Executive Summary / Key Takeaways

• Laureate Education is a leading private higher education provider in the attractive, underserved markets of Mexico and Peru, capitalizing on growing demand driven by a rising middle class and the strong value proposition of a degree.
• The company's resilient business model, demonstrated across various economic cycles, is underpinned by a focus on affordable, quality, profession-oriented programs delivered through campus, hybrid, and rapidly growing digital formats.
• Recent performance, including strong Q1 2025 organic enrollment growth (8% Mexico, 6% Peru new enrollments adjusted for timing) and solid FY 2024 results (7% organic constant currency revenue growth, 9% Adjusted EBITDA growth), highlights operational momentum despite FX headwinds and academic calendar shifts.
• Management's tightened full-year 2025 guidance projects continued growth (4-5% total enrollment, 6-7% organic constant currency revenue, 11-13% organic constant currency Adjusted EBITDA), significant margin expansion (~150bps), and robust cash flow generation (~50% Adjusted EBITDA to unlevered free cash flow conversion).
• Supported by a strong balance sheet and cash generation, Laureate remains committed to returning excess capital to shareholders, having returned nearly $3 billion since 2019 and actively executing on its current share repurchase program.

The Resilient Model: Capitalizing on Latin America's Education Imperative

Laureate Education, Inc. operates as a public benefit corporation primarily focused on providing degree-granting higher education programs and services in Mexico and Peru. Its core mission revolves around delivering affordable, quality education designed to prepare students for successful careers, thereby contributing to the expansion of the middle class in these markets. This focus is particularly relevant in Latin America, where significant imbalances exist between the large and growing demand for higher education and the available supply, especially within the public sector. Demographic trends, including a rising middle class, coupled with the increasing recognition of the substantial personal and economic benefits derived from a university degree, fuel this demand. Laureate's programs emphasize profession-oriented fields such as health sciences, STEM, and business, aligning offerings with employer needs and enhancing graduate employability.

The company's strategic journey has seen a significant transformation from 2019 through 2021, involving the divestiture of non-core assets (such as K-12 programs in Mexico, now classified as held for sale) and the winding down of "legacy Laureate" operations. This strategic streamlining has sharpened the focus on the core Mexico and Peru markets, positioning the company for organic growth initiatives. These initiatives include expanding program and course offerings, targeting broader student demographics (notably working adults), and increasing capacity through both enhancements at existing campuses and the development of new facilities. The planned opening of two new value brand campuses in 2025 marks the first such expansion since 2019, signaling renewed investment in physical footprint alongside digital growth.

Laureate's business model has demonstrated notable resilience across various economic cycles, including the 2008-2010 global financial crisis, the COVID-19 pandemic, and the recent 2023 recession in Peru. Management attributes this resilience to the fundamental value proposition of higher education – the significant wage premium and strong return on investment it offers – making it a priority expenditure for families even in uncertain times. The company competes with other private and public institutions based on price, quality, reputation, and location, believing its focus on quality, professional relevance, and established in-country networks provide a competitive edge. While the competitive landscape is expected to intensify as these markets mature, Laureate holds a leading position as the largest private provider in both Mexico and Peru, with its value brands also ranking among the top institutions.

A key differentiator and growth driver for Laureate is its investment in digital education capabilities. Fully online courses are experiencing robust double-digit growth in both markets, significantly outpacing the growth of campus-based programs (growing 3 to 4 times faster). This digital expansion is central to the strategy of penetrating the working adult market, providing flexible and accessible learning options. Approximately 100,000 students, or about 20% of the total student population, are currently enrolled in fully online programs. While digital adoption is more advanced in Mexico, momentum is strong in Peru as well. This technological capability, particularly the proprietary online-hybrid technology, is noted to potentially enable higher student engagement rates (up to 20% higher), translating into improved retention (10% better) and contributing to revenue growth (5-10% higher). This digital focus provides a strategic counterpoint to competitors primarily focused on traditional campus models and enhances Laureate's ability to scale efficiently and reach a wider audience.

Performance and Outlook: Navigating Headwinds, Driving Margins

Laureate's recent financial performance reflects both the underlying operational strength and the impact of external factors, particularly foreign exchange volatility and academic calendar timing. The first quarter of 2025 saw revenues decrease by 14% year-over-year to $236.2 million, resulting in a net loss of $19.5 million compared to a $10.8 million loss in the prior year. This reported decline was significantly influenced by a $37.6 million headwind from the weakening Mexican peso against the U.S. dollar and a $19.2 million impact from later semester start dates, particularly in Peru. However, these were partially offset by a positive $17.5 million contribution from higher average total organic enrollment.

Segment performance in Q1 2025 mirrored these trends. Mexico's revenue decreased 12% as reported, but on an organic constant currency basis adjusted for timing, revenue increased 11% driven by volume growth. Mexico's Adjusted EBITDA also saw a reported decrease of 12%, but an increase of 22% on an organic constant currency adjusted basis, reflecting strong operating leverage. Peru's Q1 revenue decreased 23% as reported, heavily impacted by approximately $18 million in academic calendar timing shifts, but showed a 5% increase on an organic constant currency adjusted basis. Peru's Q1 Adjusted EBITDA saw a reported increase of 87% from a small base, but decreased by $2 million on an organic constant currency adjusted basis, primarily due to Q1 being a seasonally low period with ongoing fixed expenses and growth investments.

Looking back at the full year 2024 provides a clearer picture of the underlying operational momentum. Laureate achieved $1.567 billion in revenue and $450 million in Adjusted EBITDA, resulting in a record-high Adjusted EBITDA margin of 28.7%. On an organic constant currency basis, revenue grew 7% and Adjusted EBITDA grew 9%, demonstrating solid operational execution. Mexico, in particular, showed significant margin expansion in FY 2024, with Adjusted EBITDA margins increasing by 176 basis points to 24.5%, positioning the segment well to exceed its target of above 25%.

Management's outlook for 2025 reflects confidence in continued operational improvement despite anticipated FX volatility. The full-year guidance has been tightened, with the midpoint raised for total enrollments, revenue, and Adjusted EBITDA, following favorable intake cycles. Total enrollment is projected to be between 491,000 and 495,000 students, representing 4% to 5% growth over 2024. Revenue is guided to be $1.560 billion to $1.575 billion, which is flat to 1% growth on a reported basis but represents robust 6% to 7% growth on an organic constant currency basis (7% to 8% excluding a one-time $8 million revenue loss from Mexico campus consolidations). Adjusted EBITDA is expected to be $473 million to $480 million, a 5% to 7% increase reported and an impressive 11% to 13% increase organic constant currency. This implies significant Adjusted EBITDA margin expansion of approximately 150 basis points at the midpoint, driven by operating leverage from revenue growth, efficiencies from Mexico campus consolidations, and lower corporate expenses.

A key aspect of the financial profile is cash flow generation. Laureate expects Adjusted EBITDA to unlevered free cash flow conversion of approximately 50% on a reported basis for 2025, implying strong double-digit growth in U.S. dollar reported cash flows. This strong cash generation supports the company's capital allocation strategy, which prioritizes returning excess capital to shareholders. Laureate has a track record of significant capital returns, having returned nearly $3 billion since 2019 through share repurchases, cash distributions, and dividends.

As of March 31, 2025, the company had $56.1 million remaining under its current stock repurchase authorization, signaling continued commitment to this strategy. The balance sheet remains strong, with $109.8 million in cash and cash equivalents and a low net debt position of $5 million as of Q1 2025, providing ample liquidity and flexibility.

Competitive Landscape and Risk Factors

Laureate operates in a competitive environment within the higher education sector in Mexico and Peru, facing both local private institutions and public universities. Key publicly traded competitors in broader education markets include Strategic Education (STRA), Grand Canyon Education (LOPE), American Public Education (APEI), and Adtalem Global Education (ATGE). While direct, apples-to-apples comparisons are challenging due to geographic focus and business models (Laureate's hybrid/campus focus in Latin America vs. some peers' U.S.-centric online models), certain comparisons can be drawn. Laureate's recent organic constant currency revenue growth (7% in FY24, 6-7% guided for FY25) compares favorably to some peers' growth rates (e.g., APEI's 8-10% in 2024), though others like STRA and ATGE also showed similar growth (12-15%). In terms of profitability, Laureate's TTM EBITDA margin of 30.34% and Net Margin of 18.84% demonstrate solid profitability, particularly with the expected margin expansion in 2025, positioning it competitively, although some peers like LOPE exhibit higher net margins (22% in 2024) potentially due to different cost structures inherent in their models.

Laureate's competitive advantages lie in its established brand reputation, extensive physical footprint in key urban centers, deep understanding of local market needs, and its growing digital capabilities tailored for the region. The focus on employability and strong student outcomes, evidenced by high graduate employment rates and favorable rankings, further strengthens its market position. The regulatory environment, while varying by jurisdiction and subject to change, also presents a barrier to entry for new players, benefiting established operators like Laureate.

However, the company faces several key risks. Operating in emerging markets exposes Laureate to complex business, economic, political, and regulatory risks. Fluctuations in foreign currency exchange rates, particularly the Mexican peso, can significantly impact reported U.S. dollar results, as seen in Q1 2025, despite the natural hedge on transaction risk from local revenues and expenses. Macroeconomic slowdowns, such as the one experienced in Mexico post-election in Q3 2024 or the lingering effects of the Peru recession in H1 2024, can affect consumer discretionary spending and enrollment demand. Regulatory changes, including potential government initiatives to expand public university capacity (though the proposed expansion in Mexico appears to have limited direct overlap with Laureate's target markets and footprint), could alter the competitive landscape. The ability to attract and retain students and faculty, manage operational costs effectively, and adapt to evolving market demands and technological advancements (including AI integration) are ongoing challenges.

Conclusion

Laureate Education presents a compelling investment narrative centered on its position as a market leader in the attractive, growing higher education sectors of Mexico and Peru. Despite facing near-term headwinds from foreign exchange volatility and academic calendar timing shifts, the underlying operational performance remains robust, driven by strong enrollment growth, particularly in high-demand programs and the rapidly expanding digital segment. The company's strategic focus on organic growth, operational efficiency (including campus consolidations), and digital innovation is expected to drive significant margin expansion and strong cash flow generation in 2025, reinforcing its capital-light business model. Supported by a solid balance sheet and a clear commitment to returning excess capital to shareholders, Laureate is well-positioned to capitalize on the long-term demand for quality, affordable education in its core markets. While macroeconomic and political uncertainties, particularly in Mexico, and foreign currency fluctuations warrant careful monitoring, the company's demonstrated resilience and strategic execution provide a solid foundation for continued value creation.