Yahoo Finance Laureate Education Inc (LAUR) Q1 2024 Earnings Call Transcript Highlights: Strategic ...
Revenue Guidance Increase: Upward revision by $13 million for full year 2024.
Adjusted EBITDA Guidance Increase: Upward revision by $5 million for full year 2024.
Q1 Revenue: $275 million.
Q1 Adjusted EBITDA: $31 million.
Enrollment Growth: New and Total Enrollment volumes up 1% and 5% respectively, led by Mexico.
Organic Constant Currency Revenue Growth: Up 7% year-over-year for Q1.
Organic Constant Currency Adjusted EBITDA Growth: Increased by 11% year-over-year for Q1.
Full-Year Revenue Forecast: Expected to be between $1.566 billion to $1.581 billion.
Full-Year Adjusted EBITDA Forecast: Expected to be between $446 million to $456 million.
Net Debt Position: $102 million as of end of March.
Stock Repurchases: $33 million executed during the quarter.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Laureate Education Inc (NASDAQ:LAUR) announced an upward revision to its full year 2024 guidance by $13 million for Revenues and $5 million for Adjusted EBITDA, reflecting favorable foreign currency rates.
Enrollment results for the first quarter were in line with expectations, with new and total enrollment volumes increasing by 1% and 5% respectively, led by growth in Mexico.
The company is experiencing robust operating performance in Mexico, with strong growth prospects bolstered by nearshoring and a favorable macroeconomic environment.
Laureate Education Inc (NASDAQ:LAUR) is well positioned in the attractive private education markets of Mexico and Peru, with leading brand positioning and a strong emphasis on health sciences, STEM, and business courses.
The company has a robust, profitable, and capital-light business model, supported by stable retention levels and a private pay model, which results in strong cash flow generation.
Negative Points
Market conditions in Peru are softer, with the country experiencing its first economic contraction in over 20 years outside of the COVID-19 pandemic, affecting enrollment and pricing.
The primary intake cycle in Peru, which contributes roughly two-thirds of the new enrollment activity for the year, is expected to mute growth aspirations for most of 2024.
There is a lag effect in Peru, where economic recovery is expected in the second half of 2024, potentially delaying the impact on enrollment growth.
In Peru, the company faced increased costs due to inflation and higher provisions for doubtful debts, which negatively impacted EBITDA in the first quarter.
Restructuring activities in Mexico, intended to optimize margins, are expected to incur costs and are now planned for the second quarter, potentially affecting short-term financial performance.
Q & A Highlights
Q: I wanted to start on Peru. You talked about the expected economic recovery in the second half, and I'm assuming that you're relying on economies for that, and that's fine. But even if that does happen, isn't there going to be some sort of lag between that happening and enrollment starting to inflect? A: Yes, that's correct. You're seeing economic data already improving. First quarter was a positive GDP quarter for Peru. We are seeing increase in real wages. We're seeing an increase in employment. We're seeing increase in consumer confidence. And when we're tracking key indicators such as credit card spending by the different category of where disposable income goes, we're seeing also bottoming out or slight improvement in certain categories. So that indicates that the economy is already improving. But there is a bit of a lag effect before our customers have been able to replenish their coffers efficiently in order to attend college. So, we saw a lot of students and prospects during our C1 intake of -- during the first quarter that just simply was not ready yet to commit and deferred to the second intake in September. So, we're looking at the top of the funnel. We're looking at the interest and have high expectations that second half of 2024 will be more normalized. And at that point, the lag effect has caught up.
Q: And when you say normalized, do you think you'd have new enrollment growth in that second intake period in Peru this year? A: Correct.
Q: You mentioned, and you and Rick mentioned restructuring a few times. I just want to make sure we're talking about the restructuring that you did in Mexico previously, not a new program that you're just announcing? A: That's correct. This relates to the consolidation of certain campuses to get more scale and better student experience out of some of our smaller, more fragmented campuses.
Q: A question on Peru, in fact, I understand that there is a seasonal effect there. There is a pressure of fixed costs. But if we consider the variations in Revenues and the variation in EBITDA, in terms of absolute EBITDA, it seems that there is much more loss of EBITDA than of Revenues. So, if you could comment if there is any other kind of cost pressure in Peru, that is in terms -- in absolute terms, not just an operation deleveraging there? I think it would be great. And if you also could comment about Mexico, if you already see any kind of nearshoring effects on the intakes already? If there is anything concrete that is happening in Mexico regarding nearshoring? A: Mauricio, this is Eilif. I'll take the second and Rick will comment on the seasonality and Peru being out of session for the first quarter. But in Mexico, yes, we're seeing an uplift in demand that we believe is related to nearshoring. We are seeing more demand for undergraduate program than what we have seen in the past. It's a little hard to say what part of that is directly related to nearshoring versus what is related to just a stronger GDP performance in Mexico over the last 12 months versus the last decade. But I think also those two things are somewhat related.
Q: No, no, no. It's very clear. A: Okay, great. I think on your question on Peru is related to the EBITDA, the down EBITDA in the first quarter in Peru. So, there's really 3 effects going on there. The first effect is a change in the academic calendar where we shifted $10 million of Revenue out of the first quarter, that will be realized in the second half, and that was associated $7 million in Adjusted EBITDA. The second factor that happened is that, obviously, our expense structure is a lagging -- has a lagging effect to inflation, and our costs increased over 4% in Peru in the first quarter relative to last year. That's pushing it down when we took flat pricing. And then there was a third effect where, as expected, we anticipated a bit higher bad debt this year in that market. That was the lag effect of the C2 in second half that we saw last year of the recession. So, we expected that to roll forward, impact us in the beginning of this year. And that was reflected in the guidance that we provided earlier in the year and reinforced today.
Q: Okay, I understand. Yes. So, the point is that, in absolute terms, I understand that there is this kind of Revenue shift. It explains the Revenues, but the absolute cost, there was an increase. So, per your answer, I understand, there is two effects, an inflation lag and a kind of a provision for doubtful debt, right, that transition as well, if I understood that correctly? A: That's correct.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
