Bright Horizons Family Solutions Inc.

Welcome to the Bright Horizons Family Solutions Third Quarter 2021 Earnings 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. Please note that this conference is being recorded. I'll now turn the conference over to your host, Michael Flanagan, Director of Investor Relations. You may begin.

Thanks, John. and hello to everyone on the call. With me here are Stephen Kramer, our Chief Executive Officer, and Elizabeth Boland, our Chief Financial Officer. I'll turn the call over to Stephen after covering a few administrative matters. Today's call is being webcast, and recording will be available under the Investor Relations section of our website, brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future business and financial performance, including the impact of COVID-19 on our operations, are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and are described in detail in our 2020 Form 10-K and other SEC filings. Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We also refer today to non-GAAP financial measures, which are detailed and reconciled to the GAAP counterparts and our earnings release, which is available under the IR section of our website. Stephen will now take us through the review and update on the business.

Thanks, Mike. Hello to everyone on the call, and thank you for joining us this evening. I hope that you and your families are remaining healthy and safe. I'll start tonight with a review of our third quarter and provide an update on our current operations. Elizabeth will then provide a more detailed review of the numbers, before we open it up for your questions. First, let me recap the headline numbers for the third quarter. Revenue increased 36% to $460 million with adjusted operating income of $46 million and adjusted EPS of $0.64, up from the operating and earnings losses we reported this time last year. As we continue to build back the top line to pre-COVID levels and beyond, I'm really pleased with our recovery in earnings. as reflected in the delivery of 10% operating margin and 17% adjusted EBITDA. Overall, as we approach the end of 2021, I remain encouraged with the progress and trajectory of our recovery from the significant impact of COVID on our business. Our global team has responded exceptionally well and has navigated a very fluid environment this year with resilience, perseverance, and compassion. I'm very optimistic about our market position and ability to realize the many growth opportunities that lie ahead across our businesses. Let me start with our full service segment. Revenue grew 52% in Q3, reflecting continued enrollment recovery and the ramping of recently reopened centers. We ended the quarter with 949 centers, or 94% of our 1,011 centers open. From a new center perspective, we launched 19 centers, including a seventh center for Centene, a second center for Stanford University, and six centers for the Mass General Brigham Health System, which had previously been self-operated. Through the late summer, early fall, we continued to reopen a number of our temporarily closed centers, with 23 reopening in the third quarter and a further eight reopening in October. That said, the Delta variant proved to be yet another disruptor to our recovery and previous expectations. with some clients further delaying the full reopening of offices and onsite centers. Importantly, it was just that, a delay. Nearly all of the 54 remaining temporarily closed centers are now slated to reopen later this year or early 2022. In our open centers, we continue to see enrollment rebuild. Occupancy levels in Q3 were consistent with Q2, which is better than historical seasonality but lower than what we had expected when we talked to you on our Q2 call. The Delta variant peak in the late summer and early fall temporarily slowed the enrollment recovery, as it coincided with a period that is typically a busy start window for new families. Some parents across the country chose to push out their start dates, and several of our more effective geographies were those hardest hit by Delta variant. That said, the underlying demand indicators for high-quality childcare remain solid, and recent enrollment trends continue to show steady progress. With the Delta wave subsiding and work plans solidifying for 2022, there has been an uptick in families requesting to start care early in the new year. And therefore, I continue to be encouraged by the demand picture, despite some near-term timing shifts. As we discussed last quarter, One of the challenges in meeting this growing demand is the fact that the labor environment broadly and in our sector remains challenging. Although staffing challenges are not new to the child care industry, the pandemic has created unique difficulties and has exacerbated the supply conditions we have worked hard for decades to manage. In the face of this environment, our enrollment in a minority of centers has been constrained by our ability to staff the high quality educators needed to serve all the families who requested care. Our teams are aggressively focused on solving the labor pressures. We have taken a number of steps to further differentiate our employee value proposition, increasing compensation and tailoring benefits programs, as well as investing in talent acquisition and sourcing. We are already seeing results from these efforts, particularly with new applicant trends, which have already reached pre-COVID levels. This indicates we are well positioned to capture an even greater share of the early educator talent pool. We are fortunate that in the near term, we have government program support targeted for the child care industry to ease some of the inflationary labor pressures. Over time, our consistent pricing strategy positions us to regain our historical center economics as those support programs inevitably wane. So as I look ahead, I am confident that these investments in our teachers and center leaders, along with Bright Horizons' 20-year track record as one of Fortune Magazine's great places to work, and our industry-leading role as the employer of choice, will ensure that we attract the early educators we need to continue to grow for many years to come. Let me now turn to backup care, which is well-positioned to capture a growing client opportunity as we head into 2022 and beyond. In the quarter, revenue of $99 million increased 77% over 2020's strong quarter. For context, Q3 revenue is up 24% over 2019, in line with our historical and long-term annual growth rate of 10% to 12%. We continue to lead this market by a wide margin, extended further this quarter with new client launches for AstraZeneca, Unilever, Unum, and Yahoo. While the Delta wave certainly influenced many parents' short-term decisions around care provisions, traditional uses were still up sharply over the prior year, and we remain encouraged by the broadening of use types and users with strong uptake of virtual tutoring and school-age care through Stephen Case camps. While those indicators are clearly positive, the staffing constraints impacting our full-service business have also been a challenge in the backup care arena. As a result, we have seen greater demand in certain geographies and peak periods than we have been able to accommodate in centers or within home providers. We are working to expand our in-center availability as well as our network of third-party providers, particularly in-home caregivers, and we are making further investments in care and technology initiatives to ensure we can deliver the service our growing base of parents and clients need. Turning to our education advisory business, which delivered revenue growth of 10%. We launched a number of new clients in the quarter, including AT&T, Maxim, Northwestern Mutual, and Samsung Electronics, and continue to see healthy participation and activity levels, particularly within College Coach, as the demand for support during the college admissions process remains very robust. The tight labor market also continues to drive demand for our workforce education programs as employers look for streamlined and cost-effective solutions to upskill and reskill their existing workforces. Across all of our business, I'm encouraged by the depth of conversations we are having with many prospective and current clients about the additional avenues in which they can attract and support their employees through our service offerings. As we have discussed before, the pandemic has highlighted the essential nature of our services and the increasing importance childcare has in the nation's economy. The widespread staffing challenges affecting so many industries and the reduction in availability of childcare have spawned new opportunities in full service, backup care, and advisory. We are seeing employers across industries reevaluate their employee value proposition compensation levels, and benefit offerings, and look at deploying creative solutions to ease their acute labor challenges. These solutions are not only part of their recruitment and retention strategy, but also a newly evolving element of attracting their workforce back to the office and keeping them engaged on site. Overall, as we have broadened our service offering and strengthened our market position over the last year, we are very well positioned to capture a growing client opportunity as we head into 2022 and beyond. In addition to the client opportunity, the Build Back Better plan, as proposed by the Biden administration, is another source of potential third-party support for early childhood education. The proposed plan highlights the role high-quality early education has in the development of children, as well as the benefits to the economy and society as a whole. Bright Horizons believes this is a great need for our nation and has the potential to help the many children and families who have not historically been able to access affordable, high-quality care and education. Before I hand the call over to Elizabeth, I want to take this time to acknowledge every member of the Bright Horizons family. Over the last couple of months, we held more than 100 virtual employee recognition events where we celebrated team and individual achievements. I'm incredibly proud of our team's grit and dedication to deliver the highest quality education and care to our families, despite the challenges endemic in our industry and still across much of the economy. While this year's celebrations were virtual, they were no less special. My heartfelt appreciation goes out to all of our more than 25,000 employees who work tirelessly each day, bringing passion and the expertise that allows us to collectively impact the lives of those we have the privilege to serve. Elizabeth?