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Ladies and gentlemen, thank you for standing by, and welcome to the Q2 2021 Laureate Education Earnings Call. [Operator Instructions] I would now like to turn the call over to your host, Adam Morse.
Good morning, and thank you for joining us on today's call to discuss Laureate Education's second quarter 2021 results. Joining me on the call today are Eilif Serck-Hanssen, President and Chief Executive Officer; and Rick Buskirk, 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 to 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 would like to remind you that some of the information we are providing today, including, but not limited to, our financial and operational guidance constitutes forward-looking statements within the meaning of applicable U.S. securities laws. Forward-looking statements are subject to risks and uncertainties that may change at any time, and therefore, our actual results may differ materially from those we expected. Important factors that could cause actual results to differ materially from our expectations are disclosed in our annual report on Form 10-K filed with the U.S. Securities and Exchange Commission, 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, among others, adjusted EBITDA and its related margin, total cash, net of debt and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. With that, let me turn the call over to Eilif.
Thank you, Adam, and good morning, everyone. The second quarter marked a key inflection point for Laureate on 2 fronts: First off, from an operational perspective, we are now at total enrollment volume levels that are above pre-pandemic levels. The resiliency of Laureate's business model has been proven throughout this pandemic, and we have now return to growth. Our operating performance through the first 6 months of the year was robust and ahead of expectations, and on the strength of that performance, we are now increasing our guidance for the full year 2021. Second, following the successful closing of the sale of our operations in Brazil, we repaid our outstanding senior notes and are now in a net cash position of $354 million as of end of June. After closing the pending sale of Walden University, which we anticipate to occur shortly, our pro forma June cash balance would equate to approximately $1.65 billion, which is more than $8 per share in cash value. As discussed previously, we plan to return excess capital to shareholders in the coming months and are evaluating the most tax-efficient ways of doing so. In addition to having a strong balance sheet, our operating models in Mexico and Peru are cash accretive. We are operating in attractive markets with favorable growth dynamics and expect to be able to deploy capital efficiently to generate strong returns for our shareholders. As a reminder, the demand for higher education in both Mexico and Peru is large and growing, fueled by rising participation rate. We have top rank brands in both markets, serving the traditional segment via our premium brands and the more price-sensitive segment by our high-quality value brands. We have over 50 campuses throughout Mexico and Peru that anchor our strong brands and are leveraging that brand power to become the market leader in online education. Digital delivery is increasingly important in both markets as students expect to be able to access affordable quality education via a flexible hybrid delivery mode. This trend has been further accelerated by the COVID-19 pandemic. We believe that we are well positioned to take advantage of this growing market dynamic during the next 3 to 5 years. I will now turn the call over to Rick Buskirk for a more detailed financial overview of the second quarter and year-to-date performance as well as our guidance outlook. Rick?
Thank you very much, Eilif. As a reminder, the second quarter is an important earnings period for the company. It typically represents nearly half of our adjusted EBITDA for the full year as classes aren't in session for much of the quarter. Let me now provide a summary of our financial performance for the quarter, which we are very pleased with, starting on Page 10. Revenue in the second quarter was $328 million and adjusted EBITDA was $107 million. Revenue and adjusted EBITDA were both ahead of the guidance that we provided 3 months ago. On a comparable basis, in a constant currency, revenue and adjusted EBITDA for the second quarter were up 9% and 25%, respectively. The strong revenue performance in the quarter was led by Peru, which experienced 19% year-over-year growth. The favorable results in Peru were driven by a strong cycle 1 intake and significantly improved retention, driving total enrollment growth of 18% year-over-year. Moving now to our year-to-date June results. When combined with the first quarter, still on a comparable basis in a constant currency, our overall performance for the first half resulted in revenue growth of 7% and more than a doubling of our adjusted EBITDA, which increased 107%. As you may recall from our discussion last quarter, last year, due to the COVID-19 pandemic, the start of certain classes in Peru were pushed to the second quarter of 2020. This timing difference skews year-over-year comparability for our performance and resulted in approximately $18 million more of revenue and related earnings recognized in the first half of 2021 versus prior year. Adjusted for those timing impacts, still on a comparable basis in a constant currency, revenue for the 6 months of 2021 was up 4% versus prior year, and adjusted EBITDA increased 83%, driven by Peru and corporate G&A efficiencies. Let me now provide some additional color on the performance of Mexico and Peru, starting with Page 13. Please note that all comparisons versus prior year are on an organic and constant currency basis. Let's start with Mexico. Through the first 6 months of the year, Mexico has completed its smaller cycle 1 and 2 intakes, which typically represents around 40% of the total intake for the year. The cycle 2 intake in particular was solid, driving new enrollments up 11% versus prior year through June. We continue to see a mix shift between traditional face-to-face programs and our fully online programs that has been accelerated by the pandemic. Total enrollments are up 1% versus the prior period, reversing the negative trend that we have been experiencing since the start of the pandemic. We are encouraged by these recent trends, and we believe that we are coming out of the low trough point in Mexico. We will be able to validate that more fully once the large intake is completed in September, but early signs are encouraging. Revenue for the quarter was down 7% as a result of increased levels of discounts and scholarships required during the pandemic combined with the mix shift between face-to-face and fully online. Finally, adjusted EBITDA was down 21% year-over-year on a comparable basis, resulting from revenue declines and the high flow-through impact from increased discounts. Let's now transition to Peru on Slide 14. Through the first 6 months of the year, new enrollments in Peru were up 14%. Total enrollments increased a robust 18% versus prior year, driven by the strong intake plus a double-digit improvement in retention rates as we have seen many students who dropped out last year when the endemic began are now returning for their studies. Revenue for the quarter was up 19% on a constant currency basis. Revenue growth was driven by the enrollment increase. Adjusted EBITDA of $114 million for the quarter was up 27% as compared to the second quarter of 2020. The increase year-over-year resulted from the strong enrollment intake and improved retention. Please note that year-to-date June revenue and adjusted EBITDA were favorably impacted by the academic calendar timing discussed earlier. Year-to-date results adjusted for timing were up 19% and 69%, respectively. Let me now briefly discuss our balance sheet position illustrated on Page 15. As of June 30, we were in a net cash position of $354 million, and total shares outstanding were approximately 188 million shares. This compares to a net debt position of $286 million as of March 31. During the second quarter, we completed the sale of our operations in Brazil and used the proceeds to repay our outstanding 8.25 senior notes. Over the past 2 years, we have turned Laureate from a highly levered company to now being in a net cash position, a truly key milestone for our organization. Additionally, we anticipate net proceeds from the sale of Walden University and select smaller tail payments from previously completed divestitures to generate approximately $1.3 billion after taxes and fees. On a pro forma basis, this puts Laureate's net cash position at $1.65 billion as of June 30. As Eilif alluded to in his opening remarks, that equates to more than $8 per share in cash value.
Now let's move to guidance, starting on Page 17. On the strength of our first half results and the positive momentum that we are seeing in the business, Laureate is increasing its full year 2021 guidance as follows: for continuing operations in 2021, total enrollments are estimated to be approximately 350,000 students. Revenues are estimated to be between $1.025 billion and $1.065 billion. Adjusted EBITDA is estimated to be between $205 million and $215 million. Please note that this includes approximately $13 million of noncash charges related to the write-off of an indemnification asset associated with the prior period acquisition. Eilif, that concludes my remarks, handing it back to you for closing comments.
Thank you, Rick. We continue to be encouraged by the momentum in the business under our new operating model as a regional operator of higher education institutions in Mexico and Peru. We look forward to closing the pending sale of Walden University during the third quarter and completing our transformation into a higher education company focused solely on Latin America. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants.
[Operator Instructions]
We have a question from the line of Shlomo Rosenbaum with Stifel.
This is Adam on for Shlomo. Just curious if you could kind of quantify or kind of further illuminate on the discounting that was impacting the results of this period? And kind of why there is more in Mexico versus Peru?
The -- this is Eilif. The discounting in Mexico was what we did in order to help our students during a very difficult time during the pandemic. And those discount levels were slightly higher in Mexico than Peru, but they are relatively short term in nature. Also, what is -- what we experienced in Mexico, which we experience to a much lesser degree in Peru, was that students would flip over to online delivery during the pandemic. So there was a past the migration to fully online. And those 2 effects combined were driving a -- what we view to be a temporary reduction in the average pricing in Mexico.
And if you could quantify how much that impacted the revenue?
Rick, do you want to comment on that?
Yes. You can see in our financials that we published in the segment reporting that increased discounts and scholarships on a year-over-year basis were approximately around $30 million.
Okay. And then the enrollment outlook seems better for the year. Could you figure out the improvement kind of between Mexico and Peru?
Eilif, did you want to take that question? Or...
Sorry, I was on mute. With that, the comments around the growth in total enrollment, Adam?
For the improved outlook for the year, kind of how much was coming from Mexico versus Peru? Factored into the uplift in the...
We don't give guidance by segment. But clearly, we are very, very encouraged by the trends we are seeing in Peru, and we expect them to continue. And just as a reminder, Peru's main intake was in what we call cycle 1, which was February, March. And in Mexico, the main intake is in September. And what we experienced in Peru was that we had some softness in the smaller intakes, but the main intake as students were more determined to come back. And we are seeing some similar trends in Mexico, but it is too early to conclude. We'll provide more specificity around the volume outlook for Mexico during our third quarter report.
Okay. And so the adjusted EBITDA guidance improvement, how much of that is coming from just kind of core operational improvement versus taking out standard corporate expenses related to the acquisition or asset?
Rick, do you want to take that?
Yes, it's a combination of both. What you can see is -- to answer your question directly first on the corporate G&A side, you'll see our first half, we took that down around $8 million. You'll see that in the financials related to segment reporting. So reduction in G&A as we step down to rightsize the organization after the disposition. And the rest of the outperformance was related to the overachievement, mainly driven by Peru, is the answer.
Okay. And will share buybacks continue to be the preferred method to return capital to shareholders, if any change in thinking around that?
We are still very committed to returning excess capital to our shareholders. We have a strong cash position now, and we will be even in a stronger position at the close of the Walden transaction. And we are working on ways to return capital in the most tax-efficient manner for our shareholders, and we will provide more details on that after the closing of the Walden transaction.
Okay. And I guess the last question would be, for the -- you just mentioned that $13 million charge for the indemnification. Can you kind of provide a little more color on that?
Yes, we had a historical acquisition in Mexico for one of our campuses. And when you have an acquisition, you essentially have an indemnification asset that's on your books. And then after the statute of limitations expires, the way it works from an accounting perspective is that gets reversed and essentially expensed that asset. It doesn't get utilized. So it creates a noncash charge on our income statement.
So it's a geography matter. It's a drag on EBITDA, and it's a favorability on the income tax line. So it's neutral on the net income.
[Operator Instructions] Next question comes from the line of Bill Goldman with [ Cetus Capital. ]
Congratulations on a good quarter. Just wanted to get a sense on the timing for the Walden deal. When do you guys see that closing?
There are just some -- what I would characterize as mainly administrative matters outstanding to satisfy the CPs for closing, and both [ Walden ] and Laureate are working collaboratively and expeditiously towards a successful closing in the near future. I can't be more specific on that, but certainly, we have a high confidence that this is a third quarter item.
Fourth quarter, you said?
Third. Third quarter.
[Operator Instructions] And this concludes today's conference call. Thank you for participating, and you may now disconnect.