Laureate Education, Inc. · NASDAQ:LAUR
Laureate Education — FY2017 Earnings Presentation
69 slides from Laureate Education's earnings presentation, Jan 31, 2018
Slide 1: Forward Looking Statements
Forward Looking Statements This presentation includes statements that express Laureate's opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements" within the meaning
Slide 2: Agenda
Agenda 1 Executive Summary 2 2017 Accomplishments 3 Recent Developments 4 Positioned for Success 5 2018 - 2020 Priorities 6 2018 Guidance 7 Future Opportunities 8 Summary & Wrap-up 9 Q&A 10 Appendix 3 © 2018 Laureate Education, Inc.
Slide 3: Executive Summary
Executive Summary We are the global leader in higher education in large and growing markets with a long runway for growth 2017 was a transformational year for Laureate and has positioned us for future success • • • Completion of IPO with significantly stronger balance sheet Re-assessment and refinem
Slide 4: 2017 Accomplishments
2017 ACCOMPLISHMENTS 5 © 2018 Laureate Education, Inc.
Slide 5: 2017 Was A Year of Simplification & Execution
2017 Was A Year of Simplification & Execution Successful transition to new management team • Streamlined operations / significant cost rationalization Team Sharpening Laureate’s strategic focus • Exiting 6 markets; 6% of Revenue; $650M+ proceeds @ 14x EV/EBITDA 1 Simplify Significant strengthening o
Slide 6: Experienced Management Team with Proven Track Record
Experienced Management Team with Proven Track Record EILIF SERCK-HANSSEN CHIEF EXECUTIVE OFFICER • • Laureate E xperi ence: 10 years Interna tio nal E xperience: 29 years RICARDO BERCKEMEYER P RE S IDE NT A ND CHIE F OP E RA T ING OFFICE R • L a u r e a t e E xp e r i e n c e : 1 6 y e a r s • I n t
Slide 7: Significant Cost Savings from Streamlining Operations
Significant Cost Savings from Streamlining Operations EiP1 Wave 2 on-track to deliver over 2,500 FTE $75-$100M of annual expense savings; reduction of 8 © 2018 Laureate Education, Inc. 1 EiP defined as Excellence in Process, an enterprise-wide initiative to optimize and standardize our processes to
Slide 8: Successfully Executing Divestiture Plan to Simplify Operating Model
Successfully Executing Divestiture Plan to Simplify Operating Model Asset sales executed as part of Accelerator Plan yield strong deleveraging results1 • Exit criteria: slower growth, low margin/scale, or challenging regulatory environment Currently marketing 2-3 additional small assets in niche mar
Slide 9: Capital Structure Significantly Improved
Capital Structure Significantly Improved Significant progress made to delever balance sheet over the past 2 years Asset sale proceeds drive net leverage to 3.1x at year-end 2017 (pro forma)1 2017E PF 1 2015 2016 10 © 2018 Laureate Education, Inc. 1 2017E Net leverage is shown pro forma for announced
Slide 10: Integration of Technology Stack
Integration of Technology Stack Common Operating Model for scale is enabled by unified technology systems CRM (service) SIS LMS ERP 11 © 2018 Laureate Education, Inc. Core Technology Platforms Integrated model provides for margin expansion opportunities in 2018 – 2020 • Operating Cost Savings:$60M •
Slide 11: 2017 Organic Growth Guidance In-line with Prior Expectations
(FXN)1 2017 Organic Growth Guidance In-line with Prior Expectations Current expectation for 2017 in-line with previous guidance New Enrollments (000’s) Total Enrollments (000’s) 2016PF 2017E 2016PF 2017E Revenue ($M) Adj. EBITDA ($M) Adj. EBITDA Margin2 +5% (Organic/FXN) $812 2016PF 2017E 2016PF 201
Slide 12: Recent Developments
RECENT DEVELOPMENTS 13 © 2018 Laureate Education, Inc.
Slide 13: Chilean Higher Education Law in Process of Being Implemented
Chilean Higher Education Law in Process of Being Implemented New Higher Education Law was passed by the Chilean Congress last week and, assuming that is passes review by the Constitutional Court, is expected to be signed into Law by the President of Chile as early as the first quarter of 2018 and sc
Slide 14: Strong Improvements in Walden Performance Since Q3
Strong Improvements in Walden Performance Since Q3 Results Overview • Leader in Healthcare and Human Services graduate education More than 50,000 students ~90% graduate students; primarily working professionals 3-yr cohort default rate is 7.5%, well below the 11.5% national average Degree Mix Progra
Slide 15: Walden is a Large and Stable Business
Walden is a Large and Stable Business Integrated Systems MySys Congressional Scrutiny of For-Profits Exceeding Market & Industry Trends in U.S. 34K 33K 33K 32K 32K 32K 31K 31K 29K 25K 24K $618M $618M $618M $604M $581M 81M 2007 2008 2009 2010 Revenues 2011 2012 Operating Income 2013 2014 New Enrollme
Slide 16: Laureate Is Uniquely Positioned for Success
LAUREATE IS UNIQUELY POSITIONED FOR SUCCESS AN ATTRACTIVEMARKET IN 17 © 2018 Laureate Education, Inc.
Slide 17: Massive Market Opportunity with Attractive Secular Trends
Massive Market Opportunity with Attractive Secular Trends Outsized growth opportunities in Laureate’s target markets (emerging markets) Global Higher Education Students $1.5T 2015 Massive market opportunity 212M +5% CAGR +7% CAGR 3.2B 2016 population 5.2B 2028 population Global middle class expected
Slide 18: Strong Economic Incentives Driving Increased Participation
Strong Economic Incentives Driving Increased Participation (average wage premium for those with a tertiary education (1)) (higher education participation rates (2)) EU United States Chile Brazil States Growth in Growth Middle Class in VIRTUOUS CIRCLE Higher Education Sources: UNESCO Institute for St
Slide 19: Laureate is The Market Leader With A Strong Track Record of Growth
Growth1 Laureate is The Market Leader With A Strong Track Record of MORE THAN ONE MILLION STUDENTS (students in 000’s) 1,068 60+ INSTITUTIONS 250+ CAMPUSES 2001 2003 20052007 2009 2011 2013 2015 2017 65,000+ EMPLOYEES 2016 2017E 2013 2014 2015 23 MEDICAL SCHOOLS +15% +14% +11% +12% +11% 1 Statistics
Slide 20: Leading Brands Across Key Markets
Leading Brands Across Key Markets Quality Rated Proprietary IP & know-how and curriculum leveraged globally Licenses & accreditation Infrastructure / real estate Reputation & relationships Leading brands 21 © 2018 Laureate Education, Inc. Examples Founded: 1960Founded: 1970Founded: 1994Founded: 1995
Slide 21: Focused on Degrees that are in High Demand by Employers
Focused on Degrees that are in High Demand by Employers Strong collaboration with employers are job-ready upon graduation and industry to ensure Laureate students % of enrollment Architectural and Business Advisory Boards 22 © 2018 Laureate Education, Inc. Note: Enrollment percentages as of year-end
Slide 22: Superior Outcomes for Our Students
Superior Outcomes for Our Students 12 of 14 Laureate institutions surveyed met or exceeded local market employment benchmarks (% of Laureate Mexico students that advance their socioeconomic status) vs. Peer Universities 41% Outperformance (% of graduates employed after 12 months) (average monthly sa
Slide 23: Powerful Network Benefits
Powerful Network Benefits Powerful Product Differentiation 24 © 2018 Laureate Education, Inc. Network Differentiator Aspirational Accreditations International Student Experience Cost Synergies - Back Office Scale $175M (EiP Wave 1 & 2) Finance &Procurement IT & HR Curriculum – Develop once; deploy o
Slide 24: 2018-2020 Priorities
2018 -2020 PRIORITIES 25 © 2018 Laureate Education, Inc.
Slide 25: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes Adj. EBITDA Margin 21% 2020 Goals Unlevered FCF Margin1 11% 26 © 2018 Laureate Education, Inc. 1 Unlever
Slide 26: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes CONTINUED IMPROVEMENT OF FINANCIAL & OPERATIONAL METRICS 2020 Financial Goals: 21% Adj. EBITDA Margin an
Slide 27: Disciplined Approach to Portfolio Reviews
Disciplined Approach to Portfolio Reviews 1 Ongoing strategic reviews of our portfolio to optimize value T H R E E C O R E P R I N C I P L E S F O R P O R T F O L I O O P T I M I Z AT I O N 28 © 2018 Laureate Education, Inc. NETWORK Accretive to our Network • Strong economic benefit from network syn
Slide 28: Proactive Approach to Mitigating Risk
Proactive Approach to Mitigating Risk 1 • • 75% private pay model Relentless focus on quality and outcomes • Reduced exposure to VIEs post China sale and expected restructuring of Chilean operations Revenue Sources For Profit as % Total Revenue Public funding ~25% 84% 2016 94% 2018E Private pay ~75%
Slide 29: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes CONTINUED IMPROVEMENT OF FINANCIAL & OPERATIONAL METRICS 2020 Financial Goals: 21% Adj. EBITDA Margin an
Slide 30: Sources of Incremental Margin Expansion Opportunities
Sources of Incremental Margin Expansion Opportunities 2 margin improvement (Capex & Opex) improvement Adj. EBITDA Margin 21% 2020 Goals Unlevered FCF Margin 11% 31 © 2018 Laureate Education, Inc. Initiatives Goals Optimize Common Operating Model Network-wide • Deployment in Brazil and Peru underway
Slide 31: Brazil Operating Model Implemented
Brazil Operating Model Implemented 2 New operating model in Brazil anticipated to generate 300-500bps of margin expansion – Takes full advantage of hybridity component allowed by regulators Operations 32 © 2018 Laureate Education, Inc. Benchmark Academic Model • Benchmarked Laureate Brazil operation
Slide 32: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes CONTINUED IMPROVEMENT OF FINANCIAL & OPERATIONAL METRICS 2020 Financial Goals: 21% Adj. EBITDA Margin an
Slide 33: Hybridity & Digitalized Student Experience
Hybridity & Digitalized Student Experience 3 Laureate has been successful in transitioning its campuses from offline to a blended learning modality Superior student experience developed via proprietary technology and content Digital Teaching & Learning Ecosystem Student Credit Hours1 25%+ 20% 2015 2
Slide 34: OneCampus Demo
OneCampus Demo 3 A global online campus for all students and institutions in the Laureate network New platform launched in Fall 2017 35 © 2018 Laureate Education, Inc.
Slide 35: Capital Light Campus ("SMART" Campus)
Capital Light Campus (“SMART” Campus) 3 New SMART campus model piloted in Australia • Innovative and modern campus, technology focused Rollout in Mexico, Brazil, Peru and Chile • Expands the reach of our brands through access to cities that could not be served efficiently by a more traditional campu
Slide 36: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes CONTINUED IMPROVEMENT OF FINANCIAL & OPERATIONAL METRICS 2020 Financial Goals: 21% Adj. EBITDA Margin an
Slide 37: Operational Priorities: Geographic & Programmatic Expansion
Operational Priorities: Geographic & Programmatic Expansion 4 United States • Expand Competency Based Learning platform (TEMPO) Hub for health sciences & innovation • Mexico Spain/Portugal • UNITEC to launch 3 SMART campuses outside of Mexico city in the next two years Continued expansion of fully o
Slide 38: Grow Strong Health Sciences Vertical
Grow Strong Health Sciences Vertical 4 13 35 130+ Countries Institutions Campuses (Health Sciences Total Enrollment) 249K 238K 223K 131K 108K 23 Medical Schools 17 21 Dental Schools 2010 2011 2012 2013 2014 2015 2016 Veterinary Schools State of the art equipment & labs • 2 new medical schools in Bra
Slide 39: Execute on Distance Learning (DL) & Fully Online Opportunities
Execute on Distance Learning (DL) & Fully Online Opportunities 4 • Incremental investment towards marketing initiatives and polos1 distribution to support demand • Significant opportunity to have a quality and scaled DL product in the market –Uniquely positioned brands in regional markets –Outstandi
Slide 40: Laureate's 2018-2020 Priorities
Laureate’s 2018 - 2020 Priorities OPERATIONAL EXCELLENCE 1 Simplification & Risk Mgmt 2 3 4 5 Margin Expansion Capital Efficiency Quality & Outcomes Growth Opportunities Online Expansion Outcomes CONTINUED IMPROVEMENT OF FINANCIAL & OPERATIONAL METRICS 2020 Financial Goals: 21% Adj. EBITDA Margin an
Slide 41: Culture of Quality: LEAF
Culture of Quality:LEAF (Laureate 5 Education Assessment Framework) • Robust internal assessment tool to continuously evaluate the performance of new and existing institutions The LEAF methodology identifies 44 key areas for improvement and innovation in the categories of Employability, Learning Exp
Slide 42: LEAF Framework Ensures Focus on Strong Accreditation Results
LEAF Framework Ensures Focus on Strong Accreditation Results 5 + 7 years* (FIMPES) + 6 years* (MEC) + 6 years* (MEC) + 5 years* (HLC) + 4 years + 6 years (SUNEDU) + 6 years (SUNEDU) + 4 years* (CNA) + 5 years* (HLC) * pending official notice from government or other accrediting body CAN: National Ac
Slide 43: LEAF Framework Yields Recognitions For Our Quality & Outcomes
LEAF Framework Yields Recognitions For Our Quality & Outcomes 5 peers Brazil, top #8 of the São Bahia ENADE ratings, and (Ranking Universitario Folha) scores, which were the ENADE = National Institute of Education and Research. Scimago = Journal Rank, measures scientific influence of scholarly journ
Slide 44: 2018 Guidance
2018 GUIDANCE 45 © 2018 Laureate Education, Inc.
Slide 45: Guidance Overview
Guidance Overview G r o w t h H e a t - M a p 2 0 1 8 Expansion STRONG MARGIN EXPANSION & CONTINUED IN CAMPUS OPERATIONS GROWTH 46 © 2018 Laureate Education, Inc. Market Revenue Growth Adj. EBITDA Margin % Brazil ++ ++ Mexico = / + = / + Andean & Iberian + + CentAm & U.S. Campuses + + EMEAA ++ ++ On
Slide 46: Guidance – 2017 PF for Divestitures & New Higher Ed. Law in Chile
Guidance – 2017 PF for Divestitures & New Higher Ed. Law in Chile Guidance shown includes impact from divestitures & assumed passage of New Higher Education Law and related deconsolidation of Chilean VIEs • Timing of closing of divestitures and deconsolidation in 2018 still to be determined 1 The Co
Slide 47: Adjusted EBITDA and FCF Margin to Benefit From Simplification & Focused Execution
Adjusted EBITDA and FCF Margin to Benefit From Simplification & Focused Execution Commitment to improving Adjusted EBITDA margin and Free Cash Flow margin • Tracking towards 2020 goals 1 pt 11.0% 21.0% 2016 2017E 2018E 2019E 2020E 2016 EiP (Wave 1 & 2) Asset Sales/ Chile 2017E - 2020E Organic 2020E
Slide 48: U.S. Tax Legislation Update – No Material Impact on Cash Taxes
U.S. Tax Legislation Update – No Material Impact on Cash Taxes SUMMARY: No material impact on cash taxes 50 © 2018 Laureate Education, Inc. 1 GILTI: Global Intangible Low-Taxed Income U.S. tax legislation passed in late December lowered U.S. Corporate Tax Rates Laureate historically hasn’t had U.S.
Slide 49: Future Opportunities
FUTURE OPPORTUNITIES 51 © 2018 Laureate Education, Inc.
Slide 50: The World is Increasingly Connected Via Technology
The World is Increasingly Connected Via Technology, And Higher Education Exception Is No 52 © 2018 Laureate Education, Inc.
Slide 51: Vision To Be The Technology Enabled Leader in Global Higher Education
Vision To Be The Technology Enabled Leader in Global Higher Education © 2018 Laureate Education, Inc. 53
Slide 52: What are We Solving
What are We Solving – In Addition to Strengthening Laureate’s Financial & Operating Attributes? Education is unaffordable for large part of global population Only 20% - 25% of 18-24 year olds are participating in higher education in emerging markets (vs. 50% – 60% in developed markets) Use technolog
Slide 53: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) 1,000,000 Students 250+ Campuses 20+ CPRouOnDtrUieCsT & INNOVATION LAUREATE MANAGED 3RD PARTY UNIVERSITIES PORTFOLIO (IP) DIGITAL Partners 55 © 2018 Laureate Education, Inc. COMMON OPERATING MODEL LEAF (Proprietary) Outcome R
Slide 54: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) P•REOnDaUblCeTd by unified tec&hnology systems LAUREATE MANAGED INNOVATION 3RD PARTY POR• TSFcOaLleIOec(IoPn)omics foUr NIVERSITIES every element of the value chain that isn’t DrIGeqITuAirLed to be local Partners 56 © 2018 La
Slide 55: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) • Quality assurance framework • Regular test ing for compliance PRODUCT LAUREATE & MANAGED • Covers every part of th 3RvD PARTY ealue chain : INNOVATION –Product Development PORTFOLIO (IP) UNIVERSITIES –Academic Delivery – Ou
Slide 56: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) • SuLAUREATE perior produ ct PRODUCT & INNOVATION development & overall MANAGED stude t experienc 3RDnPARTY e – that benefits from scale PORTFOLIO (IP) UNIVERSITIES DIGITAL Partners 58 © 2018 Laureate Education, Inc. COMMON O
Slide 57: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) business model to ur operating model 3rd parties: PRODUCT LAUREATE MANAGED 3RD PARTY UNIVERSITIES Reduced regu latory risks & certain markets INNOVATION wer capital intensity PORTFOLIO (IP) DIGITAL Partners 59 © 2018 Laureate
Slide 58: Future State Of Laureate Network
Future State Of Laureate Network QUALITY & OUTCOMES QS-Stars (Partnership) PRODUCT & INNOVATION LAUREATE MANAGED 3RD PARTY UNIVERSITIES PORTFOLIO (IP) DIGITAL Partners 60 © 2018 Laureate Education, Inc. COMMON OPERATING MODEL LEAF (Proprietary) Outcome Research (Proprietary & Partnership) LAUREATE O
Slide 59: Vision Roadmap
Vision Roadmap ancial Performance • • • Organic Growth • Innovation • Scale Economics Margin Expansion Capital Efficiency Leadership • Selective M&A Innovation & Digital IT Timeline 2017-18 2019-20 2021-22 61 © 2018 Laureate Education, Inc. Efficiency & Improved FCF Conversion Growth & Innovation Si
Slide 60: Summary & Wrap Up
SUMMARY WRAP UP & 62 © 2018 Laureate Education, Inc.
Slide 61: Summary & Wrap Up
Summary & Wrap Up We are the global leader in a large and growing market that will continue to grow given the strong economic incentives for higher education 2017 laid the foundation for the future direction of our organization Management is committed to simplifying our business model and directing
Slide 62: 2018 Action Plans
2018 Action Plans 1 Execute on 2018 Guidance •4.5% - 5.5% organic FXN revenue growth •80bps Adj. EBITDA margin expansion 2 Walden turnaround; return to new enrollment growth 3 Deliver Accelerator Plan and related cost savings Drive operating efficiencies from Common Operating Model •200 bps+ margin
Slide 63: Q&A Session
Q&A SESSION 65 © 2018 Laureate Education, Inc.
Slide 64: Appendix
APPENDIX 66 © 2018 Laureate Education, Inc.
Slide 65: Strong Execution on Asset Sales
Strong Execution on Asset Sales Asset sales executed as part of Accelerator Plan yield strong deleveraging • Cumulative EBITDA multiple of over 14x on sales Gross proceeds of $650M+ to be used for deleveraging results • Reduction of 0.6x in net leverage once transactions close and fund 67 © 2018 Lau
Slide 66: FY 2017 Updated Guidance (Reaffirmed)
FY 2017 Updated Guidance (Reaffirmed) Reaffirming guidance provided during third quarter 2017 earnings call Capex range expected at 6.0% - 7.0% organic constant currency revenue, due primarily to timing shift to 2018 Revenue Guidance Adjusted EBITDA Guidance ($ millions, rounded) 2016 Asset Disposit
Slide 67: US GAAP Reconciliations
US GAAP Reconciliations Non-GAAP Reconciliation For the year ended December 31, IN MILLIONS 2016 2015 Change Net income (loss) Plus: Equity in net income of affiliates, net of tax Income tax expense (benefit) $ 366.2 $ (315.8) $ 682.0 (0.1) 65.0 (2.5) 117.7 2.4 (52.7) Income (loss) from continuing o
Slide 68: 70 © 2018 Laureate Education, Inc.
70 © 2018 Laureate Education, Inc.
Slide 69: Laureate Education Inc
4 _ LAUREATE EDUCATION INC