Laureate Education, Inc. (LAUR) Q4 2018 Earnings Report, Transcript and Summary

Hello, and welcome to the Fourth Quarter 2018 Laureate Education, Inc. Earnings Conference Call. My name is Brandon, and I'll be your operator for today. [Operator Instructions] Please note, this conference is being recorded. And I will now turn it over to Adam Morse. Adam, you may begin.

Thank you, operator. Hello, everyone, and thank you for joining us on today's call to discuss Laureate Education's Fourth Quarter and Year-End 2018 Results and Update on Strategic Priorities. 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'd like to remind you that some of the information we are providing today, including but not limited to, our financial and operational guidance constitutes forward-looking statements within the meaning of applicable U.S. securities laws. Forward-looking statements are subject to risks and uncertainties that may change at any time and, therefore, our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission this morning. 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 and free cash flow, are also detailed and reconciled to their GAAP counterparts in our press release. With that, let me turn the call over to Eilif.

Thank you, Adam, and thank you, everyone on the line for joining us for today's earnings call. I am very pleased to report strong fourth quarter results, with adjusted EBITDA and free cash flow well ahead of guidance. The fourth quarter built upon the favorable performance we have had throughout 2018. And we closed out the year with some very impressive results. Most importantly, we have done what we said we would do. We delivered on our commitments from last year's Investor Day. In 2018, we made significant progress against our key strategic priorities, including the simplification of our portfolio to a core set of markets, where we have scale and strong competitive positions. These strategies have also allowed us to significantly decrease our corporate debt and improve our margins. The bold portfolio simplification actions have been taken, while maintaining a strong commitment to delivering high-quality education for our students and to deliver strong outcomes to all our stakeholders. In 2018, we continued to deliver strong margin expansion, up 90 basis points for the year on a comparable basis. This is an area where we continue to challenge ourselves, both in terms of magnitude and pace at which we can ramp up our margin profile. This is a top priority for the management team. We guided to an adjusted EBITDA margin of 21% by 2020, and we are very confident in meeting or exceeding this target. Margin expansion, along with capital efficiency initiatives and capital structure improvements, have driven significantly increased levels of free cash flow, another very important deliverable for this organization. 2018 free cash flow generation was $139 million, which represents a $241 million increase versus prior year, a game changer for Laureate. We have made plans and initiatives to further improve free cash flow performance, and we are very confident that we will deliver on our 2020 goal of at least 11% unlevered free cash flow margin. We have made great progress in executing on our portfolio simplification strategy. In addition to the recent closing of St. Augustine University, we've also recently closed on the sale of our institution in Thailand. Moreover, in December, we announced that we had signed an agreement for the sale of our institutions in Spain and Portugal for a transaction value of €770 million or $871 million, representing a trailing EBITDA multiple of approximately 15 times on that transaction. We expect this deal to close in the next couple of months and combined, these accretive transactions are driving significant value creation for our shareholders. Upon completion of our announced asset sales, pro forma 2018 net debt over EBITDA would be approximately 1.5 turns. We expect this leverage profile trend to continue to come down through 2019, and we expect to close out the year at about 1 turn of leverage. We have made tremendous improvements in this area in a relatively short period of time. Our balance sheet is as strong as it's been in over a decade. As we complete our announced and pending asset sales during the first half of 2019, we will start exploring strategies around capital allocation and capital structure that can become increasingly important part of our value creation story going forward. The strong financial performance we achieved in 2018 is directly linked to the progress we have made on our strategic priorities, as shared with you during our Investor Day at the beginning of last year. Across all 5 pillars, we continue to execute extremely well. Let me touch just on a few of the highlights for the year as noted on Page number 5. The asset sales have allowed us to accelerate the improvement of our capital structure through approximately $2 billion in reduced debt. For the risk management perspective, one of our key objectives for the management team was to remediate the 4 material weaknesses disclosed in our financial statements at the time we went public. This was a significant effort and focus for the company. I'd like to thank JJ for his tremendous leadership and the engagement of the entire management team in driving rigorous, company-wide process to successfully deliver a clean Sarbanes-Oxley certification and full remediation of all our material weaknesses during 2018. The development and deployment of our common operating model is yielding strong results, as evidenced by our 90 basis point improvement in EBITDA margins. Our rollout in Brazil was very successful, and steps are already underway to deploy a similar model to Peru, Mexico and Chile. Throughout 2019, we will further rationalize G&A and consolidate and centralize many of our systems and processes for further efficiency and scale. During 2018, we demonstrated that Laureate can generate strong free cash flows, while at the same time, making important investments in our future growth. Specifically, during 2018, we made large investments in technology and operating model restructuring to make Laureate a more scalable enterprise. We also made important investments in 2 new medical schools in Brazil, continued expansion in Peru, and a new campus outside of Mexico City center under the UNITEC brand, all of which are performing and growing very well for the company. Throughout 2018, I've highlighted many quality accolades for our network institutions, such as UPC being the only four-star-rated university in Peru by QS Stars; UVM being recognized as having the most academic programs rated as excellent in Mexico by city de Valle, as well as our industry-leading Enade scores in Brazil. I want to recognize Ricardo Berckemeyer for his tireless pursuit of quality and student outcome as well as the many impressive innovation initiatives he and his team have driven across the network, including co-branded curriculum and new program in key verticals, such as Health Sciences. Ricardo has assembled an extraordinary group of operating leaders in each of our key markets. Our entire executive team are committed to our students as well as our mission of delivering the best possible educational experience at affordable prices. Our strong performance during 2018 provides a tremendous momentum heading into 2019. This includes encouraging early trends for the Southern Hemisphere enrollment season. Finally, management will continue to focus on our 5 strategic pillars to create value for our shareholders during 2019 and beyond. Investors should expect us to continue to deploy our playbook of simplifying, focusing and integrating our network of leading universities to drive value for all stakeholders. I will now turn the call over to JJ for a more detailed financial overview for the fourth quarter, full year 2018 and our outlook for 2019.

Thank you, Eilif. Let me start with a summary of our financial performance for the quarter, starting on Page 7. Revenue in the fourth quarter was $914 million. Adjusted EBITDA was $229 million, which as Eilif noted, was ahead of expectations. On a comparable basis and at constant currency, our revenue and adjusted EBITDA for Q4 grew respectively 2% and 6%. Let's now review in more detail our operating metrics, starting with enrollments, which you will find on Page 10. Overall, we grew new enrollment by 6% for the year, while total enrollment increased 1%. Here are some highlights by segments. And let's start with Brazil, which continues to perform very well for us. Our Distance Learning business grew new enrollments year-over-year by 75% for the full year, which was well above expectations and is a result of the investment we have been making in order to bring this strategic operating segment as closely as possible to scale. Although new enrollment for our campus-based operations were flat, all payer segment grew 6%. This was completely offset by the continued reduction of our new enrollment associated with government-sponsored programs, like Fies. In Mexico, performance continues to be missed and is consistent with what we've seen in prior quarters. The eroding consumer confidence continues to impact the higher education sector overall. Despite these challenging market conditions, our UNITEC brand is still growing thanks to geographic expansion initiatives outside of Mexico City, as referenced by Eilif earlier in his remarks. Our Andean segment delivered solid performance, mostly led by our large institution in Peru, mainly UPC and UPN. In our rest of the world segment, our business in Australia is doing extremely well, with 8% growth in new enrollments. Finally, in Online & Partnerships, our domestic new enrollments grew 3%, which was more than offset by the contraction of enrollment outside of the U.S. These results were expected and reflect the gradual deemphasis of our international students through our Walden brand and our partnerships in the UK Now let's move to our financial performance, which you will find starting on Page 11. Full year results were ahead of guidance, with adjusted EBITDA at $623 million for 2018, representing a 7% growth versus 2017 on a comparable basis and at constant currency. Our overall results were driven by strong revenue performance in Andean and Australia as well as margin improvements fueled by the benefits of our cost-containment action across all of our operating segments and at corporate. All of these strong results contribute to an 89 basis point increase in margin on a comparable basis, which keeps us well on track for meeting our medium-term margin guidance of at least 21% by 2020. Let's now move to our cash flow performance, which was well ahead of expectation and is illustrated on Page 13. As a reminder, please note that our cash flow statement include the impact from continuing and discontinued operations. Overall, free cash flow generation for the year reached $139 million, which was significantly ahead of our guidance of $100 million we communicated at the beginning of 2018. This represents almost $0.25 billion improvement year-over-year, despite a $30 million headwind associated with FX. Cash flow from operation and interest expense reductions were the 2 main contributors to this dramatic cash flow improvement versus 2017. Finally, please note, that $20 million of our cash flow performance was related to the favorable timing of early collection in Australia and the deferral of severance payments to 2019. In summary, 2018 was an outstanding year for both margin and cash flow improvement. This has been a total company performance and sets up very well for 2019. Let's move now to our 2019 guidance, starting on Page 19. For the full year, total enrollments are expected to be approximately 890,000, which represents a growth rate of approximately 2%. Revenue, based on current spot FX rate, is expected to be between $3,350 million and $3,385 million. This represents an organic constant currency growth of 2% to 3%. Adjusted EBITDA, still based on current spot FX rate, is expected to be between $645 million and $655 million and would represent a 7% to 8% growth on a comparable basis. Please note that this adjusted EBITDA does not include the full benefit of our G&A reduction following the divestment of our assets in Asia, EMEA and Central America. If you factor all of these savings in on a full year basis, adjusted EBITDA for 2019 would be around $675 million or a 12% increase versus 2018. Free cash flow, based on current spot FX rate and defined as operating cash flow less CapEx, is expected to be approximately $145 million for 2019. Finally, from a capital structure perspective, based on current spot FX rate, we expect to end 2019 with approximately $800 million of net debt. Now let's move to the first quarter. Our guidance based on current spot FX rate is as follows: Revenue is expected to be between $605 million and $615 million. We expect adjusted EBITDA for the first quarter of 2019 to be a loss of approximately $24 million to $28 million. This is consistent with our prior year's revenue and earnings seasonality and reflects the fact that most of our institutions are out of session for much of the first quarter. Lastly, following popular demand, please note that later today, we will be filing an 8-K with our historical quarterly results, revised for the current presentation of continuing operations. We hope that this supplemental information will be helpful to investors as they continue to develop a better understanding of our historical performance on a comparable basis. Let me now turn it back to Eilif for the wrap up.

Thank you, JJ. 2018 was a terrific year for Laureate. We delivered on our commitment to all stakeholders and are making great progress on our strategic priorities. The simplification of our portfolio and related strengthening of our risk management profile continue to yield tangible results. Heading into 2019, I am very encouraged by the momentum of our business. We continue to see significant opportunities for Laureate to further strengthen our financial profile through G&A reductions, portfolio simplifications, further operating efficiency improvements as well as organic growth in the business. Specifically, we will leverage our common operating model for scale as well as enhancing our revenue performance from improved retention and new product initiatives. Our track record of margin expansion and capital efficiency initiatives as well as line-of-sight visibility into further productivity initiatives, gives me high confidence in our ability to meet or exceed our 2020 financial goals, as articulated during our January 2018 Investor Day. Finally, I'd like investors to review Laureate's strong operational execution and value creation optimization drive during 2018 as the blueprint for what to expect during 2019 and beyond. We are committed to maximizing value for all stakeholders, including our shareholders as well as students, faculty, staff and the communities we serve. Operator, that concludes our prepared remarks and we are now happy to take questions from the participants.

Thank you, sir. We'll now begin the question-and-answer session. [Operator Instructions] And from BMO Capital Markets, we have Jeff Silber. Please go ahead.

Thank you so much. And congratulations on strong year-end. I'm wondering if you could just give us a brief overview of what's going on from, I guess, a political and regulatory perspective in some of your major markets. I'm specifically interested in Brazil, with the new president there. Thank you.

Yeah, good morning. There's -- as you all know, there's a new administration in Brazil under President Bolsonaro. Right now, the market is very optimistic about his administration. The stock market and the consumer expectations are higher than when they were before he assumed. We're seeing encouraging indications from enrollment, pricing and overall market reception. And we are confident that he has the right support to have the right mandate and to bring Brazil with the reforms that he needs to be implemented.

Anything else to call out in any of the other major markets?

Well, we want to -- do you have a couple of commentaries, Ricardo, on Mexico?

Yes. Well, AMLO has been in power now for a full quarter. He's starting well, as well. Nothing that worries us at this point in time. I believe that we see some positive opportunities. He is trying to increase access to higher education and has been active through the Secretary of Higher Education and Education in General to improve access in Mexico, including expanding the rights of Mexicans to -- for higher education. Before, by constitution, every Mexican had access and a right to K through 12 education, and he's expanding that to higher education. We see that as a net positive. I think that the private sector in Mexico, that constitutes 40% of the market, can be a great ally for expanding access in Mexico, given the funding and the shortage of resources. And I think that with our innovation, creativity and the power of what we bring through our brands, we can be a good ally and support all of his actions. Peru is stable. President Vizcarra is consolidated. We don't see any issues. And the same with Chile, President Piñera is doing a, is off to a great start, and the country is very stable.

All right, great. Just a quick numbers question for JJ. The guidance for free cash flow for 2019 of $145 million, less than you reported in 2018. You called out the $20 million in timing differences. Can you also quantify, if possible, what was included in cash flow last year from discontinued operations so we can kind of strip that out and see what organic free cash flow is on a relative basis?

Yes, it's a little bit difficult to do the breakout between continues and discontinued operation just because of the capital structure and when you allocate basically debt depending on the assets that you have between the 2. So I don't think this would be indicative of the free cash flow we would have moving forward. In the guidance that we've provided, we believe that this guidance stands as we divested, as we divest our assets, and you should assume that the interest savings will more or less offset the cash flow generated by the operations that we'll be divesting.

Okay, great. And just one more quick one. What are you expecting for interest expenses here?

Right now, it's about $200 million of interest expenses for 2019. Again, depends a little bit on the timing of those divestitures, and when they happen throughout the year. So that's really the view. I think what is more relevant from a business model perspective is really looking at the pro forma net debt as we expect by the end of the year, which is to be around $800 million.

Okay, great. Sorry, one more. And capital spending for 2019, what are you budgeting?

About 6% of revenue.

From Macquarie Capital, we have Hamzah Mazari.

This is John Mazzoni filling in for Hamzah. You significantly pruned your portfolio recently. Could you remind us how you're thinking about core versus noncore assets? And maybe how you're thinking about additional pruning of the current portfolio?

This is Eilif. I'm happy to do that. Our portfolio strategy has centered around consolidating our efforts in markets where we have scale and where we believe that we have strong differentiation and competitive advantages that gives us rights to be successful in those markets. So that means that we have really doubled down in our scale markets, which are primarily the large 4 markets in Latin America and the United States, where we have Walden. So those would be the 5 key principal markets that will account for 90-plus-percent of our total portfolio going forward.

Great. Could you give us a sense on how you're thinking about tuition increases going forward? And how much an opportunity that could be for you?

It's really market by market. Over time, we expect to price at inflation plus. However, in weak economic times, we are more cautious. In stronger economic times, by definition, we have more pricing power. And then most importantly for us, we are using our portfolio strategy where we are positioned in most markets with premium brands and value brands, which gives us a very effective tool to protect our pricing umbrella in the individual market, while focusing on optimizing revenue and contributions.

One last question. Could you please walk us through your strategy on rightsizing your cost structure in Brazil?

Happy to do so. We have recognized, for some time, that our margins in Brazil were unacceptably low. We were running really Brazil as a portfolio of individual stand-alone universities. A couple of years ago, in 2017, we announced, as part of the Accelerator Plan, an initiative to integrate operations in Brazil. We developed a common operating model. There was clearly some investments and lead times associated with that. There was, we're dependent on some technology investments as well as some change-management activities and processes. We have been extremely successful in that endeavor. The margins has been, been lifted in Brazil despite very significant headwinds from the unraveling of Fies and just in general, the challenging economic environment with the difficult pricing positions. But from a cost perspective, we have delivered on what we set out to do and actually, gaining so much momentum that we are taking that model and deploying it to the rest of the network. So because we believe that there are upside in rest of Latin America to deploy that same operating model across the network.

Just one clarification on the margin evolution in Brazil. You will see that the report margin actually all coming down. And that was really due to FX. If you look at on a local currency basis, we did improve margin in Brazil.

From Baird, we have Jeff Meuler.

You got Nick Nikitas on for Jeff. Just looking at the Q1 guide, I realize it's a light P&L quarter, but EBITDA was still a little weaker than we were expecting, with revenues kind of in line with our estimates though. Is there anything to call out from a timing perspective there? Or this really just kind of the variability that you see.

No, the timing and the seasonality is really consistent with, I would say, historical levels for the portfolio that we're reporting under continuing operations, and we also have to take into consideration the fact that we sold University of St. Augustine, which had obviously income in the first quarter. So the rest of the balance of the income is really in discontinuing operation. But obviously, the guidance we are providing here is only for continuing operation.

Yes. The seasonality changing a little bit as we are becoming more of a Southern Hemisphere-focused operations. Spain, Portugal, and some of the other divestitures in EMEA is amplifying the seasonality from being out of season in large portion of first quarter.

Just as a point of comparison, in 2018, the loss for continuing operations was about $30 million.

Okay. That's helpful. And the portfolio changes might be the reason behind that. So just looking at the full year guidance, with total enrollment kind of bridging the 2% growth there versus 6% new enrollment in 2018, is that just kind of flowing through some of the macro headwinds that are still persisting in certain economies, like Mexico? Or anything to call out there? And then just given that Q1 is kind of a bigger in new enrollment quarter, any early read on the trends you're seeing?

Yes, we see that as the year progresses, and going from softer pricing environment, especially in Brazil and in Mexico, the full effect of the enrollment growth is not channeled into -- in the same strength into revenue. But as those economies strengthen and we recover our pricing ability, which we are encouraged but what we're seeing today in Brazil, that should revert itself and the total enrollment growth should become in line with the revenue growth in the future.

Well, one additional element that you want to keep in mind, the new enrollment of 6% was obviously heavily impacted by our growth of our Distance Learning in Brazil. That segment of the portfolio tends to have a higher attrition than the average of our face-to-face business. So that's why it doesn't always translate immediately into an increase of your total enrollment growth the following year.

Okay, that's helpful. And then just any early read on the Q1 new enrollment trends? Are you seeing kind of continued strength there?

I mentioned in my opening remarks that we are very encouraged, but it is still a little bit early. We are two-thirds of the way through the enrollment cycle. And we're going to give you a very robust update during our first quarter earnings release in 5, 6 weeks. And we will walk through segment by segment on enrollment performance at that time.

Okay, and then just one last one for me. On the decision to -- the recent, I guess, previously announced decision to keep Walden in-house, could you just talk more about how that strategic process played out? And how you view Walden's kind of competitive landscape throughout the U.S. and strategic advantages going forward?

Sure. We announced last year that we were conducting a strategic review of Walden, and the objective of that strategic review was to evaluate opportunities to create value for this high-quality institution. And we considered all options available to us, including sale and consolidation plays and conversions and -- as well as retaining the business. The key criteria was to drive medium and long-term value for all Laureate shareholders. Factors, as you can imagine, would include evaluation, execution risk, tax and other friction costs and potential synergies and also potential loss of synergies in the case of this operation. We concluded to retain Walden, but let me be very, very clear. Laureate is committed to any and all value-creation opportunities that unlock value for our shareholders. We recognize that the market value of our enterprise is below the intrinsic value of the underlying assets. And management and the board is very focused on taking steps on working value to address this deficiency. But beyond this, I'm not going to go into -- engage in any specific speculation about any further portfolio actions for Walden and the other institutions in the network.

Okay. Yeah, fair enough. Thanks for taking the question.

Thank you.

And From JP Morgan, we have Marcelo Santos. Please go ahead.

Hi, good morning. Thanks for taking the question. My first question is about the growth -- future growth. I mean, the growth you're pointing in FX-neutral terms for 2019 is 2% to 3%, which is equal or below maybe the inflation in LatAm. So what are your levers to accelerate that growth going forward into 2021 and the coming years? And if you could break down by like types of courses, new units, pricing in EMEAA? Could you just -- want to get a broad idea if you're happy with the growth? And if you're not, where do you think you can get? How to get there? That's the first question. The second question is a little bit about the margin improvement. So when you look operation by operation, broadly speaking, where do you see the main sources? So to get to your 21% margin, this is mostly coming from Brazil. Or do you see opportunities in the other regions as well? And where they are? How will you achieve them? These are the 2 questions.

Very good. I'll start with the first, and then I'll hand the big margin question over to JJ in a moment. In terms of growth, we are very focused on making Laureate a better and more scalable company. That means that we are making trade-offs for the management done with perspective as well as capital allocation trade-offs on where to put our resources. We believe the most accretive actions that we have is to improve the strength of the company, improve the margin of the company and focusing on growing the bottom line and free cash flow as opposed to top line revenue. We know we are very good at expanding into new markets. And we know we are -- we have all of the capabilities of launching very strong, new programs and innovation tools. And we will continue to do that. We will continue to expand the UNITEC brand in Mexico. We will continue to do organic expansions in Brazil for scale. We are committed to investing behind new innovations, such as Distance Learning, hybrid education and co-branded curriculum partnerships with large-reached companies to drive better products and better outcomes for our students. And I do think we have a very strong track record and business model that drives -- that gives us pricing power. And we will take advantage of all of those levers. But for 2019, as we did in 2018, we are going to disproportionately allocate our bandwidth and our capital resources to make investment in the core footprint of our business, to make that business better, to yield better margins and to drive better free cash flow conversions. I'll pause there on the growth and see if there was any follow-up before handing over to JJ on margins.

On the margin, 2019 is going to be a little bit of a transition year. We are planning of increasing margin by about 70 to 80 basis points, but you may remember that when we announced the divestitures, we did indicate that there would be a trailing of G&A expenses in 2019, that we would reduce as we complete the divestitures of our second wave. If you really adjust for that, our growth rates of EBITDA in 2019 is going to be more like 11% to 12%. And that would put us already at 20% EBITDA margin. There's some onetime expenses that we're incurring associated with our IT transformation in 2019 that we will not have in 2020. So really on a run-rate basis, exiting 2019, we are going to be at about 20.4%, which would leave about 60 basis points to reach our 21% guidance by 2020, which is at the low end of the kind of operating leverage that we get out of operation as we grow enrollments and revenue. So that's the plan for the next, I would say 18 months. We are obviously looking at ways to accelerate that pace of progress. But we continue dual focus on gaining operating leverage and at the same time, continue to compress G&A to get higher margins.

From Morgan Stanley, we have Caio Moscardini.

So can you please elaborate a little bit more on the competition that we're seeing here in Brazil? And how is the strategy to protect prices or to focus more on volumes? So this would be very helpful.

Yes, well, Brazil is a critical market for us. It's a market where we have very commanding institutions and brands. We are seeing and we are encouraged with our enrollment season. It's a primary intake in Brazil. We are also encouraged with what we're seeing in our pricing. And I believe that we are making extremely good progress on establishing a more scalable footprint in our DL platform. We, although we came later to the game than most of our competition, we are very enthused with what we are seeing and the persistence that we are gaining from new enrollment, polo acquisition and growth in general in that segment. Our brands still command a premium versus our competitors and our quality is proven, right. As you have followed through the different regulatory reports, some issues by some of the other banks in covering the sector, we have a commanding presence and improvements in our quality as well. And that is also driving the good outcomes on financial attributes that we are mentioning. As Eilif mentioned before, our operating model is being implemented very nicely. We are ahead on the, in the execution of that model, and there's a lot of learnings that we will apply in the next, in this year and the next 18 months to other geographies in the region. Our focus is going to continue to be free cash flow generation and margin improvement.

All right. If I may have one more question. How is the development of the UniNorte institution?

What the, we are going through regular portfolio reviews. We committed to that at the beginning of last year during our Investor Day. We would always look at our portfolio. That means the country footprint as well as regional footprints. And we are evaluating any and all of our assets on a regular basis. And beyond that, I'm not going to comment on steps we may or may not take as it relates to the portfolio beyond what I'm, the statement I made earlier.

From Piper Jaffray, we have Peter Appert.

Eilif, apologies, I got on a bit late so perhaps you've mentioned this. But just on Walden, now that you're keeping it, I'm wondering if you could maybe get into a little more color in terms of what you think the opportunities are with that business? What the growth trajectory could look like? And my understanding is that the margins there are fairly high relative to some of your domestic peers. And so I'm interested in your comfort level in terms of ability to maintain or even potentially improve the margins there.

Walden is an absolute, wonderful institution when it comes to innovation and quality. And the margin performance of approximately 30% is a reflection of that being a best-in-class institution in its segment. Do not expect that to change. We have been pretty consistently around 30% for a long period of time despite some challenging market conditions. Walden's growth is likely to come from new innovations. We are very excited about some of the programs that we have launched in our competency-based and learning module. We see opportunities in micro-credentials and B2B marketing. So those are strong opportunities for us. But we also see increased competition in the master's and doctoral programs as more of the traditional universities enter into that market with OPM. So the overall view of Walden is stable margins, low single-digit growth rates and continued very, very strong quality academic track record and a culture of innovation. In terms of value-creation opportunities for Walden within the network, Walden is the cutting-edge institution within Laureate as well as within the overall market when it comes to digital marketing, virtual reality labs, big data mining, just to mention a few very important capabilities that favorably impact performance and student outcomes and increases the retention rates. And these are great examples of best practices from Walden that Laureate intends to better deploy across the LatAm institutions to drive further network value.

Great, thank you. And then Eilif, just on Turkey, anything new in terms the regulatory legal issues there? And do those issues create a significant barrier to exiting that market?

There is no new development since our last update on the regulatory or legal situation in Turkey. We are also in midflight in our divestiture process. And I'm not going to comment beyond that, except to say that we are committed to finalize that process, along with the other inside divestitures.

And finally, from Stifel, we have Shlomo Rosenbaum.

Eilif, when do you expect to be finished with the deemphasizing of the international students in Walden so that the domestic performance can really shine through? And then is the fact that, that's really been happening, does that color the picture at all in terms of the consideration to sell Walden at this point in time?

The focus on our online segment around Walden domestic is a core strategy for us. The emphasis on partnership and the deemphasis on Walden's expansion internationally is midflight. I would expect another 18 months or so before that as we move to the enrollment process and we are back into a scenario where total online segment enrollment trends are consistent with the core domestic performance.

And did that have any impact on the consideration to sell that unit?

No, it's so small. It is -- it really is just noise on the enrollment. It is slight positive at the bottom line and relatively easy to pro forma out, and maybe we should try to do a better job for all of you to pro forma that out to give better expectations on when the -- more of a clean domestic growth story will equate to the reported numbers. So JJ and I will take a step back and see if there's any additional guidance we can give around that.

Okay, great. And when do expect to get out the pro forma numbers to help out with modeling? Is that going to be like at the very end of today? Or are we going to see that pretty soon?

This is JJ. We're going to be publishing at close of business today some supplemental information that will help you model a little bit the business moving forward with some historical information for both '17 and '18.

And from Barclays, we have Manav Patnaik.

This is Ryan Leonard. Just a question on the distance education in Brazil. The -- I wonder if you could help frame where we are in terms of innings of that growth story. How to think about competition and just taking a longer-term perspective? How does that become a bigger part of the mix over the next 5 years or so?

Sure. We have taken bold steps to catch up to the rest of the competitors, because as I mentioned a little bit earlier, we came a little bit later in the game because we felt that the product that the competition was releasing in Brazil wasn't of the quality, customer experience that we were comfortable in achieving. We are going to use, going forward, I believe that we have the right product right now. We have developed a number of programs, and we have the right scope and pipeline to now focus on scaling the base of that business much more rapidly. I am very encouraged with the results. We have a great expanded portfolio in terms of programs and in terms of geographic coverage. We have 1000 polo licenses. We preempted the new legislation that has been -- that is being discussed now on limiting the number of licenses that will be granted. So I feel very comfortable that in 2018, we did focus on acquiring all the necessary licenses for us to have a meaningful business. Of those 1000 licenses, 450 are active polos that are recruiting and we are filling them nicely this enrollment period. And I believe that this year, we are going to make some good progress also in the bottom line. And that will position us to scale this business rapidly going forward because the original investments now will be leveraged with the scale that we are expecting to achieve this year.

So Ryan, if I can just add to that. The deemphasis thing for Laureate is higher end than most of the other brands that you are familiar with, both in terms of quality, student experience and the brands that we are utilizing. Secondly, we are now at the point where we are at a breakeven level. We have made investment over the last couple of years in acquiring leads, selling our pipelines, opening 400-plus polos. Now we are at the point where we can see accretive growth to recovery point as we are filling the polos and expanding to the other 500-plus polo licenses that we have that we haven't opened. So this can be a very exciting growth lever for our Brazil business.

And we have no further questions at this time. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.