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Good morning, and welcome to the Second 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. You may begin, sir.
Thank you, operator. Hello, everyone, and thank you for joining us on today's call to discuss Laureate Education's Second Quarter 2018 Results. Joining me on the call today are Eilif Serck-Hanssen, Chief Executive Officer; Ricardo Berckemeyer, President and Chief Operating Officer; and JJ Charhon, Chief Financial Officer. Our earnings press release is available on the Investor Relations section of our website at laureate.net. We have also posted a supplementary presentation on the website, which we'll be referring to during today's call. The call is being webcast, and a complete recording will be available after the call.
I'd 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 applicable U.S. securities laws. Forward-looking statements are subject to risks and uncertainties that may change at any time and therefore, our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission; our 10-Q, filed on May 9 of this year; and our 10-Q filed earlier this morning as well as other filings made with the SEC. In addition, all forward-looking statements are based on current expectations as of the date of this conference call, and we undertake no obligation to update any forward-looking statements.
Additionally, non-GAAP measures that we discuss, including adjusted EBITDA, are also detailed and reconciled to their GAAP counterparts in our press release and are included in our Form 10-Q filed with the SEC.
With that, let me turn the call over to Eilif for opening remarks.
Thank you, Adam, and thanks to everyone on the line for joining us on today's earnings call. I'm pleased to report another strong quarter for the company. Business performance has been vigorous, and the key initiatives we've undertaken to simplify our business model are yielding strong results.
For the second quarter, adjusted EBITDA was ahead of our guidance, and revenue was on track with expectations. Overall enrollment trends are solid, with new enrollment growth, year-to-date, up 4% versus prior year.
We continue to expand our margins, partly due to the implementation of our common operating model. The pilot programs underway in Brazil and Peru as well as other efficiency programs are delivering solid results.
We also continue to execute on our growth priorities, including preparing for the opening of a new SMART campus this September in Mexico City under the UNITEC brand.
In Brazil, we continue to expand the number of Distance Learning centers as we aggressively pursue growth opportunities in that segment. Throughout the network, we are prioritizing capital spending on the most accretive growth opportunities.
Quality and student outcomes are at the core of everything we do, and it is of particular pleasure to share specific examples of recent awards and recognitions across the network. UPC in Peru and Andrés Bello in Chile were both recently rated among the top 5 institutions in their countries according to the prestigious Scimago Rankings. Our institution in Spain was recognized as the #1 ranked institution in the country with a 99.4% approval rate on the MIR medical exam taken by graduates. This is the exam that qualifies students to be matched for residency spots in the Spanish health care system. Health sciences is a key vertical for Laureate and is an area where our global competencies are a key differentiation point. The prestigious quality-related recognitions we have recently received in Spain, Chile and Peru are directly linked to the strength of Laureate Education Assessment Framework, also referred to as LEAF, which is our proprietary continuous improvement tool utilized across the network. Laureate's business is strong and durable. Our results through the first half of 2018 confirm the substantial forward progress we have made on all of our key priorities in a relatively short period of time.
Action taken by the management team to simplify the business, mitigate risk, improve margins, strengthen our balance sheet and improve free cash flow generation are yielding concrete results. With these tangible proof points in hand, we will further accelerate our efforts, leveraging the successes and learnings from these projects.
To provide a little more color on recent accomplishments, Slide #6 provides a summary of our 2017 Accelerator Plan and related results. Specifically, we have successfully simplified and streamlined our global portfolio of universities, saving over $75 million in annual operating expenses and narrowing our geographic footprint to become a more focused company.
We announced divestitures of business units in 7 markets, with combined annual revenues of approximately $400 million and annual EBITDA of approximately $85 million. The expected proceeds from these divestitures is over $1 billion, upon the completion of these transactions, resulting in an implied valuation multiple of nearly 13x EBITDA for these divestitures.
We recognize that our company can be further simplified and optimized. We will implement 2 key strategies to accomplish this further performance improvement. First and foremost, building on the successful execution of the first wave of the Accelerator Plan, we will exit certain markets in order to concentrate future operations on our large-scale markets where we have strong track record of delivering successful outcomes for all our students and stakeholders. We believe that our unique competitive advantages in the retained markets, specifically superior brands, unparalleled management capabilities and complementary operating model, will significantly strengthen Laureate's financial position going forward.
Secondly, we will better integrate our campus-based businesses in Latin America into a more homogeneous operating unit, capitalizing on common operating platforms to take better advantage of scale and shared innovation, leading to measurably improved margins. As illustrated on Slides #7 and 8, the incremental portfolio simplification announced this morning will result in the divestitures of our institutions located in Europe, Asia and Central America. In aggregate, we anticipate that these actions will result in further divestitures of approximately $700 million in annual revenue and approximately $100 million in annual EBITDA, net of the reduction of related overhead expenses. These transactions are expected to generate over $1 billion in additional cash proceeds to the company.
For the institutions to be divested, the company is committed to finding new owners that share our organization's goals of providing quality, affordable higher education. Upon the successful exit from the targeted geographies, our Latin American markets will be Brazil, Chile, Mexico and Peru, along with our online and hybrid educational institutions in the United States and Australia. Once this portfolio simplification is complete, we will have 2 extremely focused and scaled enterprises, one emerging market-focused university business in Latin America and one online-enabled, English language-based higher education unit with quality brands in the United States and Australia. The 3 strategic pillars of innovation, operating leverage and capital efficiency will drive strong returns for shareholders and superior student experiences and outcomes. Now I will turn the call over to JJ for the financial overview for the quarter and first half of 2018.
Thank you, Eilif. A couple of comments first. The second quarter is a very important earnings period for the company. It typically represents about 40% of our adjusted EBITDA for the full year, as classes are in session for much of the quarter in all regions.
Let me now provide a summary of our financial performance for the quarter, which we're very pleased with, starting on Page 10. As you can see, revenue in the second quarter was $1.25 billion, and adjusted EBITDA was $361 million, which is ahead of the guidance we provided 3 months ago. As we indicated during our first quarter earnings call, our recorded results in 2018 are impacted by asset sales closed over the last 12 months. Therefore, if you look at our performance on a comparable basis and at constant currency, the second quarter saw revenue increase 3% and adjusted EBITDA grow 6%. This has led to an increase of our adjusted EBITDA margin by more than 200 basis points for Q2 versus the same period a year ago and reflects well the emphasis we have put on margin improvement in 2018. Now moving to our year-to-date results. When combined with our first quarter results, still on a comparable basis and at constant currency, our overall performance for the first half was equally strong as illustrated on Page 11. Revenue and adjusted EBITDA for the first 6 months were respectively 3% and 7% up versus the same period a year ago. Although these growth rates are consistent with our full year guidance, the first half of the year was slightly ahead of expectation, given that we are anticipating improvement in our financial results at UVM and Walden in the second half of 2018.
This was a strong performance across most of our segments but we would like to highlight a couple of areas where we performed exceptionally well. First and foremost, Brazil, where we continue to scale up our Distance Learning business and improve our margin despite challenging market dynamics. Congrats to our CEO in Brazil, JR, and the rest of his leadership team. Equally impressive is our operating performance in Peru, Iberia and EMEAA.
Now let's review in more detail our key operating metrics, starting with Page 13. As we have shared before, the new enrollment activity during May and June isn't really material, so the enrollment through year-to-date June, as shown on Page 13, are largely consistent with what we reported during our prior call when we shared our April year-to-date performance. Through the first 6 months, we grew new enrollment overall 4% when compared to prior year, which was in line with our expectations.
Let me now point to a few highlights for each segment. Brazil continues to perform very well for us. Our Distance Learning business grew new enrollment by 90% versus the same period a year ago, which is very impressive and illustrates the increased focus we have put on that operating segment. New enrollments in our face-to-face business were flat, with strong growth of 6% in payers partially offset by a further reduction in FIES-related enrollment, which now account for only 1% of our new activity.
In Mexico, our performance was mixed during a more challenging economic environment where we have observed weakening consumer confidence. On the positive side, our UNITEC brand, which operates in the value segment, experienced continued strong new enrollment growth. This was largely offset by the weaker performance of our premium institution, UVM. This was expected and is not the first time when we have observed that the premium segment tends to be disproportionately impacted during the weaker part of an economic cycle.
The Andean & Iberian segment continues to deliver solid performance, mostly led by continued growth in Peru in our 2 largest institution, UPN and UPC.
In EMEAA, our business in Australia is doing extremely well, with 8% growth in new enrollments.
Finally, Online & Partnerships experienced a slight reduction in new enrollments. However, we are pleased with the performance of our domestic online enrollments at Walden, which has been our primary focus and have steadily improved since the weak intake last fall. For year-to-date, domestic new enrollment at Walden are up 3% versus the comparable period a year ago, which is very encouraging.
Now let's move to our financial performance, which you will find beginning on Page 14. On a comparable basis, our revenue for the second quarter as well as for the first 6 months were up 3% versus the same period a year ago. Our campus-based operations delivered mid-single digit growth, driven by positive dynamics in most of our key markets. For the quarter and year-to-date, adjusted EBITDA was up 6% and 7%, respectively, on a comparable basis. We are very pleased with the progress of our margin improvement initiative, more specifically, the implementation of our new operating model in Brazil and our G&A containment actions across all segments, including at corporate.
It is worth noting that the turnaround of our financial performance in Mexico and our Online & Partnerships segments are still a work in progress. The lower overall enrollment levels and increased investment we're making in lead-generation activities still weigh on our results. We expect the improvement of their financial performance to be more visible during the second half of the year. Now let me discuss, briefly, highlights of our net income and cash flow performance, starting on Page 16. Net income for the second quarter was up $107 million versus a year ago due primarily to 2 factors: first, a onetime gain recorded upon the conversion of the preferred equity in April; second, a 36% reduction in interest expense, which is the result of our lower debt levels and reduced cost of debts. Terrific improvement in 2018 in that area. Year-to-date, net income is up almost $400 million versus a year ago, thanks, also, to a $300 million capital gain associated with the asset sales completed so far in 2018.
Moving now to our cash flow performance, which you will find starting on Page 18. Given the seasonality of our business and timing items that impact free cash flow, I'm just going to focus on the year-to-date performance as shown on Page 19. Free cash flow generation through June year-to-date was up $136 million from prior year, thanks to a $113 million reduction in interest as well as a $23 million of debt refinancing onetime expense we incurred last year.
Now before moving to guidance, I do want to take a couple of minutes to discuss foreign currency movements and the impact this has on our financial statements. First, a couple of context-setting remarks. Our business is naturally hedged at the country level, given that almost all of our country-based expenses are incurred in local currency. [ Consequently ], we face exclusively translation FX exposure when reporting our consolidated results in U.S. dollar. The strengthening of the U.S. dollar we've experienced recently has been a headwind for us, mostly because of the weakening of the Brazilian real and the Mexican peso. We have noticed that this has been an increased area of interest from investors and to help all of you better understand the impact of currency movement on our reporting results, we've provided a sensitivity analysis on Page 21.
Now let's move to our earnings guidance, starting on Page 23. Given our results for the first 6 months, we are reaffirming our full year 2018 guidance for all of our operating metrics. For Q3, our view is as follows: revenue is expected to be between $920 million and $940 million; adjusted EBITDA is expected to be between $95 million and $105 million. We believe this is consistent with the performance level we have delivered for the first 6 months and the fact that the third quarter is seasonally low from a P&L perspective, as classes are out of session for most of the quarter.
That concludes my remarks. Let me now turn it back to Eilif for the wrap-up.
Thank you, JJ. 2018 is clearly off to a strong start. The operating trends in the business and successes against our key priorities give me great confidence in the future. We believe that the further actions we plan to take with regards to portfolio simplification will accelerate our path towards the creation of an enterprise at scale that utilizes innovation and operating leverage to drive superior experiences and outcomes for our students and superior returns for our shareholders. Operator, that concludes our prepared remarks, and we are now happy to take questions from the participants.
[Operator Instructions] And from Macquarie Capital, we have Hamzah Mazari.
The first question is just on the asset sales. Maybe if you could just touch on -- I know you touched on valuation, maybe you could touch on, sort of, the time line investors should expect on closing the asset sales as well as sort of use of proceeds. Are you just going to delever to 1x? Is that optimal use of capital, or do you return cash back? Just any sense of that?
Hamzah, the plan is to launch the divestitures immediately. We have initiated the process. The different jurisdictions require different steps to complete the divestitures. Overall, we expect that by mid-2019, the vast majority of these divestitures will be finalized but recognizing there will be certain transactions that will be completed sooner and certain transactions that may take a little longer due to change of control approvals from the regulators. Your second question related to use of proceeds in -- the focus of the company is to delever the company and simplify our operations. The vast majority, if not all, of the proceeds will be used to pay down debt. That will strengthen the balance sheet and increase our go-forward flexibility.
Great. And just a follow-up question. I'll turn it over. I guess, in Mexico, you're front loading some marketing investments. In the Online & Partnerships business, there's also increased marketing investments. Maybe if you could just add a little more color on the investment spend and sort of, how that plays into the P&L. That would be helpful.
Sure. This is JJ. The jump-off point for both of those businesses was lower for different reasons. We had a shortfall of enrollment, as you may remember, at Walden last year and then in Mexico, the impact of the earthquake. And the impact that UVM tends to incur during weak part of the economic cycle actually encouraged us to really front load our marketing investments in those 2 units. So this is why we're still in a rebuilding mode. As I've said in my prepared remarks, we're expecting an improvement of our performance in the second half of those 2 units.
From Barclays, we have Manav Patnaik.
My first question is, so the incremental sales, it seems like a logical step. I guess, I was just curious, you've been going through this review process for over a year now. And I guess, it sounds like every quarter, there's a new asset you decide to sell. So what is that process? Like, is it -- like, why weren't these identified in the first time? Just curious on how you guys are going country-by-country and evaluating that fit in your portfolio.
As we have said before, and we -- I would certainly reiterate today, Laureate will continue to evaluate all of the appropriate institutions in our portfolios along with all of our other core capabilities. That is the best practice for any company. Last year, we announced an exit of some really small markets. We exited 7 countries, representing approximately 7% of our footprint. That was executed very nicely with over $1 billion in proceeds and very accretive to our shareholders, as we divested assets for 12 to 13x multiple versus a trading multiple about 6 to 7x. Upon reflection of that execution, we recognized that we can further optimize Laureate's portfolio. The steps that we are taking today causes us to exit about 15% of our markets in terms of students. We're going from about a million students to 850,000 students. So we're clearly focusing on the markets where we have scale, where we have terrific brands, and where we have a track record of growth and performance and strong student outcomes. So this is a natural extension of what we announced last year as part of the Accelerator Plan. We will continue to evaluate our portfolio, but we will not speculate or comment on any potential future portfolio optimization action on this or any other calls. But when we make portfolio decisions, we will, of course, in a very clear and transparent manner, communicate that to the market.
Okay, got it. Well, maybe asked another way. I guess, besides the scale in each country, I mean, I think the big 4 in LatAm together, I can see some of that logic. But I guess, in your portfolio, what's the advantage of having Australia, New Zealand, U.S. as part of that? Is it just diversification, or will they actually be talking to each other?
The online and hybrid division with English brands -- English language brands from the United States and Australia provides for terrific opportunities to expand in our working adult segment as well as through -- international students. We'll continue to evaluate our portfolio optimization, but we feel today, the way that we have organized the companies in an emerging market division with 4 large countries in Latin America, 800,000 students and a online hybrid division with premium brands in Australia and the United States gives us clarity and focus around those 2 business models.
Got it. Okay. Just -- and just last one around all Walden. I suppose, like the marketing issues you had earlier in the year or just competitive landscape, any changes there? Any other moving pieces going on in there?
Yes. We continue to expect that Walden's performance to improve in the second half of the year. As you can see on the remarks laid out by JJ, the performance on the Q2 was a slightly negative on minus 5%, but we view our business on a cumulative basis due to timing differences of certain intakes. If you take a look at the year-to-date performance and look at the domestic performance, Walden is growing nicely at 3%, and we continue to see that strength building for the rest of the year. And the difference is a de-emphasis on the international markets and less profitable partnerships ventures that we operate in.
From Goldman Sachs, we have Thiago Bortoluci.
I actually have 2 questions for you guys. The first one is specifically on Brazil. I see that you posted student base growing 4%, while constant currency sales decreased 4%, suggesting a potential ticket pressure, which I think is a surprise, given the indication that you are not making significant adjustments to pricing or discounts. Said that, I'd like to understand a little bit better, what is happening to prices in Brazil. This is the first question. And the second one is on M&A. Now that you're completing a second round of divestitures and focusing on your real core markets, would it make sense to imagine we are getting close to a moment when you'll be back to buy mode in these key geographies, especially in Brazil?
So Thiago, first of all, on the Q2 performance for Brazil, as you may remember from the first quarter earnings call, we mentioned a shift in the academic calendar in Brazil. And so we believe that -- between Q1 and Q2. So we believe that the H1 performance that you see on Page 21 is more indicative on what we're seeing in that business. Revenue was essentially flat, and our margin was up 11%. We haven't provided any specific guidance on pricing dynamics for Brazil or for any of our segments. The only thing I would say is that the pricing and volume are affected by the reduction of the FIES programs, but we feel we're competing very effectively in not only maintaining our face-to-face business but growing, very successfully, our Distance Learning business.
And your second question on M&A. Laureate is very focused on unlocking shareholder value. First step of that is to simplify the business, improving the financial characteristics through enhanced free cash flow generation, improved margins and improved growth profiles in our core markets. Secondly, it is through the divestiture process that we believe we'll be very accretive to shareholders as we are selling assets at a significant premium of our trading levels. That will be the focus over the next 18 to 24 months. That will also provide us with a very strong balance sheet that gives us plenty of flexibility going forward. There will be a time where there could be some very interesting inorganic growth opportunities in adjacent markets. But for the next 18 to 24 months, we are laser-focused on simplifying the portfolio, expanding margin, improve the free cash flow characteristics and double down on innovation in educational capability that will enable us to retain our leadership position in higher education.
From Piper Jaffray, we have Peter Appert.
So I have a couple of things. So number one, the margin performance was very impressive. I'm wondering if you're -- if you've revisited your margin targets longer term, given the momentum you're seeing?
Thank you. We are very pleased with the outcome and results from our margin actions related to the Accelerator Plan. The further focusing of the company will further enhance our margin profile. JJ was very clear on the guidance for 2018. We will get back to you with further updates into 2019 at the right time. But we clearly feel very confident that we're going to deliver on our commitments as presented and that there are further margin expansion opportunity in the company as we are further simplifying and integrating.
Peter, the margin guidance we provided for [ 2020, ] which is 21% for adjusted EBITDA margins and 11% for unlevered free cash flow margin are unchanged following the next round of divestitures.
Okay. Great. And then, JJ, any preliminary thoughts on the tax implications of the asset sales?
We have a very tax-effective honing structure that allows us to minimize [ rate ] tax friction associated with asset sales that are located outside of the U.S. So I would not expect a material tax friction as a result of those asset sales.
Okay. And then lastly, I know you're not trying to be precise on this, but you talked about $1 billion of proceeds, $100 million of EBITDA. So just back of the envelope implying maybe 10x EBITDA, which would, theoretically, be a little bit less than you've sold the prior assets to. Was that the messaging, or are those just round numbers?
Those are round numbers. We have terrific assets that we divested as part of last year's announced Accelerator Plan, with combined multiples of close to 13x. The assets that we have announced this morning have very similar characteristics, but there are certain differences, and we have given guidance that we are very comfortable with the, as you say, the back-of-the-envelope zip code of what is achievable.
From BMO, we have Jeff Silber.
It's Henry Chien calling for Jeff. Just a question on Andean & Iberian segment. Just curious on -- because I know Spain and Portugal are a good part of that segment. I -- just curious, why is that market, I guess, performing better than other countries in Europe, and also, just -- the margins are improving pretty strongly there. I'm just curious what's driving that, and where are you getting the savings, and is that sort of a temporary -- well, not temporary, just, kind of, this year cost savings, or is this more of like an operating structural change?
The Andean and Iberian region are both -- the 3 countries are performing really well for us in terms of new enrollment, total enrollment and the key KPIs of the business. We are -- as an entire company, we are focused on optimizing our G&A and, what is being reflected in the numbers is just great execution on those 3 markets.
I'd also add, for Spain, the team has launched a terrific online business that is growing very, very rapidly. It's adjacent to the brands in Spain. And also, there's a little bit of pent-up demand or recovery from a period of weak economic performance in Spain for the last decade or so, and we are seeing some tailwind from improved macro conditions.
Got it. Okay. Great, that's helpful. And yes, actually, just, the follow-up is just on online. It sounds like it's going pretty well in Brazil, and you mentioned Spain. Just curious on the process for rolling out online in the different markets, if that's sort of on the table.
We continue to examine the expansion of online in other markets than the ones that you have mentioned. As an example, in Mexico today, we have approximately north of 25,000 students in purely online, fully online enrolled students with great profitability metrics as well. And that is gaining scale, and that will continue to be an area where we examine expansion in Peru and also in Chile.
From Baird, we have Jeff Meuler.
I guess I'm just trying to parse out, how much of the next wave of actions is being opportunistic on the valuation spread that you see between public and private markets right now versus what exactly is the long-term strategy of the company? Do you continue to sell assets, or are we essentially rebasing the portfolio, and then are there any other markets that you want to acquire into Africa or whatever longer term? Just, what is the long-term strategy of the company, and what type of steady-state leverage do you plan to operate at to the extent to which there's a change there, like is the 1x a new steady-state target?
Jeff, as I mentioned earlier, management believes that the Laureate stock price is currently trading at a significant discount to the underlying value of the individual universities. So clearly, management wants to unlock such value for all shareholders. And the plan that we announced today has 2 critical components to it. One is to initiate the divestiture of noncore assets that are extremely accretive, or we believe and expect to be extremely accretive to our current trading levels. But secondly and equally important, the retained business will enable us to focus and further integrate around 2 distinct business model. One emerging market, large, at-scale, 850,000 students in 4 countries in Latin America. So significant scale, and we believe that, that will enable us to faster deploy new innovation, online capabilities and product offerings that will enable faster growth and stronger margin performance around that integrated network of more homogeneous countries in the same region. And then secondly, having a asset-light global business with great English-speaking brands in higher education around working adult in particular, leveraging our brands in the U.S. and Australia. So there will be very -- 2 very distinct businesses, both at scale, both with great financial attributes and both with great prospects for growth and improved free cash flow conversion.
And just as you're focused on unlocking that value, it sounds like you're open to continuing to evaluate divestitures. But I guess, the question, is that further integration that you're doing, [ the comment back at meta ], et cetera, does that make it more difficult to divest additional assets after this current round, or would that not be the right interpretation?
I'm not going to speculate on any further potential portfolio optimization actions in any specific geographic market. However, we have a track record of integrating at the brand and the country level, and we have an opportunity to take those capabilities and create further value enhancement by leveraging our technology, our best practices, our management expertise and our curriculum and innovation tools over broader markets in Latin America, and we intend to do so. And that can be done in a very responsible manner, and nothing is permanent in that regard. There's always an opportunity, of course, to carve out as needed. But our focus is to build an integrated business model around common homogeneous markets in Latin America.
Okay. And then just finally, with the movement in FX rates, JJ, can you just remind us from an interest expense perspective, how you're hedged on FX rates?
Yes. So if you look at the gross debt, it's about 2/3 in U.S. dollars and 1/3 in non-U.S. dollar currency. But of course, because of interest rate being higher outside of the U.S. than in U.S., if you look at interest expenses per se, it's about 55/45. And we have a couple of swaps in place between variable and fixed and between euros and USD.
[Operator Instructions] And from Stifel, we have Shlomo Rosenbaum.
JJ, after the divestitures, are you going to have any major geographies of particularly low margins? Or is the company going to be to -- or an area where the remaining business is going to actually be a pretty high-margin business?
Shlomo, the long-term guidance we are -- we've provided at Investor Day is not going to be altered by this next round of divestitures. That means that's not only our starting point but also, the margin improvement we're expecting in the business remains grossly unchanged. And that is due to the fact that, as Eilif mentioned, we are not divesting a very large part of our portfolio from a student base perspective. We're keeping 850,000 students out of 1 million. That's why the numbers, broadly defined, are not changing materially.
If I could just add to that, Shlomo, the improvement opportunities for us, as you can see from the segment reporting, is Brazil. And we have an enormous focus on improving margin in Brazil and underscore tremendous track record over the last couple of quarters to deliver that, and there's more to come. I would also add although we're not changing the guidance, clearly, as we are simplifying the company, there will be an opportunity for rightsizing capabilities, overhead, regional infrastructure, corporate expenditures, et cetera. And I do believe that the further integration of these large 4 countries in Latin America will also provide for margin upside. We are not changing the guidance right now. At the right time, when we have successfully executed on our divestiture plan, we will revisit opportunities. But we are very confident that these simplification actions will result in improved prospects in the medium and long term for the retained franchise.
Okay. And just, could you give us a little bit of an update on Turkey? There was a comment in the slides about a 4k quota reduction. Can you just explain what's going on over there?
Sure. Turkey, as you will -- as you may recall from prior discussion, we are contesting the decisions of the regulator in the administrative courts. But in the meantime -- that's a lengthy process, in the meantime, we have complied with all the requirements and are in good standing with the regulators. As part of that regulatory -- new regulatory set of frameworks, we had a quota reduction that caused our enrollments to decline. And we have taken appropriate cost actions to rightsize the business. The academic quality of our institutions in Turkey continues to be excellent. And as I said, we are in good standing with the regulator, although we are preserving our rights to contest some of these new rules and decisions made by the regulator.
Okay. And then just in terms of -- Eilif, you're -- you sound, and your actions seem to be very, very focused on unlocking shareholder value. After the last round of divestitures, the valuation of the company did not change materially. If you don't see that happen with this round of divestitures, is it fair to assume that you're just going to keep unwinding to the point that the cash really just exceeds the equity value of this company?
We are very committed and confident that the actions that we have announced today are going to unlock significant value. I recognize that over the last 12 months or so, our stock price has been a stubborn, maybe, lagging indicator of performance. The first wave of the Accelerator Plan we have done, what we have said what we were going to do, and it may be interpreted as outperformance, both in terms of value realization from the divestitures as well as getting margin performance improved. And I believe that these new steps that management is taking is going to further strengthen the company. But the market is going to determine the ultimate stock price. So I'm not going to speculate and comment beyond that. But I really feel, and the management is fully aligned with me, that these are the right steps to take to unlock shareholder value and build a great network for our students.
And we have [ Emmet Kuritsky ] online.
I guess, on the focus on the proceeds and over the next year and pay down of debt, have you -- I know you guys have been particularly attentive to the mix of foreign debt versus USD debt. And I know you just mentioned the hedges before. Have you also thought about, kind of, as you're deleveraging the higher coupon, maybe more expensive debt that you've generally avoided in the past, but given the, I guess, the scale of the deleveraging, how you might be able to really take advantage of less expensive financings in our market, whether it be a global refinancing or something to take advantage of that opportunity?
This is JJ, [ Emmet ]. There are multiple elements that we take into consideration when planning our proceeds to our debt structure. The first one is trying to increase, as much as possible, the match between our capital structure and our source of earnings. So we still have some ways to go. But the preference usually is to repay down the U.S. dollar-denominated debt as a result of that. The second element is also tax effectiveness. So although the coupon might be lower in the U.S. because we're in a net loss position, it's not as tax effective than some of the other jurisdictions. So that's the second element. And the third element, in terms of conditions that are associated with various instruments and our ability to repay early that debt, that's why we've applied it to the term loans and not bought back the notes because [ there are new ] call options for a certain period of time. And we would have to incur some breakage fee that -- and that becomes, obviously, very expensive. So we are disciplined in the way we are using the proceeds. Two themes are trying to maximize cash flow in the form of tax-effective interest rates and also, further optimize the matching between the capital structure and our earnings profile by currency.
No further questions at this time. We will now turn it back to our speakers for closing remarks.
Thank you, operator. We appreciate your engagement and continued interest in Laureate. We are very positive and bullish on our go-forward strategy, not just because of our strong quarter but also because of our strategic simplification that will enable us to provide stronger financial go forward attributes as well as very accretive divestitures that will significantly strengthen our balance sheet.
With that, I thank you all for your participation on today's call.
Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.