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.

Thank you, Adam, and good morning everyone. Today I'm pleased to report strong second-floor performance with operating results ahead of our expectations. Year-to-date new and total enrollments continue to trend well, increasing by 13% and 9% respectively compared to June of last year. In addition to favorable volume growth, pricing for our enrollment cycles completed in the first half of the year has been in line with to slightly ahead off our realized cost utilization. We also continue to drive operating efficiencies, and are on track to deliver more than 100 basis-point improvement in adjusted EBITDA margins for the year. In addition to strong operating performance, we have benefited from favorable currency trends. The Mexico Peso and the Peruvian Sol have appreciated by 12% and 5% respectively versus the U.S. dollar during the first six months of the year. This is resulting in higher than expected revenue, adjusted EBITDA and free cash flow generation. Based on these positive operating and foreign currency trends, we are raising the full year 2023 guidance at the midpoint by $70 million for revenue and $21 million for adjusted EBITDA. Laureate’s strategic focus on the high growth market of Mexico and Peru continues to deliver impressive results, and is supported by three key factors. First, the steady increase in participation rates driving robust amount for higher education in both countries, underpinned by the attractive wage premiums for individuals with higher education degrees and the affordable cost to get them. Second, the vital role of the private sector in advancing higher education due to limited government resources, with private institutions now providing over 50% of the combined Universities in Mexico and Peru. And third, substantial demand for the up-skilling of the labor force. We expect the ongoing reassuring trends to further intensify this demand in Mexico,…

Thank you, Eilif. As a reminder, campus-based higher education is a seasonal business. Although the second quarter is not a large intake period, it represents a strong earnings quarter for the company as classes are in session for much of the period. Let's start with Pages 13 and 14, which highlight our operating and financial performance for the second quarter and year-to-date. Total enrollment increased 9% when compared to the prior year quarter. This was driven by year-to-date new enrollment growth of 13%, which included favorable results across all five brands. In addition to strong value growth, pricing performance has been slightly ahead of expectations, allowing us to cover our realized cost of inflation on our expense structure and providing some up-site to our outlook. Revenue in the seasonally strong second quarter was $462 million and adjusted EBITDA was $175 million. Both metrics were ahead of the guidance that we provided three months ago. Revenue outperformance versus expectations was a result of favorable FX rates realized during the quarter and better volume and pricing during Mexico's secondary intake. Adjusted EBITDA outperformance followed the revenue trend and was additionally aided by more than $10 million of expenses that were shifted to the second half of the year. On an organic, constant currency basis, revenue for the second quarter was up 14% year-over-year and adjusted EBITDA increased 18%. When combined with the first quarter, still on an organic, constant currency basis, our overall performance for the first half of 2023 resulted in revenue and adjusted EBITDA growth of 13% and 15% respectively. Let me now provide some additional color on the performance of Mexico and Peru, starting with page 16. Please note that all comparisons versus prior year are on an organic and constant currency basis. Let's start with Mexico where our…

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.