Business Overview and History

Laureate Education Inc. (LAUR) is a leading provider of higher education services, operating a portfolio of degree-granting institutions across Mexico and Peru. The company has a rich history spanning over three decades, during which it has established itself as a prominent player in the global education landscape. Laureate's unwavering commitment to delivering high-quality, outcome-focused education has resulted in impressive financial performance and a steadfast growth trajectory.

Laureate Education was founded in 1989 as a network of private universities and higher education institutions. The company began its operations in Mexico, recognizing the significant imbalance between supply and demand for higher education in the country. Over the years, Laureate has strategically expanded its footprint, becoming the largest network of private universities in both Mexico and Peru.

In its early years, Laureate faced the challenge of building brand recognition and establishing its institutions as high-quality providers of higher education. The company invested heavily in academics, campus infrastructure, and student services to differentiate itself from competitors. This strategy paid off, as Laureate's universities gained a reputation for producing well-prepared graduates.

A key milestone for Laureate was its initial public offering in 2017, which provided the company with additional capital to fund further expansion and acquisitions. During this time, Laureate continued to grow its presence in Mexico and Peru, opening new campuses and adding degree programs to meet the increasing demand for affordable, quality higher education.

Throughout its history, Laureate has successfully navigated a complex regulatory environment in both Mexico and Peru. The company has had to comply with evolving laws and policies governing private universities, while also managing political changes that impacted the higher education sector. Despite these challenges, Laureate has maintained its position as a leading provider of private higher education in its key markets.

Today, Laureate operates five higher education institutions across Mexico and Peru, serving approximately 483,300 students as of September 2024. The company's educational offerings span a wide range of profession-oriented fields, including undergraduate and graduate degree programs, utilizing a combination of campus-based, online, and hybrid delivery models. Laureate's focus on outcome-oriented education and its commitment to student success have been instrumental in driving the company's growth and success over the past three decades.

Financial Performance and Ratios

Laureate's financial performance has been consistently strong, with the company reporting solid revenue and earnings growth over the years. In the most recent fiscal year (2023), the company generated revenue of $1.48 billion and net income of $107.59 million, translating to a net profit margin of 7.3%.

For the most recent quarter (Q3 2024), Laureate reported revenue of $368.63 million, representing a 2% year-over-year increase. This growth was driven by higher average total organic enrollment at the institutions, partially offset by unfavorable foreign currency exchange rates. Net income for the quarter reached $85.46 million, a substantial 136% increase year-over-year, primarily due to a discrete tax benefit recorded during the quarter.

The company's balance sheet remains healthy, with a current ratio of 0.63 and a debt-to-equity ratio of 0.17 as of September 2024. Laureate's strong cash flow generation is reflected in its operating cash flow of $118.66 million and free cash flow of $110.72 million in the most recent quarter.

Key financial ratios for Laureate Education as of the latest reported quarter (Q3 2024) are as follows:

• Gross Profit Margin: 26.7%

• Operating Profit Margin: 23.2%
• Net Profit Margin: 15.8%
• Return on Assets: 12.7%
• Return on Equity: 26.5%
• Debt-to-Equity Ratio: 0.17

These ratios demonstrate Laureate's financial strength, profitability, and efficient use of capital, positioning the company well for continued growth and value creation.

Liquidity

Laureate Education maintains a strong liquidity position, which is crucial for its ongoing operations and future growth initiatives. As of September 30, 2024, the company reported cash and cash equivalents of $134.41 million. The company's current ratio and quick ratio both stand at 0.63, indicating that it has sufficient short-term assets to cover its immediate liabilities.

Additionally, Laureate has access to a $300 million revolving credit facility, of which $155 million was available as of September 30, 2024. This provides the company with further financial flexibility to support its operations and strategic initiatives.

Laureate's robust cash flow generation, with operating cash flow of $118.66 million and free cash flow of $110.72 million in the most recent quarter, provides ample liquidity to fund its operations, invest in growth opportunities, and return value to shareholders.

Recent Developments and Outlook

Laureate's most recent financial results for the third quarter of 2024 showcased the company's impressive performance. Revenue increased by 2% year-over-year to $368.6 million, while adjusted EBITDA grew by 17% to $91.4 million. The company's strong results were driven by robust enrollment growth, particularly in its Peru segment, where new enrollments surged by 12% in the third quarter.

Looking ahead, Laureate has provided a positive outlook for the full-year 2024. The company has increased its constant currency guidance, with revenue now expected to be in the range of $1.551 billion to $1.556 billion, reflecting an increase of $15 million at the midpoint compared to previous guidance. Adjusted EBITDA is anticipated to be between $447 million and $451 million, representing an increase of $6 million at the midpoint.

For the fourth quarter of 2024, Laureate expects revenue to be in the range of $408 million to $413 million, and adjusted EBITDA to be in the range of $138 million to $142 million. The improved outlook is driven by stronger-than-expected new enrollment intake in Peru, with a 12% year-over-year increase in Q3 and an expected 16% increase upon completion of the intake cycle.

Segment Performance

Laureate operates through two reportable segments: Mexico and Peru.

Mexico Segment:

The Mexico segment operates through two nationally licensed higher education institutions with a footprint of over 30 campuses across the country. Private education providers in Mexico constitute approximately 37% of the total higher education market, playing a meaningful role in bridging supply and demand imbalances created by limited capacity at public universities.

In the third quarter of 2024, revenues for the Mexico segment were $182.5 million, representing 50% of Laureate's consolidated total revenues. Organic enrollment increased by 9% during the quarter, contributing $14.8 million to the segment's revenues. However, the weakening of the Mexican peso against the U.S. dollar had a $19.7 million negative impact on revenues compared to the prior year period. Adjusted EBITDA for the Mexico segment was $20.0 million, a 9% decrease year-over-year, primarily due to the unfavorable foreign exchange movement.

For the first nine months of 2024, the Mexico segment's revenues increased by 10% to $615.2 million, representing 54% of consolidated revenues. Organic enrollment growth of 9% added $44.4 million to the segment's top line. Adjusted EBITDA increased by 17% to $128.1 million, driven by the higher revenues and improved operational efficiency.

Peru Segment:

In Peru, private universities are increasingly providing the capacity to meet growing demand and constitute approximately 74% of the total higher education market. Laureate owns three institutions in Peru, with a footprint of 19 campuses.

In the third quarter of 2024, the Peru segment's revenues increased by 6% to $186.1 million, representing 50% of Laureate's consolidated total revenues. Organic enrollment grew by 2%, contributing $3.9 million to the segment's top line. Adjusted EBITDA for the Peru segment was $79.8 million, a 20% increase compared to the prior year period, driven by the revenue growth and operational efficiency improvements.

For the first nine months of 2024, the Peru segment's revenues increased by 2% to $528.0 million, representing 46% of consolidated revenues. Organic enrollment growth of 2% added $8.4 million to the segment's top line. Adjusted EBITDA increased by 1% to $209.4 million, reflecting the higher revenues and disciplined cost management.

Industry Trends and Market Outlook

The higher education markets in Mexico and Peru are characterized by a significant imbalance between supply and demand, presenting attractive long-term growth opportunities for private institutions like Laureate. The demand for higher education is large and growing, fueled by demographic and economic factors such as a growing middle class and recognition of the benefits of higher education. Laureate expects the market to grow at a CAGR of 2.5-3% over the next several years.

In Mexico, private education providers constitute approximately 37% of the total higher education market, while in Peru, this figure rises to approximately 74%. This strong presence of private institutions in both markets underscores the important role they play in meeting the growing demand for quality higher education.

Risks and Challenges

While Laureate's growth story has been impressive, the company is not without its risks and challenges. As an international education provider, Laureate is exposed to complex business, economic, legal, regulatory, political, tax, and foreign currency risks in its operating markets. The company's success is heavily dependent on its ability to navigate these risks and maintain its competitive edge.

Additionally, Laureate operates in a highly competitive industry, with the potential for increased competition as the Mexican and Peruvian education markets mature. The company's ability to retain and attract students, as well as maintain the quality and reputation of its institutions, will be crucial in the face of rising competition.

Conclusion

Laureate Education's consistent financial performance, robust enrollment growth, and positive outlook underscore the company's ability to capitalize on the significant opportunities in the higher education markets of Mexico and Peru. With its strong brand, diversified portfolio of institutions, and prudent financial management, Laureate is well-positioned to continue its growth trajectory and create value for its shareholders. As the company navigates the evolving industry landscape, investors will closely monitor its ability to maintain its competitive edge and deliver sustainable long-term growth.