Good day and thank you for standing by. Welcome to the Q3 2024 Laureate Education, Inc. Earnings Call. At this time, all participants are in a listen only mode. After the speakers' 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 call over to Adam Morse, Senior Vice President of Corporate Finance. Please go ahead.

Good morning and thank you for joining us on today's call to discuss Laureate Education's third 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, adjusted EBITDA to unlevered free cash flow conversion, total debt, net of cash and cash equivalents, and free cash flow, are detailed and reconciled where applicable 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, we are pleased to report strong financial performance for the third quarter, along with the results of our recently completed intake cycles. Third quarter revenue was $369 million and adjusted EBITDA was $91 million. Both metrics were ahead of the guidance we provided in early August. Favorable results were driven by Peru, in which new enrollments increased by 12% year-over-year for the third quarter. We expect that this growth rate will increase to an impressive 16% year-over-year upon completion of the intake cycle. The macro conditions in Peru continue to improve. Consumer spending has increased, supported by stable inflation, lower interest rates, and rising wages. Economists are now forecasting GDP growth of approximately 3% for 2024, a significant turnaround since the 2023 recession. In Mexico, the presidential election took place this past June. In the run-up to the elections, increased government spending and stimulus helped bolster demand for our first quarter new enrollment intake cycle, which was up 7%. Following the election, there was a pullback in economic activity that occurred during the third quarter intake. Despite these conditions, we still delivered solid results with new enrollment growth of 4% year-over-year for the third quarter. As the Sheinbaum administration settles in, we are closely observing its early handling of the constitutional reforms as well as key pillars of President Sheinbaum’s policy agenda. We are cautiously encouraged by the early indications of Sheinbaum’s policy priorities, which; includes enhanced fiscal discipline, modernization of industrial policies, investments in infrastructure development and public-private collaboration, all of which we believe are important elements to create sustainable growth for the Mexican economy. The completion of our September and October intake cycles provides us with strong visibility for the remainder of the year. Today, we are pleased to announce an increase in our constant currency outlook for 2024 at the midpoint by $50 million for revenues and $6 million for adjusted EBITDA. The improved operating performance is expected to be largely offset by currency headwinds from a weaker Mexican peso, allowing us to essentially maintain our full year outlook on an as-reported US dollar basis. Our balance sheet remains exceptionally strong, and we are well-positioned to continue delivering on our commitment to return excess capital to shareholders. Following the completion of the $100 million stock repurchase program announced in February of this year, we introduced a new $100 million authorization program in September. Assuming completion of this program, we will have returned nearly $3 billion of capital to shareholders since 2019 through a combination of share repurchases, cash distributions and cash dividends. That concludes my prepared remarks, and I'm now handing the call over to Rick for the financial overview for the quarter as well as 2024 outlook. Rick?

Thank you, Eilif. As a reminder, campus-based higher education is a seasonal business. Although, the third quarter is a large intake period, from a P&L perspective, it is seasonally low as classes are out of session for much of the quarter. Let's start with Pages 10 and 11 of the supplementary presentation, which highlight our operating and financial performance for the third quarter and year-to-date. Third quarter revenue was $369 million, and adjusted EBITDA was $91 million. Both metrics were ahead of the guidance we provided in early August. Revenue outperformance resulted from the stronger-than-expected new enrollment intake in Peru. Adjusted EBITDA upside followed the revenue trend and was further aided by the deferral of certain costs to the fourth quarter as we opted to wait for the final intake results before committing those funds. On an organic constant currency basis, revenue for the third quarter was up 9% year-over-year and adjusted EBITDA increased by 22%, both benefiting slightly from academic calendar timing. Adjusting for timing of the academic calendar, the comparable growth for revenue and adjusted EBITDA was 7% and 15%, respectively. For the quarter, new and total enrollment volumes increased 6% and 5%, respectively versus the third quarter of the prior year. Now moving to year-to-date performance. For the first nine months of 2024, we achieved a 6% increase in revenue and 7% growth in adjusted EBITDA on an organic constant currency basis versus the prior year period. Adjusting for timing of the academic calendar, the comparable growth for revenue and adjusted EBITDA was 7% and 9%, respectively. Let me now provide some additional color on the performance of Mexico and Peru, starting with page 13. Please note that all comparisons versus prior year are on an organic and constant currency basis. Let's start with Mexico, where both…

Thank you, Rick. We believe that we are well-positioned to meet our commitments to our stakeholders for 2024 with strong top line growth and continued margin expansion. The strong rebound we experienced in Peru and solid performance in Mexico during the intake cycles underscore the strength of our local brands and the resiliency of our business model. Operator, that concludes our prepared remarks, and we're now happy to take any questions from the participants.

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

Thanks so much. Can we just go back -- can you just quantify the timing impact that you mentioned in terms of revenues and adjusted EBITDA between 3Q and 4Q?

Yes. Just to take a step back, Jeff, this is Rick. From a full year basis, we shifted effectively $13 million of revenue and $11 million of EBITDA from the first half to the second half. We essentially in Q3 recovered $4 million of that and rounded up around $4 million, a little less than that in adjusted EBITDA in the fourth -- in the third quarter and the remainder of that, which is -- the remainder of that will come through in Q4.

Okay. I'm sorry. I was a little bit confused. So there's not necessarily a timing issue between 3Q and 4Q. You're just revisiting the 1 half versus the second half timing. Is that correct?

Yes. Well, $13 million of revenue and $11 million of adjusted EBITDA was shifted from first half to second half, and we'll recover that $13 million of revenue that shifted out of the first half in the second half, $4 million of that revenue got recovered in Q3.

Forgive me, I was confused, but I think I got it now. So it's okay. Okay. Maybe we can move on to a macro perspective. You mentioned the new elections in Mexico, and then I think you mentioned softening new enrollment after the election. Can we get a little bit more color in terms of what's going on and why that was impacted so quickly?

This is Eilif. In an election year, typically in Latin America, there will be some additional government spending and some stimulus to drive up the economy in the election year and have more discretionary spend available for the consumers and the voters. And so we saw that in second half of '23 and early '24, that really helped us. We had really strong intake cycles with a point or 2 ahead of what we were expecting or what we normally have as we got a little bit of headwind from that. So, that shifted some demand from -- that we otherwise would typically have seen in the main intake for September 2024 into earlier period. And also, there is a sense among consumers that their available spend in the second half of 2024 was a little lighter than what it had been in the prior 6 to 12 months. So that impacted us a little bit. Also, I would say, some of the concerns are related to the election and the judicial reforms that were implemented post election caused business sentiment to turn a little softer, foreign investments and overall CapEx spend among industry came down, which also made the consumer a little bit more concerned about making large commitments on big ticket items such as education.

Okay. Got it. If I could just sneak one more in and just keeping with the same theme. We saw an article that last week, Ms. Sheinbaum had proposed to create, I think it was 330,000 new university places in Mexico over the course of her Presidents Day, the specific schools that she was talking about were non-profit schools. Can we get a little bit more color I don't know, is it just a proposal? Is this something that will happen? And if it does, what do you think the impact will be on your school? Thanks.

So yes, this is a proposal, and we are waiting to see what will be incorporated of that proposal into the fiscal budget for 2025, and we will have visibility to that in late November, early December. But basically, the proposal is for the Sheinbaum administration to expand, access to public capacity. Correct, there's 330,000 seats over a six-year period. That represents a 10% increase in public capacity or less than 2% CAGR over the period. And that compares with market growth of about 2.5% to 3%. So it means that over the last couple of years, the Mexican public capacity has not really expanded. So most of the growth in the market has been absorbed by the private sector and know she intends to add capacity, albeit at slightly slower pace than overall market. Also, she is saying in her remarks, her administration is saying that they want to focus on underserved communities and rural areas, which then, of course, also would somewhat limit the overlap to the Laureate network, as we are focused on the larger cities. And to illustrate that, the new campuses that they have announced for Universidad Nacional, Rosario Castellanos accounts for about 50% to 60% of the incremental capacity, and those campuses will be in areas where we don't have any presence.

All right. I really appreciate the details Eilif. Thanks so much.

Of course, Jeff.

[Operator Instructions] Our next question will be coming from Lucas Dai Nagano of Morgan Stanley. Your line is open.

Hey, good morning, Eilif, Rick, Adam. Thanks for the opportunity here. Two questions. The first one is related to the new guidance. If you could provide more color on where the operational upside comes from? And also the second question is related to capital allocation. If you could give some color on the priorities in terms of capital allocation regarding the remaining free cash flow for this year, excluding the new buyback program? Thanks.

Yes. Hi, Lucas, good morning. This is Rick. Related to guidance, we adjusted, as you saw the range, we shortened the range for both revenue and adjusted EBITDA, and we ended up taking up the midpoint of revenues by $15 million and $6 million of adjusted EBITDA. What was happening in that was effectively, we flowed through the upside of revenue that we had in the Q3. We outperformed the high by about $6 million, and we're just annualizing that for the fourth quarter and taking the guidance up. That's point number one. On adjusted EBITDA, we took it up, as I noted, and then there were two things that happened. One, primarily, it was the flow-through associated with that incremental revenue. Otherwise, we had around $10 million of expense timing that shifted from Q3 to Q4 that happened. So that's the explanation behind the guidance.

Okay.

And your question on return of capital, we continue to focus on returning capital to shareholders. We have returned $2.8 billion to-date. The $100 million program that the Board approved for stock repurchases in February was completed in September. In September, the Board approved another $100 million, which we will be executing over the coming quarters. So that's the current status. When that $100 million have been executed, we will have returned nearly $3 billion of capital, $1.7 billion in cash distribution and dividends and $1.3 billion in stock buybacks since 2019.

Very clear, Eilif and Rick. Thank you

Thank you so much, Lucas.

And I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.