Bright Horizons Family Solutions Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Delivered strong execution with revenue up 9% to $732M and adjusted EPS up 22% to $1.07.
• Full service segment: $540M revenue growth driven by enrollment growth, tuition increases, and 5 new center openings, including 2 for the University of Virginia.
• Back-up care: $163M revenue growth due to strong early summer demand, client engagement, and additions like McKesson.
• Educational advisory: $29M revenue growth with participant/usage growth, especially in College Coach.
• One Bright Horizons strategy: Expanding reach by engaging employees/employers across solutions, e.g., Centene adding back-up care and Northwell Health adding College Coach.
• Insights from 2025 Modern Family Index: 2/3 parents report childcare gaps impact productivity; Bright Horizons ran Steve & Kate's camp at AT&T for on-site childcare.

Segment Performance

• Full Service: Revenue of $540 million, up 7%. Contributes approximately 73.77% of total revenue. Enrollment in centers open for over one year increased at a low single-digit rate, with occupancy averaging in the high 60s.
• Back-up Care: Revenue grew 19% to $163 million, contributing ~22.27% of total revenue. Driven by strong client and user engagement, including new client McKesson and robust summer demand.
• Educational Advisory: Revenue increased 8% to $29 million, contributing ~3.96% of total revenue. Saw solid participant and usage growth, particularly in College Coach.

Guidance

• Revised full-year revenue to $2.9B to $2.92B (8%-9% growth) and adjusted EPS to $4.15 to $4.25 per share.
• Q3 outlook: Total top line expected to be $775M to $785M (8%-9% growth); full service revenue growth 5.25%-6.25%, back-up care 14%-16%, ed advisory mid-single digits; adjusted EPS $1.29 to $1.34 per share.

Risks

• Disconnection between HR/benefits and finance in 45F program uptake, with cautiousness on new client velocity but positive for existing accounts.
• Seller expectations vs. fair prices in M&A, leading to slow M&A activity due to imbalance.
• Sub-40% occupied centers remaining a headwind to full service margins.

Question and Answer

• Q: Expand margin expectations by segment?

A: Back-up care expected to have 25%-30% operating margins, full service to see ~125 basis points of operating margin expansion, and educational advisory to have high teens to 20% operating margins.

• Q: Low single-digit enrollment growth in full service?

A: Expect low single-digit growth, similar to Q2, with September enrollment cycle looking good due to strong lead generation and targeted outreach.

• Q: Sales cycles for new customers?

A: Streamlining inquiry to enrollment with technology, white glove support, and personalized experience to nurture families from inquiry to enrollment.

• Q: 45F impact on back-up care?

A: Existing accounts can benefit more from 45F, sales/marketing teams are messaging prospects/clients about 45F's value, though new client velocity is cautious.

• Q: M&A pipeline?

A: Disciplined in M&A, looking for strategic, high-quality programs; seller expectations vs. fair price imbalance leads to slow M&A activity, with focus on building enrollment in own centers.