Bright Horizons Family Solutions Inc.

Greetings, and welcome to Bright Horizons Family Solutions' fourth quarter 2018 earnings release conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Elizabeth Bolin, Chief Financial Officer. Please go ahead.

Thanks, Hector, and hello to everybody on the call today from snowy Boston. With me on the call are Stephen Kramer, our Chief Executive Officer, and Dave Lissy, our Executive Chair. And before I turn it over to Stephen, let me cover off a few administrative matters. As mentioned, today's call is being webcast, and a recording will be available under the Investor Relations section of our website, brighthorizons.com. As a reminder to participants on the call, any forward-looking statements made on this call, including those regarding future financial performance, are subject to the safe harbor statement that's included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2017 Form 10-K. Any forward-looking statement speaks only as of the date on which it's made, and we undertake no obligation to update any forward-looking statements. Also, we refer today to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is also available under the IR section of our website. Now let me turn it over to Stephen for the review and update on the business. Stephen.

Great. Thanks, Elizabeth. And again, thanks to all of you who have joined us this evening. On today's call, I'll review our financial and operating results for this past quarter, and the full year 2018, and update you on our growth plans and outlook for 2019. Elizabeth will then follow with a more detailed review of the numbers before we open it up for your questions. We're very pleased to continue our solid performance in the fourth quarter of 2018, and it sets us up well to drive continued growth across all of our business segments in 2019 and beyond. For the quarter, revenue grew 9% to $478 million, and adjusted EPS increased 23% to $0.90. In our full-service center segment, we added 15 centers, including new client centers for Colgate-Palmolive and Cambridge University, as well as additional centers for Penn State and the Mayo Clinic. We also completed two high-quality tuck-in acquisitions in the quarter, one in the UK and one in the Netherlands. We also continued to expand our backup and education advisory client base, with recent new client launches for Hilton Worldwide, Samsung, Ocean Spray, and Kettering Health. In addition, Children's Hospital Health System and HP represent cross-sells of existing clients to our backup and educational advisory services. These recent additions are great examples of the more than 250 of our employer clients who purchase more than one of our services. We continue to be very excited about these cross-selling successes and the significant untapped opportunity with the rest of our client base. As we focus on selling the full suite of services to new and existing clients, we officially unveiled our modernized logo and collection of brands that tie each of our services directly to the Bright Horizons trade name and mark. We believe the closer affiliation of each of the service names will allow clients and end users to feel greater connection with the overall Bright Horizons brand. I encourage you to visit our newly launched website to experience one of the ways we are bringing this to life. Tracking our solid top line growth, we also continue to deliver strong and consistent operating results across the business. In the fourth quarter, adjusted operating income expanded 110 basis points as we leverage enrollment gains in our newer and ramping full service centers, strong utilization of our backup and educational advising services, and operating efficiencies from technology. Over the last several quarters, we've talked about the investments we've been making in targeted marketing programs and technology to speed and improve the end user experience. We continue to be really pleased with the progress of these initiatives exemplified by improved conversion from registration to backup use and expanded capability to confirm care reservations instantly. These initiatives, once fully rolled out, should continue to drive growth and operating leverage over time. Let me turn now to another of our growth initiatives, our lease consortium center strategy. As a reminder, lease consortium centers have always been a part of the Bright Horizons growth plan. In recent years, we focused this strategy in select urban settings where we see a concentrated population of our target demographic, limited supply of high-quality childcare, and strong opportunities to meet the needs of our client partners. Over the last six years, we have opened 85 of these centers and now have more of these centers at mature operating levels than those still ramping their enrollment. As a result, in 2018, the margin generated by this group of centers as a whole has become a modest contributor to margin expansion. And we expect to continue to modestly expand that contribution as the most recently opened centers ramp to their mature levels. We are pleased with the progress of this strategy and therefore will continue to invest in this area as we see significant value creation opportunity in these centers over time. As many of you have heard us talk about on prior calls, our organic growth strategy is focused on cultivating new clients, and expanding our existing client relationships through cross-sells and additional take-up of current services. After another solid year in both of these categories, I'm really optimistic about the sales and growth momentum across all aspects of our business in 2019 and beyond. The sales pipeline in each of our services remains strong with interest across industries with both new and existing clients. We also continue to execute on our acquisition strategy, I mentioned earlier that we had completed two deals in the fourth quarter, and overall for 2018, we're really pleased to complete transactions, which added a total of 36 centers across all three of our primary geographies. We continue to cultivate a solid pipeline of prospects, including a good mix of networks and single center opportunities, both here in the U.S. and abroad, and we expect these acquisitions to continue to be a key element of our growth plan in the years ahead. Before I wrap up, I wanted to comment briefly on the thought leadership study that we published last month. For five years, we've been researching the struggle working parents face in both the U.S. and the U.K. through our Modern Family Index. The harsh reality is that when we focus the lens on working mothers, it's clear that workplaces still have a long way to go to meet the needs of women as they grow their families and their careers at the same time. Our data shows that mothers and fathers in the U.S. agree in overwhelming numbers that women are penalized in their careers for starting families while men are not. In the U.K., the study revealed that the average mother waits two years longer for a promotion than the average father. On an equally important note, our Modern Family Index reveals that mothers bring key leadership skills that are critical to today's businesses. What we've learned from the studies is that the need is as great as ever for employers to provide family-friendly services. It's not only important for families, but it's critical for the health of employers as well. We are very proud to be the partner of choice for so many leading employers looking to meet the needs of the modern workforce. So in summary, we believe that we are well positioned to continue the positive momentum and operating agility we have demonstrated over years. For 2019, we anticipate continued strong performance with revenue growth in the range of 8% to 10% and operating leverage to drive adjusted earnings per share in the range of $3.57 to $3.63. With that, Elizabeth can review the numbers in more detail, and I'll be back with you during Q&A.

Thank you, Stephen. Once again, recapping the headlines for the fourth quarter of 2018, overall revenue was up 9%, or $38 million in the quarter. The 8% growth in full-service center revenue, or around $30 million, was driven by rate increases, enrollment gains, and contributions from new centers, including about 2% from acquisitions. FX impact was a slight headwind to full-service growth for the quarter, approximately 80 basis points. New client launches and expanded utilization by existing clients helped drive 9% revenue growth in backup and 19% growth in ed advisory services. In Q4, gross profit increased $12.5 million to $121 million, or 25.2% of revenue, and adjusted operating income increased to $63.7 million, or 13.3% of revenue, as Stephen mentioned, up 110 basis points, from Q4 of 2017. In our full-service segment, adjusted operating income expanded 50 basis points to 9.2% on gains from enrollment growth in our mature and ramping centers, from contributions from our new and acquired centers, and from tuition increases. Both of the backup and advisory segments reported operating income margins over 30% in the quarter on strong utilization levels, continued scale in these operations, and improving efficiency of service delivery. Interest expense of $12 million in Q4 of 2018 was up slightly over 2017, as incremental revolver borrowings to finance acquisitions and share repurchases was offset by lower average interest rates. Our current borrowing cost approximates 4%, with $500 million of our term loans fixed with an interest rate swap. We ended the quarter at three and a quarter turns of net debt to EBITDA. Our structural tax rate for 2018 on adjusted net income came in at 21%, lower than our previous estimate due primarily to a reduction in the effective tax rate on our foreign earnings. With our improved operating performance and positive working capital movements, we also continue to generate strong cash flow. For 2018, our operating cash flow of $295 million was up $47 million over the prior year. In terms of deploying that cash flow and our overall capital allocation strategy, our first priorities continue to be investments in the growth of the business. This is illustrated by the $100 million plus we spent in 2018 on new centers and acquisitions and the $50 million plus we reinvested in our existing operations and support functions. Share repurchases are our third priority after new business investments and acquisitions. In 2018, we acquired a total of 1.2 million shares under our share repurchase program. Lastly, at the end of 2018, we operated 1,082 centers with a capacity to serve 120,000 children. And across all of our service lines, we now partner with more than 1,150 clients. Adding to the guidance headlines that Stephen touched on earlier, we do continue to project top-line growth for 2019 in the range of 8% to 10%, including low double-digit revenue gains in our backup division and top-line growth in our advisory services in the range of 15% to 20%. In our full service segment, we're projecting top-line growth in the range of 7% to 8%, including the effects of approximately 1% projected foreign exchange headwind on lower pound and euro rates. On the operating side for 2019, we expect to continue to add approximately 1% to 2% to the top line from enrollment in our ramping and mature full-service centers, and to realize average price increases in the range of 3.5% to 4% across the P&L centered network, while maintaining a 1% spread between price and our center cost increases. We're expecting to add approximately 50 new centers, including organic openings and acquisitions. Consistent with 2018, we also anticipate that we will close 20 to 25 centers as we maintain the discipline that we've established over the last several years. Top line growth and increasing efficiency in our service delivery contribute to improved operating performance and margin improvement in 2019 in the range of 50 to 100 basis points compared to 2018. On some other key metrics for the full year 2019, we estimate amortization expense of $33 to $34 million, depreciation in the range of $75 to $78 million, and stock compensation of $18 to $19 million. Based on our outstanding borrowings and estimates of interest rates for the rest of the year, we project that interest expense will approximate $48 to $50 million. On the tax front, we are projecting that the structural tax rate will increase from 21% this past year to approximately 24% in 2019. This increase primarily reflects the diminishing impact of stock option exercises on our reported tax expense. Lastly, weighted average shares are projected to approximate $59 million for the year. We estimate that we will generate approximately $300 to $320 million of cash flow from operations and to have $50 million of maintenance capital, which would yield $250 to $275 million of free cash flow for us to invest in the ongoing growth of the business. We expect to invest $45 to $50 million of that in new center capital for centers opening this year and in early 2020. The combination of all of these factors lead to our projection of adjusted net income of 209 to 214 million in 2019 and adjusted EPS growth in the low double digits to a range of $3.57 to $3.63 a share. Looking specifically to Q1, we've seen a decline in foreign exchange rates since Q1 of 18 that we expect to impact growth rates. Specifically, we are projecting approximately 7% top line growth, including a foreign exchange headwind of approximately 1.5%. On the bottom line, we're projecting adjusted net income in the range of $45 to $46.5 million and adjusted EPS in the range of $0.77 to $0.79 a share. And so, Hector, with that, we are ready to go to Q&A.

Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Andrew Steinerman with J.P. Morgan. Please proceed with your question.

Hi, good evening. This is Michael Cho for Andrew. My first question is just around the margin this past quarter round and back up. It was quite an improvement year over year. I mean, and I know you called out scale and investments, but I was wondering if you can provide a little bit more color behind the margin profile and back up.

Yeah, so we have, as mentioned on prior calls, Mike, we've got some variability that can occur in both the backup and ed advising business based on levels of utilization. And so there is a fairly strong utilization time period in the fourth quarter with holidays. And so that's the main driver is down to the good levels of use that we had and Some of our clients are per-use clients, and so that use is incremental to the performance. And as a result, we are seeing that on the top line. And then on the bottom line, I do think that it's too soon to have seen all of the efficiencies of some of the investments that we're making on the technology and user experience, but we are beginning to gain from some of the automation efforts of the reservation process and the matching of service, we're seeing some efficiency that is coming into the cost structure. So at the margin, it all contributes.

Understood. Thanks. If I could just ask a quick follow-up on the tech investments. I mean, and I know Stephen had a bit of color around the investment in the prepared remarks, but I understand kind of looking for matching and efficiencies. But can you give a little bit more insight into kind of what has actually been the benefit and what's actually expected over the near and medium term from these past tech investments?

Thanks. Sure. So the tech investments, as you will know, are really focused on driving additional use as well as user experience. And so on the driving additional use side, I think we've shown some really good progress as it relates to First, engaging more users within a particular employer's client base, so increasing the numbers of individuals that are registered to use, and then ultimately putting them on personalized journeys that allow us to communicate to them when we perceive they may have a need and allowing them to then react to that communication. And so from a marketing perspective, I think we feel really good about the progress that we're making in that regard. both from creating more registrations as well as creating more reservations. On the user experience side, certainly we see great user experience enhancements across all the lines of service, but probably the one that is most significant is in the backup area and very specifically around the ability for an end user to instantly book care. And so that is really creating connectivity between the end user and the supply that we have. And so it makes it a frictionless process for them to put in a reservation and ultimately get an instant care confirmation. And so what that does for the user is it eliminates any of the lag time that there is around whether or not and who is going to serve that care. And then secondly, from an efficiency standpoint, it eliminates some of the costs associated with what had previously been in interaction with the contact center. So again, I think that from both a marketing perspective as well as from a user experience perspective, we're seeing good strides, and obviously the impact is both at the top line as well as from a cost structure perspective.

Okay, great. Thank you.

Thank you. Our next question comes from the line of Manav Patnik with Barclays. Please proceed with your question.

Yeah, this is Ryan Leonard filling in for Manav. You know, just a question on the cost in the quarter. I guess it just even came in a little bit light relative to our expectations. Were there any costs associated with either the rebranding that you mentioned or maybe some of these, you know, college programs you're rolling out for employees?

Sorry, Ryan, I wasn't able to quite hear you. You said with respect to the costs in the quarter? Yeah.

Yeah, I think costs were a little bit higher than we had expected, and I was just wondering if there's any one-time things to call out, whether it be from the rebranding or some of the education you're providing for associates, if that had any impact that we should be aware of.

Well, we've had really good, I'd say on the education program, what we're really pleased about is we've had very good take-up on the, what we're calling the Horizons Teacher's Degree Program, and and have had a very good level of interest, and so there is a modest cost associated with that. I think it's absorbable in our overall structure, so I'm not calling that out as an unusual cost. We have had a really positive response to it. Likewise, the branding, we're excited about what it's going to bring, and it involved some some level of cost, but not something that's unusual or outside. So I don't think we have anything to call out, particularly on the cost front, no.

Okay, fair enough. And then just a quick one, if I could, on the buybacks. I mean, how should we think of the pace of that or, I guess, you know, what's assumed in guidance or how do you think of it kind of strategically on your end?

Yeah, I mean, our view is we have a very predictable cash flow generation business, of course. And so, as I mentioned in the prepared remarks, we are expecting to have free cash flow, you know, well north of $250 million. And so, to the extent that we can identify growth opportunities, be they acquisitions, you know, we do tuck in acquisitions as a matter of course. Those are part of our standard plan. if you will, so that is part of our guidance. But an outsized acquisition, should that come along, that would be an opportunity for us to deploy more of that cash. We have $100 million or so that we're investing in new centers that we're developing and in maintenance capital, but that still leaves a level of cash flow that is predictable from year to year and replenishing year to year that we would be looking to continue to be active with a repurchase program. So it The plan considers regular borrowing, but we're not really signaling exactly what that is. We have a $300 million program that's authorized. We've been regular buyers in the open market, and now that Bain exited their position earlier in 2018, those larger blocks added to the volume a bit, but we would continue to be active.

And, Ryan, just doubling back to your original sort of assertion around cost, I would just observe that we feel really good about the 110 basis point improvement, so not really clear what you're referencing on the cost side. But, again, we're really pleased with the performance both from a revenue and cost perspective that yielded the kind of margin that we had in the fourth quarter.

Understood. Thanks. Our next question comes from the line of Gary Disdy with Bank of America. Please proceed with your question.

Hey, good afternoon. It didn't feel the same without Dave bragging on the Patriots, but as a Giants fan, I have to say I didn't mind not hearing it.

We're just trying to cut everybody a break.

I know it's important to respond. So, you know, as I sit back and think about the pretty terrific growth you've driven in the six years since your second IPO, I guess I've been trying to spend some time thinking about how do we think about multi-year growth from here? Would it be fair to project, you know, the broad outlines of the 2019 guidance as sustainable, you know, growth targets over the next few years? And by that, I guess I'm thinking the 8 to 10... revenue, the 50 to 100 bps of margin expansion and double-digit earnings growth, is that reasonable? Or, you know, is given the scale of the company, is it just, you know, is it getting more difficult? I don't know if there's any, if you want to give official updates or anything you'd point out, you know, that we might think about over the next few years.

Thanks. Sure. So I'll start, and I'm sure Elizabeth will play color as well, but The way I would start to answer that question is really around the opportunity that we see. And we continue to see really strong opportunity in all of the lines of service that we deliver on. So in terms of an expectation on the top line, you know, I think it's very fair to assume that we will continue to look at an 8% to 10% growth rate based on the fact that, you know, when we look at the white space within our existing client base as well as within those who are today not clients, we see terrific opportunities for building out additional centers, attracting more backup clients and advisory clients, and then the use within each one of those three categories we see as continuing to have very positive trend lines associated with it. And so maybe, Elizabeth, you want to cover off on the margin side?

Yeah, I mean, I do think that the, you know, the 50 to 100 basis points, Gary, we would see as we continue to bed in a little bit of a tailwind with our lease model strategy, adding, call it 20, 20, 25 basis points a year for the next couple of years until that's, you know, really more of a mature series or cohort. And then, you know, then seeing that operating margin ability to expand that in the range more like 25 to 50 or 75 basis points. So maybe a call it a two-, three-year horizon on the 50 to 100 and then tapering a bit. But the inherent structural elements of the model do offer modest opportunities for leverage when we are both vigilant about cost management in a labor-intensive business and then making smart investments that allow us to enable technology to support the service delivery in our backup and ed advising in a more effective way and in a more user conscious way. Those things will both cost less and be a better experience for the end user. So I think there's a lot to execute to get that done, but I think that our view is that we do have some some inherent business model elements that allow for ongoing leverage. And so, as you say, a conversion of top-line growth at a faster pace, so in the double-digit range, certainly probably lower double digits, but that is sustainable.

Okay. And one of the keys, obviously, to margins historically has been the ability to price in excess of labor, cost inflation that you're paying out. You know, I've always thought it's dangerous to think, you know, long-term 3% to 5% every year for as many years as you've done it, is there anything – does that become more difficult to get at some point? Or do you feel like where you are relative to people's ability to pay and relative to the market, you know, continues to remain at a compelling level such that you could continue to pass on this price over several more years?

Yeah, I think that the – it's important to keep it at the structure where there's a a bit of a gap, and we target a 1% gap. It leaves room for some variability. But to have a gap, whether the wage rates are going up at 3% or 2% and flexing according to that, not getting ahead of ourselves on how much we will price. But I think that we've got a long track record of having the ability to price – in the way that we have and to be transparent with parents and to have a service that they are able to afford because of other, you know, both what they're earning and or the employer support to it. So it's something we pay a lot of attention to. Again, don't want to sound either complacent about it or that it doesn't get a lot of focus, but we are geographic, you know, location by location making pricing determinations and adjusting according to to that market and the demand profile. So I think that that's a long-winded way of saying we think we can sustain price increases and to absorb the kinds of cost increases that we've seen over the last couple of years with wage rates both modestly ticking up a bit faster than they had been and the movement behind minimum wages in certain locations where we've always had reasonable visibility there and stayed ahead of that pricing.

And then just one last one, if I could, on the lease consortium, good to see them contributing or the drag, you know, no longer there from margins. Does the contributing in 18, does that mean that the gross margins for that business are now above the corporate average, or does it just mean that the drag is less in some way? And I guess I'm trying to think of that. Yeah, go ahead.

It's more that the drag is less. I mean, as a cohort, they're still in the, the high single digits to low double digits, and that's the range of where they would be as a cohort. So they're still not contributing at the overall rate of the full service segment, but they are not absorbing more losses. So it's becoming a positive. And so that's why there's a little bit more runway there, Gary, for there to be an extra 20, 25 basis points from the lease consortiums for the next couple of years as they continue to You know, I think you may have been the person who asked this a couple of years ago, but, you know, at what level, how many years of this would you have until you've got a mature cohort? But we're six years in, another, you know, three years, four years, we'll have ten years of these centers, only two to three years that are not mature. That's when we would really consider it to be at a sort of just a rolling level. And so... I'm going on too long on these answers, but that's the gist of it. We see a little bit of continued opportunity there.

Great. Thank you very much.

Yep.

Our next question comes from the line of Jeff Mueller with Baird. Please proceed with your question.

Yeah, thank you. Good afternoon. The MyFamilyCare acquisition, does that have a sizable – Backup component to it, and can you just refresh us on your backup business in the UK, and I guess the Netherlands, if it's applicable?

Yeah. Good afternoon, Jeff. Thank you for the question. So we did acquire recently the MyFamilyCare in the UK, and their focus and their business really is in the backup segment. And so If we take a step back and why that was an important acquisition for us, we believe we're in the really early innings of the backup opportunity in the UK, and our backup opportunity outside the US today is the UK, and they were very focused on the UK as well. So as one of our main competitors, I think from an opportunity perspective, it's a really nice pickup for us. A few things that we think make it particularly attractive are One is it came along with, obviously, economics. Again, both our business in the U.K. as well as their business is relatively small, so I would characterize it no different from a tuck-in acquisition that we might do on the center side. That's sort of the scale that we're talking about. On the other hand, it came along with some important client partnerships. It came along with some solid technology. And I think lastly, but quite importantly, it came along with some really high-quality people that have been dedicated to the backup space similar to us for a number of years now. And so we see the combination of our backup business and MyFamilyCare's backup business as a really good platform to continue to accelerate the momentum in that UK market for backup care. In the Netherlands, we don't have a backup care business. In fact, there is No market in today's economy there for backup. So this is really about a UK opportunity.

Thank you for that. And then I hear you on the branding and branding all of the services around Bright Horizons. Any other initiatives, change in sales force, change in compensation to get after the big opportunity of cross-selling to take it well beyond the, I guess, 250 clients?

Yeah, so I think we're really staying the course there. We made some sort of fundamental structural changes over the last 18 months and believe now we're well positioned to go after that opportunity. As I've shared on previous calls, things that we have implemented are, one, that the sales folks are really partnering with our account management team to go after our existing client base. We created a small enterprise team that is focused on some of the more complex, large opportunities. So again, I think we've done some really good things around the team itself. And then, as you rightly mentioned, I think we have now aligned our incentives so that our teams are really focused on not only bringing new clients into the family, but also making sure that we are really going after the opportunity that exists within our existing client base.

Okay, thank you. And then just last one. So what is the outlook, you know, intermediate, long-term, now on the backup care margins? And I guess I'm just, you know, it seems like the messaging was, hey, we have really good margins in that business. It's very economic. To us, it's a growth business. The growth is still there, but it sounds like maybe you're starting to see some of the payoff on the investments and structurally they could improve the the margins of the business. So is there going to be reinvestment and should we still think of backup care as a fuller margin story or are you seeing an inflection following those investments and would you expect it to be a business with margin expansion over a multi-year horizon?

Well, I think our view on backup is as it continues to mature, of course, there's a number of factors that go into the overall, you know, the mix of where we are providing care, the mix of clients who are capitated and sort of buying a basket of uses versus per use. And so there's, you know, there's some elements of that that will evolve over time. We think that the margin for this full year, so in Q4 it was over 30%. For the full year of 2018, it was in the high 20s. And we would expect that being able to stay in that range and maybe tick up modestly toward the 30% range as possible. With the efficiencies that come with these, we will continue to invest, but the efficiencies should come through. But I do think that at a 30% level and with the clients that we're working with, that will be a reasonable target for us to sustain in that level rather than much leverage beyond that, Jeff.

Got it. Thank you.

Thanks, Jeff. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we pull for more questions. Our next question comes from a line of George Tong with Goldman Sachs. Please proceed with your question.

Hi, you have Ryan on for George today. Thanks for taking my questions. You mentioned that you plan to organically add 50 new centers in 2019. Can you talk about how the pace of new openings compare with earlier periods, taking into account competitive dynamics, industry penetration, and customer spending intentions?

Yeah, I mean, it's a fairly consistent expectation. The mix of those centers we would expect to be in the 12 to 15 would be lease consortium models that we are citing, and another 15 to 20 would be client centers. So what we're seeing is continued interest from the industries that we've seen good penetration in, the healthcare, pharmaceuticals, The tech sector has been a bit more active the last couple of years, and we would continue to see colleges, universities as new clients and expanding their footprint. So from a client spending standpoint, this tends to be a fairly long decision cadence. We haven't really seen a different pace, just a steady pace from clients on the spending side, hence the relatively similar level of new centers that we'd expect to open.

Great, thanks. And then for my last question, can you discuss how enrollment and pricing trends have been performing in light of tightening labor market and later cycle economic environment?

Yeah, so we, as we had anticipated for 2018, we saw about a 1% enrollment gain in our mature centers. And then we, of course, have ramping centers that contribute as well. But pretty solid enrollment in the mature base. With our labor rates, as I mentioned before, the labor has been seen a little bit firmer. Wage increase, we do wage increases every year. It's not a new thing, but we're seeing Wages climbing more like the 2.5% to 3% on average, and in some cases where there are markets that are having, you know, Seattle, for example, had put in a minimum wage law several years ago that has been introduced over the course of many years. And in that environment, over the last couple years, we've seen wages climbing a bit faster. We pay above minimum wage, but it still has an effect on all markets. kinds of companies like ours that are working with a workforce that's competing against some of the minimum wage jobs. So in that way, we're seeing, again, staying ahead of the labor rates, but probably 2.5% to 3% on average.

Great. Thank you.

You're welcome.

Our next question comes from the line of Hamza Nizari with Macquarie. Please proceed with your question.

Hey, this is Mario Cortolacci filling in for Hamza. Um, I know you guys already touched on the work that you're kind of doing in order to cross out and increase the number of subscription, uh, you have from clients, but, um, I guess you guys are around like that 21, 22% range right now. And just wanted to see if you think that 2019, we could see that accelerator, even over the longer term, how big do you think that number could be realistically?

Yeah, so the way we look at it is, you know, we obviously look at our existing client base and, you know, have very strong relationships with those clients. We have an understanding as it relates to what services the particular clients would benefit from. So we really do a bottoms-up analysis to figure out client by client what services they're them as an employer and their employees would benefit from. And then obviously we, you know, try to introduce those services to them in an appropriate way. So, you know, I think the hardest part about seeing the percentage move up is that we continue to see that many new clients to the Bright Horizons family come into our organization investing in a single service. And so we continue to grow the number of single service clients while at the same time we continue to increase the number of cross-sells that ultimately add additional services to existing clients. So what we're really focused on is less about the percentage, although that will tick up naturally over time, and really focused on the number of clients who are investing in multiple services. And we've seen really nice progress as it relates to the numbers of our clients that are investing in multiple services.

Got it. Okay. And just one more. Could you maybe talk about your M&A pipeline internationally and whether markets like France or Australia or even certain Asian countries are attractive and whether there are platforms or platform deals you could do in those regions?

Absolutely. It's a great question and the quick answer is yes. So we continue to monitor where we think we could add value by operating a particular country. When we think about countries that are most appropriate for our expansion plans, we're really looking for those countries that have some source of third-party financial support for child care. And so that can come in the form of government, as it is in a place like the Netherlands, or it can come in the form of employers like we have here in the United States. And so there are many countries throughout Europe, as well as in Asia and, as you mentioned, Australia, where one or both of those two possibilities exist. So again, we try not to speculate which country will necessarily be next. On the other hand, we continue to look for ways to keep good relationships with platform, as you call them, opportunities throughout the world. And there are a number of those in each of the countries that we are evaluating. And so we continue to keep great relationships and at the point where they're ready to sell and or it makes sense for us to go to a particular place, we'll be on the ready. And I think as we demonstrated from the experience in the Netherlands, we have the ability to go in with a platform-type acquisition and then grow both organically and through additional acquisition to create quite a presence in a market.

Great. Thank you so much.

Thank you.

You're welcome.

Our next question comes from the line of Jeff Silver with BMO Capital Markets. Please proceed with your question.

Thanks so much. I wanted to focus actually on your first quarter guidance. I know it's the first time you've given it, and it seems like consensus was a little bit ahead of your guidance, and maybe we got out over our skis a little bit. You called out FX pressure. I'm just wondering if there's anything specifically going on. Did you have any impact from the government shutdown, et cetera?

We really didn't have much effect. We do run centers for a number of government agencies, Jeff, and had, I think, one or two centers that had just one center had to close. Others had funding elsewhere that they were able to continue to stay open during the shutdown and serve families. So not an impact from the government shutdown in the first quarter. I think it's mostly a comp versus, I mean, FX is certainly a factor and a comp against what had been a first quarter that had not only high foreign exchange in relation to this year, but it was high in relation to the year before that. Otherwise, we feel really good about the overall components, sort of the same full-service growth components would play in in the first quarter, and we've just had solid backup new client launches, and we feel good about the kickoff to the year there, too. So, Nothing else to call out in terms of unexpected cost or what have you.

Okay, that's helpful. And as my follow-up, I know we talked a little bit about wage inflation before. I'm just curious, focusing on your center staff and considering what's going on in the labor markets, are you seeing higher than normal turnover or having difficulty finding people?

Yeah, so one of the key features of Bright Horizons as an organization is that We really are an employer of choice, and we spend a tremendous amount of time and have over our 30-year history investing in our culture and investing in our people. And so we haven't actually experienced any difference in the turnover rates. I think that once someone determines that this is the field that they want to be in, we like to think that they're excited to be a practitioner within our organization, and I think our turnover rates suggest that. And to put a fine point on it, You know, our turnover rates at Bright Horizons are about half of the industry average, and that's been consistent. And, in fact, in a market like the one we're in, it's actually a little bit less than half because, again, I think we have real stability in our workforce, and I think others are struggling in the way that you described.

Okay, great. That's helpful. Thanks so much.

Thank you. Thanks, Justin. Wonderful. Well, thank you again for joining us on the call. We appreciate the questions and the insights. So wishing you all a good night and looking forward to seeing you out on the road.

Thanks, everybody.

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