Laureate Education, Inc.

Good day and thank you for standing by. Welcome to Laureates Education's second quarter 2026 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, Please press star 11 again. 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 Lardy Education's second quarter 2026 results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer and Rick Buskirk, Chief Financial Officer. Our inks press release is available on the investor relations section of our website at laureate.net. We have 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 and many more. Thank you very much. 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, the non-GAAP measures that we discuss, including and among others, adjusted EBITDA and its related margin, adjusted net income, and adjusted earnings per share, Total debt net of cash and cash equivalents 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. I am pleased to report strong execution across the board for the second quarter and first half of 2026. Through year-to-date June, new and total enrollments were up 10% and 6% respectively versus the comparable period in prior year, driving 7% growth in revenue on a timing-adjusted and constant currency basis. In addition to favorable operating results, we have also benefited from improved currency over the past few months. As a result, we are raising our full year 2026 outlook at the midpoint by $28 million for revenue, $8 million for adjusted EBITDA, and $0.03 per share for adjusted earnings per share. The operating momentum of our business, as well as the strong balance sheet and free cash flow generation, continue to support our commitment to return excess capital to shareholders. Through the first half of the year, we repurchased $181 million worth of our shares, and today we are announcing an additional $150 million increase to our stock repurchase program. Throughout the first half of the year, we continue to advance on key priorities, which include the opening of new campuses and investment in digital leadership. The two new campuses we opened last year in Monterrey, Mexico and Lima, Peru's Ato District continue to perform in line with our expectations. Our new campus opening for this year in Puebla, Mexico is off to a strong start with enrollments already well underway for our primary intake in September. Looking beyond these projects, we have a clear multi-year roadmap of attractive new campus expansion opportunities across both Mexico and Peru and have already secured multiple sites to support that growth pipeline in the years to come. We do expect two new campus projects to be operational next year, one in southern Lima, which is on track to open during the first quarter of 2027, and one in Mérida, Mexico, which we anticipate being open in time for our primary intake in September of 2027. Further momentum for new campus openings are planned for 2028 and beyond. On the digital front, AI is becoming a core capability across our organization and an increasingly important driver of our long-term strategy. We are modernizing not only how and what we teach, but also how we operate, translating technology-enabled efficiencies into greater affordability, broader access to high-quality education, and further progress towards L'Oréal's mission. By enabling AI throughout the student journey, we aim to deliver more personalized learning experiences, strengthen student support, and improve academic outcomes. At the same time, we are equipping our faculty and staff with AI-enabled tools that allow them to focus on activities that create the greatest value for our students. To support this transformation, we are investing in our data and IT infrastructure and collaborating with leading technology companies. By leveraging their expertise and capabilities, we are orchestrating and building an integrated ecosystem of AI-powered learning, cloud, and education solutions for more than 500,000 students, faculty, and staff across Mexico and Peru. From a geopolitical and macroeconomic perspective, the backdrop in Mexico and Peru remains stable, and we are confident in the long-term fundamentals of both markets. In Mexico, the existing USMCA trade agreement remains in place through 2036 and continues to provide Mexico with reliable and preferential access to the US and Canadian markets, supporting investments in economic cross-border opportunities across North America. Although the USMCA agreement wasn't extended during the first mandatory joint review in July of this year, the absence of consensus simply activates the annual review mechanism beginning in 2027. Mexico continues to play a central role in the regional economy as the United States' largest trading partner. and the record export level for Mexico into the United States during May shows that trade and supply chain integration between the two countries remain very strong. Future bilateral discussion will focus on improving market access, strengthening regional production and addressing select tariffs. In Peru, the political outlook has become more stable following the recent national election. President Keiko Fujimori is expected to pursue a more market-oriented agenda, which could strengthen business confidence, encourage private investment, and support further economic growth, reinforcing Peru's long-standing position as one of Latin America's more established and resilient market economies. That concludes my prepared remarks, and I will now turn the call over to Rick Buskirk for a more detailed financial overview of our second quarter and year-to-date performance, as well as further details on our 2026 full-year outlook.

Rick? Thank you, Eilif. Before I discuss our financial performance for the quarter, let me provide a few important reminders on seasonality. Campus-based higher education is a seasonal business. While the second and fourth quarters are not major enrollment intake periods, They are the strongest in terms of revenue and adjusted EBITDA as students are in session and academic activity is at its peak. The timing of the start of our classes can shift year-over-year depending on various factors such as when public universities begin classes or when holidays occur. This in turn affects the timing of enrollment and revenue recognition and quarter-over-quarter comparability. In terms of seasonality for 2026, we will have some intra-year calendar timing impacts as outlined on slide 22 in our presentation. As I review our operating results, I will provide some additional color on these timing-related impacts. Let's start with page 10 and 11, which highlight our operating and financial performance for the second quarter in year-to-date June. Total enrollments increased by 6% when compared to the prior year quarter, driven by year-to-date new enrollment growth of 10%. Revenue in the seasonally strong second quarter was $616 million, and adjusted EBITDA was $251 million. Both metrics were ahead of the guidance provided three months ago, driven by favorable currency translation and operational outperformance. On a constant currency basis, both revenue and adjusted EBITDA for the second quarter increased by 8% year-over-year. Second quarter net income was $137 million, resulting in earnings per share of 98 cents per share on a reported basis. Second quarter adjusted net income was $140 million, and adjusted earnings per share was $1 per share. When combined with the first quarter on a constant currency basis and adjusted for academic calendar timing, our overall performance for the first half of 2026 was strong and resulted in revenue and adjusted EBITDA growth of 7% versus the prior year period. 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 a constant currency basis. Let's start with Mexico. Mexico's new enrollments increased by 7% on a year-to-date basis versus the prior year period, led by strong growth in working adult-focused fully online programs. Total enrollments increased 5%. Mexico's revenue for the second quarter increased by 10% compared to the prior year period, and adjusted EBITDA was up 9%, which included costs associated with launching our new campus in Puebla. On a year-to-date basis and adjusted for timing of the academic calendar, Mexico's revenue grew 6%, resulting from a 5% increase in average total enrollments and 1% price mix. Overall pricing was in line to slightly above inflation for traditional face-to-face students, partially offset from a mixed perspective by higher growth and working adult fully online programs. We were a little less aggressive with our pricing for our fully online programs, but still had an increase year over year as we continue to focus on driving strong volume growth in those programs. On a year-to-date basis and adjusted for timing of the academic calendar, adjusted EBITDA decreased by 2% versus the prior year period, reflecting the timing of investments and the ramp up of our new Puebla campus. As discussed on our prior call, we expect margin accretion this year to be weighted towards the second half of 2026 in that market. Let's now transition to Peru on slide 14. Peru's primary enrollment cycle concluded in mid-April with total enrollment growth of 8% year-to-date supported by strong demand from our fully online programs serving working adults. In the second quarter, Peru's revenue increased 6% and adjusted EBITDA was up 7% versus prior year. On a year-to-date basis and adjusted for timing of the academic calendar, Peru's revenue increased 7% versus the prior year period and adjusted EBITDA increased by 13%. You will note that through year-to-date June, our growth in total enrollments and revenue are at similar rates. due to the rapid scaling of fully online offerings. As discussed on our prior calls, our series of planned new campus launches for face-to-face students will start to ramp in 2027. Pricing during the primary intake was largely in line with inflation for our traditional face-to-face programs, but that was offset by the price mix impact from fully online. Let me now briefly discuss our balance sheet position. Our balance sheet remains strong. Laureate ended June with $223 million in gross debt and $162 million in cash for a net debt position of $61 million. Through June of this year, we repurchased $181 million of common stock under our previously announced share repurchase program. Today, we announced that our board is authorized a $150 million increase to our share repurchase program. This authorization is supported by our strong balance sheet, cash accreted business model, and disciplined capital allocation. Moving on to our outlook for 2026, starting on page 17. Today, we are increasing our full year guidance at the midpoint by $28 million for revenue, $8 million for adjusted EBITDA, and three cents per share for adjusted earnings per share. Our updated 2026 outlook reflects an improved operational outlook as well as more favorable foreign currency exchange rates. Based on our assumed FX rates, we now expect our full year 2026 results to be as follows. Total enrollments to be in the range of 518,000 to 523,000 students, reflecting growth of 4% to 5% versus 2025. Revenues to be in the range of $1.920 billion to $1.930 billion, reflecting growth of 13% on an as-reported basis and growth of 6% to 7% on a constant currency basis versus 2025. Adjusted EBITDA to be in the range of $593 million to $599 million, reflecting growth of 14 to 15% on an as-reported basis and 8 to 9% on a constant currency basis versus 2025. This would result in an increase in adjusted EBITDA margins of approximately 50 basis points at the midpoint of guidance on a reported basis. The margin expansion expected for the second half of the year will be driven by timing of investments and the opening and scaling of new campuses. For 2026, we still expect adjusted EBITDA to unlevered free cash flow conversion of approximately 50% on a reported basis, supporting our continued emphasis on return of capital to shareholders. Lastly, adjusted earnings per share guidance for 2026 is now expected to be in the range of $2.04 to $2.10 per share, reflecting growth of 19% to 22% versus 2025 on a reported basis. This outlook assumes a weighted average share count of approximately 139 million shares, only reflecting the impact of share purchases through June. Now moving to the third quarter guidance, which includes an expected 29 million of favorable intra-year academic calendar timing impact as illustrated on page 22 of our presentation. For the third quarter of 2026, we expect revenue to be in the range of $471 million to $476 million and adjusted EBITDA of approximately $134 million to $137 million. Eilif, I'm now handing it back to you for your closing comments. Thank you, Rick.

As we enter the second half of 2026 and prepare for our next major intake cycle, I remain confident in the momentum that we have built and our ability to continue to execute on our growth agenda. We are investing where we see the greatest opportunities to create long-term value, including expanding our academic portfolio, building strategic AI partnerships, scaling our digital offerings, and selectively growing our campus network in attractive Thank you. At this time, we will conduct the question and answer session.

As a reminder, to ask a question, please 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 roster. Our first question comes from the line of Jeff Sibler of BMO Markets. Your line is open.

Good morning. That's close enough. My first question is regarding Mexico. You've got a primary intake period coming up in a few months, probably enrolling students already. Can you give us any color in terms of how that's going?

Good morning, Jeff. This is Eilif. I'll just do a quick reminder. We did our March intake, which is a secondary intake in Mexico, which was consistent with last year's trend at about 4%. Then we had about 25% of the intake for the year. We did expect some improvement, and we saw that in the June intake. That's largely a working adult intake, represents about 15% of the annual intake, and we were growing 12% in that intake, which was consistent with our expectations of an improving operating environment in Mexico. When it comes to the main intake in Mexico, which I think your question was about, that's about 60% of the annual intake. That's happening in September. We are about halfway through that. We have about 50% completion of that intake. And it is tracking along with my expectations and that's as much as I'm going to comment on that intake.

Okay, I appreciate that. And then maybe a big picture question. A number of the U.S. schools have been talking about changes in the way that students are looking for schools switching away from traditional search engines going towards AI. I'm wondering if you're seeing that in Mexico and Peru and if so, if there's any change in your marketing strategy there.

Yeah, I would say that we were the cutting edge of driving that change in the market. We have partnered with Google over the years and several other key strategic digital and AI partners. And we've been recognized now for two years in a row by BCG and Google as being in the top decile when it comes to AI and digital marketing capabilities. in the way that we are embracing AI in our recruiting and onboarding effort. And it has given us a very strong competitive advantage where we have seen an explosive growth in our lead generation capability and significant improvement in conversion which has taken down our cost of acquisition and also enabled us to to consistently take market share in Mexico. So very, very pleased with those capabilities. And in Peru, we are deploying the same center of expertise that was developed in Mexico to roll out those capabilities there as well. Thanks.

Thank you. Our next question comes from Marcelo Santos of JP Morgan. Your line is now open.

Hi, good morning. Thanks for taking my questions. I have two. The first is a bit more long-term strategic. You have a lot of plans to open campuses. You're deploying distance learning. So how do you see the sustainability of growth in the coming years given these initiatives? Could you give us some broad views on how do you expect to grow? I'm not asking for a specific guidance, but I'm just asking for A broad outlook. And the second question is, I think you had higher, better retention rates in Mexico in the second quarter. What were the actions that led to this improvement in retention rates? Thank you very much.

Great, Marcelo. I'll start kicking off on the growth algorithm. And we have a really deep and robust pipeline of growth opportunities in our core markets in Mexico and Peru. and really there are three drivers of our growth in both markets. One is the rising participation rates. The rising participation rates, there's a lot of headroom there in Mexico. The participation rates are about 36% versus Peru high 40s and the United States mid 60s. So it shows you the significant opportunity for that participation rate to increase which over the last 10 years has consistently given us very predictable and consistent growth and I expect that to continue. The second big growth driver is the fully online working adult product where we are marketing fully online to students aged 25 to 50 and those are largely degree completion but also increasingly becoming postgraduate degrees. You know, we're really following the US model there of high quality, personalized, fully online experience, but targeting only that working adult consumer where online is a very good product. And in Mexico, we have about 90,000 fully online working adult students and growing in high single digits. In Peru, we have about 20,000, 35,000 students, and it is growing at a much higher rate, but from that smaller base, and an important long-term growth driver for both countries. And I can see, if you're looking at five-plus years, I can see the penetration of the fully online in Peru to kind of catch up with Mexico. So very excited about the depth of that growth lever. And then third, new campuses. In Peru, we are largely a Lima operator. So there are some interesting secondary cities, and also still several zip codes in Lima where we don't have our full portfolio of products. So there's more growth with campuses in Lima and in large secondary cities like Arequipa. In Mexico, which is a much larger country, in Mexico you have 135 million people, in Peru you have 35 million people. You have 20 cities in Mexico with multi-million population centers. over a million population centers, which is ideal for our product portfolio. And so we have a very, very robust pipeline of campus expansion opportunities. Last year we opened Unitec in Monterey. Here we opened Unitec in Puebla. And we have announced Merida is going to be our new campus expansion opportunity. for Unitec, and we are seeing double-digit campus expansion opportunities in Mexico alone in order to get the coverage that makes sense given our very strong brand portfolio in Mexico. So those are the three in our core business. It is participation rate, it is online penetration, and it is new campuses, a new zip code and new cities. And so I would say those are the core growth drivers to support our guidance. Perfect. Thank you. And let me just, before covering your retention question, Rick, why don't you add anything on the growth algorithm?

No, I think that was well said. I don't have anything on the growth algorithm.

Very good. Do you want to take the retention question then?

Sure, great. On the retention, you're exactly right. We are seeing some improved retention rates in Mexico. We're very pleased with that. We spent several years focused in dissecting the entire enrollment to graduation process that our students go through. particularly on our growing online segments and have started deconstructing that digital journey that they follow and really putting in different elements to reduce friction and support their learning including experimenting with an AI tutor and as a result of that we are seeing improved attrition and we expect attrition Despite online growing faster to face-to-face, which generally has a higher attrition rate, as a total consolidated Mexico, we expect attrition improvement on a full-year basis. So we're very pleased with the results, and it's been an effort that we've been very focused on, and we're seeing good results, particularly in our fully online product.

Perfect. Very clear. Thank you very much. Thank you.

Marcelo, did that take over your questions?

Yes, of course. Thanks a lot.

Very comprehensive questions. I think so. I think we can move on to the next question.

Thank you. Our next question comes from Alex Paris of Barrington Research. Your line is open.

Hi, guys. Thanks for taking my question. I'm glad to be on the call today after having recently initiated. Still learning, and I appreciate your responses to the prior questions, some of which I was going to ask myself. But I thought, and by the way, I don't know if it's just my line or in general, but it sounds like your line is cutting out from time to time. And I'm having a little trouble following it. But again, just back to the three core growth drivers. Alex, can you repeat the question?

I'm sorry about that. We're just having a technical difficulty. If you could just repeat it real quick, please.

Okay, yes, I'm having a technical difficulty hearing you guys as well. I don't know where the problem is. But my question was just more to follow on to the three core growth drivers, participation, fully online, and new campuses. I think you covered it well, but I thought since online is an important growth driver, maybe we can dig down into that a little bit more with additional color up. How is it priced relative to campus-based programs? I realize it's priced at a discount. And what is its contribution to adjusted operating income, for example, or operating income?

Great. This is Eilif again. I apologize for the technical difficulties that we seem to be having. So I've switched over to a cell phone line now. Can you hear me okay?

Yes, I can.

Perfect. So in terms of online, it's a very attractive business model. The price point of an online offering versus the face-to-face counterpart is about 40% below face-to-face. And that gives us a contribution margin in the mid-50s, which is similar to a campus performance. So similar margin. A similar model contribution, 40% lower price, and of course an ROIC that is very, very superior because there is no capex in online. And it's benefiting from the strong brand portfolio that we have in both Mexico and Peru. So hopefully that answered your question.

It definitely did. And then going back to a previous question, How do you market in Mexico and Peru? Is it like in the U.S., largely focused on digital marketing and Google search, etc.?

Well, it depends. You should think about our business in two different lines. We have young students who we are recruiting from high school, and they live at home, so we know exactly where they are. So the cost of acquisition for our traditional undergraduates are very, very low. We develop relationships with the high schools and the students through their middle school and high school experience. We do gamification. We do English training. We do career advising. We provide them with apps to help them in their learning experience. And then we maintain those relationships until their senior year in high school, and then we recruit them based on the campus that makes more sense with the zip code where they live. And we have about 400,000 young students in Mexico and Peru that is recruited in that manner. Then we have 100,000 working adults, fully online students. And the marketing to entice that clientele is very different. You're casting the net very broadly. It's largely lead generation. A lot of it is organically generated through proprietary information sites, outreach. To cover Jeff's question earlier, we are increasingly using AI tools to reach and understand and deliver an offering that is personalized and makes sense for that particular lead or that particular individual. But we're also using, you know, search and all of the traditional tools that you are familiar with here in the United States.

Great. Well, thank you for answering my question. I appreciate the color. I'll get back in the queue.

Thank you, Alex. Our next question comes from Mauricio Cepeda of Morgan Stanley. Your line is open.

Hi guys, thank you for the opportunity here in the call. We have two questions here. The first one about the Mexico margin expansion throughout time. So we saw that Mexico improved a lot the margin in the past from this campus consolidation actions, the fixed cost dilution, some operating efficiencies. But as those benefits mature, and it seems that they mature a little bit already, what would be the main sources for this next wave of margin expansion? And over which time frame should they become visible? And the second question is... Sorry, sorry, Eilif, go on.

No, go ahead. I was jumping in, but let's get both questions out and then we take them one at a time.

Okay, okay, so that's pretty straightforward about the online penetration, right? So we see that online penetration is increasing, and of course, because of the average price, it somehow dilutes the tuition. But at which level do you think they will begin offsetting the enrollment and margin benefits? and what early indicators are you monitoring for the cannibalization for higher acquisition costs or competitive price pressure? Thank you.

Very good. In terms of the margin extension to Mexico, I will hand that over to Rick and then I will pick it up again on the online penetration.

Yes, good morning. Yes, as you said, we had tremendous success in expanding margins in Mexico from around 20% to 26% historically. We have a great operating model on a go-forward basis now set with a very centralized cost structure. So, we see notable opportunities to continue on a healthy operating leverage and flow-through margin of incremental revenue. as well as we do still have some targeted efficiencies that we're working on to streamline operations across the different lines. So we do expect to continue to expand margins when you adjust for rent because we lease our properties in Mexico and we own them in Peru. It's about a 6% plus a delta. So as we've said historically, we are working on closing that gap. and management believes we can close a substantial part of that gap in the next three to five years. And so what we've said on a consolidated basis is it is the target of Laureate to continue to see margin expansion. And we expect to see margin expansion in the range of 30% plus per year. So that's where we're at.

So 30 basis points?

Yeah, 30 basis points.

So that's some margin expansion for Mexico coming to flow through and additional productivity opportunities and will be the biggest source of the 30 basis points or more margin expansion for the consolidated business. On your second point on online penetration, this is the way I would think about it, Mauricio. In the United States, 25% of all students are working adult, fully online students. So it is a segment that makes a tremendous amount of sense for that working adult student, and it is at scale. In Mexico, it is at 14%, and in Peru, it's less than 5%. And so you would expect online penetration in Mexico and Peru at least to get to the U.S. It really should become significantly larger than in the U.S. because the mix of 25 to 50-year-olds in Mexico and Peru that doesn't have a degree is much bigger than the mix of 25 to 50-year-olds in the U.S. that doesn't have an undergraduate degree. So the fishing ponds are much bigger in Mexico and Peru on a relative basis for that working adult student than it is in the United States. So will it go to 25? Will it go to 35? Will it go to 45? I don't know, but we're just at the beginning of a very exciting journey to deliver high-quality education in a flexible manner to that working adult professional that is looking to get into management or move from a local company to an international company and create a significant increased earning potential. I'll pause there and see if that answered your question.

Yeah, the point is that I believe it's kind of a given, right? I think that distance learning is really penetrating everywhere. But the point is that while the market growth seems positive, Are you going to monitor for cannibalization? Because maybe younger students will go for it too. And at the end of the day, there will be a ticket dilution, even if you could keep the margin. So it can decrease your bottom line growth. So are you monitoring for it? Which is, let's say, the saturation point? Is there any kind of monitoring in general?

Oh, yeah, we are monitoring this very, very carefully. And as I said, I really believe online is a terrific tool for the working adult student. I don't think it makes a lot of sense for the average 17, 18-year-old to sit in his or her bedroom to get an online undergraduate degree. Very few 17, 18-year-olds are going to be successful doing that. You know, we are monitoring, you know, all of our students that are in the online program. And, you know, the vast majority, 95 plus percent of our students that, you know, are in a location where we have a campus and are below 25 years old or below in the early 20s will be in a campus setting. So very few, you know, 18, 19, 20, 21, 22 year olds and many other students in our network will be in an online operation. There will be some very unique circumstances for that to be facilitated. So we are marketing face-to-face or hybrid to young students and the price point on face-to-face versus hybrid is essentially the same because it is the students themselves that decide how much hybridity to do depending on their flexibility if they're working part-time alongside the studies. But the fully online, that is where we are marketing to working adults, 25 to 50-year-olds, and that is where we are offering a significantly lower price point because the cost of delivery is lighter and the self-discipline and the ability to work independently is very different. Maybe where you're coming from is some of the more challenging experiences in Brazil, and we're not following that model at all. We are following the model that we have seen in the United States that has worked really, really well for us in Mexico. that we are deploying now in Peru and very similar to what you would be seeing in Europe and also in other Latin American countries. I think Brazil is the outlier because Brazil has had some very unique challenges with overcapacity following the unwinding of FIAS and unfortunately went down a path where they trained the consumer that if you can't afford a face-to-face, you should still go for DL and it has been a challenge and regulatory steps are now being taken to try to clean that up. But those dynamics doesn't exist in our market and certainly we are not promoting to go down that path. To the contrary, we are very disciplined. We have a great product for young students that involves the campus experience and then we have a very high quality online product with a lot of flexibility and a lot of built-in digital and AI tools that is designed to support that working adult professional that is balancing studies, a job and a family.

Thank you, Edith.

Thank you. As a reminder, to ask a question during your session, you can press star 11 on your telephone and wait for your name to be announced. I am showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.