Bright Horizons Family Solutions Q2 2025 Earnings Report

Bright Horizons Family Solutions EPS Results

• Actual EPS: $1.07
• Consensus EPS: $1.00
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $0.88

Bright Horizons Family Solutions Revenue Results

• Actual Revenue: $731.57 million
• Expected Revenue: $724.32 million
• Beat/Miss: Beat by +$7.25 million
• YoY Revenue Growth: +9.20%

Bright Horizons Family Solutions Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 5:00PM ET

Bright Horizons Family Solutions (NYSE:BFAM) provides early education and childcare, back-up care, educational advisory, and other workplace solutions services for employers and families in the United States, Puerto Rico, the United Kingdom, the Netherlands, Australia, and India. The company operates in three segments: Full Service Center-Based Child Care, Back-Up Care, and Educational Advisory and Other Services. The Full Service Center-Based Child Care segment offers traditional center-based child care and early education, preschool, and elementary education services. The Back-Up Care segment provides center-based back-up child care, in-home child and adult/elder dependent care, school-age camps, virtual tutoring, and self-sourced reimbursed care services through child care centers, school-age campuses, and in-home caregivers, as well as the back-up care network. The Educational Advisory and Other Services segment offers tuition assistance and student loan repayment program administration, workforce education, and related educational consulting services, as well as college admissions and college financial advisory services. The company was formerly known as Bright Horizons Solutions Corp. and changed its name to Bright Horizons Family Solutions Inc. in July 2012. Bright Horizons Family Solutions Inc. was founded in 1986 and is headquartered in Newton, Massachusetts.

Bright Horizons Family Solutions Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue rose 9% year-over-year to $732 million and adjusted EPS jumped 22% to $1.70, both beating analyst expectations.
• Positive Sentiment: Full Service revenue increased 7% to $540 million, with five new centers opened and average occupancy climbing into the high-60% range.
• Positive Sentiment: Backup Care revenue grew 19% to $163 million on strong summer demand for center, camp and in-home care, and added a Fortune 10 client, McKesson.
• Neutral Sentiment: Education Advisory revenue was up 8% to $29 million as College Coach demand rose; company is investing in technology and product development for long-term growth.
• Positive Sentiment: Full-year guidance was raised to $2.90–2.92 billion in revenue (8–9% growth) and $4.15–$4.25 in adjusted EPS, reflecting confidence in ongoing momentum.

Presentation

[Operator]

Greetings, and welcome to the Bright Horizons Family Solutions second quarter twenty twenty five earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Michael Flanagan, Group Vice President of Finance. Please go ahead.

[Michael Flanagan, VP - IR at Bright Horizons Family Solutions]

Thank you, Joe, and welcome to everyone to BrightRise for 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 investors.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 should be considered in conjunction with the cautionary statements that are described in detail in our earnings release, 2024 Form 10 ks, 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.

[Michael Flanagan, VP - IR at Bright Horizons Family Solutions]

Today, we also refer to non GAAP financial measures, 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 are Chief Executive Officer, Stephen Kramer, and our Chief Financial Officer, Elizabeth Bolan. Stephen will start by reviewing our 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.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thanks Mike, welcome to everyone who has joined the call. We delivered another quarter of strong execution and solid performance, with revenue increasing 9% to $732,000,000 and adjusted EPS growing 22% to 1.7 both ahead of our expectations. These results reflect the depth of our client relationships, the essential nature of our services to the customers we serve, and our continued focus on service delivery across all of our lines of business. In our full service segment, revenue of $540,000,000 increased 7%, driven by a combination of continued enrollment growth, tuition increases and new center openings. In particular, we added five new centers this quarter, including two additional centers for an existing multi service client, the University of Virginia.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Openings like this reinforce our leadership in the employer sponsored care market and underscore the strategic role on-site child care continues to play in workforce strategies. Enrollment in centers open for more than one year increased again this quarter at a low single digit rate. And average occupancy stepped up to the high 60% range. Across this group of centers, the fastest growth is in centers below 40% occupancy, driven by meaningful improvement in select underperforming centers. Among our top performing centers, where average occupancy remains impressively above 80%, we have seen some centers cycle through peak enrollment levels, which naturally tempers the contribution to enrollment growth from that group, even as the overall operating performance remains strong.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

In our centers operating between 4070% occupancy, operating performance and enrollment both continue to progress as well. As we move through the second half of the year, when we absorb the enrollment transitions associated with age outs tied to the school calendar, our outlook on enrollment growth is relatively consistent with what we experienced in the second quarter. Enrollment is expected to continue to grow at a low single digit rate and we remain focused on streamlining the path from inquiry to enrollment, including enhanced technology and more personalized and proactive communication to help families make confident care decisions. In The UK, we saw continued operational and financial momentum in the second quarter, with solid growth in both enrollment and margins. We continue to see the benefits of our efforts over the past two years, investments in staffing, technology, and programming that have meaningfully improved the experience and efficiency across our center footprint.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Of note, Bright Horizons in The UK was recently named one of Europe's best employers by Great Place to Work, reflecting our strong culture and overall teacher satisfaction. This recognition underscores the link between our investments in people and culture and the resulting improved performance through the 2025. Turning to Backup Care, revenue grew 19% to $163,000,000 reflecting strong client and user engagement. Among other launches in the quarter, we welcome McKesson, a Fortune 10 employer to our client base, reinforcing the continued interest by large employers seeking high quality care solutions to meet today's workforce needs. From a use perspective, we experienced particularly strong demand for center, camp and in home care.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

We kicked off our seasonally high use summer period with strong growth in June, which we have seen continue into July. Utilization over the early summer months has been particularly strong among families utilizing care in our owned and networked school age and camp based programs. The strategic expansion of supply over the past few years, enhancing both geographic reach and programming, has enabled us to deliver high quality care when and where families need it most. I remain confident in the strong momentum in our backup care business, which continues to be a critical support for working families, a strategic advantage for our employer clients, and a key growth driver for Bright Arrivals. Moving to our Education Advisory segment, revenue grew 8% to $29,000,000 this quarter.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Participant and usage growth was solid, particularly in College Coach, where we saw increased demand for advising services. We continue to position Edisys for long term growth through targeted investments in technology and product development, aligning our offerings with the evolving needs of working learners. We are adding new clients and expanding adoption within our existing base as we build momentum across the business. Before I close, I want to highlight the continued progress we are making on our One Bright Horizon strategy, our effort to expand the reach and value of our offerings by engaging more employees and employers across the full spectrum of Bright Horizon solutions. This quarter, we saw a full service client Centene add backup care to better support their national workforce facing everyday disruptions.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

At Northwell Health, a backup care client introduced College Coach to extend their dependent care benefits to employees with teenage children navigating the college process. Client expansions like these, coupled with the growth of users across our lines of business, demonstrate the power of our employer sponsored model and portfolio of services. As we continue to execute against this strategy, we remain confident in our ability to grow our impact and deepen our employee and employer penetration. Before I close, I want to highlight a few insights from our 2025 Modern Family Index, which again underscores the real and recurring stress that working parents face, particularly during the summer months. Nearly two thirds of parents report that childcare gaps during school breaks directly impact their productivity, well-being, and ability to stay focused at work.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Summer remains a particularly difficult time as families navigate the challenge of finding dependable and affordable care. In addition to meeting that elevated summer need through our traditional backup care network of owned and partner suppliers, We also leaned into our unique on-site capabilities with AT and T to run a Stephen Katz camp at their Dallas headquarters. The program has provided families with a convenient, trusted, and affordable child care solution right at their workplace. This distinctive offering demonstrates our unique capability to collaborate with a client, leverage our well developed capabilities for on-site employer sponsored care, and operationalize an innovative care solution that responds to a client's particular need. In summary, I am pleased with our solid 2025.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Given the year's positive performance and momentum, we have moved up our 2025 full year guidance to a revenue growth range of 2,900,000,000.0 to $2,920,000,000 or 8% to 9% and adjusted EPS in the range of $4.15 to $4.25 per share. With that, I'll turn the call over to Elizabeth, who'll dive into the quarterly numbers and share more details around our outlook.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Thank you, Stephen, and thanks to everyone for joining us on the call tonight. As mentioned, I'll start with our financial highlights. Revenue for the second quarter grew 9% to $732,000,000 driven by continued growth and disciplined execution across each of our segments. Adjusted operating income rose 25% to $86,000,000 with operating margins up 150 basis points over the prior year to 11.8%. Adjusted EBITDA increased 13% to $116,000,000 representing an adjusted EBITDA margin of 16% of revenue.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

And lastly, EPS of $1.07 came in ahead of our expectations, supported by solid top line growth and operating leverage. To break this down a bit, full service revenue of $540,000,000 was up 7% in Q2 on pricing increases, enrollment gains, and an approximate 150 basis point tailwind from FX. The centers we have closed since 2024 partially offset these gains. Enrollment in our centers open for more than one year increased low single digits across the portfolio. As Stephen mentioned, occupancy levels averaged in the high 60s for Q2, stepping up from the prior year as well as sequentially from last quarter, given that Q2 is typically our peak enrollment quarter.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

In the specific center cohorts that we've been tracking for comparative purposes since the 2022 and discussed on prior calls, we continued to see improvements over the prior year period. Our top performing cohort, defined as above 70% occupancy, improved from 51% of these centers in the 2024 to 54% in the 2025. As a reminder, this cohort continues to sustain strong average occupancy levels above 80%, which inherently limits its enrollment expansion opportunity. In our middle and bottom groups, defined as 40 to 70% and below 40% occupancy, respectively, enrollment increased at a mid single digit rate in the second quarter. Centers in the middle cohort now represent 36% of the total and the bottom cohort represents 10% of these centers.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Adjusted operating income of $40,000,000 in the full service segment increased $8,000,000 over the prior year and represents 7.5 of revenue in the quarter. Higher enrollment and improved operating leverage helped drive the growth in earnings. Turning to backup care, revenue grew 19% in the first quarter to $163,000,000 driven by strong early summer demand as Steven outlined. The adjusted operating income for the segment was $41,000,000 up $9,000,000 over the prior year, which translates to operating margins of 25%. Lastly, the educational advising revenue increased 8% to $29,000,000 and delivered operating margins of 17%, ahead of our expectations and broadly consistent with the prior year.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Net interest expense decreased to $10,500,000 from $12,000,000 in 2024, largely due to lower interest rates and lower overall borrowings. The structural effective tax rate on adjusted net income was 27.25. Turning to the balance sheet and cash flow, we generated $134,000,000 in cash from operations in the second quarter. We made fixed asset investments of $19,000,000 and repurchased $41,000,000 of stock in the quarter. We ended Q2 with $179,000,000 of cash and our reduced leverage ratio is now 1.7 times net debt to adjusted EBITDA.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So moving on to the outlook that Steven previewed. In terms of the top line, we are modestly raising the midpoint of our reported revenue outlook by $20,000,000 to a range of $2,900,000,000 to $2,920,000,000 which reflects a roughly $15,000,000 or 50 basis point favorable change in FX as compared to our prior guidance. This equates to a reported growth rate of approximately 8% to 9%. Let me break that down into the segments. In full service, we now expect reported revenue to grow in the range of 5.75% to 6.75%, which reflects a roughly 75 basis point tailwind from FX for the year.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

In Backup Care, we've increased our expectations for revenue growth to 14% to 16%. And in Ed Advisory, we expect to grow in the mid single digits range. In terms of earnings, we now expect 2025 adjusted EPS to be in the range of $4.15 to $4.25 a share. As we look specifically to Q3, our outlook is for the total top line of $775,000,000 to $785,000,000 or growth in the range of roughly 8% to 9% on a reported basis. This reflects roughly 50 basis point tailwind from FX over the prior year.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

We expect full service to grow reported revenue 5.25% to 6.25%. Again reflecting a roughly 75 basis point tailwind from FX. We would look to backup growth of 14% to 16% in Q3 and Ed Advisory again in the mid single digits. In terms of earnings, we expect Q3 adjusted EPS to be in the range of $1.29 to $1.34 per share. So with that, Joe, we are ready to go to Q and A.

[Operator]

Thank And And the first question comes from the line of Patnaik with Barclays. Please proceed.

[Princy Thomas, AVP - Equity Research at Barclays]

Hi, this is Princie Thomas on for Manav. Thanks for taking my question. Just wanted to see if you could expand your margin expectations by segment for full year as well?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So, hi, Princie. Yeah, so me start with the backup business just because it's been a pretty consistent story in backup. So for the year, we would be looking for 25% to 30% operating margins in backup consistent with what we have said. The second half of the year is more heavily weighted than the first half of the year. So we would see similar pattern of increase in Q3 and staying relatively higher in Q4, not quite at the Q3 level, but similar cadence or pattern to last year, but still overall in the range ending more similar to where we were in 2024.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

In the full service business, we would expect to see call it 125 basis points or so of overall operating margin expansion for the year. We were a little north of that overall in the first half and expect to be you know, in a similar range over the second half of the year with, you know, Q3, as I mentioned in around 125 basis points or so of margin expansion there. And then Ed advising, again, pretty similar to last year in the high teens to 20% or so operating margin range for the full year.

[Princy Thomas, AVP - Equity Research at Barclays]

Got it, thanks. And just wanted to pick your brain on the big beautiful bill and what you're hearing from clients and what benefits you would be seeing.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure, so good afternoon, Princeton. So I would say that most specific to our sector, we would focus on 45F. And the updated 45F program, first and foremost, would just observe really underscores the importance of employer supported childcare. And that's why I want to focus on that. Under the program, 40% of qualified childcare expenditures up to 500,000 are taxable credit enabled and that's an increase from 150,000 previously.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

We think for existing accounts, this could be an attractive way for our existing accounts, whether they be center clients with subsidies or backup clients, they could benefit more significantly than they would have done in the past. I would say that we're more cautious about what this might mean in terms of velocity for new clients, because certainly this has been in place again at a lower level, hasn't had a huge impact on stimulating demand. On the other hand, on the margin, it's certainly positive.

[Princy Thomas, AVP - Equity Research at Barclays]

Thank you.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you.

[Operator]

The next question comes from the line of Andrew Steinerman with JPMorgan. Please proceed.

[Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan]

Hi, Elizabeth, I heard you talk about the expectations for continued low single digit enrollment growth in full service. Did you give a specific figure for that? Does that mean like 2% to 3%? And if you could give a comment on how September enrollments are looking.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Yeah, so we would expect it to look a lot like we saw this quarter. So, low single digits meaning probably close 2% similar cadence for the rest of this year. September enrollment cycle is certainly in full froth at this point. The fall cycle is we're marketing well. Have good lead generation and we stepped up a lot of our efforts at targeted outreach and have taken parents through the enrollment process.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

And so we are feeling good about the, you know, that level of enrollment. It is one that we have obviously as important as we have seen the infant and toddler enrollment is where we have some great opportunity as we've had strong enrollment last year there. And those children are aging up into the preschool age group range. And this is where there's the least supply in the market. And so given the structure of our centers, we're able to serve more of the parents in those younger age groups. So that's where we're focused.

[Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan]

Okay, thank you.

[Operator]

The next question comes from the line of George Tong with Goldman Sachs. Please proceed.

[George Tong, Senior Research Analyst - Equity Research & Business Services at Goldman Sachs]

Hi, thanks. Good afternoon. You mentioned taking initiatives to streamline the path from inquiry to enrollment. I And know last quarter there was some elongation of the sales cycle because of macro uncertainty. Can you talk a little bit more about what you're seeing with the sales cycles and commitment cycles from new customers?

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure. So I think as Elizabeth just sort of put a fine point in terms of the enrollment growth expectations that we have through the remainder of the year, we continue to see a caving similar to what we saw this quarter and highlighted this past quarter. And so ultimately, as you alluded to, we are certainly taking action steps to continue to support families who are inquiring about our centers. We certainly have made investments around our web experience and helping to nurture those families early in their discovery process. We have put sort of additional resource against white glove support by enrollment managers for families.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

And ultimately, we're using technology to make sure that we are creating and providing a more personalized experience all the way from inquiry to enrollment. And so overall, I would say that's how we're thinking about the sales funnel from a family perspective.

[George Tong, Senior Research Analyst - Equity Research & Business Services at Goldman Sachs]

Got it. That's helpful. You mentioned occupancy is now in the high 60s. I think seasonally that will likely step down next quarter. At this point, do you have visibility as to when occupancy will get back to 70% plus?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Well, for this year, as mentioned, we're a couple 100 basis points of enrollment expansion this quarter. Expect that similar cadence the rest of the second half of this year. And so ending the year in the mid 60s for the full year, we're at the high point in Q2. Two. So, would be stepping up from last year a bit.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So, in terms of the overall, you know, the timeline for getting back to 70, obviously, we've got more than 50% of our centers are well above 70. And the driver there will be getting the underperformers, certainly the improvers in the middle group, 40 to 70% gaining enrollment, but also being able to both rationalize the most significant underperformers, and either exit those centers or improve them. And that is where we see probably the most drag on getting back to 70% as an overall average. And, you know, I think the, you know, just as a qualitative commentary, we feel really, we feel good about the way that the top performing cohort has been able to sustain the enrollment now over several, several years. So we feel that that is a great indicator of being obviously right location, the families who need it, both our client employer sponsored centers as well as our community based centers.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

And that's where we're looking to both replicate that success in some of the other locations. And also, as I say, exit if they are just stubbornly on, you know, we're not able to turn around the enrollment performance.

[George Tong, Senior Research Analyst - Equity Research & Business Services at Goldman Sachs]

Thank you.

[Operator]

The next question comes from the line of Jeff Meuler with Baird. Please proceed.

[Jeffrey Meuler, Senior Research Analyst at Robert W. Baird]

Yes, thank you. I just want to circle back to 45F. I get that historically hasn't had great uptake in terms of companies or organizations claiming the credit. But as the market leader, it feels like there's an opportunity for you to amplify the message and make prospects aware of it. So can you just talk about what your sales force is planning to message?

[Jeffrey Meuler, Senior Research Analyst at Robert W. Baird]

And then within backup care for 45F, the increased credit seems pretty sizable relative to what I would think typical backup care spend is. So what's the opportunity in backup care specifically from 45F, including potentially getting existing customers increase spend levels? Thank you.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thanks. So here's what I would say. Certainly appreciate the compliment that we are the leader in employer sponsored care. And certainly the sales team as well as the marketing team here at Bright Horizons have been getting the message out in full force, both among prospects as well as existing accounts. And that comes in the form of meetings directly with prospects and clients.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

It comes in the form of webinars that we are hosting to help educate prospects and clients on 45F in particular, and really helping them to see the value of leaning into this. I would say that in addition to all of that awareness and education, it is fair to say that the increase in the amount should have real impact, especially among our existing accounts around their ultimate investment in our backup care programs. And as we think about new clients coming in on that, that is certainly the case as well. I think the biggest challenge, if there was a challenge with this, is the disconnection between our buyer who tends to be within HR and benefits and the folks who are spending the most time thinking about tax, which tend to be in finance. And so who actually needs to have the budget versus the people who are keeping score as it relates to the net cost are different.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

But certainly we are trying to do outreach not only to the HR community, but are also encouraging that coordination between HR and finance. But you're right to say that in principle, should be a good stimulant. We are certainly best positioned in the industry to take advantage of it. And it's still early days. So we'll be able to give you updates over time, whether or not we're seeing more momentum on 45F than we have seen in the past.

[Jeffrey Meuler, Senior Research Analyst at Robert W. Baird]

Got it. And then another great summer for backup care, recognize you've expanded the coverage and the service types and everything. What are you seeing in terms of like client behavior? Anything that they're maybe doing differently in terms of allowing longer duration usage among their employee base to address that school off period challenge that you referenced?

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure. So I'll answer that in two ways. The first is that we aren't seeing employers changing the sizes of their banks. So the user and use growth that we're seeing and experiencing that is driving the velocity of our growth is really down to getting out the vote of more users and then ultimately having them use. It's not about program design per se within our client organizations.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

We did see this year and we had started to see it over the last several years, the allowance of booking earlier. So extending the booking window to accommodate for employees wanting to get reservations in for the summer period in known gaps in their own care arrangements. So again, I think that that has given us more confidence going into this summer to be able to guide the way we have is certainly extending those windows of reservation allows us an even greater window into the amount of use that we can expect this summer. And so those would be the two elements that I would highlight.

[Jeffrey Meuler, Senior Research Analyst at Robert W. Baird]

Thank you.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Thanks, Chad.

[Operator]

The next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed.

[Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley]

Thank you. Based on the data that we track, wages in the industry are growing at about 4.5%. But I think the price increase this year, you were expecting to be in the 4% to 5% range. But full service margins have been particularly strong, especially just given sort of a tight spread there. And so I was wondering if you could talk about I'm sure a lot of that margin expansion is coming from the closing of underperforming centers.

[Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley]

And so I was wondering if you could sort of is there a way to break out how much closing the centers has benefited that margin expansion out of the real massive increase that you had in the full service margin?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Sure. Hi, Toni. Just to maybe frame that up, I don't have at hand a specific because it's not really a meaningful impact on the margin expansion. We've seen wage personnel cost increases lighter than what you're describing. So our four to 5% price increase has been, again, that's averaging closer to three to 4%.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So it's around 100 basis points, maybe 50 basis points in some areas. So we are seeing that be the typical algorithm in terms of the price to sort of main cost structure. We have closed a number of centers and they have been headwinds to the margin over time. But in terms of the extra, if you will, or the kick to the margin expansion, it's pretty minor. Enrollment growth the 200 basis point arena is really the primary driver, I think, along with the price to cost discipline.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So I think we mentioned UK has been recovering. That has been, I would point out that last year we were seeing The UK with a headwind to the overall margins. It was north of 150 basis points. It was even higher than that in 2023, I believe. So that has come down.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

That has tapered to something that's closer to 100 bps. So that's the one other thing I would isolate.

[Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley]

Terrific. And then maybe just on a separate topic in terms of M and A. I think going in the post COVID period, a lot of the smaller centers you know, were struggling. I think we're still in an environment, particularly with the enrollment, being a little bit more challenging for the industry, that you still are seeing sort of challenges in some of the smaller centers. And so just wondering if, you know, how your M and A pipeline is looking.

[Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley]

I think, you know, just wanted to understand also, like, I guess, why why haven't you done maybe more M and A to this point, just given that we're probably in a pretty good environment for that? Appreciate it. Thank you.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure. Thank you, Tony. So look, we certainly have not been as active in the M and A program as we have seen in our past. That is fact. What I would say is that we remain very focused on our strategy, which is not one to tackle turnarounds. We really look for programs that are in strategic locations that are high quality and that have good financial characteristics. And among the programs that fit that profile, there still is a pretty good imbalance between seller expectations and what we think is a fair and fruitful price debate. So we continue to be really disciplined about that. And certainly in the meantime, we've been really focused on continuing to build enrollment in our own centers.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

And so, we continue to see a nice uptick in that way. So I would say that from an M and A perspective, while slower, we still continue to build good relationships, and in the long term believe that that will be an important part of our algorithm in the future.

[Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley]

Thank you.

[Operator]

The next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

Thank you so much. Elizabeth, I apologize if I missed this, but I think you usually give us the number of centers that you open and close during the quarter. Can we get that?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Yeah, we opened five in the quarter, Jeff, and we closed eight. So a net decrement of three in the quarter. Year to date, we're positive one, net one. And that is broadly speaking plusminus zero is what we would expect for the year.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

Okay. And of the eight that were closed, was there any specific geographic area? Was it US, was it UK or kind of mix?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

It was primarily US or a couple outside The US, but primarily US, more than half.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

All right, great. And then Tony was asking about The UK. You mentioned the headwind. But I think in the past that you said you might be or you were hoping to be on the pathway to break even by the end of the year in The UK. Is that still a goal?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

It is still a goal and we are on track to achieve that. As a reminder, last year we were close to 10,000,000 in the full service segment specifically. We were close to 10,000,000 of losses in The UK, a little bit in that range and we are expecting to get to breakeven. And the momentum has been really good in the first half of the year. So, we definitely feel on track to achieve that.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

And ideally, we make progress beyond that and are set up well for 2026 with the progress. It's been both a good operating execution story alongside a good demand environment that has been supported by an expanded parent fee support through a government funding program that has been expanded to broader age groups and more hours of coverage. So the combination of being able to serve and a demand profile that's escalating has helped support that, and we feel really good about the progress.

[Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets]

All right. Appreciate the color. Thanks so much.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you.

[Operator]

The next question comes from the line of Stephanie Moore with Jefferies. Please proceed.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Hi, good afternoon. Thank you. Wanted to maybe take a step back. And as you think about the full service margin trajectory, as you think over the next several years and you look at the tremendous progress that's been made kind of post COVID, is there anything that you look as you look at that business that's structural that you think can keep it from reaching kind of that pre COVID record margin, call it nine percent to ten percent, as you look at the business today and then as it moves forward? Thank you.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Yeah. I think the short answer is no, we don't think there's any structural reason that we wouldn't be able to get back to that 9% to 10% range in the full service business. We have more than, as I mentioned, more than 50% of our centers are now operating at a level, at a utilization level that is above of a pre COVID level. And so those centers are back to their pre COVID operating margin level. They're the best performers, so they actually are better than that 10% threshold.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

It's the underperforming and the improving centers that are still the underperformers, the sub 40% occupied centers are, you know, they lose money as a group and the middle cohort, the improvers are probably mid single digits. And so the additional movement in that improver group to the top cohort will certainly drive margin expansion. We have most of the cost investment already in the mix. And so getting additional enrollment is a primary driver there. Then the sub 40%, which is roughly 10% of our centers.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So it's not a huge portion, but certainly the headwind of centers losing money is a barrier to having the whole portfolio at that high single digits to 10%. So that's where we're focused on ensuring that we're rationalizing the portfolio in a thoughtful way and keeping open all options to meet parents where their needs are drive both enrollment and sustain enrollment of families in the centers where they need care.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Got it. And then just as a follow-up, can you remind us your outlook in terms of kind of reaching that those targeted pre COVID or just general targeted enrollment levels for the total, I guess, total mix?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Yeah, I mean, we have obviously achieved it in a good portion of the portfolio. I think the reality is targeting overall enrollment at that level is we always operated with centers that were sub 70% and some of them performed quite well even levels significantly below seventy percent. So it's not a one size fits all. I would say that taking the bottom 10% of our centers out of the equation for a moment, we would expect that improving group to continue to make progress. And, you know, in the next year or two, we would have a majority of the portfolio back to pre COVID levels.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

It's that that sub 40% enrolled, the 10% of the centers that is where we will, you know, probably need to carve out in an explanation here as we're talking with you, which, you know, what the effect of that is, but the majority of the portfolio is certainly within, within eyesight of where the operating margins were in totality for the full service business, which is why we feel really good about the progress.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Great, thank you so much.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

You're welcome.

[Operator]

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. And the next question comes from the line of Josh Chan with UBS. Please proceed.

[Josh Chan, Executive Director & Equity Research Analyst at UBS Group]

Hi, good afternoon, Steven and Elizabeth. Really strong backup care growth this quarter and you mentioned expanding your geographic reach and programming. Could you talk about that? How much are you expanding and to what extent that's kind of enabling more growth that wasn't previously available?

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you, Josh. So what we mean by expanding the capacity is really partly down to owned assets, right? So obviously, we have our Stephen Case camps that's really important over the summer as an option for working families. We continue to invest in building out that footprint. In addition to that, we own Jovi, which is the nanny agency franchise org.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

And so we continue to stimulate more capacity through owned assets like that. And at the same time, our team is working really diligently to continue to extend partnerships with center based providers, camp based providers, in home providers, so that we can provide the type of care in the locations where we have the demand. And so the strategy and approach has really been a combination of continuing to build out owned assets and at the same time continuing to expand our third party network.

[Josh Chan, Executive Director & Equity Research Analyst at UBS Group]

Thank you. That makes a lot of sense.

[Josh Chan, Executive Director & Equity Research Analyst at UBS Group]

Thanks for the color there. And on the full service side, you mentioned aging up. I guess, I know you can't count exclusively on aging up. But to what extent do you think that could be a tailwind to your margins next year as those kids kind of fill the older classrooms in a more fuller way than the prior cohort?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

I mean, it's an important point, Josh, because the economics in a center are somewhat more favorable with older age, more utilization in the older age groups. And there's the least supply in infants and toddlers. And that's where we've, notwithstanding individual enrollment statistics that we've cited, we have generally seen our infant and toddler rooms be you know, more full, proportionately more full than preschool. There's more capacity in preschool, it expands greater ages and when the five year olds age out, there's always a, you know, a big group to backfill. And so as we continue to infill the centers and get from a center that may be at 55 to 65%, there's a lot of positive operating leverage that occurs because of the level of enrollment skewed toward preschool because that's where the most capacity tends to be.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So I think that our focus is always on we want to serve all age groups because we know that we have the ability to serve families for three, four, five years as they come into a childcare experience that works for them. And starting as an infant and staying through preschool is built a long standing relationship that can then extend frankly into backup care and even to college coach down the road. So there are certainly benefits of being able to serve families over time. But within a center, we need to have all age groups in order to have that kind of aging up cadence and to continue to both bring in new families from outside the center, but also to sustain the enrollment over time as children naturally age up.

[Josh Chan, Executive Director & Equity Research Analyst at UBS Group]

Great. Thank you both for the color and the time. Good luck in the second half.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you.

[Operator]

The next question comes from the line of Faiza Alwy with Deutsche Bank. Please proceed.

[Faiza Alwy, MD - US Company Research at Deutsche Bank]

Yes, hi, thank you. I wanted to ask about, you know, some of you talked about replicating some of the success that you're seeing with centers that are more than 80% occupied towards maybe some of that middle cohort. So I'm curious if you could talk a little bit more about that, and if there's any sort of what specifically are you doing there?

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Sure, so I think that as we think about that middle cohort and building enrollment in that middle cohort, we are clearly always continuing to focus on making sure that first and foremost, we articulate the uniqueness of that Bright Horizons Center experience. And so one of the things that is really important is for us to continue to express the value proposition that we have on offer for working families, whether that be the quality of our programming, the backgrounds and qualifications of our teachers, whether that be the actual environments and making sure that prospective families become aware of those differences first and foremost. Then secondly, we continue to get sharper about how we really nurture a family from their initial inquiry all the way through to when they start. And so that comes in different forms. Some of that is through technology, some of that is through a white glove experience, but it really takes the form all the way through the funnel to make sure that we're cultivating that relationship all the way through.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

And then in the middle of that process is typically when they are doing a center visit and making sure that that visit really is a flawless experience and demonstrates the value of what that family can expect once they enroll. So we're spending a lot of time on making sure that that experience end to end for prospective families is really strong. And then at the same time, obviously we continue to see strong retention rates among those who are currently enrolled. And so it's really the combination of those two that gives us confidence that we'll continue to make progress in that middle cohort.

[Faiza Alwy, MD - US Company Research at Deutsche Bank]

Great, thank you. And then I also wanted to ask about backup care, where, again, you've had really strong growth, and you've talked a little bit about the dynamics there. I'm curious around, you know, your margin guide, which is still, you know, sort of 25 to 30%. And I know historically you've talked about sort of the mix of the business there. So I was hoping for a bit more color on, maybe if you could break out for us, again, as you were talking about previously about the different types of services that you're providing there, sort of what the various margins level are.

[Faiza Alwy, MD - US Company Research at Deutsche Bank]

And is there a point where you can sort of break out above the 25% to 30% range?

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Yeah, so let me take a stab at providing some color there. So the backup business, of course, is one that is, we have been at this for a number of years and started out with center based backup care and expanded it to a network solution and since then have expanded to new care types, which allow us to serve more eligible employees of the employers who are sponsoring the service. So we are investing in this business and are consciously investing and making sure that we are developing and sustaining cultivating and sustaining a very healthy network both service providers who can allow us to extend to new types of care, as well as to extend our service capability into geographies where we may not have a presence and a client has employees and has interest in our services. And so in that way, we have a hybrid of our own care. So our own centers, our own dedicated backup centers, our own full service centers where we can take backup care, the camp providers, Stephen Kate's camps that we brought into the Bright Horizons family a couple of years ago.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

But the augmenting of that with other third party providers enables us to rent networks where we don't always have presence. And so, in that way, the investment is critical to that service supply as is the technology to be sure the parents can reserve care when they need it and for the type of care they need and that we can be completely connected to our third party network. And then the marketing efforts, the outreach, the ability to meet parents at the time that they need care and that they're aware of the care types. So all of that investment goes into, you know, continuing to grow the business in the, you know, we've provided the sort of mid teens guidance of growth this year. We've seen growth in the double digits, certainly in the last several years and continuing to see a long tail on that.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

So, while we would probably have an opportunity to get margins above 25% over time, I just wanted to give the color on why we feel like the investment cadence against the revenue opportunity is keeps us in that band.

[Faiza Alwy, MD - US Company Research at Deutsche Bank]

Got it. Very helpful. Thank you so much.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Thank you.

[Stephen Kramer, CEO at Bright Horizons Family Solutions]

Okay, thank you all very much for joining us on the call and wishing you a good night.

[Elizabeth Boland, Chief Financial Officer at Bright Horizons Family Solutions]

Thanks everyone.

[Operator]

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

Participants

Executives

• Michael Flanagan, VP - IR
• Stephen Kramer, CEO
• Elizabeth Boland, Chief Financial Officer

Analysts

• Princy Thomas, AVP - Equity Research at Barclays
• Andrew Steinerman, Equity Research Analyst - Business & Info Services at JP Morgan
• George Tong, Senior Research Analyst - Equity Research & Business Services at Goldman Sachs
• Jeffrey Meuler, Senior Research Analyst at Robert W. Baird
• Toni Kaplan, Executive Director & Lead Analyst - Equity Research at Morgan Stanley
• Jeffrey Silber, Business, Industrial Services & Education Analyst at BMO Capital Markets
• Stephanie Moore, SVP - Equity Research at Jefferies
• Josh Chan, Executive Director & Equity Research Analyst at UBS Group
• Faiza Alwy, MD - US Company Research at Deutsche Bank