Bright Horizons Family Solutions Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 13, 2024

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Bright Horizons Family Solutions 4th Quarter 2023 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Vice President of Investor Relations. Thank you, Michael. You may begin.

Speaker 1

Thanks, Paul, and welcome everyone to Bright Horizons' 4th 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, brightrisons.com. As a reminder to participants, forward looking statements made on this call, including those regarding future business, financial performance

Speaker 2

and outlook are subject to

Speaker 1

the Safe Harbor statement included in our earnings release. Fourthly, these things 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 ks 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.

Speaker 2

We may also refer to these

Speaker 1

non GAAP financial measures, which are detailed and reconciled to the GAAP counterparts in our earnings release, which is available under the Investor Relations section of our at investors. Brightrisings.com. Joining me on today's call is our Chief Executive Officer, Steven Kramer and our Chief Financial Officer, Elizabeth Bowen. Steve will start by reviewing our results and providing an update on the business. Elizabeth will follow with a more detailed review of the numbers before we open it up to your questions.

Speaker 1

With that, let me turn the call over to Steven.

Speaker 2

Thanks, Mike, and welcome to everyone who has joined the call. I am really pleased with how we finished the year, achieving better than expected revenue and EPS results in the 4th quarter. Performance for the full year was also strong with full service revenue expanding nearly 20% and backup care revenue surpassing the $500,000,000 mark, up an impressive 26% in 2023. These accomplishments were driven by the focus, dedication and execution of our talented teams who continue to work tirelessly to deliver our high quality services. So to get into some of the specifics.

Speaker 2

In Q4, total revenue increased 15% to $616,000,000 which yielded adjusted EBITDA of $99,000,000 and adjusted earnings per share of $0.83 an increase of 8% from the prior year. For the full year 2023, Revenue of $2,400,000,000 representing growth of 20% with adjusted earnings per share of 2 point expanding 9% over 2022. In our full service childcare segment, revenue increased 15% in the 4th quarter to $447,000,000 The drivers of this growth were enrollment and pricing with centers that have been open for more than 1 year expanding enrollment at a high single digit rate in Q4 and averaging 58% to 60% occupancy. In the U. S, Year over year enrollment increased 10% in these life centers with double digit growth in our younger age groups and mid to high single digit growth in preschool age groups in Q4.

Speaker 2

Outside the U. S, enrollment increased at a mid single digit rate in the Q4 compared to Q4 of 2020 Although the operating environment in the UK continues to be challenging and a headwind to the performance of the overall full service segment, Enrollment growth in the UK improved modestly in Q4 compared to Q3 and we have seen that progress continue into the early part of 2024. At the same time, we continue to rationalize our portfolio in the UK to ensure focus on centers with the greatest long term viability and improved momentum in regaining operating profitability over time. In our Dutch and Australian operations, enrollment was in line with our expectations in Q4 and both portfolios continue to operate with occupancy levels averaging above 70%. Let me now turn to backup care, which delivered an outstanding quarter to finish the year.

Speaker 2

Revenue increased 24% to $135,000,000 on strong utilization across our more than 1100 clients. Traditional network use trended higher than our expectations as we ended the year. Using Bright Horizon Centers, Network Centers and in home were all strong And these use cases continue to be the primary drivers for the backup business. We do continue to see solid growth across all care types. We're encouraged by the growth opportunity from the newer use cases that we have introduced in the last couple of years as this broader portfolio enables us to serve a wider set of eligible client employees.

Speaker 2

2023 was a tremendous year for backup care. We saw record interest and record use. I'm very encouraged by our ability to capture demand and operationally deliver for families in need of care. As I mentioned earlier, we reached an important milestone in 2023 surpassing $500,000,000 in revenue. For context, backup care was a $300,000,000 business in 2019.

Speaker 2

And over the last 4 years, its contribution to the company's revenue Ian profitability profile has grown significantly along with its impact on families, employees and clients. Even as full service continues its enrollment and earnings recovery, backup care is poised to be a structurally larger contributor to our go forward earnings profile and we are very excited about the continued growth opportunity in this segment. Our Education Advisory business delivered revenue of $34,000,000 in the quarter. Notable new client launches in the quarter for Ed Assist and College Coach including Norfolk Southern, Standard Chartered and Eurosign. The transformation of this segment is underway and focused on meeting the evolving upskilling and reskilling needs of employers and their employees.

Speaker 2

We continue to believe in and are investing against the large opportunity available in this market. As we turn to 2024, I want to take a moment to thank every member of the Bright Horizons family as well as our client partners who invest in these important services. We made great progress this past year across many dimensions of our business. This could not have been achieved without their and commitment to our core mission in delivering the highest quality education and care to children, families, learners and our employer partners. A special shout out to our teachers who cared for the children of the San Francisco 49ers in Las Vegas during the big game this past Sunday.

Speaker 2

A great example of how we support working families to integrate work and life. I believe we executed well against our near term goals in 2023, while also making investments to strengthen our foundation to drive our success in the years to come. We made significant progress in rebuilding our staffing levels, increasing enrollment, expanding capacity and capabilities to support backup growth and in the continued build out of the infrastructure for our One Bright Horizons vision. We entered 2024 on a solid footing and with good momentum and we expect to see revenue growth of approximately 10% resulting in revenue of $2,600,000,000 to $2,700,000,000 On the earnings side, we are projecting adjusted EPS in the range of $3 to $3.20

Operator

per share.

Speaker 2

With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our 2024 outlook.

Speaker 3

Great. Thank you, Steven, and hi to everybody who's able to join us today. To recap the Q4, overall revenue increased 16% to $616,000,000 Adjusted operating income of $64,000,000 or 10.3 percent of revenue increased 15% over Q4 of 2022, While adjusted EBITDA of $99,000,000 or 16 percent of revenue increased 10% over the prior year. We ended the quarter with 10 49 centers, adding 4 new centers and closing 18 centers in the 4th quarter. To break this down a bit further, full service revenue of $447,000,000 was up 15% in Q4, At the high end of our expectations, our increased enrollment and pricing.

Speaker 3

Enrollment in our centers opened for more than 1 year increased in the high single digits across the portfolio. As Stephen mentioned, occupancy levels averaged in the range of 58% to 60% for Q4 As expected and consistent with Q3 levels given typical enrollment seasonality, U. S. Enrollment was up percent, an international enrollment increase in the mid single digits over the prior year. In the set of cohorts that we've discussed previously, we continue to show improvement over the prior year period.

Speaker 3

In Q4, our top performing cohort defined as above 70% occupancy improved from 25% of our centers in Q4 of 2022 to 36% of our centers in Q4 of 2023. And our bottom cohort of centers, those operating under 40% occupied, represents 18% of centers as compared to 20% in the prior year period. Adjusted operating income of $13,000,000 in the full service segment increased $1,000,000 over the prior year. Higher tuition, higher enrollment, tuition increases and improved operating leverage were largely muted by a $12,000,000 reduction in support received from the ARPA government funding program over the prior year. As Stephen previewed, we are taking steps to rationalize our footprint in the U.

Speaker 3

K. To better position our portfolio and to improve operating performance over time. Specifically, we've closed 12 centers in the UK in 2023, including 3 locations in Q4 and have currently identified an additional 20 to 30 centers to close over the next 12 months to 18 months. As we've discussed on prior calls, the UK full service business had operated at margins in the high single digits in the years leading up to the pandemic, but has been unprofitable in the last several years, losing approximately $30,000,000 in adjusted operating income in 2023. We expect the reduced operating costs associated with rationalization along with improved staffing and enrollment gains in the remaining portfolio to drive improved operating performance in the later part 24 and then into 2025.

Speaker 3

We will continue to focus on optimizing the portfolio in this new operating environment With a particular eye on the impact of expanded funding support for younger children, we just focused on defraying some of the cost of care for family. Turning to backup care. Revenue grew 24% in the 4th quarter to $135,000,000 Well ahead of the expectations we had to finish the year, and adjusted operating income was 30% of revenue or 41,000,000 growing 25% over the prior year. As Stephen detailed, use volume was higher than we anticipated with strong use across care types, reported $34,000,000 of revenue and delivered operating margin of 29%. Our Ed Assist and College Coach businesses grew revenue by 6% in the 4th quarter to $32,000,000 while the Center City marketplace business declined resulting in an overall 2% growth in this segment for the quarter.

Speaker 3

Interest expense increased $2,000,000 to 13,000,000 excluding the $1,500,000 per quarter that we had both in 2023 and in the second half of 2022 related to the deferred purchase price on our acquisition of only adult children. The structural tax rate on adjusted net income increased to 28.3% in the quarter, an increase of 200 basis points over Q4 for 2022. Turning to the balance sheet and cash flow. For the year, we generated $256,000,000 in cash from operations compared to 188,000,000 in 2022. We invested $130,000,000 in fixed asset investments and acquisitions in 2023.

Speaker 3

2022, we had invested $270,000,000 including the acquisition of Only Agile Children. We ended 2023 with $72,000,000 in cash and a leverage ratio of 2.5x net debt to EBITDA, down from 3.25x at the end of 2022. Before I move on to guidance, I wanted to touch on a minor change in our segment reporting as the change will impact the growth comparisons in both our Ed Advisory and backup segments. Effective for the Q1 of 2024, we have moved the reporting of Sittercity from Ed Advisory and Other to the PowerUp Care segment to better reflect our operating structure. For clarity, we recast the prior year quarterly segment revenue and associated operating income comparisons in the 8 ks filed with our earnings release.

Speaker 3

Our 2024 backup care and advisory revenue guidance does reflect growth off of these 2023 restated comparisons. So now moving on to our 2024 outlook. In terms of top line, we currently expect 2024 revenue to be 2.6 to $2,700,000,000 which translates to growth in the range of 8% to 12%. At a segment level, We expect full service to increase roughly 8% to 12% on enrollment gains and tuition increases. Back Care increased 10% to 12% with higher use and advisory to grow in the mid single digits on expanded participation.

Speaker 3

In terms of earnings, we expect 20.24 adjusted EPS to be in the range of $3 to $3.20 per share. Similar to last year, there are some discrete items affecting our reported margins and earnings growth rates in 2024, Specifically related to the end of ARPA funding and interest expense. In the full year 2024, we expect those two items to account for an approximate $0.55 a share headwind to growth for the full year, reflecting the last gains of approximately $34,000,000 ARPA funding for P and L centers that we received in 2023 and an estimated increase of $10,000,000 in interest expense. As we look specifically at Q1, our outlook is for total top line growth in the range of 10% to 12%. Again, with full service at that same rate 10% to 12%, backup growth of 10% to 15% and advisory in the mid single digit.

Speaker 3

In terms of earnings, we expect Q1 adjusted EPS to be in the range of $0.42 to $0.47 a share. And regarding the discrete items that I had mentioned above, we expect to have $3,000,000 more in interest expense and a $15,000,000 headwind from the ARPA support we had received in Q1 of 2023. We do expect the year over year earnings headwind from these two items to ease as we move through the year with the combined headwinds falling from $18,000,000 in Q1 to approximately $12,000,000 headwind in each of Q2 and Q3 and then only $2,000,000 by the time we get to Q4 of 'twenty four. So with that call, we are ready to go to Q and A.

Operator

Thank you. We will now be conducting a question and answer session. Our first question is from Andrew Steinerman with JPMorgan. Please proceed with your question.

Speaker 4

Hi, Stephen. You saw it in the United States as ARPA funding stated that the industry really kind of sorry, Bright Horizons might struggle and there might be an opportunity for increased M and A or just winning new clients. Now that ARPA has faded, what are you seeing in the broader industry in terms of the kind of the after effect?

Speaker 2

Thanks for the question, Andrew. So as we stated, the ARPA funding ended at the end of September. And so we had always indicated that we felt that the effects of that would transpire over 2024 and into 2025. Competitors specifically in our industry tend to be individual owner operators. They are very vocationally minded and they ultimately will focus on families, they'll focus on their teachers and may do things that are uneconomic for some period of time.

Speaker 2

I think at this point, given that the funding isn't available, many of them are making decisions around pricing to try to capture some of the decrement that they're seeing in their economics. Others are looking at reducing their discounting that they were doing through the COVID period. And then others are looking at their wages and trying to figure out what they can do structurally to reduce wages. So I think we're still in the early innings of the effects that we are possibly going to see from the elimination of the ARPA funding. And so there are isolated examples where Owner operators are turning in the keys or deciding to be acquired.

Speaker 2

But I think at this point, it's still very early in that process And we expect the effects to unfold over the next 12 to 18 months.

Speaker 4

Okay. Thank you.

Speaker 2

Thank you. Thank you.

Operator

Our next question is from Stephanie Moore with Jefferies. Please proceed with your question.

Speaker 5

Hi, good afternoon. Thank you. I was hoping you could touch a bit on your comment about footprint rationalization in 2024. I know on quarter, you called about maybe making some changes and optimizing centers in the U. K.

Speaker 5

But as you just think of broad footprint rationalization, maybe talk about your expectations in the U. S. And outside the U. S. And what we should be kind of thinking about as a total center count by year end?

Speaker 5

Thanks.

Speaker 3

Sure. So I can start and see if I catch on the question and Stephen can add color. So 2024, As you say, we called out a number of centers that we have circled up for closure in the UK. And again, are keeping an eye on how the effects of the expanded funding environment in the UK may impact demand in certain areas, but that's the main rationalization that we see. Overall, we would expect to close Globally, a similar number to what we closed this year.

Speaker 3

So it was a total of 49 centers overall this year, and we would expect to see that again in 2024. Openings averaged around 25, so 20 to 30 new center adds, so a net reduction in overall center footprint of net 25 down. So we ended the year at 10.49, so it'd be just over around 10

Speaker 5

Okay. And just as a follow-up on that, as you think about the cohort of your business and to see maybe a more aggressive stance on some center rationalization just as you look at that lowest cohort or Is that one aspect you could one lever you could pull to drive an improvement at that level? Or if not, what are the opportunities to drive enrollment improvement at that lowest cohort? Thanks.

Speaker 3

Yes. Again, I'll start and then Stephen can add color. The lowest cohort, as mentioned, is about 18% of the footprint on centers that have been open more than the group that we've been talking about. And so with regard to there's closures, there's improving enrollment and there's really having an on some of the opportunities that we see as demand continues to right size. And as we are mindful of the impact of what Stephen was just talking about on the overall marketplace on centers that may close and our ability to take on enrollment from those centers that are contracting the supply.

Speaker 3

And also as we continue to staff centers and are able to take enrollment where demand has been persistently high and we've been gated and taking all the enrollment demand that there is. That along with the realization that we look at where we see the best intersection of Supply of centers, the demand for both our services, the client relationships that we have and the affordability of care and the density of children under the age of 5 and know that it takes a long time to site a new center and to open a new center. And so we want to be careful about the rationalization timing and not get too far ahead of closing centers that they just actually need more time. And given the long lease life on so many of these centers, it's actually quite costly to close them. When you can You guys would be waiting through this more challenging time in the interval.

Speaker 2

Yes. And I think the only thing I would add is going back to Andrew's question, I think there is still a bit to play out here in the United States as it relates to the competitive environment. And so we're watching that really closely on a micro market by micro market basis. And then as Elizabeth alluded to, in the UK, the core challenge really stems from staffing. And so to the extent that we are able to make some progress as it relates to staffing and the costs associated with that staffing, I think we'll be able to potentially continue to see some progress of centers in the UK.

Speaker 2

So I would just that some of it is about the macro environment as well as some of the competitive pressures that may ease over the next 12 to 18 months in both geographies.

Speaker 5

Great. Thank you.

Speaker 2

Thank you. Thank you.

Operator

Our next question is from George Tong with Goldman Sachs. Please proceed with your question.

Speaker 1

You talked about occupancy rates averaging 58% to 60% in the quarter. What occupancy rates are you assuming in your guidance for 2024? And if you could provide some perspectives by quarter, that'd be helpful too. Thanks.

Speaker 3

So, sure, George. I'll Start off again. Overall, the enrollment, as we look ahead to the full service growth for next year, it's mainly a price and enrollment expansion story. So with price increases in the mid single digits, so around that 5% range on average And enrollment also in the mid single digits, contributing to that top line growth rate offset by a bit of the headwind that would come from the closures we're just talking about. It's overall in that mid single digits range.

Speaker 3

Of course, our highest performing centers, that top cohort is already quite fully occupied. So there's not a lot more enrollment gain to be had there. It would be coming more generally from that middle cohort of 40% to 70% occupied or the real improver opportunity in the under 40% occupied group. So Overall, that is what we are seeing from an enrollment growth standpoint. It would be 60% to 65% occupancy for the year, Similar cadence to improving from Q1 is a growing quarter, Q2 is the top quarter, Q3 is sort of the retrenchment of enrollment over the summer and then it would be pretty stable from Q3 to Q4.

Speaker 3

But that's the key to the cyclicality, but The 60% to 65% is what we're guiding to.

Speaker 1

Got it. That's helpful. And then just as a follow-up, given the latest operating costs that you've been seeing with respect to labor and facility costs, what do you expect incremental margins to be for full service centers as enrollments continue to recover?

Speaker 3

So we have a couple of factors, of course, coming into play with full service. I mentioned in the prepared remarks that The cessation, if you will, of the ARPA funding, so that's a $34,000,000 or so headwind and all in the full service segment. We would be looking at operating margins to be in the low to mid single digits overall for the year taking into account that ARPA sort of ex ARPA result that we will have in 2024. And that's representative of the mix of centers that we have in the performance. That top performing cohort is Back to our pre COVID operating margin levels in that high single digit 8% to 10%, they are certainly performing there as we had expected.

Speaker 3

The group that's in the middle, that 40% to 70% cohort, has a bit more room to go, both with enrollment because of the headwind that we see in the UK, in particular, that's where a lot of the UK centers exist. They have So group that is in the bottom cohort, but a number of their centers are in that middle group as well. And so with the under In the cost structure in the UK, we would see more like a mid single digits plus in that group. And then of course the bottom cohort is not positive yet. At the end of 40% occupied, they need to be Certainly over 40% and closer to 50% to be more profitable range.

Speaker 3

So overall, we would see that Blending out, it would pencil out to the low to mid single digits for the year, but with some good green shoots from both the top cohorts and looking at the portfolio without the headwind that we see in the UK.

Speaker 1

Got it. Very helpful. Thank you.

Operator

Our next question is from Manav Patnaik with Barclays. Please proceed with your question.

Speaker 6

Thank you. I just wanted to focus on backup. So the 26% growth that you had this year, I was just hoping you could help just break that out by how much of that was New clients, the credit utilization phenomena you talked about before, how much was it the addition of Stephen Kate Camps and all these other services and acquisitions you've thrown in and just why you're guiding such a big deceleration for 2024?

Speaker 2

Yes. So thanks, Manav. So certainly, we're excited about the 26% growth that we achieved in 2023. Look, this is a utilization based service. So the vast majority in any given year of improvement is really from more use.

Speaker 2

And so that is both a combination of existing and new clients. But at the end of the day, the number of new clients as well as the fact that they take time to season in are really a small portion of that growth. Most of that growth comes from increasing usage among our clients that have been with us. I'd say the other piece of it is that the majority of the growth was from our traditional in center and in home use cases. Certainly, we saw nice growth in the newer use cases, but that was not the majority of the growth.

Speaker 2

So really thinking about it as the installed base, growing use in traditional care types as the vast majority of the growth that we achieved. When we look out to 2024, first just observing that we did 26% growth in 2023. We did 17% growth in 2022. So this is sort of a double year of increasingly difficult comps and

Speaker 6

so we're mindful of that. And as

Speaker 2

I just said, as a for that. And as I just said, as a utilization based service, we're really focused on continuing to drive Greater penetration of users and use, but we need to be mindful of continuing to build out supply ahead of the use as well as being mindful of the continued acceleration of client budgets that have occurred over the last several years. So that's where we land on a delivery of 10% to 12% growth in our backup segment for 2024.

Speaker 6

Okay, got it. And Elizabeth, maybe just on the margins, if you could help us how we think about the margins of that growth or what the incremental margins are? I know you said you were going to keep kind of investing in that business, but any help there for the year would be nice.

Speaker 3

And you're asking about backup care, is that what you said?

Operator

Yes, backup care, yes, correct.

Speaker 3

Yes. So back up here, we would continue to expect a 25% to 30% EBIT margin similar to what you've seen us do. I think that's the balance of both the expanded use and then the fact that we are investing in Both the systems and the user experience, much of that is baked into the cost structure. And then we have So 3rd party providers that we pay, that's the other direct costs. So we think we can sustain that level of 25 to 30.

Speaker 3

In the advertising business, it would be a little bit there is more investment on that front in 2024. So it would be closer to 20% operating margin we

Speaker 7

would expect for the year.

Operator

Our next question is from Josh Chan with UBS. Please proceed with your question.

Speaker 7

Hi, good afternoon, Stephen and Elizabeth. Maybe continuing the discussion on backup care. As you look out a couple of years, how sustainable do you feel like the double digit type of growth rate is? And to what extent will the opportunity then be comprised of new clients as opposed to continuing to drive up the usage? Thank you.

Speaker 2

Yes. So we certainly see the opportunity continue to drive 10% to 12% growth over many years. And a lot of that will continue to come from expanding the number of users and then ultimately expanding the use. I think something that certainly we will continue to do R and D around is continuing to broaden the number of use types as well use cases. So we really see it as something where We have the ability to continue to increase the penetration among the eligible lives along with continuing to broaden the number of use cases, being a predominance of the growth.

Speaker 2

And then on top of that, Obviously, there continues to be interest at the client level. So adding new clients over time is the other component to the

Speaker 7

growth algorithm. Okay. Thank you for that color. And on the full service side, I think you called out the EBIT headwind from the UK In 2023, is there a way to kind of ballpark the how much that loss could potentially narrow based on the actions that you're contemplating for 2024?

Speaker 3

Yes. So we did call that out that it was around a $30,000,000 It was a loss at that level in 2023. So we would expect that to ease by 5,000,000 or 10,000,000 likely in 2024. So still not getting fully to profitability, but making more headway in the back part of the year back half of the year against that objective and the view then of course is that we'd be looking into 2025 and beyond for really a full return to profitability across the full service portfolio back to where we were pre COVID in the high single digits.

Speaker 7

Okay. Thank you for the color and thank you both for your time. Thank you.

Operator

Our next question is from Toni Kaplan with Morgan Stanley. Please proceed with your question.

Speaker 8

Thanks very much. I was hoping you could give a little bit more color on the $36,000,000 impairment and what assets are being impaired? Is this just underperforming centers? And I guess what's the rationale from being able to add back those expenses? I know you did it last year as well, but just wanted to understand it better.

Speaker 3

Sure. So the impairment relates to centers. And so this would be the right of use asset From a lease standpoint and the ability to recover the lease obligation and then the leasehold improvements associated with centers that have Either are slated to close, that's a good chunk of those that have been impaired, but also centers that have an operating performance and a cash flow generation that doesn't clear the sort of accounting convention of a long term recovery of the the right of use asset and additional improvements. And so from the standpoint of adding it back, I think our view is that it is It's a standout expense that is non it's recurring in the context of recovery from the pandemic. We have had some impairments over the last couple of years as we've continued to refine the book that we are operating and the portfolio as we see it evolving over the years of recovery, but it is certainly an outside expense that is not It's predictable and so feel like it's best to isolate it so that people can see it and understand where it's coming from.

Speaker 3

One of the things to point out about it, of course, is it is an accounting convention, how this is determined. And Some of the challenge in a market like we are in is to, with long life assets with leases to estimate What you may be able to sublease the space for in an environment where landlords are being fairly sticky with Their desire to negotiate and so that certainly comes into play.

Speaker 8

Got it. And for At advisory, the last couple two quarters, the margins were down year over year. Is that related to technology investments that you've been making? And maybe if it is, if you could give some color on what technology investments you're making in that area? Thanks.

Speaker 2

Sure, Tony. So, yes, so the quick answer is that We've been making investments in people. We've been making investments in technology. And we've called out the fact that this is an area that we are focused on transformation. It's going to be a multiyear transformation and we believe that we are going to be able to deploy a similar playbook that we used for backup care and that we're going to invest in the product, we're going to invest in the technology, we're going to invest in the personalized marketing efforts, but really see quite a large opportunity in the concept of supporting our employer clients to upskill and reskill their employees and believe that we're particularly well positioned.

Speaker 2

So as Elizabeth stated, Our expectation in 2024 is that we'll run at a 20% margin and that represents a degradation in margin with a clear focus on investing in this particular segment.

Speaker 8

Terrific. Thank you.

Speaker 2

Thank you.

Operator

Our next question is from Jeff with BMO Capital Markets. Please proceed with your question.

Speaker 9

Thank you so much. I think you said something about expanding Funding support in the U. K, I'm not sure if I got that right, but if I did, can you just give us a little bit more color on that?

Speaker 3

Sure. So The U. K. Has long had a funding support that is to parents. So it is a call pre entitlement.

Speaker 3

That's an overstatement of what it is, but it generally provides 15 hours of care and has provided 15 hours of care at a supported tuition rate for 3 to 5 year olds. That was expanded or has been expanded now to encompass 2 year olds starting in April of this year and then we'll be further made available down to the infant age groups to 9 months old and above as the UK is looking to make childcare more affordable to families. And they have also expanded The funding for families that are in more economic straight. So some families are eligible for up to 30 hours, but a more general Availability is for 15 hours of care is supported for 38 weeks a year. And so the upshot of it is, is that it can Health parents pay for 25%, 35% or so

Speaker 4

of the care that they

Speaker 3

may need. And so it has the opportunity to drive more demand For us, it is not a revenue enhancer per se because the funding is to support the parent's tuition, but it is opportunity to drive more demand.

Speaker 9

Okay, that's great. I know you've talked about this before, but it's good to get more of the color. And then at a higher level, probably more in the U. S, but maybe this can apply globally as well. I know there's been some arguments back and forth in terms of working from home and the move back towards the office, How that impacts your business?

Speaker 9

It seems like more companies, maybe they're not going back to 5 days a week, but 3 to 4 seems to be more of a push at least this year. Any impact on your business that you've seen or you think you're going to see?

Speaker 2

So look, I think we have had sort of a really good flow of information from our client base, right? So We have quite a number of clients who have been sharing with us what their return to office plans have been over the last several years. It certainly feels like, as you point out, Jeff, that 3 to 4 days a week seems to be pretty standard at this point. And ultimately, we have always indicated that where Someone is working the majority of the time is where they ultimately are going to want care for 5 days a week. And so on the margin, We have had stronger occupancy in our client based centers actually over many quarters now because there is a real reason for our client employees to leverage the high quality opportunity to use their on-site centers.

Speaker 2

And so ultimately, we feel good about the portfolio that we have and the footprint that we have in this evolving landscape. But again, I think that in the same way that we always describe our business as sort of a longer arc kind of business, It's not that we saw or are seeing a significant increase based on this trend, but it is something that ultimately has upward positive benefit to it.

Speaker 9

Okay. That's very helpful. Thanks so much.

Speaker 2

Thank you. Okay. Well, thank you all for joining us this evening and have a great rest of the day. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • Bright Horizons delivered better-than-expected Q4 results with total revenue up 15% to $616 million, adjusted EBITDA of $99 million and EPS of $0.83, while full-year revenue grew 20% to $2.4 billion with EPS up 9% year-over-year.
  • The full service childcare segment saw Q4 revenue rise 15% to $447 million driven by pricing and enrollment gains, with U.S. centers up 10% year-over-year and average occupancy at 58–60%.
  • Backup care reached a new milestone, Q4 revenue of $135 million (+24%) and full-year revenue surpassing $500 million (+26%), positioning it as a growing contributor to the company’s earnings.
  • Ongoing portfolio rationalization in the U.K. remains a headwind, with 12 center closures in Q4 and plans to shutter an additional 20–30 over the next 12–18 months to restore profitability.
  • For 2024 management expects roughly 10% revenue growth to $2.6–$2.7 billion and adjusted EPS of $3.00–$3.20, led by full service (+8–12%), backup care (+10–12%) and mid-single-digit growth in Advisory.
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Earnings Conference Call
Bright Horizons Family Solutions Q4 2023
00:00 / 00:00