Q3 2023 Bright Horizons Family Solutions Inc Earnings Call
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Kiss your teacher teacher, Michael <unk> <unk>.
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You may begin.
Thank you Judith.
And walk me to everyone.
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Yeah.
Today's call is being webcast.
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Under the Irish section of our website up investors that bright horizon Dot com.
Joining me on today's call in our Chief Executive Officer, Stephen Cramer Energy.
Financial Officer Elizabeth.
Steven will start by reviewing the third quarter results.
<unk> business Elizabeth will fall within your detailed review the numbers before we open up to your questions.
Is that.
Steven.
Thanks, Mike and welcome to everyone, who has joined the call. This evening.
I am pleased with our performance in the third.
Third quarter, we delivered strong results with 20 per cent.
Revenue growth and 33 per cent adjusting EPS Craig.
That's very striking pain in the head of our expectation with comparable.
It'll digit enrollment growth.
And backup character.
A quarter, we use across all care type.
Alright spectation.
Overall as we approach the end of 2023.
And continued progress toward an ear and longterm jackets.
So to get into some of the specifics.
And are full service child per segment revenue increased 17% in the third quarter to 445 minutes.
The typical seasonal enrollment over the summer months, primarily driven by older children and.
And I would think elementary school with slightly better than we expected driving higher than projected year over year enrollment growth.
Is that a cohorts we have discussed previously.
Demonstrate improved.
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Cohort to find it about 70 per cent occupancy increased to 36 per cent of our centers, which is an improvement from 25 per cent in Q3 2022.
And our bottom cobaltic centers, those under 40% occupancy represent 17% of centers.
[noise] 20 per cent in the prior year period.
To provide a bit more color on enrollment trends.
It had been open for more than one year enrollment growth expanding to a high single digit rate in Q3.
Occupancy levels.
58 to 60 per cent.
And the U S you ever year enrollment increased nearly 12%.
Enters the strong growing across both of our clients.
And no nipple ongoing.
And our younger age groups.
Mid teens growth and our infant and toddler classrooms.
Outside the U S in Walnut.
At a low single digit rate in Q3.
In the UK remains our most challenging geography.
Girlfriend, you can improve modestly in Q3.
Q3.
Q too.
The last quarter, the macro economic backdrop and staffing environment.
B, a headwind kingsborough recovery from the pandemic.
In the Netherlands in Australia, where occupancy averages more than 70% enrollment increase sequentially over too too broadly in line with our expectations.
I'm a staff in front of you and can change it to see positive recruitment and retention trends.
Staffing levels increase your ear accommodating higher enrollment.
By increased applicant.
And better retention rate.
Outside the U S stopping trying to teach you need any more mix.
In the UK Labour continues to be a constraint to our enrollment.
Cost structure.
As we discussed last quarter.
Can you to execute in a variety of talent acquisition initiatives and.
Undertaken actions to retain our existing staff.
Attracting qualified staff and reduce our reliance on constantly agency staff.
Why I'm optimistic that these initiatives will improve overall staffing levels.
Reading efficiency.
Birds will take time to drive a material change in labor costs and the profitability of our UK centers.
Let me know if turned it back up care, which delivered another outstanding for here.
169 million.
32% growth outpaced our expectations as we can live.
Record level of abuse.
Traditional network use was well above our guidance for the quarter with robust demand, notably from families with school age children on summer vacation.
The strongest growth experienced in July.
Changing to August with our bright Verizon Sanders.
Showing the strongest growth.
Charity ice.
September was another strong month of use so the piece of growth moderated from the high concentration of us over the summer.
Overall.
It was a performance this quarter and the execution by our operations.
To meet the surge in demand insuring client families.
To remain productive at work.
The growth and expansion of our backup services this year.
Street Rod opportunity, we have magenta back after a segment as we left.
We've been making technology marketing and product.
Alright occasion advisory business delivered revenue of 32 million, increasing three per cent over the prior year.
New client launches.
For edited.
Coach included presenting its medical and Hello incorporated.
As I wrap up I want to take this opportunity to recognize the incredible work of our Senator teachers and staff teams.
I have always been into our ability to deliver the highest quality education and care to families and clients.
I am thrilled to share that we just received the results of our parenting that survey.
Again.
Excellent M P S.
To your satisfaction scores.
Hurting overwhelmingly from currently enrolled families.
The quality of our teachers and the impact they have on their child's education.
Bright horizons apart from our early education Peters.
Our business is fundamentally about.
Serving people and this recognition.
Great affirmation of the work we do every day.
Two eight closing.
I liked the continued progress we're seeing across our business.
Given ours else your date and our current outlook for Q4.
Full year guidance.
Revenue range of 2.3752.
4 billion or 18, 19% growth and then just.
E P H range of $2.73 to two.
$2.78.
With that I'll turn the call over to Elizabeth will dive into the quarterly numbers and share more detail around our outlook.
Thank you Steven.
The one on the call.
To recap the third quarter overall revenue increased 20% to 646 million.
I guess it operating income of 67 million or 10% of revenue increased 46% overview three of 20 channels and adjusted EBITDA of 101 million or 16.
16% of revenue was that 26 per cent over the prior year.
Lastly, Augusta D P S and 88 cents.
Sure I'm 33 per cent and a quarter.
We added four new centers in Q3 and close at nine.
Order with 1063 centers.
To break that down a bit further all service revenue increased 64 million to 445 million in Q3 or 17% over the prior year.
Ahead of our expectations of 14% to 16% driven by increased enrollment in pricing.
And rolling in our centers open for more than one year and increase high single digits across the portfolio.
Occupancy levels averaged in the range of 58 to 60 per cent for Q3, taking down sequentially unexpected given the typical enrollment seasonality over the summer months.
It's Steven mentioned, you want enrolling grew and the low double digits, while international enrollment increased in the low single digits over the prior year.
Operating income of 7 million in a full service segment increased 10 million in Q3.
Over your prozac, that's driven by higher enrollment tuition increases and the improving operating leverage across our broader enrollment space.
Partially offsetting the earnings growth was eight 5 million dollar reduction in support received government funding program over the prior year.
And the continued cost impact of any patient labor and agency staffing and our UK business.
Turning tobacco care revenue groom, 32% in the third quarter.
9 million.
Well ahead of our expectations for 12 10, 15% growth.
Operating income was 31% of revenue growing to 52 million.
It's Steven detailed use volume with higher than we anticipated.
Long used to cross care times, particularly in our school age summer programs.
Lastly, our educational advising segment revenue by three per cent.
Two nine and deliver an operating margin of 26%.
Interest expense increased modestly and a quarter to 11 million.
Including a one and a half million per quarter, and both 22 and 23 that is related to tend to defer the purchase price on our acquisition of only about children.
The structural tax rate and adjusted net income increased to 28.5 per cent an increase of 180 basis points over two three of 22.
Turning to the balance sheet and cash flow through September of this year, we have generated $161 million in cash.
Cash from operations compared to 131 million last year.
Well, you've invested 92 million in fixed assets and acquisitions in 2023.
And compared comparatively speaking in 2022, we had invested in 251 billion, including the acquisition of only about children on July 1st of 22.
We ended the third quarter of this year with 41 million of cash and they'll get leverage ratio of 2.8 times net debt to EBITDA.
Sounds from the three and a quarter times, we started twenty-three yet.
Moving onto our update in 2023 outlook.
Steven outline we are raising the lower end of our range said, a full year revenue guidance of 2.37 522.4 million to reflect the revenue performance through the first nine months of the year.
In terms of segment revenue for the full year, we now expect full service to grow roughly 18% to 19%.
Backup care to grow approximately 20 to 22 per cent and advisory to grow in the mid single digits.
Justin E. P. S basis, we are.
Zero in our guidance range to $2.73 to $2.78 for the year.
In terms of the remainder of 2023 and as for your outlook as soon as they queue for overall revenue will be in the range of 575 to 600 million and adjusted EPS will be in the range of 72 cents to 77 cents for the quarter.
Before I close as we've done each corner this year I Wanna quantified three discrete items that are affecting our reported margins and earnings growth rates in 2023.
That is R for finding interesting Spanish and the tax rate.
In Q4, we expect those items to account for an approximate twenty-five headwinds 10 year over year growth for Q4.
With $13 million less and harp on government funding P&L centers Approx.
Approximately 230 basis points higher tax rates and roughly 3 million more in interest expense.
Two notes here the sequential step up an interest expense to 14 million in Q4 of twenty-three reflects the new quarterly run rate that we expect through 2024 as our interest rate caps step up this month.
Also as a reminder, funding from the Army program at Gmail centers Winter effectively end in September 30th will be 33 million lower in 2024.
So in closing echoing Stevens comments were pleased with the continued progress across the business. This year and continue to be excited about the opportunities ahead.
And so with that students we are.
Open to questions and can go to county.
Thank you very much ma'am, ladies sentience me, even though if they can talk into question and answer session.
He was on consultation please restock it one on your telephone keypad.
Consultation indicated I'm not easy to Christian cute.
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Full participants, making he's a sneaky equipment.
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Oh, sorry, it's Christian comes from Andrew Sullivan.
J P Morgan he's gonna hit.
Hey, it's Andrew I, just wanted to ask about the UK basis, you know what gives you confidence that you'll be able to improve the UK business and you know kind of how important is it strategically to serve the UK in the U S. Let's say together.
Good evening, Andrew Nice to hear your voice. So look we have been in the U K.
2000, and so no that marketing incredibly well and understand.
On how to operate within that market.
We certainly recognize the challenge that we are currently facing here and have been facing.
But on the other hand, we also are starting to see some progress as it relates to our ability to staff and our ability to take out some of the agency staffing that that we had had continue to have.
<unk> into that I think that you know our quality leadership position in that market really hold them in good stead as we continue to build that business back I think that in addition to that we are seeing.
You know the government start to have very reasonable proposals as it relates to things like the qualifications of staff the ratios in classrooms, as well as starting to think differently about funding and so again from our perspective, we believe.
That the U K and especially the portfolio that we have in the UK represent something for our future. We are being very disciplined. So we will continue to look very hard at particular locations that overtime or not gonna make sense for us and we will take the steps to have closure as well.
We think the prospects are not strong on the other hand overall, we believe in the UK market in the longterm and and believes that we have a unique position to to continue to make progress there.
Mmk, Thank Steven appreciate it.
Okay.
Our next question comes from George tongue.
Blacks.
Hi, Thanks. Good afternoon. So you mentioned occupancy levels averaged in the range of 58 to 60 per cent in the third quarter can you elaborate on some of the trends that you're seeing with occupants. He has headed the four Q and how you would expect trends to play out in 2024.
Uhm, Hi, Jarred sure. The you know the the trend there continues to improve and it's that's yeah sequential but as we compare the enrollment year over year and we continue to have a government centers coming into this cohort that are more than 12 months operating.
Feel good about the progress even as its and I've just started studying corner to corner I'm looking ahead to next year.
We've mentioned the screen.
<unk> that you will have a centers that are performing in our our top performing group that was 36 per cent of the total this quarter and and we had reported last corner was 43 per cent you know that that's.
<unk> sure where we are have you seen anything to get back to over 70 per cent next year and they have already gotten their their achieving that performance now so enrollment improvement there would be modest next year, it's really in the middle band in the lower back where we would change enrollment progress and so looking at at the age of 16.
Now we would be looking to be growing enrollment to get in the high single vignettes overall next year across the various cohorts in centers that have the opportunity to keep growing that involve itself. That's that's probably how we think about it.
Got it and it just to follow up on that when would you expect to get back to pre COVID-19 levels of occupancy rates.
Oh, well as mentioned in the top group. We are already you know back to pre COVID-19 level. The Middle Grove, which is just for those last name would be currently enrolled between 40 and 70%.
Those those centers are are averaging in that range or what I. Even just quoted there there and not 50 516 per cent ranch to those set directly would expect to see you'll have the most opportunity for growth next year and be very you know getting to that screen COVID-19 levels that they had operated at and.
Second half as well, we wouldn't be targeting second half of the year.
And then the the bottom cohort and.
Broader mix of centres and so those would be I'm certainly looking out to 2025 based on the cadence of enrollment that we're seeing now.
Got it pretty helpful. Thank you.
Thank you.
Our next question comes from <unk> <unk> <unk> <unk>.
Yeah. Thank you just first time.
Backup care strength I guess, it just feels like a basketball same question his last quarter, which does it keep calling for the celebration.
[noise] performing so I can understand like why the Stephen King size growth from this last quarter.
Repeat but just help me out with like any other.
Factors like the percentage of use banks that are exhausted at this point of view your relative to what that metric typically is or.
Just any other constraining factors on the growth because otherwise it's looking like maybe your setup for a couple of years of potentially stronger post COVID-19 growth given all the clients you signed on during Covid.
Yeah. So thanks, Jesse I think you're pointing to some of the factors that do come in to the overall next and our clients have a number of our clients have arrangements with us that are essentially.
Essentially on a pay per use basis or have a base level fee and then are you paying for use over a minimum threshold and so there's.
There was an opportunity of course for more users that a client to be utilizing backup care, but for the most part clients do have a constraint. If you will on how much an individual employee can utilise and.
So given that you said that we have seen through the first nine months. They those you know those baskets for the individual employees have largely been consumed for those that are the primary users through the first nine months. So that is what gives us some pause about just continued.
Operator: Good afternoon ladies and gentlemen and welcome to the Bright Horizons Family Solutions third quarter of 2023 earnings call. At this time, all participants are in listen only mode. A Christian and artificial follow the formal presentation.
Across a whole new cohort, we would certainly have some new users envy be reaching out to all those opportunities, but I I think our view is that what they.
Operator: If anyone should require operator assistance during the conference, please press star and zero, I did telephone keypad. As a reminder, this conference is being recorded.
Starting to pull into the summer time with all of the school Agers and the concentration of a week or two at a time of use for those parents that there has.
Michael Flanagan: It is my pleasure to introduce your host, Michael Flanagan, Vice-President Industrial Relations or Bright Horizons Family Solutions. You may begin, sir. Thank you, Judith. And welcome to everyone on Bright Horizons third quarter of this call. Before we begin, please note that today's call is being upcast and recording will be available under the Investor Relations section of our website Bright Horizons.com. As a reminder to participants, any board looking statements made in this call, including those regarding future business financial performance and outlook are subject to safe harbor statements included in our earnings release.
Has been more consumption a bit earlier in the year for those.
Those heavier users so I think.
The the we don't want to have a great story sound sound negative if it hasn't been a terrific growth trajectory a couple of years now of 30 per cent gross baths in the third quarter and the components of the way that the business is.
Seasonal is sort of amplified by the numbers of clients who are.
Michael Flanagan: Board will be made of the heavily involved risk and uncertainty that may cause actual operating and financial results to different materialities and should be considered into junction with the cautionary statements that are described in detail in our earnings release, 2022, 410K, and other SEC filings. Any board looking statements speaks only as of the data which is made and we need to take no obligations of any board looking statements. We may also refer today to non-gape financial measures, which are detailed and reconciled to their gap counterparts in our earnings release, which is available under the IR section of our website at investors.bright Horizons.com.
Seasoning in to their to their use.
Banks and as they consume the different used care type swing, we have the opportunity to make that more year round, but that's our outlook for you know for the first day of November.
Okay, I guess, we'll see if I'm asking my question again next quarter on full service margins.
Just any thing else that's weighing.
Margins down relative to expectations in the quarter. Besides UK.
UK staffing and enrollment levels I I ask because it looks like there was a decent quite shortfall despite revenue.
Upside and I would think the stronger enrollment growth would be coming at high incremental margins given the excess capacity that you currently have.
Michael Flanagan: Joining me on today's call is our chief executive officer, Stephen Pramer, and our chief financial officer Elizabeth Bohn. Stephen will start by reviewing our third quarter results. Provide an update on the business.
Yeah, I mean, it's totally unfair call out I think other than the UK, which which certainly has has been challenged and they've been slightly more challenged than we had our our outlook had been last time, we talked to you also with you know sort of further refined that for the for the third quarter's actual results in how we see it coming.
Stephen Kramer: Elizabeth will follow with more detailed review of the numbers before we open it up to your questions. With that, let me turn the call over to Stephen.
Stephen Kramer: Thanks, Mike, and welcome to everyone who has joined the call this evening. I am pleased with our performance in the third quarter. We delivered strong results with 20% year-over-year revenue growth and 33% adjusted EPS growth. Full service revenue came in ahead of our expectations with comparable, high-pitched digit enrollment growth. And backup care delivered an exceptional quarter with use across all care types well outpacing our expectations.
In the fourth quarter, but I think the only other thing I know is that with the higher concentration in the growth of the infant and toddler age groups, which is.
A positive to the longterm enrollment story that comes at a higher intensity ratio in a higher cost structure as well as.
And so that's that's probably the other component that I lay out in terms of the the labor cost element.
Stephen Kramer: Overall, as we approach the end of 2023, I'm going to give you a little bit more time and long-term objectives. So, to get into some of the specifics, in our full service chapter segment, revenue increased 17% in the third quarter to 445 million. The typical seasonal enrollment dip over the summer months, primarily driven by older children aging up and out into elementary school, with slightly better than we expected, driving higher than projected year-over-year enrollment growth.
Okay. Thank you.
I think.
Next question comes from <unk>.
Please please go ahead.
Thank you Elizabeth just to follow up on that and I apologize if I missed it but can you just help us with your operating margin expectations.
<unk> 10 minutes, if anything's changed I suppose since the last quarter.
Mm not significantly no I think that back up just to start their we've had just over 30% operating margin.
Stephen Kramer: The center cohort, we have discussed previously, continue to demonstrate improved year-over-year performance. In 23, our top performing cohort, defined as above 70% occupancy, increased to 36% of our centers, which is an improvement from 25% in 23, 2022. In our bottom cohort of centers, those under 40% occupancy represent 17% of centers as compared to 20% in the prior year period. To provide a bit more color on Roman trends, in centers that have been open for more than one year, in Roman growth expanded to a high single digit rate in Q3, with occupancy levels averaging 58 to 60% in the quarter.
<unk>, that's similar to what we would expect from Q for the phone service I'm still in the low single digits in queue for so also similar and that's again I'll just noticed that that's improvement that's performance against afforded that won't have funding come.
Going through.
And then the the end advising businesses against on that 25 to 30 per cent ranch, So I'd say.
Then.
Okay, and then Steven just in terms of you know your comment around just looking at the portfolio just curious on and advisory it seems like that's been decelerating, it's being missing expectations. You'll go with the expectation of growth there for quite some time you know just just to touch on whether that strategically input.
Stephen Kramer: In the US, year-to-year enrollment increased nearly 12% in these like centers, with strong growth across both our client and elite models, and notable ongoing momentum in our younger age groups, with mid-teens growth in our infant and toddler classrooms. Outside the US, enrollment again increased at a low single digit rate in Q3, and the UK remains our most challenging geography. In Roman growth, the UK improved modestly in Q3 as compared to Q2, but as we discussed last quarter, the macroeconomic backdrops and staffing environment continue to be a headwind to the cadence of our recovery from the pandemic.
And do not.
Yeah. Thank you enough. So look our advisory business, we believe it's strategic to the overall enterprise and the relationships that we enjoy with our clients. We have about 300 clients in that area, who depend upon us to either support their employees.
The education, but you know to be education advisory indoor employees going back to school themselves, which obviously in the current environment and and the environment is coming forward is really critical from an upscaling and Rescaling perspective in terms of you know thinking about the the growth.
Stephen Kramer: In the Netherlands and Australia, where occupancy averages more than 70%, enrollment increased sequentially over Q2, broadly in line with our expectations. On the staffing front, the US continued to see positive recruitment and retention trends. Staffing levels increased year-over-year, accommodating higher enrollment, underpinned by increased applicant folk and better retention rates. Outside the US, staffing trends continue to be more mixed. In the UK, labor continues to be a constraint to our enrollment and overall cost structure. As we discussed last quarter, we continue to execute in a variety of talent acquisition initiatives, and have undertaken actions to retain our existing staff, attract new qualified staff, and reduce our lives on costly agency staff.
We said and insured in the last quarter that we absolutely arena, a time, where we are continuing to reposition that service against the needs of our clients and prospective employer clients and that is under way, we have new leadership in that business and really believe going forward.
But there is a large opportunity for us to continue lenient with the client and new clients. So.
Overall, yes, we believe it strategic and we believe that we are advantaged in the market and just need to get the key to growth both from an employer perspective as well as from a participant perspective going into next year.
Stephen Kramer: While I'm optimistic that these initiatives will improve overall staffing levels and operating efficiency, these efforts will take time to drive a material change in labor costs and the profitability of our UK centers.
Okay. Thank you.
Thanks.
Next question comes from Cha Ching Upa's these cause it yet.
Good afternoon, and Stephen and Elizabeth Thanks for taking my questions. So for my first question on backup care could you just kind of talk about what is driving the consumer behavior to use much more dependent benefit now than than before I know that you always tried to market your benefits and get get the users to use it more but why is it.
Stephen Kramer: Let me now turn to backup care, which delivered another outstanding quarter. Rather than you grew to 169 million, the 32% growth outpaced our expectations as we delivered a record level of use. Traditional network use was well above our guidance for the quarter, with robust demand, notably from families with late children on summer vacation. The strongest growth experience in July continued to August, with our bright rising centers and even late camps showing the strongest growth across care types.
That this year and last year, especially that the users are accelerating there they use it seems like.
Yeah, I can I can start often and Stephen can add color you know I think the.
The interesting thing with the notable thing about backup Caritive consider that is different from full service.
[noise] is that it doesn't benefit that is paid for mainly by the client. So the employees copayment their participation and the cost is is much lower it's intended to be filling in when a another care source breaks down and our need is there and so from an employee standpoint, it's in it's in.
Stephen Kramer: September was another strong month of use, though the piece of growth moderated from the high concentration of use over the summer. Overall, I am delighted with the performances quarter and the execution by our operations team to meet this surge in demand, ensuring client families receive the care they needed to remain productive at work. The growth and expansion of our backup services this year illustrates the broad opportunity we have within the backup care segment as we leverage the investments we've been making in technology, marketing, and products.
Returning to lean into a benefit that is provided by their employer and know what the additional care times that we have.
Cross virtual learning solutions across Petcare school age children as well as all in a younger children and centers and at home I think I'd be able to touch a wider array of employees at our client partners that have this sponsor doesn't benefit so there's that element it's flex.
Stephen Kramer: Our education advisory business delivered revenue of 32 million, increasing 3% over the prior year. Notable new client launches in the quarter for edisist and college coach, included presenius medical and hollow incorporated.
The ball in terms of how it's delivered across the broad horizons network offenders across an in home solution and what have you. So I think there's the the opportunity is very broad with the employment base and the cost to that consumer is you know a very modest relatively speaking full service childcare is.
Stephen Kramer: As I wrap up, I want to take this opportunity to recognize the incredible work of our centered teachers and staff teams. They have always been the key to our ability to deliver the highest quality education and care to families and clients. I am thrilled to share that we've just received the result of our parent impact survey. We again sought excellent MPS and customer satisfaction scores and heard overwhelmingly from currently enrolled families that the quality of our teachers and the impact they have on their child's education sets brighter eyes in the part from our early education peers.
It is also subsidized by the employers and their facilities.
Facilities, and often through tuition discounts, but the parents still has a meaningful out of pocket cost for it and it's a it's a more concentrated benefit for.
A more concentrated number of employees. So I don't know if you have other thoughts on a consumer behavior. Soon yeah, I think I think the only thing I would add cause I completely agree with Elizabeth I would say that.
The last several years, we have absolutely been investing in a more seamless experience for the end user.
Stephen Kramer: Our business is fundamentally about people serving people and this recognition is a great affirmation of the work we do every day. To include, I like the continued progress we are seeing across our business. Given our results year to date and our current outlook for Q4, we are remembering our full-year guidance to a revenue range of 2.375 to 2.4 billion or 18 to 19 percent growth and an adjusted EPS range of $2.73 to $2.78.
Through better technology and interfaces, we certainly have been investing in more personalized outreach and and marketing efforts and so again I think those efforts are starting to bear fruit. So ultimately you know continue to have these ongoing opportunities to continue to refine next.
Spirit and continue to refine those marketing opportunities and outreach opportunities, but believe that many of the investments are starting to pay fruit and you're starting to see you know the last coupla years really show some really nice grow up on top of what Elizabeth shared in terms of the actual use case growth and demand for the service.
Elizabeth Boland: With that, I'll turn the call over to Elizabeth who guides into the quarterly numbers and share more detail around our outlook. Thank you students and hello to everyone on the call. To recap the third quarter, overall revenue increased 20 percent to $646 million. Adjust the operating income of $67 million or 10 percent of revenue increased 46 percent over Q3 of 22 and adjusted EBITDA of $101 million or 16 percent of revenue was up 26 percent over the prior year.
Thank you for the call there that's really helpful. On the on the full service side, given that you seem to be expecting fairly healthy enrollment trends into next year is there an opportunity to open more centres next year, then perhaps usual given market demand or to take advantage.
[noise] of any disruptions that you see in the market and could you just talk about potential center opening cadence into next year.
Yeah sure. So look I'll start by saying, it's certainly going into next year. Our number one priority continues to be enrolling her existing centers.
Elizabeth Boland: Lastly, adjust the EPS of 88 cents a share of 33 percent in the quarter. We added four new centers in Q3 and closed nine ending the quarter with 1,063 centers. To break this down a bit further, full-service revenue increased 64 million to 445 million in Q3 or 17 percent over the prior year. Ahead of our expectations of 14 to 16 percent driven by increased enrollment and pricing. Enrollment center is open for more than one year increased high single digits across the portfolio.
That has been our fired you will continue to be our priority. It is our best opportunity in the near term to continue to grow the impact that we have and to grow the economics that we enjoy we are calling for you know Mmm center growth of about.
20 to 30 centers next year.
And our expectation is that that will be a combination of new employer centuries that will be opening on behalf of our clients as well as new lease models and acquisition opportunities.
Elizabeth Boland: Occupancy levels averaged in the range of 58 to 60 percent for Q3, taking down sequentially and expected given the typical enrollment seasonality over the summer months. As Stephen mentioned, U.S, enrollment grew in the low double digits while international enrollment increased in the low single digits over the prior year. I just do operating income of $7 million in the full-service segment, increased $10 million in Q3. This year over year improvement was driven by higher enrollment, tuition increases, and the improving operating leverage across a broader enrollment base.
As we have shared in the past when ARPA ended September 30th we do see that there is likely to be a knock on effect in terms of other operators in certain geography's thinking differently about their longer term plans are continuing to persist with their centers and so again whoops.
Continuing to monitor that if that's another aspect of the growth that we may we may see in 2024.
Great. Thank you both for your time.
Thank you.
Elizabeth Boland: Partially offsetting the earnings growth with a $5 million reduction in support received from the ARPA Government funding program over the prior year, and the continued cost impact of inefficient labor and agency staffing in our UK business. Turning to backup care, revenue grew 32% in a third quarter to $169 million, well ahead of our expectations for 12 to 15% growth, an operating income was 31% of revenue growing to $52 million. As Stephen detailed, use volume was higher than we anticipated was strong use across care types, particularly in our school age summer programs.
Next question <unk>.
<unk> capital markets <unk>.
Thanks, So much wanted to continue the conversation about the new centre pipeline I I know, it's a long sales cycle.
Just curious did in the current environment.
<unk> still receptive or are you seeing more caution giving me uncertainty.
Yeah, I mean, certainly we continue to see an elevated level of interest there's a shared on my last call and certainly is still the case employers are definitely taking more time to make decisions. They recognize that putting a center on site.
Elizabeth Boland: Lastly, our educational advising segment grew revenue by 3% to $32 million and delivered operating margins of 26%. Interest expense increased modestly in the quarter to $11 million, excluding the $1.5 million per quarter in both 22 and 23 that is related to the deferred purchase price on our acquisition along the above children. The structural tax rate on adjusted net income increased to 28.5% and increased of 180 basis points over Q3 of 22.
He's a longterm decision instead, they want to make sure that they are deliberating that appropriately, but again as we think about the longer term growth on this our existing client base is really pleased that they have centers and I think that those who do not and are considering it.
Are you know again thinking about the impact it can have on their employees as well as their returned to office and so you know again elevated interest, but certainly taking longer to make those decisions.
Alright.
Oh, you're not getting 2024 guidance, yet, but I was curious you know maybe we can just scream at what you're speaking in terms of price increases for next year relative to cost inflation.
Elizabeth Boland: Turning to the balance sheet and cash flow, through September this year, we have generated $161 million in cash from operations compared to $131 million last year. We have invested $92 million in fixed assets and acquisitions in 2023, and compared comparatively speaking, in 2022, we had invested $251 million, including the acquisition of only about children on July 1st of 22. We ended the third quarter of this year with 41 million of cash and the debt leverage ratio of 2.8 times net debt to EBITDA, down from the 3 and a quarter times that we started in 23.
Yeah, Yeah, we won't be providing I haven't seen detailed guidance when we talk with you. All after 2023 is finished showing February but yeah. We are in the process of getting through our budget process now and and so from general cost inflation standpoint are our primary.
Caution in full service businesses is certainly wages and other businesses have.
Personnel costs, but other technology as well, but wage increases we are looking at like like 3% to 4%.
From a general inflation standpoint, other costs are are more variable god given information, although certainly some other things like energy.
Elizabeth Boland: Moving on to our updated 2023 outlook. As Stephen outlined, we are raising the lower end of our range to the full year revenue guidance of 2.375 to 2.4 million to reflect the revenue performance through the first nine months of the year. In terms of segment revenue for the full year, we now expect full service to grow roughly 18 to 19%, backup period to grow approximately 20 to 22% and ed advisory to grow in the mid-single digits.
Come down either occupancy costs have been a little persistently higher but you know broadly speaking call three per cent inflation.
From a from a overall pricing standpoint or or look at this point is likely in the four to five per cent ratio, 100% 100 basis points to 200 basis points of I've spread we do Ah Ah Center by Senator radio and geography by geography. So that's that's a broad average but we.
Elizabeth Boland: On an adjusted EPS basis, we are narrowing our guidance range to $2.73 to $2.78 for the year. In terms of the remainder of 2023, this full year outlook assumes that 2.4 overall revenue will be in the range of 575 to 600 million, and adjusted EPS will be in the range of 72 cents to $0.77 for the quarter.
Yeah, We we will we will go higher where the market permits and where the structure is right and and we are also mindful of driving enrollment as our primary goal as we have talked about so those are probably the two key key elements on.
Structure for next year and.
Primary full service business.
Alright, that's really helpful. Thanks, so much.
Elizabeth Boland: Before I close, as we've done each quarter this year, I want to quantify three discrete items that are affecting our reported margins and earnings growth rates in 2023. That is, ARPA funding, interest expense and the tax rate. In Q4, we expect those items to account for an approximate 25 cent headwind to year-over-year growth for Q4. With 13 million less in ARPA government funding at P&L centers, approximately 230 basis point higher tax rates and roughly 3 million more in interest expense.
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The three Q revenue guide by about 30 million at the mid point, but raised up slowly Eric I'd buy under half of of that I guess why shouldn't we expect a beat to flow through I know you mentioned the U K was maybe weaker than expected but.
Elizabeth Boland: Two notes here, the sequential step-up in interest expense to 14 million in Q4 of 23 reflects the new quarterly run rate that we expect through 2024 as our interest rate caps step-up this month. Also, as a reminder, funding from the ARPA program at P&L centers, which effectively ended September 30, will be 33 million lower in 2024. So, in closing, echoing Steven's comments, we're pleased with the continued progress across the business this year and continue to be excited about the opportunity to head.
Is there anything else that we should be thinking about or is it just conservatives Ah for thinking about four kids.
Sure Hi, Tony Thanks for the question you know I think that they do of course, we didn't outperform as you say and we've plugged that through the backup mm the backup outperformance really essentially we raised the that for the year, it's a little bit later in queue for the midpoint roughly.
Operator: And so, with that, Judith, we are open to questions and can go to Q&A.
You know rough math is very similar as it relates to the rest of the business. The the main driver really has foreign exchange them with a F X rays, where they are we carry that forward into the queue for and then that is a a headwind against the revenue <unk> and what it translates to an Avenue.
Operator: Thank you very much, man.
Operator: Ladies and gentlemen, we will now be conducting the question and answer session. Q1 half the question, please, we're starting one on your telephone keypad. Confirmation to a little indicated line using the question queue. He may press start to delete the question queue. For participants making use of speed equipment, it may be necessary to pick up your handset before pressing the stockings.
Yeah, that's that's where I think you'll see the difference between essentially carrying forward, where we we think we've performed today, then and and stand firm.
Great and then.
My task the full service margin question in a different way.
Andrew Steinerman: Also, as a question, come some Andrew Spinalin of JP Morgan. Please go ahead. Hey, it's Andrew. I just wanted to ask about the UK business. What gives you your confidence that you'll be able to improve the UK business and know kind of how important it is strategically to serve the UK and the US. Let's say together.
I guess X ARPA this quarter, which I think it said was about 9 million the margins in full service, we're actually slightly negative again uhm, what catch it to improve next quarter and going into next year. Thanks.
Yeah, so as much as we we we have the turnover if you will of enrollment in the third quarter and and how that how that manifests itself in averages for the corner is relatively consistent to fly.
Stephen Kramer: Good evening, Andrew. Nice to hear your voice. So, look, we have been in the UK since 2000, and so know that market incredibly well and understand how to operate within that market. We certainly recognize the challenge that we are currently facing there and have been facing, but on the other hand, we also are starting to see some progress as it relates to our ability to staff and our ability to take out some of these agency staffing that we had continued to have.
Flight I've taken and revenues and enrollment in queue for but it's absorbed into a a more efficient structure as we as we cycled through that at Q3, two four am turnover period.
So have contributions coming from the international operations, particularly Netherlands, and Australia has a tendency to operate at a higher level of occupancy and sort of have a steadier contribution that continues to flow somewhat better in queue. For then Q3 and so those are the.
Stephen Kramer: In addition to that, I think that our quality leadership position in that market really holds us in good stead as we continue to build that business back. I think that in addition to that, we are seeing the government start to have very reasonable proposals as it relates to things like the qualifications of staff, the ratios and classrooms, as well as starting to think differently about funding. And so, again, from our perspective, we believe that the UK and especially the portfolio that we have in the UK represents something for our future.
Those are the primary drivers, but the full service business is somewhat seasonal and that's that's not always evident in the timing of Q3, and Q4 and how the the <unk> <unk>.
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Transition teachers in transition children until they classrooms in Q4.
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Andrew Steinerman: We are being very disciplined, so we will continue to look very hard at particular locations that over time are not going to make sense for us and we will take the steps to have closures where we think the prospects are not strong. On the other hand, overall, we believe in the UK market in the long term and believe that we have a unique position to continue to make progress there. Okay, thanks, Stephen. Appreciate it. Thank you.
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Hershey thinking about interest expense on the 2024, given the horizon essential for two and if you provide any insight on slone groceries.
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George Tong: Next question comes from George Tong, up goes in seconds. Hi, thanks. Good afternoon. You mentioned occupancy levels averaged in the range of 58 to 60 percent in the third quarter.
George Tong: Can you elaborate on some of the trends that you're seeing with occupancy as you head into 4Q and how you would expect trends to play out in 2024?
On that floating debt and so therefore have <unk> at able to manage and maintain that cost.
We do have we have a payment for oak the remaining deferred payment for oak that will be.
Stephen Kramer: Hi George, sure. The trend there continues to improve and it's a sequential dip, but as we compare the enrollment year over year and we continue to have a group of centers coming into this cohort that are more than 12 months operating, if we feel good about the progress, even as it's just sort of skinny quarter to quarter. Looking ahead to next year, we mentioned these three bands, if you will, of centers that are performing in our top performing group that was 36 percent of the total this quarter and we had reported last quarter was 43 percent.
Been going out early next year, and so there'll be some temporary revolver borrowings in the early part of the year, but otherwise.
That.
At $14 million a quarter is a good measure for the year.
That's true.
Terrific well. Thank you all very much for joining the call and I Hope you have a great rest of your evening.
Well see all on the road.
Thank you ladies and she has been back let's see today's the themes.
Stephen Kramer: That's the line here where we are obviously aiming to get back to over 70 percent next year. They have already gotten there. They're achieving that performance now, so enrollment improvement there would be modest next year. It's really in the middle band and the lower band where we would see enrollment progress and so looking at 58 to 60 now, we would be looking to be growing enrollment again in the high single digits overall next year across the various cohorts and centers that have the opportunity to keep growing that enrollment. So that's probably how we think about it. Got it.
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George Tong: And just to follow up on that, when would you expect to get back to pre-COVID levels of occupancy rates? Well, as mentioned in the top group, we are already back to pre-COVID levels. The middle group, which is just for those listening, would be currently enrolled between 40 and 70 percent. Those centers are averaging in that range or what I even just quoted in that 55-60 percent range. So those centers we would expect to see have the most opportunity for growth next year and be very getting to the pre-COVID levels that they had operated at in the second half as well.
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George Tong: We would be targeting second half of the year. And then the bottom cohort is a broader mix of centers. And so those would be certainly looking out to 2025 based on the cadence of enrollment that we're seeing now. Got it. Very helpful.
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George Tong: Thank you.
Chase Luna: Next question comes from Chase Luna of Dead. He's coming here. Yeah, thank you.
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Stephen Kramer: Just first on backup care strength, I guess just feels like I'm asking this in question as last quarter, which is you keep calling for the celebration and then this keeps up performing. So I can understand like why the Stephen Cate outside's growth from this last quarter, or won't repeat. But just help me out with any other factors like the percentage of use banks that are exhausted at this point of the year relative to what that venture typically is, or just any other constraining factors on the growth, because otherwise it's looking like maybe you're set up for a couple of years of potentially stronger post-COVID growth given all the clients you find on during COVID.
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Stephen Kramer: Yeah, so thanks Jeff. I think you're pointing to some of the factors that do come into the overall mix. It is, our clients have a number of our clients have arrangements with this that are essentially on a pay per use basis or have a base level seen and you paint per use over a minimum threshold. And so there's an opportunity, of course, for more users that are a client to be utilizing backup care.
Stephen Kramer: But for the most part, clients do have a constraint, if you will, on how much an individual employee can utilize. And so given the uses that we have seen through the first nine months, those baskets for the individual employees have largely been consumed for those that are the primary users through the first nine months. So that is what gives us some pause about just continued growth across a whole new cohort. We will certainly have some new users and be reaching out to all of those opportunities.
Stephen Kramer: But I think our view is that with the pull into the summertime with all of those schoolagers and the concentration of a week or two at a time of use for those parents that there has been more consumption a bit earlier in the year for those heavier users. So I think the, we don't want to have a great story sound sound negative. It has been a terrific growth trajectory a couple of years now of 30% growth plus in the third quarter.
Stephen Kramer: And the components of the way that this business is seasonal is sort of amplified by the numbers of clients who are seasoning in to their use banks. And as they consume the different use care types, we, we have the opportunity to make that more year round. But that's our outlook for, you know, for the first day of November.
Stephen Kramer: Okay, I guess we'll see if I'm asking that question again next quarter on full service margins.
Stephen Kramer: Just anything else that's weighing margins down relative to expectations in the quarter besides UK staffing and enrollment levels.
Stephen Kramer: I asked because it looks like there was a decent place shortfall despite revenue upside. And I would think the stronger enrollment could be coming at high income and promotions given the excess capacity that you currently have. Yeah, I mean, it's particularly a fair call out. I think other than the UK, which certainly has been challenged and even slightly more challenged than we had. Our outlook had been last time we talked to you all, so we've, you know, sort of further refined that for the third quarter's actual results and how we see it coming in the fourth quarter.
Stephen Kramer: But I think the only other thing I know is that with the higher concentration, the growth of the infants and toddler age groups, which is a positive to the long term enrollment story that comes at a higher intensity ratio and a higher cost structure as well. And so that's probably the other component that I lay out in terms of the labor cost elements.
Stephen Kramer: Okay, thank you.
Manav Patnaik: I think Alex Christian comes from Manav Patnaik of Balkhries. He's good ahead. Thank you.
Elizabeth Boland: Elizabeth, just to pull up on that and I apologize if I missed it, but can you just help us with your operating margin expectations for the three segments? I don't think anything's changed. I suppose it's in the last quarter. Not significantly, no. I think the backup, just to start there, we've had just over 30% operating margin this quarter. That's similar to what we would expect for Q4. The full service still in the low single digits in Q4, so also similar.
Elizabeth Boland: And that's, again, I'll just notice that it, that's improvement, that's performance against a quarter that won't have our funding coming through. And then the, the advising business is against still in the 25 to 30% range, so I would say consistent.
Stephen Kramer: Okay, and then Stephen, just in terms of, you know, your comment around just, you know, looking at the portfolio, just curious on ed advisory things like that's been decelerating. It's been missing expectations. You've lowered the expectation of growth there for quite some time.
Stephen Kramer: You know, just, just your thoughts on whether that's strategically important or not. Yeah, thank you, enough. So, look, our advisory business, we believe, is strategic to the overall enterprise and the relationships that we enjoy with our clients. We have about 300 clients in that area who depend upon us to either support their employee dependence through the education, you know, through the education advisory and or employees going back to school themselves, which obviously in the current environment and, and the environment coming forward is really critical from an upscaling and re-skilling perspective.
Stephen Kramer: In terms of, you know, thinking about the growth, you know, we said it and, and shared in the last quarter, that we absolutely are in a time where we are continuing to reposition that service against the needs of our clients and respective employer clients. And that is underway. We have new leadership in that business and really believe going forward, but there is a large opportunity for us to continue leaning with the client and new clients.
Stephen Kramer: So overall, yes, we believe in strategic and we believe that we are advantaged in the market and just need to get the cadence of growth both from an employer perspective as well as from a participant perspective going into next year. Okay, thank you. Thanks.
Joshua Chan: An expression comes from Josh Chin of UPS. Please give a head.
Stephen Kramer: Good afternoon, Steven. It was the best thing for taking my questions. So for my first question on backup care, could you just kind of talk about what is driving the consumer behavior to use much more the benefit now than before? I know that you always try to market your benefits and get the users to use it more, but why is it that this year and last year, especially that the users are accelerating there that use, that she's like.
Stephen Kramer: I can start off and Stephen can add color. I think the interesting thing or the notable thing about backup period of consider that is different from full service care is that it is a benefit that is paid for mainly by the client. So the employees co-payment their participation in the cost is much lower. It's intended to be filling in when another care source breaks down and or a need is there. And so from an employee standpoint, it's an opportunity to lean into a benefit that is provided by their employer.
Stephen Kramer: And now with the additional care types that we have across virtual learning solutions across pet care, school age children as well as, you know, younger children in centers and in home, I think it's able to touch a wider array of employees that are client partners that have this sponsored as a benefit. So there's that element and it's flexible in terms of how it's delivered across the Bright Horizons network of centers across an in-home solution and what have you.
Stephen Kramer: So I think there's the opportunity is very broad with the employment base and the cost to that consumer is, you know, is very modest relatively speaking. Full service job here is, you know, it is also subsidized by the employers through their facilities and often through tuition discounts, but the parent still has a meaningful out-of-pocket cost for it. And it's a more concentrated benefit for, you know, a more concentrated number of employees.
Stephen Kramer: So I don't know if you have other thoughts on the consumer behavior student. Yeah, I think the only thing I would add because I can totally agree with Elizabeth. I would say that, you know, over the last several years, we have actually been investing in a more seamless experience for the end user through better technology and interfaces. We certainly have been investing in more personalized outreach and marketing efforts. And so again, I think those efforts are starting to bear fruit.
Stephen Kramer: So ultimately, you know, we continue to have these ongoing opportunities to continue to refine the experience and continue to refine those marketing opportunities and outreach opportunities, but believe that many of the investments are starting to pay fruit, and you're starting to see, you know, the last couple of years really show some really nice growth on top of what I was a shared in terms of the actual use case growth and demand for the service.
Stephen Kramer: Thank you for the call there. That's really helpful. On the full service side, given that you seem to be expecting fairly healthy and role in trends into next year, is there an opportunity to open more centers next year than perhaps usual given market demand or to take advantage of any disruptions that you see in the market? Can you just talk about potential center opening cadence into next year? Yeah, sure. So look, I'll start by saying that certainly going into next year or number one priority continues to be enrolling or existing centers.
Stephen Kramer: That has been our priority. It will continue to be our priority. It is our best opportunity in the near term to continue to grow the impact that we have and to grow the economics that we enjoy. We are calling for, you know, center growth of about, you know, college 20 to 30 centers next year. And our expectation is that, you know, that will be a combination of new employer centers that will be opening on behalf of our clients as well as new leaf models and acquisition opportunities.
Stephen Kramer: As we shared in the past, when, you know, ARPA ended September 30th, we do see that there is likely to be a knock on effect in terms of other operators and certain geographies thinking differently about their longer-term plans of continuing to persist with their centers. And so, again, we're continuing to monitor that. It does another aspect of the growth that we may see in 2024.
Stephen Kramer: Great, thank you both for your time. Thank you.
Jeffrey Silber: Our next question comes from Jeff Silber of the M.O. Capital Markets. He's going ahead. Thanks so much. I wanted to continue the conversation about the new center pipeline. I know it's a long sales cycle. I'm just curious in the current environment. Are clients still receptive or are you seeing more caution giving the uncertainty? Yeah, I mean, certainly we continue to see an elevated level of interest. But as I shared on the last call and certainly is still the case, employers are definitely taking more time to make decisions.
Jeffrey Silber: You know, they recognize that putting a center on site is a long-term decision and so they want to make sure that they are deliberating that appropriately. But again, as we think about the longer-term growth on this, our existing client base is really pleased, but they have centers and I think that those who do not and are considering it are, you know, again, thinking about the impact it can have on their employees, as well as their return to office. And so, you know, again, elevated interest, but certainly taking longer to make those decisions. All right.
Stephen Kramer: I know you're not getting 2024 guidance yet, but I was curious, you know, maybe we can just frame that what you're thinking in terms of price increases for next year relative to cost inflation. Yeah, we will be providing obviously detailed guidance when we talk with you all after 2023 is finished. So in February, but, you know, we are in the process of getting through our budget process now. And so from a general cost inflation standpoint, our primary cost and the full service businesses is certainly wages and other businesses have personnel costs but other technology as well.
Stephen Kramer: But wage increases, we are looking at likely three to four percent from a general inflation standpoint. Other costs are more variable given inflation, although certainly some of the things like energy have come down. Other occupancy costs have been a little persistently higher, but, you know, broadly speaking, got through percent inflation. From an overall pricing standpoint, our look at this point is likely in the four to five percent rate, so 100 basis points to 200 basis points of spread.
Stephen Kramer: We do a center by center review and geography by geography, so that's a broad average. But we, you know, we will go higher where the market permits and where the structure is right. And we are also mindful of driving enrollment as our primary goal, as we have talked about. So, those are probably two key elements on the structure for next year in our primary full service business. All right, that's really helpful. Thanks so much. Thank you. Ladies and gentlemen, just a brief reminder, if not also Christian, you are welcome to press star N1 on each telephone keypad to test itself in the Christian queue.
Toni Kaplan: On excretion and some Toni Kaplan of Morgan Stanley. Thank you. So you beat the 3Q revenue guide by about 30 million at the midpoint, but raise the full year guide by under half of that.
Elizabeth Boland: I guess why shouldn't we expect the beat to flow through? I know you mentioned the UK was maybe weaker than expected, but is there anything else that we should be thinking about or is it just conservatism for thinking about 4Q? Thanks. Sure. Hi, Toni. Thanks for the question. I think that the view, of course, we did outperform, as you say, and we've flowed that through the backup, the backup outperformance, really essentially we raised that for the year, it's a little bit lighter in Q4 at the midpoint, but roughly rough math is very similar.
Elizabeth Boland: As it relates to the rest of the business, the main driver really is foreign exchange with the ethics rates where they are. We carry that forward into Q4, and then that is a headwind against the revenue, what it translates to in revenue, and that's where I think you see the difference between essentially carrying forward where we think we've performed today in Stanford. Great.
Elizabeth Boland: And then I want to ask the full service margin question in a different way. I guess X, ARPA, this quarter, which I think you said was about 9 million, the margins in full service were actually slightly negative again. What gets it to improve next quarter and going into next year? Thanks. Yeah, so as much as we have the turnover, if you will, of enrollment in the third quarter, and how that manifests itself in averages for the quarter is relatively consistent to maybe a slight uptick in enrollment in Q4, but it's absorbed into a more efficient structure as we cycle through that Q3, Q4 turnover period.
Elizabeth Boland: We also have contributions coming from the international operations, particularly Netherlands and Australia have tend to operate at a higher level of occupancy and sort of have a steadier contribution that continues to flow through somewhat better in Q4 than Q3. And so those are the primary drivers, but the full service business is somewhat seasonal, and that's not always evident in the timing of Q3 and the Q4 and how the cost come into line, if you will, as we've transitioned teachers and transition children into the classrooms in Q4. Thanks a lot. Thank you.
Harold Antiller: I'll next question, how some help and tour of Q4s. Please go ahead. Hey, this is Harold Antiller from Jeffries. Not 100% sure if you touch on this, but how should you be thinking about interest expense in 2024, given the rise in interest expense on 4K? And if you have brought any insight on flow and restricts that in your current capital structure? Yes, so as mentioned, the step up in Q4 that we got in 2 to about 14 million, a quarter is what we broadly expect overall interest rate to translate to 4 next year.
Harold Antiller: We do have variable rate debt that we have interest rate caps on that floating debt, and so therefore have our able to manage and contain that cost. We do have, we have a payment for oak, the remaining deferred payment for oak that will be going out early next year, and so there will be some temporary revolver borrowings in the early part of the year. But otherwise, that 14 million a quarter is a good measure for the year. That's true. Terrific.
Operator: Well, thank you all very much for joining the call and I hope you have a great rest of your evening. We'll see you all on the road. Thank you.
Operator: Ladies and gentlemen, back off to today's event. Human art, disconnect your lines, and thank you for pending. [inaudible]