Bright Horizons Family Solutions Inc.

Greetings and welcome to Bright Horizons Family Solutions Fourth Quarter 2024 Earnings Law. 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Flanagan, Vice President, Investor Relations. Thank you, Mr. Flanagan. You may begin.

Thank you, Sherry, and welcome to Bright Horizons' fourth quarter earnings call. Before we begin, please note that today's call is being webcast, and reporting 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, financial performance, and outlook, are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involves 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, 1.23, 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. Today, we also refer 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 Bolin. Stephen will start by reviewing our results and provide an update on the business. Elizabeth will follow a more detailed review of the numbers before we open it up to your questions. So with that, let me turn the call over to Stephen.

Thanks, Mike, and good evening to everyone on the call. I am pleased with our strong performance in the fourth quarter and how we finished the year. Total revenue and adjusted EPS exceeded our expectations for the quarter, largely driven by the outstanding performance of our backup care segment on the top and bottom line. For the year, total revenue increased by 11%, while adjusted EPS grew by 22%, significantly surpassing our initial projections for the year. We achieved the highest operating income in the company's history, with our backup care segment generating $170 million of EBIT. which represents earnings performance in excess of the contribution of our entire full-service segment prior to the COVID pandemic. This impressive growth, spanning more than 1,100 clients and multiple geographies, has fundamentally changed and strengthened the overall business mix, and we believe the growth trajectory of Bright Horizons for the years ahead. To get into some of the specifics on the recent quarter, revenue increased 10% to $674 million in Q4, with adjusted EBITDA up 12% to $111 million, and adjusted EPS growing 18% to $0.98 per share. In our full-service child care segment, revenue increased 8% to $485 million. We added seven centers in the fourth quarter, including client centers for Ragon Institute and St. Jude's Hospital, and our second center in India for Morgan Stanley. For the full year, we opened 26 centers, of which 17 were for client employers, most of which are new to the Bright Horizons family. Enrollment in centers opened for more than one year increased at a low single-digit rate in Q4 across our U.S. and international operations, with average occupancy percentage in the low 60s consistent with the prior quarter. As a reminder, Q3 and Q4 are historically our lowest occupancy quarters due to traditional enrollment seasonality. We are pleased to see our top cohort of centers, nearly 40% of our portfolio, continue to demonstrate very high levels of occupancy, averaging more than 80% in the fourth quarter. As such, our enrollment growth opportunity continues to be concentrated in our middle and bottom cohorts, which saw mid single-digit enrollment growth in the fourth quarter. With that said, the pace of growth in our underperforming centers remains below our expectations, and we continue to intensify our efforts to drive improved results. In a number of our underperforming centers located in the business district of D.C., New York City, and Seattle, we have seen some early signs that return to office policy changes by employers are driving an uptick in enrollment inquiries. I'm encouraged by the shift in trends we have seen at these locations, and we are well-suited to accommodate families' childcare needs as they readjust to return to office mandates. In the UK, we continue to make operational and financial progress in the fourth quarter, narrowing the losses as compared to last year. For the full year, we delivered much improved financial and operational performance across our UK portfolio on strong enrollment growth, improved center staff retention, and lower agency spend. While the U.K. is still a headwind to our overall full-service margins, I'm encouraged by the steady progress and momentum in the business. We see a clear path to earnings break-even performance in 2025 with continued improvement of results in the years that follow. Let me now turn to Backup Care, which delivered a strong quarter with 15 percent revenue growth to 157 million. Traditional network use trended higher than our expectations as we ended the year with use in center-based and in-home care showing particularly strong growth. We also continued to add to our client base with new employer launches in the fourth quarter, including Harris Health and Lonza. As I mentioned earlier, 2024 was another standout year for backup care. Greater adoption of the backup care benefit among eligible employees drove revenue topping $600 million with operating income of $170 million. We were pleased to see the continued expansion of the backup care benefit with more unique users utilizing the benefit and users consuming more of their annual use savings. This increased adoption has been supported by our marketing initiatives, expanded suite of care types, and greater provider availabilities. With the momentum we saw exiting the year and the outlook we have for 2025, I remain confident that backup care will be a significant growth engine for the company's top and bottom line for many years. Our education advisory business grew to 32 million in the quarter, an operating margin of 29% ticked up slightly from the same quarter last year. We added new clients to the portfolio, notably launching Atlantic Health Systems and United Natural Foods. and continue to see more adoption of our student loan repayment products. As this segment continues to execute on its transformation, focused on meeting the evolving, upskilling, and reskilling needs of employers and their employees, we continue to believe in and are investing for the large opportunity available in this market. Before I wrap up, I want to take a moment to express our heartfelt sympathies for those affected by the devastating fires in Los Angeles. While the overall operational impact for Bright Horizons was quite limited, we have many in our community, employees, families, and clients who have been significantly impacted. We share the deep sense of loss that permeates across Southern California. Over the past few months, we have witnessed a series of natural disaster and unimaginable tragedy, and I'm very proud of the way our team has stepped up. While our employees are not first responders, They are supporting many who have been called on in the wake of these devastating tragedies. Looking ahead to 2025, 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 1,450 client relationships, and our ability to drive long-term value to all stakeholders. We enter 2025 with a strong foundation, and expect to deliver a range of $2.85 billion to $2.9 billion of revenue. And on the earnings side, we are projecting adjusted EPS of $3.95 to $4.15 per share, or growth of approximately 15% to 20% 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 2025 outlook.