Laureate Education Inc
NASDAQ:LAUR
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
12.51
19.52
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Laureate Education Inc
You don't have any saved screeners yet
Hello and thank you for standing by. Welcome to the Q4 2021 Laureate Education Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Adam Morse, Senior Vice President of Finance. Please go ahead.
Good morning and thank you for joining us on today's call to discuss Laureate Education's fourth quarter and year-end 2021 results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer, and Richard Buskirk, Chief Financial Officer. Earnings press release is available on the Investor Relations section of our website at laureate.net. We have 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. I would like to remind you that some of the information we are providing today, including, but not limited to, are financial and operational guidance constitutes forward-looking statements within the meaning of applicable US securities laws. Forward-looking statements are subject to risk and uncertainties that may change at any time. And therefore, our actual results may differ materially from those we expected. 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 US Securities and Exchange Commission order 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 and among others, adjusted EBITDA and its related margin, total cash, net of debt, and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. Let me now turn the call over to Eilif.
Thank you, Adam and good morning, everyone. 2021 was a year of structural transformation for Laureate. We completed all our hunting divestitures as very accretive multiples. We paid all our debts. We significantly increased both our margins and free cash flow generation. And we returned nearly $1.8 billion of capital to our shareholders. Laureate is known as strong and focused leader in higher education in Spanish-speaking Latin America. The growth agenda we initiated during the first half of 2021 continues to drive strong performance. Our fourth quarter results were ahead of guidance. And for the full year 2021, we grew organic constant currency revenue by 9 % and adjusted EBITDA by an impressive 39 %. The past two years have tested the resilience and adaptability of our students, faculty, and staff, as well as our entire organization. I want to thank our faculty and staff once again for their agility and commitment to deliver on our promises to our students during another extraordinary year. [Indiscernible] damage is not over. Infection rates are declining rapidly in both Mexico and Peru. And we are now readying our campuses for a return of students this semester. We look forward to welcoming students and faculty back on site, and we'll ensure we do that in a safe and responsible manner. We know our students are excited to get back to campus. As we begin 2022, I'm very encouraged by the trends in the business and our growth momentum. We're seeing positive signs from a market perspective and in terms of the effectiveness of our growth initiatives. Let me briefly remind you of the market dynamics of higher education in Mexico and Peru. Both countries are large and attractive markets with a combined population of more than a 160 million people. Participation rates are growing but still well below the levels we see in developed markets. Thus, providing significant headroom for growth. The regulatory conditions are clear and very conducive to private participation in higher education in both Mexico and Peru. Over half the student population in the combined market is served by the private sector. And Laureate is a quality operator at scale with approximately 200,000 students in each of our markets. We own the leading brands in both Mexico and Peru. And our institutions are among the most highly reputed universities in their respective markets. We are operating an identical segmentation strategy for both countries, where we have brands in the premium market and another brand in what we call the value segment. The pandemic has accelerated the adoption of online education in these markets, and Laureate is a digital leader in Mexico and Peru. These favorable market dynamics combined with our growth momentum, give us confidence to announce a strong outlook for 2022. We anticipate top line revenue growth at high single-digits to low double-digit, and for our adjusted EBITDA to increase by over 20 % during 2022. In 2022, we will also continue to focus on closing the gap between the intrinsic value of our assets and the trading value of our stock. In addition to driving growth, we will continue to prioritize return of capital. We have cash accretive business model and a strong balance sheet, which gives us plenty of options. We currently have a $132 million of remaining share repurchase authorization from our board. And we plan to distribute the remaining net proceeds from the world new sale, including what is released from the [Indiscernible] in the second half of this year. I will now turn the call over to Rick Buskirk for a more detailed financial overview of the fourth quarter, and full year 2021 performance, as well as further details on our 2022 [Indiscernible] drop. Rick.
Thank you very much, Eilif. Before running through the results, I want to remind investors of two factors that can impact our quarterly performance. First is seasonality. Higher education is a seasonal business. The first and third quarter represent our two largest intake periods, which accounted for more than 80 % of our total new enrollment activity for the year. From a T&L perspective, both are seasonally low periods 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 generally higher revenue and adjusted EBITDA for the year. Second, as you may recall from our discussions in prior quarters, the timing of our academic calendar can change entry year due to events such as the COVID-19 pandemic. This timing difference can skew year-over-year comparability for our performance on a quarterly basis, but it washes out for the full year. Let's now move on to the strong financial performance for the fourth quarter, starting on Page 13. Revenue in the fourth quarter was $297 million and adjusted EBITDA was $61 million. Revenue and adjusted EBITDA were both ahead of the guidance that we provided three months ago. As noted during our third quarter call, and as anticipated in our guidance, year-over-year performance in the fourth quarter reflected the following. A timing shifts of the academic calendar due to COVID, which shifted $8 million of revenue in the quarter as compared to the prior year, phasing of certain expenses, and a one-time catch up on deferred facility costs in preparation for a return to face-to-face campus operations. Moving now to our full-year 2021 results on Page 14. Revenue for the year was $1.087 billion and adjusted EBITDA was $253 million, on an organic and constant currency basis, revenue increased 9 % year-over-year and adjusted EBITDA grew 39 % year-over-year. Driven by strong operational performance and corporate G&A efficiencies. Revenue performance [Indiscernible] 2021 was led by Peru, which experienced 24 % year-over-year constant currency growth in revenue. Peru's performance was driven by new enrollments and improvements in retention, both of which were fueled by the COVID recovery. Mexico 's revenue growth for the year was more muted. As discussed on our Q3 earnings call in November, this was driven by two factors. First, Mexico had a strong main intake, which occurred at the end of Q3 and resulted in 11 % year-over-year new enrollment growth. The revenue annualization effect from that intake will be realized in 2022, thereby contributing to our strong top-line growth expectation provided in our guidance. Second is the carryforward impact from the increased level of discounts and scholarships required in Mexico during the pandemic. Increased levels of discounting began in Q3 of 2020 and continued through much of the pandemic. We were pleased to see that abate for new enrollments during our primary intake in September last year, and are seeing that trend continue to improve during our smaller intake that is occurring now. That is very encouraging and we are focused on continuing to optimize on a go-forward basis. We do expect the carry forward effect of prior discounts to impact our revenue for the coming quarters as those cohorts move through the system. Let me now briefly discuss our balance sheet position illustrated on Page 18. As of December 31st, we were in a net cash position of $168 million. In addition, $74 million of the Walden sale transaction value was paid into an escrow account, which will be released in full, or in part to Laureate in August 2022, pursuant to the terms and conditions of that agreement. The strength of our balance sheet provides us with a lot of flexibility as we continue to think about our return of capital going forward and shareholder value optimization. Now, let's move to guidance starting on Page 20. As Eilif alluded to in his opening remarks, we continue to execute on our growth agenda. The momentum we are experiencing is driving a strong outlook for 2022, both in terms of top-line growth, as well as profitability. Based on current spot FX rates, we expect total enrollments to be in the range of 405,000 to 415,000 students, reflecting growth of 5 % to 7 % on an organic basis versus 2021 revenues to be in the range of $1.169 billion to $1.194 billion reflecting growth of 8 % to 10 % on an organic constant currency basis versus 2021. And finally, adjusted EBITDA to be in the range of $320 million to $330 million, reflecting growth of 19 % to 22 % on an organic constant currency basis versus 2021, or an increase of 26 to 30 % on a reported basis, which includes the effect of the non-cash FAS 5 charge in 2021. Our guidance for 2022 reflect a significant increase in profitability. Let me give some context to the anticipated 420 basis points improvement in margins. There are three factors to our expected margin accretion. First is the rightsizing of our corporate operations, which have been completed already. This will drive significant cost savings. As we optimize at the country levels, certain of these costs will now be incurred in market. But those expenses will be offset by local efficiency initiatives. Additionally, at the country level, we also have the benefit of the non-cash FAS 5 charge that occurred in 2021 and will not reoccur. Second, incremental flow-through margin associated with first, the annualization effect from last September strong primary intake in Mexico, as well as the flow-through margin benefit from incremental new students in 2022 in both markets. Lastly, as we return to face-to-face operations in 2022, we will experience incremental costs related to facilities and cost of service. And that will be a bit of an offset to previously noted margin gains. Finally, I want to conclude my remarks by noting that our Excellence In Process, EIP initiative, has been completed. The last significant portion of restructuring expense was recognized in the fourth quarter and was related to breakage costs on U.S. leases, including our corporate location. The only remaining P&L expenses expected in 2022 are those corresponding to the run out of programs that began in prior periods, such as final severance payments. The P&L effect will, at most, be a few million dollars. The cash flow impact will be higher as our already action 2021 severance agreements are not lump sum, but rather paid monthly and will tail into 2022. In conclusion, the program and associated add-backs are done. And therefore, after the minor P&L tail activities mentioned this year, we will not see [Indiscernible] expenses in 2023 and beyond. Eilif, I'm handing it back to you for closing comments.
Thank you, Rick. I continue to be very encouraged by Laureate's future prospects. We have the right management team We have the best brands and a powerful omni channel distribution network that we believe will allow us to lift our revenue growth rates and further our vision to transform the lives of the students and the communities in Mexico and Peru, by providing increased access to affordable, quality education. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants.
[Operator Instructions] Our first question comes from Jeff Silber with BMO Capital Markets, you may proceed with your question.
Thanks and good morning, everyone. In your prepared remarks, I think you said you were readying for a return of students this semester. Can you just remind us when did these semesters begin in both Mexico and Peru?
Hey, Jeff, and good morning. The main intake for Peru, it's a Southern Hemisphere school, starts in late February, March. So it's just about to start right now, and that will be in a face-to-face environment. Although, we will be continuing to provide hybrid delivery for flexibility. But we expect approximately 50 % of our students to show up in person in the face-to-face environment. Mexico,I say is smaller intake in the first quarter. It's a Northern Hemisphere school. So their second semester is starting also just about right now.
Okay. That's very helpful. And can you remind us what percentage of hours were taught online in 2021? And where do you think that's heading in 2022 going forward?
Yes, thank you. In 2015, we started investing in online and hybrid delivery, and we required all faculty to be trained for online delivery, and we required all of our students to at least take one course online. That put us in a very strong position when the pandemic hit because our faculty were trained, we had the technical infrastructure and students were comfortable with moving to online. In 2019, 27 % of our teaching hours were delivered online. And during the pandemic, so all of 2020 -- all of 2020, 2021 was a 100 % online because our campuses were closed and know when we are returning, we expect to be approximately 50 % -- in a potential module of 50 % in an online or digital mode. And that is going to be pretty much the new operating module going forward which of course provides us for significant productivity and efficiency and utilization of the physical plant, the campuses, which of course is very important ingredient to our growth agenda as we can continue to grow rapidly without adding more physical campus space in Mexico and Peru.
All right, that's very helpful. Let me just sneak one more in and I'll jump back into the queue. I know in the.U.S. we're battling with inflation. Can you talk about what's going on from a cost perspective in both Peru and Mexico, and how that relates to the price increases or price changes for your schools there?
Yeah. Sure. Hi, this is Rick. In general, the latest estimates that we have, we obviously track that pretty closely both in terms of GDP expansion from a macro as well as inflation. We're looking at multiple sources of inflation, we see that around 5 %, we take that in consideration when we do our annual planning at the end of the year and we track it on a quarterly basis. I'll make a following couple of statements. Point number one is the actual inflation that we realize as an education company in our respective markets is lower than that, and that has to do with a number of factors inclusive of our own real estate positions that we have that protect us from inflation a bit. And the second thing is as a principle, we try to optimize our pricing in a manner, which we factor in inflation. And that would take an in consideration when we did our year-end annual planning, and we haven't seen any substantial difference in that as we're sitting here right now today in our cost structure and our pricing strategy.
Roughly, how much are you increasing prices in 2022?
We're increasing prices, generally inflation, inflation plus levels.
Okay. That's really helpful. Thank you so much.
Thank you. And as a reminder that to ask a question, [Operator Instructions] Our next question comes from Shlomo Rosenbaum with Stifel. You may proceed with your question.
Steven Gottesmanfor Shlomo, how does the company plan to leverage the solid balance sheet and free cash flow generation for investor friendly returns within the next year? Do we expect significant share buybacks doing recap or some other mechanism to leverage balance sheet?
Yes. Sure. Hi, this is Rick again. Certainly, right now, sitting here at a balance sheet that we are with $325 million of cash on a gross basis and a net above a $150 million, we feel extremely comfortable about our position. As a reminder that at $325 million in cash that we have on the balance sheet, we have about a $130 million of that that is remaining stock buybacks. So we'll be consuming $130 million of that approximately through the stock buyback authorization. That's our intent. We also have a minor amount around and an additional $30 million [Indiscernible] related to the Walden funds that we received on top of the 74 that we intend to receive related to the escrow. So that's just the starting point, beyond that, look, we feel very comfortable about our balance sheet, it can provide us a bunch of options that we can continue to evaluate. We don't have a particular transactions right now. But in general, we're completely focused on optimizing shareholder value or pursue all options available to us, including the strength of our balance sheet.
George if I could add, a return of capital is a priority. So I'd break it's a ingredient that we have been using and we will continue to use the $130 million in remaining capacity and expect the Board to be flexible if there are further accretive opportunity for to increase us. And we will look forward to return the final true-up payment from the Walden divestiture and we will continue to be opportunistic to return capital to our shareholders.
Got it. Okay. Can you provide more detail on how your exposure for almost a trends that with Mexico improves throughout the year?
So was that the enrollment trends?
Yes. For both countries through the year?
Yes. Sure. The enrollment performance, we're very encouraged. You saw the Mexico main intake in third quarter, really strong. And you saw the main intake in Peru last year, when they came really strongly back. Now, we're seeing a strong recovery trade, so to speak, for new enrollments, both in Mexico and Peru. We're also seeing retention levels increasing as the post-pandemic environment is enabling student to more predictably stay in and complete their degrees. So strong new enrollments from re-enrollment trends in both businesses and we expect that trend to continue.
Okay, and what are some of the capital [Indiscernible] expansion projects that the company has planned for the near-term that can expand enrollment without requiring a lot of capex?
We have plenty of access capacity in our physical plans because we are lifting the mix of online learning. So pre -pandemic, about 26 %, 27 %, 28 % of our total hours were delivered online. Know that it's going to be closer to 50 %. Which means that we are getting another 20, 25 percentage point of access capacity in our campuses and that becomes a very important source of growth for us because we had a capacity constraint in the way that we used to be. That gives us the ability to grow in a very capitalized manner because it doesn't require new campus built. The way we're going to fill this capacity is to lift and shift programs from one campus to another campus and vice versa. So we have very limited investment in new program development because Mexico improved about 50 % of all of our programs are common across campuses and 50 % of our programs are unique to individual campuses. So then taking those programs that are not present in one campus but we have it in another companies were simply lift and shift that over to closer to 90 % commonality of all of our programs across our campuses. Second big driver for capitalized growth is online education. The pandemic relaxed the regulatory constraints around online, particularly in Peru, which enables us not launch fully online programs for working students and postgraduates students in Peru. And that's going to be a very significant growth opportunity for us. Similarly, the acceptance of online in Mexico has been no experience an acceptance level by parents, and faculty, and regulators, and students in general. And [Indiscernible], the rapid growth that we have had on online students in Mexico over the last couple of years are going to be further accelerated. We have booked 50,000 online students in Mexico that makes us the clear market leader. And we expect that pool of students to grow double-digit going forward.
Got it. All right. Thank you.
Thank you, and as a reminder, [Operator Instructions] Please stand by as we compile the Q&A roster. And I'm not showing any further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Thanks, everyone.