Good day and thank you for standing by. Welcome to the Q1 2022 Laureate Education, Inc. Earnings Call. I would now like to hand the conference over to your host today, Adam Morse, Senior Vice President of Finance. You may begin..

Good morning and thank you for joining us on today’s call to discuss Laureate Education’s first quarter 2022 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’d 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.

Furthermore, non-GAAP measures that we discuss, including and 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. Let me now turn the call over to Eilif..

First, UPC has been recognized as the university with the best reputation in all of Peru for 2021, according to a recent study conducted by Merco reputation ranking. UPC ranked first in the education sector and was ranked #17 overall among all organizations across Peru.

This incredible achievement is the result of the tireless work done by our teachers, academic leaders, deans and staff, and I wish to congratulate them all. Secondly, we have active applied research at all of our institutions. This month, we will inaugurate our first outdoor clean energy laboratory at one of our UVM campuses in Mexico.

In addition, through our internally developed set of algorithms and scientific sensors, UVM is playing a leading role in the water leak detection project that will be launched in Mexico later this year. We continue to invest in our institutions to ensure that we provide high-quality education.

Our institutions and programs regularly earn some of the highest accreditations available in our markets. As a result, the Laureate brands are highly differentiated and position us for continued success in Mexico and Peru. In addition to driving our growth agenda, we continue to prioritize return of capital.

We have been active with our stock buyback program this year. Through the first 4 months of 2022, we repurchased approximately 14 million shares at what we believe to be very accretive levels for our shareholders.

We currently have approximately $40 million of remaining share purchase authorization from our Board, and we expect to utilize this capacity during the remaining 2022. And as a reminder, we also plan to distribute the remaining net proceeds from the Walden sale in the second half of this year once these amounts are released from the escrow.

Our cash accretive business model as well as our strong balance sheet provides us with a lot of flexibility as we continue to think about return of capital going forward and shareholder value optimization efforts.

That concludes my prepared remarks, and I will now turn the call over to Rick Buskirk for a more detailed financial overview of the first quarter 2022 performance as well as further details on our improved 2022 full year outlook.

Rick?.

First, we have significantly right-sized our corporate operations at the end of last year. You can see this benefit starting in Q1 and will continue through the year, driving significant cost savings.

Second, incremental flow-through margin associated with, first, the annualization effect from last September strong primary intake in Mexico as well as the flow-through margin benefit from incremental new students in 2022 in both markets.

Lastly, as we return to face-to-face operations in 2022, we will experience incremental costs related to facilities and cost of service and that will be a bit of an offset to previously noted margin gains. Eilif, I am handing it back to you for closing comments..

Thank you, Rick. I continue to be very encouraged by the trends in our business. We are seeing positive growth momentum in all segments as well as strong returns from our efficiency and innovation investments.

The favorable secular trends for higher education in Mexico and Peru will continue to drive increased demand for higher education, and we believe that Laureate is uniquely positioned to serve these markets through our strong brands, leading digital capabilities and focus on quality as well as student outcomes.

Operator, that concludes our prepared remarks and we are now happy to take any questions from the participants..

Thank you. And our first question comes from Jeff Silber from BMO Capital Markets. Your line is now open..

Thanks so much. On Slide 9, you talk about the percentage of teaching hours delivered online and you talk about 2022 and going forward of 40% to 60%. Can you just remind us where you are now? I know students have been returning to campus.

I am just curious what that looks like now and what kind of trends we should expect going forward?.

Hey, good morning, Jeff. This is Eilif. When we opened up the campuses in a face-to-face post-pandemic, the economic model was geared to that 40% to 60% depending on the institution. So, we are today where we would like to be going forward..

And is there any issue – I know in the U.S., we are starting to see some cases, some COVID cases rise in certain areas. I am not as close to the story in both Mexico and Peru.

Can you just tell us what’s going on there?.

There are cases, of course, in those countries just like we have in the U.S., but we are still operating the full face-to-face schedule and of course, taking precaution just needed for safety of our faculty and staff..

Okay, great. I am sorry. You had also talked a little bit about wage inflation, and I’m not sure if I got the gist of the remarks.

Were you just talking about the contracts in Peru or was this something that you’re also seeing in Mexico as well?.

No.

What we were talking about is when we look at inflation in our markets right now and what the impact is to our business as it relates to our full year guidance, we have the benefit as being a service company with Laureate that the majority of our cost structure, 70% of our cost structure is essentially contractual base with our labor agreements, with IT services and with the rent contracts that we pay in Mexico.

Those contracts were set and locked at the end of last year, at the beginning of this year. So it provides us good visibility and a lack of exposure, the majority of our P&L, which makes our ability to react to inflation this year very manageable..

Okay, great. Then I will just ask one more and jump back into queue. I know you’ve got a large intake period coming up in the third quarter in Mexico. Can you give us any indications of how that’s going and what type of tuition increases are going to be embedded in that intake period? Thanks..

So C3 intake in Mexico is off to a good start. We are about 20%, 25% of the way on our curve, and we are executing as expected so far, but it’s really too early to conclude. We will provide a better update in the next earnings report..

Okay.

And how about tuition increases, what are planned for this fall?.

So, we continue to have price expectations as we have done in the first intake in Peru and Mexico at inflation or inflation plus for all of our brands.

There is, of course, going to be a little bit of a mix shift between Mexico and Peru and also between the value brand and the premium brands, but that each of the institutions we have pricing at inflation costs..

Okay, that’s great to hear. Thanks so much..

Thank you. And our next question comes from Shlomo Rosenbaum from Stifel. Your line is now open..

Great. Thank you for taking my questions.

Hey, just piggybacking off of Jeff’s last question, can you discuss the level of discounting or scholarships in the Peru market that you had in your primary intake this last quarter versus what you had in the last couple of years? How different was it?.

Peru has – I mean, relative to Mexico, it’s just the structural way the market works. We have smaller discounts as a percentage of revenue. That discount and scholarship base in Peru was in line with prior periods and we felt pretty good about it. And as Eilif mentioned, we were able to price that inflation that we experienced on our cost structure..

Okay, great.

And then could you give us some thoughts on what to expect for this year’s free cash flow? And then also, with all the moving parts between COVID recovery and disposition of assets, can you provide just a little bit more color on seasonality of free cash flow of the business as it stands?.

Sure. Let me start with seasonality and – because I appreciate that last year at our full year results, they were consolidated to discontinued operations. So, the way we should take a step back and think about free cash flow with our remaining businesses in Mexico and Peru is they follow our intakes, right.

So Q1 and Q3 are going to be our larger free cash flow intake, Q3 being larger. Q1 this year was impacted a little bit by the tail activities of our restructuring that we did, as we noted on our earlier call. So it’s a little lower than it will be on a run rate basis.

Q2 tends to run a bit negative, just from a seasonality of our free cash flow and Q4 is positive but not as large as Q1 and Q3..

Okay.

And what about how to think about the free cash flow for the full year? Are there some basic parameters you could give us or just a range?.

Yes. I would say we don’t guide on free cash flow, but on a run rate basis, we are targeting to get to around 50% free cash flow conversion of EBITDA.

And we will be lower than that this year due to the tail that we have, particularly in the first quarter of what I mentioned, plus a bit of higher tax expense due to the tail wind-down activities of the legacy Laureate..

Got it.

And then you mentioned something about favorable timing of expenses in this last quarter, could you just give us a little more color on what that was?.

Yes. Specifically, that was related to Mexico. And every year, the academic calendar shifts a couple of weeks potentially in some of our markets depending on the calendar. In this year, we had a few weeks in Mexico that shifted from Q1 into Q2.

And that resulted in $8 million of less revenue being booked in Q1 this year, which – that’s why in the earnings presentation that you see that we basically – you need to adjust for the timing of the calendar shift and it’s around 13% when you adjust for that..

Got it. Great. Thank you very much..

And I am showing no further questions. This concludes today’s conference call. Thank you for participating. You may now disconnect..

Thanks, everyone..