Laureate Education, Inc. Price & Performance (LAUR)

Good morning, and thank you for joining us on today's call to discuss LaurDI Education's fourth quarter and year end twenty twenty four results. Joining me on the call today are Eyleth Circansen, President and Chief Executive Officer and Rick Buzzkirk, Chief Financial Officer. Our earnings press release is available on the InvestorRelationssectionofourwebsite@lauriot.net Laureate. 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. I would 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 applicable U. S. Securities laws. 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. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10 ks filed with the U. S. Securities and Exchange Commission 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 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. Let me now turn the call over to Eyla, Thank you, Adam, and good morning, everyone. I am pleased to report another strong year for Laureate in 2024. We continue to deliver on our commitments to all stakeholders. Through disciplined execution, we achieved robust operating results Driving our margin profile to a new historic high and further reinforcing dedication to continued growth, and enhanced profitability. Our cash accretive business, Nordland, strong balance sheet enabled us to return more than $100,000,000 of capital to shareholders in 2024. At the end of the year, we were essentially net debt free and remain well positioned to execute on our growth plans while prioritizing return of excess capital to shareholders. 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. In 2024, we continue to strengthen our academic offering 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. Our institutions are consist by the top universities in the respective countries and recognized for their leadership in academic excellence. Today, I am proud to share our latest ratings from QSRs, one of the world's leading independent university ranking and rating [indiscernible] For the second consecutive year, all our universities in Mac in in employability, online learning, inclusiveness and social impact. In addition to QSR ratings, our institutions continue to earn recognition in the local Laureate for academic excellence and brand leadership. A few examples from this past year include in Peru for the fourth consecutive year UPC was ranked the number one education brand in the country by Merco, 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 In Mexico, UVM was ranked the number two best private university according to Reader's Digest 2024 rankings. Second only to take the Monterey. Additionally, our value brands in both markets UPN in Peru, and UNitec in Mexico are now ranked in the top 10 in their respective countries by the same ranking agencies.

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. Looking ahead to 2025, we see continued growth of opportunities in our local Laureate, including building and outfitting four new campuses for our value brands, two of which we plan to open during 2025. This represents our first new campus launches since 2019. We are also expanding our reach through continued in digital education. We remain confident that the demand for quality higher education in both Mexico and Peru will continue to increase. This demand is fueled by rising participation rates, strong wage premiums for graduates and the affordability of our programs. Additionally, the private sector, which accounts for over 55% of the combined university seats in the two countries, plays a critical role in the market due to limited public resources. Despite some geopolitical uncertainties in Mexico, particularly the recent tariff threats and the related trade complications with the United we remain cautiously optimistic Mexico has strong historical ties to The United States that are important to both countries. Mexico also favors a more dovish monetary policy and it maintains a strong fiscal discipline in its 2025 national budget.

All these factors provide what we believe to be a solid base for growth In Peru, the economy has recovered from the recent recession, which began in mid-twenty twenty three. GDP growth for 2025 is expected to reach approximately 3%.

Peru should benefit from a favorable macro backdrop including low interest rates, stable inflation, and a currency that is highly correlated to U. S. Dollar denominated commodity prices. We closely monitor political and trade discussions evolve. We do expect continued volatility in the Mexican peso in the coming months. And based on current exchange rates, we anticipate significant foreign currency translation headwinds in our 2025 reported financial results. As a reminder, we are not exposed to any material transaction risks from foreign currency as our revenues and operating expenses local markets, But as the U. S. Dollar denominated reporting company, we are subject to translation impacts. Our guidance indicates that we will be flat to slightly down year over year in 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 currency revenue growth, and our continued margin expansion efforts. That concludes my prepared remarks. And I will now turn the call over to Rick Boskirk for a more comprehensive financial overview of the fourth quarter and the full year 2024 performance as well as further details on our 2025 outlook. [indiscernible] Thank you, Ileth.

As a reminder, higher education is a seasonal business. 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. Let's start with Page 11, which highlights our strong operating and financial performance for the fourth quarter. Revenue in the fourth quarter was $423,000,000 adjusted EBITDA was $141,000,000 On an organic constant currency basis, revenue for the fourth quarter was up 10% year over year driven by 5% in total enrollment volume and favorable pricemix 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. 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 [indiscernible] Now moving to Page 12 and full year results. For 2024, both new and total enrollments increased 5% versus prior year. Full year revenue was $1,567,000,000 and adjusted EBITDA was $450,000,000 This resulted in an adjusted EBITDA margin of 28.7% which is a new historic high for Laureate.

On an organic constant currency basis, revenue for the year increased by 7% and adjusted EBITDA was up 9% resulting in a 43 basis point improvement in margins led by a 176 basis point increase in Mexico. Full year net income was $296,000,000 resulting in earnings per share of $1.92 per share. Today, we are also introducing new non GAAP metrics for adjusted net income and adjusted earnings per share for investors. We believe these metrics will provide a clearer picture of the company's underlying profitability and a more accurate reflection of our core performance. And help shareholders better compare our performance over time. The calculation and reconciliation of these metrics to their nearest GAAP counterpart can be found in our earnings release and earnings presentation The core adjustments you will see for 2024 and which we plan to adjust for in the future relates to discrete tax items as well as the non cash FX gain or loss on intercompany balances. For 2024, our full year adjusted net income was $2.00 $9,000,000 and adjusted earnings per share was $1.35 per share.

We hope you find these metrics helpful as you evaluate our reported results going forward. Let me now provide some additional color on the performance of Mexico and Peru starting with Page 14. Please note that all comparisons versus prior year are on an organic and constant currency basis. Let's start with Mexico.

New enrollments increased 4% for the year led by growth in fully online programs focused on working adults across both our premium and value brand. Pricing for the year was slightly above our cost inflation for both traditional face to face and fully online products, Mexico's revenue for the fourth quarter increased 15% compared to the prior year period. Adjusted EBITDA for the fourth quarter was up 29% year over year due to strong operating leverage on revenue growth and productivity gains. When adjusted for timing of the academic calendar, fourth quarter revenue was up 12% and adjusted EBITDA increased For full year 2024, revenue growth of 10% was driven by an 8% increase in average total enrollments and 2% of price mix. Adjusted EBITDA increased 19 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. 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 and sub 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.

Revenue growth for the fourth quarter was 5%, 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 from the first half of the year. When adjusted for timing of academic calendar, fourth quarter revenue increased 3% while adjusted EBITDA declined 11%. For full year 2024, revenue in Peru increased 4% over the prior year, driven by a 2% increase in average total enrollments and 2% of price mix. Adjusted EBITDA decreased 1% for the year versus the prior year with decline in margins as expected as incremental revenue flow through was partially offset by enhanced discounts and scholarships from the first quarter intake and higher levels of bad debt provisioning, both resulting from the softer macro economic conditions in the first half of the year and an increase in marketing expenses. Let me now briefly discuss our balance sheet position. Laurie had ended the year with $91,000,000 in cash and $102,000,000 in gross debt for a net debt position of $11,000,000 During 2024, we returned $102,000,000 to shareholders through accretive share repurchases and still have $98,000,000 of unused authorization remaining.

Since 2019, we have returned nearly $3,000,000,000 of capital to shareholders through share repurchases cash distributions, and cash dividends With a strong balance sheet and cash Let's now transition to our discussion on guidance. Laureate went through a significant transformation from 2019 through 2021. 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 with the objective of delivering a compound annual growth rate of 5% to 7% for total enrollment a compound annual growth rate of 8% to 10% for revenue on a constant [indiscernible] adjusted EBITDA margins at 30% or above, and adjusted EBITDA to unlevered free cash flow conversion of 50% plus. Based on the 2025 guidance we were providing today, we will have achieved that targeted profile. A remarkable accomplishment for our organization. At Laureate, we have built a strong foundation for revenue growth and with an improved financial position and a continuing unwavering commitment to academic quality that aims to deliver strong outcomes for all our stakeholders. Having achieved our new financial profile, and with Laureate 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.

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. 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 consolidations initiatives in Mexico As a result of those initiatives, We do expect a one time revenue loss in 2025 of $13,000,000 or an approximately 1% impact to year over year revenue growth. However, our more streamlined campus book and you will see that reflected in our strong margin growth expectations for 2025. Second, as Eilif noted, we are closely monitoring political and volatility in the Mexican peso, the peso continued to weaken in the fourth quarter with current spot FX rates approximately 12% weaker than the 2024 average creating an expected translation impact on our as reported dollar guidance. 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 soul, we still expect to deliver [indiscernible] based on current exchange rates.

Lastly, we are anticipating an intra year shift in the academic calendar of both markets as further detailed on Page 22, In summary, approximately $27,000,000 in revenue and related profitability is expected to ship from the first to the fourth quarter due to classes starting one to two weeks later, this year as compared to last. Now let me move on to our guidance ranges. Based on current FX rates, we expect full year 2025 results to be as follows: total enrollments to be in the range of 489,000 to 495,000 students, reflecting growth of 4% to 5% versus 2024. Revenues to be in the range of $1,545,000,000 to $1,570,000,000 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 8% excluding the impact from campus consolidations [indiscernible] Adjusted EBITDA to be in the range of $467,000,000 to $477,000,000 reflecting growth of 4% to 6% on an as reported basis and 11% to 13% on an organic constant currency basis versus 2024. This would result in an increase in adjusted EBITDA margins of approximately 150 basis points at the midpoint of our guidance.

We anticipate further margin expansion to be driven by operating leverage revenue growth, our campus consolidations in Mexico and lower corporate expenses. Lastly, for 2025, we expect adjusted EBITDA to unlevered free cash flow conversion of approximately 50% on a reported basis. Which would imply strong double digit growth in U. S. Dollar reported cash 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 intra year seasonality change I discussed earlier. For the first quarter of twenty twenty five, we expect revenue between $221,000,000 and $226,000,000 adjusted EBITDA between negative 7,000,000 to negative $4,000,000 That concludes my prepared remarks. Eilif, I'm handing it back to you for closing comments. Thank you, Rick.

As the largest private provider of higher education in both our Laureate, we are well positioned to capitalize on growth opportunities with our leading brands, strong digital capabilities and focus on academic quality and student outcomes. And as an established emerging market company with a developed market governance, we are looking forward to another strong year in which we continue to create value for all stakeholders. Our focus remains on transforming the lives of the students in our markets by providing greater access to affordable quality higher education. Operator, that concludes our prepared remarks and we're now happy to take any questions Thank you.

And our first question Thank you so much. I wanted to start with Mexico. I look you just mentioned what's going on in the environment there. And I know like specifically with some of the noise about tariffs, doesn't really have a direct impact on your business. But has this made the economic [indiscernible] going forward?

Good morning, Jeff. You are right that we are a local business. And not directly impacted by the geopolitical discussions around tariffs and trade However, in good economic times when GDP are strong and robust, we do get some tailwind. And so what we saw in in the latter part of last year, we saw a little bit of a slowdown in foreign direct investment and CapEx spend by by foreign companies as they will wait a bit of a wait and see attitude towards The U. S. Trade discussions. That slowed down GDP a little bit from being in the first half of the year at about 3% to about 1% in the second And of course, that impacts our business somewhat as consumer discretionary also slowdowns a little bit with the overall economy. But as we have proven, we are doing extraordinarily well during strong economic times and we're doing pretty good pretty well in weaker economic time just because of the strong value proposition that we offer our customers. So hopefully that provides some additional color for you.

Yes. If I could just drill down a little bit on there. Are you assuming an acceleration in GDP growth in Mexico or just that the current environment exists? Right here?

So we are our guidance is based on the current consensus on GDP of about 1% GDP growth for 2025. So So pretty benign economic environment in 2025. We do expect that there would be volatility in 2025 as the trade discussions are being wrapped up And we are more bullish for 2026 and beyond.

Okay. That's helpful. If I could just sneak in one more. You talk about returning excess capital to shareholders remaining a priority. Can we get a little bit more color on that and maybe we could step back? What is your current capital allocation policy?

So we have talked about for last couple of years an objective of delivering 50% free cash flow conversion on our EBITDA on an unlevered basis. And there's been a little bit of noise in that number last year, as we were wrapping up some tail liabilities related to largely due to taxes on our legacy structure. That is no behind us. And we expect to deliver free cash flow conversion of 50%. And that is after supporting growth in the business. Of around 5% of revenues in CapEx to support our growth momentum of 5%, 6%, 7% volume growth. And so therefore, you should take it 50% of the unlevered free cash flow will be returned to shareholders So 50% of our EBITDA or our available free cash flow will be returned [indiscernible] Okay. That's really helpful. Thanks so much.

I'm showing no further questions the queue at this time. Actually, we do have one from Lucas Nagano with Morgan Stanley. Your line is open.

I have two questions. The first is related to the tax rate It decreased substantially in 2024 to high 30s.

Even if we exclude the one off impact Q3, So due to this level as the run rate for now, And the second question is related to the fuel intake. The first half intake of this year has [indiscernible] Of the second half of last year.

And so given the positive performance last year, do you see the maintenance of the favorable environment? With this primary intake Great. Rick, do you want to take the tax rate and I can pick up on the pro intake? Yes. Good morning. If you on a reported basis, our book affected tax rate was around 29%. You're right. You do need to adjust for the non cash FX gainloss on the pretax number. So that was over $70,000,000 and then you need to adjust for the the reversal of an accrual of discrete tax item of around $38,000,000 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% effective tax rate.

Great. And Lucas, on your second question, we are a little more than two thirds through our main intake in Peru. Which means that the next four to six weeks are very important period for us as we are wrapping up our commercial campaigns. The market is improving as evidenced by robust GDP expectations of 3% plus for GDP growth in 2025 in Peru.

That said, we do see some lingering effects of the recession, particularly in the more price sensitive value segment.

Thank you. That's very helpful. Thank you.

Great. Thank you.

Thank you. As I'm showing no further questions in the queue at this time, this concludes today's program. Thank you all for participating. You may now disconnect.