Bright Horizons Family Solutions Q3 Earnings Call Highlights

Key Points

• Third-quarter results were solid: Revenue rose 5% to $841 million and adjusted EPS increased 15% to $1.80, driven by 13% growth in Back-Up Care revenue.
• Full-year guidance was lowered to approximately $3.07 billion in revenue and adjusted EPS of $4.98-$5.03, reflecting expected fourth-quarter moderation in Back-Up Care usage and enrollment pressure in Full Service.
• International and enrollment challenges weighed on the business: Australia prompted a $294 million impairment charge and a strategic review, while U.K. safeguarding oversight and weaker U.S. new-family enrollment pressured Full Service performance.

Bright Horizons Family Solutions NYSE: BFAM reported third-quarter revenue growth of 5% to $841 million and adjusted earnings per share growth of 15% to $1.80, supported by continued demand for its Back-Up Care offerings. The company, however, lowered its full-year outlook as it expects softer fourth-quarter trends in Back-Up Care usage and enrollment pressure in its Full Service business.

Adjusted operating income rose 5% to $130 million, while adjusted EBITDA increased 5% to $163 million. Adjusted operating margin was unchanged from a year earlier at 15.5%, and adjusted EBITDA margin was also flat at 19.4%.

Back-Up Care Drives Growth, but Fourth-Quarter Growth Expected to Moderate

Back-Up Care revenue increased 13% to $286 million during the quarter. Chief Executive Officer Stephen Kramer said growth was driven primarily by more employees using the benefit, as well as higher usage per user. Demand was particularly strong for services supporting families with school-aged children during the summer, including camps and tutoring.

Kramer said the company expanded its vetted provider network before the peak season, adding capacity in high-demand locations and extending service into new markets. The preparation supported a high fulfillment rate during the period of elevated demand, he said.

Bright Horizons expects Back-Up Care revenue to grow about 13% for the full year. That forecast reflects an expected moderation late in the year, as many repeat users have drawn down their annual benefit allotments earlier than anticipated.

“We are mindful that many client employees are ahead of use within their annual use banks, given their strong utilization year-to-date,” Kramer said.

Chief Financial Officer Elizabeth Boland characterized the expected fourth-quarter effect as primarily a timing issue rather than a sign of weakening underlying demand. She said the company continues to add new users, but the mix of usage during the year tilted more heavily toward returning users, who tend to consume available benefit days earlier.

Management said penetration remains below 5% of the eligible employee population, leaving room to increase participation among existing clients. The company is also developing new offerings, including Care Advising for families navigating complex neurodiversity and senior-care needs, a conversational AI-supported navigation experience, and a more integrated “One Bright Horizons” service experience.

Full Service Enrollment Faces U.K., Australia and U.S. Pressures

Full Service revenue rose 1.3% to $522 million, as tuition increases were partly offset by lower enrollment and center closures. The company ended the quarter with 979 centers after opening two and closing 11, including four closures in Australia.

Enrollment at centers open for more than a year declined about 50 basis points excluding Australia. Australia represented an additional roughly 100-basis-point headwind to overall enrollment, while net center closures reduced Full Service revenue growth by approximately 200 basis points.

Boland said the U.S. accounted for most of the enrollment decline outside Australia. Family retention has remained solid, but new-family starts during the fall enrollment season were below expectations. The company said the departure of preschoolers for kindergarten creates a need to refill openings, particularly at its highest-occupancy centers.

Management also cited a broader consumer environment marked by persistent inflation and economic uncertainty. Boland said Bright Horizons is focused on improving the experience for prospective families, including faster follow-up, center tours, registration processes and competitive local pricing. The company also plans to leverage relationships with employer clients to reach prospective families.

In the U.K., new-family enrollment was affected by a regulator’s group-wide notice issued in late June requiring the company to strengthen safeguarding governance and oversight across its nurseries. The regulator issued an updated notice in mid-September that recognized Bright Horizons’ progress but extended the review period.

Kramer said the company did not fully anticipate the duration or impact of the notice on families’ enrollment decisions. Bright Horizons expects the larger effect on enrollment to occur during the fourth quarter and continue until the notice is lifted.

The company has begun implementing additional safeguarding measures in both the U.S. and U.K., including cameras in centers. It is also working with an outside firm specializing in safeguarding and is examining additional classroom technology measures, Kramer said.

Australia Review Leads to Impairment Charge

Bright Horizons said conditions in Australia remain challenging, with real estate developer-driven supply growth and softer demand pushing industry occupancy to multiyear lows. The company recorded a non-cash goodwill impairment charge of $290 million and an additional $4 million impairment charge for other intangible assets related to its international Full Service reporting unit, where Australia is grouped.

Kramer said the company is reviewing strategic alternatives for Australia and is moving “with urgency,” though he did not provide further details.

Full Service adjusted operating margin declined 25 basis points to 3.7% in the quarter. Excluding Australia, margins would have increased 40 basis points from the prior-year period, Boland said, as tuition increases ahead of wage growth and operational efficiencies outweighed the impact of modestly lower enrollment.

The company continues to close underperforming centers. It closed 42 centers through September and expects to close roughly another 20 by year-end. Boland said Bright Horizons expects to remain in a net center-closing position in the U.S. during 2027 because some low-occupancy centers remain candidates for exit.

Updated Outlook

Bright Horizons now expects full-year revenue of approximately $3.07 billion and adjusted EPS of $4.98 to $5.03. The forecast implies fourth-quarter revenue of $730 million to $740 million and adjusted EPS of $1.14 to $1.19.

• Full Service revenue is expected to grow approximately 2% for the year.
• Back-Up Care revenue is projected to increase approximately 13%.
• Educational Advisory revenue is expected to be approximately flat with 2025.
• Full-year interest expense is expected to be $61 million to $62 million.
• The adjusted effective tax rate is expected to be 28.25%.

Educational Advisory revenue was $33 million in the third quarter, with continued College Coach growth offset by lower participant use in EdAssist.

Through September, Bright Horizons generated $208 million in cash from operations, made $69 million in net fixed-asset investments and repurchased $560 million of stock. The company ended the quarter with $119 million in cash and trailing net leverage of 2.4 times net debt to adjusted EBITDA.

About Bright Horizons Family Solutions (NYSE:BFAM)

Bright Horizons Family Solutions Inc provides employer-sponsored child care and workplace support services. The company operates early education and preschool centers that serve infants, toddlers, preschoolers and school-age children, with programs designed to support children's development and learning.

Its services also include back-up care for children and other dependents, typically provided through a network of child care centers, in-home caregivers and other providers. Through its Bright Horizons EdAssist Solutions business, the company offers education advising, tuition assistance administration, student loan support and related workforce education services for employers and their employees.

Founded in 1986, Bright Horizons serves families and corporate clients primarily in the United States and also has operations in the United Kingdom and other international markets.

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