Good day, and thank you for standing by. Welcome to the Second Quarter 2023 Laureate Education Inc., Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Adam Morse, Senior Vice President, Corporate Finance. Please go ahead. .

Good morning, and thank you for joining us on today's call to discuss Laureate Education's second quarter of 2023 results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer, Rick Buskirk, Chief Financial Officer.

Our earnings press release is available on the Investor Relations section of our website at www.laureate.net. We've also posted a supplementary presentation to the website, which we'll 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 disposed 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 discussed, including among others, adjusted EBITDA and its related margin, total debt, net of cash 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, maintaining our organic revenue growth momentum of at least 8% to 10% on a constant-currency basis. Second, pursuing a capital light expansion strategy, where 40% to 60% of our taught hours are delivered online and thus resulting in capital expenditures as a percentage of revenue to be below 5%.

And finally, delivering adjusted EBITDA growth in the low teens on a constant-currency basis. This in turn will help drive adjusted EBITDA margins to over 30% on a consolidated basis for Laureate and adjusted EBITDA to unlevered free cash flow conversion of 50% or more.

Our growth agenda is supported by our leading brands and an unwavering commitment to academic excellence and innovation, reflected in a program portfolio designed to meet the job requirements of tomorrow. At Laureate, our dedication goes beyond just academia and we aim to make a meaningful and positive impact on society.

Just to touch on a few recent highlights. UPC has been recognized as one of the top two universities in Peru, working towards the United Nations Sustainable Development Goals, according to the latest impact ranking by Times Higher Education.

Furthermore, La Republica recently reported that UPC has the highest number of graduates with the best paid careers in the Peruvian labor market. This validation comes from the Ponte en Carrera platform, which is promoted by the Ministry of Labor and Employment, as well as the Ministry of Education.

In Mexico, we are delighted to introduce our new Institutional Rector at UNITEC, making history with the first woman to hold this prestigious position at that university. Also at UNITEC, our Atizapán Campus received a Certificate of Responsibility at the Diamond Award level for Environmental Balance in the Academic Institution category.

This accomplishment makes UNITEC the first university in Mexico to receive this level of award. These accomplishments demonstrate our commitment to delivering outstanding educational outcomes and furthering our positive impact in the communities we serve.

That completes my prepare remarks and 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 further details on our improved 2023 full-year outlook.

Rick?.

Total enrollment to continue to be in the range of 447,000 to 455,000 students, reflecting growth of 6% to 7% versus 2022. Revenue to now be in the range of $1.483 billion to $1.495 billion, reflecting growth of 19% to 20% on an as reported basis and 10% on an organic constant currency basis versus 2022.

Adjusted EBITDA to now be in the range of $419 million to $427 million, reflecting growth of 24% to 26% on an as reported basis and 14% to 15% on an organic constant currency basis versus 2022. We are increasing our adjusted EBITDA margin improvement to 110 basis points at the midpoint of our guidance.

The 10 basis point increase in margin expectations versus prior guidance is driven by revenue flow through, resulting from slightly better praising in the recent secondary intake for Mexico.

Additionally, for 2023 we continue to expect adjusted EBITDA to unlevered free cash flow conversion to be in the low to mid 40% range, aided by our margin improvement and continued capital-light growth model. Finally, as discussed on our prior call, I wanted to once again highlight a few items related to seasonality in our full year 2023 guidance.

First is regarding the first half versus second half revenue expectations. In Peru, we anticipate revenue growth for the first half and second half of 2023 at somewhat similar year-over-year growth rates. In Mexico however, we anticipate revenue growth for the second half of 2023 to be lower than the first half.

This is driven by last year's very strong primary new enrollment intake that was partially aided by students returning from COVID step-outs, as well as timing for other revenue, including graduation fees. We expect to see a more normal first half and second half growth pattern for Mexico in 2024.

Lastly, we expect our cash flow in 2023 to be more heavily weighted towards the second half of the year. This is due to the timing of tax payments in the first quarter and the seasonality of working capital. Now, moving to the third quarter guidance. For the third quarter of 2023, we expect revenue to be in the range of $357 million to $362 million.

Adjusted EBITDA to be in the range of $77 million to $81 million. That concludes my prepare remarks. Eilif, I'm handing it back to you for closing comments. .

Thank you, Rick. I'm encouraged by our continued strong growth momentum in both Mexico and Peru, driven by our leading brands, strong digital capabilities and focus on academic quality and student outcomes. We believe we are well positioned to capitalize on the growth of opportunities ahead of us.

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

Thank you. [Operator Instructions]. Our first question comes from a line of Jeff Silber with BMO Capital Markets. Your line is open. .

Thanks so much, and congratulations on another solid quarter. Just a couple of questions on the quarter. In your presentation, specifically regarding Mexico, you talk about the impact of the timing of enrollment intake closes.

Can you just remind us what that means? Was it last year, was it this year? What you're looking for?.

Hey Jeff, this is Eilif. The intake last year of the C2, the smaller intake, during the quarter we loved and [inaudible] in Q2. While this year, just due to the calendar, went into the first week of July. So when you look at the full C2 intake, that is what we are referencing when we are saying timing adjusted. Just the cut-over of the calendar. .

Okay, and roughly how many students are we talking about?.

It's a relatively small cycle Rick.

Do you have that handy?.

Yes, it's around?.

$6,000 or $7,000..

Yes, $6,000 or $7,000. .

Okay, great. That's helpful. [Cross Talk] I'm sorry, go ahead. .

Sorry, it's around $3,000 to $4,000. .

Okay, I appreciate that. I think Rick, you talked about in your prepare remarks about shifting $10 million of expenses from the first half to the second half.

Where was that? Why was that done?.

Yes, thank you Jeff for the question. The majority of that shift was in Mexico. And the shift was occurring due to just expense, seasonality shift and professional services. IT projects that simply shifted from the later part of Q2 into Q3 and a little bit into Q4. As we look at the timing and those projects that we're implementing in Mexico. .

Okay, great, that's helpful.

And in terms of the overall pricing environment, I was curious if can remind us, what price increases you've seen so far in the first half, and what should we expect in the second half, specifically the large intake period in Mexico?.

Rick, you want to take that?.

Sure. Consistent with what we said at the beginning of the year, Jeff, we talked about an environment like this of entering the year with inflation around 8%. Our implied cost of inflation was much lower than that at around on average 5% on the cost structure between Mexico and between Peru, slightly higher pricing.

Our inflation in Mexico could be on the real estate and lower inflation in Peru, where we own the real estate – release in Mexico and we own in Peru.

So we were really focused in an environment with heavy inflation and pressure on the consumer to simply pass around the cost of inflation of that 5% on our expense structure, and we were able to do that in the first half of the year with some slight advantage in pricing that we saw in Mexico in the smaller secondary intake, which is a reason for the favorability that we're passing through on the full year guidance, on an FX end basis.

.

And that will continue in the third, and with the big intake period?.

Obviously we're early in on that intake in the C3, which is the main intake in Mexico and the secondary intake of Peru. But we don't have any expectations to differs significantly from that and what our expectations are factored into our fully your guidance in second half guidance. .

Okay, fantastic. Thanks so much. .

Thank you. [Operator Instructions]. Our next question comes from line of Lucas Dai Nagano with Morgan Stanley. Your line is open..

Hey, good morning. Thanks for taking our questions. The first question is related to Mexico margins. The expansion was harder than we expected.

You mentioned that part of this was due to the shift in timing of expenses, but I just wanted to understand, how much of this 600 based points expansion was structural and how much was due to this particular effect this quarter. .

Yes, this is Rick. We continue to be as we noted in our opening remarks. I'm very encouraged to about our opportunity to get Mexican margins at 25% plus in the next three to five years. We do see margin expansion as we talked about, notable margin expansion occurring this year in Mexico. We're going to see that our expectation is around 22% plus.

You saw a little bit heavier than that occur in the first half simply because the timing of expenses shifted a little bit into the second half. But overall, we're very pleased with our margin expansion progression in Mexico. We will see upside this year, you know that's notable. .

Thanks. And also on Mexico, you mentioned that there was a favorable impact for pricing mix.

Could you explain again how the mix effect benefited growth?.

Sure. So our portfolio in Mexico, you think about it from two dimensions, right. One dimension is we have value brands and we have better price that are about 50% lower than premium brands. And then we also have face-to-face and online, which is similarly 50% discount versus one.

And then there's a third – there’s actually a third dimension, which is what's really driving it. We have undergraduate pricing, traditional undergraduate pricing, versus online pricing.

And what really happened last year in C3, as you recall, we had a very significant successful intake in Mexico in the high teens for our primary intake in Mexico last year.

When that intake happened, we had a significant benefit in terms of the mix effect of undergraduates, both in our value brand and our premium brand, particularly in our premium brand and UVM.

And when you have that, the relative weighting of stronger undergraduate, including our premium brand, essentially creates a price mix benefit where we get higher growth of essentially the enrollment growth that you see in the quarter or in the year-to-day spaces. .

That's very clear. Thank you, Rick. .

Thank you. [Operator Instructions]. That concludes our question-and-answer session. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect..