Q2 2024 Laureate Education Inc Earnings Call
Good day, and thank you for standing by. Welcome to the 2024 Second Quarter Laureate Education Earnings Call. At this time, all participants are in listen-only mode.
Operator: 2nd Quarter, Laureate Education, Ernie's Call. At this time, our participants are in listening-only mode. After the speaker's presentation, there will be a question and a succession. To ask a question during a session, you'll need to pre-start one-one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please pre-start one-one again. Please be advised that today's conference is being recorded.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message that arrives when your hand is raised.
To withdraw your question, please press star 1 one again.
Adam Morse: Unlike the hand that corporate serves, your first speaker today, 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 2nd quarter, 2020 for results. Joining me on the call today are Alex Terkanson, President and Chief Executive Officer, and Rick Buskirk, Chief Financial Officer. Ernie's 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.
Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Adam Morse, Senior Vice President of Corporate Finance. Please go ahead.
Adam Morse: Good morning, and thank you for joining us on today's call to discuss Laureate Education's second quarter 2024 results.
Operator: Joining me on the call today are Eilif Serckanton, President and Chief Executive Officer, and Rick Buskirk, Chief Financial Officer. 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, financial and operational guidance, constitutes forward-looking statements within the meaning of applicable U.S. securities law. Non-GET measures that we discussed, including and among others, adjusted EBITDA and its related margin, adjusted EBITDA to unlevered free cash flow conversion,
Speaker Change: Joining me on the call today are Eilif Serckanton, President and Chief Executive Officer, and Rick Buskirk, Chief Financial Officer.
Speaker Change: Earnings Press Release is available on the Investor Relations section of our website at laureate.net
Speaker Change: We've also posted a supplementary presentation to the website, which we will be referring to during today's call.
Speaker Change: The call is being webcast and a complete recording will be available after the call.
Adam Morse: 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 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.
Speaker Change: I would 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.
Speaker Change: Forelooking 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.
Speaker Change: Important factors that 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.
Adam Morse: In addition, all forward-looking statements are based on current expectations as of the date of this conference call, and we undertake no obligations to update any forward-looking statements.
Speaker Change: 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.
Adam Morse: 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.
Speaker Change: Non-GET measures that we discussed, including and among others, adjusted EBITDA and its related margin, adjusted EBITDA to unlevered free cash flow conversion,
Speaker Change: 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.
Alex Terkanson: Let me now turn the call over to Iowa. Thank you, Adam, and good morning, everyone. Today, I am pleased to report solid operating performance for the second quarter. We remain on track to deliver on our 2024 commitments on a constant currency basis. In addition, our strong balance sheet and significant cash flow generation support our continued emphasis on returning capital to shareholders. For the first six months of this year, we have repurchased over $72 million worth of shares. Later in our prepared remarks, Rick will discuss the impact from the recent weakening of the Mexican peso, which is causing us to make a slight downward adjustment to our outlook on a spot affect basis.
Speaker Change: Let me now turn the call over to Eilif.
Eilif Serckanton: Thank you, Adam, and good morning, everyone. Today, I am pleased to report solid operating performance for the second quarter. We remain on track to deliver on our 2024 commitments on a constant currency basis.
Eilif Serckanton: In addition, our strong balance sheet and significant cash flow generation support our continued emphasis on returning capital to shareholders.
Eilif Serck: For the first six months of this year, we have repurchased over $72 million worth of shares. Market dynamics remain favorable for private higher education in both of our geographies. Mexico continues to present a compelling growth story driven by robust manufacturing and construction sectors, higher minimum wages, record low unemployment, and increased consumer spending. In addition, nearshoring is further bolstering growth prospects. Presidential elections were held in June in Mexico, and early indicators from the new administration are encouraging.
Eilif Serckanton: For the first six months of this year, we have repurchased over $72 million worth of shares.
Eilif Serckanton: Later in our prepared remarks, Rick will discuss the impact from the recent weakening of the Mexican peso, which is causing us to make a slight downward adjustment to our outlook on a spot affects basis.
Alex Terkanson: The market dynamics remain favorable for private, higher education in both of our geographies. Mexico continues to present a compelling growth story driven by robust manufacturing and construction sectors, higher minimum wages, record low unemployment, and increased consumer spending. In addition, near-suring is further bolstering growth prospects. Presidential elections were held during June and Mexico, and early indicators from the new administration are encouraging. The incoming Shimbong administration is emphasizing fiscal prudence, industrial policy, public-private collaboration, increased digitalization, and enhanced security as key pillars to strengthen the Mexican economy. The new president will assume office on October 1st. The market anticipates some possible foreign exchange volatility during the transition period, which we will be monitoring closely.
Rick Buskirk: The market dynamics remain favorable for private higher education in both of our geographies.
Rick Buskirk: Mexico continues to present a compelling growth story driven by robust manufacturing and construction sectors, higher minimum wages, record low unemployment, and increased consumer spending. In addition, nearshoring is further bolstering growth prospects.
Speaker Change: The incoming Scheinbaum administration is emphasizing fiscal prudence
Eilif Serck: The new president will assume office on October 1st. The market anticipates some possible foreign exchange volatility during the transition period, which we will be monitoring closely. We anticipate this macroeconomic recovery to benefit our smaller secondary enrollment intake in September and will fully get us back to normalized growth rates in 2025. I'm proud to announce that recently UVM in Mexico was ranked the number two private university in the country in the latest Guia Universitaria rankings by Reader's Digest.
Speaker Change: The new president will assume office on October 1st. The market anticipates some possible foreign exchange volatility during the transition period, which we will be monitoring closely.
Alex Terkanson: Pruis is already seeing a recovery from the economic downturn which began last year. Pruis economy expanded more than expected for the second straight months in May, and both the Central Bank and the Finance Ministry are now expecting GDP growth of around 3% this year compared to a 0.6% contraction last year. We anticipate this macroeconomic recovery to benefit our smaller secondary enrollment intake in September, and more fully get us back to normalized growth rates in 2025. Our growth agenda is supported by our leading brands and steadfast commitment to academic excellence and innovation. I'm pro-do known that recent the UVM in Mexico was ranked the number two private university in the country, in the latest GIA Universitaria ranking by Reader's Digest.
Speaker Change: Peru's economy expanded more than expected for the second straight month in May.
Speaker Change: Our group agenda is supported by our leading brands and steadfast commitment to academic excellence and innovation.
Alex Terkanson: And in Peru, UPC was ranked the second best institution in the country for human medicine by the Times Higher Education World University Rankings, while maintaining its number one overall university ranking by Merco. In addition, we are very proud and excited for the nine students and three graduates from UVM and UPC who are representing their countries as the Olympic and Paralympic Games in Paris this summer. We wish them all the best, and I know they will represent their countries well, showcasing their dedication to sporting excellence on the international stage.
Eilif Serck: And in Peru, UPC was ranked the second best institution in the country for human medicine by the Times Higher Education World University Rankings, while maintaining its number one overall university ranking by Merck. We wish them all the best, and I know they will represent their countries well, showcasing their dedication to sporting excellence on the international stage.
Speaker Change: And in Peru, UPC was ranked the second best institution in the country for human medicine by the Times Higher Education World University Rankings, while maintaining its number one overall university ranking by Merckau.
Speaker Change: We wish them all the best and I know they will represent their countries well, showcasing their dedication to sporting excellence on the international stage.
Rick Buskirk: I will now turn the call over to Rick Buster for a more detailed financial overview of the second quarter and year-to-date performance, as well as further details on our updated 2024 full-year outlook.
Rick Buskirk: Rick? Thank you, I list.
Rick Buskirk: 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. 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 class is for working, as all programs in Peru and health science programs in Mexico started later versus 2023. This will shift approximately 13 million of revenue and 11 million in adjusted evita from the first quarter to the second half of the year.
Speaker Change: 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.
Richard M. Buskirk: 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 will start later, versus 2023. This will shift approximately $13 million of revenue and $11 million in adjusted EBITDA from the first quarter to the second half of the year. The second quarter was not affected on a consolidated basis. However, there were some minor timing impacts by segment that offset each other.
Speaker Change: In addition, the timing of the start of our classes can shift year over year depending on various factors such as when holidays occur.
Speaker Change: This in turn affects the timing of revenue recognition and quarter-over-quarter comparability.
Speaker Change: 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 $13 million of revenue and $11 million in adjusted EBITDA from the first quarter to the second half of the year.
Rick Buskirk: The second quarter was not affected on a consolidated basis. However, there were some minor timing impacts by segment that offset each. I will provide additional details on the timing impact as I discuss our operating results.
Speaker Change: The second quarter was not affected on a consolidated basis, however, there were some minor timing impacts by segment that offset each other.
Rick Buskirk: Let me now move to second quarter performance starting on page 10. Following the trends we experienced in the first quarter, we continued to see strong growth in Mexico and resiliency in Peru. New and total enrollment volumes increased 6% and 5%, respectively, when compared to the prior year quarter. Was growth led by Mexico? Revenue in the seasonally strong second quarter was $499 million, and adjusted EBITDA was $187 million. Both metrics were ahead of the guidance provided three months ago, with adjusted EBITDA outperformance aided by timing of expenses. On an organic, constant currency basis, revenue for the second quarter was up 7% year-to-year, and adjusted EBITDA increased by 6%.
Eilif Serck: Let me now move to second quarter performance, starting on page 10. New and total enrollment volumes increased 6% and 5%, respectively, when compared to the prior year quarter, with growth led by Mexico. On an organic, constant currency basis, revenue for the second quarter was up 7% year-over-year, and adjusted EBITDA increased by 6%. Now, let me now provide some additional color on the performance of Mexico and Peru, starting with page 13. Please note that all comparisons versus the prior year are on an organic and constant currency basis. Let's start with Mexico, where both our premium and value brands are contributing to top-line growth and improved levels of profitability. Growth was led by a working adult-focused, fully online program.
Speaker Change: On an organic, constant currency basis, revenue for the second quarter was up 7% year-over-year and adjusted EBITDA increase by 6%.
Rick Buskirk: When combined with the first quarter on an organic constant currency basis, our overall performance for the first half of 2024 resulted in revenue and adjusted EBITDA growth of 5% and 1%, respectively. Adjusting for timing of the academic calendar, both revenue and adjusted EBITDA grew by 7% versus the prior year period.
Speaker Change: When combined with the first quarter on an organic constant currency basis, our overall performance for the first half of 2024 resulted in revenue and adjusted EBITDA growth of 5% and 1% respectively.
Rick Buskirk: 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 our premium and value brand are contributing to top-line growth and improve levels of profitability. Mexico's new enrollment increased by 4% through June versus the prior year period and were out 6% through the end of the enrollment cycle that was completed in July. Growth was led by working adult-focused fully online programs. Total enrollments were up 9% versus June of the prior year due to the favorable primary intake last fall in growth in new enrollments.
Speaker Change: Please note that all comparisons versus prior year are on an organic and constant currency basis. Let's start with Mexico where both our premium and value brand are contributing to top-line growth and improved levels of profitability.
Speaker Change: Growth was led by working adult focused, fully online programs.
Rick Buskirk: For the second quarter, Mexico's revenue grew 10% versus the prior year period due to strong volume growth, and adjusted EBITDA increased 21%. On a year-to-date basis, Mexico's revenues grew 9% or up 11% when adjusted for the timing of the academic calendar. This growth was driven by a 9% increase in average total enrollments and 2% of price mix. Pracing at the brand and product level was at or above inflation for traditional students, all set from a mixed perspective by higher growth and working adult fully online. Adjusted EBITDA increased 16% year-to-date versus the prior year period for 25% when adjusted for timing of the academic calendar.
Eilif Serck: For the second quarter, Mexico's revenue grew 10% versus the prior year period due to strong volume growth and adjusted even at an increased 21%. However, new enrollments declined slightly by 2% for the intake cycle, while total enrollments increased by 1% compared to the same period in previous years. As discussed during our prior call, Peru's 2023 economic downturn had lingering effects into the first half of this year, leading to relatively flat primary enrollment intake volume.
Speaker Change: For the second quarter, Mexico's revenue grew 10% versus the prior year period due to strong volume growth and adjusted even at increased 21%.
Speaker Change: On a year-to-date basis, Mexico's revenues grew 9% or up 11% when adjusted for timing of the academic calendar. This growth was driven by a 9% increase in average total enrollments and 2% of price mix.
Speaker Change: adjusted even an increased 16% year-to-date versus the prior year period or 25% when adjusted for timing of the academic calendar. This was driven by revenue flow-through and productivity gains.
Rick Buskirk: This was driven by revenue flow through and productivity gains. We believe that our strategy to expand margins in Mexico to above 25% over our targeted mid-range guidance period is progressing well.
Rick Buskirk: Let's now transition to a Peru on slide 14. As a reminder, the primary enrollment intake for Peru was completed this past March, and results were in line with our expectations. New enrollments declined slightly by 2% for the intake cycle, while total enrollments increased by 1% compared to the same period in the prior year. For the second quarter, Peruse revenues grew 5% versus the prior year period, and adjusted even at increased 3%. On a year-to-date basis, Peruse revenues grew 1%, or up 3%, when adjusted for timing of the academic calendar. Growth was driven by a 1% increase in total enrollment and 2% of price mix.
Speaker Change: Let's now transition to Peru on slide 14. As a reminder, the primary enrollment intake for Peru was completed this past March and results were in line with our expectations.
Speaker Change: New enrollments declined slightly by 2% for the intake cycle, while total enrollments increased by 1% compared to the same period in prior years.
Speaker Change: On a year-to-day basis, Peru's revenues grew 1% or up 3% when adjusted for timing of the academic calendar. Growth was driven by a 1% increase in total enrollments and 2% of price mix.
Rick Buskirk: As discussed during our prior call, Peruse 2023 economic downturn had lingering effects into the first half of this year. This led to relatively flat primary enrollment intake volume. Additionally, we provided essential support to our students during this recovery in the form of enhanced discounts and scholarships. This resulted in essentially flat year-to-year pricing for the first half of the year.
Richard M. Buskirk: Additionally, we provided essential support to our students during this recovery in the form of enhanced discounts and scholarships. Our target run rate margin profile for Peru is approximately 40 percent. We do expect full-year margins in 2024 to be slightly below that level due to the macroeconomic factors just discussed. Let me now briefly discuss our balance sheet position. Laureate ended June with $129 million in cash. Laureate repurchased approximately $72 million of its common stock during the first six months of the year under the previously announced 100 million dollar stock repurchase program.
Speaker Change: Additionally, we provided essential support to our students during this recovery in the form of enhanced discounts and scholarships. This resulted in essentially flat year-over-year pricing for the first half of the year.
Rick Buskirk: Following the anticipated macroeconomic recovery during the second half of this year, we expect a return to stronger growth in 2025. On a year-to-date basis, adjusted even at decreased by 7% compared to the prior year, for down 4% when adjusted for timing of the academic calendar. The decline in adjusted EBITO was a result of enhanced discounts and scholarships that provided support to our students during this recovery period, as well as higher levels of bad debt provisioning resulting from the softer macroeconomic conditions in the first half of the year. Our target run rate margin profile for Peruse is approximately 40%.
Speaker Change: On a year-to-date basis, adjusted EBITDA decreased by 7% compared to the prior year, or down 4% when adjusted for timing of the academic calendar.
Speaker Change: The decline in adjusted EBITDA was a result of enhanced discounts and scholarships that provided support to our students during this recovery period, as well as higher levels of bad debt provisioning resulting from the softer macroeconomic conditions in the first half of the year.
Rick Buskirk: We do expect full-year margins in 2024 to be slightly below that level due to the macroeconomic factors just discussed.
Rick Buskirk: Let me now briefly discuss our balance sheet position. Laurette ended June with 129 million in cash and 233 million in growth debt, resulting in a net debt position of $104 million. Our balance sheet remains strong with less than a quarter turn of net leverage. Laurette repurchased approximately $72 million of its common stock during the first six months of the year under the previously announced $100 million stock repurchase program. We continue to prioritize return of capital for our shareholders.
Speaker Change: Let me now briefly discuss our balance sheet position. Laureate ended June with $129 million in cash.
Speaker Change: and $233 million in gross debt, resulting in a net debt position of $104 million. Our balance sheet remains strong with less than a quarter turn of net leverage.
Speaker Change: dollars of its common stock during the first six months of the year under the previously announced 100 million dollar stock repurchase program. We continue to prioritize return of capital for our shareholders.
Richard M. Buskirk: We continue to prioritize return of capital for our shareholders. Moving on to our outlook for 2024, starting on page 16. We are adjusting our outlook on a reported basis to reflect updated foreign currency rates impacted by recent volatility in the Mexican peso. Based on current foreign exchange spot rates, we expect our full year 2024 results to be as follows, to $1.566 billion, reflecting growth of 5% to 6% on an as-reported inorganic constant currency basis versus 2023, primarily related to deferred tax. Now moving to the third quarter guidance. Eilif, I am now handing it back to you for your closing comment.
Rick Buskirk: Moving on to our outlook for 2024, starting on page 16. We are maintaining the constant currency full-year revenue and adjusted EBITO guidance that was previously provided during our first courier earnings call on May 2nd. We are adjusting our outlook on a reported basis to reflect updated foreign currency rates impacted by recent volatility in the Mexican Peso. Based on current foreign exchange spot rates, we expect our full-year 2024 results to be as balanced. Total enrollments to remain in the range of 467,000 to 473,000 students, reflecting growth of 4 to 5% versus 2023. Revenues to be in the range of 1.551 billion to 1.566 billion, reflecting growth of 5 to 6% on an as-reported and organic constant currency basis versus 2023.
Speaker Change: Moving on to our outlook for 2024 starting on page 16. We are maintaining the constant currency, full-year revenue, and adjusted EBITDA guidance that was previously provided during our first earnings call on May 2nd.
Speaker Change: We are adjusting our outlook on a reported basis to reflect updated foreign currency rates impacted by recent volatility in the Mexican peso.
Speaker Change: Total enrollments to remain in the range of 467,000 to 473,000 students, reflecting growth of 4-5% versus 2023.
Speaker Change: Revenues to be in the range of $1.551 billion to $1.566 billion, reflecting growth of 5-6% on an as-reported and organic constant currency basis versus 2023.
Rick Buskirk: Adjusted EBITAS to be in the range of $441 million to $451 million for selecting growth of 5-8% on an as reported in 6-9% on an organic constant currency basis versus 2023. We do anticipate significant margin expansion during the second half of 2024 compared to the prior year. This is anticipated to be driven by the return of growth in Peru, cycling out of the academic calendar timing impacts from the first half of the year and recognizing benefits from our continued operating efficiency initiatives. We expected just it even to unlearn free cash flow conversion to be in the high 30% range on a reported basis for 2024.
Speaker Change: We do anticipate significant margin expansion during the second half of 2024 compared to the prior year. This is anticipated
Speaker Change: to be driven by the return of growth in Peru, cycling out of the academic calendar timing impacts from the first half of the year, and recognizing benefits from our continued operating efficiency initiatives.
Rick Buskirk: As we have discussed on prior calls, we are still in the process of winding down legacy Laureate and noted that those activities would run through the end of this year. Our 2024 cash flow expectations include one-time legacy laureate payments of approximately $45 million, primarily related to deferred taxes; a large portion of that with action during the second quarter, while the remainder will occur in the second half of the year. As did these cleanup items are adjusted even as to unlearn free cash flow conversion as expected to reach approximately 50% in 2024, on par with the level we achieved in 2023 and our stated target profile.
Speaker Change: primarily related to deferred taxes.
Rick Buskirk: Now moving to the third quarter guidance, for the third quarter of 2024 we expect revenue to be in the range of $358 million to $362 million, adjusted even of approximately $69 million to $73 million, which includes the shifting of expenses from the second quarter to the third quarter.
Speaker Change: Now moving to the third quarter guidance.
Speaker Change: For the third quarter of 2024, we expect revenue to be in the range of $358 million to $362 million.
Rick Buskirk: I lift.
Alex Terkanson: I am now handing it back to you for closing comments. Thank you, Rick. I remain confident as we enter the second half of 2024 and our next major enrollment intake cycle. Mexico continues to perform very well, and we are encouraged by the macro recovery we are seeing in Peru. We are in an enviable position as the leading higher education company in Mexico and Peru, which we believe to be the two most attractive private education markets in Latin America. We continue to see favorable sector growth momentum in both markets. This growth is driven by the expansion of the middle classes, which in turn is fueling the rising participation rates in higher education.
Eilif Serck: We are in an enviable position as the leading higher education company in Mexico and Peru, which we believe to be the two most attractive private education markets in Latin America. Thank you.
Speaker Change: We continue to see favorable sector growth momentum in both markets. This growth is driven by the expansion of the middle classes, which in turn is fueling the rising participation rates in higher education.
Alex Terkanson: We are well-positioned to serve this growth with five highly differentiated brands or with leading positions in the respective market segments. We continue to focus on product innovation through program expansions, the rollout of our digital product portfolio for working adults, as well as targeted campus expansions in new and adjacent cities.
Alex Terkanson: Additionally, our operating cadence enabled by our best-in-class educational practices has resulted in a profitable, sustainable and capital-life business model with strong. I'm excited about our future.
Speaker Change: Additionally, our operating cadence, enabled by our best-in-class educational practices, has resulted in a profitable, sustainable, and capital-light business model with strong cash flow generation.
Operator: Operator, that concludes our prepared remarks, and we're now happy to take any questions from the participants. Thank you. At this time, we'll conduct a question-and-answer session.
Speaker Change: I'm excited about our future. Operator, that concludes our prepared remarks and we are now happy to take any questions from the participants.
Operator: Thank you. At this time, we'll conduct a question and answer session. As a reminder, to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Lucas Nagano of Morgan Stanley. Your line is now open.
Operator: As a reminder to ask a question, you'll need to press star one on the telephone and wait for your name to be announced. To withdraw your question, please press star one again. Please stand by while we compile the Q&A roster.
Adam Morse: and Adam Morse.
Lucas Nagano: Our first question, because for a line of Lucas Nagano of Morgan Stanley, your line is now open. Hey, all good morning. I have a break, Adam. Thanks for the space here. I have two questions. The first is related to the results versus the guidance in Q2. There were both the guidance, even with the intact on MXN, and also the shift in academic calendar, including you mentioned. Can you give more color on what drove this better-than-expected performance? And the second question is related to regulation in Mexico, with a government transition. What has been the administration commenter about private higher education?
Speaker Change: Our first question comes from the line of Lucas Nagano of Morgan Stanley . Your line is now open.
Speaker Change: Hey all, good morning. I'm Eilif, Rick, Adam.
Lucas Nogano: Thanks for the space here. I have two questions.
Lucas Nogano: The first is related to the results versus the guidance in VQ-2. They were above the guidance even with the impact on MXN and also...
Speaker Change: the shift in academic calendar and career you mentioned. Can you give more color on what drove this better than expected performance?
Speaker Change: What has the administration commented about private higher education? Do you expect any policy change or should things stay similar to the current condition? Thanks.
Lucas Nagano: Do you expect any policy change, or should things stay similar to the current condition? Thanks.
Adam Morse: Lucas, I think we'll take the first question, and I'll address the Mexican regulations. Sure. So, Lucas, on your first question about on the operational side, yes, we had a beat in the second quarter versus guidance. About 50% of that was operational related, around 6 million on both sides of the revenue and the adjusted EBITDA front. On the revenue side, the outperformance was driven by lower intercycle attrition and some timing of other revenue. And on the adjusted EBITDA, that was added by the timing of some of the expenses that shifted to 3, including some least exit costs.
Operator: Lucas, Rick will take the first question, and I'll address the Mexican regulations.
Speaker Change: Sure, so Lucas, on your first question about on the operational side, yes, we had a beat in the second quarter versus guidance. About 50% of that was operational related, around 6 million on both sides of the...
Richard M. Buskirk: Those costs will shift to the third quarter and are reflected in our guidance, explaining why Q3 is down slightly earlier.
Adam Morse: Those costs will shift to the third quarter and are reflected in our guidance for playing for Q3's downplay the year of year. Okay, Lucas, can you hear us? We might have a technical issue here. Yeah, I can hear you. Okay, perfect. Thank you. Continue right. Lucas, I'll pause there and see if that addressed your question. Yes. Yeah, yeah, that's the pause. Thank you. Great.
Speaker Change: Plains by Q3 is down slightly earlier.
Speaker Change: Hey Lucas, can you hear us?
Speaker Change: We might have a technical issue here.
Lucas Dai Nagano: Yeah, I can hear you.
Lucas Nogano: Yeah, yeah, that helps. Thank you.
Adam Morse: Moving on to the Mexican regulations. Let me just give you some context. So the presidential president elects Chinbeom and the Morayna Party won decisive victories during the elections in June. And the market was surprised by the magnitude of Morayna's victory, which is opening up for the possibility of judicial reform that Amaro has advocated for.
Speaker Change: Great, then moving on to the Mexican reservation. Let me just give you some context. So the presidential, President-elect Scheinbaum and the Moreno party won decisive victories during the elections in June .
Speaker Change: And the market was surprised by the magnitude of Mirena's victory, which is opening up for the possibility of judicial reform that AMLO has advocated for.
Adam Morse: And in summary, that is the reason why the Mexican peso has weakened by about 8% since the election. That's a moving on to your specific questions around policy priorities. Morayna is very encouraged by the messaging that we have heard from President elect Chinbeom at polls. She has emphasized, you know, the following four key policy priorities for her presidency.
Speaker Change: And, you know, in summary, that is the reason why the Mexican cursor has weakened by about 8% since the election.
Eilif Serck: That said, moving on to your specific questions around policy priorities, Laureate is very encouraged by the messaging that we have heard from President-elect Scheinbaum post-election. She has emphasized the following four key policy priorities for her. Number one is fiscal prudence, with a goal to reduce the 2025 budget deficit to 3% of GDP from currently a 5.5% to 6% deficit in 2024, which means that her ability to spend on public programs is going to be limited, and we believe that that is going to cause, you know, a strong collaboration with private operators, including in higher education. [inaudible]
Speaker Change: With that said, we will go to your specific questions around policy priorities.
Laureate: Laureate is very encouraged by the messaging that we have heard from President-elect Scheinbaum post-election. She has emphasized, you know, the following four key policy priorities for her presidency.
Adam Morse: Number one is fiscal prudence with a goal to reduce the 2025 body deficit to 3% of GDP from currently 5.5 to 6% deficit in 2024, which means that her ability to spend on public programs are going to be limited, and we believe that that is going to cause, you know, a strong collaboration with private operators, including in higher education. Second priority is to modernize her industrial models and modernize Mexico's industrial policy, and clearly there it looks like she wants to take advantage of the near-suring opportunity and lift the growth rate for the Mexican economy, which is very encouraging. Many sectors, including the education sector, of course, because to enable that the human capital equation is critically important.
Laurette: Number one is fiscal prudence, with a goal to reduce the 25...
Speaker Change: The 2025 budget deficit to 3% of GDP from Thursday 5.5% to 6% deficit in 2024.
Speaker Change: which means that her ability to spend on public programs are going to be limited and we believe that that is going to...
Speaker Change: cause, you know, a strong collaboration with private operators, including in higher education.
Speaker Change: for the Mexican economy, which is very encouraging for many sectors, including the education sector, of course, because to enable that, the human capital equation is critically important.
Adam Morse: Thirdly, she has made a strong statement to strengthen the public-private collaboration in key sectors such as energy and infrastructure, and I think the partnership that the Mexican government had with education providers over the last several years could be a very good module. She extends a public-private collaboration. And then last but not least, she's very focused on enhancing security and strengthening law and order, which is going to be a very important enabler for an investment into Mexico. So, in summary, Norea believes that the quality private higher education players, like Norea, can and will play a major role in the execution of these policy priorities.
Speaker Change: [inaudible]
Speaker Change: She has made a strong statement to strengthen the public-private collaboration in key sectors such as energy and infrastructure, and I think the partnership that the Mexican government has had with education providers over the last several years could be a very good module as she extends that public-private collaboration.
Speaker Change: So in summary Laureate believes that the quality private higher education players like Laureate can and will play a major role in the execution of these policy priorities.
Adam Morse: We look forward to be working with the Shandong administration, and we remain committed to expanding access to quality, affordable higher education, which was significant to contribute to the modernization and the growth of the Mexican economy. I'll pause there and see if that addresses your question. Yeah, that's very clear. Thanks.
Speaker Change: We look forward to be working with the Schoenberg administration, and we remain committed to expanding access to quality, affordable higher education, which will significantly contribute to the modernization and the growth.
Speaker Change: I'll pause there and see if that addressed your question.
Operator: Thanks, Miguel. Thank you. Again, as a reminder, trust your question.
Operator: Thank you. Again, as a reminder to ask a question, you will need to press star 11 on your telephone. I'm 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.
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Speaker Change: Thank you. Again, as a reminder to ask a question, you will need to press star 1 1 on your telephone.
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Speaker Change: I'm 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.
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