Bright Horizons Family Solutions Inc.

Good afternoon, ladies and gentlemen, and welcome to the Bright Horizons Family Solutions third quarter of 2023 earnings call. At this time, all participants are in 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 and zero on your telephone keypad. As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Michael Flanagan, Vice President, Industrial Relations for Bright Horizons Family Solutions. You may begin, sir.

Thank you, Judith, and welcome to everyone on Bright Horizons' third quarter earnings call. Before we begin, please note that 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 in this call, including those regarding future business, financial performance, and outlook, are subject to a 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 of 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 at investors.brighthorizons.com. Joining me on today's call is our Chief Executive Officer, Stephen Kramer, and our Chief Financial Officer, Elizabeth Boland. Stephen will start by reviewing our third 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 this evening. I am pleased with our performance in the third quarter. We delivered strong results with 20% year-over-year revenue growth and 33% adjusted EPS growth. Full-service revenue came in ahead of our expectations with comparable high single-digit enrollment growth. And Backup Care delivered an exceptional quarter with use across all care types, well outpacing our expectations. Overall, as we approach the end of 2023, I'm proud of our performance and continued progress toward our near and long-term objectives. So to get into some of the specifics, in our full-service child care segment, revenue increased 17% in the third quarter to $445 million. The typical seasonal enrollment dip over the summer months, primarily driven by older children aging up and out into elementary school, was slightly better than we expected, driving higher-than-projected year-over-year enrollment growth. The Center cohorts we have discussed previously continue to demonstrate improved year-over-year performance. In Q3, our top-performing cohort, defined as above 70% occupancy, increased to 36% of our centers, which is an improvement from 25% in Q3 2022. And our bottom cohort of centers, those under 40% occupancy, represent 17% of centers as compared to 20% in the prior year period. To provide a bit more color on enrollment trends, in centers that have been open for more than one year, enrollment growth expanded to a high single-digit rate in Q3. with occupancy levels averaging 58 to 60% in the quarter. In the U.S., year-over-year enrollment increased nearly 12% in these life centers, with strong growth across both our client and lease models, and notable ongoing momentum in our younger age groups, with mid-teens growth in our infant and toddler classrooms. Outside the U.S., enrollment again increased at a low single-digit rate in Q3, and the UK remains our most challenging geography. Enrollment growth in the UK improved modestly in Q3 as compared to Q2, but as we discussed last quarter, the macroeconomic backdrop and staffing environment continue to be a headwind to the cadence of our recovery from the pandemic. In the Netherlands and Australia, where occupancy averages more than 70%, enrollment increased sequentially over Q2, broadly in line with our expectations. On the staffing front, the U.S. continued to see positive recruitment and retention trends. Staffing levels increased year-over-year, accommodating higher enrollment, underpinned by increased applicant flow and better retention rates. Outside the U.S., staffing trends continue to be more mixed. In the U.K., labor continues to be a constraint to our enrollment and overall cost structure. As we discussed last quarter, we continue to execute on a variety of talent acquisition initiatives and have undertaken actions to retain our existing staff, attract new qualified staff, and reduce our reliance on costly agency staff. While I am optimistic that these initiatives will improve overall staffing levels and operating efficiency, these efforts will take time to drive a material change in labor costs and the profitability of our UK centers. Let me now turn to backup care, which delivered another outstanding quarter. Revenue grew to $169 million, but 32% growth outpaced our expectations as we delivered a record level of use. Traditional network use was well above our guidance for the quarter with robust demand, notably from families with school-age children on summer vacation. The strong youth growth experience in July continued through August with our Bright Horizon Centers and Stephen Gates Camps showing the strongest growth across care types. September was another strong month of use, though the pace of growth moderated from the high concentration of use over the summer. Overall, I am delighted with the performance this quarter and the execution by our operations team to meet this surge in demand, ensuring client families received the care they needed to remain productive at work. The growth and expansion of our backup services this year illustrates the broad opportunity we have within the backup care segment as we leverage the investments we have been making in technology, marketing, and product. Our education advisory business delivered revenue of $32 million, increasing 3% over the prior year. Notable new client launches in the quarter for Ed Assist and College Coach included Presenius Medical and Hubbell Incorporated. As I wrap up, I want to take this opportunity to recognize the incredible work of our center teachers and staff teams. They have always been the key to our ability to deliver the highest quality education and care to families and clients. I am thrilled to share that we just received the results of our Parent Impact Survey. We again saw excellent MPS and customer satisfaction scores and heard overwhelmingly from currently enrolled families that the quality of our teachers and the impact they have on their child's education sets Bright Horizons apart from our early education peers. Our business is fundamentally about people serving people, and this recognition is a great affirmation of the work we do every day. So in closing, I like the continued progress we are seeing across our business. Given our results year to date, In our current outlook for Q4, we are narrowing our full-year guidance to a revenue range of $2.375 to $2.4 billion, or 18% to 19% growth, and an adjusted EPS range of $2.73 to $2.78. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more detail around our outlook.