Bright Horizons Family Solutions Inc.

Greetings and welcome to the Bright Horizons Family Solutions fourth quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Senior Director of Investor Relations. Thank you, Michael. You may begin.

Thanks, Paul, and hello to everyone on the call today. 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 a recording will be available under the IR section of our website, brighthorizons.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 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 2021 Form 10-K and other SEC filings. Any forward-looking statement speaks only of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We may also refer today 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. Stephen will now take us through the review and update from the business.

Thanks, Mike, and welcome to everyone who has joined the call. To start this evening, I'll recap our 2022 results and outline how our progress this past year positioned us well for 2023 and beyond. Elizabeth will follow with a more detailed review of the numbers and outlook before we open it up for questions. I am pleased with the way we finished the year. As I reflect on the past few years, and in particular 2022, I feel incredibly proud of all that we have accomplished recovering from the effects of the pandemic. The last three years have been some of the most challenging our sector and our business have ever faced. beginning with the temporary closure of most of our centers in 2020, followed by the unprecedented disruption of staffing to the unpredictable and recurring coronavirus variants that contributed to an uneven recovery in late 2021 and into 2022. In the last 12 months, we made solid progress across our business. We have worked incredibly hard to remain focused on our long-term strategic objectives while also adapting and reacting to this new and dynamic backdrop. Let me highlight a few of our successes. At our core, we are a people business, and we have made significant investments in our people over the last three years. We made strides in rebuilding staffing levels to accommodate growing enrollment. Our culture has been a hallmark of what makes Bright Horizons unique. In 2022, we saw our turnover rates, which peaked in 2021, return to pre-pandemic levels, alongside an uptick in formerly employed teachers returning to the Bright Horizons family. At the same time, we have continued to become a tech-enabled business and are dedicated to our digital transformation efforts. As an example, in 2022, our My Bright Day app was relaunched with new and improved functionality for both center families and staff. We also upgraded Backup Care's booking engine to help simplify and reduce the time to make a reservation, enabling a more seamless process for both new and returning users. My Bright Horizons, which has been rolled out to more than two-thirds of our clients, is a unified portal where client employees can register and access all of their Bright Horizons benefits, as well as see personalized recommendations that match their family's life stages and interests. Our investments in technology and infrastructure have improved and modernized operational systems, processes, and most importantly, user experiences. We've sent our impact strategically into new geographies. In 2022, we acquired Only About Children, a leading provider of early education in Australia. This beachhead acquisition provides us an opportunity for further growth and expansion in a new market that has high demand for childcare, a robust government-funded program that provides financial support for families, and a highly fragmented market of providers. We expanded our client base and deepened relationships with our client partners. We now have more than 1,400 employer clients, with a third buying more than one of our service offerings. The services we offer are seen as critical to the success of our employer clients' ability to attract, retain, upskill, and ensure the productivity of their workforce. Finally, we diversified and innovated our product offering to enable new growth channels. In 2022, we expanded Stephen Cates Camps to more than 15 new communities. We introduced pet care as an additional backup use case. And we expanded our debt-free degree and direct bill programs at Ed Assist. These are just a few examples of the innovation we are driving with our client partners. As a result of all of this, I am excited about building on this momentum as we look ahead into 2023. These achievements have fundamentally strengthened our long-term employee value proposition, grown and deepened our standing with client partners, and enabled us to continue to deliver on our core mission of providing the highest quality care and education to children, families, and clients. Let's now take a closer look at the Q4 results. To recap the headline numbers for this past quarter, revenue increased 14% to $530 million, which yielded adjusted EBITDA of $91 million and adjusted earnings per share of $0.77, an increase of 18% from the prior year. For the full year 2022, revenue of $2 billion represented growth of 15%, while adjusted earnings per share of $2.60 expanded 31% over 2021. In our full-service childcare segment, revenue increased 15% in the fourth quarter to $388 million. We added three new organic centers through new client relationships with Diamondback Energy, Endeavor Energy, and Sacramento Municipal Utilities. Overall enrollment trends were as expected, similar to Q3. Across like-for-like centers, we again saw year-over-year, mid-single-digit enrollment growth, with notably stronger performance in the U.S. Specifically in the U.S., year-over-year enrollment increased 6%, with growth of 10% in the infant and toddler age groups, and low single-digit growth in our preschool programs. As we have seen the last several quarters, centers located in the largest metro areas continue to progress in their enrollment recovery, with Atlanta, the Bay Area, New York City, and Seattle showing strong year-over-year enrollment gains. And at a client level, our higher ed healthcare and industrial clients continue to show the highest occupancy levels, while our consumer energy and tech client centers experience faster enrollment growth over the prior period. We also continue to make incremental progress on the labor front, though staffing remains a constraint to our full enrollment potential in most geographies. Since the expanded wage investments were made last fall, our retention rates of existing staff have improved to pre-pandemic levels, and we have seen a measurable increase in inquiries and applications from prospective employees. Encouragingly, the progress we have made over the course of the last year in classroom staffing has allowed our center directors to conduct significantly more in-person tours over the last six months. As we have discussed in the past, getting more families into tour centers, see the programming classrooms, and meet our incredible staff is critically important as we work to rebuild the enrollment pipeline for 2023 and beyond. Looking outside the US, enrollment gains are more challenged. Enrollment grew marginally, but in both the UK and the Netherlands, shortages in qualified staff and higher near-term labor costs to utilize flexible and agency staff continue to restrict our ability to serve all families who request care. In the UK, we have seen our enrollment along with the broader sector, also be affected by inflation and macroeconomic dynamics which have weighed on parents' near-term decision making. In Australia, our centers currently operate at higher occupancy levels than the U.S. and U.K. business, over 70% on average, but further enrollment growth has been slowed by staffing constraints as Australia experiences similar labor dynamics that we see across our global center operations. Let me now turn to backup care, which delivered solid results this quarter. Revenue increased 15% over the prior year to $108 million on expanded use and new client launches. Traditional use and unique users grew significantly year-over-year in Q4, and we continue to see more use among those who utilize their backup benefits. Of particular note was the continued growth in use of Bright Horizon centers. which reflects the strong interest among families seeking high-quality, traditional center-based care and the increased spaces that our center leadership teams opened up to backup families. Reflecting on 2022, I believe it was a pivotal year for backup care. After onboarding more than 200 clients and rebuilding traditional use across 2020 and 2021, we surpassed pre-pandemic use midway through 2022. And we saw further acceleration of use growth in Q4 across all traditional use types. With now more than 1,100 backup clients, a broader set of use cases, and a more streamlined reservation system, I couldn't be more excited about the opportunity to grow backup care double digits over the next several years. Moving on to our Ed Advisory business, which delivered revenue growth of 11% to $33 million. We launched a number of new clients this quarter, including Arrow Electronics, Atrium Health, and ICUVIA, and we continue to see healthy participation and activity levels at both College Coach and at ASSIST. The demand for support in navigating the college admissions and financing processes remains solid, and employers continue to invest in supports to upskill and reskill their workforce and achieve their broader workforce development objectives. Before wrapping up, I want to take a moment to thank every member of the Bright Horizons family. We made a lot of progress last year across many dimensions of our business, and it could not have been achieved without their dedication and commitment to our core mission in delivering the highest quality education and care to children, families, and our employer partners. I also want to take a moment to welcome Mandy Berman back to the Bright Horizons family in the role of COO, backup care, and emerging care services. Mandy was a well-respected member of the Bright Horizons family for more than a decade. After three years away, I couldn't be more excited for her to rejoin our executive team. Looking ahead to 2023, we are well-positioned to build on the momentum we had coming out of 2022. As I have said in the past, our recovery hasn't been and won't be linear, but we continue to make solid progress in recovering from the effects of the pandemic. Enrollment is rebuilding, backup use is growing, and participation across Ed Advisory is expanding. I remain excited about our growth prospects and I continue to have tremendous confidence in the resiliency of our business model, the strength of our more than 1,400 client relationships, and our ability to drive long-term value to all stakeholders. We will continue to drive our One Bright Horizon vision in 2023, focused on unifying and extending the value and impact of our offerings at the client and user level. We enter 2023 with a strong foundation and expect to grow revenue at a solid double-digit rate to $2.3 to $2.4 billion. On the earnings side, we are projecting adjusted EPS of $2.80 to $3 per share, or growth of approximately 8% to 15% for the year. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.