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Laureate Education, Inc. (NASDAQ:LAUR)
Q3 2019 Earnings Call
Nov 06, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the third-quarter 2019 Laureate Education Inc. earnings conference call. My name is Paulette, and I will be your operator for today's call. [Operator instructions] Please note that this conference is being recorded.

I will now turn the call over to Adam Morse, senior vice president of finance and treasurer. Please go ahead.

Adam Morse -- Senior Vice President of Finance and Treasurer

Thank you, operator. Hello, everyone, and thank you for joining us on today's call to discuss Laureate Education's third-quarter 2019 results. Joining me on the call today are Eilif Serck-Hanssen, president and chief executive 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. This 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-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, adjusted EBITDA margin and free cash flow are also detailed and reconciled to their GAAP counterparts in our press release or supplementary presentation. Before turning over to Eilif, I would like to note that with the termination of our contracts in Saudi Arabia at the end of August as planned, we are now required to move those operations to discontinued operations and, therefore, our results being reported today for continuing operations exclude that business unit. The impact is immaterial for the quarter, but it does impact the presentation of historical reporting periods given the move to discontinued operations. In the appendix to the slide presentation, we have included a page that will help you adjust your models for historical purposes.

With that, let me turn the call over to Eilif.

Eilif Serck-Hanssen -- President and Chief Executive Officer

Thank you, Adam, and thanks to everyone on the line for joining us on today's earnings call. I am pleased to report very strong performance for the third quarter, with adjusted EBITDA well ahead of expectations, driven by continued progress on our transformation initiatives, which are yielding results at a pace faster than anticipated. Following these strong results, we are projecting an increase in operating profitability for 2019 in local currency, which allows us to maintain our full-year adjusted EBITDA and free cash flow guidance despite currency headwinds. Over the past 18 months, we have reduced the complexity of our company, simplified our footprint and are now focused on scaled markets where we have leading brands.

We have remediated our material weaknesses and lowered the overall risk profile of the organization. This transformation has allowed us to reduce our G&A expenses, but also improving our operating model, gaining efficiencies at the campus level and launching new, innovative digital offerings. The pace and success of our transformation gives us confidence to make additional investments to further drive margin acceleration. As a result, we are increasing our 2020 adjusted EBITDA margin target from 21% to 22%.

And we expect to continue driving increased margin progression in future periods beyond 2020. I'm also pleased to share that the $150 million stock buyback plan announced during the second-quarter earnings call has already been completed. We continue to believe that returning capital to shareholders through stock buybacks is the most accretive use of capital for our investors given the significant discount on our stock price versus the intrinsic value of the individual institutions in our network. Therefore, our board has approved an expansion on -- of our stock repurchase plan by an additional $150 million, bringing the total authorization to $300 million.

In addition to delivering strong financial performance, we consistently received favorable recognitions and quality accolades for our network institutions. What makes Laureate so unique is the quality, scale and leadership positions we enjoy in all of our core markets. I'd like to highlight a few recent quality and outcome results that demonstrate Laureate's strong positioning in Latin America and online. In the most recently published results by [Inaudible] in Brazil, Laureate continues to be rated among the highest of all the public peers and many of our institutions received the highest rating possible.

A recent study conducted by Arellano research group in Peru on strategic brand value ranked UPC and UPN second and fourth, respectively, among all universities in that country. And our CIBERTEC brand was ranked No. 1 among all professional institutes in Peru. In Mexico, UVM continues to be ranked as a top 10 university among all public and private institutions in the Reader's Digest and Ipsos survey, while UNITEC remains a top 20 institution.

For online, Walden's master program in public health has earned accreditation from the Council of Education for Public Health, demonstrating the strong quality of that program and providing valuable product differentiation for our students. In summary, we are making strong progress on multiple fronts. Our margin progression is accelerating and driving increased level of free cash flow conversion. Our operations are performing well, and we continue to focus on providing superior student experiences to the approximately 850,000 students that we serve across our network.

We are well-positioned heading into 2020. That concludes my opening remarks, and I will now turn the call over to JJ for a more detailed financial overview of the third-quarter and year-to-date 2019.

JJ Charhon -- Chief Financial Officer

Thank you, Eilif. Before I go over our reported results, let me remind you that many of our institutions are out of session in July and August and, therefore, the third quarter is a seasonally low period from a financial standpoint. However, it does represent the second largest enrollment intake cycle for the year. With that being said, let me now go over the highlights of our performance, starting on Page 8.

Revenue in the third quarter was $774 million, and adjusted EBITDA was $134 million, which is $14 million ahead of the guidance we've provided three months ago. On a comparable basis and at constant currency, our revenue and adjusted EBITDA for the third quarter were up 2% and 15%, respectively. Moving now to our year-to-date results. When combining our Q3 results with the first half, still on a comparable basis and at constant currency, revenue and adjusted EBITDA grew 3% and 9%, respectively, which is also ahead of the guidance we have been providing for the full year.

Now let's review in more detail our key operating metrics by segment, starting with Page 10. In Brazil, our distance learning business continues to scale quickly with new and total enrollments up 71% and 55%, respectively. Total enrollments for our face-to-face operation continues to be negatively affected by the large graduating FIES cohorts. Pricing continues to be challenging and remains below inflation.

This has put even more emphasis on the importance of cost reduction initiatives, which have performed well ahead of expectations. In Mexico, our UNITEC brand continues to perform well as we further expand its physical footprint outside Mexico City. This continues to be offset partially by the softer performance of our premium brand, UVM, which has been disproportionately impacted by the weak economical environment. However, I would like to note that UVM grew new enrollments 5% during the September intake, making this last intake the first one in two years UVM has seen new enrollment growth.

The Andean segment realized another robust quarter in enrollments and profitability with strong performance in both Peru and Chile. Year to date, adjusted EBITDA in that segment is up 10% versus the same period a year ago, which is outstanding. In our rest of the world segment, which is essentially our institution in Australia, we continue to deliver great results with new enrollments up nearly 20% and adjusted EBITDA growing well into double digits. Finally, for online and partnerships, enrollment results continue to be impacted by the planned transition away from the international segment.

For Walden's domestic segment, new and total enrollments are broadly flat. Growth in health sciences and behavioral sciences are offset by the contraction in other verticals. In summary, Q3 was an outstanding quarter, clearly confirming the strong progress we deliver against all of our strategic priorities during the first half of 2019, particularly in terms of margin expansion and free cash flow. Let me now discuss the implication of our performance to date on our financial outlook, starting on Page 15.

As noted by Eilif in his opening remarks, the pace of our transformation accelerated in 2019. We're now expecting our run rate 2019 adjusted EBITDA margin to be 20.8%. This represents a full 60-basis-point improvement versus the outlook we provided just three months ago and puts our adjusted EBITDA margin rate at the level we have set as our target for 2020. Since the start of our transformation in 2017, the breadth and depth of initiatives we have undertaken have continued to expand and now covers projects across all aspects of our value chain, from enrollment to service delivery to middle office and back office.

In a matter of two years, we now expect our adjusted EBITDA margins to improve 350 basis points and reach 22% in 2020. This is 100 basis points higher than the target we set for ourselves at the beginning of 2018. Page 17 gives you a more specific overview as to the nature of this initiative and the impact they've had on our margin. In short, four pillars have been central to our business model transformation: G&A reduction; service delivery productivity, also referred as educational productivity; revenue optimization; and last but not least, procurement and real estate savings.

As we have discussed during our prior calls, the majority of our margin improvement has been associated with cost reductions. Moving forward, while we still have lots of opportunities in further driving productivity through scale, automation and selective outsourcing, we expect that revenue initiatives will play an increasing larger role in driving margin up in 2020 and beyond. As expected, this improved adjusted EBITDA margin will also contribute to our cash flow generation, which remains a top priority for the management team and is a key element of how we define success. Consequently, we now expect to exit 2020 with an unlevered free cash flow margin of 12%, as noted on Slide 18.

This would represent a 400 basis point increase versus where we are planning to end up in 2019. Besides the operational improvement we just outlined, we expect transformation investments to decrease substantially starting in 2020 as we taper off large IT investments and software related expenses. Let me now conclude with an update on our full-year outlook and the associated guidance for Q4, starting on Page 21. Three elements have been impacting our outlook for the year: first, our operational performance in local currency this year has been ahead of expectations, both in terms of profitability, margin progression and free cash flow; second, the currency of the geographies where we operate have gradually weakened against U.S.

dollar, particularly in the second half, and we expect that to unfavorably impact revenue and adjusted EBITDA by $66 million and $20 million, respectively; lastly, please note that we had to reclassify our entities in Saudi Arabia to discontinued operations. With that context in mind, let me now provide you our guidance for the full year. Total enrollments are unchanged at 865 students for year-end. Revenue, based on current spot FX rate, is expected to be between $3.233 billion and $3.268 billion.

Adjusted EBITDA, still based on current spot FX rate, is unchanged from previous guidance at $640 million to $650 million with outperformance in operations fully offsetting more than $20 million of EBITDA reduction associated with FX and the reclassification of Saudi Arabia. For free cash flow, we are reiterating guidance of approximately $145 million, despite almost $40 million of negative impact associated with the timing of our divestitures and adverse effects. In light of the expansion of our share repurchase program by an additional $150 million, we are raising the top end of the range of our net debt position by year-end to $1.2 billion. The timing of the additional share repurchases will determine how close we come to that number.

Given our outlook for the year, the associated guidance for Q4 is as follows. Revenue is expected to be between $866 million and $901 million. Adjusted EBITDA is expected to be between $237 million and $247 million. Eilif, now back to you for the wrap-up.

Eilif Serck-Hanssen -- President and Chief Executive Officer

Thank you, JJ. Our transformation initiatives are yielding strong results. Heading into 2020, we will be accelerating those efforts and focusing on multiple levers to increase our margin and free cash flow profile, but also lifting the growth rate by investing in distance learning and innovative digital product offerings. The management team remains committed to creating value for all stakeholders, including students and shareholders.

Operator, that concludes our prepared remarks, and we're now happy to take questions from the participants.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Manav from Barclays. Please go ahead.

Ryan Leonard -- Barclays -- Analyst

Yeah. This is Ryan on for Manav. I was just curious, we've seen a lot of headlines about a little bit of unrest in the Santiago region and in Chile broadly. Has there been any impact there for you guys?

Eilif Serck-Hanssen -- President and Chief Executive Officer

Hey, Ryan. This is Eilif. The violence and demonstrations in Chile, of course, are concerning. They resulted in a short period of state of emergency, and during that period of time, we suspended all classes.

To date, none of our buildings or facilities have incurred any meaningful damage as a result of the demonstrations. And thankfully, our staff and students and faculty are all safe at this time. We are now in the process of restarting classes, and we expect to be able to return to normal schedule within the next couple of weeks, of course, barring any further escalation of events.

Ryan Leonard -- Barclays -- Analyst

Got it. That's helpful. And then just on the buybacks, obviously, pretty impressive to see the first round kind of wrapped up already. Is there anything -- any framework we should think about going forward and how you will apply that? I mean you, obviously, have the new authorization.

Do you expect that to be pretty spread out? Or do you still think it's very attractive to use a lot of that in a short period of time?

JJ Charhon -- Chief Financial Officer

Hi, Ryan. This is JJ. The share buyback is, in our view, the most value-accretive way of really handling our excess liquidities. Our view has not changed, hence, the approval of the second tranche of the $150 million.

We'll continue to be opportunistic as we see opportunities in the marketplace to really buy back shares. Clearly, the trading level is below management expectations and well below the intrinsic value of business. So therefore, that continues to be an attractive opportunity for us.

Ryan Leonard -- Barclays -- Analyst

Got it. Thank you.

Operator

Our next question comes from Jeff from BMO Capital Markets. Please go ahead.

Jeff Silber -- BMO Capital Markets -- Analyst

Thanks so much. I want to go back to the increase in your 2020 guidance. Obviously nice to see this, but what really changed over the past quarter for you to get the confidence to boost it that dramatically?

JJ Charhon -- Chief Financial Officer

A couple of things. First of all, the transformation initiatives really have accelerated. As I indicated in my prepared remarks, we have continued to expand the portfolio of initiatives to really improve our margins across the board from enrollments to G&A to service delivery. And when you execute those initiatives, there's always a level of uncertainty as to whether you're going to get the full benefits as you put them in place.

Q3 was clearly strong evidence that we're on the right track and, therefore, that the additional cost actions we've put in place as part of the transformation, but also, as you may remember, the additional initiatives we initiated following the softness of the environment in Brazil are really now paying dividends ahead of expectations. So that's one element. The second element is really also the [Inaudible] impact of actually lower revenue associated with FX, but the ability to maintain really earnings guidance that obviously improved the margin rate.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. That's helpful. In your previous question, you were talking about, I guess, the balance between repurchasing shares or at least the focus on repurchasing shares. How do you decide from a capital allocation perspective whether to pay down debt or repurchase shares? What kind of framework are you using?

JJ Charhon -- Chief Financial Officer

So what we do over the summer after we had paid down all of our term loan is really look at the incremental benefits of continuing to use excess liquidity to repay down debt and the impact it would have on our really weighted average cost of capital versus the EPS accretion associated with really reducing our share count. With the number of secondary offerings that we've executed over the years, we believe that the reduction of the float is manageable as we execute our share repurchase program. But for sure, from a value-accretion standpoint, the share repurchase is the best route for us.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Fair enough. And then just one quick follow-up question on the 2020 guidance. What kind of revenue and enrollments are embedded in your adjusted EBITDA and free cash flow guidance?

JJ Charhon -- Chief Financial Officer

We haven't provided any specific guidance on really the top line or even actually the bottom line from an absolute dollar perspective. You should expect to receive that in conjunction with -- when we report our fourth-quarter results.

Jeff Silber -- BMO Capital Markets -- Analyst

OK. Looking forward to that. Thanks so much.

Operator

Our next question comes from Shlomo from Stifel. Please go ahead.

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

Hi. Thank you for taking my questions. Hey, JJ, just a follow-up on the last question about share repurchases. The company is doing really well.

You're increasing the free cash flow in the business. You have increased the debt capacity. At the same time that you're out there in the market, though, very interested in buying stock, you have a block of shareholders in Wengen that seems to want to do secondaries. And every time that happens and hits the stock and takes it down, why don't you just buy their stock back? Why are we having this thing where they do a secondary and then you go out and buy in open market? Why can't you get ahead of that?

JJ Charhon -- Chief Financial Officer

Well, first of all, the way it works is that whenever a Wengen shareholder wants to really sell some of their shares, they issue basically a demand notice and that really triggers the process by which we organize a secondary offering. There is until that consortium of shareholders called Wengen and [Inaudible] some negative impact associated with buying back shares directly from Wengen. It would basically be treated as a dividend and would have negative tax consequences. That constraints really disappear sometime early next year.

And at that time, there will be the possibility of both shareholders participating to do share buyback.

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

OK. That's very informative. Then can you talk a little bit what the revenue initiatives are going to be next year? Are they going to include M&A? Are they really organic revenue initiatives?

JJ Charhon -- Chief Financial Officer

They're exclusively organic revenue initiatives, and they're really -- focused really on two pillars. First one is really continue to really lower our cost of student acquisition by improving the marketing mix. Attrition is also a very significant area of focus. And then lastly, it really continues to promote the online part of our business, which is asset light and more, I would say, cash accretive than the face-to-face, both in Brazil and Mexico.

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

Great. Thanks. And then the cash flow is really strong this year in the quarter. Is any of that -- is this all operational improvements? Or is any of it working capital that we can't expect to kind of repeat in 2020? I'm just trying to figure out what we should be looking at going forward?

JJ Charhon -- Chief Financial Officer

Yeah. I think on the cash side, we keep sharpening the pencil on how we allocate really our available liquidities and that includes really reprioritizing really our capital expenditures. And on working capital, I think there's been a tremendous opportunity to really improve our terms with suppliers and really manage working capital in general. So most of those working capital initiatives are more recurring in nature as opposed to a one-off benefit.

Moving to 2020, really, most of the benefits will be associated with this transitional expenditures that are going to be coming down significantly after what has been a fairly long period of investing behind our transformation.

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

OK. And then just anything else -- last question, on the revenue softness in Brazil, you have the FIES roll-offs and then you have the mix shift to the distance learning. When do the comps get easier over there so that you're really going to have kind of the distance learning growth shine through?

JJ Charhon -- Chief Financial Officer

There's really two sources of headwinds in Brazil. The first one is the FIES cohorts and the grading classes are larger than, obviously, the new enrollment that we're getting, that should taper off starting next year. This year, there's still a net reduction of 10,000 students, which, obviously, is very significant for face-to-face business, about four points of the total enrollment. Next year, it's going to be about half of that.

So that will have a much lesser impact into the revenue dynamics. And then the second piece of it is really, I think, the chronic overcapacity that we see in the face-to-face business. The economy is going to have some impact as I think the demand starts to be rebalanced a little bit more between the various segments, but also between the online offerings in the face-to-face segment.

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

OK. Thanks.

Operator

And our next question comes from Jeff from Baird. Please go ahead.

Jeff Meuler -- Robert W. Baird and Company -- Analyst

Yeah. Thank you and good morning. Can you give some more detail on the drivers of the improved new enrollment trends in Mexico and Andean. I know Andean has been doing well for a little while here, but it looks like it accelerated and then Mexico, just to return to growth at UVM.

I guess wondering, is this the early success of some of the revenue-generating initiatives? Or are there other factors at play? Thank you.

Eilif Serck-Hanssen -- President and Chief Executive Officer

Jeff, this is Eilif. Starting off with Mexico, there has been a couple of challenges in Mexico. As you are aware, in the past, the economic environment has been challenging, thus favoring the value brand, UNITEC. However, over the last 18 months or so, we have focused tremendous effort behind strengthening the value proposition for UVM.

We have strengthened the commercial platform, the product offering, and we're now seeing favorable results from those efforts. The C2 intake this summer was a positive indication and, of course, the main intake this fall was tremendous results for UVM. So now we are growing in terms of new enrollment in both brands -- both segments in Mexico, and we are doing so with a very disciplined pricing. So it gives us a lot of confidence that we are on the right track in Mexico, and the portfolio is really working for us.

Jeff Meuler -- Robert W. Baird and Company -- Analyst

And then Andean, do you view it as underlying acceleration? Or is this just continued good growth?

Eilif Serck-Hanssen -- President and Chief Executive Officer

So in Andean, it really is two stories. It is the Peru performance which continues to work really well for us. We have three brands in Lima, in the premium, in the value and the tech/voc segment, and it gives us the ability to get that Laureate playbook of the portfolio approach to the market to work really, really well, and it gives us an opportunity, of course, also to expand those great brands into secondary cities. But still, there are plenty of zip codes in Lima that we are still penetrating with our product offerings.

In Chile, we are more mature. We are really in all cities and all segments that we want to be in, and we have all of the program portfolio really at scale. So at this point, it's a matter of revenue optimization and driving favorable mix shifts into the programs that are most relevant for the market and optimal for us.

Jeff Meuler -- Robert W. Baird and Company -- Analyst

OK. And then appreciate the unlevered free cash flow guidance for 2020, just as, I guess, the picture gets a lot clearer on your portfolio, just maybe a little help on kind of EPS and levered free cash flow guidance, but what are you expecting in terms of interest expense? Or if you don't want to give us interest expense because of variance around the buyback, maybe what's the effective kind of rate we should be assuming now? And then same for tax rate, like, what's the right formula or the right rate with the current portfolio?

JJ Charhon -- Chief Financial Officer

So first of all, on EPS next year, as I said, we'll be providing guidance on our usual metrics in conjunctions with the release of fourth-quarter earnings. In terms of leverage, we feel really comfortable where we are right now. And that's, obviously, below two. There's no appetite for actually increasing our leverage beyond that level at this point in time.

The interest rates that we anticipate on a pro forma basis moving forward is just north of $100 million for the remaining debt. So that gives you kind of the implied interest rates, which is just about 10%, a little bit higher than that because of the capital leases in Brazil, but that's really to give you a sense as to where our capital structure is going to be moving forward.

Jeff Meuler -- Robert W. Baird and Company -- Analyst

Got it. Thank you.

Operator

[Operator instructions] And our next question comes from Marcelo from JP Morgan. Please go ahead.

Marcelo dos Santos -- J.P. Morgan -- Analyst

Hi good morning. Good morning, Eilif, JJ, Adam. You commented on very strong Brazilian distance learning growth. You also said that you have some initiatives in Mexico.

So I thought could you provide some more broader update on your distance learning initiatives in Lat Am? That would be the first question. And the second question would be, if you could comment a little bit the outcome of the new regulations in Chile? So you're going some sort of process to adapt to the new regulations. Is that over? What was the impact, if any? These are the two questions.

Eilif Serck-Hanssen -- President and Chief Executive Officer

Great, Marcelo. I'll take the first, and JJ will cover the regulations in Chile. In Brazil, we have invested behind a very innovative distance learning platform on an all Go Digital technology base. A lot of our expertise and capability from Walden, combined with some of the experiences that we had early on in Brazil, has resulted in this Go Digital platform that is offering innovative products that are really meeting the expectations of the consumer and employers.

And that has resulted in very rapid growth. And the growth rate has been 50% to 70% this year, and we are expecting to end up with 70-plus thousand students in distance learning this year. That has taken us to the point where this business is accretive for us, and it gives us additional confidence in order to increase our investments going forward to further grow and scale this product in Brazil. Similarly, we have launched online products in Mexico and the Andean region.

The regulations are slightly different. We don't need the polos as we have in Brazil. But again, we are leveraging the same center of expertise, leveraging the networks capabilities, and that has enabled us to, again, have very robust growth rates in online in Mexico and Andean region. And we're seeing that a lot of our working adult products from the past, which used to be face-to-face, are migrating rapidly over to the online as it is more convenient and a better value proposition for our consumer.

So we are having some mix shift, but we're also taking significant market share in this emerging digital segment in Latin America.

JJ Charhon -- Chief Financial Officer

On the Chile front, just as a reminder, the new higher education law was really enacted in March 2018. So really, what we've been doing since then is really complying with the new regulation for related-party transactions. We've gone through the bidding process for almost all of them, and we're in the process of really working with regulatory authorities to put them into effect. The financial impact on our consolidated results is negligible.

Some contracts had price come down, but the other contracts were added to the existing portfolio, but the net impact on our profit moving forward is de minimis.

Marcelo dos Santos -- J.P. Morgan -- Analyst

Thank you, both. Thank you very much.

Operator

Our next question comes from Alex from Barrington Research. Please go ahead.

Chris Howe -- Barrington Research -- Analyst

Good morning, Eilif and JJ. This is Chris Howe sitting in for Alex Paris. Looking to your 2020 guidance, you have raised guidance for adjusted EBITDA. With your four main pillars in place, however, you may like or choose, how should we assess the incremental margin improvement if we were to break this out from a value to premium institution basis, geographic basis? And more specifically, what type of contribution are you anticipating out to 2020 and beyond from the growth that you're seeing for the online student base in the Mexico and Andean regions?

JJ Charhon -- Chief Financial Officer

OK. I'll start on the margin progression, and then I will hand over to Eilif on the growth side. If you just look from P&L geography standpoint, a lot of the improvements really are in cost reductions and effectiveness, both for G&A and educational productivity. That is from a geography standpoint mostly really in Brazil, in Mexico and at corporate.

The margin of our business in Peru, for instance, or in Chile, to a great extent, are really where we feel they need to be. There's still always opportunity to really leverage scale as those continue to grow. But I would say that this proportional contribution to the margin improvement is really in the two geographies I just mentioned and at corporate. And that really goes across the whole value chain.

Most of those revenue initiatives are also in those two geographies. And this is where we believe we've got still some ways to go until we reach, I think, the margin level that we've seen in the Andean region.

Eilif Serck-Hanssen -- President and Chief Executive Officer

And in terms of growth, we are going to see growth coming from improved retention. That's been an initiative as part of our transformation that is yielding results. We will see continued growth coming from digital, most notably from the DL product in Brazil. We continue to expand our operations in Peru, where there's a lot of white space and, similarly, for our value segment in Mexico, which is primarily today a Mexico City product, and we have opportunities, and we are expanding to secondary cities in Mexico with that offering similar to what we have with UVM.

So those are the three main geographic growth levers. We are also encouraged by the fact that Walden has stabilized, and we have developed a new product offering that we plan to launch in Walden and also step up our investments a little bit in Walden in terms of marketing as we are seeing opportunities in some of our verticals that are underpenetrated at this point.

Chris Howe -- Barrington Research -- Analyst

That's very helpful. Thank you for the color. And my last question. You mentioned the expansion of the physical locations outside of Mexico City.

Can you provide an idea of where we are in that expansion and where there is to go and just what you're seeing so far there in regard to your expansion of your footprint?

Eilif Serck-Hanssen -- President and Chief Executive Officer

So if you look back over the last couple of years, we have added one, sometimes two new campuses every year. There's been some periods where we had taken a pause due to economic concerns and/or focus on free cash flow, but we're now back into the rhythm of adding a campus in a new city as the UNITEC brand each year.

Chris Howe -- Barrington Research -- Analyst

Thank you, Eilif and JJ. That's all I have for now.

JJ Charhon -- Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Adam Morse -- Senior Vice President of Finance and Treasurer

Eilif Serck-Hanssen -- President and Chief Executive Officer

JJ Charhon -- Chief Financial Officer

Ryan Leonard -- Barclays -- Analyst

Jeff Silber -- BMO Capital Markets -- Analyst

Shlomo Rosenbaum -- Stifel Financial Corp. -- Analyst

Jeff Meuler -- Robert W. Baird and Company -- Analyst

Marcelo dos Santos -- J.P. Morgan -- Analyst

Chris Howe -- Barrington Research -- Analyst

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