Bright Horizons Family Solutions Inc. Q2 FY2026 earnings call

Overall Company Performance

• Total Q2 2026 revenue grew 7% to $779 million, and adjusted EPS grew 20% to $1.28, both beating management expectations
• The employer-sponsored business model remains strong and durable, with growth across all core segments and margin expansion driven by improved operating efficiency
• The One Bright Horizons cross-selling strategy continues to deliver results, with new opportunities to expand relationships with existing employer clients across the service portfolio

Backup Care Growth Updates

• Backup Care, the highest margin segment, has delivered 15 consecutive years of double-digit growth, with large remaining untapped market penetration
• Three core growth drivers are delivering results: deeper penetration in existing clients, ecosystem expansion, and new client acquisition
• Investments in technology (real-time instant booking) and expanded care networks have improved customer experience, driving higher unique user growth and higher usage frequency
• Ecosystem expansion includes new employer-focused summer camps, with successful pilots now scaling to additional employer clients across multiple industries
• Recent new client wins include two Fortune 500 companies, with utilization continuing to ramp as expected

Full Service Operational Updates

• Growth is driven by transitions of employer self-operated centers to Bright Horizons management, plus new greenfield worksite centers for employer clients, particularly in healthcare and higher education
• Overall average occupancy was in the high 60% range, reaching 70% when excluding Australia, up sequentially from Q1
• Portfolio optimization continues via targeted closure of underperforming centers, which has reduced the share of low-occupancy (sub-40%) centers by half year-over-year
• Enrollment for centers open over one year was up 1% ex-Australia, with Australia remaining a consistent headwind as previously guided

Educational Advisory Updates

• College Coach continues to grow, supported by demand for personalized expert guidance from former college admissions and financial aid professionals for high-stakes college planning
• EdAssist is focused on improving participant engagement via technology platform upgrades and more relevant solution offerings for working learners

1. Backup Care: Revenue grew 19% year-over-year to $194 million, contributing 24.9% of total Q2 2026 revenue. Adjusted operating income grew 23% to $50 million, with an adjusted operating margin of 26% (an 80 basis point expansion year-over-year).
2. Full Service: Revenue grew 3% year-over-year to $557 million, contributing 71.5% of total Q2 2026 revenue. Growth was driven by tuition increases, higher occupancy, and favorable foreign exchange, partially offset by 250 basis points of headwind from center closures and enrollment declines in Australia. Adjusted operating income grew 10% to $44 million, with an adjusted operating margin of 7.9% (a 50 basis point expansion year-over-year; ex-Australia, margin expanded over 75 basis points). The segment ended Q2 with 988 centers, with 7 openings and 7 closures; 53% of centers had occupancy above 70%, and only 5% had occupancy below 40% (down from 10% year-over-year).
3. Educational Advisory: Revenue was flat year-over-year at $28 million, contributing 3.6% of total Q2 2026 revenue. Adjusted operating margin was 16%. Growth in College Coach was offset by lower participant engagement in EdAssist.

• Full-year 2026 total revenue guidance narrowed to $3.085 billion to $3.115 billion, and adjusted EPS guidance was raised to $5.05 to $5.15 per share
• Full-year 2026 segment guidance: Full Service revenue growth expected to be 2.5% to 3%, offset by 200 basis points of headwind from net center closures and 100 basis points of headwind from Australia; Backup Care revenue growth guidance raised to 13% to 15%; Educational Advisory expected to grow in the low single digits
• Full-year 2026 margin guidance: Backup Care adjusted operating margin expected to be 28% to 30%; Full Service margin expected to be flat overall (positive ex-Australia); Educational Advisory adjusted operating margin expected to be ~20%
• Full-year 2026 expectations: $58 million to $60 million net interest expense, 28.5% adjusted effective tax rate, diluted share count of 51.5 million
• Q3 2026 guidance: Total revenue of $835 million to $845 million (4% to 5% year-over-year growth); adjusted EPS of $1.73 to $1.78 per share; Full Service revenue growth of 50 to 100 basis points, with 225 basis points of headwind from net center closures and 100 basis points of headwind from Australia; Backup Care revenue growth of 12% to 14%; Educational Advisory low single-digit growth
• Management confirmed a clear long-term pathway for Full Service to return to its historical 10% adjusted operating margin target, after resolving Australia underperformance and completing portfolio optimization

• Persistent enrollment headwinds in the Australia Full Service operations create a 100 basis point annual revenue headwind and 150 basis point margin headwind, with management currently conducting a deep dive to evaluate potential additional closures and operational changes
• Net center closures continue to create a near-term headwind for Full Service revenue growth, as the portfolio optimization process is still ongoing
• Lease run-off costs for closed centers create an additional 50 basis point margin headwind for Full Service until all exit obligations are completed
• Forward-looking results are inherently uncertain, and actual performance may differ materially from guidance due to unforeseen risks and uncertainties detailed in company SEC filings

Q: How much of Backup Care's strong Q2 growth is driven by summer camps, and what back-to-school enrollment assumptions are baked into full-year guidance for Full Service? / A: Summer camp makes up 25% to 30% of annual Backup Care usage, and the 19% Q2 growth came from broad gains across all care types, driven by higher unique user volumes and a slight uptick in usage frequency. For Full Service, back-to-school enrollment is expected to deliver slight positive growth ex-Australia, consistent with original full-year guidance, after softer growth in Q2. This factors in easy year-over-year comparisons for the UK operation.

Q: Is new Backup Care client ramp-up faster than historical averages, and what drives confidence that participation rates can continue growing in existing clients? / A: New client maturation is consistent with historical patterns, and new clients remain a smaller growth contributor compared to existing client penetration. Growth from existing clients comes from ongoing outreach to bring in new unique users (the core driver of growth) plus minor frequency gains. Near-term reservation volumes give management confidence to raise guidance, and large untapped white space for new client acquisition supports long-term growth.

Q: As Full Service occupancy recovers ex-Australia, how much operating leverage remains to reach historical margin targets? / A: Management has a clear path back to the historical 10% adjusted operating margin target for Full Service. Current full-year margin is 5.5%, with 150 basis points of headwind from Australia underperformance ($20 to $25 million in annual lost earnings) and 50 basis points of headwind from ongoing lease run-off costs for closed centers. Excluding these headwinds, current margin is ~7.5%, and further portfolio optimization of low-occupancy centers plus enrollment gains in the mid-occupancy cohort will drive expansion back to target over time.

Q: What is driving the expected moderation of Full Service growth from Q2 to Q3, beyond FX? / A: FX was a 100 basis point tailwind in Q2, expected to taper significantly in the second half. The largest additional factor is a higher net center closure headwind in Q3: 225 basis points, up from 150 basis points in Q2. Australia is a marginal additional headwind, and core enrollment ex-Australia is expected to be slightly down sequentially, leading to the slower projected growth rate.