Good day and thank you for standing by. Welcome to the Laureate Education First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Morse, Senior Vice President of Finance. Please go ahead.

Good morning and thank you for joining us on today's call to discuss Laureate Education's first quarter 2024 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've 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. Additionally, non-GAAP measures that we discuss, 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. We recently completed our enrollment intake for the first quarter, which includes the primary intake cycle for Peru and a smaller secondary intake for Mexico. Enrollment results came in line with expectations and we are on track to deliver on our operational outlook for the year. In addition, foreign currency rates continue to trend favorable. As a result, we are announcing an upward revision to our full year 2024 guidance by $13 million for revenues and $5 million for adjusted EBITDA. As discussed during our previous call in February, we expect 2024 to be a story of 2 halves, due to the differing market conditions in Mexico versus Peru. The macroeconomic backdrop in Mexico is favorable with robust manufacturing and construction sectors, growth in real wages, increased consumer spending, and the impact of nearshoring bolstering growth prospects. We expect Mexico to deliver strong performance throughout all of 2024. To accelerate our margin progression in this market, we are implementing strategic restructuring initiatives in the first half of the year. As a result, we expect our margin expansion to be more back-end loaded towards the second half of 2024. The market conditions in Peru are softer than those in Mexico. During 2023, Peru experienced its first economic contraction in over 20 years outside of the COVID-19 pandemic. And this economic downturn had lingering effects through the first quarter of this year. This resulted in a relatively flat primary enrollment intake for both volume and pricing, which was in line with our expectations. Given that the primary intake cycle in Peru contributes roughly 2/3 of the new enrollment activity for the year, we expect this primary intake to mute our growth aspirations for Peru for most of 2024. However, like most economists, we continue to…

Thank you, Eilif. Before I discuss our financial performance for the quarter, let me provide a few important reminders on seasonality. First, campus-based higher education is a seasonal business. The first and third quarters represent our 2 largest intake periods. The 2 intake periods account for more than 80% of our total new enrollment activity for the year. From a P&L perspective, both are seasonally low periods as classes are out of session for most of those months. In contrast, the second and fourth quarters are not large enrollment intake periods, but generate higher revenue and adjusted EBITDA for the year. In addition, the timing of the start of our classes can shift year-over-year depending on various factors such as when holidays occur. This in turn affects the timing of revenue recognition and quarter-over-quarter comparability. In 2024, the beginning of classes for working adult programs in Peru and health science programs in Mexico started later versus 2023. This will shift approximately $14 million of revenue and $11 million in adjusted EBITDA from the first quarter to the second half of the year. As I discussed, operating results for the first quarter and our guidance expectations, I will provide additional color on these timing impacts. Let me now move to the operating and financial performance for the first quarter starting on Page 11. To begin, enrollment results and associated pricing were in line with our expectations in both markets. We continue to see strong growth in Mexico and resiliency in Peru. New and total enrollment volumes increased 1% and 5%, respectively, when compared to the prior year quarter with growth led by Mexico. Revenue in the seasonally low first quarter was $275 million and adjusted EBITDA was $31 million. Both metrics were ahead of the guidance provided 3 months ago with…

Thank you, Rick. We are on track to deliver on our commitment for 2024 with some potential upside from favorable foreign exchange rates. We continue to experience robust operating performance in Mexico and all signs points to continued strong growth opportunities in that market. In Peru, our performance during the primary intake just completed underscores the resiliency of our business model. We delivered modest growth in total enrollments despite Peru experiencing its first recession in over 2 decades. We are encouraged by the early indications of an economic recovery in Peru and expect to return to more normalized growth rates as we exit 2024. We believe that our leading brands, strong digital capabilities and unwavering commitment to academic quality and student outcomes positions us well for continued growth. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants.

[Operator Instructions] Our first question comes from the line of Jeff Silber of BMO Capital Markets.

I wanted to start on Peru. You talked about the expected economic recovery in the second half, and I'm assuming that you're relying on economies for that, and that's fine. But even if that does happen, isn't there going to be some sort of lag between that happening and enrollment starting to inflect?

Yes, that's correct. You're seeing economic data already improving. First quarter was a positive GDP quarter for Peru. We are seeing increase in real wages. We're seeing an increase in employment. We're seeing increase in consumer confidence. And when we're tracking key indicators such as credit card spending by the different category of where disposable income goes, we're seeing also bottoming out or slight improvement in certain categories. So that indicates that the economy is already improving. But there is a bit of a lag effect before our customers have been able to replenish their coffers efficiently in order to attend college. So we saw a lot of students and prospects during our C1 intake of -- during the first quarter that just simply was not ready yet to commit and deferred to the second intake in September. So we're looking at the top of the funnel. We're looking at the interest and have high expectations that second half of 2024 will be more normalized. And at that point, the lag effect has caught up.

And when you say normalized, do you think you'd have new enrollment growth in that second intake period in Peru this year?

Correct.

Okay, good. That's helpful. And then just 1 quick question. You mentioned, and you and Rick mentioned restructuring a few times. I just want to make sure we're talking about the restructuring that you did in Mexico previously, not a new program that you're just announcing?

That's correct. This relates to the consolidation of certain campuses to get more scale and better student experience out of some of our smaller, more fragmented campuses.

Okay, great. Just wanted to confirm that.

[Operator Instructions] Our next question comes from the line of Mauricio Cepeda of Morgan Stanley.

A question on Peru, in fact, I understand that there is a seasonal effect there. There is a pressure of fixed costs. But if we consider the variations in revenues and the variation in EBITDA, in terms of absolute EBITDA, it seems that there is much more loss of EBITDA than of revenues. So if you could comment if there is any other kind of cost pressure in Peru, that is in terms -- in absolute terms, not just an operation deleveraging there? I think it would be great. And if you also could comment about Mexico, if you already see any kind of nearshoring effects on the intakes already? If there is anything concrete that is happening in Mexico regarding nearshoring?

Mauricio, this is Eilif. I'll take the second and Rick will comment on the seasonality and proving out of session for the first quarter. But in Mexico, yes, we're seeing an uplift in demand that we believe is related to nearshoring. We are seeing more demand for undergraduate program than what we have seen in the past. It's a little hard to say what part of that is directly related to nearshoring versus what is related to just a stronger GDP performance in Mexico over the last 12 months versus the last decade. But I think also those 2 things are somewhat related. We are also seeing a significant increase in demand and interest among working adults for our fully online product. And again, I assume some of that is linked to nearshoring. But also I think some of that is related to the fact that during COVID, Laureate was seen to deliver high-quality fully online product in a very convenient manner for the working adult. And society has been trained that quality education can be delivered in a fully online manner for the working adult student. So some of it is economy related, some of it is product and innovation related. But also I think some of it is the fact that the GDP in Mexico is being boosted from nearshoring, and I think that is likely to be more of a macro trend as opposed to just a seasonal blip in the economic cycle.

Mauricio, I'll take your -- I'll pause there and see if that answered your question for Eilif and then I can move on and answer your second question on Peru.

No, no, no. It's very clear.

Okay, great. I think on your question on Peru is related to the EBITDA, the down EBITDA in the first quarter in Peru. So there's really 3 effects going on there. The first effect is a change in the academic calendar where we shifted $10 million of revenue out of the first quarter, that will be realized in the second half, and that was associated $7 million in adjusted EBITDA. The second factor that happened is that, obviously, our expense structure is a lagging -- has a lagging effect to inflation, and our costs increased over 4% in Peru in the first quarter relative to last year. That's pushing it down when we took flat pricing. And then there was a third effect where, as expected, we anticipated a bit higher bad debt this year in that market. That was the lag effect of the C2 in second half that we saw last year of the recession. So we expected that to roll forward, impact us in the beginning of this year. And that was reflected in the guidance that we provided earlier in the year and reinforced today.

Okay, I understand. Yes. So the point is that, in absolute terms, I understand that there is this kind of revenue shift. It explains the revenues, but the absolute cost, there was an increase. So per your answer, I understand, there is 2 effects, an inflation lag and a kind of a provision for doubtful debt, right, that transition as well, if I understood that correctly?

That's correct.

Okay.

And you'll see that in our financials in Q1 was bad debt was up a little bit year-over-year in the first quarter.

I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.