Laureate Education

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 4/5

Laureate Education, Inc. is a for-profit higher education provider, primarily operating in Mexico and Peru. It partners with institutions to offer various undergraduate and graduate programs, focusing on online and on-campus education.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

Laureate Education (LAUR) operates licensed universities and higher education programs. As of September 2024, its operations primarily focused on institutions in Mexico and Peru, with a smaller presence in other regions.

  • Revenue Streams: The company generates revenue primarily from tuition fees, with a large portion of its revenue from Mexico and Peru, also other revenue streams include auxiliary and other service offerings.
  • Target Market: LAUR targets students seeking to pursue a variety of higher education degrees.
  • Operational Structure: LAUR doesn’t operate its campuses, these are operated by universities that have relationships with the company and receive services like online program technology and resources, curriculum design and development, branding, access to corporate relations, and accreditation.

Financial Performance

Here is a look at their recent financial numbers and performance, analyzed through various periods to get a complete and easy to understand picture.

  • Revenue:
    • For the six months ending September 30, 2024, the company reported revenues of $683.5 million (unlimited).
    • In Q3 2024 alone, they made $357.2 million (unlimited) in revenues, while in Q3 2023 they made $354.5 million. So, showing a year-over-year growth in revenues.
    • For the nine months ending September 30, 2024, the revenue was $1.055 billion(unlimited).
    • The year ended December 2023 was strong for the company, reporting revenues at $1.47 billion.
    • They have seen impressive growth in their business. They also have a well-established online platform that allows them to have a huge reach.
*   **Operating Profitability:**
    *     For the six months ending September 30, 2024, the net operating loss before taxes was ($16.2 million)(unlimited).
    *      The operating profit for the three months ending September 30, 2024 was $16.6 million while a year earlier in the same quarter it was $15.6 million. It's showing marginal increase in profitability.
     *   For the nine months ending September 30, 2024, it was $128 million.
    *  Adjusted EBITDA is a metric used by management and boards of directors to understand the operating results, the adjusted EBITDA is $1.4607 billion for full year of 2023 compared to 0.3722 billion for 2022. So, a significant improvement in operating profit.
     *   Adjusted EBITDA is a proxy for measuring operating profitability because it focuses on the results of the core ongoing operations and it eliminates the impact of nonrecurring items and certain non-cash items, like depreciation, amortization, and stock-based compensation.
    *  For the year ending December 31, 2023, the operating income was $202.2 million.

*   **Net Income:**
    *    The net income for the six months ending September 30, 2024, the company reported a net loss of $9.3 million(unlimited).
    *    For the three months ending September 30, 2024, the net income from continuing operations was 17.6 million, which was $26.4 million a year earlier. It seems that they saw a loss in their other operations or from minority interests.
     *    The net income from continuing operations for nine months ending September 30, 2024 was $128.3 million(unlimited).
    *   In 2023, they reported net loss of $(185.9 million) million in net income.
    *  It is really important to emphasize here, that the overall profitability of the company has improved a lot in 2023, specially the EBITDA metric compared to 2022. This could be a turning point for the company in terms of profitability.

*   **Capital Structure:**
    *    Laureate’s total debt is about 1.19 Billion at the end of December 2023.
    * The ratio of debt to equity is 1.2.
   *   On the liabilities side of the balance sheet, a substantial amount is the accrued contract revenue which is $1.03 billion.

*   **Cash Flow:**
    *   In the first nine months of 2024, their cash from operations were $146.9 million.
     * For the full year of 2023 cash from operations was $134 million.
     * In December of 2023 the cash on hand was $180 million which shows the company had very high liquidity.
  • Segment Performance
  • Looking at all the geographical segments, Latin American segment was the biggest revenue source for the company. Their revenues from Mexico and Peru are very similar. The main profitability driver is from their Mexican operations, that is followed by other American countries.
  • Share Performance
  • Their shares are selling for around $6.5 now.
  • Other Important Highlights
    • During the earnings calls, management has stated that they have an opportunity to create significant value, especially with improved profitability. Their long-term goal is to achieve a high ROCE which improves the value created by the company. They are also looking to expand their operations while not requiring capital investments. So they are following a prudent approach.
  • They are also investing a lot in technology to improve their service offerings.

Moat Analysis

Laureate Education’s business lacks a strong, defensible moat. Here’s why, and thus the low moat rating of 1 / 5:

  • Intangible Assets: Although they provide some exclusive curriculum they aren’t really differentiated from other higher education providers and competitors can very easily develop a similar curriculum. They don’t have any proprietary technology which no one else can replicate. The brand recognition for LAUR is also not that strong.
  • Switching Costs: Switching costs are very low. As students can always shift to different universities or programs. As for staff, again there isn’t much stickiness.
  • Network Effect: There isn’t a network effect for higher education, the program and universities that the company manages, it doesn’t make the services better with more students and participants.
  • Cost Advantages: They lack any cost advantage as the input costs like employee compensation, advertising, infrastructure and capital investments are available to everyone and it doesn’t give them a cost advantage. They are also not much bigger than the competition, or any dominant market player.

Risks to Moat and Business Resilience

Several risks could potentially erode LAUR’s existing position and financial stability:

  • Intense Competition: The higher education market is highly competitive, with low switching costs and new entrants can enter easily and compete with the existing players.
  • Regulatory Changes: Changes in government regulations regarding higher education standards, student funding, and accreditation can materially impact their revenue and profitability. They have to get licenses and approvals for their operations, and they are often subject to review.
  • Economic Downturns: Economic recessions or depressions would impact people’s income, thereby people would seek lesser higher education which would lead to a decrease in enrollment and affect the company badly.
  • Technology Changes: New technologies and digital learning trends could rapidly make their approach obsolete, if they are not able to keep up.
    • Operational Risks: The company operates various institutions in Mexico and Peru, the geopolitical risk from these countries could affect the performance of the company.
  • Reputational Damage: Any negative publicity, complaints, scandals, could damage their brand and reputation.
  • Management Problems: Bad management decision can negatively impact the business and its performance.
  • Dependence on Specific Regions: Laureate relies heavily on operations in Mexico and Peru, which makes it very vulnerable to changes in these regional economies.

Understandability Rating: 3/5

While higher education is a familiar concept, the nuances of LAUR’s operations, specifically with its focus on partnerships, various regions, and heavy reliance on the Mexican market can be somewhat complex to comprehend.

  • Industry Understanding: The basic education industry is easy to understand, everyone knows what happens in higher education institutions.
  • Operational Complexity: How the company generates revenues and provides the services, the different legal and regulatory barriers, makes it a little complex.
  • Financial Complexity: The financial statements of the company are not simple and easy to follow. The different type of revenue accounting that the company does makes it a bit more difficult to understand. The structure is complex and may need a basic accounting knowledge to understand and fully analyze the financials.

Balance Sheet Health Rating: 4/5

Laureate’s balance sheet displays a moderate level of health, considering its current liquidity and debt management:

  • Liquidity: They have a good amount of cash on hand and the current assets are greater than the current liabilities showing no liquidity problems.
  • Debt Management: Debt to equity is not bad and there is a plan in place to decrease their long term debt. The total debt in their balance sheet seems manageable for their operations.
  • Solvency: They have a reasonable amount of current assets to cover current liabilities and most of their operating assets are generating decent returns.

Overall, they have an average balance sheet that has improved over the last few years and its a good sign for the company.