Q1 2023 Bright Horizons Family Solutions Inc. Earnings Call

May 2, 2023

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 is now my pleasure to introduce your host Michael Flanagan Senior director of Investor Relations. Please go ahead.

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 is now my pleasure to introduce your host Michael Flanagan Senior director of Investor Relations. Please go ahead.

Speaker 1: So the most ER thir, the So about.

Thanks Stacy.

Thank you Stacy and welcome to the bright Horizons first quarter earnings call.

Welcome to the bright Horizons first quarter earnings call.

Before we begin today's call is being webcast and a recording will be available under the Investor Relations section of our website.

As a reminder to participants any forward looking Steve.

As a reminder to participants any forward looking statements made on this call, including those regarding future business financial performance and I will.

Statements made on this call.

And in future business financial performance and other.

Subject to the Safe Harbor statement included in our earnings release forward looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2022 Form 10-K, and other SEC filings.

Our subject to the Safe Harbor statement included in our earnings release and forward.

Forward looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2022 Form 10-K, and other SEC filings.

Any forward looking statements speak only as of the data, which is made and we undertake no obligation to update any forward looking statements.

Speaker 1: Every.

We also further 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.

We also provided 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.

Joining me on today's call are Chief Executive Officer, Stephen Kramer, Our Chief Financial Officer, Elizabeth Boland, Stephen will start by reviewing our first quarter results and provide an update on the business Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions with that let me turn the call over to Steven.

Joining me on political our Chief Executive Officer, Stephen Kramer, Our Chief Financial Officer, Elizabeth Boland, Stephen will start by reviewing our first quarter results and provide an update on the business Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions with that let me turn the call over to Steve.

Thanks, Mike and welcome to everyone, who has joined the call.

I am very pleased with our performance in the first quarter, we delivered 20% year over year revenue growth with contributions from all of our segments.

Speaker 1: The.

Our enrollment recovery continued to progress positively with notably strong performance in the U S and in our younger age groups.

Backup care delivered another outstanding quarter building on the momentum of 2022.

Traditional use increased significantly year over year and started the year saw a healthy set of new clients launching backup care.

Traditional use increased significantly year over year and the start of the year saw healthy set of new clients launching backup care.

We are off to a solid start to the year and well on our way to delivering on our 2023 full year guidance.

Revenue in the quarter increased 20% to 554 million with adjusted net income of $28 million and adjusted EPS of <unk> 49.

Speaker 1: The.

And our full service Chop care segment revenue increased 22% in the first quarter to $430 million.

And our full service chapter segment revenue increased 22% in the first quarter to $430 million.

We added six new organic centers and from a utilization standpoint, our progress within the cohorts. We discussed with you last quarter is also hurt me.

We added six new organic centers and from a utilization standpoint, our progress within the cohorts. We discussed with you last quarter is also pardon me.

Speaker 2: Greetings and welcome to the Bright Horizons Family Solutions first quarter 2023 earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference.

35% of our centers are now on the top cohort defined as above 70% occupancy.

35% of our centers are now in the top cohort defined as above 70% occupancy.

This is up from 25% and this cohort in Q4.

And encouragingly less than 20% of our centers are now under 40% occupied.

Speaker 2: Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Please go ahead.

Enrollment in centers opened for more than one year increased at a mid single digit rates this past quarter.

Enrollment in centers open for more than one year increased at a mid single digit rates this past quarter.

Focusing on the U S year over year enrollment increased 9% in these <unk> centers and we continue to see improvements across all age groups and model types.

Focusing on the U S year over year enrollment increased 9% in these like centers and we continue to see improvements across all age groups and model types.

Speaker 3: Thanks Stacy and welcome to Bright Rising's first quarter earnings call. Before we begin, please note that today's call is being webcast and a recording will be available under the investor relations section of our website BrightRising.com. As a reminder to participants, any four looking statements made on this call, including those regarding future business, financial performance,

Specifically, we saw low double digit growth in the infant and toddler age groups and mid.

Specifically, we saw low double digit growth in the infant and toddler age groups and mid single digit growth in our preschool programs.

<unk> digit growth in our preschool programs.

We saw good consistency across center model types, realizing just over 10% growth in our lease consortium centers and high single digit growth in our client centers.

We saw good consistency across center model types, realizing just over 10% growth in our lease consortium centers.

Speaker 3: and I'll look at subject to safe harvesting and including our own release.

Speaker 3: The formal containment is inherently well-risk and uncertainties that may cause actual operating and financial results to different severely and are described in detail in our 2022 BTS Live and 2019.

And high single digit growth in our client centers.

Consumer energy and Tech again showed the fastest enrollment growth, while our higher Ed healthcare and industrial clients continue to show the highest overall occupancy levels.

Speaker 3: Any board of the statement speaks only other than the data which is made and we undertake no obligation to update any board of the statements. We also have further data non-gap management measures which are detailed and reconciled to the Gap County Parks and Arun's release which is available under the IR section of our website. Joining me in today's call is our Chief Executive Officer Stephen Kramer and our Chief Financial Officer Elizabeth Bohn. Stephen will start by revealing our first quarter results and providing update on the business.

Staffing remains a constraint to our full enrollment potential in many areas across the U S. But we do continue to make incremental progress on the labor front.

Staffing levels increased through the quarter as the expanded compensation investments we made last fall.

Staffing levels increased through the quarter as the expanded compensation investments, we made last fall along with the initiatives to streamline our recruitment and onboarding processes continue to drive improvement and staff retention applications and hires.

Along with the initiatives to streamline our recruitment and Onboarding processes continue to drive improvement and staff retention applications and hires.

Speaker 3: Elizabeth will follow from a detailed review of the numbers before we open up to your questions. With that, we will turn it on to the next student.

In the U K enrollment growth has trailed the U S recovery as staffing challenges constrained our ability to serve all families seeking care.

Speaker 4: Thanks, Mike, and welcome to everyone who is joining the call.

Speaker 4: I am very pleased with our performance in the first quarter. We delivered 20% year-over-year revenue growth with contributions from all of our segments.

The U K has seen more acute and persistent hiring gaps, which we expect will continue to challenge enrollment and operating performance for the remainder of the year.

Speaker 4: Our enrollment recovery continues to progress positively with notably strong performance in the US and in our younger age groups.

In the Netherlands, as we have talked about on previous calls performance had been more consistent in contributory to the pandemic.

Speaker 4: Backup here delivered another outstanding quarter, building on the momentum of 2022.

Speaker 4: Traditional use increased significantly year over year and the start of the year saw a a totally set of new clients launching backup care.

Let me now turn to back up care, which kicked off 2023 with an exciting start.

Let me now turn to backup care, which kicked off 2023 with an exciting start.

Revenue increased 19% over the prior year to $96 million output.

Revenue increased 19% over the prior year to $96 million outpace.

Speaker 4: We are off to a solid start to the year and well on our way to delivering on our 20-23 full-year guidance. Revenue in the quarter increased 20% to 554 million with adjusted net income of 28 million and adjusted EPS of 49 cents. In our full service chapter segment, revenue in the quarter increased 20% to 555 million.

Outpacing our expectations in the first quarter.

We also continued to expand our client base with Q1 launches for Equifax, Loews hotels, and the Ohio State University to name a few.

Yeah.

Traditional use again grew significantly year over year in Q1, we.

We saw solid user growth in our bright horizon centers extended network centers and in home care.

We saw solid user growth in our bright horizons centers extended network centers and in home care.

As well as in our newer academic tutoring and pet care offerings.

Unique users showed strong growth as more employees took advantage of the expanding menu of offerings within the backup care benefit.

Speaker 4: top cohort to find it above 70% occupancy.

I remain very excited about the opportunity in the backup care segment as we work to leverage our technology and marketing investments innovative care types and our ongoing success in adding new clients.

Speaker 4: Enrollment centers open for more than one year increased in a mid-single digit rate this past quarter. Focusing on the US, year-over-year enrollment increased 9% in these like centers and we continue to see improvements across all age groups and model types. Specifically, we saw low double digit growth in the infinite toddler age groups and mid-single digit growth in our preschool programs. We saw good consistency across center model types.

Moving onto our education advisory business, which delivered revenue growth of 6% to $27 million.

We launched a number of new clients for Edison in college coach this quarter, including Arrow Electronics Bank of New York Mellon and Raytheon.

We also saw a number of clients launch for expand there's no cost and direct sales certificate and degree programs in Q1.

These programs, which saw strong growth in 2020 to reduce the barriers to education and increase the overall participation in their employers' workforce education programs.

Speaker 4: and high-siebel digit growth in our client centers. Consumer, energy, and tech again show the fastest enrollment growth while our higher-ed healthcare and industrial clients continue to show the highest overall occupant levels. Staffing remains a constraint to our full enrollment potential in many areas across the U.S. but we do continue to make incremental progress on the label front. Staffing levels increase to the quarter as the expanded compensation investment who made last fall, along with the initiatives to streamline the recruitment and onboarding properties.

I remain optimistic about our opportunity across education advisory given our breadth of our client footprint the strong underlying employer need for Upskilling and Reskilling and the continued demand for college admissions and financial aid supports.

Before I wrap up I want to take this opportunity to reflect on this year's senior leadership Forum.

This conference brings together, our top 100 field and corporate leaders to collaborate and explore opportunities for long term growth.

This year, we focused on are on four of our strategic assets.

Speaker 4: continue to drive improvement in staff retention, applications, and hires.

Our global footprint, our trusted brands, our extensive client base and our central focus on families and learners.

With very energizing few days spent with this talented team and a great opportunity to welcome some new leaders to the strategic planning process.

It was very energizing few days spent with this talented team and a great opportunity to welcome some new leaders to the strategic planning process.

Speaker 4: The UK has seen more to you and persistent hiring gaps, which we expect will continue to challenge enrollment and operating performance for the remainder of the year. In the Netherlands, as we have talked about on previous calls, performance has been more consistent and contributory through the pandemic. Let me now turn to backup care, which kicked off 2023 with an exciting start. Revenue increased 19% over the prior year to 96 million.

Whilst harnessing the unique perspective of our many long tenured leaders.

In closing I am pleased with the strong start to 2023 at the key metrics of our business strengthen.

In closing I am pleased with the strong start to 2023 at the key metrics of our business strengthened.

Service Center enrollment backup care use and Ed advisory participate use.

While the global environment still has its challenges I am encouraged by the ways. Our teams have adapted to employer client needs and expectations. While at the same time continuing to deliver the highest quality care and education to our families in numbers.

Speaker 4: outpacing our expectations in the first quarter. We also continue to expand our client base with Q1 launches for Equifax, Lowe's Hotels, and The Ohio State University to name a few.

Yeah.

We are reaffirming our 2023 full year guidance, specifically revenue growth of 14% to 19% to $2 3 billion to $2 4 billion and adjusted EPS of $2 80.

Speaker 4: Traditional use again grew significantly year over year in Q1. We saw solid use growth in our Bright Horizon centers, extended network centers, and in home care, as well as in our newer academic tutoring and pet care offerings.

To $3 per share.

The Q1 performance is a solid foundation to accomplish the goals we set for 2023.

With that I'll turn the call over to Elisabeth who will dive into the quarterly numbers and share more details around our outlook.

Speaker 4: I remain very excited about the opportunity in the backup care segment as we work to leverage our technology and marketing investments, innovative care types, and our ongoing success in adding new clients. Moving on to our education advisory business, which delivered revenue growth of 6% to 27 million. We launched a number of new clients for Edices in college coaches quarter, including Arrow Electronics, Bank in New York, Mellon, and Ray D'Aume. We also saw a number of clients launch or expand their no-cost and direct-

Thank you Steven and Hello to everyone Who's joined the call today.

Thank you Steven and Hello to everyone, who has joined the call can.

To recap the first quarter overall revenue increased 20% to $554 million.

Adjusted operating income up $37 million or 7%.

Adjusted operating income of $37 million or 7%.

Kris 18% over Q1 of 'twenty two.

18% over Q1 of 'twenty two.

While adjusted EBITDA of $70 million or 13% of revenue increased 11% over the prior year.

We added six new centers and permanently closed eight centers in the quarter.

We added six new centers and permanently closed eight centers in the quarter ending March 31, with 1076 centers.

At March 31, with 1076 centers.

To break this down a bit further full service revenue increased 76 million to 439 in Q1 for 22% over the prior year ahead of our expectations for 15% to 20% increase.

To break this down a bit further full service revenue increased to $76 million and 439 in Q1 or 22% over the prior year ahead of our expectations for 15% to 20% increase.

Organic constant currency revenue growth of approximately 14%.

Organic constant currency revenue grew approximately 14% drift.

Driven by increased enrollments and pricing, while acquisitions added 10% or $34 million to revenue in the quarter.

The foreign exchange headwind comparing Q1 of this year to Q1 of last year was in line with our expectation of 3% year over year.

The foreign exchange headwind comparing Q1 of this year to Q1 of last year was in line with our expectation of 3% year over here.

Speaker 4: This conference brings together our top 100 field and corporate leaders to collaborate and explore opportunities for long-term growth. This year we focused on 4 of our strategic assets, our global footprint, our trusted brand, our extensive client base, and our central focus on families and learners. It was a very energizing few days spent with this talented team, and a great opportunity to welcome some new leaders to this strategic planning process.

Enrollment in our centers open for more than one year increased mid single digits across the portfolio.

As Stephen mentioned U S enrollment grew 9%.

While our European operations were up only nominally.

While average occupancy levels remain in the 65% to 60% range in Q1, they did step up sequentially from Q4 of 'twenty two and in each of the months during Q1.

While average occupancy levels remain in the 65% to 60% range in Q1, they did step up sequentially from Q4 of 22 and in each of the months during Q1.

Speaker 4: while harnessing the unique perspective of our many long tenured leaders.

Yeah.

Speaker 4: In closing, I am pleased with the strong start to 2023 as the key metrics of our business tree left to them.

Adjusted operating income of $10 million in the full service segment increased $3 million in Q1.

The year over year improvement was driven by higher enrollment.

Speaker 4: Full service center enrollment, backup care use, and ED Advisory participate use.

Second tuition increases and improving cost efficiency.

Tuition increases and improving cost efficiency.

Speaker 4: While the global environment still has its challenges, I am encouraged by the ways our teams have adapted to employer-client needs and expectations, while at the same time, continually to deliver the highest quality care and education to our families and members. We are reaffirming our 2023

Partially offsetting the earnings grew slightly year over year impact of the teacher compensation investments, we made in the fall of 2022 as.

Partially offsetting the earnings grew slightly year over year impact of the teacher compensation investments, we made in the fall of 2022.

As well as the continued advertising spend in our international operations on agency staff and to a lesser extent energy costs.

As well as the continued appetite to spend in our international operations on agency staff and to a lesser extent energy costs.

Additionally, support received from the ARPA of government funding program was higher than we expected in Q1, we.

Additionally, support received from the ARPA of government funding program was higher than we expected in Q1.

We have projected that the $30 million of ARPA funding estimated for the full year 2020 period was coming more evenly across Q1 to Q3. However, we received $15 million in support and P&L centers in Q1.

We had projected that the $30 million of ARPA funding estimated for the full year 2023, it would come in more evenly across Q1 to Q3. However, we received 15 million in support and P&L centers in Q1.

Speaker 4: the goals we set for 2023. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.

That's what's roughly $7 million more than we had anticipated for the quarter.

This was roughly $7 million more than we had anticipated for the quarter.

But what's also roughly $3 million less than last year.

But with also roughly $3 million less than last year.

Speaker 5: Thank you Stephen and hello to everyone who's joined the call.

As a reminder, the ARPA program is set to expire on September 30 of this year and funding disbursements have been tapering it over the last couple of months.

As a reminder, the ARPA program is set to expire on September 30 of this year and finally disbursements have been tapering it over the last couple of months.

We estimate the remaining $15 million.

Expect to receive will be split roughly evenly between Q2 and Q3.

Turning to backup here.

Turning to back up here.

<unk> grew 19% in the first quarter to $96 million.

Revenue grew 19% in the first quarter to $96 million.

Ahead of our expectations for 12% to 15% growth.

As Steven mentioned, we were pleased with the volume and breadth of use from it through the quarter and we attribute some of the higher than expected us to employees utilizing their baskets earlier in the calendar year than we had expected.

As Steven mentioned, we were pleased with the volume and breadth of use for most of the quarter and we attribute some of the higher than expected views to employees utilizing their baskets earlier in the calendar year than we had expected.

Speaker 5: ahead of our expectations for 15 to 20 percent increase. Organic conste currency revenue grew approximately 14 percent, driven by increase in role-miss and pricing while acquisition added 10 percent or 34 million to revenue in the quarter. The foreign exchange headwind comparing Q1 of this year to Q1 of last year was in line with our expectation of 3 percent year over year. Enrollment in our centers opened for more than one year increased mid-single digits across the portfolio. As Seaman mentioned, U.S. enrollment remained percent.

Operating income of $22 million was 22, 5% of revenue in line with our expectations for the quarter.

Operating income from 22 million was 22, 5% of revenue in line with our expectations for the quarter.

Our educational Advisory group reported revenue growth of 6% to $27 million unexpected use of our workforce education in college admissions advisory services as well as from contributions from new clients who launched.

Our educational Advisory group reported revenue growth of 6% to $27 million unexplained abuse of our workforce education in college admissions advisory services as well as from contributions from new clients who launched.

Turning to a couple of the other items in the P&L and balance sheet interest expense totaled $11 5 million in the first quarter 'twenty three.

Turning to a couple of the other items in the P&L and balance sheet interest expense totaled $11 5 million in the first quarter of 23.

Excluding the million and a half dollars per quarter that relates to the deferred purchase price on our acquisition of only about children.

Excluding the million and a half dollars per quarter and that relates to the deferred purchase price on our acquisition of only about children.

Speaker 5: while our European operations were up only nominally. While average occupancy levels remained in the 55 to 60 percent range in Q1, they did step up sequentially from Q4 of 2022 and in each of the months during Q1.

This represents an increase of four and a half million over 2022 on hand, overall increased borrowing and higher interest rates.

The structural tax rate on our adjusted net income also increased to 28%.

A 220 basis point uplift over Q1 of 'twenty two.

As it relates to the balance sheet and cash flow for the quarter, we generated $67 million in cash from operations compared to $59 million in Q1 of 'twenty two.

Speaker 5: Partially offsetting the earnings group with the year-over-year impact of the teacher compensation investments we made in the fall of 2022, as well as the continued outside expense in our international operations on agency staffing and, to a lesser extent, energy costs. Additionally, support received from the ARPA government funding program was higher than we expected in Q1. We had projected that the $30 million of ARPA funding estimated for the full year 2023 would come in more evenly across Q1 to Q3.

When the fixed asset investments and acquisitions totaling $19 million compared to the 12 million. We spent in Q1 of last year.

We also paid down $40 million outstanding on our revolving credit facility.

And we also paid down $40 million outstanding on our revolving credit facility.

We ended the quarter with $45 million of cash.

And reduced our leverage ratio to three times net debt to EBITDA.

Yeah.

Moving onto our 2023 outlook.

And Stephen previewed we are maintaining our 2023 full year guidance for revenue in a range of 2.3 to $2 4 billion.

And Stephen previewed we are maintaining our 2023 full year guidance for revenue in the range of two three to $2 4 billion.

Speaker 5: However, we received $15 million in support in P&L centers in Q1.

Speaker 5: This was roughly 7 million more than we had anticipated for the quarter, but was also roughly 3 million less than last year.

And adjusted EPS in the range of $2.80 to $3 a share.

In terms of the segment revenue, we continue to expect full service to grow roughly 15% to 20%.

In terms of segment revenue, we continue to expect full service to grow roughly 15% to 20%.

Speaker 5: As a reminder, the ARPA program is set to expire on September 30th of this year.

Backup care to grow 12% to 15% for the full year and Ed advisory to grow 10% to 16%.

Speaker 5: And funding disbursements have been tapering over the last couple of months.

As we outlined last quarter, there are three discrete items affecting our reported margins and earnings growth rates in 2023, specifically related to the ARPA funding interest expense and our tax rate.

Speaker 5: Turning the backup here, revenue grew 19 percent in the first quarter to 96 million. Ahead of our expectations for 12 to 15 percent grow. As Steven mentioned, we replaced with a volume and breadth of use for the quarter, and we attribute some of the higher than expected use to employ utilizing their baskets earlier in the calendar year than we had expected. Operating income of 22 million was 22.5 percent of revenue in line with our expectations for the quarter. Our educational and biodeon group reported revenue growth.

We continue to expect those items to account for roughly 60 to 65 cents of headwinds to growth for the full year.

And this reflects 30 million less in ARPA funding that P&L centers.

This reflects 30 million less in ARPA funding that P&L centers.

12 million more in interest expense and a 200 basis point increase in the tax rate.

<unk> million more in interest expense and a 200 basis point increase to the tax rate.

In our more immediate timeframe our outlook for Q2 is for revenue growth of 17% to 21%.

With full service revenue growth of 18% to 22%.

Back up of 15% to 18% and Ed advisory are 5% to 10%.

Back up of 15% to 18% and Ed Advisory a 5% to 10%.

We expect Q2 adjusted EPS to be in the range of 57 to <unk>.

62 cents.

In terms of the discrete items I just mentioned above.

We expect those items to account for roughly 17 to 19 cents of headwinds to the growth from Q2 on a year over year basis.

And this reflects 4 million anymore interest expense 9 million bus and government support from the ARPA program.

And this reflects format anymore interest expense 90 million bus and government support from the ARPA program.

And approximately 200 basis points higher tax rate.

Speaker 5: and higher interest rates. The structural tax rate on our adjusted income also increased to 28%.

So with that we are ready to go to Q&A.

Speaker 5: A 220 basis point got left all the Q1 at the 22.

Okay.

Thank you we will now be conducting a question and answer session.

Speaker 5: The weight of the balance sheet and cash flow for the corner regenerated $0.67 million in cash from operations compared to $0.59 million in Q1 of 22.

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Speaker 5: We need fixed asset investments and acquisitions totaling $19 million compared to the $12 million we spent in Q1 of last year.

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Speaker 5: And we also paid down $40 million outstanding on our revolving credit facility.

First question comes from Andrew Spiderman with J P. Morgan. Please go ahead hi.

Speaker 5: We ended the quarter with $45 million of cash and reduced our leverage ratio to three times that that year ago.

Elizabeth could you tell us how you expect full service utilization.

In the second quarter and through the year to.

During the second quarter and through the year to.

To make the 2023 guide.

Yeah, so as we talked about.

Speaker 5: At Stephen Freeview, we are maintaining our 2023 foliar guidance through revenue in a range of 2.3 to 2.4 billion and addressing EPS in the range of $2.80 to $3 a share. In terms of segment revenue, we continue to expect full service to grow roughly 15 to 20 percent, backup pair to grow 12 to 15 percent for the foliar and ed advise where to grow 10 to 16 percent. As we outlined last quarter, there are 3 discrete items affecting our reported margins and earnings growth rates in 2023, specifically related to the ARPA funding interest expense and our tax rate. We continue to expect those items to account for roughly 60 to 65 cents of ed win to grow for the foliar. And this reflects 30 million less in ARPA funding at P&O centers, 12 million more in interest expense and it's 200 basis point increase to the tax rate. In our more making time frame, our outlook from Q2 is for revenue growth of 17 to 20 percent.

Called first quarter started off solidly mid single digits and that's what we'd expect to see continue in Q2 and in Florida, the rest of the year.

What did you expect a step up in utilization and the kind of September time frame.

What did you expect a step up in utilization and the kind of September timeframe.

Well, there's the seasonality that does occur in the in third quarter. So there was a little bit of that's cycling that comes through is older and older preschoolers graduates, but other than that we would expect that our sequential performance to continue yes. Okay. Thank you very much.

Well, there's the seasonality that does occur in the in the third quarter. So there was a little bit of Oh, that's cycling that comes through with older and older preschoolers graduates, but other than that we would expect better sequential performance to continue yes. Okay. Thank you very much.

Oh.

Next question George Tong with Goldman Sachs. Please go ahead.

Alright. Thanks, good afternoon, you're continuing to see an enrollment recovering your full service centers can you outline what the average occupancy rate percentage was in the quarter.

Where you expect to end the year and when you expect to get back to pre COVID-19 occupancy rates of 70% to 80%.

Yeah, So and we have realigned our overall occupancy level and in sectors that have been open for more than than yours.

Yeah, So and we have three outlined the overall occupancy level and in sectors that have been open for more than a year.

The range of 55% to 60% and it has stepped up from where we ended the year Q4 of last year and it's improved over Q1 of the prior year or so sequential improvement year over year improvement and so you know getting obviously, if it were <unk>, 55% to 60% range of our improving or getting closer to that $60.

The range of 55% to 60%.

He has stepped up from where we ended the year Q4 of last year and it's improved over Q1 of the prior year or so sequential improvement year over year improvement and so you know getting obviously, if we're at 55% to 60% range of our improving or getting closer to that 60% threshold, which we would be expecting.

Set a threshold, which we would be expecting to see by the end of the year as it relates to the profitability of the centers I think it is important to call out that where we're averaging in a lot of variability in performance and.

To see by the end of the year.

As it relates to the profitability of the centers I think it is important to call out that.

We're averaging in a lot of variability in performance.

And so we are really pleased to see that the centers that we as a reminder, we have isolated some cohorts of performance on the last couple of calls and so.

And so we are really pleased to see that the centers that we as.

A reminder, we have isolated some cohorts of performance on the last couple of calls and so.

In the group of centers that are operating at more than 70% occupied so as a threshold you mentioned getting back to pre COVID-19 levels at 70% to 80% range is where we are with targeted getting back to in that group were about 25% of our centers were.

In the group of centers that are operating at more than 70% occupied until as a threshold you mentioned getting back to pre COVID-19 levels at 70% to 80% ranges, where we with targeted getting back to.

In that group were about 25% of our centers were.

In that that grouping at the end of last year at about the last half of last year now 35% of those centers are above 70% occupied so good progress from the Middle group.

Growth in the 40% to 70% range continues to hold steady some.

Group in that 40% to 70% range continues to hold steady some of those have moved into the top into the top cohort and we are making progress on the lowest performing group, which is under under 40% enrolled and those have been about 20% or so of the overall mix and they are now less than 20.

Some of those have moved in the top of each of the top cohort and we are making progress on the lowest performing group, which is under <unk>.

There are 40% enrolled and those have been about 20% or so of the overall mix and they are now less than 20% of the sort of mid to high teens of the overall Oh in the overall group and so those centers.

Or send them the sort of mid to high teens of the overall Oh, we overall group and so those centers.

It's a little bit of framing for how the centers are performing.

Just a little bit of framing for how the centers are performing so I'm, calling back to the centers that are the top the top performers to those that are above 70%.

So going back to the centers that are the top the top performers to those that are above 70%.

They are really on a on a pretty strong March two pre COVID-19 operating margins.

By the end of this year really the mid group those that are in the 40% to 70% occupied are improving they.

By the end of this year are really the mid group those that are in the 40% to 70% occupied are improving they.

Occupancy levels, improving and their margins are improving but we would expect them to be back to pre COVID-19 levels and in 2024 2024.

Occupancy levels, improving and their margins are improving but we would expect them to be back to pre COVID-19 levels and in 2020 for mid 2024.

And they would need one more pricing cycle and and then the lower performing group will be later than that I expect it'll be 2025 before that that group is.

Either you know back to that level and overall, Nick in the overall mix as I'm able to absorb that.

Either you.

You know back to that level and overall, Nick in the overall mix as I'm able to absorb that.

Got it very helpful. And then as a follow up you mentioned the staffing levels are starting to normalize.

Can you elaborate on what you're seeing on the labor front, how much of a headwind if any.

Library about what you're seeing on the labor front, how much of a headwind if any is presenting to your current occupancy rate and what kind of staffing levels, you're assuming in your full year guide.

Presenting to your current occupancy rates and what kind of staffing levels, you're assuming in your full year guide.

Yes, so I think when we think about the progress that we're making from a staffing perspective, we're focused on continuing to see improved.

Yes, so I think when we think about the progress that we're making from a staffing perspective, we're focused on continuing to see.

Improvement on the net higher front and for us that starts with retention. So I think we shared at the end of last year that we had returned to 2019, our retention levels. What we would say is that in this first quarter. We have actually eclipse that so we are doing better from a retention standpoint than we saw even in two.

Movement on the net higher front and for us that starts weighted retention. So I think we shared at the end of last year that we had returned to 2019, our retention levels. What we would say is that in this first quarter, we have actually eclipse that so we're doing better from a retention standpoint than we saw even in 2000.

19.

<unk> 19.

In addition to that we're seeing good job seekers.

And ultimately a nice uplift as it relates to applications that again are driving towards new hires and so the combination of better retention and new hires is.

And ultimately a nice uplift as it relates to applications that again are driving towards a new hires and so the combination of better retention and new hires.

He is helping us to get back to that.

That cadence, where we are going to approach pre COVID-19 levels of staffing again, when we think about what it's going to require them I think Elizabeth highlighted here in the U S. We are definitely closer to getting back to what that pre COVID-19 enrollment and ultimately.

Staffing looks like and then in the U K, we are a bit further back on the curve seem.

Staffing looks like and then in the U K, we are a bit further back on the curve seen.

More labor shortages.

Got it very helpful. Thank you.

Thank you.

Next question Manav Patnaik with Barclays. Please go ahead.

Next question, but I'll Patnaik with Barclays. Please go ahead.

Yeah, Hi, good evening I just wanted to see if you could just tell us how you're thinking about just remind us of the seasonality I guess for the rest of your question just being you know you obviously had a solid start to the year, probably gives you a little more visibility, but just you know to just curious why you didn't change.

Change the guidance accordingly.

Why are they didn't change the guidance for that.

Why do we even changed the guidance for the.

Rest of the year, you mean, yeah correct okay.

Rest of the year, you mean, yeah correct.

Okay.

Yeah Yeah.

Yeah.

Well why is that.

Well.

Hey, Manav I'll start and Elizabeth can add color, but.

Hey, Manav I'll start Elizabeth can add color, but.

But as the quarter.

<unk>.

We saw we saw almost step up sequentially in Q1.

We started out we started almost step up sequentially in Q1.

So, it's a little bit better than we had expected.

So a little bit better than we had expected.

As we think about seasonality for the rest of the year, we would expect.

As we think about seasonality for the rest of the year, we would expect enrollment to an occupancy step up again sequentially Institute Q.

And occupancy to step up again sequentially into <unk>.

Hum.

You know going into the third quarter, we've talked about in the past you saw last year, we are pleased.

Going into the third quarter, we've talked about in the past you saw last year, we had a piece.

Older Kids preschool kids have cycled through in Asia.

And we backfill as many as we can but you know occupancy and a woman typically fall sequentially.

And we backfill as many as we can but you know occupancy and a woman typically fall sequentially from <unk> to <unk>, we would expect that this year.

<unk>, we would expect that this year.

And then the fourth quarter is typically the enrollment and occupancy as you know flat.

And then the fourth quarter is typically the enrollment and occupancy as you know.

Flat to slightly positive sequentially. The 14th so that's that's that's how we entered the year and that's kind of still how we how we see the year unfolding.

Flat to slightly positive sequentially into <unk>. So that's that's that's how we entered the year and that's kind of how we see the year unfolding.

Enrollment in occupancy seasonality issue.

Got it Okay, and then Elizabeth could you help us with the operating margins by segment for the second quarter, Yeah, I think I'm guessing the the full year numbers you helped us last quarter are unchanged. So I was hoping for what took you should look like.

Got it Okay, and then Elizabeth could you help us with the operating margins by segment for the second quarter I think I'm guessing the the full year numbers you helped us last quarter are unchanged. So just hoping for what took you should look like.

Yeah. So you know from our full service standpoint, I think so the start to the year, though.

Two and a half or so percent adjusted operating margin we have.

Two and a half or so percent our adjusted operating margin we have.

Some expectation for T cell.

Bill improvement to that.

Since it's low to mid single digits for the full year it wont be significant.

Since it's low.

Low to mid single digits for the full year it wont be.

A significant change, but the progress quarter over quarter and that's inclusive.

<unk> changed the progress.

Quarter over quarter and that's inclusive.

Some of the challenges that we.

We talked about in the prepared remarks about the ARPA funding being about 8 million less than Q1, and that's a couple of hundred basis points.

And then just a more challenging performance in the U K as an example that we don't expect will be adding much momentum here that Q1 to Q2 performance.

And then just a more challenging performance in the U K as an example that we don't expect will be adding much momentum here that Q1 to Q2 performance. So.

Improvement in Frankfurt.

Improvement in bright.

Bright spots in a number of places and and seen it sequentially improve but that would be still in the low to mid single digits in Q2, the back half of group of continuing into the pace that we saw this quarter of 20% to 25% operating margin.

Bright spots in a number of places and and seen it sequentially improve but that would be still in the low to mid single digits. In Q2. The back half of group are continuing into the pace that we saw this quarter of 20% to 25% operating margin.

And and <unk> seen that consistency because of the mix of use there that includes Sn.

And and <unk> seen that consistency because of the mix of used there that includes.

Essentially by having more Houston, we're providing care for an ethane provider fees that we would have the consistency of that 20 or 25% and improving margin.

And if I have anymore, Houston, we're providing care for an ethane provider fees that we would have.

The consistency of that company at 25% and improving margin.

And the second half comes along and that's what gets us to the 25% to 28% for the full year.

And then.

Ed advising business.

Carrying pretty consistent operating margin in the.

Mid to high teens.

Alright, Thank you very much.

Thank you.

Next question Toni Kaplan with Morgan Stanley . Please go ahead.

Hi, there.

Actually it's sort of a follow up on the last one.

Service margin I guess ex the ARPA funding looked at like it actually got a little bit worse I'm. Just if you know given that he is that sort of that 15 million of ARPA like I guess should we be thinking like I thought the revenue growth's actually this quarter.

You know what was good.

You know it was was good.

I, just I haven't I'm, having a little trouble reconciling that.

And so you're talking about Q1's performance Tony Yeah, Yeah. Thank you.

Yeah. So a couple of things affecting Q1, which are.

From a revenue growth standpoint, and not not converting as much some of those wage investments it is still being absorbed.

From a revenue growth standpoint, and not not converting as much of that was the wage investment is still being absorbed.

We also have have.

We also have.

Have you mentioned that you paid performance is weaker than what we would've seen.

Have you mentioned that you pay to performance.

It's weaker than what we would've seen.

Historically, so that's a bit of a headwind and I think the other side with fine nuance to the results. This year is that we haven't acquired the Australian business.

They are actually in their summer season in the first quarter.

So there their performance has been.

So there their performances.

David accelerated more in their winter, which is over our summer and so that.

That is not.

Contributor in terms of their revenue contribution doesn't convert much to the margin there. So that would be another reason why you see the revenue growth.

A little bit weaker conversion on the operating side.

And I'll just add we you talked about a little bit in the prepared remarks, Tony but.

And I'll, just add we talked about a little bit in the prepared remarks, Tony but.

We saw faster growth in the younger age groups.

In particular in <unk> and also our client centers were strong and so that's at.

Others in particular and also our client centers were strong and so that does.

Both year over year and sequential growth in those two groups.

Doesn't have as much on the margin side is.

Oh I see.

Yeah I'm sorry.

Yeah.

Near term challenge, but a good thing for the overall business.

Challenge, but a good thing for the overall business.

Yep Yep.

Wanted to ask my follow up on sort of the pipeline of new centers. It sounds like there were a couple of names that you mentioned sign this quarter, but just wanted to understand the pipeline now versus maybe a year ago or even a quarter about just any sort of reference point Tim can probe.

Right.

Sure So Tony what I would say is the pipeline continues to strengthen.

You would notice that employers.

You would notice that employer sponsored care continues to.

Employer sponsored care continues to.

Have a lot of press right. If you think about the cares Act do you think about.

Government and all of the talk around the importance of employers getting involved in childcare.

And then I think there has been certainly a renaissance or an awakening among employers.

That there is and increasing and tightening in the market for their employees to be able to find care. So theyre hearing them from their employees directly. So I think that from a pipeline perspective, we feel really good that there continues to be growth in the pipeline.

That there is an increasing and tightening in the market for their employees to be able to find care. So theyre hearing them from their employees directly. So I think that from a pipeline perspective, we feel really good that there continues to be growth in the pipeline.

Especially in industries like health care, and more industrial distribution supply chain manufacturing those kinds of industries, what I would say is that certainly.

The process is a longer arc, because we've always talked about so the decision, making does take time, it requires space and capital and our long term commitment, but again I think overall, we feel good about where we sit from employer receptivity to employer sponsored care.

The process is a longer arc, because we've always talked about so the.

The decision, making does take time, it requires space and capital and our long term commitment, but again I think overall, we feel good about where we sit from employer receptivity to employer sponsored care.

Thanks, a lot.

Thank you. Thank you.

Next question, Stephanie more with Jefferies. Please go ahead.

Okay.

Yeah.

Good afternoon. This is Harold until it was definitely more just wanted to get a update on the current pricing environment.

Good afternoon. This is Harold.

So it's definitely more just wanted to get a update on the current pricing environment.

What are your pricing expectations for this year and we receive any pushback on pricing so far.

So what are your pricing expectations for this year and I'll.

We receive any pushback on pricing so far.

Yeah. So we are we have.

Yeah. So we are.

We have done most of our price increases out of the January cycling in and have an average in the 6% to 7% range. This year, we obviously have to have a fairly strong inflationary environment and so we.

Have done most of our price increases out of the January cycling in and have an average in the 6% to 7% range. This year, we obviously had to have a fairly strong inflationary environment and so we.

I've been looking to balance the the up.

I've been looking to balance that.

The efforts that we have to get enrollment and keeping the care as affordable as possible for as many parents as possible, while recognizing that we have seen.

So we have to get enrollment and keeping the care as affordable as possible for as many parents as possible, while recognizing that we have seen.

<unk> seen a pretty substantial uptick in our own cost structure with particularly with the wage investments. We've made so we've taken a view that some local that's an average 67%, but we view them very that locally and have have had I think good understanding receptivity I don't know if it anyway.

<unk>, a pretty substantial uptick in our own cost structure with particularly with the wage investments. We've made so we've taken a view that some local that's an average six 7%, but we do them very that locally and have have had I think good understanding receptivity I don't know if it anyway.

The price increase but I think we've had.

Really pretty good reception from the apparent based on that.

Pretty good reception from the apparent based on that those decisions and I think that the the opportunity is it's playing itself forward.

Vision and I think that the the opportunity is it's playing itself forward. Then I think also sets us up for us.

I think also sets us up for us.

And also a meaningful ability to have an increase next year that continues to allow us to make progress on the center economics.

And also a meaningful ability to have an increase next year that continues to allow us to make progress on those kind of economics.

Coverage of pre Covid levels.

Thank you for the color and then I guess.

Thank you Carlos and then I guess.

The question would just be on like cross sell upsell opportunities. So like how many of your post service customers also backup care customers are using <unk>. So sorry about colors close thank you.

The question I would just like cross sell upsell opportunities. So like how many of your post service customers also backup care customers are using this as sort of a college coach. Thank you.

Yes. So certainly we have highlighted the fact that we believe there's a lot of opportunity in our overall client base too.

Two continue to cross sell enough so I.

Two continue to cross sell and upsell.

I would say it goes in all of the direction right. So we have center clients that.

Picking up back up we have backup clients that are picking up centers.

And then certainly as we have said before.

And certainly as we've said before many clients start with advisory and then ended up.

Many clients start with advisory and then ended up.

Purchasing another service from bright horizons.

So I'd say they didn't give us a little about a third maybe a little north of a third of our full service clients with the right back up here.

So I'd say I think it was a little bit about a third maybe a little north of a third of our full service clients with the right back up here.

Do you have a higher attach rates with.

Higher attach rates with.

Backup care and Ed.

Backup here on it.

In full service.

And in technical.

Full service as well, but that's that's where it stands currently.

Serves as well, but that's that's where it stands currently.

Thank you.

Next question, Jeff Silber with BMO capital markets. Please go ahead.

Hey, Ryan on for Jeff, we've seen some headline proposals, including the chips.

Hey, Ryan on for Jeff.

Seen some headline proposals, including the chips.

Requiring subsidies for chunk here and then.

Some pretty childcare proposals in the UK as well.

They're just proposals I'm, assuming it takes some time to shake out even if it were to pass.

His proposals.

It takes some time to shake out even if it were to pass.

Can you parse through how this might impact your business.

Can you parse through how they might impact your business.

Sure. So I think first it has brought to the forefront right. So all of these.

Sure. So I think first it has brought to the forefront right. So all of Lee's legislated pieces that brought to the forefront the importance of employers getting involved in childcare quite of a chip that can be very specific about it and that.

Legislated pieces and brought to the forefront the importance of employers getting involved in childcare.

The chip that can be very specific about it and that.

Those who are going to take advantage of government subsidies from a semiconductor perspective.

Those who are going to take advantage of government subsidies are from a semiconductor perspective are expected to provide a childcare and so we are in the early days of educating these companies to the extent that they don't already off for childcare land or opening new plants.

Are expected to provide childcare.

So we are in the early days of educating these companies to the extent that they don't already off for childcare land or opening new plants.

We are educating them about exactly the best way to do that and what the expectations are likely to be from the government. So.

We are educating them about exactly the best way to do that and then what the expectations are likely to be from the government. So.

So if we see that as certainly a nice longer term tailwind and something that we are out in front of with the market.

Yeah.

Got it.

And anything on the proposals.

Okay.

Yeah. So I think the U K look the new government in the U K is is it next year right. So I think that there'll be a lot of conversations in the meantime about all the different proposals.

Yeah. So I think the U K look the new government in the UK is is it next year right. So I think that there'll be a lot of conversations in the meantime about all the different proposals.

And so it's hard to know exactly where theyre going to land them I think the U K has for a long time, then I'm very focused on a subsidy for the older children and in our care and so broadly the three to five year olds have gotten good subsidy from the government are parents who care.

And so it's hard to know exactly where theyre going to land them I think the U K does for a long time, then I'm very focused on a subsidy for the older children and in our care and so broadly the three to five year olds have gotten good subsidy from the government are parents who care.

Good subsidy from the government.

Whether that goes deeper in each group, whether the subsidies become more significant in nature is yet to be seen.

But certainly there's a nice track record in the U K and it's one of the reasons why it's a great market for us long term.

But certainly there is a nice track record in the U K and it's one of the reasons why it's a great market for us long term.

Thank you and then just one follow up over the past few years, we've seen some parents.

Entertain a greater preference for retail centers, but secured their homes do you think is the office occupancy rates continue to creep up you can start to recoup some market share from the retail centers and if so how long do you think it might take for parents to reevaluate their center preferences.

Entertain a greater preference for retail centers, but secure their homes do you think is the office occupancy rates continue to creep up you can start to recoup some market share from the retail centers and if so how long do you think it might take for parents to reevaluate their center preferences.

Make the switch itself.

Yes, so I think.

Yeah, So I think.

First I would start by saying.

Since the earliest.

Earliest in terms of our own reopening in independent bank are client centers have typically been more highly enrolled in our lease consortium centers and so the reality for US is that there is a real value proposition for families.

Earliest in terms of our own reopening in Independencia are client centers have typically been more highly enrolled in our lease consortium centers and so the reality for US is that there is a real value proposition for families.

Related to the onsite centers and so we see scenarios where people are choosing to go back to work or go back to the office rather.

Because that is the place they think of as the place that they can get a high quality affordable opportunity for their child to go to a center.

In addition to that we have examples where families actually drive drop their children off asked the child care center at the workplace and then work from home on certain days generally what we find is in all of these cases, the onsite center is relatively proximate to where someone lives and works.

And so it's a really great option for them and so I think for US. We just continue to move the ball forward across all of our model types.

And making sure that we're delivering great value.

For those who are caring for and continue to focus on the quality of our delivery.

Yeah.

Next question, Jeff Mueller with Baird. Please go ahead.

Next question.

Jeff Mueller with Baird. Please go ahead.

Yeah. Thank you good evening I wanted to follow up on my first question about.

Why you're not raising guidance are narrowing the range or something on what looks like a really good quarter that might be a positive inflection and I guess I'm just trying to understand.

Is it.

Legitimately just in line with your expectations or maybe a little bit better than maybe we mis modeled around topic against omicron headwinds or something like that.

Legitimately just in line with your expectations or maybe a little bit better than maybe we mis modeled around topic against omicron headwinds or something like that is it that it's better but.

Is it that it's better but it's.

It's been a long few years that it's a really choppy macro still so let's not get ahead of ourselves maybe the guidance is derisked or is it that there's some sort of what specific offset whether that's the UK challenges are.

More white collar layoffs at some clients.

More white collar layoffs at some clients I'm just.

I'm not really understanding.

Yes.

Yeah.

The guidance in the context of the Q1 performance of the prior rents or did it fully connect it for me. Thank you.

The guidance in the context of the Q1 performance in the prior rents or did it fully connect it for me. Thank you.

Well I'll.

I'll start I guess with that maybe just.

Clarification from the previous guidance on the ARPA funding.

Vacation.

Previous guidance on the ARPA funding.

It was $30 million for the year.

<unk> 39 for the year.

Of which.

Eight would be in Q1.

He would be in Q1, and we had $15 million in Q1 so.

And we had 15 million in Q1 so.

That was a tense.

That was it.

Hum.

We outperformed certainly no reply.

Outperform certainly know we're pleased with the earnings performance by eight tenths of that against where we had guided from a range standpoint is attributable to the timing of the ARPA timing, so that that really hasn't shifted the underlying fundamentals.

With the earnings performance by eight tenths of that against where we had guided from a range standpoint is attributable to the timing of the ARPA timing, so that that really hasn't shifted the underlying fundamentals.

That said coming out this quarter.

I had a couple of cents of outperformance, we outperformed revenue outperformed.

Certainly a couple of cents of outperformance, we outperformed revenue outperformed.

And some good indicators on both the backup you side and.

And some good indicators on both the backup you decide and not on the enrollment trends.

Moment trend.

They are both the summer season is coming and it's an important one with you know.

They are both you know that the summer season is coming and it's an important one with.

Some delivery I think some more visibility into the delivery on on the scale and consumption of bankruptcies over the summer and.

Delivery I think some more visibility into the delivery on the scale and consumption of bankruptcies over the summer and the.

Conversion of enrollment.

The conversion of enrollment.

That came through but we did have.

I came through the <unk>, we did have a.

A little bit more cyclical seasonality than we had anticipated last year, we have a good mix coming into the summer with more slightly more infants and toddlers than we had last year until we feel like we've got that visibility, but there now there are some.

A little bit more cyclical seasonality than we had anticipated last year, we had a good mix coming into the summer with more slightly more infants and toddlers than we had last year and so we feel like we've got that visibility, but there now there are some.

Uncertainties in the market is still with the economy, where it is and I think we are.

Uncertainty in the market is still with the economy oriented than I think we are.

We wanted to see continued progress Jeff against what we feel good about and appreciate you recognizing the opportunity that's there.

We wanted to see continued progress Jeff against what we feel good about and I. Appreciate you recognizing the opportunity that's there.

But I think that's how we.

But I think that's how we say we're looking at it as you framed it right at that optimistic but there are some challenges ahead of course, even I don't know if there's anything.

We're looking at it as you framed it right optimistic but there are some challenges ahead of course, even I don't know if there's anything else you. Yeah, I mean, I think I would just underscore the.

Yeah, I mean, I think I would just underscore the I think it was your middle point, Jeff which is.

What was your middle point, Jeff which is.

We are really pleased with the way the year started right. So I think we shouldn't get lost in the detail around the fact that we are pleased with the way the year started.

We're really pleased with the way the year started right. So I think we shouldn't get lost in the detail around the fact that we are pleased with the way. The year started I think that we do want to play forward. We do want to make sure that we're taking into consideration all of the positives as well as some of the headwinds that.

I think that we do want to play forward.

You want to make sure that we're taking into consideration.

All of the positives as well as some of the headwinds that we outlined right I think we feel really good about the way enrollments coming back we feel really good.

We outlined right I think we feel really good about the way enrollments going back we feel really good.

About the way backup use came in an advisory account plan I would say that the U K, it's something that we called out on this call with something that is certainly.

About the way backup use came in and advisory is on plan.

I would say that the U K, it's something that we called out on this call is something that is certainly.

On the challenging side on the other hand.

Within the total.

I think that we were very capable of absorbing that this.

This quarter, but wanted to make sure that we're not getting ahead of our skis and make sure that we're we're giving ourselves the appropriate amount of runway to have a really successful year. So I think reaffirm reaffirming for the full year, it's something that we feel good about we feel good about the quarter and so appreciate your sort of upfront component.

Awesome and then just on the summer and fall.

Awesome and then just on the summer and fall seasonal churn.

It's an old churn.

Are you seeing any forward signs that you could have a repeat.

Of last year, and then just how much.

Forward visibility do you have like at what like kind of like as we get to what months will you.

Forward visibility do you have like at what like kind of like as we get to what lumps will you.

No with like high confidence what it turns going to seasonally it looked like that.

No with like high confidence, what the returns going to seasonally it looked like that.

Yeah.

Well as you can imagine the visibility forward is reasonably good for two to three months parent interest generally is.

Do you get the longest lead time with infant and I think as it stand as it relates to the churn report summertime.

Do you get the longest lead time with intense and I think as it stand as it relates to the churn report summertime.

Candy Marion I think Les last time, or I think that our expectation around the Asia and the the sort of in filling into the preschool rooms.

It can vary and I think the last last time or I think that our expectation around the Asia and the the sort of any filling into the preschool rooms.

Didn't hit the Mark.

It needed to and so we do have.

Is it needed to and so we do have.

When you have a lot of eyes on Vanessa and vigilance, we're not only looking to monitor closely but ensure that we are clear.

Clear on where we have nabors. So we can be selling those spaces charters until I think that the.

Clear on where we have nabors, so we can be selling those spaces, where starters and until I think that the.

When we will know how the false churn actually plays out and when we're talking to you. This time next next quarter is when we will have reasonably good visibility for that it will be.

You know when we will know how the false churn actually plays out and when we're talking to you. This time next next quarter is when we will have oh.

We have a good visibility before that it will be it can be kind of variable or just kind of a general what anybody else visibility a few months into this.

It can be kind of very able over the summer about which I don't really have visibility a few months into this.

And into the future.

And in the future.

Okay. Thank you.

Once again, if you would like to ask a question. Please press star one on your telephone keypad.

Your next question comes from Fraser with Deutsche Bank. Please go ahead.

Yes, hi, thank you.

So I guess I just wanted to clarify when you talked about mid single digit growth occupancy.

Hum.

How do you involve two relative to prior year and just wanted to clarify is that on a year over year basis or were you talking about sequential seasonality from Q.

As Bob two relative to prior years and just wanted to clarify is that on a year over year basis or were you talking about sequential seasonality from Q2.

Okay.

Well.

Hello.

For the year.

We're talking about.

Mid single digits.

So all in all overall enrollment growth.

And overall enrollment growth.

Mid to high single digits of overall year over year enrollment growth I'd say historically.

You wouldn't be looking at that normal pre COVID-19.

You wouldn't be looking at that normally pre COVID-19.

When our centers were mature and full you'd be looking at more of a low single digit three or four.

One of our centers were maturing full you'd be looking at more of a low single digit three or four 5%.

Percent three ish percent type year over year enrollment growth.

Yeah.

Vodafone across all of our projects, including more centers ramping up so a fully mature centers would be growing more like 1%.

Across all of our projects, including more centers ramping up so a fully mature centers would be growing more like 1%.

Yes.

So certainly much better than we were rebuilding and we're starting from a 55, 6% occupancy versus pre Covid you would be at that 70% to 80% range. So it's a lower starting point.

Great. Thank you.

And then if you could just help US you know a few housekeeping things in terms of.

Much of the acquisition in Australia.

And sorry, if I missed this in the prepared remarks, I think that would be helpful. And then I know when the government funding.

It's a new country revenue component and an operating profit component I'm, just trying to back into organic.

Organic growth ex the funding and X any.

Organic growth ex the funding and ex.

Any acquisition that you could help us with those two impacts on the top line that would be very helpful.

Yeah, So the acquisitions contributed about $34 million to the.

Yeah. So the acquisitions contributed about $34 million to the quarter the vast vast majority of that with us.

The quarter about the vast vast majority of that was.

Australia acquisition.

Failure acquisition.

And so that was the contribution to the revenue.

Overall, there was about a 3 million dollar headwind on revenue growth for the.

Overall, there was about a 3 million dollar headwind on revenue growth for the ARPA finding that that contributed to them.

The ARPA finding that that contributed to them.

I understand the contract against the revenue.

Advance has a contract against the revenue.

And then T.

And then the P&L.

P&L centers, where we are able to offset costs are for the funding was up $15 million of cost reduction.

All centers, where we.

Are able to offset costs.

The funding was up $15 million of cost reduction.

Yeah.

In the quarter.

In the quarter great.

Thank you and then just one last one on capital allocation.

You mentioned that you paid down some ball to I'm curious.

You know, what's your approaches towards capital allocation should we expect more sort of debt paydown.

What's your approaches towards capital allocation should we expect more sort of debt Paydown and I believe those for Q2.

I believe in sport Q, there's a there's a cash payment that's due for the Australia acquisition. If it meets certain criteria. So curious how that's trending relative to what those benchmarks might be is there an expectation that you do.

There's a cash payment that's due for the Australia acquisition.

Criteria. So curious how that's trending relative to what those benchmarks might be.

Competition that you would be making that payment.

Are you making that statement.

Yes, our focus now is on a revolver pay down we ended the quarter with just over $40 million on the revolver. So we're focused on paying down the revolver.

Yes, our focus now is on a.

Revolver pay down we ended the quarter with just over $40 million on the revolver. So we're focused on paying down the revolver.

We've got really favorably priced debt.

Got really favorably priced debt. So I think it would be yeah that would be not on the immediate term to pay down that debt very favorable favorably priced debt, but we do have two things and they decide when is.

I think it would be yeah that would be not on the immediate term to pay down that debt very favorable favorably priced debt, but we do have two things and they decide when is just.

Just the ongoing you know where are the capital allocation between now and they ended the year with the payment for the deferred payment for Australia is is due at the end of the year there aren't any criteria for it it was simply a and agreed to deferral or timing of Sustainment.

Just the ongoing you know where are the capital allocation between now and they ended the year with the payment for the the deferred payment for Australia is is due at the end of the year there aren't any criteria for it it was simply a and agree to a deferral or timing of the payment.

So that will be discussed.

That will be just over 100 million that will be due at the end of this year and so we are building cash toward that end. We are also making selective investments both in the existing business too.

Over 100 million that will be due at the end of this year and so we have a building of cash toward that end. We are also making selective investments both in the existing business to them.

To refurbish and freshness.

To refurbish and pressure sensor portfolio that we have and also to invest in new <unk>.

Question on the sensor portfolio that we have and also to invest in new <unk>.

Centers, we have a number of niche models that we are opening this year, we continue to look for quality acquisitions to round out our growth strategy.

Centers, we have a number of niche models that we're opening this year, we continue to look for quality acquisitions to round out our growth strategy.

And so or executing on some of those this year. So there will be some capital deployment for that to come in the interval between now and the end of the year when we had the deferred payment due.

And so or executing on some of those this year. So there will be some capital deployment for that and the interval between now and the end of the year when we had the deferred payment due.

But.

We're not really looking at a share buyback in the near term.

We're not really.

Looking at the share buyback in the near term.

Excellent. Thank you so much.

Next question top of single Hearst with Citi. Please go ahead.

Hey, good evening Thomas.

Hey, good evening Tom.

So thank you very much for taking the question.

Thank you very much for taking the question.

But if it relates not to be talking about pay on I bet. She wants to make any comments, but.

But if it relates not to be talking about pay on them.

To make any comments, but.

One of the questions I had was on.

Some of the sort of government support falling out.

Some of the sort of government support for them out at the end of the year and the impact you anticipate this will have on the competitive landscape I was just wondering whether you think I mean, obviously, that's bad news in terms of support but I wonder whether you think that might be.

At the end of the year and the impact you anticipate this will have on the competitive landscape I was just wondering whether you think I mean, obviously, that's bad news in terms of support but I wonder whether you think that might be.

Results in some capacity coming out of the market more broadly, especially amongst smaller players.

And some capacity coming out of the market more broadly, especially amongst smaller players.

That was my question. Thank you.

Sure. Thank you. Thank you for the question yes.

So just to clarify.

The expectation is that come September the ARPA program is going to sunset and the funding will have been distributed so again there are some programs that are in place, but again much more focused than they've historically had been on our families that are most disadvantaged and providers that serve them.

The expectation is that come September the ARPA program and kind of sunset and the funding will have been distributed so again there are some programs that are in place, but again much more focused as they historically had been on our families that are most disadvantaged and providers that serve that.

Constituent.

Constituent what we would say is that we obviously have been very disciplined about pushing price and also a re.

We would say is that we obviously have been very disciplined about pushing price and also really thinking about our center economics in a post <unk> world.

Really thinking about our center economics in a post DARPA world.

What we have seen in the marketplace is mix as it relates to that so I think there are a number of providers.

That has not prepare their cost structures and or their pricing strategy reflective of ARPA coming out of the market and so we.

As well as the market in general belief that there is the potential for a second wave.

As well as the market in general believes that there is the potential for a second wave we.

We saw wave of about 15% to 20% of centers, who came out of the market early in Covid.

There is an expectation that there may be another wave.

There is an expectation that there may be another wave coming.

Come the fall winter and into next year, where providers just aren't able to cope with the price cost structure that they had them against the tuitions that they charge and so two responses right. One is that they could significantly increase their tuition with all at once.

Come the fall winter and into next year, where providers just aren't able to cope with the price and cost structure that they end up against the tuitions that they charge and so two responses right. One is that they could significantly increase their tuition with all at once.

With the hope of getting to a place that's more economic and then the second is that there may be.

Some providers that simply decide that they either need to sell or close in which case it would be a contraction in the overall number of centers in the country. So I think.

Some providers that simply decide that they either need to sell or close.

To refurbish and portion of the sensor portfolio that we have and also to invest in new centers. We have a number of lease models and we are opening this year, we continue to look for quality acquisitions to round out our growth strategy.

In which case it would be a contraction in the overall number of centers in the country. So I think.

What you implied in your question and I'm, saying directly is that there is certainly going to be some level of a right sizing around pricing and or the number of centers that are able to ultimately.

And so or executing on some of those this year. So there will be some capital deployed before that and the interval between now and the end of the year when we had the deferred payment.

But not all of them.

Work in the new environment come this fall winter and into next year.

We're not really looking at a share buyback in the near term.

Excellent. Thank you so much.

That's very clear thank you very much.

Next question top of a single horse with Citi. Please go ahead.

Thank you.

Okay, well. Thank you all very much for joining the call appreciate the thoughtful questions and wishing you all a good night.

Okay.

Good evening Thomas.

So thank you very much for taking the question.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.

But really not to be talking about.

And that she wants to make any comments, but.

One of the questions I had was on <unk>.

Some of the sort of government support falling out.

At the end of the year and the impact you anticipate this will have on the competitive landscape I was just wondering whether you think.

That's bad news in terms of support but I wonder, whether you think that might.

Results in some capacity coming out of the market more broadly, especially amongst smaller players.

That was my question. Thank you.

Sure. Thank you. Thank you for the question yes.

So just to clarify.

You know that constituent what we would say is that we obviously have been very disciplined about pushing price and also.

Really thinking about our center economics in a post <unk> world.

What we have seen in the marketplace is mix as it relates to that so I think there are a number of providers.

That have not prepared their cost structures indoor pricing strategy reflective of ARPA coming out of the market and so we.

As well as the market in general belief that there is the potential for a second wave.

We saw wave of about 15% to 20% of centers, who came out of the market early in Covid.

There is an expectation that there may be another wave coming.

Come the fall winter and into next year, where providers just aren't able to cope with the price cost structure that they had them against situations that they charge and so two responses right. One is that they could significantly increase their tuition with all at once.

With the hope of getting to a place because more economic and then the second is that there may be.

Some providers that simply decide that they either need to sell or close in which case there would be a contraction in the overall number of centers in the country. So I think.

What you implied in your question and I'm, saying directly is that there is certainly going to be some level of right sizing around pricing and or the number of centers that are able to.

Ultimately.

Our work in the new environment come this fall winter and into next year.

That's very clear thank you very much.

Thank you.

Okay, well. Thank you all very much for joining the call appreciate the thoughtful questions and wishing you all a good night.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

[music].

Greetings and welcome to the bright Horizons family solutions first quarter 2023 earnings release conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero.

So on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Michael Flanagan Senior director of Investor Relations. Please go ahead.

Thank you Stacy and welcome to the bright Horizons first quarter earnings call.

Before we begin please note that today's call is being webcast and a recording will be available under the Investor Relations section of our website.

Yes.

As a reminder to participants any forward looking statements made on this call, including those regarding future business financial performance and are subject to the safe Harbor statement included in our press release forward looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2022.

Form 10-K, and other SEC filings.

Any forward looking statements speak only as of the data, which is made and we undertake no.

In addition to update any forward looking statements.

We also provided 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.

Joining me on today's call are Chief Executive Officer, Stephen Kramer, Our Chief Financial Officer Elizabeth.

Stephen will start by reviewing our first quarter results and provide an update on the business Elizabeth will follow with more detailed review of the numbers before we open it up to your questions.

Let me turn the call over to Steve.

Thanks, Mike and welcome to everyone, who has joined the call.

I am very pleased with our performance in the first quarter, we delivered 20% year over year revenue growth with contributions from all of our segments.

Our enrollment recovery continued to progress positively with notably strong performance in the U S and in our younger age groups.

Backup care delivered another outstanding quarter building on the momentum of 2022.

Traditional use increased significantly year over year and the start of the year saw healthy set of new clients launching backup care.

We are off to a solid start to the year and well on our way to delivering on our 2023 full year guidance.

Revenue in the quarter increased 20% to 554 million with adjusted net income of $28 million and adjusted EPS of <unk> 49.

And our full service Chop your segment revenue increased 22% in the first quarter to $430 million.

We added six new organic centers and from a utilization standpoint, our progress within the cohorts. We discussed with you last quarter is also pardon me.

35% of our centers are now on that top cohort defining is above 70% occupancy.

This is up from 25% and this cohort in Q4.

And encouragingly less than 20% of our centers are now under 40% occupied.

Enrollment in centers open for more than one year increased at a mid single digit rate this past quarter.

Focusing on the U S year over year enrollment increased 90% and these like centers and we continue to see improvements across all age groups and model types.

Specifically, we saw low double digit growth in the infant and toddler age groups and mid single digit growth in our preschool programs.

We saw good consistency across center model types, realizing just over 10% growth in our lease consortium centers.

And high single digit growth in our client centers.

Consumer energy and Tech again showed the fastest enrollment growth, while our higher Ed healthcare and industrial clients continue to show the highest overall occupancy levels.

Staffing remains a constraint to our full enrollment potential in many areas across the U S. But we do continue to make incremental progress on the labor front.

In the U K enrollment growth has trailed the U S recovery as staffing challenges constrained our ability to serve all families seeking care.

The UK has been more acute and persistent hiring gas, which we expect will continue to challenge enrollment and operating performance for the remainder of the year.

In the Netherlands, as we have talked about on previous calls performance has been more consistent in contributory to the pandemic.

Let me now turn to backup care, which kicked off 2023 with an exciting start.

Revenue increased 19% over the prior year to $96 million outpacing our expectations in the first quarter.

We also continued to expand our client base with Q1 launches for Equifax, Loews hotels, and the Ohio State University to name a few.

Traditional use again grew significantly year over year in Q1, we.

We saw solid user growth in our bright horizons centers extended network centers and in home care as well as in our newer academic tutoring and pet care offerings.

Unique users showed strong growth as more employees took advantage of the expanding menu of offerings within the backup care benefit.

Moving onto our education advisory business, which delivered revenue growth of 6% to $27 million.

We launched a number of new clients for edited in college coach this quarter, including Arrow Electronics Bank of New York Mellon and Raytheon.

We also saw a number of clients launch for expand there's no cost and direct sales certificate and degree programs in Q1.

These programs, which saw strong growth in 2020 to reduce the barriers to education and increase the overall participation in their employers' workforce education programs.

Before I wrap up I want to take this opportunity to reflect on this year's senior leadership Forum.

This conference brings together, our top 100 field and corporate leaders to collaborate and explore opportunities for long term growth.

This year, we focused on are on four of our strategic assets.

Our global footprint, our trusted brands, our extensive client base and our central focus on families and learners.

With very energizing few days spent with this talented team and a great opportunity to welcome some new leaders to their strategic planning process.

Whilst harnessing the unique perspective of our many long tenured leaders.

In closing I am pleased with the strong start to 2023 is the key metrics of our business strengthen full.

Full service center enrollment backup care use and Ed advisory participate.

While the global environment still has its challenges I am encouraged by the ways. Our teams have adapted to employer client needs and expectations, while at the same time.

Really to deliver the highest quality care and education to our families in numbers.

We are reaffirming our 2023 full year guidance.

Specifically revenue growth of 14% to 19% to $2 3 million to $2 4 billion and adjusted EPS of $2 80.

To $3 per share.

The Q1 performance is a solid foundation to accomplish the goals we set for 2023.

With that I'll turn the call over to Elisabeth who will dive into the quarterly numbers and share more details around our outlook.

Thank you Steven and Hello to everyone, who has joined the call.

To recap the first quarter overall revenue increased 20% to $554 million.

Adjusted operating income of $37 million or 7% correct.

Increased 18% over Q1 of 'twenty two.

While adjusted EBITDA of $70 million, 13% of revenue increased 11% over the prior year.

We added six new centers and permanently closed eight centers in the quarter ending March 31.

1076 centers.

To break this down a bit further full service revenue increased $76 million and $430 million in Q1 for 22% over the prior year ahead of our expectations for 15% to 20% increase.

Organic constant currency revenue growth of approximately 14%.

Driven by increased enrollments and pricing, while acquisitions added 10% or $34 million to revenue in the quarter.

The foreign exchange headwind comparing Q1 of this year to Q1 of last year was in line with our expectation of 3% year over year.

Enrollment in our centers open for more than one year decreased mid single digits across the portfolio.

As Stephen mentioned U S enrollment grew 9%, while our European operations were up only nominally.

While average occupancy levels remain at 65% to 60% range in Q1, they did step up sequentially from Q4 2002 and in each of the months during Q1.

Adjusted operating income of $10 million in the full service segment increased 3 billion in Q1.

The year over year improvement was driven by higher enrollment.

Tuition increases and improving cost efficiency.

Partially offsetting the earnings grew slightly year over year impact of the teacher compensation investments, we made in the fall of 2022.

As well as the continued outsized spend in our international operations on agency staff and to a lesser extent energy costs.

Additionally, support received from the Heartland government funding program was higher than we expected in Q1.

We had projected that the $30 million of ARPA funding estimated for the full year 2023, it would come in more evenly across Q1 to Q3. However, we received $15 million in support and P&L centers in Q1.

This was roughly $7 million more than we had anticipated for the quarter.

But with also roughly $3 million less than last year.

As a reminder, the ARPA program is set to expire on September 30 of this year and funding disbursements have been take rate over the last couple of months.

We estimate the remaining $15 million and we expect to receive will be split roughly evenly between Q2 and Q3.

Turning to backup here.

<unk> grew 19% in the first quarter to $96 million ahead of our expectations for 12% to 15% growth.

As Steven mentioned, we were pleased with the volume and breadth of use from a through the quarter and we attribute some of the higher than expected us to employees utilizing their baskets earlier in the calendar year than we had expected.

Q1 2023 Bright Horizons Family Solutions Inc. Earnings Call

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