Higher education company Laureate Education (NASDAQ:LAUR) reported Q3 CY2024 results topping the market’s revenue expectations, with sales up 2% year on year to $368.6 million. The company expects the full year’s revenue to be around $1.55 billion, close to analysts’ estimates. Its GAAP profit of $0.56 per share was also 250% above analysts’ consensus estimates.
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Laureate Education (LAUR) Q3 CY2024 Highlights:
- Revenue: $368.6 million vs analyst estimates of $361.8 million (1.9% beat)
- EPS: $0.56 vs analyst estimates of $0.16 (250% beat)
- EBITDA: $91.4 million vs analyst estimates of $71.1 million (28.6% beat)
- The company reconfirmed its revenue guidance for the full year of $1.55 billion at the midpoint
- EBITDA guidance for the full year is $449 million at the midpoint, above analyst estimates of $444.4 million
- Gross Margin (GAAP): 22.4%, up from 19.5% in the same quarter last year
- Operating Margin: 19.5%, up from 16.2% in the same quarter last year
- EBITDA Margin: 24.8%, up from 21.7% in the same quarter last year
- Free Cash Flow Margin: 30%, up from 26.8% in the same quarter last year
- Enrolled Students: 483,300, up 24,600 year on year
- Market Capitalization: $2.37 billion
Eilif Serck-Hanssen, President and Chief Executive Officer, said “The macroeconomic recovery in Peru contributed to strong operating performance for the third quarter. We believe that we are well-positioned to meet our 2024 goals, with continued revenue growth and margin expansion across all markets. Our results demonstrate the resilience of our business model and the strength of our brands in Mexico and Peru, reinforcing our commitment to driving long-term value for all stakeholders.”
Company Overview
Founded in 1998 by Douglas L. Becker and based in Miami, Laureate Education (NASDAQ:LAUR) is a global network of higher education institutions.
Education Services
A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Over the last five years, Laureate Education’s revenue declined by 10.9% per year. This shows demand was weak, a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Laureate Education’s annualized revenue growth of 14.1% over the last two years is above its five-year trend, but we were still disappointed by the results. 
Laureate Education also discloses its number of enrolled students, which reached 483,300 in the latest quarter. Over the last two years, Laureate Education’s enrolled students averaged 6.7% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen. 
This quarter, Laureate Education reported modest year-on-year revenue growth of 2% but beat Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 4.8% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and illustrates the market thinks its products and services will see some demand headwinds.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Laureate Education has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.4% over the last two years, slightly better than the broader consumer discretionary sector.
Laureate Education’s free cash flow clocked in at $110.6 million in Q3, equivalent to a 30% margin. This result was good as its margin was 3.2 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Laureate Education’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 12.3% for the last 12 months will decrease to 10.9%.
Key Takeaways from Laureate Education’s Q3 Results
We were impressed by how significantly Laureate Education blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates. EBITDA guidance also came in head. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 9.2% to $17 immediately after reporting.
Sure, Laureate Education had a solid quarter, but if we look at the bigger picture, is this stock a buy? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.