Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Laureate Education Inc (LAUR, Financial) reported solid operating performance for the second quarter, remaining on track to deliver on 2024 commitments on a constant currency basis.
- The company has a strong balance sheet and significant cash flow generation, supporting continued emphasis on returning capital to shareholders.
- Mexico continues to present a compelling growth story with robust manufacturing and construction sectors, higher minimum wages, record low unemployment, and increased consumer spending.
- Laureate Education Inc (LAUR) repurchased over $72 million worth of shares in the first six months of the year.
- The company is well-positioned in the private higher education markets of Mexico and Peru, which are considered attractive due to expanding middle classes and rising participation rates in higher education.
Negative Points
- The recent weakening of the Mexican peso has caused a slight downward adjustment to the company's outlook on a spot FX basis.
- Peru's economic downturn in 2023 had lingering effects into the first half of 2024, leading to relatively flat primary enrollment intake volumes.
- Enhanced discounts and scholarships provided to students in Peru during the economic recovery period resulted in essentially flat year-over-year pricing for the first half of the year.
- Higher levels of bad debt provisioning in Peru due to softer macroeconomic conditions impacted adjusted EBITDA negatively.
- The company anticipates some possible foreign exchange volatility during the transition period of the new Mexican administration.
Q & A Highlights
Q: Can you give more color on what drove the better-than-expected performance in Q2 despite the impact on MXN and shifts in the academic calendar?
A: About 50% of the outperformance was operational, driven by lower interest cycle attrition and timing of other revenue. Adjusted EBITDA was aided by the timing of some expenses that shifted to the third quarter.
Q: What has the new administration in Mexico commented about private education, and do you expect any policy changes?
A: The new administration under President-elect Sheinbaum has emphasized fiscal prudence, industrial modernization, public-private collaboration, and enhanced security. We believe these priorities will foster strong collaboration with private operators, including in higher education.
Q: How did Mexico's new enrollments perform, and what drove the growth?
A: Mexico's new enrollments increased by 4% through June and 6% through the end of the enrollment cycle in July, led by working adult-focused fully online programs. Total enrollments were up 9% year-over-year due to strong primary intake and new enrollment growth.
Q: Can you provide additional details on Peru's performance and the impact of the economic downturn?
A: Peru's new enrollments declined slightly by 2%, while total enrollments increased by 1%. Revenue grew 5% in Q2 and 1% year-to-date. Adjusted EBITDA decreased by 7% year-to-date due to enhanced discounts, scholarships, and higher bad debt provisioning.
Q: What is the outlook for 2024 in terms of enrollments, revenue, and adjusted EBITDA?
A: We expect total enrollments to be in the range of 467,000 to 473,000 students, revenue between $1.551 billion to $1.566 billion, and adjusted EBITDA between $441 million to $451 million. We anticipate significant margin expansion in the second half of 2024.
Q: How is the balance sheet positioned, and what are the plans for capital return to shareholders?
A: Laureate ended June with $129 million in cash and $233 million in gross debt, resulting in a net debt position of $104 million. We repurchased approximately $72 million of common stock in the first six months of the year and continue to prioritize returning capital to shareholders.
Q: What are the key factors driving growth in Mexico and Peru?
A: Growth in Mexico is driven by robust manufacturing and construction sectors, higher minimum wages, and increased consumer spending. In Peru, the macroeconomic recovery is expected to benefit enrollment intake and normalize growth rates by 2025.
Q: How is Laureate positioned to capitalize on sector growth momentum in Mexico and Peru?
A: Laureate is well-positioned with leading brands, a commitment to academic excellence, and a focus on product innovation. We are expanding programs, rolling out digital products for working adults, and targeting campus expansions in new and adjacent cities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
