Q1 2022 Bright Horizons Family Solutions Inc Earnings Call
[music].
Greetings and welcome to bright Horizons family solutions first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it.
It is now my pleasure to introduce your host Michael Flanagan Senior director of Investor Relations. Thank you you may begin.
Thank you Doug.
On our call today.
With me on the call today are Stephen Kramer, our Chief Executive Officer, Elizabeth Boland, Our Chief Financial Officer.
During the call will receive an after covering a few administrative matters.
This call is being webcast and recording will be available under the Investor Relations section of our website at bright horizons.
As a reminder to participants any forward looking statements made on this call, including those regarding future business and financial performance.
Including the impact of COVID-19 on our operations and on acquisition activity and strategy are subject to the safe Harbor statements included in our earnings release forward looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to materially differ materially.
As described in detail in our 2021 and Form 10-K.
Bob.
Any forward looking statements speak only as of the date on which is made and we undertake no obligation to update any forward looking statements.
We also refer today to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website.
Davidson.
Reviewing the state of the business.
Thanks, Mike Hello to everyone on the call and thank you for joining US. This evening I hope that you and your families are doing well.
I'll start Tonight with a review of our first quarter results and provide an update on the business as we approach the mid year point in 2022.
Elizabeth will follow with a more detailed review of the numbers before we open it up for your questions.
I'm pleased with our start to the year and with the pace of the continued recovery in our business, we delivered 18% revenue and more than 100% earnings growth for the first quarter generating revenue of $460 million and adjusted EPS of <unk> 47.
We executed well in the quarter again, navigating a dynamic environment driven by the persistent effect of COVID-19 varies and the broader economic impacts which for us are particularly evident on the staffing front.
And our full service segment revenue of 354 million, representing an increase of 22% for the quarter. We added nine new organic centers, including new client centers for the University of North Carolina, and Olympus America as well as two centers for Brian Medical Center, we also reopened seven more centers.
In Q1 and ended the quarter with 97% of our <unk> thousand 19 centers open.
In her opening centers enrollment levels improved throughout the quarter and into April I remain encouraged by the underlying demand trends that we see across all of our center model types cost plus bottomline and lease consortium we.
We have increasing numbers of parents expressing interest scheduling tours and registering at our centers as families continue to solidify their work and life schedules.
We are also making positive strides on the staffing front.
Our staffing levels increased throughout the quarter to serve the growing enrollment request and our talent and operations teams have been hard at work, creating creatively deploying solution and taking actions to address the unique conditions.
Although we remain constrained from enrolling all of the families requesting care in some of our locations. The actions. We took last fall and earlier this year, including increasing wages and expanding benefits have positively impacted our recruitment and retention efforts.
Also as the omicron surge slowed in the second half of Q1 increase applications and interviews with prospective employees have been increasing and our conversion rates of new hires continues to tick up.
These leading indicators for a positive sign of the progress we are making in a still very challenging environment and a strong affirmation that bright horizons is the employer of choice for early educators.
Let me now turn it back up care revenue increased to $81 million or 6% over the prior year, we had another solid quarter of new client additions with 711, Intel Mount Sinai health all launching in the quarter.
As we discussed in February the Omicron wave disruptive use ladder use levels in the latter half of Q4 and into Q1 as family showed some hesitation to engage with intermittent care solutions, given the sharp rise in infections across the country.
In addition, the availability of care providers was constrained in similar ways to our full service childcare centers, which limited some placement of care.
Encouragingly as we progressed through the quarter traditional use improved both in center in a home through February and March and we look forward to the opportunity to deliver care under more normalized conditions. This summer.
Over the longer term, our growing list of clients and range of use cases further expands the opportunities over the longer term.
Our education advisory business delivered revenue growth of 6% to 26 million we.
We added several new clients in the quarter, including launches with Hasbro Papa John's and Yahoo, and continue to see solid use levels at college coaching that exist.
Of particular note we are proud to have been selected to manage Mcdonald's archways to opportunity program.
Launching with that is just yesterday. This program offers more than 350000, Mcdonald's employees across 14000 U S restaurants, the opportunity to earn that free high school and college degrees.
This program exemplifies the investment and focus by employers in workforce education and demonstrate how well positioned we are to support clients and prospects who are looking to differentiate their employee value proposition as well as upskill and reskill their employees into hard to fill roles.
Now onto an exciting development, we just announced this afternoon one.
One of our four key priorities that underpins. The work we do is to extend our impacted early education through strategic growth.
To that end I am thrilled to share that we will be entering the Australian market due to the acquisition of one of the leading providers of early education and childcare only about children.
We have signed a definitive agreement and plan to close later this summer.
Our success with this transaction further demonstrates our global reputation as an acquirer and partner of choice among like minded high quality providers.
The Australia market is structured around three key elements, it aligns really well with our company's growth strategy.
First we are attracted to markets that have some form of third party financial support for tuitions.
Australia has a long history of providing robust support the families to the government operated childcare subsidy or Ccs programs <unk>.
Ccs improves the affordability of child care for families by covering a significant portion of the cost, thereby enabling parents to prioritize quality in their selection of childcare.
Second we look for markets, where the quality focus regulatory system.
The strong national regulatory framework in Australia provides objective and transparent oversight and consistent measures of quality across the industry.
Focus is on seven areas, including educational program in practice children's health and safety physical environment and relationships with children.
And finally, we value market with the potential for organic and acquisitive growth as well as positive supply demand characteristics.
Childcare industry in Australia is highly fragmented with smaller providers, representing roughly 80% of the market and a growing number of children and families utilizing center based care.
Within this positive context, we are particularly excited to be coming together with only about children a high quality premium provider focused on serving working parents in 75 centers located in the greater Sydney, Melbourne and Brisbane areas.
In collaboration with the only about children team, we intend to utilize our service capabilities and expertise to further grow and broaden their impact to families in Australia.
We look forward to welcoming the entire team children and families to the bright Horizons family later this year and we will share more details about their financial contribution to our business. Once the transaction is completed.
Yeah.
Let me turn to our outlook for the rest of 2022.
Based on operating trends, we are revising our 2022 revenue growth to approximately 15% to 20% with operating leverage driving adjusted EPS growth of approximately 53% to 63% or $3 <unk> to $3 25 per share.
I continue to be very optimistic about our future as we continue to make progress post pandemic, leveraging our strong client partner relationships and differentiated business model to extend our services in the years to come.
Before I close I want to take a moment to recognize our entire bright horizons families unwavering commitment to upholding the principles values and culture that makes bright horizons, such a special place to work.
We have once again been named to Forbes list of best employers for diversity.
Whom berg's gender equality index and the human rights campaign's corporate equality index.
We are intensely human business and these external recognitions are important as they validate who we are as an organization helped.
Help us to continue to recruit and retain dedicated and talented professionals in our field and demonstrate to our client partners our commitment to common values.
With that I'll turn the call over to Elizabeth who will review the numbers in more detail and I'll be back with you during Q&A.
Great. Thanks, David.
He just said I will recap the quarter's results and then provide some updated thoughts on our outlook for 'twenty two.
For the first quarter overall revenue increased 18% to $460 million.
Adjusted operating income of $31 million was 7% of revenue and adjusted EBITDA increased 36% to 63 million or 14% of revenue.
First quarter, we added nine new centers and we reopened seven of the centers that have been temporarily closed.
We also permanently closed four centers.
Full service Center revenue increased 64 million to 354 million in Q1, which is a 22% increase over the prior year.
As Stephen mentioned, our enrollment continues to build and occupancy now averages between 55 and 65% of capacity across the portfolio.
This sequential improvement despite the lingering effects of call. It reflects a continuation of the steady progress we have seen since the earliest stages of reopening our centers.
Our first quarter revenue also reflects a $10 million reduction to clients subsidies relating to the ARPA government support that we receive.
As a reminder, the support to reduce the operating costs in our client sponsored centers, which would otherwise be covered by the client subsidy.
Excluding this revenue and cost offset which has no net effect on operating income our full service revenue growth would have been roughly 25% in the first quarter, which compares well to our expected range of 25% to 30% increase.
Adjusted operating income in the full service segment improved $25 million over 2020 one.
Positive $7 million.
The operating income flow through was 40% driven by the enrollment gains and improving cost efficiency, even as we continue to experience constraints in the labor market.
As well as from the continued support from government programs that are targeted specifically for the childcare industry.
Our back up revenue grew 6% to 81 million, which again is generally consistent with our expectation in the first quarter.
And they're not full service childcare business here.
One back up care growth was dampened as the omicron variant impacted demand trends cancellation rates and staffing and provider availability in late Q4 of 2021 and in Q.
Q1 2022.
Our operating income of $20 million was 25% of revenue just scan was broadly in line with our expectations for the quarter.
Alright, occasional advising segment reported growth of 6% on contributions from new client launches and expanded use of our workforce education College admissions advising and center city services.
Interest expense of 7 million in Q1 was down $2 million over 2021 on lower overall borrowing costs in the quarter.
Although in the current environment, we are expecting interest to tick back up to around eight $5 million to $10 million over the rest of the year as rates continue to rise.
Our structural tax rate on adjusted net income has also increased to 26% for 2022.
3rd% to 21% in the first.
First quarter of 2021, an increasing taxable income and lower tax benefits from equity activity under ASU 2016 dash.
Turning to the balance sheet and cash flow for Q1, we generated $59 million in cash from operations made capital investments of 12 million and executed approximately $40 million in share repurchases early in the quarter.
At March 31, our leverage ratio was two five times net debt to EBITDA with 257 million of cash and no borrowings outstanding on our $400 million revolver.
So now moving on to 2022 outlets.
Our revised guidance reflects our current operating trends as well as other market and business factors, including the effects of foreign exchange rates on our non U S operations rising interest rates and the timing and quantum of government support funding and general inflation, particularly for us on labor costs.
In terms of the top line, we now expect 2022 revenue broadly to grow in the range of 15% to 20% or a range of two to $2 1 billion.
At a segment level, we expect full service to grow roughly 15% to 20%.
Back up care to grow between 10, and 20% and Ed advisory to increase at a low to mid teens.
In terms of earnings this will translate into sequential improvement over the course of the year and we expect 2022 EPS to be in the range of $3.05 to $3 25.
And the more immediate time frame our outlook for Q2 is for full service revenue growth.
Roughly 13, 15% back.
Back up growth approximating, 15% and Ed advisory growth in the low to mid teens similar to the full year.
This translates to an overall total revenue growth range of 13% to 16%.
And in terms of earnings we are expecting Q2, adjusted EPS to be in the range of 65 to 70 cents a share.
Yeah.
Lastly, as Steven discussed we are excited to announce today that we entered into a definitive agreement to acquire only about children.
High quality early education provider in Australia.
This niche acquisition provides us with entry into an attractive market with an opportunity to leverage our service capabilities to families and clients and to expand our position as a global leader in early education.
As stated in our press release, we are acquiring 75 centers for 450 million Australian dollars with <unk>.
Fan blades to roughly 320 million U S dollars.
We plan to fund the acquisition, primarily with cash on hand, and borrowings under our existing revolving credit facility.
And anticipate the acquisition to close in Q3 at which point, we will provide more details around this financial contribution.
In the meantime to provide some high level operating context.
Or do you have children generated roughly 140 million U S dollar revenue in 2021.
And the centers generally operate at similar margins to the rest of our global full service operation.
Comparing our respective performance to the pre Covid period.
However, given the near term effects of the integration and financing costs. We would anticipate limited earnings contribution from all of you about children in the first year of operations with bright horizons with accretion to follow in subsequent periods.
Okay.
In summary, we continue to be pleased with our progress in returning to pre COVID-19 enrollment and utilization levels and overall financial performance and with the evidence strength of our business model in such a fluid and dynamic operating environment, we see the future is bright indeed.
Doug.
We will go to Q&A.
Thank you ladies and gentlemen at this time, we'll be conducting a question and answer session.
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Our first question comes from the line of Manhattan.
<unk> with Barclays. Please proceed with your question.
Thank you.
Just wanted to touch on just the the guidance revision it relative to your initial expectations Elizabeth maybe if you could just what what exactly changed there and maybe just to the ramp up assumption for the year you've built in there.
Sure so we.
We have there's a couple of things as I touched on briefly in Oh.
Revision there that.
Would categorize as external sort of factors if you will of the foreign exchange rates.
The dollar has strengthened.
<unk> in the last couple of weeks and months and interest rates have more solidified entered the level that we expect them to be for the rest of the year at this point so.
Those factors along with a higher tax rate. So it was higher in the first quarter, but it's also.
About one percentage point from where we had expected earlier.
In our guidance so those three factors alone.
Approximately 10 cents or so out of.
Our projection for the full year.
As it relates to the rest of the performance I think it's just a matter of us being you.
You know four months plus into the year now we had our estimates coming into mid February with how enrollment was tracking which is good and solid but we are seeing.
Some continued pressure on the labor front, where it's been.
Severn, even as we've gained enrollment and gain some efficiency there.
There is a continued challenge with Latin labor supply and so we.
In some markets had been needing to continue to move on wage rates and also in some markets, particularly in our European operations, where our contract labor are temporary staffing labor helps to fill the staffing gap it tends to be more expensive than.
And then finding labor. So those are a couple of other factors and I think the only other thing that I'd throw in there.
Certainly in the news, it's not the biggest factor for bright horizons and energy costs.
Continue to be quite high as well and in our lease model centers that can have some.
Back in terms of energy cost.
Got it and then if I could just touch on the acquisition in Australia can you just help US with you know some of the profitability metrics are on on that asset and just at a high level from a timing perspective, I mean, I would think that would be the capital could be used perhaps in the U S.
S better off why Australia now.
Yeah, Let me take the first part and I'll, let Stephen talk about the strategic aspect of the of the investment and no.
Not to deflect your Nashville, we Havent completed the transaction, we did give some high level guidelines on where their performance was in 2021 to 140 million U S dollars of revenue and this is a full service childcare business, which operates with similar parameters to our our global full service business.
We're all still in a recovery from the Covid pandemic, Australia has had solid government support surround which is sort of similar to our Netherlands operation, where there was a bit less contraction of enrollment and so a little bit quicker recovery, but broadly speaking.
We see them is performing similar to our full service business over time, and we have as I mentioned some integration costs early on but.
We expect that the accretion will look like well service business. Once we get 612 months under our belt Siemens <unk> sure. So so first just to take a step back.
We've been really pleased over the years with the expansion that we've made into the U K and into the Netherlands and that has proven to be a very good use of capital and a very strong opportunity for us to have impact outside the United States and.
We have been evaluating and looking at Australia for a number of years now.
Australia really does stand out as a market with strong government support similar to the work and government support that we see in the Netherlands, and so we believe that going into a new opportunity that has strong government support to defray some of the cost for them.
Working families. In addition to that.
There is a real focus around quality provision in in Australia, and the regulatory regime is actually quite similar to what we see in the U K.
In terms of it being very transparent and our parents really being dialed into.
Quality provision and so overall as we looked at an opportunity that has 75 centers.
We saw that as a tremendous opportunity for a beachhead in a country that makes a lot of sense to begin our expansion plans.
Australia, which again, we believe is a strong market for us as.
As we talk about the United States certainly we continue to track progress here in the United States I will say and we've shared this over the last several years for the most part what is available in the U S are small tuck in acquisition. So one threes up to maybe 10 or 12 are groups.
Tom really limited as it relates to larger scale opportunities like the one that that we are starting with in Australia, and so again, we will continue to seek out high quality opportunities in the U S. But believe this is a really great step forward for the company to enter a new <unk>.
<unk> market with a premier player within that market.
Thank you.
Thanks Manav.
Our next question comes from the line of Andrew <unk> with Jpmorgan. Please proceed with your question.
Hi can I just ask about Oh, we got about children. It. It's it sounds like it's really kind of focused on that the parents and the government subsidy I believe there's another player in that market are called Guardian, that's really focused on more corporate opportunities in terms of child care and if you could just comment on.
On the positioning.
By a corporate child care in that marketplace and that is that a good market.
Absolutely. Thank you Andrew So certainly both only about children as well as Guardian are recognized as both very strong quality players.
Both really do benefit from the government support that is provided to to working families. The amount of employer support in that market is actually quite limited sort of categorically across all providers.
Given the fact that because they are a strong government support in a market like that specifically focused on full service childcare you tend to see employers stepped back from actually directly supporting childcare centers and so I would say that you have highlighted two very high quality.
Players in that market.
The largest player in the market as a nonprofit and then there are probably a half dozen in terms of size and scale between that largest nonprofit and the two players that you identified that we also see as the premier players within the market.
So again, we like our position with only about children. We believe it's a great starting point for our growth in that market.
Believe that similar to the Netherlands.
Because the government has programming to defray some of the cost of childcare that we are able to compete on quality, which is something that only about children does well and we will continue to support them in those efforts, Okay and Elizabeth would you be willing to talk about the capacity utilization.
In the second quarter or the current quarter that we're in that you're expecting to fall within the parameters that you laid out.
Yeah, I mean, our guidance.
It looks too probably.
<unk> slope to what we've been seeing the last few quarters. So a couple of percentage points.
Taking out based on how we're seeing.
April come in and then.
This this quarter as you know is a sort of a solid enrollment cycle before the any summer.
Turnover, if you will that happens with older children getting ready for elementary school. So we are we're pleased with the performance in Q1 as you as you heard we moved up the average range from.
What what had been averaging around 50 to 60, it's now averaging 55 to 65, so we're seeing.
Good solid improvement there.
Couple of a couple of percentage points of uptick that we would expect to see again continuing in Q3. Okay. Last question, if I could just any new initiatives around the summer strategy and using the summer time surely you know, Matt mentioned camp I've heard.
You know tutoring those type of things and so with all that in mind do you feel like there might be kind of lets say newer drivers. This summer before we even think about the fall.
Yes, so look the this summer as it relates to back up care tends to be a very strong season for us.
What I would say is last summer.
And obviously the summer before soar.
A more dampened ability for us to deliver traditional care.
In the form of summer camps, and even in centers and in home given the capacity constraints that we saw and as you know we acquired Steven Kates camps, and we are certainly in the.
The planning process around opening many more camps. Then we had opened last year and I think that is emblematic of the broader sort of summer camp market, where there is absolutely going to be more supply and therefore, we're going to be able to meet demand at a higher level than we have seen over the last few years. So again summer is really is.
For us we're looking forward to it and believe that we're going to be able to support working families. During this important season, where their children are off from school and ultimately they need to be at work. Okay. Thank you very much.
Hey, Ken.
Our next question comes from the line of Hamzah <unk> with Jefferies. Please proceed with your question.
Hi, This is Hans Hoffman filling in for Hamzah, Missouri. My first question is could you just comment on how you're thinking about labor availability easing.
Last time, you guys touched on this.
Demand due to labor. So I guess, you know where do you stand now and how is it geographically in terms of labor easing that when you look at the overall portfolio.
Yeah.
Yeah, So I think that it's been a.
It's sort of an all hands on deck effort for us with our talent acquisition.
<unk> and others in the field to be identifying and onboarding as many people as possible I think that the.
There is no one geographic area that is particularly.
Particularly notable except that I would say some of the more urban environments have been a little bit more challenge than some of those that are more suburban.
But we are making progress I think in all of our key markets and are taking an approach that is not.
Unitary across the country, so taking different approaches and different locations different with different clients different T cell.
So that we are addressing the needs that are appropriate for those locations. So I would say that our as we said in the prepared remarks pleased with.
With the progress, but it continues to be at.
Okay.
[noise] rises as we are getting more families back renamed finding acute problem in terms of accessing all of the supply that we need and we continue to hold enrollment it.
And a number of our centers.
Cause of that.
Alright, yes, that's definitely helpful. And then just my follow up so can you just give us a sense of how big advisory can be for you over time.
And how M&A can sort of play a role there I know I know.
Backup gets more focused outside of full service daycare, but just any thoughts there that'd be helpful.
Sure. So India Advisory segment, just to be really specific we have our edits. This line of service, which is focused on workforce education. So employees going back to school. It also includes college coach and then finally, a small portion of it is related to Sittercity, where we see the.
The greatest opportunity is really in that first part of the segment, which is supporting employers as they think more strategically about upskilling and reskilling their employee base and making their employee value proposition stronger through workforce education, that's where we see.
A particular opportunity and upside in this segment.
Think that today.
Vast majority of employers do this work themselves internally and increasingly we are able to work with them and convince them that working with us.
To support their employees to become more skilled in hard to fill roles is a value add and so again, we see a very large opportunity over time in that particular aspect of Ed advisory.
Got it thank you.
Thank you.
Our next question comes from the line of Jeff Muller with Robert W. Baird. Please proceed with your question.
Thank you.
On the Australia acquisition.
Are you assuming a financial contribution I know that it's like EPS breakeven, but are you assuming a revenue contribution.
Calendar 'twenty, two and the guidance.
Not in the guidance. Thanks for asking that clarifying question no. It is not in the guidance of $2 2.19 billion that we are.
I'll laid out so it will be additive to that when we when were completed and falls in more more fulsome commentary on how they contribute.
Okay, and then I understand the pitch for the attractiveness of the Australia market and it has some parallels to models and markets that you know well.
Maybe to just take a different.
Our approach to it what are the synergies like when you acquire a company in another market like this it doesn't sound like there would be.
Employer overlap given that it's a government sponsored market I'd imagine something like best practice sharing at a high level, but just.
Help me understand what the synergies are and can you do you increase margins through the integration process.
And with that.
Yes, so if we if we use that.
U K Android the Netherlands, as the benchmark I think what we have been able to demonstrate over time in both of those to market.
Is that we bring a particular competency in supporting the growth of those organizations, both organically as well as through acquisition and so I think we have a pretty well established playbook of how to actually create the growth and the impact them with support.
And leadership of of the local team I would say the second is there is generally great appreciation for the global quality standards that we are able to support again, the local team with and so I think that what we find is that we.
We were able to add value from an educational quality perspective, and therefore support additional reputation in enrollment.
<unk> on that fact, I'd say the third is that given our scale. We are really helpful. As it relates to systems and processes and so think about things like enrollment systems recruiting systems and things that at our scale, we are able to deploy in market.
That support the ultimate success within the local environment and so what I would say is it's less about sort of the financial sorry the.
Financial synergies, if you will as much as it is deploying the expertise and knowhow that we have that allows what is a successful organization like only about children to be able to both grow and expand and scale and also have.
Processes and systems to support that growth.
Really helpful perspective, and then just last for me.
You gave us the ARPA figure the other childcare financial support from government programs can you give us a sense of what it was in the quarter. The press release says that it was up year over year, I think and if you could give us a sense of 2022 full year, what you're expecting relative to what it was in 2021.
Oh sure so framed it as ARPA, there's very incidental remaining.
Support that's come through from the consolidated Care Act and annual Cares Act.
Related to finding that were getting now is all ARPA.
In the quarter. We are we have around 17 17, one 7 million of funding that was that came into our P&L center. So excluding the effect of our cost plus centers as I mentioned in the prepared remarks, we had a we had estimated about <unk>.
5 million in total for the full year. So some of that came out a bit sooner than we had expected and its also although we expect now to be a little bit higher than what we said that $25 million. We would now I'll look at probably 30 million herself for the full year.
On the P&L Center.
<unk> probably noticed supports.
Of course, many of them are being deployed toward you know towards the purpose of why they are being laid out whether it's some of the labor costs there.
Operational inefficiencies that happen as we're re enrolling and re ramping.
<unk>, even support to parents thought that that's the quantum of what we would have in the outlook for the rest of the year.
I will say one of the things you have just said.
Maybe give us a more complete view of that because we did mention the cost plus.
It is.
And in those centers, where our client partners want to avail themselves of these benefits, we do apply for them and and as we see it done they they reduce the cost that those employers need to contribute so as mentioned that was about $10 million.
In Q1.
We estimate that could be another 15 to 20 million, perhaps over the rest of the year based on the states that we have left.
Glad to hear framework.
<unk> funding from and so that that's one of the reasons for that.
The cost, but that cost plus revenue effect, we would see for the rest of the years.
<unk> is another element of where the revenue guidance has come in a little bit lighter than where we were before got it I appreciate all the detail. Thank you.
Okay. Thank you.
Our next question comes from the line of Jeff Silber with BMO capital markets. Please proceed with your question.
Thanks, So much wanted to go back to your full service centers can you just remind us about the price increase that you took at the beginning of the year and I'm just curious.
If you've got any push back and how that pushed back is.
It was you know relative to typical price increases that union has really put in.
Yeah, we did it.
As you know Jeff is a location by location decision, but broadly speaking, we would put through 5% to 6% increases.
On average this January .
Some locations.
They have been a bit higher but that was the average and.
The response to that was quite exciting.
I'd characterize it as parents understand both from the cost of labor and the challenges with our staffing situation and then now.
Inflation has persisted along I think they're seeing it in many parts of their lives but.
We did not receive much push back there on that pricing.
Okay, that's great to hear and if I could switch over back to the you always see acquisition I know you're going to give us more color. When you close it in terms of guidance, but I'm just curious, though the $140 million in U S. Dollar revenues that you quoted in 2021, how did that compare to pre pandemic levels. I know you talked about some of the government support.
I'm just curious how the business was impacted.
Yeah.
Yeah, I mean without getting into too much detail I think the.
Headline is that their business has been impacted.
Bye Bye the series of a variance but to a much lesser degree in terms of.
Enrollment disruption and then we've seen for example, there wasn't date.
A similar kind of.
Wholesale shut down.
So enrollment has persisted relatively well so they've been.
There was some contraction, but it wasn't cigna.
Significant that's why we quote 2021, its pretty representative really aware.
We're an annual liquidity.
Okay. That's really helpful. Thanks, a lot.
Thank you.
Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.
Alright, thanks, good afternoon.
What's your only about children acquisition can you talk about how it grew prior to the pandemic and how you expect it to grow longer term exiting COVID-19.
Yeah.
I'll I'll generally comment about how they approach their business.
So they are.
Hey, operator that has like bright horizons has grown through both Greenfield New center growth and through some acquisitions. So they've been looking at tuck in acquisitions single sites, you know some multi site locations.
And that has been their growth strategy and they are also had and as Stephen mentioned they are a high quality provider in and there is a a subsidy program in Australia that that sort of sets a general level of water parent support can come through and that provides a guideline as to where tuitions will be but they are.
Then.
They've certainly been a provider that charges at the at.
At the premium end and and they have been you know they they do price increases that correlate to their costume business. So those.
Those are a couple of things that have driven there are overall growth over the years as both price and unit growth and enrollment of course, and I think the only thing I would add just to touch on the second part of your question around sort of looking out into the future again, we see a lot of good opportunity there and have done sort of a.
A fairly expensive.
Look at what the rest of the market looks like as it relates to growth opportunities and we believe given the level of fragmentation in that market that that there is some really good room to continue to build out.
From the starting point is only about children.
Got it very helpful.
Your occupancy rate in the quarter improved to the 55% to 65% range could you provide your latest views on what the occupancy will return to pre COVID-19 levels.
Sure. So we can certainly give you our view on how things are trending similar to what we had said last quarter, we think that although we don't we will be close.
Pandemic levels by the end of the year may not be all the way back there, but certainly on a track similar to what we had had said last quarter to be getting back to pre pre COVID-19 occupancy utilization levels and in our centers by the end of the year, so that would be.
You know fully back then in 2023, but that's our view at this point.
Got it and then lastly could you estimate what.
Tight labor market is having in terms of an impact on occupancy rates.
Yeah, I mean, it's again similar to what we had said last quarter.
We estimate that it based on the <unk>.
And with that we are not able to take and in our centers.
Probably three or four percentage points.
<unk>.
Of occupancy that we are are holding at this point so as I say similar to what we had said last quarter. We've made headway with enrollment we've made headway with staffing, but we still have a demand profile. That's ahead of our ability to take it.
Very helpful. Thank you.
Thanks, Charlie.
As a reminder, its star one to ask a question. Our next question comes from the line of Toni Kaplan with Morgan Stanley . Please proceed with your question.
Thanks, So much wanted to focus on the margins for a second you know when I looked at Ed Advisory this quarter and that the margins there tend to jump around but was there anything in particular that sort of Charles.
You know that the lower level of margins and how should we be thinking about full year margins in that segment.
Yeah. There is this in particular in that segment I'm, Tony Thanks for asking that Stephen mentioned before that as are our third segment in the smallest of our businesses. It does capture.
Our edifice College coach Center city, and any other residual non specific segment information. So what is affecting the margin of that segment most significantly right.
Right now is our investment in our center city business in that platform. We are built.
Building out that that Martha capabilities that marketplace.
To be able to both.
Our parents in a <unk> environment, but also the significant number of clients who are utilizing the and theyre in place, we're able to utilize the sittercity platform through our.
Through our back up extended family supports for them. So we are in an investment mode with center city. So that's having an effect on that we think for the full year it'll be.
In the 15% to 20% range.
Probably overall and that is in excess of edifice and college coach being better than that in in center city being a headwind.
Great and then on backup care.
I think last quarter, you had talked about sort of margins back.
25% to 35% for the year, our first quarter, obviously towards the lower end of that but.
Is that still a good number because like it or or should we be thinking about it as a start up more towards the lower end of the range like just wondering if there's any impact from wage inflation or anything that would impact that expectation.
Yeah, so our or it is still the range turning and we're expecting for the full year of 25% to 35% first quarter. You know does not have the same kind of use volume that we have in the second and third quarter with policy.
The opportunity for care.
And back up across the summer season.
So it does tend to be lower than that in the first half and particularly the first quarter.
So they take 25 to 35 would be the range that we would be looking at there I think that the tenant had a question about inflation. It's it's one that maybe impacts back up in a slightly different way.
In that.
When there is we we do use utilize third party providers to as part of our service capability. So to the extent that they are experiencing caregiver inflation, it's a cost factor, but because of.
That is a much lower cost element than it is in our full service business week, we still think that within that range. We can continue to manage what inflation effects. There are there.
Perfect. Thank you.
Thank you.
Our next question comes from the line of <unk> with Deutsche Bank. Please proceed with your question.
Yes, hi, Thank you so much I wanted to actually follow up on that and just talk about the food service Center margins I don't know if I missed that but I think you'd previously talked about those margins sort of exiting the year at around or near 10% level.
I was curious how we should think about it if that still stands and how we should think about to Q.
For that segment in particular.
Yeah. So we I don't think we've talked about exiting margins in full service.
We are on a on a track I think.
But framing has been on where are we think revenue can be back to pre COVID-19 levels of occupancy.
Getting close to pre COVID-19 levels by the end of the year.
Whereas margin performance will not be.
So operating margins certainly before pre Covid were in the high single digits, 8%, 9% in getting to 10%.
He will not be at those levels are.
At the end of this year, because we are both recovering from an enrollment standpoint, and all of the factories that we have been.
Talking about the flow through as we mentioned this quarter was around 40% and so that will be we would expect that to be diminishing as the year goes on and they keep copying against.
Prior quarters of ramp so.
I think that's an indication that while the operating income is improving you know marginal marginal flow through will be.
Gradually contracting, but I think that's as much of a of a range of guidance as we've provided on those those details.
Okay. Okay. That's helpful. I guess I would I'm curious like what do you need to get back to that maybe even high single digit level like 8% to 9% like is there like what enrollment level do you need to do any inflation. They can you offset that inflation with pricing more so maybe this.
Your next there.
Just talk more about what gets you back to back.
Yeah, I mean, I think what gets us back there.
But of course, there's a broad geographic spread here it is getting enrollment enrollment back to them to the pre COVID-19 levels on average is one factor having at least one more cycle. Yeah. We had said this at the beginning of the year that we we did a 5% to 6% pricing.
Increase we know that labor inflation has been higher and we would likely have two cycles of price increase to to rightsize the economics.
If inflation continues to persist we may we may need to be either more aggressive with those price increases.
Or look to some other on pricing capability, whether it's mid year pricing differentiated pricing for newer families. Your different age groups.
We need to be dynamic about how we consider where the pricing can cover the cost increases but in general enrollment we'll do it.
What will contribute to it.
Getting another cycle of price increase against the labor cost increases that we have seen and then also having a more.
Visible labor market that that allows us to staff in a in a regular and a more regulated way regular way. So that we are and our most efficient operating structure. That's that's some of the factors that would get us back to.
To that end.
And I think the only other thing I was just a wildcard ER positive and I'll throw in here is that of course, we.
We have always been a growing business, we've announced this acquisition, but also as we open new centers again, we've been in a contraction and reopen mode that.
But as new business comes in you know, we do have a cadence with newer centers that are opening that.
It has had losses during their ramp up cycle and sometimes that can be a factor over time, but the underlying fundamental businesses.
There's really no reason that we see that it won't be able to get back to those high single digits now in that 8% to 10% range and.
The quarters to come.
Okay understood maybe just one last question around and Roland I don't know if you have talked about this before but are.
Are you willing to share like how enrollment trends are across like your customer end markets. So you know you just talked about like health care pharmaceuticals, or touch consumer education et cetera, and then if the if there's any sort of discernible difference across end markets and whether your sort of Luby's center.
Yeah, you were these centers versus employer based centers are seeing sort of different trends as it relates to enrollment.
Yeah, I mean, I think we haven't talked about specific and end user markets, except to say that where client demand is highest in the.
And on the current environment, where we're seeing hospitals and.
The health care industry in general Pharmaceuticals, as well as universities I'm, having a quite high demand and they often have quite high attendance and enrollment.
But it really is it tends to be client specific are client centers have slightly higher enrollment in our lease consortium centers.
Not dramatically different.
A few points on the overall enrollment scale, so I think from our standpoint it's.
It's really more a matter of having a differentiated portfolio that can serve a variety of working parents had it we haven't seen it come out to be it's been more geographic than its been industry verticals.
Understood. Thank you so much.
Great. Thank you.
Great well. Thank you all very much for joining us on the call.
As you detect from our prepared remarks as well as the Q&A. We are excited about the progress that we're making and appreciate all of your support and wish you a great night. Thank you.
Thanks, everyone.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
Okay.