Good day, ladies and gentlemen and welcome to the Laureate Education, Inc. Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Adam Morse, Vice President Corporate Finance and Treasurer. Please go ahead, sir.

Thank you, operator. Hello, everyone and thank you for joining us on today’s call to discuss Laureate Education’s second quarter 2017 results. Joining me on the call today are Doug Becker, Chairman and Chief Executive Officer; Eilif Serck-Hanssen, President and Chief Administrative Officer and serving as Interim Chief Financial Officer until a replacement is named; and Ricardo Berckemeyer, Chief Operating Officer. Our earnings 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 refer to during today’s call. The call is being webcast and a complete recording will be available after the call. 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. 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 on March 29, 2017, our quarterly reports on Form 10-Q filed with the SEC, 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 are also detailed and reconciled to their GAAP counterparts in our press release and are included in our Form 10-Q filed with the SEC. With that, let me turn the call over to Doug for the review of the quarter and an update on the business.

Thanks very much, Adam and thanks to everyone in the line for joining us on today’s earnings call. During our call this afternoon, we will be highlighting the results from the second quarter giving more details around our accelerator plan and providing updated guidance for the year. In addition, Ricardo is going to discuss how we have realigned the operations to flatten the organizational structure, which will result in improved efficient speed and operating effectiveness. Lastly I will provide some updates on key regulatory matters before we turn the call over for the Q&A session. Now, moving to the results for the quarter on Slide #4. For the second quarter of f2017, revenue increased 8% compared to second quarter of 2016 on an organic constant currency basis to $1.3 billion. Adjusted EBITDA of $342 million increased 22% on an organic constant currency basis. And when excluding the $23 million one-time charge associated with our debt refinancing in April of this year. During the quarter, we did have some favorable timing impacts versus prior year and later on your prepared remarks, Eilif will provide more details on those items. Through year-to-date, enrollment results are on track with expectations with new enrollment growth of 2% and total enrollments increasing 3% organic on an organic basis. As a reminder, we are coming up in our large intake cycle for the Northern Hemisphere in September and October and we will be reporting results from that intake during our third quarter earnings call later in the fall. I will now turn the call over to Ricardo to discuss our new operating structure.

Thank you, Doug. We have reorganized the business to create a more streamlined and efficient operating model, which assures our profit oversight and most effectively supports our global operations. The principles that we have established to execute the operating strategy, include the following: number one, creating and fostering a structure to continue to drive efficient responsive control and a healthy balance of oversight along with demand for nimble and agile decision-making capabilities; number two, ensuring that our educational mission and mandate to deliver high-quality educational outcomes remains a central pillar of our organizational design; and number three, building a geographically focused organizational structure that is also capable of leveraging best practices, innovations and commonalities regardless of the origin. As a result of the operating model, we are changing our current three reporting segments into six segments as illustrated on Slide #5. Latin America will be divided into the following reporting units. Mexico, Brazil and Andean & Iberian, which will include Spain and Portugal and Central America, which will be combined with U.S. campus based. EMEA will stay the same except for Spain and Portugal. This fixed segment will be online on partnerships. We have a deep and talented management team with broad experiences and a demonstrated track record of success across our network to lead these business units. The individuals leading the six new business units are already in similar roles with organization, some of whose scope won’t change and others who will be taking additional responsibilities. These new reporting segments became effective during the third quarter and will be reflected in our third quarter 10-Q when filed. Eilif, I now turn it to you for operating results.

Thank you, Ricardo and good afternoon everyone. I am going to start by providing an overview of our enrollment performance by segment and then give some additional commentary on our second quarter 2017 operating results. After that, I will provide more details around the accelerator plan and updated guidance for the year. As a reminder, the first and third quarters represents our two largest intake periods, which accounts for approximately 80% of total new enrollment activity for the year. The second quarter is a smaller quarter from an enrollment perspective and we have a couple of intakes some of which spillover from the first quarter and some that struggled second and third quarters. Thus we frequently experienced some enrollment cut off volatility during this relatively smaller second quarter from an enrollment perspective. As a reminder for new enrollment reporting purposes, we report year-to-date enrollment results to better capture the underlying performance trend of our business. To turn you Slide #6, for Latin America new and total enrollment both growth grew 3% year-over-year – June 2016 year-to-date. New and total enrollments grew in all markets except for Chile which was slightly down year-over-year due to regulatory changes that occurred in that country during 2016. For the EMEA and GPS regions enrollment results year-over-year were impacted by the sale of two business units during 2016. One in France accounted for in our EMEA segment and one in Switzerland accounted for in our GPS segment. While discussing the results for these segments, I will be quoting organic performance to normalize for these divestitures. Organic new enrollments in EMEA were down 3% versus prior year-to-date, whereas total enrollments increased 6%. As discussed on prior calls, new enrollments continue to be impacted by our continued planned shift in certain markets away from lower price and…

Thanks, Eilif. Before we turn the call over for Q&A, I did want to provide an update on two markets in particular. As a reminder earlier this year, we disclosed that in Turkey as part of an audit. The Turkish regulator was questioning the operational services and network fees that we charged to our university in that country. Laureate provides very valuable services to all of its universities around the world whether they are structured as for-profit or non-profit institutions. These service charges have been routinely evaluated and upheld by governments in countries all over the world. And we have always been able to demonstrate the value of those services, which is why we filed an appeal with the regulator in Turkey. The appeal process can take up to 60 days which for us is now concluded. Since we didn’t receive a response, this means that under their rules the appeal was deemed to have been rejected. However, it’s not surprising that we haven’t heard from them given the summer period and it’s still possible that we would hear from the regulators soon. Should that not occur we have the opportunity to litigate this matter into administrative court as provided by Turkish law. We have until September 7 to commence litigation and we are prepared to move forth in that manner unless in the interim we come to the conclusion with the regulator. So, given our track record in demonstrating the value and validity of those services all over the world, we believe we will prevail in the courts, but of course that can’t be assured. Secondly, I wanted to provide an update on Chile. In Chile, the higher education bill that was proposed last year and modified this year was finally debated in Congress through their Chamber of Deputies,…

Certainly. [Operator Instructions] Our first question comes from the line of Anjaneya Singh from Credit Suisse. Your question please.

Hi, this is actually Jeff [ph] just standing in for Anj. With regards to the new re-segmenting why weren’t some of these changes done when you previously re-segmented it when you combined Europe and EMEA?

Hey, Jeff. This is Eilif. We did this as a result of the way that we have reorganized the business to facilitate the accelerator plan, flattening the organization, increasing the decision speed and taking some layers of management out, so that was the decision that we made in the – as part of the implementation of the accelerator plan.

Okay, great. And then just one more with the big boost in CapEx spending as a percentage of revenue versus prior years, can you give us some more color and what types of projects or campus expansions this money is going towards?

Sure. Well, I have to give you little bit more context. CapEx as a percentage of revenue has come down from 9% to 11% a run-rate basis couple of years ago, then we took it down to 6% of revenue in 2016 as we were focusing on addressing some of our balance sheet challenges of making sure that the company were ready to become a public company. Then we have said, our guidance for CapEx is approximately 7.5% of revenue on a steady state basis, which means that we are increasing CapEx a tad versus 2016, but significantly below historical rates. And the reason why we are able to keep CapEx at about 2.5 points below historical rates is some of the very important innovations that we have done here at Laureate, hybridity, being one of the biggest driver where we are digitally enabling our campuses, which enables us to get greater throughput and a higher turn perceived of our physical capacity.

Great, thank you.

Thank you. Our next question comes from the line of Jeff Silber from BMO. Your question please.

Hey, good afternoon guys. It’s Henry Chien calling for Jeff. Just a follow-up question on the reorganization, I understand some of it is to flatten the organizational structure and speed of decision-making, is there any other more color that you could provide on how that changes the strategy of these respective institutions or how you plan to if any change capital allocation to these different institutions?

There is no strategic change in the way that we are operating the business. We are combining the Iberia regions, Spain and Portugal underneath our Andean region segment to better leverage those European assets into the Latin American franchise. But that’s been part of the strategy in the past. And I think this is going to facilitate faster adoption of some of our best practices. But in terms of capital allocation and overall strategy this stepping of the organization does not impact that overall strategy.

Okay, got it. And in terms of enrollment trends I was wondering if you could provide an update on the environment in Brazil and whether the funding or the regulatory environment has seen any material or particularly relevant changes over the past few months?

We covered a lot of that in the first quarter. First quarter is an important intake period for Brazil, 2016 of course was very, very difficult first quarter. The main intake in 2016 was challenging both from an economic perspective, but also the dismantling of the government student loan program called Fies. Then the market stabilized in the fall of this August, September, October timeframe in 2016, but not for the full year there were negative new enrollment trends in Brazil for us. But we were encouraged by the improvement in the back end of 2016. And we saw those trends continue and the main intake in 2017 and we reported very strong enrollment results as a result in the first quarter. And we are seeing that trend continuing despite Fies being further reduced. At this point Fies represents very small part of part of our new intake, but 5%. So we are very encouraged to see that the private pay volume in Brazil is robust and the pricing is – it’s also robust.

Got it. Okay, great. And if I can just squeeze one last one in, any updated thoughts on what you plan to do with the capital once you exit some these markets?

De-leveraging.

De-leveraging, okay. Thanks.

Thank you. Our next question comes from line of Manav Patnaik from Barclays, your question please.

Yes. Thank you. Good evening guys. First question just on the re-segmentation, I understand maybe it’s just re-segmenting, but I was curious why Chile and Peru belong in the same spot as being in Portugal just because I mean they seem like they are decent size compared to Brazil and Mexico, is it something to do with maybe see some risk in Chile and that’s being smaller, how should I think about that?

Hi, this is Ricardo Berckemeyer.

Go ahead Ricardo.

Yes. It’s about commonality, we have terrific assets in Peru and in Chile and we view Spain that has very similar characteristics in that premium positioning of those institutions. And we firmly believe that we can operate in Spain like a much stronger – stronger level and the three institutions will benefit from each other.

Okay. And Doug I appreciate the color you gave on the regulatory updates, maybe just on Turkey, it sounds like you just have under a month, but maybe you are going to take this to litigation, but how should we think about the cost and time involved with that process?

I don’t think the cost is going to be that material. I think the important thing is to preserve our model and we have a model that we have been able to demonstrate consistently around the world. We have done a terrific job in improving the economic and academic viability of the Turkish University. We really believe there is lots of good reasons for the regulator to accept the model of how we provide services and charge fees. This litigation is essentially another form of appeal. And I think at this point the most important thing is we’d like to hear back from the regulator, just because under the rules if they don’t respond it means a denial, it doesn’t mean that, that’s actually their intention. So, we think given the summer period, there is a reasonable chance that we will hear something from the regulator that will be helpful. They may just reaffirm their decision in which case we would go to litigation, because we believe we have a good case or they may come back with something that’s some more accepting of the model of what we have been doing for so many years and which they have reviewed in previous years without objection. So we really – that’s the process we will go through with them, but I don’t believe that the litigation process itself is that the cost of that is going to be the key driver. The key driver is defend our model and our reputation, which we feel very strongly about. In terms of length of time, litigation in Administrative Court in Turkey could take literally a year or two. And so it’s not something that would be resolved quickly, although again during that entire period, the regulator would be pleased to accommodate some of our requests. So again, I would say, I feel confident that we are being given very serious consideration by the key decision-makers in Turkey and we will just do our best to bring this to a positive resolution that we think reflects the quality of what we are doing.

Okay, got it. And just two quick ones to you, Eilif, first one with the identified 5 to 7 I guess assets for sale, what is the associated CapEx spend in those regions right now?

It’s – the CapEx is similar to the overall network average. So, for modeling purposes, you can probably put somewhere between 7% and 9% of the revenues – 7% to 8% of the revenues.

And then just on guidance update lastly on EBITDA, I mean your prior high end was $74 million, you are adding $12 million from accelerator plan offset by $3 million of FX, but you are still lowering that range over what?

You are probably missing the debt refinancing costs, which is $23 million of expenses that is accounted for an EBITDA, which we had anticipated being debt extinguishment in which case it would have been below the line, but the way the deal actually worked out, there was a modification. So, I think the right way of looking at it is that is we are guiding on its like-for-like basis $809 million to $818 million versus prior range of $789 million to $804 million. So, we lifted it about $20 million and you can see this bridge on Page 18 in the PowerPoint deck that we put up on the roadshow side.

Okay, alright. I appreciate the color guys.

Thank you. Our next question comes from the line of Shlomo Rosenbaum from Stifel. Your question please.

Hi, good afternoon. Doug, can you talk a little bit about where you saw relatively stronger Latin American growth, so you saw growth across all the geographies, do you want to just go – do you want to give the growth rates one, but maybe just relative sizes where you had the strongest growth and maybe accelerating or decelerating order?

Well, the good news is that we will be providing a lot more information with the new segmentation and that there was a few – there were few questions about segmentation, but I am sure investors will see this as a much, much deeper level of information that has been available to them in the past, but since we haven’t really done that in the past, I am not going to break it apart now. I would say look in general we have mentioned that we have seen encouraging positive trends in Brazil and you just heard earlier Eilif’s comment on that and I would say that generally over time, Peru has been one of our strongest growth markets and we believe that will continue to be the case, but the result in that case were clouded by the effects of the floods that we discussed earlier before. And of course in Chile, you have the effect of free education, a small percentage of students who previously might have entered private universities are now able to go to certain private universities and many public universities for free and what that is certainly inhibiting growth in that particular market. And then Mexico, I think overall is generally a good market for us, but we realized the consumer sentiment and the economy there hasn’t been so strong lately. So that would just give you color, which I think is what you are asking for, that would probably be the way I would describe it.

And where we in hybridity now?

Hybridity has been great. It’s something where the last time we reported a number I think we were reporting approximately 16% of our teaching hours being delivered online in our campus based institutions. And we find that to be something that students like, it helps our outcomes of students and of course it also gives us more turns per seat to improve the efficiency and utilization of our facilities. We had set a target to get to 25%. Originally, I think that was by 2019 was our plan. And I think certainly everything that we see tells us that that’s very feasible and that there will be institutions where we think we can do better than that. And of course with the value segments, some of our less expensive universities this could really be a helpful way to allow us to keep our costs at a very affordable level for a customer that would really benefit from that. So yes, I think it’s going really well.

Okay, great. If I can sneak in one more, just want to follow-up on the last EBITDA guidance question Eilif, I think last quarter the commentary was there was a 1% headwind on EBITDA from FX and that’s dissipated this quarter, so it looks like it would be an $8 million benefit, if I add that plus the $12 million from the accelerator program, it seems that the range would be at the top and just a slightly better than that, then that eighty teen - I am getting like 823, is there any offsets or some kind of other investments or might not looking at it right?

No, I think again if I can direct you to Page 18, we have tightened the range a little, the probably guidance we had organic growth of 8% to 10% given we have first half now behind us and pretty strong visibility. We have tightened that to 8.5% to 9.5%. And then the FX drag in prior guidance was about $9 million, now it is debated a lot but is still $2 million or $3 million, so there was a $6 million pickup on FX and then there was $10 million to $12 million I think upon the accelerator plan. So if you take the accelerator plan and of $12 million, that’s $3 million on FX and then tightening the top end of the range from $74 million to $70 million, you are still of that $40 million, $50 million.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Hamzah Mazari from Macquarie, your question please.

Hi, this is Kayvon Rahbar filling in for Hamzah. How should we think about the current student retention rates and how that metric trended over time, can you give us some color on that?

Sure, this is Eilif. Our retention rate has been remarkably stable over the last several years. There will be a little bit of volatility in certain markets as you can imagine last year in Brazil was a little bit of a challenging environment due to the student loan program going way, we have seen a little bit of fatigue in the consumer sentiment and in Mexico, but not enough to move the dime and there is one market you are moving a little bit in one direction another market in the other direction. And so net-net our retention rates are very, very stable plus/minus maybe a point.

If I can just have a quick follow-up question on that, you mentioned Brazil and the government loan exposure, has there been any change that you have seen and how the operations are being done by yourself and your competitors?

So we have been very focused on private pay and we have not engaged in any on balance sheet financing. We have also been focused on innovating and differentiating and continue to make the Laureate network an attractive educational alternative in Brazil. Some of our peers in the market has been willing to take on more balance sheet risk than what we have appetite for and so have seen maybe certain pockets in certain markets a little bit more robust growth rate as they have taken advantage of that, but we are very pleased with our positioning and the level of growth that we are demonstrating consistently late, the large intake of 2016, the large intake in 2017, the second intake in 2017 all continued positive momentum without balance sheet student loans and with sensible pricing dynamics. So, we like where we are.

Alright, thank you.

Thank you. Our next question comes from the line of Marcelo Santos from JPMorgan. Your question please.

Hi, good evening. Thanks for taking the questions. I have two. The first one is about different learning opportunities in Brazil, we know that the regulation has been recently changed and we are hearing from other players that are willing to grow faster in these markets. I would like to know if anything changed to Laureate and if you see any kind of new opportunities in there? And second question would be about EIP, the version 1 of EIP, have you already fully captured the gains of EIP and have all the costs and investments related to that being fully incurred or is there something left?

Let me suggest that we ask Ricardo to answer the first question about EIP in Brazil, the distance learning programs and then Eilif, you could finish up on EIP.

Okay. Yes, Doug, you are right legislation has been very positive on the front of the regulatory framework for opening new [indiscernible]. It is based on your institution academic score. We do have very good academic scores and therefore we have ample opportunities to increase those [indiscernible]. And there is also an opportunity to offer programs that do not require [indiscernible] in Brazil and those are available to us as well. We are taking the opportunity in DL seriously since last year we maybe making very good and powerful strategic moves to position ourselves in that market and our results right now are very encouraging.

And then moving on to your question on an EIP Wave 1, the vast majority of that investment and those benefits are now in the business. We have 90% plus of our revenues on the common platform, so a great traction. Last year, we had about $60 million, $65 million of the benefits in the business of 2016. We expect another $20 million or so to accrue this year and then with full $100 million in the business next year. We are still ensuring some of the transformation cost of EIP this year, approximately $30 million, $35 million of EIP expenses will be been accrued in the business in 2017 and at that point there will be a small tail, but relatively small numbers in 2018 as we are wrapping up that Wave and moving into Wave 2.

Great, thank you very much.

Thank you. Our next question…

I would just like to add it is because of the success of EIP Wave 1 that we have high confidence in moving forward with the EIP Wave 2, which includes flattening of the organization getting more of a common operating model in the mid office including the enrollment process and self-service and on student contact centers etcetera. So, we are moving into the second wave on the back of strong confidence of success from Wave 1.

Thank you.

Thank you. Our next question comes from the line of Jeff Mueller from Baird, your question please.

Yes. Thanks. Just first can you just confirm that Turkey and Chile are the only sizable markets where you have VIE exposure?

It’s a little bit of a longer question. In that we have countries – we have other countries that are considered VIE, but maybe for different reasons. So the definition of what’s the VIE and where a country is what we would consider to be a non-profit structure. We have countries that we designate as VIEs, but they are very different in legal structure from others. So at this point, Eilif do you want to just run down the list, I know India and I believe China would also be included in those categories.

Yes. So we have I mean this is disclosed in the financials, but Chile is the largest percentage of VIE approximately, a third of our VIE, it’s just more than that. So Chile is the biggest followed by Turkey, India and China and Honduras.

Okay. And then within Chile, Doug appreciate the candor on the challenge, anything else you can say sort of thinking things like if their senate is controlled by a different political party or any precedent for them passing bills, where there are constitutional challenges or how priority this is said to be in terms of getting through in a tight legislative window any characterization like that?

Yes. I will just a little bit of color on that. I would say the Congress, the Senate and Congress is general is mixed and so the ruling government today is a coalition and that coalition has fractures in it. So for example the biggest coalition partner to the party their Socialist party that’s in power is the Christian Democratic Party and they have actually decided to field their own candidate in the presidential election as opposed to combining with the socialists like they did in the last election. So it’s clearly though, the current coalition would clearly have the majority of the votes, if there coalition holds. And in a very complicated matter like this, I expect that it will be very issues based. So case-by-case each point in the bill will be important to different constituents and that may appeal to different senators or different coalition partners. So I wish I can’t give you a clear answer than that, obviously we think it is possible that this could be passed by the Senate or we wouldn’t be raising the issue. On the other hand when we look at the time available between now and the election and more importantly between now and when they need to devote all their retention to passing their annual budget bill which is a requirement, we think there is doubt as to whether there is enough time for this to happen. The polls favor the political party, the opposition party that we believe that has actually come publicly and said that they are against this bill. So you really could see this going either direction and maybe even more likely in a direction where the bill is amended and improved in which case it would be much less damaging or maybe not damaging to us at all. So there is a wide range of potential outcomes. I think it was easier for us to give you guidance, just sort of general views on it. But once it passed their lower house, we felt it was really important to give a lot more detailed information to investors. And we expect the good news is it shouldn’t take that long, the election is in November and if it’s going to pass it, it could in theory pass after the election, but that does seem to be much, much less likely.

Okay, that’s helpful. And then just I had a Northern hemisphere key intake period, any commentary and how the earlier leading indicators are trending in both larger markets or things like leads or outflow, especially something like Mexico or U.S.?

I think better for us not to go into any more detail. I think we have given some more refined guidance for the year which I hope is helpful and then when we have intake complete, we will be happy to give you all the details.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from line of Lucio Aldworth from Citigroup, your question please.

Yes. Thanks for taking the question guys. Very quick question down here, we noticed that FX neutral organic growth for you guys accelerated from 3% in the first quarter to 8% this quarter and we would like to know how much of that is attributable to the Chile scheduling issue and how much of that is attributable to the Chile scheduling issue and how much if any is attributable to better mix, enrollment mix or tuition in the quarter?

Are you speaking revenue or EBITDA?

Top line revenue.

So what I would like you to do is just to recall that we have significant seasonality in our business just looking at a quarter alone is challenging particularly in the first quarter for the Southern Hemisphere is largely out of session. And the best way of looking at the momentum in the business is on the trailing 12-month basis or at least looking at it on year-to-date, but if you wanted to focus on second quarter on Page 7 in the presentation deck, we are trying to adjust – you are seeing the organic revenue growth on a FX normalized basis is 8%, but when you are stripping out the timing shift from Chile, you had 6%, but still there are certain other cut-off academic calendar items. So, the run-rate of the available to businesses is at 5% to 6% revenue growth which is consistent with what we are guiding for the full year.

Yes, guys. So, this is pretty much a transfer from one quarter to the next, correct?

That’s correct.

Yes, okay. And a quick follow-up on Marcelo’s question a few moments ago on distance learning with the new regulation in Brazil, the new regulation issue these or facilitate the opening of the [indiscernible] here, but outside of that, do you forecast any potential M&A activity in distance learning to leverage your hydrated efforts?

Well, I would say first I don’t count this in the category of hybridity per se, although you are right that they are related. I do think in Brazil the distance learning model allows university to reach a very different type of customer, then the main type of customer that they normally reach. So, to me, it’s a little bit different from hybridity, but they are very closely related. So, I think your question is a very good one. I think in terms of M&A, I think it’s something we wouldn’t comment on. We are excited that the new rules will give us access to more site licenses, the polos that Ricardo referenced. And I think we will be prepared to grow our business there on a purely organic basis and is our comment on M&A at this point.

Got it. Thanks so much.

That clarifies well that our hybridity measure as we reported excludes fully online and excludes the DL business model in Brazil. This is truly a pause I believe this is truly the ability to get higher a better turn per seat in our campus-based environments.

Yes, thanks so much.

Thank you.

Thank you. And this does conclude the question-and-answer session as well as today’s program. Thank you, ladies and gentlemen for your participation. You may now disconnect. Good day.