Laureate Education, Inc. (LAUR) Q2 2018 Earnings Report, Transcript and Summary

Good morning and welcome to the Second Quarter 2018, Laureate Education Incorporated Earnings Conference Call. My name is Brandon and I’ll be your operator for today. At this time all participants are in a listen-only mode. [Operator Instructions]. Please note, this conference is being recorded. And I will now turn it over to Adam Morse. You may begin, sir.

Thank you, operator. Hello everyone, and thank you for joining us on today’s call, to discuss Laureate Education’s second quarter 2018 results. Joining me on the call today are Eilif Serck-Hanssen, Chief Executive Officer; Ricardo Berckemeyer, President and Chief Operating Officer and JJ Charhon, Chief Financial 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 on the website, which we’ll be referring to during today’s call. The call is being webcast and a complete recording will be available after the call. I like to remind you that some of the information we’re providing today, including but not limited to our financial and operational guidance constitutes forward-looking statements within the meanings of applicable U.S. securities laws. Forward-looking statements are subject to risks and uncertainties that may change at any time and therefore our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission, our Form 10-Q filed on May 9 of this year and our 10-Q filed earlier this morning, as well as other filings made with the SEC. In addition, all forward-looking statements are based on current expectations as of the date of this conference call, and we undertake no obligation to update any forward-looking statements. Additionally, non-GAAP measures that we discuss, including adjusted EBITDA, 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 Eilif for opening remarks.

Thank you Adam and thanks to everyone on the line for joining us on today’s earnings call. I’m pleased to report another strong quarter for the company. Business performance has been vigorous and the key initiatives we’ve undertaken to simplify our business model by yielding strong results. For the second quarter adjusted EBITDA was ahead of our guidance and revenue was on track with expectation. Overall enrollment trends are solid with new enrollment growth year-to-date up 4% versus prior year. We continue to expand our margins, partly due to the implementation of our common operating model. The pilot programs underway in Brazil and Peru, as well as other efficiency programs are delivering solid results. We also continue to execute or our growth priorities, including preparing for the opening of a new smart campus this September in Mexico City under the UNITEC brands. In Brazil we continue to expand the number of distance learning centers as we aggressively pursuit growth opportunities in that segment. Throughout the networks we are prioritizing capital spending on the most accretive growth opportunities. Quality and student outcomes are at the core of everything we do and it is of particular pleasure to share specific examples of recent awards and recognitions across the network. UPC and Peru and Andrés Bello in Chile were both recently rated among the top five institutions in their countries according to the prestigious SCImago ranking. Our institution in Spain was recognized as the number one ranked institution in the country, with 99.4% approval rate on the MIR medical exam taken by graduates. This is the exam that qualifies students to be matched for residency spots in the Spanish healthcare system. Health science is a key vertical for Laureate and is an area where our global competencies are a key differentiation point. The prestigious quality related recognition we have recently received a Spain, Chile and Peru are directly linked to the strength of Laureate’s Educational Assessment Framework also referred to as LEAF, which is our proprietary continues improvement tool used [ph] across the network. Laureate’s business is strong and durable. Our results through the first half of 2108 confirm the substantial forward program we have made on all of our key priorities in a relatively short period of time. Action taken by the management team to simplify the business, mitigate risk, improved margins, strengthen our balance sheet and improve free cash flow generation by yielding concrete results. With these tangible proof points in hand we will further accelerate our effort, leveraging the successes and learning from these projects. To provide a little more color on recent accomplishments, slide number six provides a summary of our 2017 accelerator plan and related results. Specifically, we have successfully simplified and streamlined our global portfolio of universities, saving over $75 million in annual operating expenses and narrowing our geographic footprint to become a more focused company. We announced divestitures of business units in seven markets with combined annual revenues of approximately $400 million and annual EBITDA of approximately $85 million. The expected proceeds from these divestitures is over $1 billion upon the completion of these transactions, resulting in an implied valuation multiple of nearly 13x EBITDA for these divestitures. We recognize that our company can be further simplified and optimized. We would implement two key strategies to accomplish this further performance improvement. First and foremost building on the successful execution of the first wave of the accelerator plan, we would exit a certain market in order to concentrate future operations on or large scale market where we have grown track record of delivering successful outcomes for all our student and stakeholder. We believe that our unique competitive advantages in the retained market, specifically superior brand on parallel management capabilities and complementary operating model will significantly strengthen Laureate’s financial position going forward. Secondly, we will better integrate our campus based businesses in Latin America into a more homogeneous operating unit, capitalizing on common operating platform to take better advantage of scale and shared innovations, leading to measurably improved margin. As illustrated on slides number seven and eight, the incremental portfolio simplification announced this morning will result in the divestitures or our institutions located in Europe, Asia and Central America. In aggregate, we anticipate that these actions will result in further divestitures of approximately $700 million in annual revenues and approximately $100 million in annual EBITDA, net of the reduction of related overhead expenses. These transactions are expected to generate over $1 billion in additional cash proceeds to the company. For the institutions to be divested, the company is committed to finding new owners that share our organization’s goals of providing quality, affordable, higher education. Upon the successful exit from the targeted geographies, our Latin American markets would be Brazil, Chile, Mexico and Peru, along with our online and hybrid educational institutions in the United States and Australia. Once this portfolio simplification is complete, we will have two extremely focused and scaled enterprises. One emerging market focus, university business in Latin America and one online enabled English language based higher education unit with quality brands in the United States and Australia. The three strategic pillars of innovation, operating leverage and capital efficiency will drive strong returns for shareholders and superior student experiences and outcomes. Now, I would turn the call over to JJ for the financial overview for the quarter and first half of 2018.

Thank you, Eilif. A couple of comments first, the second quarter is a very important earnings period for the company. It typically represents about 40% of our adjusted EBITDA for the full year as classes are in session for much of the quarter in all regions. Let me now provide a summary of our financial performance for the quarter, which we are very pleased with, starting on page 10. As you can see, revenue in the second quarter was $1.25 billion and adjusted EBITDA was $361 million, which is ahead of the guidance we provided three months ago. As we indicated during our first quarter earnings call, our reported results in 2018 are impacted by asset sales closed over the last 12 months. Therefore, if you look at our performance on a comparable basis and as constant currency, the second quarter saw revenue increase 3% and adjusted EBITDA grow 6%. This has led to an increase of our adjusted EBITDA margin by more than 200 basis points for Q2 versus the same period a year ago and reflects well the emphasis we have put on margin improvement in 2018. Now, moving to our year-to-date results. When combined with our first quarter results, still on a comparable basis and at constant currency our overall performance for the first half was equally strong as illustrated on page 11. Revenue and adjusted EBITDA for the six months were respectively 3% and 7% up versus the same period a year ago. Although these growth rates are consistent with or full year guidance, the first half of the year was slightly ahead of expectation given that we are anticipating improvement in our financial results at UVM and Walden in the second half of 2018. This was a strong performance across most of our segments, but would like to highlight a couple of areas where we performed exceptionally well. First and foremost Brazil, where we continued to scale up our distance learning business and improve our margin despite challenging market dynamics. Congrats to our CEO in Brazil, JR and the rest of his leadership team. Equally impressive is our operating performance in Peru, Iberia any EMEAA. Now let’s review in more detail our key operating metrics, starting with page 13. As we have shared before, the new enrollment activity during May and June isn’t really material, so the enrollment through year-to-date June as shown on page 13 are largely consistent with what we reported during or prior call when we shared our April year-to-date performance. Through the first six months we grew new enrollments overall 4% when compared to prior year, which was in line with our expectations. Let me now point to a few highlights for each segment. Brazil continues to perform very well for us. Our distance learning business grew new enrollment by 90% versus the same period a year ago, which is very impressive and illustrate the increased focus we have put on that operating segment. New enrollment in our face-to-face business were flat with strong growth up 6% in payers, partially offset by a further reduction in FIES-related enrolment, which now accounts for only about 1% of our new activity. In Mexico, our performance was mixed during a more challenging economic environment where we have observed weakening consumer confidence. On a positive side, our UNITEC brand which operates in the valley segment experienced continued strong your enrollment growth. This was largely offset by the weaker performance of our premium institution UVM. This was expected, and is not the first time when we have observed that the premium segment tends to be disproportionately impacted during the weaker part of an economic cycle. The Andean & Iberian segment continues to deliver solid performance, mostly led by continued growth in Peru in our two largest institutions UPN and UPC. In the EMEAA, our business in Australia is doing extremely well with 8% growth in new enrollments. Finally, Online & Partnerships experienced a slight reduction in new enrollments. However we are pleased with the performance of our domestic online enrollment at Walden, which has been our primary focus and have steady improved since the week intake last fall. Year-to-date domestic new enrollment at Walden are up 3% versus the comparable period a year ago, which is very encouraging. Now let’s move to our financial performance which you will find beginning on page 14. On a comparable basis our revenue for the second quarter, as well as for the first six months were up 3% versus the same period a year ago. Our campus based operations delivered mid-single digit growth, driven by positive dynamics in most of our key markets. For the quarter and year-to-date adjusted EBITDA was up 6% and 7% respectively on a comparable basis. We are very pleased with the progress of our margin improving initiatives, more specifically the implementation of our new operating model in Brazil and G&A containment actions across all segments, including at corporate. It is worth noting that the turnaround of our financial performance in Mexico and our online and partnerships segment all still work in progress. The lower overall enrollment levels and increased investments we’re making in lead generation activities still weight on our result. We expect the improvement of their financial performance to be more visible during the second half of the year. Now let me discuss briefly highlight of our net income and cash flow performance starting on page 16. Net income for the second quarter was up $107 million versus a year ago, due primarily to two factors, first a one-time gain record upon the conversion of the preferred equity in April. Second, a 36% reduction in interest expense, which is the result of our lower debt levels and reduced cost of debts, terrific improvement in 2018 in that area. Year-to-date net income is up almost $400 million versus a year ago, thanks also to a $300 million capital gain associated with the asset sales completed so far in 2018. Moving now to our cash flow performance, which you will find starting on page 18. Given the seasonality of our business and timing items that impact free cash flow, I’m just going to focus on the year-to-date performance as shown on page 19. Free cash flow generation through June year-to-date was up $136 million from the prior year, thanks to $113 million reduction in interest, as well as $23 million of debt refinancing one-time expense we incurred last year. Now before moving to guidance, I do want to take a couple of minutes to discuss foreign currency movements and the impact this has on our financial statements. First, a couple of complex setting remarks. Our business is naturally hedged at a country level, given that almost all of our country based expenses are incurred in local currency. Constantly we face exclusively translation FX exposure when reporting our consolidated result in U.S. dollars. The strengthening of the U.S. dollar we’ve experienced recently have been a headwind for us, mostly because of the weakening of the Brazilian real and the Mexican peso. We have noticed that this has been an increased area of interest from investors and to help all of you better understand the impact of currency movement on our reporting results, we provided a sensitive analysis on page 21. Now let’s move to our earnings guidance starting on page 23. Given our results for the first six months, we are reaffirming our full year 2018 guidance for all of our operating metrics. For Q3 our view is as follows: Revenue is expected to be between $920 million and $940 million, adjusted EBITDA is expected to be between $95 million and $105 million. We believe this is consistent with the performance level we have delivered for the first six months and the fact that the third quarter is seasonally lower for the P&L perspective as classes are out of session for most of the quarter. That concludes my remarks. Let me now turn it back to Eilif for a wrap-up.

Thank you JJ. 2018 is clearly off to a strong start. The operating trends in the business and successes against our key priorities give me great confidence in the future. We believe that with this further actions we plan to take with regard to portfolio simplification will accelerate our path towards the creation of an enterprise at scale that utilizes innovation and operating leverage to drive superior experiences and outcomes for our students and superior returns for our shareholders. Operator, that concludes our prepared remarks. And we are now happy to take questions from the participants.

Thank you. [Operator Instructions]. And from Macquarie Capital, we have Hamzah Mazari. Please go ahead.

Good morning, thank you. The first question is just on the asset sales. Maybe if you could just touch on – and I know you touched on valuation. Maybe you could touch on sort of the timeline investors should expect on closing the asset sales, as well as sort of use of proceeds. Are you just going to deliver to 1x? Is that optimal use of the capital or do you return cash back, just any sense of that. Thank you.

Hamzah, the plan is to launch the divestitures immediately. We have initiated the process. The different jurisdictions require different steps to complete the divestitures. Overall we expect that by mid-2019 the vast majority of these divestitures will be finalized, but recognizing there will be certain transactions that will be completed sooner and certain transactions that may take a little longer due to change of control approvals from the regulators. Your second question related to the use of proceeds. The focus of the company is to delever the company and simplify our operations. The vast majority, not all of the proceeds would be used to pay down debt, that will strengthen the balance sheet and increase our go forward flexibility.

Great, and just a follow up question and I’ll turn it over. I guess in Mexico your front loading some marketing investment in the online and partnership business. There is also increased marketing investment. Maybe if you could just add a little more color on the investment spend and sort of how that plays into the P&L, that would be helpful thank you.

Sure, this is JJ. The jump off point for both of those businesses was lower for different reasons. We had a shortfall of enrollment as you may remember at Walden last year and then in Mexico the impact of the earthquake. Hence the impact that UVN tends to incur during a week part of the economic cycle actually encourage us to really frontload our marking investments in those two units. So this is why we are still in a rebuilding mode. As I said in my prepared remarks, we’re expecting an improvement of our performance in the second half for those two units.

Great, thank you.

From Barclays we have Manav Patnaik. Please go ahead.

Yeah, good morning gentlemen. My first question is the incremental sales. It seems like a logical step. I guess I was just curious. You know you’ve been going through this review process for over a year now, and I guess it sounds like every quarter there is a new asset you decide to sell. So what is that process? Like why weren’t these identified in the first time? Just curious on how you guys going country by country and evaluating that fit in your portfolio.

As we have said before and we – I will certainly reiterate today, Laureate will continue to evaluate all of the appropriate institutions in our portfolios, along with all of our other core capabilities. That is the best practice for any company. Last year we announced an exit of some really similar markets. We exited seven countries representing approximately 7% of our footprint. That was executed very nicely, with over $1 billion in proceeds and very accretive to our shareholders as we divested assets for 12x to 13x multiple versus a trading multiple of about 6x to 7x. From the reflection of that execution we recognized that we can further optimize Laureate’s portfolio. The steps that we’re taking today causes us to exit about 15% of our markets in terms of students. We are going from a 1 million students to 850,000 students. So we are clearly focusing all the markets where we have sale, we have terrific brands and where we have a track record of growth and performance and strong student outcomes. So this is a natural extension of what we announced last year as part of the accelerator plan. We will continue to evaluate our portfolio, but we will not speculate or comment on any potential future portfolio optimization actions on this or any other calls, but when we make portfolio decisions we will of course in a very clear and transparent manner communicate that to the market.

Okay, got it. Well, maybe asked another way, I guess besides the scale in each country and I think the big four in Latin together, I can see some of that logic. But I guess in your portfolio, what’s the advantage of having Australia, New Zealand, US as part of that. Is it just you know diversification or will they actually be talking to each other.

The online and hybrid division with English brands, English language brands from the United States and Australia provides for terrific opportunities to expand in our working adult segment, as well as through international students. We will continue to evaluate our portfolio optimization, but feel today the way that we have organized the company in emerging markets division with four large countries in Latin America, 800,000 students, and an online hybrid division with premium brands in Australia and the United States gives us clear and focus around those two business models.

Got it, just last one around Walden I suppose, like you know the marketing issues you had early in the year or just competitive landscape. Any changes that, any other moving pieces going on in there?

Yes, we continue to expect that Walter’s performance to improve in the second half of the year. As you can see on the remarks laid out by JJ, the performance on the Q2 was slightly negative on minus five. We view our business on a community basis due to timing differences of certain intakes. If you take a look at the year-to-date performance and look at the domestic performance, Walden is growing nicely at 3% and we continue to see that strength in our building for the rest of the year, and the difference is de-emphasis on the international markets and less profitable partnership ventures that we are operating.

Alright, thank you guys.

From Goldman Sachs we have [inaudible] please go ahead.

Yes hi, good morning everyone. Thanks to Eilif and other management for taking my questions. Actually I have two questions for you guys. The first one is specifically on Brazil. I see that you posted student growing 4% while your content current sales decreased 4% suggesting a potential ticket pressure. What you think is the surprise, given the indications that you are not making significant adjustments to pricing or discounts. Further, I’d like to understand a little bit better what is happening to prices in Brazil? This is the first question. And the second one is on M&A. Now that you are completing a second round of divestitures and focusing on your real core markets, would it make sense to imagine we’re getting close to a moment when you will be back to buy mode in these key geographies, especially in Brazil. Thank you very much.

So [inaudible] first of all on the Q2 performance for Brazil, as you may remember from the first quarter earnings call, we mentioned a shift in the academic calendar in Brazil between Q1 and Q2. So we believe that the H1 performance that you see on page 21 is more indicative of what we’re seeing in that business. Revenue was essentially flat and our margin was up 11%. We haven’t provided any specific guidance on pricing dynamics for Brazil or for any other segments. The only thing I would say is that the pricing and volume are affected by the reduction of the CS programs, but we feel we are competing very effectively in not only maintaining our face-to-face business, but growing very successfully our distance learning business.

And your second question on M&A, Laureate is very focused on unlocking shareholder value. The first step of that is to simplify the business, improving the financial characteristics through enhanced free cash generation, improved margins and improved growth profiles in our core markets. Secondly, it is through the divestiture process that we believe will be very accretive to shareholders as we are selling assets at a significant premium of trading levels. That will be the focus over the next 18 to 24 months and that will also provide us with a very strong balance sheet that gives us plenty of flexibility going forward. There will be a time where there could be some very interesting inorganic growth opportunities in adjacent markets, but for the next 18 to 24 months we are laser focus on simplifying the portfolio, expanding margin and improve the free cash flow characteristics and double down on innovation educational capabilities that will enable us to retain our leadership position in higher education.

That’s good, thank you very much Eilif.

From Piper Jaffray we have Peter Appert. Please go ahead.

Thank you, good morning. So I have a couple of things. Number one, the margin performance is very impressive. I am wondering if you have revisited your margin targets longer term given the momentum you are seeing.

Thank you. We are very pleased with the outcome and results from our margin actions related to the accelerator plan. The further focusing of the company will further enhance our margin profile. JJ was very clear on the guidance for 2018. We will get back to you with further updates into 2019 at the right time, but we clearly feel very confident that we are going to deliver on our commitments as presented and that there are further margin extension opportunity in the company as we are further simplifying and integrating.

Peter the marking guidance we provided for 2020 which is 21% for adjusted EBITDA margins and 11% for our level of free cash flow margin changed following the next round of divestitures.

Okay great, thank you for that. And then JJ, any preliminary thoughts on the tax implications of the asset sales.

We have a very tax effective holding structure that allows us to minimize the tax friction associated with asset sales that are located outside of the U S. So I would not expect any material tax friction as a result of those asset sales.

Okay and then lastly, I know you’re not trying to be precise on this. We talked about a 1 billion of proceeds, $100 million of EBITDA. So I mean just the back in the envelop implying maybe 10x EBITDA which would theoretically be a little bit less than you’ve sold the prior assets too. Was that the messaging or are those just round numbers?

Those are round numbers. We have terrific assets that we divested as part of the last year’s announced accelerator plan. We’ve combined multiples of you know close to 13x. The assets that we have announced this morning have very similar characteristics, but there are certain differences and we’ve given guidance that we are very comfortable with, it will be in the, as you say the back of the envelope zip code of what is achievable.

Okay great, thanks very much.

From BMO we have Jeff Silber. Please go ahead.

Hey guys, good morning. It’s Henry Chien, calling in for Jeff. Just a question on the Andean & Iberian segment; just curious on – because I know Spain and Portugal are a good part of that segment. But just curious, why is that market I guess performing better than other countries in Europe, and also just that the margins are improving pretty stronger there. I’m just curious what’s driving that and where are you getting those savings and is that sort of a temporary or not temperature, just kind of this year cost savings or this more like an operating structural change? Thank.

The Andean & Iberian region are both – the three countries are performing really well for us in terms of new enrollment, total enrolment and the key KPIs of the business. As an entire company we are focused on optimizing our G&A and what has been reflected in the numbers is just you know great execution on those three markets.

I’d also add for Spain, the team has launched a terrific online business that is growing very, very rapidly. It’s adjacent to the brands in Spain and also there’s a little bit of pent up demand or recovery from a period of weak economic performance in Spain for the last decade or so and we are seeing some tailwind from improved macro conditions.

Got it. Okay great, that’s helpful and actually just the follow up is just online. It sounds like it’s going pretty well in Brazil and you mentioned Spain. Just curious on the process for rolling out online in the different market, if that’s sort of on the table. Thanks.

We continue to examine the expansion of online in other markets, the ones that you have mentioned. For example, in Mexico today we have approximately north of 25,000 students in purely online, fully online enrolled students with great profitability metrics as well, and that is gaining scale and that will continue to be an area where we examine expansion in Peru and also in Chile.

Got it. Okay, thanks a lot.

From Baird we have Jeff Miller. Please go ahead.

Yes, thank you. I guess I’m just trying to parse over. How much of the next wave of actions is being opportunistic on the valuation spread that you see between public and private markets right now versus – what exactly is the long term strategy of the company. Do you continue to sell assets or are we essentially rebasing the portfolio and then are there other you markets that you want to acquire into Africa or whatever longer term. Just what is the long term strategy of the company and what type of study state leverage do you plan to operate at to the extent to which there is a change there? Like is the one-time a new study state target thank you.

Jeff, as I mentioned earlier, the management believes the Laureate at stock price is currently trading at a significant discount to the online value of the individual universities. So clearly management wants to unlock such value for all shareholders. And the plan that we announced today has to critical components to it, one is to initiate the divestiture of non-core assets that are extremely accretable we believe and expect to be extremely accretive to our current trading levels. But secondly and equally important, the retained business will enable us to focus and further integrate around two distinct business models. One emerging market, lodge at scale 850,000 students in four countries in Latin America. So significant scale and we believe that that will enable us to faster deploy new innovation, online capabilities and product offerings that will enable faster growth and stronger margin performance around that integrated network of more homogeneous countries in the same region. And then secondly, having an asset light, a global business with great English speaking brands in higher education around working adult in particular, leveraging our brands in the U.S. and Australia. So they will be two very distinct businesses, both at scale, both with great financial attributes and both with great prospects for growth and improved free cash conversation.

And just as your focused on unlocking the value, it sounds like you’re opened a continuing of value like divestitures. But I guess the question, is that further integration that you’re doing, the comment back I made, etcetera, does that make it more difficult to divest additional assets after this current round or will that not be the right interpretation.

I’m not going to speculate on any further potential portfolio optimization actions in any specific geographic markets. However we have a track record of integrating at the brand and the country level and we have an opportunity to take those capabilities and create further value enhancement by leveraging our technology of best practices, our management expertise, and our curriculum and innovation tools over broader markets in Latin America, and we intend to do so and that can be done in a very responsible manner and nothing is permanent in that regard. There’s always an opportunity of course to carve our as needed, but our focus is to build an integrated business model around common homogeneous markets in Latin America.

Okay and just finally, with the movement in FX rates, JJ can you just remind us from an interest expense perspective how you’re hedged on FX right? Thank you.

So, if you look at the gross debts, it’s about two-thirds in U.S. dollars and one-third in non-U.S. dollar currency. But of course, because of our interest rate being higher outside of the U.S. than in U.S., if you look at interest expenses per say it’s about 55-45 and we have a couple of swaps in place between variable and fixed and between Euros and USD.

Thank you.

[Operator Instructions]. And from Stifel we have Shlomo Rosenbaum. Please go ahead.

Hi, thank you for taking my questions. JJ after the divestitures, are you going to have any major geographies of particularly low margins or is the company going to be too an area where the remaining business can actually be a pretty high margin business?

Hi Shlomo, the long term guidance we’ve provided at Investor Day is not going to be altered by this next round of divestitures. That means that’s not only our starting point, but also the margin approving we’re expecting in the business remains grossly unchanged and that is due to the fact that as Eilif mentioned, we are not divesting a very large part of our portfolio from a student based perspective. We are keeping 850,000 students out of a million. That’s why the numbers broadly defined are not changing materially.

If I can just add to that Shlomo, the improvement opportunities for us as you can see from the segment reporting, its Brazil, and we have an enormous focus on improving margin in Brazil and underscore tremendous track record over the last couple of quarters to deliver that and there is more to come. Although that we are not changing of the guidance, clearly as we are simplifying the company there will be an opportunity for right sizing capabilities, overhead regional infrastructure corporate expenditures, etcetera, and I do believe that the further integration of these large four countries in Latin America will also provide for margin upside. We are not changing the guidance right now. At the right time when we have successfully executed on our divestiture plan, we will revisit opportunity, but we are very confident that these simplification actions will result in improved prospects in the medium and long term for the retained franchise.

Okay, thank you. And just could you give a little bit of an update on Turkey. There was a comment in the slides about a 4-K quarter reduction. Could you just explain what’s going on over there?

Sure. Turkey as you may recall from prior discussion, we are contesting the decisions of the regulator in the university courts. But in the meantime, that’s a lengthy process and in the meantime we have complied with all the requirements and are in good standing with the regulators. As part of that regulatory – new regulatory set of frameworks, we had a quarter reduction that caused our enrollments to decline and we have taken appropriate cost actions to right-size the business, the academic quality of our institutions in Turkey continues to be excellent and as I said, we had good standing with the regulatory, although we are pursuing our rights to contest some of these new rules and decisions made by the regulator.

Okay and then just in terms of – Eilif you sound and your actions seem to be very, very focused on unlocking shareholder value. After the last round of divestitures, the valuation of the company did not change materially. If you don’t see that happen with this round of divestitures, is it fair to assume that you’re just going to keep on winding to the point that the cash really just exceeds the equity value of this company?

We are very committed and confident that the actions that we have known today are going to unlock significant value. I recognize that over the last 12 months or so our stock price has been a stubborn, may be lagging indicator of performance. The first wave of the accelerator plan we have done with we said we were going to do and it may be interpret as outperformance, both in terms of value realization from the divestitures, as well as getting margin performance improved, and I believe that these new steps that management is talking is going to further strengthen the company, but the market is going to determine the ultimate stock price, so I’m not going to speculate and comment beyond that. But I really feel and the management is fully aligned with me, that these are the right steps to take to unlock shareholder value and build a great network for our students.

Alright, thank you.

And we have [inaudible] online, please go ahead.

Hey, thanks for the question guys. I guess, I mean the focus on the proceeds and over the next year and pay down of debt, I know you guys have been particularly attentive to the mix of foreign debt versus USD debt and I know you just mentioned the hedges before. Have you also thought about as your deleveraging the higher coupon, maybe more expensive debt that you generally avoided in the past by giving the, I guess scale of the leveraging how you might be able to really take advantage of less expensive financing in our market, whether it would be a global refinancing or something to take advantage of that opportunity.

Hi, this is JJ. There are multiple elements that we take into considerations. We are planning our proceeds to our debt structure. The first one is trying to increase as much as possible the match between our capital structure and our source of earnings, so we still have some weeks to go, but the preference usually is to repay down the U.S, dollar denominated debt as result of that. The second element is also tax effectiveness, so although the coupon might be lower in the U.S., because we’re in a net loss position it’s not as tax effective in some of the other jurisdictions, so that’s the second element. And the third element of terms and conditions that are associated with the various instruments and our ability to repay early that debt, that’s why we’ve applied it to the term loans and not bought back the notes, because there are no call options for a certain period of time and we would have to incur some breakage fee and that becomes obviously very expensive. So we are disciplined the way we are using to proceeds. The two themes are trying to maximize cash flow in the form of tax effective interest rates and also further optimize the matching between the capital structure and our earnings profile by currency.

Great. Thank you.

No further questions at this time. We will now turn it back to our speakers for closing remarks.

Thank you, operator. We appreciate your engagement and continued interest in Laureate. We have a very positive and bullish and a go-forward strategy, not just because of our strong quarter, but also because of our strategic simplification that will enable us to provide stronger financial go-forward attributes, as well as very accretive divestitures that were significantly strengthen our balance sheet. With that, I thank you all for your participation in today’s call.

Ladies and gentlemen, this concludes today’s conference. Thank you for joining. You may now disconnect.