Q2 2025 Bright Horizons Family Solutions Inc Earnings Call
[music].
Greetings and welcome to the bright Horizons family solutions second quarter 2025 earnings call.
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A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
My pleasure to introduce Michael Fine again group Vice President Finance. Please go ahead.
Thank you, Joe and welcome to everyone to break right for second 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 web site investors at bright Horizons Dot com.
As a reminder to participants any forward looking statements made on this call, including those regarding future business financial performance and outlook are subject to safe Harbor statement included in our press release.
Or looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and should be considered in conjunction with the cautionary statements that are described in detail in our earnings release.
Our Form 10-K, and other SEC filings.
Any forward looking statement speaks only as of the date on which it made and we undertake no obligation to update any forward looking statements.
Today, we also refer to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website at investors not bright horizons Dot com.
Joining me on today's call are Chief Executive Officer, Stephen Kramer, Our Chief Financial Officer, Elizabeth Boland, Steven I'll start by reviewing our results and provide an update on the business.
Although the Elizabeth will follow with a more detailed review of the numbers before we open up to your questions.
Now, let me turn the call over to Steven.
Yeah.
Thanks, Mike and welcome to everyone, who has joined the call we.
We delivered another quarter of strong execution and solid performance with revenue, increasing 9% to $732 million and adjusted EPS growing 22% to $1 out.
End of our expectations.
These results reflect the depth of our client relationships the essential nature of our services to the customers we serve and our continued focus on service delivery across all of our lines of business.
And our full service segment revenue of $540 million increased 7% driven by a combination of continued enrollment growth tuition increases and new center openings.
In particular, we added five new centers this quarter, including two additional centers for an existing multi service client the University of Virginia.
Openings like this reinforced our leadership in the employer sponsored care market and underscore the strategic role on site childcare continues to play and workforce strategies.
Enrollment in centers opened for more than one year increased again this quarter at a low single digit range.
Average occupancy stepped up to the high 60% range.
The process group of centers the fastest growth is in centers below 40% occupancy driven by meaningful improvement in select underperforming centers.
Among our top performing sectors, where average occupancy remains impressively above 80%, we've seen some centers cycled through peak enrollment levels, which naturally tempers the contribution to enrollment growth from that group.
Even as the overall operating performance remained strong.
In our centers operating between 40, and 70% occupancy operating performance and enrollment both continue to progress as well.
As we move through the second half of the year when we absorbed the enrollment transitions associated with age outs tied to the school catheter.
Our outlook on enrollment growth is relatively consistent with what we experienced in the second quarter.
Enrollment is expected to continue to grow at a low single digit rate.
We remain focused on streamlining the path from inquiry to enrollment, including enhanced technology and more personalized and proactive communication to help families make comfort and care decisions.
In the U K, we saw continued operational and financial momentum in the second quarter with solid growth in both enrollment and margins.
We continue to see the benefits of our efforts over the past two years investments in staffing technology and programming they have meaningfully improved the experience and efficiency across our center footprint.
Oh, no bright horizons in the U K was recently named one of Europe's best employers by great place to work, reflecting our strong culture and overall teacher satisfaction.
This recognition underscores the link between our investments and people and culture and the resulting improved performance through the first half of 2025.
Turning to backup care revenue grew 19% to $163 million, reflecting strong client and user engagement.
Among other launches in the quarter, we welcomed Mckesson, a fortune 10 employer to our client base reinforcing the continued interest by large employers seeking high quality care solutions to meet today's workforce needs.
From a use perspective, we experienced particularly strong demand for center camp and in home care.
We kicked off our seasonally high use summer period with strong growth in June.
Which we have seen continue into July.
Utilization over the early summer months has been particularly strong among families utilizing care in our owned and network school agent cant based programs.
The strategic expansion of supply over the past few years.
Enhancing both geographic reach and program has enabled us to deliver high quality care, when and where families need it most.
I remain confident in the strong momentum in our back up care business, which continues to be a critical support for working families.
A strategic advantage for our employer clients and a key growth driver for bright horizons.
Moving to our Education Advisory segment revenue grew 8% to 29 million this quarter.
<unk> and usage growth was solid.
Particularly in college coach, where we saw increased demand for advisory services.
We continue to position <unk> for long term growth through targeted investments in technology and product development aligning our offerings with the evolving needs of working learners.
We are adding new clients and expanding adoption within our existing base as we build momentum across the business.
Before I close I want to highlight the continued progress we are making on our one bright horizons strategy.
Our effort to expand the reach and value of our offerings by engaging more employees and employers across the full spectrum of bright horizons solutions.
This quarter, we saw full service client centene and backup care to better support their national workforce facing everyday disruptions.
And north well health, a backup care client introduce college coach to extend their dependent care benefits to employees with teenage children navigating the college process.
Client expansions like these coupled with the growth of use users across our lines of business demonstrate the power of our employer sponsored model and portfolio of services.
As we continue to execute against this strategy, we remain confident in our ability to grow our impact and deepen our employee and employer penetration.
Before I close I want to highlight a few insights from our 2025 modern family Index, which again underscores the real and recurring stress that working parents space, particularly during the summer months.
Two thirds of parents report that child care gaps during school breaks directly impact their productivity, while dean and ability to stay focused at work.
Summer remains a particularly difficult time as families navigate the challenge of finding dependable and affordable care.
In addition to meeting that elevated summer need through our traditional backup care network of owned and partner suppliers.
So we get to our unique onsite capabilities with AT&T to run a Steven Kates camp at their Dallas headquarters.
The program is providing families with a convenient trusted and affordable childcare solution right at their workplace.
This distinctive offering demonstrates our unique capability to collaborate with our clients leverage our well developed capabilities for onsite employer sponsored care and operationalize and innovative care solution that responds to a client's particular needs.
In summary, I am pleased with our solid first half of 2025.
Given the year's positive performance and momentum.
We have moved up our 2025 full year guidance to a revenue growth range of $2 90 to $2 92 billion or 8% to 9% and adjusted EPS in the range of $4 15 to.
So $4 25.
For sure.
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 Stephen and thanks to everyone for joining us on the call Tonight.
As mentioned I'll start with our financial highlights revenue for the second quarter or 9% to $732 million driven.
Driven by continued growth and disciplined execution across each of our segments.
Adjusted operating income rose, 25% to $86 million with operating margins up 150 basis points over the prior year to 11, 8%.
Adjusted EBITDA increased 13% to $116 million.
Representing an adjusted EBITDA margin of 16% of revenue.
And lastly, adjusted EPS of $1 seven came in ahead of our expectations supported by solid top line growth and operating leverage.
To break this down a bit full service revenue of $540 million was up 7% in Q2 on pricing increases enrollment gains and an approximate 150 basis point tailwind from FX.
The centers, we have closed since Q2 of 'twenty 'twenty four partially offset these gains.
Enrolment in our centers opened for more than one year increased low single digits across the portfolio.
As Stephen mentioned occupancy levels averaged in the high <unk> for Q2 stepping up from the prior year as well as sequentially from last quarter, given that Q2 is typically our peak enrollment quarter.
And a specific center cohort so we've been tracking for comparative purposes since the second half of 2022 and discussed on prior calls.
We continued to see improvements over the prior year period.
Our top performing cohort.
Defined as above 70% occupancy improved from 51% of these centers in the second quarter.
In the second quarter of 2024.
254% in the second quarter of 2025.
As a reminder, this cohort continues to sustain strong average occupancy levels above, 80%, which inherently limits its enrollment expansion opportunity.
In our middle and bottom groups defined as 40% to 70% and below 40% occupancy respectively enrolment increased at a mid single digit rate in the second quarter.
Tenders in the middle cohort now represents 36% of the total and the bottom cohort represents 10% of these centers.
Adjusted operating income about $40 million in the full service segment increased 8 million over the prior year and represents 75% of revenue in the quarter.
Higher enrollment and improved operating leverage helped drive the growth in earnings.
Turning to backup care revenue grew 19% in the first quarter to $163 million driven by strong early summer demand as Steven outlined.
The adjusted operating income for the segment was $41 million up 9 million over the prior year.
Which translates to operating margins of 25%.
Lastly, the educational advising revenue increased 8% to 29 million and delivered operating margins of 17% ahead of our expectations and broadly consistent with the prior year.
Net interest expense decreased to 10, and a half million from $12 million in Q2 of 2024, largely due to lower interest rates and lower overall borrowings.
The structural effective tax rate on adjusted net income was 27.25%.
Turning to the balance sheet and cash flow, we generated 134 million in cash from operations in the second quarter.
We made fixed asset investments of 19 million and repurchased $41 million of stock in the quarter.
We ended Q2 with $179 million of cash and our reduced leverage ratio is now one seven times net debt to adjusted EBITDA.
So moving on to the outlook that Steven previewed.
In terms of the top line, we are modestly raising the midpoint of our reported revenue outlook by $20 million to a range of $2 9 billion to $2 92 billion.
Which reflects a roughly 15 million or 50 basis point favorable change in FX as compared to our prior guidance.
This equates to a reported growth rate of approximately 8% to 9%.
Yeah.
Let me break that down into the segments.
In full service, we now expect reported revenue to grow in the range of $5 75 to $6 75%.
Which reflects a roughly 75 basis point tailwind from FX for the year.
In backup care, we've increased our expectations for revenue growth to 14% to 16%.
And then Ed Advisory, we expect to grow in the mid single digit strange.
In terms of earnings we now expect 2025 of adjusted EPS to be in the range of $4 15 to $4 25 a share.
As we look specifically to Q3, our outlook is for the total top line of $775 million to $785 million or growth in the range of roughly 8% to 9% on a reported basis.
This reflects roughly 15 basis point tailwind from FX over the prior year.
We expect full service to grow reported revenue.
5.25% to 6.25%.
Again, reflecting a roughly 75 basis point tailwind from FX.
We would look to backup growth of 14% to 16% in Q3, and Ed Advisory again in the mid single digits.
In terms of earnings we expect Q3, adjusted EPS to be in the range of $1 29 to $1 34 per share.
So with that Joe we are ready to go into Q&A.
Thank you.
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And the first question comes from the line of Manav Patnaik with Barclays. Please proceed.
Hi, This is PNC Thomas on for Manav. Thanks for taking my question just wanted to see if you could expand your.
Your margin expectations by segment for full year as well.
So <unk> yeah. So let me, let me start with or the backup business just because it's it's been a pretty consistent story and back up so for the year, we would be looking for 25% to 30% operating margins in back up consistent with with what we have said.
The second half of the year is it's more heavily weighted than the first half of the year. So we would we would see a similar pattern of increase in Q3.
It's staying relatively higher in Q4, not not quite at the Q3 level, but similar.
Similar cadence or pattern to last year, but still overall in the range and then some some more similar to where we were in 2024.
In the full service business, we would expect to see a call.
Call, it 125 basis points or so of overall.
Operating margin expansion for the year.
We were a little north of that overall in the first half and expect to be in.
A similar range over the second half of the year with Q3, as I've mentioned and Brian 100, 125 basis points or so margin expansion, there and then Ed advising again pretty similar to last year in the.
High teens to 20% or so operating margin range for the full year.
Got it thanks and.
I wanted to pick your brain on the big Beautiful Bell and what Youre hearing from our clients.
Clients and what benefits you would be seen.
Sure so.
Good afternoon, Prissy, so I would say that most specific to our sector.
We would focus on 45 F.
And you see updated 45 S program.
First and foremost I would just observe really underscores the importance of employer supported childcare and that's why I want to focus on that.
Under the program, 40% of qualified childcare expenditures up to 500000.
Our tax taxable credit.
Enabled and that's an increase from 150000 previously.
We think for existing accounts.
This could be an attractive way for our existing accounts, whether they be center clients with subsidies or backup clients. They could benefit more significantly than they would have done in the past I would say that we're more cautious about what this might mean in terms of velocity for new clients because certainly this.
He's been in place again at a lower level hasn't had a huge impact on stimulating demand.
On the other hand on the margin, it's certainly positive.
Thank you.
Thank you.
The next question comes from the line of Andrew Steinman with J P. Morgan. Please proceed.
Hi, Elizabeth I heard you talk about the expectations for continued low single digit.
Enrollment growth in full service did you give a specific figure for that it does that mean like two to three.
<unk> percent and if you could give a comment on how our September enrollments are looking.
Yeah. So we we would we would expect it to look a lot like we saw this quarter, so low single digits, meaning probably plus 2% similar.
Similar cadence for the rest of this year.
September enrollment cycle is certainly in full froth at this you know at this point that the fall cycle is aware.
Marketing well, we have we have good lead generation and we have stepped up a lot of our efforts are targeted outreach and and have been taking parents through the.
Enrollment process and so we are feeling.
Good about that.
That level of enrollment it is.
One that we have obviously is important as we have seen.
You know that the infant and toddler enrollment is where we have some great opportunity as we have had strong enrollment last year. There and then those children are aging up into the preschool age group range and this is where there's the least supply in the market and so.
Given the structure of our centers, we're able to serve more of the parents and those younger age groups. So that's where we're focused.
Okay. Thank you.
Yeah.
Yeah.
The next question comes from the line of <unk>.
George Tong with Goldman Sachs. Please proceed.
Alright. Thanks. Good afternoon, you mentioned, taking initiatives to streamline the path from inquiry to enrollment and I know last quarter. There was some elongation of the sales cycle because of macro uncertainty can you talk a little bit more about what you're seeing with the fill cycles and commitment cycle from new customers.
Sure. So I think as Elizabeth just sort of put a fine point in terms of the enrollment growth expectations that we have through the remainder of the year.
We continue to see.
Similar to what we saw this quarter and highlighted this past quarter and so ultimately as.
As you alluded to we are certainly taking action steps to continue to support.
Families, who are requiring about our centers you certainly have made investments around our web experience and helping.
To nurture them.
Families early in their discovery process.
We have put sort of additional resource against them White glove support by enrollment managers for families and ultimately we're using technology to make sure that we are creating and providing a more personalized experience all the way from inquiry to enrollment and so over.
Paul I would say, that's how we're thinking about the sales funnel from a safety perspective.
Got it that's helpful. You mentioned occupancy is now in the high fixed fees I think seasonally that we'll likely step down next quarter. At this point do you have visibility as to when occupancy you will get back to 70% plus.
Well for this year.
As mentioned, where you were a couple of a couple of hundred basis points out of enrolment expansion this quarter.
Expect that similar cadence the rest of the second half of this year and so ending the year in the mid mid <unk> for the full year were at the high point in Q2, So we would be stepping up from from last year a bit.
So in terms of the overall.
<unk> for getting back to 70, obviously, we've got more than 50% of our centers are well above 70, and the driver there will be.
Getting the yes they are.
Under performers certainly the improvers in the Middle group, 40% to 70%.
Gaining enrollment, but also being able to both rationalize the most significant underperformers and either exit those centers or improve them.
And that that is where we see probably the most drag on and getting back to 70% does that.
As an overall average and.
Thank you.
And just as a qualitative commentary we feel really.
We feel good about the way that the top performing cohort has been able to sustain the enrollment now over several.
Several years, so we feel that that is.
A great indicator of being obviously right location services are families who need at both our client employer sponsored centers as well as our community based.
Centres and that's that's where we are.
Looking to both replicate those that success in some of the other locations and also as I say exit if they are.
Just separately.
Not able to.
Turnaround the enrollment performance.
Okay. Thank you.
Hum.
Okay.
The next question comes from the line of Jeff Mueller with Baird. Please proceed.
Yes. Thank you I just want to circle back to 45, if I get that historically hasn't had great uptake in terms of Oh companies organizations, claiming the credit, but as the market leader it feels like there's an opportunity for you to amplify the message and make prospects aware of it. So can you just.
Talk about what your sales force is planning to message and then within backup care for 45.
The increased credit seems pretty sizable relative to.
What I would think typical backup care spend is so what's the opportunity in backup care, specifically from 45 after including.
Potentially getting existing customers to increase blood levels. Thank you.
Thanks.
So here's what I would say.
Certainly I appreciate the compliment that we are the leader in employer sponsored care.
And certainly the the.
Our sales team as well as the marketing team here at bright Horizons has been getting the message out in full force, both among prospects as well as existing accounts and that comes in the form of.
Meetings directly with prospects and clients. It comes in the form of Webinars that we're hosting.
To help educate.
<unk> clients on 45 S in particular.
And really helping them to see the value of leading into this.
I'd say that in addition to all of that awareness and education.
It is fair to say that the increase in the amount.
Shouldnt have.
Real impact, especially among our existing accounts around their ultimate investment in our backup care programs and.
As we think about new clients.
Clients coming in on that that is certainly the case as well I think the biggest challenge. If there was a challenge with this is the disconnection between our buyer tends to be with an HR and benefits and the folks who are spending the most time thinking about tax which tend to be in finance and so.
Who actually each to have the budget versus the people who are keeping score as it relates to the net costs are different.
But certainly we are trying to do outreach not only to the HR community, but are also encouraging that coordination between HR and finance, but you are right to say that in principle. This should be a good stimulant. We're certainly best positioned in the industry to take advantage of it and it's still are.
Early days, so we'll be able to give you updates over time, whether or not we're seeing more momentum on 45 S and we have seen in the past.
Got it and then another great summer for backup care recognize you've expanded.
The coverage and the service types and everything but what are you seeing in terms of like client behavior or anything that there may be doing differently in terms of allowing longer duration usage among their employee base to address that.
Skull off period challenge that you referenced.
Sure so.
I'll answer that two ways.
The first is that we aren't seeing.
Employers changing the sizes of their banks.
So yeah.
Use user and use growth that we're seeing and experiencing that is driving the velocity of our growth is really down to getting out the vote of more users and then ultimately having them use.
It's a little it's not about opprobrium design per se within our client organizations. We did see this year and we had started to see it over the last several years the.
The allowance of booking earlier, so extending the booking window to accommodate for employees wanting to get reservations in.
For the summer period in known gaps in their own care arrangements. So again I think that that has given us more confidence going into this summer.
Be able to guide the way we have is certainly extending those windows of reservation allows us an even greater window into the amount of use that we can expect this summer and so those would be the two elements that I would highlight.
Thank you.
Thank you thanks, Jeff.
The next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed.
Yeah.
Based on the data that we track wages in the industry are growing at about 4.5%, but I think the price increase this year you were expecting to be in the 4% to 5% range, but full service margins have been particularly strong, especially just given sort of a tight spread there and.
So I was wondering if you could talk about I'm sure a lot of that margin expansion is coming from the closing of underperforming centers and so I was wondering if you could sort of is there a way to break out you know how much closing the centers has benefited that margin expansion.
You know out of out of the realm of massive increase that you had in the fall start with margin.
Sure Hi, Tony just to.
Maybe frame that up I don't have at hand is specific because it's not it's not really a meaningful.
Impact on the margin expansion.
We've seen.
We've seen wage personnel cost increases lighter than what you are describing so are our 4% to 5% price increase has been.
Something that's averaging closer to 3% to 4% so it's around.
Around 100 basis points, maybe 50 basis points in some areas. So we are seeing that would be the typical algorithm in terms of the price price to sort of main cost structure. We have closed a number of centers.
And they have had been headwinds to the.
The margin over time, but in terms of the ex the <unk>.
Extra if you will are they kicked to the the margin expansion, it's pretty minor.
Enrollment growth in the.
And that 200 basis point.
Arena is really the primary driver I think along with the price to cost discipline. So we I think we mentioned UK spend recovery that has been I would point out that.
Last year, we were seeing the U K with a headwind to the overall margins it was.
North of 150 basis points, it was even higher than that in 'twenty 'twenty. Three I believe so that has come down that has tapered to something that's closer to 100 bps. So that's the one other thing I would isolate.
Terrific and then.
Maybe just on a separate topic in terms of M&A.
You know I think.
Going you know in the post Covid period, a lot of the <unk>.
Smaller centers you know we're struggling I think we're still in an environment, particularly with the enrollment.
I think all of that more challenging for the industry that you still are seeing sort of challenges in some of the smaller centers and so just wondering if.
You know how your M&A pipeline is looking and I think you know just just wanted to understand also like I guess why why haven't you done maybe more M&A to this point.
Just given that we're probably in a pretty good environment for for that I. Appreciate it. Thank you.
Sure. Thank you Tony So look we certainly.
Have not been as active in the M&A program as we have seen in our past that is fact.
What I would say is that we remain very focused on our strategy which is.
Not one to tackle turnarounds, we really look for programs that are in strategic locations that are high quality and that have good financial characteristics.
And among the programs that fit that profile.
There still is a pretty good imbalance between seller expectations and what we think is a fair and truthful price debate. So we continue to be really disciplined about that.
And certainly in the meantime, we've been really focused on.
To build enrollment in our own centers.
And so we continue to see a nice uptick in that way. So I would say that from an M&A perspective, while slower we still continue to build good relationships and in the long term believes that that will.
We will be an important part of our algorithm in the future.
Thank you.
The next question comes from the line of Jeff Silber with BMO capital markets. Please proceed.
Thank you so much Elizabeth I apologize if I missed it but I think you usually give us the number of centers that you opened and closed during the quarter can we get that.
Yeah, we opened five in the quarter, Jeff and we closed.
Eight so a net net decrement of three in the quarter year to date.
Positive one.
Net one and that is you know broadly speaking plus minus zero is what we would expect for the year.
Okay and it'll be eight that were closed was there any specific geographic area was the U S was the U K or kind of mix.
It was primarily a U S. There are a couple outside the U S, but primarily U S more than half.
Alright, Great and then Tony was asking about the U K you mentioned the headwind, but I think in the past that you said you might be or you were hoping to be on the pathway to breakeven by the end of the year in the U K is that still a goal.
But it is still a goal and we are on track to achieve that as a reminder, last year, we were close to 10 million and up in the full service segment, specifically, we were close to $10 million.
Of losses.
In the U K a little bit.
In that range and we are expecting to get to breakeven and the momentum has been really good in the first half of the year. So we definitely feel on track to achieve that end and ideally we make progress beyond that and are set.
Set up well for 2026 with that with the progress. It's it's been both the.
Good operating.
Execution story alongside a good demand environment that has been supported by <unk> and.
An expanded parent the support through our government funding program that has been expanded to broader age groups and more hours of coverage. So the combination of being able to serve and a demand profile. That's escalating. This helps support that and we we feel really good about the progress.
Alright, I appreciate the color. Thanks, so much.
Thank you.
The next question comes from the line of Stephanie more with Jefferies. Please proceed.
Hi, good afternoon. Thank you.
I wanted to maybe take a step back and if you think about the full service margin trajectory as you think over the next several years and he will get tremendous progress that's been made kind of post COVID-19.
Is there anything that you look as you look at that business. That's structural that you think can keep it from reaching that pre COVID-19 record margin you know call it 9% to 10%. If you look at the business you know today and then as it moves forward. Thank you.
Yeah.
I think that is.
Short answer is no. We don't think there's any structural reason that we wouldn't be able to get back to that 9% to 10% range in the full service business we have.
More than as I mentioned more than 50% of our centers are now operating.
At a level at a utilization level that is above.
Pre COVID-19.
Level and so those centers are back to that back to their pre COVID-19 operating margin level that they are the best performers. So they actually are are better than that 10% threshold. It's it's the under performing in the improving centers that are still on the underperformers to sub 40% occupied centers are they there.
Lose money as a group and then the middle cohort the Improvers are probably mid single digits and so they.
The additional movement in that improve our group to the top cohort will certainly drive margin expansion. We have most of the cost investment already in the mix and so getting additional enrollment is is the primary driver there and then the sub 40%, which is roughly 10% of our center.
So it's not a huge portion of that certainly that there that the headwind does centers, losing money is.
Is a is a barrier to to having the whole portfolio at that.
High single digits to 10% to 10%. So that's where we're focused on ensuring that we're rationalizing the portfolio in a thoughtful way.
And keeping.
Keeping open all options too.
To meet Paris, where their needs are to to drive both enrollment and sustain an enrollment.
Please in the centers, where they need care.
Got it and then just as a follow up can you remind us your your outlook in terms of kind of reaching that goal.
Targeted pre COVID-19 or just general targeted enrollment levels for the the total I guess total name.
Yeah, I mean, we have obviously achieved it in and a good portion of the portfolio I think the reality is.
Targeting targeting overall enrollment at that level is.
We are always operated with centers that were sub 70% and some of them performed quite well even it at that.
At levels significantly below 70%, so it's not a one size fits all.
I would say that take.
Taking taking the bottom 10% of our centers out of the equation for a moment.
We would expect that improving group to continue to make progress and you know in the next year or two we would we would have a majority of the performance.
At the portfolio on back to pre Covid levels is that at some.
Some 40% enrolled that 10% of the centers that is where we will.
Probably need to carve out in an explanation here is we're talking with you, which you know what the effect of that is the majority of their portfolio is certainly within within high side of where the operating margins were in totality for the full service business, which is why we feel really good about the progress.
Great. Thank you so much.
Youre welcome.
Okay.
As a reminder.
I'd like to ask a question. Please press star one.
Telephone keypad.
And the next question comes from the line of Josh Chan with UBS. Please proceed.
Hi, Good afternoon, Stephen and Elizabeth Hum really strong backup care growth this quarter and you mentioned, you're expanding your geographic reach and programming could you talk about.
That you know how how much are you expanding and you know to what extent, that's kind of enabling more growth that wasn't previously available.
Sure. Thank you Josh so what we mean by expanding the.
Capacity is really partly down to owned assets right. So obviously, we have our Steven Kates games Thats really important over the summer as an option for working families.
We continue to invest in building out that footprint. In addition to that we own.
Joey which is mainly agency franchise or and so we continue to stimulate more capacity through owned assets like that.
And at the same time, our team is working really diligently to continue to extend partnerships with center based providers can't based providers in home providers. So that we can provide the type of care in the locations, where we have the demand and so the strategy and approach has really been a.
The nation of continuing to build out owned assets and at the same time continuing to expand our third party network.
Thank you that makes a lot of sense. Thanks for the color there.
And on the full service side, you mentioned aging.
I guess I know you can't count exclusively on aging up but to what extent do you think that could be a tailwind to your margins next year as those kids kind of filled the older classrooms anymore.
Fuller way than the prior cohort.
Okay.
So I mean, it's an important point Josh because the.
The economics in a center or <unk>.
More more favorable with older age you know more utilization in the older age groups and Theres the leaf supply in infants and toddlers and that's where we've notwithstanding individual enrollment statistics that we've decided we have generally seen our infant and toddler rooms b.
More fall proportionately more full than preschool, there's more capacity in preschool and expands greater ages and when the.
Five year old age out there's always a.
Big group to backfill and so as we continue to infill the centers and get get from a center that maybe at 55% to 60, 65% theirs.
A lot of positive.
Positive operating leverage that occurs because of the level of enrollment skewed toward preschool, because that's where the most capacity tends to be so I think that are our focus is always on we want to serve all age groups. Because we we know that we have the.
The ability to to serve families for 345 years as they come into a child care experience that works for them and it <unk>.
Starting as an infant and staying through preschool is built on a long standing.
Relationship that can then extend frankly into backup care and and even to college coach down the road. So there are.
Certainly benefits of being able to serve families over time, but within a center we need to have all age groups in order to have that kind of aging up cadence and to continue to both bring in new families from outside the center, but also to sustain the enrollment over time as children naturally a job.
Great. Thank you both for that color on the time good luck in the second half.
Thank you.
Yeah.
The next question comes from the line of wines are always right.
Deutsche Bank. Please proceed.
Yes, hi, Thank you I wanted to ask about.
You talked about replicating some of the success that you're seeing but centers that are more than 80% occupied towards maybe some of that middle cohort. Two I'm curious if you could talk a little bit more about that and if there's any more sort of what specifically you are are you doing there.
Sure. So I think that as we think about that middle cohort and building enrollment in that middle cohort.
We are clearly always continuing to focus on making sure that first and foremost we articulate.
The uniqueness of that bright Horizons center experience and so one of the things that is really important is for us to continue to express the value proposition that we have on offer for working families whether that be the.
The quality of our programming backgrounds and qualifications of our teachers, whether that be the actual environments and making sure that prospective families become aware of those differences.
First and foremost that and secondly.
We continue to get sharper about how we.
Really nurture a family from their initial inquiry all the way through to when they start and so that comes in different forms. Some of that is through technology. Some of that is through a white glove experience but.
But it really takes the form all the way through the funnel to make sure that we're cultivating that relationship all the way through and then in the middle of that process is typically when they are doing a center visit and making sure that that business.
Really is a flawless experience and demonstrate the value of what that family can expect once they enroll so we're spending a lot of time on making sure that that experience end to end for prospective families is really strong and then at the same time, obviously, we continue to see strong retention rates among those who are.
Currently enrolled and so it's really the combination of those two that gives us confidence that we'll continue to make progress in that middle cohort.
Great. Thank you and then I also wanted to ask about backup care, where again, you've had really strong growth and you've talked a little bit about the dynamics there.
I'm curious you know your margin guide, which is still sort of.
25 to $30 fund and I know historically, you've talked about sort of the mix of that.
There's lots there so was hoping for a bit more color.
You know, maybe if you could break out for US again as you were you were talking about previously about the different types of.
Services that youre, providing there sort of what the various margins level or and is there a point, where you can sort of break out above the 25% to 30% range.
Yeah. So let me let me take a stab at providing some color there. So the backup business of course is one that is we have been at this for a number of years and started out with center based back up care and extent expanded it to a network solution and since then have expanded to new care.
Our types, which allow us to serve more eligible employees of the employers who are sponsoring the service. So we are investing in this business and are are consciously investing in making sure that we are developing and sustaining culture cultivating and sustaining a very <unk>.
<unk> network of both service providers, who can allow us to extend to new types of care as well as to extend our service capability into geographies, where we may not have a presence and our client and has employees and has interest in our services and so in that way we have.
A hybrid of our own our own owned.
Sure so our own centers, our own dedicated backup centers, our own full service centers, where we can take back up care.
Can't providers, Steven Kates camps that we.
Brought into the bright horizons family, a couple of years ago, but the augmenting that with other third party providers and enables us to to rent networks, where we don't always have presence and so.
In that way the investment is critical to that service supply as is the technology to be sure. The parents can reserve care when they needed them for the type of care they need and we can be.
<unk> connected to our third party network and then the marketing efforts the outreach the ability to meet parents at the time that they need care and that they are aware of the care types. So all of that investment goes into continuing to grow the business in the.
We provided the sort of mid teens.
Guidance of growth this year, we've seen growth in the double digits certainly in the last several years and continuing to see a long tail on that so.
While we would probably have an opportunity to get our margins above 25% over time I just wanted to get the color on why why we feel like that the investment cadence against the revenue opportunity is keeps us in that sort of in that band.
Got it.
Very helpful. Thank you so much.
Thank you.
Okay. Thank you all very much for joining us on the call and wishing you a good night.
Thanks, everyone.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
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