Bright Horizons Family Solutions Inc.

Thank you for the patience. Your conference will be beginning in just a few minutes. Again, we want to thank you for your patience. The conference will be beginning in just a few minutes. We'll be right back. Thank you. © transcript Emily Beynon Greetings. Welcome to Bright Horizons Family Solutions second quarter 2023 earnings 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 this conference is being recorded. I will now turn the conference over to Michael Flanagan Vice President of Investor Relations. Thank you. You may begin.

Thank you, Sherry, and welcome to Bright Horizon's 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 website, brighthorizon.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 should be considered in conjunction with the cautionary statements that are described in detail in our earnings release, 2022 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 their GAAP counterparts and our earnings release, which is available under the IR section of our website at investors.brighthorizons.com. Joining me on today's call is our Chief Executive Officer, Stephen Kramer, and our Chief Financial Officer, Elizabeth Bowen. Stephen will start with reviewing our second quarter results and provide an update on the business. Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions. With that, let me turn the call over to Stephen.

Thanks, Mike, and welcome to everyone who has joined the call. I am really pleased with our performance in the second quarter. We delivered strong results with another 20% plus year-over-year revenue growth quarter and solid adjusted earnings of $0.64 per share. Occupancy improved sequentially in Q2, and we realized year-over-year mid-single-digit enrollment growth. Backup care delivered an outstanding growth quarter with use and users outpacing our expectations. and with June posting the highest traditional network use month in our history. There is one area that continues to trail our plan for the year, our UK full-service business, where persistent staffing and enrollment challenges remain a headwind to our overall earnings performance. Overall, our first half results position us well to continue to make good progress against our 2023 objectives. So to get into some of the specifics, Revenue in the quarter increased 23% to $603 million, with adjusted net income of $37 million and adjusted EPS of $0.64. In our full-service child care segment, revenue increased 23% in the second quarter to $459 million. From a utilization standpoint, we made further progress across the center cohorts we have discussed over the last few quarters. Specifically in Q2, 43% of our centers were in the top cohort, defined as above 70% occupancy. Only 14% of our centers are under 40% occupancy in Q2, an improvement from the high teens in Q1. We are pleased with the continued enrollment gains and feel that we are well positioned as we head into the typical seasonal summer enrollment dip. To get into a bit more detail, in centers that have been open for more than one year, enrollment increased at a mid-single-digit rate in Q2, and occupancy averaged more than 60% for the quarter. In the U.S., year-over-year enrollment increased 10% in these life centers, with sustained solid performance across all age groups and center models, and notable momentum in our younger age groups, with growth accelerating in the low teens in our infant and toddler classrooms. While staffing remains a constraint in some locations, the overall labor environment in the U.S. continues to stabilize and the many actions we have taken have driven considerable progress in staffing. With retention rates ahead of pre-pandemic levels and applications and hiring levels continuing to improve, we are able to tour and offer places to families more quickly and better meet their care needs. These improvements will continue to help us to serve more children and families today and build the pipeline for future enrollment. Looking outside the U.S., centers open for more than one year increased enrollment in the low single digits, improving sequentially from flattish year-over-year growth in Q1. The Netherlands and Australia maintained higher levels of occupancy through the pandemic, so the cadence of their enrollment recovery is therefore more modest. With this, we continue to be pleased by the 2023 performance in these two geographies as they build back to pre-pandemic levels. Conversely, as I previewed, the enrollment recovery in the UK continues to lag our growth expectations with a less favorable macroeconomic backdrop and a staffing environment that has remained particularly challenging. Labor costs and margins are pressured by higher wage rates, greater reliance on more costly agency staff, and inherent inefficiency at current occupancy levels. As a result, our operating performance is suboptimal and behind our plan. While we have instituted a number of actions, including expanded apprenticeship programs, international recruiting, and streamlined candidate experience, we anticipate our overall labor costs to remain elevated for the remainder of the year and enrollment progress to be relatively limited. Let me now turn to Backup Care, which delivered an outstanding quarter, outpacing our expectations. Revenue grew 27% to $116 million as utilization increased and as we extended our client partnerships with new launches in Q2 for Duke University Health System, public storage, and Sikorsky Aircraft, to name only a few. Traditional network use was higher than we projected in the quarter, with broad-based expansion of use across all care types. Particularly strong was use within Bright Horizons and network centers, with overall use growth accelerating through the quarter. The investments we have made in additional supply, product development, and technology initiatives to enhance awareness and access for client employees are showing real results as the uptake of the benefit grows across a wider swath of users. The summer is off to a strong start, and I continue to be excited about the opportunity to expand our backup business, extending our reach to clients and families, and accelerating our company's growth and margin profile. Our education advisory business delivered revenue of $28 million. Notable new client launches in the quarter for EdAssist and CollegeCoach included Carriot, Riot Games, and VF Corporation. Before I wrap up, I want to highlight some of the work we are doing in partnering with the sector to advance the early education field. Last month, we had the honor of hosting 100 researchers policymakers, and practitioners at the Early Childhood Innovation Summit. This unique gathering united thinkers, doers, scholars, and practitioners to foster fresh thinking, innovative approaches, and creative problem solving that no doubt will drive the field of early education forward. This event was a great opportunity for us to showcase our leadership in the field and to learn from some of the industry's best and brightest. In closing, I am pleased with our solid first half of 2023. Given the year's performance so far, we have moved up our 2023 full-year revenue growth guidance to a range of 16 to 19 percent, or 2.35 to 2.4 billion. We are also revising our adjusted EPS guidance to a range of 270 to 280, reflecting the lower operating performance we now anticipate in the UK for 2023. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.