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Edited Transcript of LAUR earnings conference call or presentation 28-Mar-17 9:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Laureate Education Inc Earnings Call

BALTIMORE Mar 28, 2017 (Thomson StreetEvents) -- Edited Transcript of Laureate Education Inc earnings conference call or presentation Tuesday, March 28, 2017 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam Morse

Laureate Education, Inc. - VP, Corporate Finance and Treasurer

* Doug Becker

Laureate Education, Inc. - Chairman and CEO

* Elif Serck-Hanssen

Laureate Education, Inc. - VP and CFO

* Ricardo Berckemeyer

Laureate Education, Inc. - CEO, Latin America

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Conference Call Participants

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* Jeff Silber

BMO Capital Markets - Analyst

* Hamzah Mazari

Macquarie - Analyst

* Peter Appert

Piper Jaffray - Analyst

* Marcelo Santos

JPMorgan - Analyst

* Nick Nikitas

Robert W. Baird & Company - Analyst

* Trace Urdan

Credit Suisse - Analyst

* Javier Martinez

Morgan Stanley - Analyst

* Ian Johnston

[PGIM] - Analyst

* Brandon Dobell

William Blair - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Laureate Education fourth-quarter and full-year 2016 earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the floor over to Adam Morse, Vice President, Corporate Finance and Treasurer. Please go ahead.

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Adam Morse, Laureate Education, Inc. - VP, Corporate Finance and Treasurer [2]

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Thank you, Karen. Hello, everyone, and thank you for joining us on today's call to discuss Laureate Education's fourth-quarter and fiscal year 2016 results. Joining me on today's call are Doug Becker, Chairman and Chief Executive Officer, and Elif Serck-Hanssen, Chief Financial Officer.

Our earnings press release is available on the Investor Relations section of our website at laureate.net. We've also posted a supplementary presentation to the website which we will be referring to during today's call. The call is being webcast, and a complete recording will be available after the call.

I would 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 meaning of the applicable US 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 expect.

Important factors that could cause actual results to differ materially from our expectations are disclosed in the Risk Factors section of our Rule 424(b) prospectus filed with the US Securities and Exchange Commission on February 2, 2017 and our annual report on Form 10-K to be filed 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 will be included in our Form 10-K on filed with the SEC.

With that, let me turn the call over to Doug for the review and an update on the business.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [3]

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Thanks very much, Adam, and welcome, everyone, to our first public earnings call in some time.

As some of you well know, we operated very successfully for many years as a public company, and in 2007, the Company was taken private. Earlier this year, we returned to the public markets as a result of our IPO, and I am now happy to report strong results for our fourth quarter and full year of 2016.

For fiscal year 2016, revenue increased 6% compared to 2015 on an organic constant currency basis to $4.2 billion and adjusted EBITDA increased 12% on an organic constant currency basis to $766 million, continuing a long track record of this type of results. Later in our prepared remarks, Elif will provide a more detailed overview on the financial performance for the quarter and year end. However, given that Laureate may be a new name for many of you, I would like to take a few moments at the beginning of this call to discuss the market in which we operate and some key elements of our business model which I think are important for investors to understand. Let me begin on slide 4.

First and foremost, we are a mission-driven organization. We've built our business model centered around our students. We believe that when our students succeed, countries prosper and societies benefit. We also realize that we operate in a very socially important sector, and balancing the needs of all the constituents that you can see on the right-hand side of the slide, it is very important for how we operate.

In doing so, we believe that balancing such needs will allow us to deliver the best results for shareholders over the long term. Although we have been operating in this manner since our inception, there never was really a way to formalize our operating philosophy until recently with the development of a new legal structure known as a public benefit corporation. We converted to a public benefit corporation in 2015 and are very proud to be the first ever public benefit corporation to be listed as a public company.

On slides 5 and 6, we highlight the addressable market in our sector, which will help explain why we have had 15 years or more of consecutive enrollment growth and why we are excited about our future. The global higher education market encompasses 200 million students, representing a $1.5 trillion market opportunity. It's a system that is becoming increasingly reliant on the private sector due to government funding constraints, particularly in developing markets.

In the last 10 years, the size of the market has doubled, and this demand is stemming from robust growth in the emerging middle classes and the fact that returns on investments for the student are very strong.

There is a significant wage premium that a student can get over the rest of their life if they had higher education, and outside of the US where the product is more affordable, the wage premium is bigger, and therefore, the returns are much greater for the students. As a result, the participation rate or percentage of 18- to 24-year-olds who go to college is rising in most all of our markets.

In addressing this large and growing market, we have built Laureate into an unprecedented leader. Although we still only have 0.5% of global market share, we now have over 1 million students and are operating at over 200 campuses in 25 countries. We have done it in a way that has allowed us to grow, but also to make sure that we build a sustainable model by focusing on student outcomes and on our strategic positioning, which is highlighted on slide 7.

At the top of slide 7, you will see two key business model attributes that we feel make our business model unique. First, we operate predominantly in market segments with long length of stay with two-thirds of our students enrolled in programs of four or more years of length. That gives us strong revenue visibility in both current and future year revenues.

Additionally, we have chosen to focus our revenue model on private pay, which represents approximately 75% of our consolidated revenue, a very intentional strategy that we believe reduces risk and regulatory exposure. These attributes have produced a strong track record of performance with growth in enrollments every year since our inception and strong and consistent organic adjusted EBITDA performance on a constant currency basis.

The model that we have built has been proven to work time and time again in many of our largest markets. You can see on slide 8 the different levers of growth we regularly pull once we enter a new segment or market. In each market, the levers may be scaled differently, but the results are very similar. We enter a market, execute on the Laureate playbook, and organically scale the business by a proven IP and standard operating procedures.

The three examples here are emblematic of how we have built scale and presence in many of our key markets. Today we have five markets at significant scale that account for approximately 70% of our revenues, and those countries, as noted on slide 9, are Mexico, Brazil, Chile, Peru and the United States. We have multiple brands in each of these markets with leading institutions that have strong student outcomes and high rankings.

We also operate in another 20 countries that serve as farm teams to create the next big countries. However, we know that not all of those countries will scale at the same level as the big five, and as we move forward, we will decide which of these smaller markets have the greatest potential or provide a strategic benefit and which of the others may not be as strategically important for us going forward.

As we look out in 2017, we want to build on the successes of 2016. In doing so, we're going to focus on our three main financial priorities this year as laid out on slide number 10, all geared towards continuing to grow our business while increasing our level of free cash flow conversion.

The first one is organic growth. We expect to continue to innovate and grow our business organically through leveraging technology and hybrid teaching, adding new programs and building new capacity, all of which will contribute to Laureate taking market share.

As noted earlier, we have a strong and successful track record of delivering highly accretive returns from organic growth and expect this model to continue to serve us very well in the future.

We are also very focused on margin expansion, including through the implementation of our EiP back office integration project, which we believe is going extremely well and which we expect will generate an incremental $50 million in cost savings during the next two or three years over and above the $50 million that we have already saved that is built into our current run rate. Further, given the success of EiP in improving both the quality of our back office and reducing our costs, we are currently exploring additional areas in which to expand this initiative and generate additional cost savings.

And finally, we will continue to build on our success in making Laureate a more capital-efficient company through leveraging technology and online teaching at our campus-based institutions. Recent changes in student preferences, combined with more favorable regulations around online teaching in most of our key markets, have enabled Laureate to aggressively pursue the opportunity to take our online expertise from Walden to bring hybrid online classes to our traditional campus-based students outside of the United States. We started this initiative only a few years ago and set a goal of teaching 25% of our class hours online by the end of 2019.

As of 2016, we were already at 15% and are very pleased with our progress on this initiative. Hybrid online classes are a win-win for the Company and our students. For the Company, this has allowed us to lower our capital spending as a percentage of revenue, while still enabling growth in our markets, and for students, it gives them a leading technology platform and the flexible learning modality that they are wanting.

We recognize that sustainable financial results for Laureate depend upon us being able to deliver high-quality academic programs at affordable prices that result in strong student outcomes in terms of employment. On slide 11, you can see the different ways in which we manage, track, and measure how we are doing. Student outcomes need to be measurable and tracked to ensure that we are living up to the commitment to our students. The hard part in many of our markets is that there isn't a market benchmark, so we hire an independent third-party to survey the market benchmarks for us and then compare how our graduates are doing in terms of employment and starting salary. And findings from our most recent research validate that our student outcomes are strong.

We also study social mobility of our graduates. We conducted two join studies with the IFC, which is the investing arm of the World Bank and one of our shareholders. The study is focused on our graduates in both Mexico and Peru and found that graduates of Laureate network institutions in those markets have greater advances in socioeconomic level versus graduates of pure institutions in those markets. These studies are public, and you can find a link to them on our website.

We also have submitted many of our institutions to be rated by QS Stars. Almost all of our universities that go through the rating system end up in three or four stars, which is very good. I described it a little bit like a Michelin star system, meaning that even getting one star is good. Five stars is going to be a Stanford or an Oxford or a Cambridge, something that we are not even trying to be as a company because these are research intensive and elite universities.

Lastly, we measure quality in many other ways. A good example of this is the IGC and [Inagi] scores which were recently published in Brazil. Our Inagi scores improved significantly, and now 82% of all evaluated courses earned a three or greater rating. This ranks favorably versus other large public companies in Brazil. Further, all of our institutions in Brazil have an IGC score of three or higher with an average 22% increase versus 2010, placing all of them in the top half of the overall market.

Another good example is the cohort default rates for our US institutions, a metric that has long been viewed as the primary quality indicator for student outcomes. Walden has a cohort default rate of 6.7%, about half of the national average for all schools and well below the average of 15% for all proprietary schools. We obsess about student outcomes in quality and believe that's what has made our business model resilient and sustainable for the past 15 years.

With these priorities set for 2017, we expect it to be an exciting year for us, continuing to build on the momentum and successes that we had in 2016. Later at the end of our prepared remarks, I'm also going to comment a little bit about how we plan to organize ourselves and our team to accomplish these goals in 2017.

Before I hand over the call to Elif to discuss our financial results for the fourth-quarter and full-year 2016, as well as our guidance for 2017, let me just share some high-level highlights from 2016 on page 13.

You can see that for the fourth quarter, revenue and adjusted EBITDA increased at 8% and 34% respectively on an organic constant currency basis, in part due to expected favorable timing shifts from earlier in the year. For fiscal year 2016, revenue increased 6% compared to 2015 on an organic constant currency basis to $4.2 billion, and adjusted EBITDA increased 12% on an organic constant currency basis to $766 million. Our strong performance in 2016 reflects our market leadership position and our track record of delivering positive outcomes to our students.

With that introduction, I'm going to ask Elif to take it from here.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [4]

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Thank you, Doug, and good afternoon, everyone. I'm going to start with providing a summary overview of our enrollment performance and then give some additional commentary on our 2016 operating results by segment before providing guidance on first-quarter and full-year 2017.

Enrollment. One slide number 14, you can see that total enrollment at December 31, 2016 grew 2% compared to December 31, 2015. Total enrollment results were materially impacted by the challenging operating conditions in Brazil. The numbers were also adversely impacted by the sale of two business units during 2016, one in France, which is accounted for under our Europe segment, and one in Switzerland, accounted for under our GPS segment.

Additionally, slower enrollment growth in the EMEA and GPS segments were due to the planned strategic shift in certain markets to longer length of stay students with higher unit revenue and better margin contribution.

Excluding the dispositions of France and Switzerland, total enrollment at December 31, 2016 increased by 3% compared to December 31, 2015. Further excluding the negative impact from Brazil, new and total enrollments both increased 4% year over year.

Now let me spend a few minutes discussing the enrollment performance by segment. Latin American new enrollments were up 2% compared to 2015, and total enrollments increased 4%. Total enrollment performance was led by double-digit growth in Peru, along with solid results in Mexico and Central America. However, Chile and Brazil total enrollments were both essentially flat in 2016 versus 2015. The total enrollment performance in Brazil was impacted by the difficult macroeconomic environment and the related reductions in the government student loan program in that market, which had a negative impact on new enrollment trends in Brazil. Excluding Brazil, new and total enrollments grew 6% and 5% respectively in Latin America.

Chile also produced essentially flat total enrollment results due to the recent regulatory changes, and it has caused Laureate to be very cautious in its expansion plans in this market. We are seeing stabilization to modest improvements in both Brazil and Chile as new enrollment trends in both markets have turned positive during recent intakes.

For our European segment, enrollment results were impacted by the sale of our French asset in July 2016. Adjusted for the asset sale, new enrollments grew 6%, and total enrollment was up 12%, driven by a particularly strong performance in Turkey and Italy.

Our EMEA segment, which is Asia, Middle East and Africa, had a new enrollment decline of 7% versus prior year, although total enrollment growth was positive of 2%. The decline in new enrollments was largely related to the planned transition in certain markets away from lower priced or lower contribution programs to longer length of stay and more profitable programs. Specifically, in Australia we deliberately shifted our mix away from the type of market and focused more on the attractive traditional university segment by our [Torrance] license.

And in China, we phased out some programs that had low contribution margins and marginal outcome. Although these actions resulted in lower enrollment results, you can see that our revenue and adjusted EBITDA results for 2016 on a constant currency basis reflect the economic benefit of these strategic decisions.

New and total enrollments for the GPS segment were down 3% and down 11% respectively versus prior year, clearly impacted by the sale of our Swiss hospitality asset.

Adjusted for asset sales, new enrollments was down 1% related to the challenging CRM system implementation during first quarter of 2016, which disrupted our new enrollment process for Walden. These system issues are now fully behind us, and we were pleased to see solid new enrollment growth in the GPS segment, including Walden for the remainder of 2016 and into 2017. Total enrollment for GPS on an organic basis was down 5% during 2016 as we experienced slightly higher attrition from certain international online programs at Walden and the University of Liverpool as we were rebalancing the mix of certain international markets to improve overall margin contribution.

Moving on to fourth quarter, I want to highlight that our fourth-quarter financial results for 2016 included some expected favorable timing impacts as compared to fourth quarter of 2015. The timing shift related to changes in the academic calendar and, therefore, impacts when we recognize revenue. These timing items can offer an artificially skewed quarterly revenue and EBITDA performance for Laureate.

On slide number 15, I'm going to briefly walk you through the quarterly results before providing a more detailed review by segment for the full year, and of course, the full-year trends are more meaningful as they are not impacted by revenue recognition related to the academic calendar.

Revenue in the fourth quarter of 2016 was $1.2 billion, a 2% increase compared to the fourth quarter of 2015, and adjusted EBITDA was $285 million in the fourth quarter of 2016, representing a 25% increase compared to prior year. On an organic constant currency basis, the revenue increased 8% and adjusted EBITDA increased 34% compared to the fourth quarter of 2015, once again aided by favorable timing impact.

Operating income increased 37% compared to the fourth quarter of 2015. Net income was $38 million for the fourth quarter of 2016 compared to a net loss of $16 million for the fourth quarter of 2015. Diluted earnings per share was $0.27 for the fourth quarter of 2016.

Moving on to full year. For fiscal year 2016, revenue was $4.2 billion, a 1% decrease compared to fiscal year 2015, and adjusted EBITDA was $766 million for the fiscal year 2016, a 9% increase compared to the fiscal year 2015. These results were affected by the sale of certain assets during 2016 and changes in foreign exchange rate.

On an organic constant currency basis, revenue increased 6% and adjusted EBITDA increased 12%.

Operating income increased 14% compared to our fiscal year 2015. Net income for fiscal year 2016 was $366 million compared to a net loss of $316 million in the prior year, impacted by a $407 million gained on sales subsidiaries, as well as reduced FX volatility related to translating certain intercompany balances. Diluted earnings per share were $2.76 for the fiscal year 2016.

During 2016, the effective foreign exchange on a year-over-year basis was 4 percentage points negative impact on revenues and a 2 percentage point drag on adjusted EBITDA versus 2015. The FX impact was largely attributable to the move in the Mexican pesos during the second half of 2016. The divestitures of our French and Swiss businesses unfavorably impacted revenues by 3 percentage points and adjusted EBITDA by 2 percentage points.

Now let me spend a few minutes discussing results by segment for full-year 2016 on slides 17 to 20. As I run through these results, I'm going to be discussing our performance and growth rates on an organic constant currency basis as we believe that is the best indicator of the underlying operating trends in the business.

Latin America revenue increased 7% as compared to 2015 and adjusted EBITDA was up 9%. The revenue growth was driven by 4% volume growth and 3 percentage points from price and mix. Results were led by double-digit growth in Peru related to new programs and campus expansions and high single digit growth in Mexico and Central America. Results in Brazil and Chile were more modest due to the challenging macroeconomic conditions in Brazil and uncertain regulatory environment in Chile as discussed earlier.

Europe revenue was up 9% compared to 2015, and adjusted EBITDA was up 21%, again on an organic constant currency basis.

The revenue growth was driven by 12% volume growth and a negative 3 point impact from price and mix as Turkey drove a disproportionate share of the growth at lower average price per student versus rest of Europe. However, I want to emphasize that we continue to have pricing power close to inflation in most markets in the European segment.

EMEA revenue increased 6% as compared to 2015 and adjusted EBITDA was up 23%.

As discussed during my enrollment commentary, revenue growth was favorably impacted by the shift to longer length of stay students with a higher average price point. The strong margin expansion performance is directly attributed to us scaling our platforms, as well as exiting lower contribution program in both Australia and China.

Despite volume reductions of approximately 4000 students at 5%, GPS revenue increased 1% as compared to 2015, and adjusted EBITDA was up 16%. Revenue growth in our US assets was somewhat offset by revenue declines from international fully online students due to the deliberate mix shift discussed earlier to improve margins. Growth in EBITDA was the result of better cost control and improved mix of higher profitability programming, as well as transfer of certain network office expenses to our corporate reporting entity.

When normalizing for the internal cost transfers and certain one-time charges, 2016 EBITDA growth for GPS was in the high single digits.

Corporate expenses increased by $21 million as compared to 2015, attributable to the network's cost transfers from the GPS segment and additional legal and accounting expenses relating to costs incurred as we prepared to become a public company.

Finally, turning to the balance sheet on page number 21, we ended fourth quarter of 2016 with $465 million of cash on hand and $790 million in liquidity, including Laureate's undrawn revolving credit facility. As of December 31, 2016, Laureate had $4 billion in gross debt and $3.6 million in net debt.

Adjusted for proceeds from our IPO, which took place in February of 2017, and the funding of the remaining tranche of the sale of Series A preferred stock which took place in January 2017, as well as the $250 million of our 9.25 senior notes due in 2019 which are contractually obligated to be exchanged to shares of Class A common stock in accordance with the terms of the note exchange agreements, our pro forma net debt was $2.8 billion or 3.8 times net leverage.

With that, I am going to move on to the 2017 guidance section, starting on slide number 23. But before providing guidance for the full year, I want to note for everyone that due to the sale of our businesses in Switzerland and France through 2016, the growth rates for 2017 versus 2016 will be unfavorably impacted by approximately 3 percentage points for both revenues and adjusted EBITDA.

Additionally, foreign exchange translation is expected to cause a 1 percentage point unfavorably impact year over year in 2017 for adjusted EBITDA based on current spot FX rate.

The guidance I will now be providing is based on current spot FX, and our expectations may change based on fluctuation in foreign exchange rates for a future period. We currently expect the following full-year performance for 2017. Total enrollments of 1,064,000 to 1,080,000, representing a year-over-year growth in the range of 2% to 3.5% versus 2016. 2017 revenues are expected to be $4.287 billion to $4.348 billion, representing a growth range of 4.5% to 6% on an organic constant currency basis.

And similarly, adjusted EBITDA for 2017 is expected to be in the range of $789 million to $804 million, representing an organic constant currency growth rate of 8% to 10% year over year.

2017 CapEx spending is expected to be in the range of 7% to 8% of our revenues to support growth initiatives, ongoing maintenance, as well as various efficiency programs.

Additionally, for modeling purposes, I want to remind everyone of two discrete items that will impact share count and EPS in 2017 relating to the convertible instruments we entered into during 2016.

Total shares outstanding will increase by approximately 56 million shares upon conversion of 250 million aggregate principal amount of our 9.25 senior note and $400 million of shares of Series A preferred stock. Each (inaudible) shares of our common Class A stock based on a conversion price of $14 per share, which was the price at the IPO.

Additionally, the Series A preferred stock also included a beneficial conversion feature. This will result in approximately $290 million of non-cash charge to our EPS and will show up in our earnings per share footnote as a line item deduction when determining net income available to common shareholders. However, this accounting adjustment to EPS will have no impact on our reported net income.

The accretion of this charge will begin in the first quarter of 2017 and continue for the following 12 months until all of the $290 million has been recorded. The accounting for this instrument is very complex, and I want to -- wanted to make you aware of this discrete non-cash item for 2017 EPS calculation purposes.

I also want to take a moment to discuss the seasonality of our business in context of the guidance we are providing. As you can see on slide 25, our business results are driven by the intake cycle of our institution. The first and the third quarters represent the predominant intake cycle for our campus-based institution with the first quarter being the large intake for the southern hemisphere institution as they are coming off their summer vacation, which includes Brazil, Chile and Peru.

Similarly, the northern hemisphere institutions have their large intake in the third quarter after their summer break, which includes Mexico, Spain and the United States.

During the first and third quarters, we enrolled the majority of our new campus-based students. However, our institutions are out of session for a significant part of those quarters due to the vacation areas, and thus we recognize only a small portion of our revenues and earnings during these periods.

Conversely, during the second and fourth quarters, we are in session for most of the period, and it is those quarters that really drive the financial results of our business. This seasonality is illustrated well on slides 25 and 26.

You can also see on slide number 26 that we often face intra-year seasonality timing shift related to changes in the academic calendar. These changes in academic calendar are driven by external factors such as timing of Easter and Carnevale, as well as internal operational decision relating to the timing of the start dates for classes.

These factors make it very hard for analysts and investors to accurately forecast our quarterly seasonality and our quarterly results. Therefore, I am also going to provide some additional guidance for the next quarter out, i.e. the first quarter of 2017 as discussed on page 27.

In addition to the normal seasonality shift, we have a discrete timing item this first quarter due to the severe flooding in Peru these past few weeks. The situation has been difficult for the people of Peru, and the recovery has taken quite some time, and therefore, the start dates for our classes in this market will be pushed by approximately two weeks into early April.

I should note that our staff and faculty are all safe, and we only have encountered minor flooding with no major property damage at our Peru campuses. However, this disruption to operations will impact the timing of both revenue and adjusted EBITDA for the first quarter in this market, as well as the timing of our new enrollment intake.

These timing impacts will reverse -- back out in the second quarter. Given these timing items, our expectations for the first quarter of 2017 are as follows. Revenue for the first-quarter 2017 is projected to be in the range of $820 million to $840 million. Adjusted EBITDA for the first quarter is expected to be in the range of $10 million to $15 million. And new enrollments on a reported basis in the first quarter will be slightly down year over year due to the timing of the intake in Peru that is delayed due to the flooding.

However, once the intake cycle is completed in early April, we expect the enrollment growth to be in line with our expectations for the full-year 2017 growth projection.

With that, let me turn it back to Doug for closing remarks prior to your questions and answers.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [5]

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Great. Thanks very much, Elif, and thanks everyone for your patience. We wanted to be a little bit more thorough in this first-ever quarterly earnings call for us as a newly public company again.

I did want to make a couple more comments. We did make an announcement that came out today about an organizational change. As we think about the progress of our Company and the skills and talents that it takes for us to develop in the directions that we have described in today's presentation, we want to always be assessing and making sure that we've got the right organizational structure and leadership to get us where we are going.

Today we are really excited to announce the promotion of two of our most seasoned and experienced executives, as well as the departure of our President and Chief Operating Officer, Enderson Guimaraes. Enderson joined us in September of 2015. Terrific guy and leaving on a very amicable basis and we do wish him well. In his stead now, we have divided his responsibilities between Elif, our Chief Financial Officer, who will be the President and Chief Administrative Officer, and Ricardo Berckemeyer, who is our Head of Latin America, which is our biggest region. He will be taking on the responsibility of the Chief Operating Officer role.

Both Elif and Ricardo are here with me in the room. I want to extend my congratulations and that of the Board of Directors to both of them, and I think with that, operator, we would be happy to open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Jeff Silber, BMO Capital Markets.

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Jeff Silber, BMO Capital Markets - Analyst [2]

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Sorry to focus on the negatives, but can you just tell us a little bit more about the change in management? What precipitated this?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [3]

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There's not a lot more to say. I think when Enderson joined the Company and a lot of the things that he joined us to do, we have done. A lot of the technology initiatives that we had underway, he gave us some great ideas for how to organize ourselves and those initiatives very successfully. But I think ultimately he felt that he could accomplish his career objectives better elsewhere. And so he is moving on to new pursuits, and as I said, it is amicable. He is very clear in stating his support of the Company. There is no nefarious understory to it. But I think in this case, we really feel that the Company can be best led by people that have had the greatest amount of experience inside the Company, and that's why we have promoted two of our experienced star executives.

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Jeff Silber, BMO Capital Markets - Analyst [4]

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Okay. Fair enough. If we could move back to operations, in your discussion about Latin America, you talked about some improvements in starts at both Brazil and Chile. I'm just curious -- from [Fias] perspective, can you just remind us what your exposure there is and what the impact of the cuts have been on your Company and what you are expecting going forward that is incorporated in your guidance this year?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [5]

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Jeff, this is Elif. Fias is becoming an increasingly smaller portion of the mix for us and the rest of the industry in Brazil. We have gone from double digits to single digits mix of new enrollment coming from Fias, and that single-digit is all that -- further declining. So somewhere in the mid-single digits is where we are right now.

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Jeff Silber, BMO Capital Markets - Analyst [6]

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Okay, great. And then just a quick numbers question. Elif, you mentioned your first-quarter guidance, and we do appreciate that. Can you just quantify what the impact is of the flooding in Peru, both revenue adjusted EBITDA and enrollment in terms of the shift from 1Q to 2Q? Thanks.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [7]

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Sure. I will give you the terms, but it is fluid because the Peruvian team is doing a fabulous job in getting classes started as soon as practically possible and convenient for the students that they are serving at the campuses.

So it is a moving target, but we are seeing up to about two weeks of delay, which, of course, there is somewhere in the middle of -- somewhere between $15 million and $20 million in revenue and is going to be largely all EBITDA since it's a revenue recognition issue versus a cost issue. And similarly, we're talking somewhere between 30,000 to 35,000 students that are going to be impacted. And, of course, that's -- if you shift 30,000 plus students, a new start from Q1 to Q2 just by a week, that is going to have a significant impact on reported results for the quarter. And that's I why wanted to give you the heads up on that.

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Jeff Silber, BMO Capital Markets - Analyst [8]

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Okay, do appreciate that. I'll jump back in the queue. Thanks so much.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [9]

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I just want to emphasize, as Elif said earlier, and all of that reverses in the second quarter. Students can make up classes that they might have otherwise missed, and therefore, the revenue is recognized at that point.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [10]

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During the full year.

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Operator [11]

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Manav Patnaik, Barclays.

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Unidentified Analyst [12]

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Hey, this is Ryan filling in for Manav on the call. So just back to the Enderson news. I guess who now is ultimately responsible for the EiP, and is there any changes to the thoughts on that? I guess I was under the impression he was kind of spearheading that initiative?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [13]

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Well, he was definitely helpful in that initiative, but the initiative was actually started before he joined the Company. It was initially something that Elif and I teamed up on, and then with Ricardo and others, we were able to launch it, and it was great to have the experience that he brought from some of his work that he had done at Pepsi. But that project, at this point we have a fully built out PMO function that helps us with all of the business transformation, and that is going to be a function that will be shared between the responsibilities that Elif is going to have and Ricardo is going to have. They work very seamlessly. We have, as you seen, been able to accomplish significant savings associated with EiP, and I think our feeling is we are actually quite intrigued about ways to accelerate the savings that we identified in other parts of the business as well. So you will be hearing more about that, but our feeling is that is a function that is going very well. And again, I think it was great to have outside eyes on it, but I think we really feel that we can best accomplish our objectives with the people that know the business best from the inside.

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Unidentified Analyst [14]

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Got it. Thanks. So just looking back towards to the 2017 guidance, on the adjusted EBITDA side, I guess the 8% to 10%, typically, you guys have been able to deliver 10% plus. Is that -- is there anything driving that, or is that just a degree of conservatism? Anything there?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [15]

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I think what you seen is that we have delivered double-digit 10% to 12%, but the Company is bigger. And, also, we have one large engine sputtering a little bit in Brazil. Although Brazil has stabilized and we are seeing some positive momentum, there is still limited visibility, and based on relatively cautious estimates that's been rolling out to 8% to 10%.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [16]

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But I think to be fair, a newly public company, it kind of makes sense that we should be appropriately cautious in our estimate.

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Unidentified Analyst [17]

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Got it. Thank you.

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Operator [18]

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Hamzah Mazari, Macquarie.

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Hamzah Mazari, Macquarie - Analyst [19]

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Just a first question around the regulatory environment. Maybe if you could just give us an update on the higher education reform bill in Chile and also maybe what you are hearing on the US side with the new administration? Thank you.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [20]

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Sure. In Chile, I think many people know there was a higher education bill proposed last summer of 2016 that has essentially not moved. As most people following this would know, there's been very little political progress in Chile as they now move into an election year. The current government continues to want to progress higher education reform. I think realistically it seems unlikely that a lot will happen between now and the election. There currently is a series of candidates in the field and the candidates on the center-right -- the candidate on the center-right seems to be leading the field right now, which would I think indicate a change in attitude towards the role of private sector. It could be very favorable, and until then and given that situation, it seems unlikely that there will be major reform passed in Chile this year. But, of course, there's no way to be sure about that.

The latest news that we have heard is that the government, since they haven't been able to move the reform, may try to move some of the reforms on public universities faster because they may be less controversial. So those are the things that we are hearing in that market, but generally it seems like it's a market that is focused as many countries would experience on its presidential politics and the political election and not moving forward important legislation at this particular moment.

And in terms of the US market, I think it's -- I think many observers of the market do feel that this administration will be favorably disposed in general towards less regulation in many sectors, and this is an administration that does seem to value the role that the private sector can play. But that said, I think we are really proud that the way we've positioned ourselves and the results that we deliver should allow us to be appreciated across the political spectrum. And so we are really not counting on any better circumstances from the current administration. I think those who observe us know we generally fair pretty well in terms of regulatory outcomes and low default rates even in the last administration, and I think that should position us well irrespective of the political direction.

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Hamzah Mazari, Macquarie - Analyst [21]

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That's very helpful. And as just a follow-up question on EMEA within that region, could you maybe just give a little more color on sort of the change in strategy there? And then specifically within EMEA, are there any regions that you are more bullish on relative to others? I believe in EMEA, you have China, Australia, the Indian subcontinent, Middle East, Africa, Southeast Asia. So just trying to get a sense of broadly the strategy there and then where you are more bullish longer-term. Thanks.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [22]

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Sure. Look, the change in strategy was -- it was really to focus on students with a higher length of stay and a higher average revenue per student, and that is something throughout last year that occurred in Australia, occurred in China, occurred in Saudi Arabia. And, as a result, it would be unusual that it would be happening in all of these markets at the same time, but it did.

Generally, we do try to always be conscious of the fact that just getting enrollment isn't necessarily helpful. Of course, it's helpful if we are doing something good that benefits that student, but two students may not equate in terms of the length of the program, the average revenue of their program, the margins of their program. So we try to not just be so excited about the enrollment numbers, but instead look at the quality of the enrollment, and that is something that we are always going all over the world.

In the case of Australia, there was a very, very important change in the regulatory market in which the government really began to reduce the availability of funding for students in the technical vocational segment and to lift the standards and requirements in the technical vocational segment in a way that disqualified many of the largest vendors from participating in that because we are structured as a university, which is a very rare privilege for us in that country. We were actually able to offer university programs to address some of those same students that wouldn't be able to get their programs under the technical vocational qualifications offerings. And so that is something where we would end up with a reduction in the number of lower revenue students, but allowing us to move to a larger number of higher revenue students, and that is really what we did in that particular market.

So, again, I think that should even out as we get into this year, and we should begin to see a little bit easier year-over-year comparisons as the effect of some of those changes works its way through the system.

And then to your last point, just about countries. I think you referenced in EMEA, certainly India, China, and Australia will be the three most relevant markets that we are in. We are in a number of other markets, some can be promising, but some can be quite small. So we really want to try to keep people focused on the big market in that region. We do have a very interesting business in Saudi, as I am sure you know, which is one of the rare cases where it is driven by a government contracting program where the government selected us to run 10 different special types of colleges. And we are watching that situation because we hope that as the energy economy improves and Saudi moves forward with some of its reforms, that they may decide that they would like to grow that particular program. If that is the case, that would be exciting for us. So we will keep you apprised as we learn more about that.

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Hamzah Mazari, Macquarie - Analyst [23]

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Great. Thank you for the time. Appreciate it.

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Operator [24]

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Peter Appert, Piper Jaffray.

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Peter Appert, Piper Jaffray - Analyst [25]

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Doug, if you had to make any pricing adjustments in Brazil on the context of the specific issues there, I'm wondering -- I'm sorry if I missed this -- can you give us the specifics in terms of what you are seeing in terms of the start numbers in terms of the current intake?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [26]

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Elif, do you want to comment on that? Actually on start numbers, I'm going to ask Ricardo to comment on what we've heard, and then in terms of pricing, Elif, maybe you can mention that. Ricardo?

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Ricardo Berckemeyer, Laureate Education, Inc. - CEO, Latin America [27]

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Yes, sure. Well, what we're seeing right now is positive trend, and I'm sure that we will report them but we are done with the first quarter. So far we are seeing good trend.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [28]

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So positive growth last year, we were down 9% as the industry went down with the huge reduction of CS. And then to the, let's say, modest growth this year is a fantastic improvement in the situation even considering the fact that they have again reduced Fias, which was not anticipated in that case. So that's very favorable. And Elif, do you want to comment about pricing?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [29]

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And in terms of pricing, we will give you more specifics to first quarter. But just as a matter of principle, we are optimizing the revenue in the classroom through very smart use of a discount in scholarship and incentives, and we have tools and systems in place to do that. We are very disciplined around that because we understand the implications of getting addicted to discount.

So we are not doing anything unusual, except we are using those tools in an imprudent manner, and during first quarter, when we are giving you the stages of the enrollment of that, we would love to give you a little bit more specificity around the pricing.

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Peter Appert, Piper Jaffray - Analyst [30]

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Okay. Thanks, Elif. And then, Elif, also for you, the -- do you have any insights in terms of the timing of the conversion of the notes in the preferred and how that impacts the share count during the year?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [31]

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Yes, so during the lockup period, there will be no conversions. But after 180 days out to the IPO, between that 180 day to the 366 day, we have the ability to do it. We can do it unilaterally without any regulatory approval on the 366 days, but we also have the opportunity to do it sooner and earlier, and that's the only regulatory objection, and we are having conversations to see the practicality of doing it, doing it right now for modeling purposes. I would just be conservative and just do 366 days.

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Peter Appert, Piper Jaffray - Analyst [32]

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Great. Thank you.

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Operator [33]

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Marcelo Santos, JPMorgan.

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Marcelo Santos, JPMorgan - Analyst [34]

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First question would be about Mexico. I just wanted to see if you could provide some color on how the new enrollments are there? We are seeing low consumer confidence. The economy is doing well, but the consumer confidence is not. So just any color on there would be interesting.

And the second question would be about Chile. Also, on the outlook for the operation this year, on one side we see you regain accreditation on (inaudible). So you might be able to access public funding for your students. On the other side, there is this advancement on gratuity and scholarships that you were once eligible to and now you are only partially eligible. So just wanted to see how the forces sum up, and what is the next expectation for Chile?

These are my two questions.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [35]

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So, in terms of Mexico, you are right. The consumer confidence is not where we would have liked it to be. It's a large enrollment. For Mexico, it was in the fall of last year, and I believe that was before the biggest impact of the Trump impact from the election. So, as I said in my remarks, I am pleased with the 2016 enrollment results in Mexico solidly in mid to high single digits.

However, we are at an intake right now, and it's a smaller intake, and it is positive, and we have acquired more guidance on that during first-quarter results.

In terms of Chile, I will take in there with Ricardo, but you are right. (inaudible) is recredited, and that is providing a significant boost. The gratuity program is posting. It would to be more challenging for us to compete in certain markets, but less than that, it is, as I said in my commentary, for 2016 Chile was essentially flat in terms of total enrollment, and we are, of course, going through an enrollment period right now. We are working very hard and doing okay, but it is pretty much more of the same. And I expect that to be the case for most of 2017 until after the election, but we are currently (inaudible).

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Ricardo Berckemeyer, Laureate Education, Inc. - CEO, Latin America [36]

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No, it is going according to plan. We plan to be flat and we are flat. And in terms of gratuity in general, I don't know if you follow the news in Chile, but two very important universities, private universities, have joined gratuity and letter to the editor of important newspapers saying that if the contract continues to push from [50% out of the 60% those] established by law, then that they will be in serious financial trouble, sending a signal to the way gratuity is implemented to the country as well.

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Marcelo Santos, JPMorgan - Analyst [37]

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Okay. Thank you very much.

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Operator [38]

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Jeff Meuler, Baird.

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Nick Nikitas, Robert W. Baird & Company - Analyst [39]

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Hey, guys. This is Nick Nikitas on for Jeff. Doug, you mentioned the focus on online and the hybridity initiative that you guys have with 25% targeted in 2019, which is more near-term. Are there specific geographies that you will be rolling that out in, let's say, 2017 or 2018 that could see more of a margin benefit?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [40]

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You know, I think it's actually being rolled out just about everywhere. We have some places that are a little further ahead than others, but generally this is now becoming a pretty mature initiative. We are in our third year now for this. It is scaling very nicely. It has, as you would expect and you are asking the question about margins, online instruction generally is good for margins, but in this case with hybrid online, the margin impact is not as pronounced as it would be with a fully online student. So the real benefit would be the capital efficiency of a student who doesn't need to use the seat in the classroom and allows us to seek more students and have more turns per seat, and that just continues to work extremely well. And the best part is the students are really happy; the outcomes are really good. So, as long as that continues to be the case, I think we will start evaluating -- we are already at 15% towards a 25% goal. We will have to start evaluating what the next goal will be because it feels very good that we should be able to exceed that 25% in the next several years.

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Nick Nikitas, Robert W. Baird & Company - Analyst [41]

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Okay. That's helpful. And then just on the CapEx spend you talked about, is the 7% to 8% percent, is that kind of the right range to think about for the next couple of years?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [42]

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I think it is, but I want to emphasize that 7% with hybridity works for us like -- I don't know mathematically, but 9% or 10% might have worked for us in the old days. So when we were down sub 7%, that definitely crimped our growth little bit. But as we get above 7%, I think we should be able to start funding some of the better initiatives that we regretted not being able to fund in the past in a way that should be favorable to growth. So that 7% to 8%, I think, gives us a nice opportunity to lift our growth rate because of the impact of hybridity.

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Nick Nikitas, Robert W. Baird & Company - Analyst [43]

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Great. Thanks for taking the questions.

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Operator [44]

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Trace Urdan, Credit Suisse.

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Trace Urdan, Credit Suisse - Analyst [45]

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So I wanted to go back to that CapEx question and maybe focus on some of the priorities you have for CapEx, and I was wondering specifically if you might be able to talk about what sort of capacity additions you have anticipated for 2017 maybe in time for the northern hemisphere enrollment intake?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [46]

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So, Trace, as you know, we have a little bit of pent-up demand right now on the equate CapEx project. We are very fortunate to have a strong pipeline of great projects, and we are not allocating capital country by country. We are allocating actually the most broadly and most attractive programs.

So, right now, you can imagine Peru is working really, really well for us. So that's a fair amount of CapEx allocation in that market during 2016, and there is a little bit of tail on this (inaudible) into 2017. That is attractive. We're also making investments in Mexico in the value brand which is working well for us. So it's really on a project by project basis, but we have more demand for the -- than the 7% to 8% that we intend to invest. So we are going to crowd out and go with the best project.

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Trace Urdan, Credit Suisse - Analyst [47]

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So when you talking about Peru and Mexico projects, are we talking about expanding existing campuses? Are you going to be opening up new campuses? I mean is that the kind of thing that we can expect you to be talking about as you report your quarters?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [48]

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You know I think the old days, as you'll remember, that was a very big part of our model. I think at this point a new campus opening is so dilutive in terms of the overall scale of the Company. It used to be such a big deal. We would announce a new campus because it could impair our near-term profitability and then goose our long-term growth, and now it's a drop in the bucket relative to size of the Company. So I would say we would have to get to a point where there was -- where it was meaningful enough to be willing to call out.

Generally I would say there's a lot more investment going into campus expansions than in new campuses.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [49]

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And I would say the mix of new campuses versus expansion is very consistent. It's really in the run rate at this point.

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Trace Urdan, Credit Suisse - Analyst [50]

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And then in the context of the question about EMEA, earlier you said that we should be focused on India, China and Australia. Are there going to be any -- can we expect any of those CapEx dollars to be directed in those countries?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [51]

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We are directing CapEx in those countries for sure. China can be a little bit tricky in that, as you know, there's a quota system, so volume growth is not huge. Although they have relaxed pricing increases as something that can be responsibly administered by each university. And we have other nontraditional programs that allow us to grow in China, including a very interesting initiative where we are recruiting students for the rest of our universities around the world from China because of the presence we have in that country. So China continues to be important, but it doesn't need a lot of growth CapEx in that classic sense.

Australia also this year not so much because we are really essentially taking seats that would have been built by technical vocational students and now reallocating them to university credentials. So there is a little bit of a -- kind of a counterbalancing going on with that. But then as we move forward, I think Australia, especially with online, we have probably half of our revenue in Australia comes from online programs. So I think Australia will be a market in which investments in online programs would be a good use of CapEx.

And India we actually build capacity because we are growing nicely there in the classic sense of building capacity. And then I just would emphasize online in general will continue to be a good user of CapEx for us around the world. We do feel that there is some improvement in our online enrollments for fully online students. And, therefore, we want to invest more for programs in that area.

And then CapEx associated with business transformation like EiP that delivers very, very high returns. So that is sort of the range of areas that we can invest in. As you know, we were very, very cautious with CapEx last year because we wanted to get our leverage down. We are not going to go hog wild. We are really just talking about moving back up above 7% into that 7% to 8% range.

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Trace Urdan, Credit Suisse - Analyst [52]

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Can you just elaborate a little bit further on that fully online enrollment comment, Doug? So I presume you are not talking about Walden necessarily, but other fully online programs that you guys run.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [53]

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No, I really mean in general. So Walden International, our partner's business, those are the biggest fully online programs that we have, and I would say I've seen favorable trends in that market. So for us, I don't about others. And so, therefore, investing in marketing, investing in growing our international enrollments, investing in product makes a lot of sense in that market for us.

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Trace Urdan, Credit Suisse - Analyst [54]

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What about investing in new partnerships? Is that something we should watch for?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [55]

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It's something that interests us. It really want to make sure that the partnerships that we have are being optimized. We have three really terrific partnerships, two UK partnerships and one US partnership. The most mature, longest standing UK partnership has been a huge success. The other two are newer programs, and we really want to see the results before we bring on a lot of new partners. But I think if they could shape up to be anything like the original UK partnership, which is the Liverpool program, that would be very encouraging. And I think there is a reason to believe that that could happen.

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Trace Urdan, Credit Suisse - Analyst [56]

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Okay. Great. Thank you.

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Operator [57]

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Javier Martinez, Morgan Stanley.

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Javier Martinez, Morgan Stanley - Analyst [58]

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I have a few questions if I may. So you mentioned that you have been deploying relatively quite a lot of CapEx in Peru. In Peru there was a change in the Minister of Education, and the previous one was obviously doing a fantastic job. And there was some concern maybe yes, maybe no that the change could imply some change in regulation. So are you listening to anything? Is there anything we should be aware of, or everything continues to be the same?

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [59]

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I was going to say I think over the years I wouldn't even hazard a guess about how many Ministers of Education have come and gone. And, of course, some of them can be very impactful in a positive or negative way. But generally, that is a country that is -- it needs growth in higher education and is generally very favorable for the participants in the market. So I think we're still very bullish on the market.

Ricardo, anything you add to that?

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Ricardo Berckemeyer, Laureate Education, Inc. - CEO, Latin America [60]

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No, the same. We have no concerns from the change of Minister. We work well with both of them. We have good ways to contact the new Minister as well, and so far there is nothing that concerns us at all.

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Javier Martinez, Morgan Stanley - Analyst [61]

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If I may ask something else: I know that you want to wait for first quarter to give more guidance on takes. I understand that. But now since the intake process is almost over in Latin America, maybe with the exception of Peru because of the range, I was wondering what is implicit in this guidance you gave? You mentioned enrollment growing in a range by around 3%, revenue growth growing range but around 5%. So that means that prices at [rolling effects growing around 2%], and then the increasing margins around -- in EBITDA around [9].

So my question is, what is implicit in that guidance in terms of intake and prices in Latin America [EBIT] in terms of the expansion of hybridity in 2017?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [62]

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So the guidance we gave is based on what we are seeing with very strong visibility into this southern hemisphere intake and what we are expecting again based on the trend -- the longer-term trends for the northern hemisphere.

In terms of pricing power, you are right that mathematically it's only a couple of percentage points pricing. But in that pricing, there's also a makeshift.

So when you are looking at a market by market basis and really program by program, you would define that in most markets, we are pricing at or above inflation. In Brazil in this environment, it will be a little bit more cautious. And selectively in other markets, we are a little bit more cautious. But on a blended basis, it is at or close to inflation pricing.

So that gives us an ability to just get a little bit of margin up there just because we have inflation or close to inflation on revenues. We have inflation on strong or most of our costs, but that being said, the margin expands by a similar number.

And then that, combined with some of the efficiency programs, EiP and global procurement and other benefits that we are getting from the network, that enables us to grow the EBITDA with about 4 points or so spread versus revenue growth.

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Javier Martinez, Morgan Stanley - Analyst [63]

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Let me ask this may be in a different way. So you have already pointed the visibility in Latin America that is your most important area, and still many things may happen in the rest of the world. Once you come with those -- with that guidance, should we assume that LatAm volumes are going to be at least growing around 3% the center of the range? Price is at least around 2% the center of the range and margins expanding at least in the center of that range?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [64]

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That's very fair. Of course, Latin America presents 60% plus of our business on top-line revenue. So yes, I think that's a fair statement.

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Javier Martinez, Morgan Stanley - Analyst [65]

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Thank you. Thank you very much.

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Operator [66]

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[Ian Johnston], [PGIM].

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Ian Johnston, [PGIM] - Analyst [67]

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So just looking at your balance sheet after the IPO and the transactions you did towards the end of the year, it looks like you guys are sitting on a lot of cash. You kind of have -- you brought leverage down -- net leverage down to 3.8 times. Just trying to get a sense for maybe what you guys are thinking about in the way of maybe a comprehensive refinancing and maybe what you'd be thinking about in terms of what kind of cash you would like to carry and the like?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [68]

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Clearly given the transactions that we did late last year and early this year, it gives us that flexibility, and at the opportune time, we will go to market and redo parts of our capital structure. We are very focused on reducing not just net leverage, but also gross leverage. We are very focused on reducing the overall cost of borrowing, and we are very focused on further improving the mix of or the natural hedges in terms of a mix of our liabilities with our assets. That can be done with a little bit more local currency denominated debt or some (inaudible).

So all of that is part of our planning horizon. I can't comment on the exact timing of the transaction. It is going to be subject to market conditions and other considerations, but it is not our intent to be sitting on this much cash in the medium-term.

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Ian Johnston, [PGIM] - Analyst [69]

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Okay. And so in all likelihood, it is something that is a 2000 -- current year or 2017 initiative?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [70]

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I don't want to confirm the timing. It's more than the confidence in (inaudible) market conditions, but you can expect us to be rational stewards of capital.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [71]

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We want to have less debt and pay less interest. So whatever we need to do to make that happen, that's what we want to do.

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Ian Johnston, [PGIM] - Analyst [72]

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Thank you very much.

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Operator [73]

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Brandon Dobell, William Blair.

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Brandon Dobell, William Blair - Analyst [74]

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Just a couple of quick ones. Maybe some expectation for two things. EiP costs through the balance of this year and should we still expect you guys to be finished with those costs as we finish out 2017. And maybe for Doug or Elif, on a go forward basis, how should we expect you guys to communicate new enrollment and some of the granularity around the regional new enrollments, recognizing there's always going to be things to talk about with timing changes and seasonality? But just want to make sure we understand how you guys are going to communicate some of that ongoing data.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [75]

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Very good, Brandon. I'm going to do the EiP and then hand over to Doug on the other matter. But we have approximately $50 million to $60 million in EiP investment in 2017 and will be a little tail into 2018 as they are wrapping up the program. And now I am speaking really about the way, one, the finance translation procurement initiative and the shared services.

In terms of -- unless that means we are approximately two-thirds through the overall investment phase, the $380 million budget, and we are on plan in terms of spend and on target or maybe slightly ahead on value realization. Through 2016, we have delivered a little over $50 million in benefits and expect $50 million or so more to accrue somewhat evenly 2017 and 2018. And by the end of 2018, we will have it all on a run rate basis, but it wouldn't be only in the books until 2019 for under a quarter basis. That would be delivered a little bit north of $100 million in savings.

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Brandon Dobell, William Blair - Analyst [76]

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Okay. Great. Thank you.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [77]

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Your question about enrollments, we will basically be reporting new and total enrollments each quarter, and we will do it by segment. So I understand that may not be down to the country level. We will happy to (multiple speakers). It becomes very important. People want to know what Brazil new enrollments were, and that may be so big or so relevant because of what is happening with Fias that we will call that out for people. But in terms of the overall structure we want to follow, it will be a segment reporting structure.

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Brandon Dobell, William Blair - Analyst [78]

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Okay. And then a final quick one for me. As you think about, I guess, GPS and Australia to a certain extent, what kind of timeframe do you guys expect it will take to go through some of the enrollment transitions that are ongoing, right, to kind of a different duration, different student? I guess in Australia, the base is a little bit different there. But should we expect those differences to feel more normal this year, or do you think that's going to take into 2018 to where you are really kind of get those things working like you want them to work with the types of students that you want there?

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [79]

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So I think in terms of the issues that we had in GPS and 4000 students that I referenced, which was really a great experiment in certain new markets -- international markets and we decided that we were going to get the traction and what we can (inaudible) we deemphasize there. So that is really behind --

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [80]

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Those margins. But international students are still very important.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [81]

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Thanks. Thanks for clarifying that. These are some specific markets in certain opportunistic countries. So that is really behind us.

In terms of Australia, there's going to be a little bit of a tail. I think the big part of the transition is behind us, but it is still going to be certain campuses and certain programs that are transitioning. And I should emphasize the strategy in Australia was always -- -- we had (inaudible) more technical vocational -- had some technical vocational programs and we had Torrance license. And the idea was to combine these and leverage them and over time transition more to the pure undergraduate university.

We just ended up doing that a little quicker than what we had originally intended, but that transition is going really well. We are getting the economic response. We're going to see a little tail in 2017.

China, I think, is largely behind us. We will be exiting also some lower margin program. So that has pretty much left. And those are the three big ones.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [82]

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And I think Australia is very interesting. First of all, it's another reminder to me. This will be the third time that we have been in the market where the government has made big adjustments in the market and where our positioning allowed us to weather that storm better than anyone. It's what we have now -- that's how I felt about the US issues starting in 2010. And I think the way the Brazil market played out for us and us having less dependency upon Fias, and then in Australia where we were the only player with a university license and, therefore, able to transition technical vocational students into higher education qualifications.

So that really is a great reminder to me, I think, that the strategy of how we position ourselves in the market, quality, the types of licenses that we have has worked for us time and time again.

Now the interesting question is we weathered the storm in Australia. We actually may be the beneficiary of it as many of the big players have had to exit the market, and it will be interesting to see what happens next in that market. But I am very bullish on the long-term of that particular market, especially given the catchment area and demand for Australian degrees, which is really throughout the Asia-Pacific region.

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Brandon Dobell, William Blair - Analyst [83]

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Got it. Okay. Thank you.

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Doug Becker, Laureate Education, Inc. - Chairman and CEO [84]

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Thanks, Brandon. I think that's going to wrap us up for the call. It's been a long call. We appreciate everybody's patience for this first ever quarterly earnings call for us in our second round as a public company, and we want to thank everybody for their participation and looking forward to continuing to announce our results. The next earnings call for us will be in May with our first-quarter earnings call.

So thank you all very much.

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Elif Serck-Hanssen, Laureate Education, Inc. - VP and CFO [85]

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Thank you.

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Operator [86]

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Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day.