Cepeda: We do acknowledge that the peso has been volatile and has come down in the most recent 10 days trading days.
Speaker Change: As low as around $90 $80 $90 60.
Mauricio Cepeda: But given the fact that there is a tremendous amount of volatility in <unk>.
Mauricio Cepeda: And that market, we saw it prudent to maintain that 2015 as again as recent as about 10 trading days ago. It was at 2015.
Mauricio Cepeda: So that was our approach.
Mauricio Cepeda: Which is not what we typically do to your point, we usually guide, but at the moment, but we are not in a typical environment in terms of FX.
Mauricio Cepeda: Volatility.
Mauricio Cepeda: Very clear thank you.
Mauricio Cepeda: Thank you as a reminder, if you have a question. Please press star one one.
Jan: And our next question comes from Jan <unk> of BTG Pactual. Your line is open.
Jan: Good morning, Rick Good morning, everyone have two quick questions here. The first one is regarding the advance fully digital courses.
Jan: Could you please give us more color on the breakdown in development.
Jan: Fully digital courses in this first intake cycle. That's the first one and the second is regarding capital allocation of that you repurchased.
Jan: $42 million in this first quarter still holding some room until the and the existing buyback program. So should we expect similar capital allocation in the following quarters as that space for even bolder annualized payout going forward this year.
Jan: That's that's the two questions here. Thank you.
Jan: Great well.
Jan: Good morning.
Jan: The digital.
Jan: Fully online courses on growing at a very robust rates double digit in both markets is growing faster than our.
Jan: Campus face to face hybrid delivery.
Jan: Russ digital education to fully online indications is really the way that we are penetrating the working adult market. We're the absolute leader in both Mexico, and Peru will come to quality digital education.
Jan: We are.
Jan: Market leader when it comes to innovate that you launched a new program.
Jan: Program, we are growing very robustly.
Jan: We have about 100 votes.
Jan: As students, so about 20% or a student.
Jan: Relation and roll in.
Jan: Fully online digital liberally.
Jan: And I said.
Jan: And the most costly clip than than than face to face.
Jan: Three to four.
Jan: The momentum.
Jan: The other thing I can share with you.
Jan: On digital learning is that we are further along in Mexico.
Jan: We are in.
Jan: We are very encouraged with the momentum in both markets.
Jan: It was February who'll go into capital allocation.
Jan: The address your question.
Jan: Okay Yeah.
Jan: That's the question.
Jan: Perfect.
Jan: Yes.
Jan: Capital allocation.
Jan: We are committed to return all excess.
Jan: Cash to our shareholders.
Jan: We have allocated and guided vis vis capex to support growth in the business.
Jan: And that means that 50% of our EBITDA will convert into.
Jan: Free cash flow.
Jan: As Steve noted we are planning to return.
Speaker Change: Shareholders and recorded $100 million.
Jan: Program that we are at the end of <unk>, we were essentially halfway through.
Speaker Change: So we will continue.
Speaker Change: That program and discussed with our board.
Speaker Change: Opiate.
Speaker Change: Actual splenda program that's been exhaustive.
Speaker Change: That's clear thank you very much.
Thank you. This concludes the question and answer session in today's conference. Thank you for your participation and you may now disconnect.
Speaker Change: Thank you all.
Speaker Change: Goodbye.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].