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Welcome to the Q3 2018 Laureate Education Earnings Conference Call. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note, the conference is being recorded. I will now turn the call over to Adam Morse.
Thank you, operator. Hello, everyone, and thank you for joining us on today's earnings call to discuss Laureate Education's Third 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 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 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, the SEC; our 10-Qs, filed earlier this year; 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. Before discussing our results for the quarter, I do want to note for everyone that our financial statements are now being presented differently than in the past, with our retained markets being shown as continuing operations and all of the previously announced divestitures that are part of our strategic shift, including the divestitures we announced during 2017 and on August 9, 2018, are now accounted for as discontinued operations for all periods presented. Therefore, when reviewing our results, keep in mind that the revenue and adjusted EBITDA presented, and which we will be discussing today, only include the results from continuing operations. Later in our prepared remarks, JJ will help bridge the performance and guidance, so that you understand how the financial results track against the prior presentation of our financial statements. 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 very pleased with the progress towards executing on our operational priorities as outlined during our Investor Day that we held at the beginning of this year. The simplification of our portfolio and related strengthening of our risk management profile continue to yield tangible results. Our debt leverage level is at a 10-year low and our free cash flow profile of the company has been significantly improved, and we are on track to deliver on our 2020 commitments through the creation of a more focused business model. Specifically, our asset divestitures for Wave 2 are well underway, with banks engaged in all markets, information memorandums largely completed and most of the assets already in market. The initial level of interest for many of these businesses has been very strong. We are confident in the ability to deliver in excess of $1 billion in gross proceeds. In terms of timing, we remain on track with our goal, which is mid-2019 for the closing of the majority of these transactions. We also have many reasons to be very proud of our network institutions and the leading positions that they have in their respective markets. Quality and student outcomes are at the core of everything we do. And it is evident in the result from the recent Enade exams in Brazil for engineering and science courses, where Laureate's institutions posted the largest improvement year-over-year amongst the publicly listed education players. Across our network, we have many other recent examples of quality, including Peru, where UPC recently attained a 4-star rating from QS Stars, making UPC the only 4-star-rated university in that country. Another good example is UEM in Spain, which was recently ranked as the fourth best private university in Spain by El Mundo. Our commitment to quality and students also drives our innovation in program development activities and the process by which we continually and proactively adapt our curriculum to the needs of the market. A great example of this is the partnership we announced earlier this year with IBM to jointly develop state-of-the-art data science curriculum, exclusively offered to students attending Laureate institutions. And earlier this week, we announced another new and exciting collaboration, this time with Amazon, for the distribution, faculty development support and delivery of AWS authorized courses offered and maintained by AWS Academy. The first 2 courses to be launched within the Laureate network institutions are Academy Cloud Foundations and Academy Cloud Architecture. This ensures that our students are prepared with the in-demand knowledge and skills that are relevant to today's employers, a top priority. These are just 2 examples of the student-centric initiatives we have in our innovation pipeline. At Laureate, we believe in the power of education to transform lives and the need for the private sector to provide access to affordable high-quality education in the markets that are underserved. Our company has changed a lot since going public, but our core mission remains the same. Without this transformation, we will -- sorry, throughout this transformation, we will continue to ask ourselves how Laureate network can be most impactful and we keep coming back to the power of scale. Through scale, we can maximize the value for our network by transitioning our university from sizable, decentralized stand-alone units into a more integrated network of universities, enabled by a common operating model, leveraging our competitive advantages in technology, intellectual property and curriculum design. In addition, we believe a more focused geographic footprint will allow us to further leverage scale and enable greater optimization of our cost structure. As part of this transformation, we previously announced the divestiture of many of our smaller markets and we are focused on creating 2 scaled enterprises: one campus-based business primarily focused on emerging markets in Latin America; and one fully online platform in the United States. These business models will both be at scales, but they are very different in terms of students that we are serving and the market dynamics in which they operate. We are currently evaluating the strategic fit of having these 2 scaled, but different, business units together in one organization. As such, we are considering various strategic options for Walden University, with the goal of providing the best possible experience for Walden students as well as ensuring the best position for Walden, for Laureate and for our key stakeholders. We have initiated exploratory discussions with third parties regarding possible alternative transactions involving Walden. We are very proud of the quality and strength of Walden, and we are committed to maintaining that quality. At this time, there is no assurance that we will engage in any transaction. These discussions may result in us deciding to retain Walden within Laureate. If we determine it is appropriate to pursue a strategic alternative for Walden, the earliest we anticipate any transaction should close would be the fourth quarter of 2019. We expect to have more information on this process in the coming quarters, and we will provide timely and appropriate updates. Now moving to the summary results for the quarter. Our adjusted EBITDA was ahead of guidance for the third quarter and is on track to deliver expected results for the full year despite recent foreign exchange headwinds. Our cost actions and modern expansion initiatives are delivering tangible results and according with expectations. Additionally, we just completed the large September intake cycle and the results were solid, with new enrollments increasing 4% year-over-year for both the quarter and the year-to-date period. Total enrollments came in a bit lighter than expected due to slightly higher attrition in certain markets and our continued focus on driving growth in our most profitable segments. Walden enrollments continue to be stable in our core domestic market, where new enrollments increased 3% year-to-date versus 2017 as compared to being down 3% in the comparable 2016 to 2017 period. I will now turn the call over to JJ for a more detailed financial overview of the quarter and year-to-date 2018.
Thank you, Eilif. Before discussing the results for the third quarter, let me make a couple of reminders. First, starting this period, the results shown for enrollments, revenue and adjusted EBITDA offer continuing operations as noted in the header of those relevant slides. For net income, cash flow and balance sheet metrics, the results shown will include the discontinued operation consistent with the way we are reporting them under U.S. GAAP. Finally, the third quarter is a seasonally low quarter as many of our institutions are in a break during most of July and August. However, it does represent 1 of the 2 largest enrollment intake cycles for the year. With that being said, let me now provide you with a summary of our financial performance for Q3 starting on Page 6. Revenue in the third quarter was $787 million. Adjusted EBITDA was $121 million, which as Eilif noted is ahead of the guidance we provided 3 months ago. On a comparable basis and at constant currency, our revenue for Q3 increased 3% and adjusted EBITDA grew 28%. This has led to an increase of our adjusted EBITDA margin rate by more than 300 basis points for Q3 versus the same period a year ago and illustrates the strong focus we have put on margin improvements in 2018. Let's now review in more detail our operating metrics starting with enrollment on Page 8. As a reminder, the third quarter is the primary intake for our institution in Mexico, but also represents a sizable secondary intake for our institution in Brazil, Chile and Peru. Finally, for our online and partnership segments, although their intake is more evenly distributed across the year, September is one of their largest enrollment months. With that in mind, new enrollments in Q3 grew 4% when compared to the same period a year ago and is very consistent with the overall performance we observed during the first half of 2018. Now let me provide some additional color by reported segment. First and foremost, Brazil, which continues to perform very well for us. Our Distance Learning business grew new enrollment year-over-year by 59% through September, which we are very pleased with, and is the result of the investment we have been making in order to bring this operating segment as quickly as possible to scale. While new enrollment for our campus-based operations were flat, our payer segment grew 9% and was completely offset by the continued reduction of our new enrollment associated with a government-sponsored program like Fies. In Mexico, performance was mixed and consistent with what we experienced during their first intake in March. As we've discussed during our prior call, the economic environment remains challenging and the eroding consumer confidence continues to impact the higher education sector overall. Despite these difficult dynamics, our UNITEC brand is still growing thanks to geographic expansion initiatives outside of Mexico City. Our Andean segment delivered another period of solid performance, mostly led by our 2 largest institutions in Peru: UPN and UPC. In our rest of the world segment, our business in Australia is doing extremely well, with 8% growth in new enrollments. Finally, online partnership new enrollments were flat for the quarter. We did grow domestic new enrollment 4% for the quarter and 3% year-to-date at Walden, but as expected, this was offset by our international segment, which has been gradually deemphasized throughout the year. Now let's move to our financial performance, which you will find starting on Page 10. On a comparable basis, our revenue for the third quarter was up 3%, while adjusted EBITDA was up 28%. Our overall results were driven by strong revenue performance in Andean and Australia as well as margin improvement fueled by the benefits of our G&A containment action as well as the acceleration of our operating model transformation in Brazil. I would like to take this opportunity to congratulate Ricardo Berckemeyer, our President and Chief Operating Officer, and all the operating leaders in aggressively driving margin improvement while continuing to focus on enrollment and revenue growth. Let's now move to our cash flow performance. Given the seasonality of our business, I'm just going to focus on the year-to-date performance as shown on Page 15. Please note that our cash flow statement includes the impact from continuing and discontinued operations. Overall, free cash flow generation for the first 9 months was up $128 million year-over-year thanks mostly to a $170 million reduction in interest expenses. As we have reiterated throughout the year, balancing cash flow generation with the need to support our enrollment growth has been a strong point of emphasis in 2018. More importantly, despite the FX headwind this year, which have amounted to about $30 million versus last year, we are still on track to deliver a $200 million free cash flow improvement year-over-year. Now let's move to our earnings guidance starting on Page 17. For the full year and for Q4, our guidance on total enrollments, revenue and adjusted EBITDA only reflects the anticipated performance of our continuing operations. Let me start with the full year guidance. Total enrollments are expected to end flat when compared to 2017. Revenue, based on current spot FX rates, is expected to be between $3,340,000,000 and $3,355,000,000. This represents a year-over-year organic constant currency growth of 2% to 2.5%. Adjusted EBITDA, still based on current spot FX rates, is expected to be between $615 million and $620 million and would represent a year-over-year organic constant currency growth of 7% to 8%. Please note that this is net of a $10 million negative impact associated with FX as well as approximately $35 million of G&A expenses, which are expected to be progressively phased out following the completion of our announced divestitures. Finally, from a capital structure perspective, we are still expecting to receive at least $1.5 billion as net -- in net proceeds between now and the end of 2019. Approximately $500 million is mostly associated with our assets divested in the U.S. and Malaysia and $1 billion is the net proceeds anticipated for divestitures announced this past August. For the fourth quarter, our guidance based on current spot FX rates is as follows: revenue is expected to be between $903 million and $918 million; adjusted EBITDA is expected to be between $221 million and $226 million. Let me now turn it back to Eilif for the wrap-up.
Thank you, JJ. We believe in the power of education to transform lives and the role that the Laureate network can play to benefit our students, the communities we serve and society. The focus of the management team is to create a simplified enterprise at scale that utilizes innovation and operating leverage to drive superior experiences and outcomes for our students and the best possible return for shareholders. We are moving aggressively to accelerate our path towards these goals. Operator, that concludes our prepared remarks, and we are now happy to take any questions from the participants.
[Operator Instructions] And our first question is from Hamzah Mazari from Macquarie.
This is Mario Cortellacci filling in for Hamzah. As you look at your current markets where you can scale, such as Brazil, Mexico, Chile, Peru, the U.S., Australia, what do you see is your biggest opportunity margin-wise? And where do you see more risk to your ability to scale and maybe the risk that you -- that could increase as you scale?
This is Eilif. A clear opportunity for us to scale is in Brazil, where we have significant margin upside, but we also believe that through tighter integration of the 4 Latin American countries that has very homogeneous operating conditions is going to provide a very important lever for scale benefits throughout the network. We also believe that leveraging more common and scalable innovation opportunities, such as the branded new program development offerings that we have launched through Amazon and through IBM, is also going to provide significant scale benefit and differentiation opportunity for the network.
Sorry, Hamzah, (sic) [ Mario ] this is JJ. I just want to provide just a reiteration of the guidance we shared during Investor Day. I think from a margin perspective, we are still on track to provide about 210 points margin improvement between now and 2020, where we will reach 21%. That's about 70 basis points per year for the next 3 years. We'll be slightly ahead of that this year, and I think the view is that, that will continue in 2019.
Okay. And then just one quick one and then I'll turn it over. Could you give us a sense of what you're seeing in terms of labor inflation across your markets and whether that has ramped at all and maybe your ability to increase pricing to offset that?
This is still JJ. Inflation tends to be anywhere between 2% and 4%, depending on the markets where we operate. Our pricing -- net pricing dynamics really are a function of the competitive dynamics we see in each market and really the strength of our brands. Apart from Brazil, where right now pricing dynamics tend to be below inflation, we are at inflation or slightly above it.
And is labor inflation anything in particular, or just -- you're just speaking about inflation overall?
Labor inflation. I mean, when we're talking about inflation, there's really 3 types of cost elements that are really impacted by it. One is labor and salaries. The second piece is really our facilities and for the ones that are at least, typically, are indexed and so therefore, follow the inflation index. And of course, we've got other types of expenses, such as professional services, that also tend to follow inflation. So our view is that if we're able to maintain pricing at or above inflation, there's going to be a natural margin accretion from our enrollment growth.
Our next question is from Jeff Meuler from R.W. Baird.
This is Nick Nikitas on for Jeff. Just on the Walden announcement and the timing, just given the turnaround there and the new enrollment strength that you guys have seen earliest improvement year-to-date, can you just talk more about why now? And is that driven by just a multiple differential you're seeing versus comparable assets or kind of the evolving strategic direction of the company?
The last couple of quarters, I'd say, majority of the last 12 months, we have focused very aggressively on strengthening Walden, turning around the trends, offering new and more innovative products, competency-based learning, as an example, has been a real important driver for Walden growth and strengthening. So priority number one was to make sure that Walden reached its potential. And I'm incredibly pleased of the great work that the Walden team, under Paula Singer's leadership, has done to strengthen the performance and the perception of Walden over the last 12 months. So that was job one. Job number two was we are looking to unlock value in order to simplify our portfolio, and we have taken steps starting back in May of last year and then continued with the announcement that we made in August of this year to exit markets that are not at scale and are not markets that we wanted to double-down on and focus our attention on. That took us to the strategy of having 2 scale operations and largely an emerging market campus-based business and an online business, which was largely centered around Walden. These are 2 great businesses, but we are asking ourselves, are they best served under a single ownership structure. And in that regard, we have engaged internally in strategic discussions. We have engaged external strategy consultants to help us think through that, and that led us to also deciding to make a full and complete disclosure that we are engaging in those discussions and we have initiated a couple of exploratory discussions with third parties. I'm not going to comment beyond that, given the sensitive nature of any of these discussions, beyond saying that we are open-minded to retaining Walden as well as pursuing accretive opportunities for Walden that is good for Walden, good for our students and of course, good for our -- the stakeholders.
Okay. And then I think in the past, Australia has been mentioned as part of the online focus. I realize it's small, but would that be included in potential divestiture? Or is that still part of the ongoing company at this moment?
Australia will be a continuing part of Laureate. It has an online component, but it also has a sizable campus-based presence, and it is an institution that, as JJ noted, is performing really well, strong growth. And I would also like to note that a lot of the innovation that takes place around the network is either being tested or initiated in Australia. So it has served a nice role for the network.
Okay. And then just looking at the full year guide, it looks like the organic enrollment in revenues are a little bit lower than they were previously. And I know you called out the macro headwinds, but is there just anything else besides that? And could you talk about specific geographies where you're seeing some macro headwinds and if that's kind of stabilized throughout the year?
Yes, the guidance for both total enrollments and revenue came respectively by a couple of points. On the enrollment side, really, the soft spots for us remain the same as we've communicated in prior earnings calls. It's the very challenging competitive environment in Brazil. It's Mexico as well, mostly for a higher-priced institution, UVM, that tends to be disproportionately impacted when you go to the weaker part of the economic cycle. And then, of course, we're still stabilizing, but improving the Walden performance. So those are going to be the 3 areas that I would point to. On the revenue side, the enrollment does have an impact, but the other factor, obviously, is FX. There's been a weakening of those currency -- of the countries where we operate in, and that has really impacted, by another point, our anticipated growth rate for the year.
And JJ, if I can just add to that. You will see in our segment reporting that the -- some of the drag is coming from Brazil. On Page 11, you will see that the organic constant currency revenue performance in Brazil is slightly down, that is driven by a slightly down total enrollment performance. However, I think what is very important there is that new enrollment trends are very positive, and that's the leading indicator for the future. The fact that total enrollment is flattish or slightly down in Brazil is just a function that we are cycling through the Fies program, that's by far the biggest contributor. The Fies program has been virtually discontinued -- has been discontinued. It's been very small for us in the last couple of years. But in 2014 and 2015, it was robust cohorts that are now graduating. So that graduation rate, the imbalance between new enrollment from Fies and the graduation rate is causing total enrollment to trend down. That will probably be largely behind us about a year from now, and then you will see the benefit of the -- these robust positive new enrollment trends hitting up the pipeline again. So I just wanted to underscore that as the single biggest item in order to balance your question on total enrollment and revenue performance with the new pipeline of strong new enrollment trends.
And I would add, Eilif, this is Ricardo Berckemeyer, that in the case of Brazil, we are not replacing the Fies with any student financing that are internally financed programs like some of our peers are doing in that market. We are focusing only on payers.
That's a great point.
Our next question is from Jeff Silber from BMO.
It's Henry Chien calling for Jeff. I just wanted to follow up on the trends in Brazil and Mexico. So I know that you mentioned that the headwinds in Brazil and Mexico and -- but I just want to reconcile, new enrollments do look like they're pretty strong. It's -- did that -- did new enrollments come in better than you expected? And any color on where is it improving, if so?
Yes. On Brazil, you are looking at a third quarter of 9% growth. Of that 9% growth, we had a very strong performance in DL, with almost a 59% growth year-on-year. It's a program that we are in the process of scaling heavily and investing heavily. The Fies is a headwind, which is a discontinuation of the program and that has to go through the system. And on payers, we are growing 3.5% year-on-year. But if you take only undergraduate payers and exclude postgraduate and other courses or degrees, undergraduate is growing at 9% as well.
Got it. Okay. Great. And same with Mexico, was that -- I mean, I guess, if new enrollments were -- did they come in as you expected? Or is there any changes there?
Yes. So this is JJ, Henry. Mexico is a tale of really 2 cities. On the UVM side, as I said, we're being challenged given the price positioning and the market conditions, so that's down mid-single digit. And then on UNITEC, we're continuing to grow aggressively. This is an extremely well-performing brand and franchise portfolio and they're growing almost -- new enrollments almost at 10%. So that's a very positive dynamic. But of course, because from a -- and actually, from a new enrollment perspective, they're fairly similar, UVM and UNITEC, so it makes overall Mexico flat.
And I think it is important for those that are less familiar with our individual brands, the UVM brand is a higher-end, higher price point offering than UNITEC. So what we are seeing in the market through a slowdown of the economic cycle is that consumers are trading down. So they're trading down from UVM, where we are seeing slight declines in new enrollments, and trading down into UNITEC, where we are seeing very robust growth for blended new enrollment growth of a couple of percent for the portfolio. But we expect as the cycle turns around and the consumer confidence returns, we will see again positive momentum in both those brands. It's a very deliberate portfolio strategy.
Okay. Great. And just one last one for me. So I know, with the planned divestitures, you noted that the capital that you'll get will be used to pay down debt. Just curious, how's the divestitures coming in terms of the, to the extent you can share, the multiples you're getting in for it or the value that you're getting for those assets. And I guess, is there any update to your leverage targets of when you -- I guess, the actual leverage and then sort of when you'll get there with all the next round of divestitures, any update there?
Well, it's an easy answer because we are very much on track with how we framed our expectations during our August call, which means that the vast majority of these transactions will be closed by middle of next year. We are very confident that we will get very strong -- we are experiencing very strong interest for these assets. We expect valuations to be very accretive and robust, but we're not going to go beyond those statements. We will, of course, make appropriate disclosures as each of these material transactions are being closed. But so far, we are very much on track with what we had hoped to achieve.
Our next question is from Shlomo Rosenbaum from Stifel.
For my first question, I just wanted to circle back to the organic growth rate slowing on revenue, where it's 3 to 4 versus 2 to 2.5 now. It seems like those were organic prior to FX, if I'm understanding it correctly. If you can just walk me through the bridge on that? Was it really enrollments in Brazil pretty much impacting that?
Yes, you're absolutely correct, Shlomo. Those are organic growth rates at constant FX. There's really 2 impacts. One is pricing a little bit, that is a little bit softer than originally anticipated, and then there is the total enrollment impact.
But in Brazil.
Where's the pricing? The pricing is Brazil from competition?
Yes, the pricing is in Brazil.
Okay. And then what's the annualized EBITDA for Walden right now for the rest of us that are trying to look at this thing and what it would garner on a sale?
So we haven't provided any specific numbers for Walden. It's part of the online and partnership segment. It's basically below $200 million at this stage. I think that's the order of magnitude that you should keep in mind.
But you could assume that the vast, vast majority of that online segment is Walden.
Got it. And then, Eilif, I mean, based on what we're seeing over the last, say, year ago in the divestitures now that you're entertaining the divestiture of Walden, is the company essentially up for sale in pieces right now? Is that the way we should be thinking about this?
I think you should think about it as the management team is committed to create value for shareholders as well as impact for our students and the societies that we serve. And we concluded that scale is a critical element of achieving those goals. So we have divested all of our smaller size -- so initiated processes to divest essentially all of our smaller-sized markets to focus on large-scale market opportunities. At the same time, we are investing significant resources in sort of scaling these markets through large technology investments to get to a common operating model for these 4 markets in Latin America particularly and investments in innovation to drive further enhanced student experiences in those markets. So we are -- probably the strategy, as I would summarize it, is shrink to grow, shrink to get -- to exit markets that are not moving the dial for us, use the proceeds to strengthen the balance sheet, enable the management to really focus on where we can move the dial, in markets where we have the right to win, and then doubling-down on those markets, initially focusing on improving the financial characteristics of those markets, particularly in terms of margin expansion and improved free cash flow conversion. But the investments that we're also making in the common operating model and in improved product differentiation will enable us to, over time, increase the organic growth rate of these markets as well as, in the medium term, go into new markets in adjacent cities and areas. For example, in Brazil, there are plenty of cities where we are not currently at scale and we would like to be at scale. Similarly, in Peru, we are largely in Lima. There's plenty of tuck-in acquisitions that could, at the right time, be attractive for us in the provinces and in large secondary cities in Peru. There are huge opportunities for the value brand in Mexico to be outside Mexico City. But again, the near-term focus for the management team is to create scale benefits for our shareholders and our students to focusing on the large 4 core markets in Latin America as well as, of course, also continue to drive performance improvement at our online division.
If you sell Walden, do you lose certain capabilities that you have outside the U.S.?
5 years ago, I would say yes to that because Walden was very instrumental in the digitalization of our campus-based operations and how we launched the -- what we call the hybrid delivery in our campus-based environments. Today, all of those capabilities have been developed or centralized in a division within Laureate we call learning and innovation department. And that team has been instrumental in taking our hybrid percentage, i.e. percentage of courses delivered online in a campus-based environment, from really 2% or 3% 5 years ago, to now being over -- well in excess of 20%. So the capability in terms of online delivery, product development at scale, innovation in digital learning has been harnessed or strengthened inside Laureate. So I think we have all of the capabilities to further drive the innovation and the digitalization of our student experiences at the campus-based locations even if we divest Walden.
Our next question is from Manav Patnaik from Barclays.
This is Ryan filling in for Manav. I guess, following up on that, was ever Walden -- I mean, I know at the time of the IPO, you talked a lot about the kind of the marketing benefit you had of being able to offer those degrees to some of your campus programs. I mean, is there any strategic rationale of having that to drive increased enrollments into the campus?
We have some exciting dual-degree offerings between Walden and some of our network institutions. Those partnerships can stay in place whether or not we own and control Walden or if there is a different strategic solution to Walden, and those programs can also be replicated potentially with another strategic partner in the U.S. The key point is, Walden, 85% of the students are working adults, postgraduate students. The vast majority of our campus-based institutions are undergraduate students. The purchasing power are very different between the 2 different business units -- the students that are enrolled in 2 different business units. So there have been some benefits in the past, but as -- where we're sitting today, we -- I'm not certain that those benefits are sufficient to maintain the 2 very different organizations under one roof, and that is what we are analyzing and discussing with strategic advisers as we are evaluating options.
And I guess, on that, I mean, you've gone through 2 rounds of portfolio review and it didn't come up at the time. So I guess, maybe can you give us some insight into -- the way you just explained it, it sounds pretty easy to understand. I guess, has anything changed? Or I guess, how did the thinking evolve over time on Walden?
It's a great question, and I think there are 2 core reasons for the timing. One is over the last 12 months, our focus has been, as it relates to Walden, to turn around the trends in Walden, strengthen the performance, invest in innovation and in marketing and deliver very solid and -- a solid performance and a very stable free cash flow profile for that business. So that was job number one. And again, job well done by the team, and it is now behind us. Second is, it's just so much adjusting we can do at one point in time. And hence, we broke up our divestitures into really 2 waves, what we announced in May of 2017 and then the final piece for the campus-based portfolio in August of this year. And then now we are communicating that we are looking to explore opportunities with Walden given that Walden has been stabilized.
Fair enough. And then just last one for me. Is there any update on Turkey that you can share with us?
Yes. Turkey is one of the institutions that are in discontinued operations as we are looking for opportunities for us to divest and exit that market. There is solid interest, solid progress. But again, similar to any other divestitures, I don't want to get into more specificity until we have something more formal to announce. But I'm pleased with the operating performance in Turkey. I'm very pleased with the strong interest. And I'm also pleased with the continued improved relations from a regulatory perspective.
And we have a question from Jeff Meuler from Baird.
I had to join late, so if this has been addressed, just tell me to relisten to the transcript. But I guess, on Walden, a couple of questions. So anything to call out on potential tax implications? What are you considering in terms of return on capital strategies of the business would be sold? And then are you only considering a full sale, or with $200 million of EBITDA, is a spinoff a possibility? And then if it is separated, is there any reason for the remaining company, the international business, to remain U.S.-domiciled, U.S.-headquartered? Sorry to throw them all at you at once.
Very clear and good questions. We are initiating the strategic review. And as we have developed firmer points of view, we will come back to the market with updates. But I don't want to speculate on any of the potential paths, but of course, we will take a very holistic view of all opportunities. In terms of the future headquarter location of Laureate, when we are no longer -- if we were to separate Walden out, there is no immediate plan to relocate our headquarters. We believe that a very important part of the Laureate investment proposition is emerging market exposure with developed market governance. So we would want to continue to have our stocks -- investments and compliance levels and U.S. listing, we view that as a differentiator from an investor perspective, so there is no change to -- no plan as of this point to change our domicile.
And we have no further questions in the queue.
Well, then I just want to take the opportunity to thank everyone for participating. There are multiple moving parts here with our discontinued operations. I understand that analysts will need to do some extra work on updating their models. We are here ready to help assist in that. So if there are any questions, please direct them to Adam Morse and he has the entire finance team under JJ at his disposal to address any modeling questions that you may have. Thank you so much for participating in today's call.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. And you may now disconnect.