Bright Horizons Family Solutions Q2 Earnings Call Highlights

Key Points

• Bright Horizons exceeded Q2 expectations, with revenue up 7% to $779 million and adjusted EPS up 20% to $1.28. Management raised its full-year adjusted EPS outlook to $5.05–$5.15 while narrowing its revenue forecast to $3.085–$3.115 billion.
• Back-up Care was the primary growth driver: revenue rose 19% and adjusted operating income increased 23%, prompting the company to raise its full-year segment growth forecast to 13%–15% and target margins of 28%–30%.
• Full Service revenue grew 3% and margins improved, but Australia and center closures remain headwinds. The company repurchased approximately $250 million of shares during the quarter and expects third-quarter revenue of $835–$845 million with adjusted EPS of $1.73–$1.78.

Bright Horizons Family Solutions NYSE: BFAM reported second-quarter revenue growth of 7% to $779 million and a 20% increase in adjusted earnings per share to $1.28, with results exceeding the company’s expectations. Growth was led by its Back-up Care segment, while operating efficiency supported margin expansion across its major business lines.

Chief Executive Officer Stephen Kramer said the results underscored the durability of the company’s employer-sponsored care and education model. Bright Horizons narrowed its full-year revenue outlook to between $3.085 billion and $3.115 billion and raised its adjusted EPS outlook to a range of $5.05 to $5.15.

Back-up Care Growth Accelerates

Back-up Care revenue rose 19% year over year to $194 million, accelerating from 12% growth in the first quarter. The segment’s adjusted operating income increased 23% to $50 million, while its operating margin expanded 80 basis points to 26%.

Kramer attributed the growth to increased use across care types, driven primarily by a higher number of unique users and a modest increase in usage frequency. He said the company’s instant-book capabilities and broader care network have helped create a more seamless, on-demand experience for families.

Summer camps contributed to seasonal usage, although Kramer said camps generally account for about 25% to 30% of total network use for the full year and remain only one component of the company’s care offerings. During the summer, Bright Horizons expanded an on-site Steve & Kate’s camp for AT&T to its Atlanta campus after a pilot at the company’s Dallas headquarters last year. It also operated camps for a hospital system, an energy company in Texas and two banking employers in North Carolina.

The company also cited recently launched relationships with a Fortune 500 global consumer company and a Fortune 500 global industrial company. Kramer said newer clients appear to be maturing at rates similar to prior cohorts, while the company continues to see opportunity to increase participation among employees at its more than 1,000 Back-up Care clients.

Chief Financial Officer Elizabeth Boland said Bright Horizons expects Back-up Care operating margins of 28% to 30% for the full year, supported by higher volumes and the fixed-cost component of the business. The company raised its full-year Back-up Care revenue-growth expectation to 13% to 15%.

Full Service Sees Enrollment Progress, Australia Pressure

Full service revenue increased 3% to $557 million. Tuition increases, improved occupancy and favorable foreign exchange effects helped drive growth, though the gains were partly offset by center closures and enrollment pressure in Australia.

Bright Horizons opened seven centers during the quarter, including five U.S. employer-client locations, while closing seven lease-model centers. Three of the newly opened centers were transitioned from self-operation by an academic medical center that had previously managed the programs for more than 20 years. Kramer said the transition illustrates an opportunity for Bright Horizons to take over management of established employer-sponsored programs, particularly in healthcare and higher education.

Occupancy averaged in the high-60% range during the quarter, or about 70% excluding Australia. Enrollment at centers open for more than one year increased about 1% excluding Australia, while Australian enrollment contraction represented roughly a 100-basis-point headwind.

Boland said the company’s portfolio mix improved as the proportion of its lowest-occupancy centers declined. Centers operating above 70% occupancy represented 53% of the relevant cohort, approximately unchanged from a year earlier. Meanwhile, centers below 40% occupancy fell to 5% from 10%, reflecting enrollment improvement and the closure of underperforming locations.

Full service adjusted operating income rose 10% to $44 million, and adjusted operating margin expanded 50 basis points to 7.9%. Tuition increases ahead of average wage growth and improvement in the U.K. business supported margins. Excluding Australia, Boland said full service margin would have expanded by more than 75 basis points.

The company expects full service revenue to grow 2.5% to 3% for the year. That outlook includes an estimated 200-basis-point headwind from net center closures and a roughly 100-basis-point headwind from Australia.

Management said it is focusing in Australia on aligning staffing with enrollment levels, improving enrollment and evaluating center closures. Kramer added that the company is examining broader strategic options for the geography over the intermediate term.

Educational Advisory and Capital Allocation

Educational advisory revenue was unchanged from the prior year at $28 million. Growth at College Coach was offset by lower participant engagement in EdAssist. Bright Horizons said it is working to improve EdAssist engagement by strengthening its technology platform and broadening the relevance of its education-benefit solutions.

During the quarter, the company generated $95 million in operating cash flow and invested approximately $19 million in fixed assets. It repurchased about $250 million of shares, following $225 million of repurchases in the first quarter. At quarter-end, Bright Horizons held $164 million in cash and approximately $1.3 billion in gross debt, with trailing net leverage of 2.2 times net debt to adjusted EBITDA.

Third-Quarter Outlook

For the third quarter, Bright Horizons expects revenue of $835 million to $845 million, representing growth of approximately 4% to 5%. The company forecast adjusted EPS of $1.73 to $1.78.

• Full service revenue is expected to grow 0.5% to 1%, including an estimated 225-basis-point headwind from net center closures and a 100-basis-point headwind from Australia.
• Back-up Care revenue is expected to increase 12% to 14%.
• Educational advisory is expected to post low-single-digit growth.

Bright Horizons expects full-year interest expense of $58 million to $60 million, an adjusted effective tax rate of 28.5% and a diluted share count of 51.5 million shares. The company’s guidance does not assume additional share repurchases beyond those completed to date.

About Bright Horizons Family Solutions (NYSE:BFAM)

Bright Horizons Family Solutions, Inc NYSE: BFAM is a leading provider of employer-sponsored child care and early education services, offering a range of solutions designed to support working families and organizations. Through a network of on-site, near-site and center-based programs, the company partners with corporate and nonprofit clients to deliver infant, toddler, preschool and school-age care. Services emphasize age-appropriate curriculum, developmental milestones and community engagement to ensure high-quality learning experiences.

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