Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Laureate Education Earnings Call. I would now like to turn the call over to your host, Adam Morse..

Good morning, and thank you for joining us on today's call to discuss Laureate Education's second quarter 2021 results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer; and Rick Buskirk, Chief Financial Officer.

Our earnings press release is available on the Investor Relations section of our website at laureate.net. We have also posted a supplementary presentation to the website, which we will be referring to during today's call. The call is being webcast and a complete recording will be available after the call.

I would like to remind you that some of the information we are providing today, including, but not limited to, our financial and operational guidance constitutes forward-looking statements within the meaning of applicable U.S. securities laws.

Forward-looking statements are subject to risks and uncertainties that may change at any time, and therefore, our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S.

Securities and Exchange Commission, our 10-Q filed earlier this morning as well as other filings made with the SEC. In addition, all forward-looking statements are based on current expectations as of the date of this conference call, and we undertake no obligation to update any forward-looking statements.

Additionally, non-GAAP measures that we discuss including, among others, adjusted EBITDA and its related margin, total cash, net of debt and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. With that, let me turn the call over to Eilif..

First off, from an operational perspective, we are now at total enrollment volume levels that are above pre-pandemic levels. The resiliency of Laureate's business model has been proven throughout this pandemic, and we have now returned to growth.

Our operating performance through the first six months of the year was robust and ahead of expectations, and on the strength of that performance, we are now increasing our guidance for the full year 2021.

Second, following the successful closing of the sale of our operations in Brazil, we repaid our outstanding senior notes and are now in a net cash position of $354 million as of end of June.

After closing the pending sale of Walden University, which we anticipate to occur shortly, our pro forma June cash balance would equate to approximately $1.65 billion, which is more than $8 per share in cash value.

As discussed previously, we plan to return excess capital to shareholders in the coming months and are evaluating the most tax-efficient ways of doing so. In addition to having a strong balance sheet, our operating models in Mexico and Peru are cash accretive.

We are operating in attractive markets with favorable growth dynamics and expect to be able to deploy capital efficiently to generate strong returns for our shareholders. As a reminder, the demand for higher education in both Mexico and Peru is large and growing, fueled by rising participation rates.

We have top ranked brands in both markets, serving the traditional segment via our premium brands and the more price-sensitive segment via our high-quality value brands. We have over 50 campuses throughout Mexico and Peru that anchor our strong brands and are leveraging that brand power to become the market leader in online education.

Digital delivery is increasingly important in both markets as students expect to be able to access affordable quality education via a flexible hybrid delivery mode. This trend has been further accelerated by the COVID-19 pandemic. We believe that we are well positioned to take advantage of this growing market dynamic during the next 3 to 5 years.

I will now turn the call over to Rick Buskirk for a more detailed financial overview of the second quarter and year-to-date performance as well as our guidance outlook. Rick..

for continuing operations in 2021, total enrollments are estimated to be approximately 350,000 students. Revenues are estimated to be between $1.025 billion and $1.065 billion. Adjusted EBITDA is estimated to be between $205 million and $215 million.

Please note that this includes approximately $13 million of noncash charges related to the write-off of an indemnification asset associated with a prior period acquisition. Eilif, that concludes my remarks, handing it back to you for closing comments..

Thank you, Rick. We continue to be encouraged by the momentum in the business under our new operating model as a regional operator of higher education institutions in Mexico and Peru.

We look forward to closing the pending sale of Walden University during the third quarter and completing our transformation into a higher education company focused solely on Latin America. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants..

We have a question from the line of Shlomo Rosenbaum with Stifel..

This is Adam on for Shlomo.

Just curious if you could kind of quantify or kind of further illuminate on the discounting that was impacting the results of this period? And kind of why there is more in Mexico versus Peru?.

The -- this is Eilif. The discounting in Mexico was what we did in order to help our students during a very difficult time during the pandemic. And those discount levels were slightly higher in Mexico than Peru, but they are relatively short term in nature.

Also, what is -- what we experienced in Mexico, which we experience to a much lesser degree in Peru, was that students would flip over to online delivery during the pandemic. So there was a path to migration to fully online. And those 2 effects combined were driving a -- what we view to be a temporary reduction in the average pricing in Mexico..

And if you could quantify how much that impacted the revenue?.

Rick, do you want to comment on that?.

Yes. You can see in our financials that we published in the segment reporting that increased discounts and scholarships on a year-over-year basis were approximately around $30 million..

Okay. And then the enrollment outlook seems better for the year.

Could you figure out the improvement kind of between Mexico and Peru?.

Eilif, did you want to take that question? Or --.

Sorry, I was on mute.

Was that a comment around the growth in total enrollment, Adam?.

For the improved outlook for the year, kind of how much was coming from Mexico versus Peru? Factored into the uplift in the....

We don't give guidance by segment. But clearly, we are very, very encouraged by the trends we are seeing in Peru, and we expect them to continue. And just as a reminder, Peru's main intake was in what we call cycle 1, which was February, March. And in Mexico, the main intake is in September.

And what we experienced in Peru was that we had some softness in the smaller intakes, but the main intake as students were more determined to come back. And we are seeing some similar trends in Mexico, but it is too early to conclude. We'll provide more specificity around the volume outlook for Mexico during our third quarter report..

Okay.

And so the adjusted EBITDA guidance improvement, how much of that is coming from just kind of core operational improvement versus taking out standard corporate expenses related to the acquisition or asset?.

Rick, do you want to take that?.

Yes, it's a combination of both. What you can see is -- to answer your question directly first on the corporate G&A side, you'll see our first half, we took that down around $8 million. You'll see that in the financials related to segment reporting. So reduction in G&A as we step down to rightsize the organization after the disposition.

And the rest of the outperformance was related to the overachievement, mainly driven by Peru, is the answer..

Okay.

And will share buybacks continue to be the preferred method to return capital to shareholders, if any change in thinking around that?.

We are still very committed to returning excess capital to our shareholders. We have a strong cash position now, and we will be even in a stronger position at the close of the Walden transaction.

And we are working on ways to return capital in the most tax-efficient manner for our shareholders, and we will provide more details on that after the closing of the Walden transaction..

Okay. And I guess the last question would be, for the -- you just mentioned that $13 million charge for the indemnification.

Can you kind of provide a little more color on that?.

Yes, we had a historical acquisition in Mexico for one of our campuses. And when you have an acquisition, you essentially have an indemnification asset that's on your books. And then after the statute of limitations expires, the way it works from an accounting perspective is that gets reversed and essentially expense that asset.

It doesn't get utilized. So it creates a noncash charge on our income statement..

So it's a geography matter. It's a drag on EBITDA, and it's a favorability on the income tax line. So it's neutral on the net income..

Next question comes from the line of Bill Goldman with Cetus Capital..

Congratulations on a good quarter. Just wanted to get a sense on the timing for the Walden deal.

When do you guys see that closing?.

There are just some -- what I would characterize as mainly administrative matters outstanding to satisfy the CPs for closing, and both Adtalem and Laureate are working collaboratively and expeditiously towards a successful closing in the near future.

I can't be more specific on that, but certainly, we have a high confidence that this is a third quarter item..

Fourth quarter, you said?.

Third. Third quarter..

And this concludes today's conference call. Thank you for participating, and you may now disconnect..