Earnings call transcript: Bright Horizons sees robust Q2 2025 growth, stock stable

Bright Horizons Family Solutions reported strong financial results for the second quarter of 2025, with revenue reaching $732 million, a 9% increase year-over-year. The company achieved an adjusted EPS of $1.07, marking a 22% rise from the previous year. Despite these gains, the stock remained relatively stable, closing at $96.77, up 1.67% from the previous session. According to InvestingPro, the company currently trades near its 52-week low of $95.53, despite achieving a perfect Piotroski Score of 9, indicating strong financial health. The stock appears undervalued based on InvestingPro’s Fair Value analysis.

Key Takeaways

• Revenue for Q2 2025 increased by 9% year-over-year to $732 million.
• Adjusted EPS rose by 22% to $1.07.
• The company added five new centers but had a net decrease of three centers.
• Bright Horizons projects full-year revenue between $2.9 billion and $2.92 billion.
• Stock price increased by 1.67% in the aftermarket session.

Company Performance

Bright Horizons demonstrated solid performance in Q2 2025, driven by a strong presence in the employer-sponsored child care market and expansion in backup care services. With a market capitalization of $5.6 billion, the company opened five new centers during the quarter, although it closed eight, resulting in a net decrease of three centers. High demand for summer care and government support in the UK further bolstered growth, contributing to the company’s impressive 9.25% revenue growth over the last twelve months.

Financial Highlights

• Revenue: $732 million, up 9% year-over-year.
• Adjusted EPS: $1.07, up 22% year-over-year.
• Adjusted Operating Income: $86 million, a 25% increase.
• Operating Margins: 11.8%, an improvement of 150 basis points.

Outlook & Guidance

Bright Horizons projects full-year revenue between $2.9 billion and $2.92 billion, reflecting an 8-9% growth. The company expects adjusted EPS to range from $4.15 to $4.25. It anticipates low single-digit enrollment growth and significant growth in backup care revenue, projected at 14-16%. InvestingPro analysts have set price targets ranging from $104 to $160, suggesting potential upside. Get access to 8 additional exclusive ProTips and comprehensive financial analysis through InvestingPro’s detailed research reports.

Executive Commentary

CEO Stephen Kramer highlighted the company’s strong execution and performance, stating, "We delivered another quarter of strong execution and solid performance." He also noted the impact of child care gaps on parental productivity, emphasizing the importance of their services. CFO Elizabeth Boland expressed confidence in returning to pre-COVID margin levels, saying, "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."

Risks and Challenges

• Potential market saturation in employer-sponsored child care.
• Economic uncertainties impacting discretionary spending on child care.
• Challenges in maintaining high occupancy rates at centers.
• Regulatory changes affecting the child care industry.
• Competition from other child care providers and educational services.

Q&A

During the earnings call, analysts inquired about the implications of the Section 45F tax credit, the performance of different center cohorts, and the UK market recovery strategy. The company’s management addressed these concerns, emphasizing their focus on optimizing centers and strategic growth initiatives.

Full transcript - Bright Horizons Family Solutions Inc (BFAM) Q2 2025:

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Greetings and welcome to the Bright Horizons Family Solutions second quarter 2025 earnings call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press Star zero on your telephone keypad. 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. Thank you, Joe, and welcome to everyone to Bright Horizons 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-K, 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 today. We also refer to non-GAAP financial measures which 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 Boland. 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. Thanks, Mike, and welcome to everyone who has joined the call. We delivered another quarter of strong execution and solid performance with revenue increasing 9% to $732 million and adjusted EPS growing 22% to $1.07, 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 child care segment, revenue of $540 million 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. Openings like this reinforce our leadership in the employer-sponsored child 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.

In our centers operating between 40% and 70% occupancy, operating performance and enrollment both continue to progress 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. 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 first half of 2025. Turning to backup care, revenue grew 19% to $163 million, reflecting strong client and user engagement. Among other launches in the quarter, we welcomed 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.

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 network 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 Horizons. Moving to our education advisory segment, revenue grew 8% to $29 million this quarter. Participant and usage growth was solid, particularly in College Coach, where we saw increased demand for advising services.

We continue to position Education Advisory 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 Horizons solutions. This quarter, we saw full service client Centene add Backup Care to better support their national workforce facing everyday disruptions. 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 child care gaps during school breaks directly impact their productivity, well-being, and ability to stay focused at work. 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&T to run a Steve & Kate’s 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 first half of 2025. Given the year’s positive performance and momentum, we have moved up our 2025 full year guidance to a revenue growth range of $2.9 to $2.92 billion, 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 will dive into the quarterly numbers and share more details around our outlook.

Elizabeth Boland, Chief Financial Officer, 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 million, driven by continued growth and disciplined execution. Across each of our segments, adjusted operating income rose 25% to $86 million, with operating margins up 150 basis points over the prior year to 11.8%. Adjusted EBITDA increased 13% to $116 million, representing an adjusted EBITDA margin of 16% of revenue. Lastly, adjusted 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 million 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 Q2 of 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, in the specific center cohorts that we’ve been tracking for comparative purposes since the second half of 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 second quarter of 2024 to 54% in the second quarter of 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. Adjusted operating income of $40 million in the full service segment increased $8 million 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 million, driven by strong early summer demand. As Stephen outlined, the adjusted operating income for the segment was $41 million, up $9 million over the prior year, which translates to operating margins of 25%.

Lastly, the educational advising revenue increased 8% to $29 million and delivered operating margins of 17% ahead of our expectations and broadly consistent with the prior year. Net interest expense decreased to $10.5 million from $12 million in Q2 of 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 million in cash from operations in the second quarter. We made fixed asset investments of $19 million and repurchased $41 million of stock in the quarter. We ended Q2 with $179 million of cash and our reduced leverage ratio is now 1.7 times net debt to adjusted EBITDA.

Moving on to the outlook that Stephen previewed, in terms of the top line, we are modestly raising the midpoint of our reported revenue outlook by $20 million to a range of $2.9 billion to $2.92 billion, which reflects a roughly $15 million 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. In Backup Care, we’ve increased our expectations for revenue growth to 14% to 16% and in Education 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 million to $785 million 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. 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 Care growth of 14% to 16% in Q3 and at 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. With that Joe, we are ready to go to Q&A.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Thank you, ladies and gentlemen. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. The first question comes from the line of Manav Patnai with Barclays. Please proceed.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Hi, this is Princy Thomas on for Faiza Alwy. Thanks for taking my question. Just wanted to see if you could expand your margin expectations by segment for full year as well. Hi Princy. Yeah, let me start with the backup business just because it’s been a pretty consistent story in backup. 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. We would see a 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 somewhere similar to where we were in 2024.

In the full service child care 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 in a similar range over the second half of the year, with Q3, as I mentioned, in around 125 basis points or so of margin expansion there. Then education advisory again, pretty similar to last year in the high teens to 20% or so operating margin range for the full year. Got it. Thanks. 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.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Sure. Good afternoon, Princy. I would say that, most specific to our sector, we would focus on Section 45F and the updated Section 45F program. First and foremost, I would just observe, it really underscores the importance of employer-supported child care, and that’s why I want to focus on that. Under the program, 40% of qualified child care expenditures up to $500,000 are tax credit enabled, and that’s an increase from $150,000 previously. 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.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Thank you.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Thank you. The next question comes from the line of Andrew Steinerman with JP Morgan. Please proceed. 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, 2 to 3%? If you could give a comment on how September enrollments are looking.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Yeah, we would expect it to look a lot like we saw this quarter. Low single digits, meaning probably close to 2%. Similar cadence for the rest of this year. September enrollment cycle is certainly in full froth at this point. At this point, the fall cycle is. We’re marketing well. We have good lead generation, and we have stepped up a lot of our efforts at targeted outreach and have taken parents through the enrollment process. We are feeling good about 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.

Given the structure of our centers, we’re able to serve more of the parents in those younger age groups. That’s where we’re focused.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Okay, thank you. The next question comes from the line of George Tong with Goldman Sachs. Please proceed. Hi, thanks. Good afternoon. You mentioned taking initiatives to streamline the path from inquiry to enrollment. I 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 are seeing with the sales cycles and commitment cycles from new customers? Sure. 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 cadence similar to what we saw this quarter and highlighted this past quarter. Ultimately, as you alluded to, we are certainly taking action and 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 additional resource against white glove support by enrollment managers for families. Ultimately, we are using technology to make sure that we are creating and providing a more personalized experience all the way from inquiry to enrollment. Overall, I would say that’s how we’re thinking about the sales funnel from a family perspective. 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, Bright Horizons Family Solutions: For this year, as mentioned, we’re a couple hundred basis points of enrollment expansion this quarter. Expect that similar cadence the rest of the second half of this year, ending the year in the mid-60s. For the full year, we’re at the high point in Q2, so we would be stepping up from last year a bit. In terms of the overall, the timeline for getting back to 70%, obviously we’ve got more than 50% of our centers are well above 70%. 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. That is where we see probably the most drag on getting back to 70% as an overall average.

I think, 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 years. We build that. That is a great indicator of being obviously right location serving the families who need it, both our client employer-sponsored centers as well as our community-based centers. 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, we’re not able to turn around the enrollment performance.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Thank you. The next question comes from the line of Jeff Meuler with Baird. Please proceed. Thank you. I just want to circle back to Section 45F. I get that it 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. Can you just talk about what your sales force is planning to message and then within Backup Care for Section 45F, the increased credit seems pretty sizable relative to what I would think typical Backup Care spend is. What’s the opportunity in Backup Care, specifically from Section 45F, including on potentially getting existing customers to increase spend levels. Thank you. Thanks. Here’s what I would say.

Certainly appreciate the compliment that we are the leader in employer-sponsored child 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. That comes in the form of meetings directly with prospects and clients. It comes in the form of webinars that we are hosting to help educate prospects and clients on Section 45F in particular and really helping them to see the value of leaning into this. I would say that in addition to all 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. 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. Who actually needs to have the budget versus the people who are keeping score as it relates to the net cost are different. Certainly we are trying to do outreach not only to the HR community, but are also encouraging that coordination between HR and finance. You’re right to say that in principle this should be a good stimulant. We are certainly best positioned in the industry to take advantage of it. 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 Section 45F than we have seen in the past. Got it.

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 client base 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? Sure. I’ll answer that in two ways. The first is that we aren’t seeing employers changing the sizes of their banks. 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. We did see this year, and we had started to see it over the last several years, the allowance of booking earlier.

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. I think that has given us more confidence going into this summer to be able to guide the way we have. Certainly, extending those windows of reservation allows us an even greater window into the amount of use that we can expect this summer. Those would be the two elements that I would highlight. Thank you. Thank you.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Thanks, Jeff.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: The next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Thank you. Based on the data that we track, wages in the industry are growing at about 4.5%. I think the price increase this year you were expecting to be in the 4% to 5% range. Full service margins have been particularly strong, especially just given sort of a tight spread there. I was wondering if you could talk about, I’m sure a lot of that margin expansion is coming from the closing of the underperforming centers. 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? 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. Our 4% to 5% price increase has been again, something that’s averaging closer to 3% to 4%. It’s around 100 basis points, maybe 50 basis points in some areas. 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. In terms of the extra, if you will, or the kick to the margin expansion, it’s pretty minor. Enrollment growth in the, you know, in the 200 basis point arena is really the primary driver, I think, along with the price to cost discipline. 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. That has come down, that has tapered to, you know, something that’s closer to 100 basis points. That’s the one other thing I would isolate. Terrific. Maybe just on a separate topic in terms of M&A, I think going, you know, in the post-Covid period, a lot of the smaller centers 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. Just wondering if, you know, how your M&A pipeline is looking. I think just wanted to understand also, I guess, why haven’t you done maybe more M&A to this point? Just given that we’re probably in a pretty good environment for that. Appreciate it. Thank you.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Sure. Thank you, Toni. We certainly have not been as active in the M&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. 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 to pay. We continue to be really disciplined about that. Certainly, in the meantime, we’ve been really focused on continuing to build enrollment in our own centers, and we continue to see a nice uptick in that way.

I would say that from an M&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.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Thank you.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: The next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed. 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, Bright Horizons Family Solutions: Yeah. We opened five in the quarter, Jeff, and we closed eight. A net decrement of three in the quarter. Year to date, we’re positive one, net one. That is, you know, broadly speaking, plus, minus zero is what we would expect for the year.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Okay. Of the eight that were closed, was there any specific geographic area? Was it U.S., was it UK, or kind of mixed?

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: It was primarily U.S. There were a couple outside the U.S., but primarily U.S., more than half.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: All right, great. Toni was asking about the UK. You mentioned the headwinds, 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, 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 million in the full service child care segment. Specifically, we were close to $10 million of losses in the UK, a little bit in that range. We are expecting to get to break even. The momentum has been really good in the first half of the year. We definitely feel on track to achieve that. Ideally, we make progress beyond that and are set up well for 2026 with the progress. It has 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.

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.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: All right, appreciate the caller. Thanks so much. The next question comes from the line of Stephanie Moore with Jefferies. Please proceed.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Hi, good afternoon. Thank you. I 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 9 to 10% as you look at the business today and then as it moves forward? Thank you. 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 a pre Covid level. Those centers are back to their pre Covid operating margin level. They’re the best performers. They actually are better than that 10% threshold. It’s the under pressure and the improving centers that are still the underperformers. The sub 40% occupied centers lose money as a group. The middle cohort, the improvers, are probably mid single digits. 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 getting additional enrollment is a primary driver there. The sub 40%, which is roughly 10% of our centers, is not a huge portion.

Certainly the headwind of centers losing money is a barrier to having the whole portfolio at that high single digits to 10%. 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, to drive both enrollment and sustain enrollment of families in the centers where they need care. Got it. Just as a follow up, can you remind us your outlook in terms of kind of reaching those targeted pre Covid or just general targeted enrollment levels for the total mix? 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 at levels significantly below 70%.

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. In the next year or two, we would have a majority of the portfolio back to pre-Covid levels. It’s that sub-40% enrolled, that 10% of the centers. That is where we will probably need to carve out an explanation here as we’re talking with you, which you know, what the effect of that is. The majority of the portfolio is certainly within eyesight of where the operating margins were in totality for the full service child care business, which is why we feel really good about the progress. Great. Thank you so much. You’re welcome.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: As a reminder, if you would like to ask a question, please press Star one on your telephone keypad. The next question comes from the line of Josh Chan with UBS. Please proceed. Hi, good afternoon, Stephen and Elizabeth. Really strong Backup Care growth this quarter. 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. Sure. Thank you, Josh. What we mean by expanding the capacity is really partly down to owned assets. Obviously, we have our Steve & Kate’s Camp 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 Jovie, which is the nanny agency franchisor, and we continue to stimulate more capacity through owned assets like that.

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. 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. Thank you. That makes a lot of sense. Thanks for the color there. On the Full Service Child Care 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, 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. That’s where we’ve, notwithstanding individual enrollment statistics that we’ve cited, generally seen our infant and toddler rooms be more full, proportionately more full than preschool. There’s more capacity in preschool. It expands greater ages. When the 5 year olds age out, there’s always a big group to backfill. As we continue to infill the centers and get from a center that may be at 55% to 60%, 65%, there’s a lot of positive, the positive operating leverage that occurs because of the level of enrollment skewed toward preschool, because that’s where the most capacity tends to be.

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 child care experience that works for them. If starting as an infant and staying through preschool is, you know, builds a long standing relationship that can then extend frankly into Backup Care and even to College Coach down the road. 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.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Great. Thank you both for the color and the time. Good luck in the second half. Thank you. The next question comes from the line of Faiza Alwy with Deutsche Bank. Please proceed.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: 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, you know, more than 80% occupied towards maybe some of that middle cohort. I’m curious if you could talk a little bit more about that and if there’s, you know, any sort of what specifically are you doing there?

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Sure. 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. 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, or the actual environments, and making sure that prospective families become aware of those differences first and foremost. We continue to get sharper about how we really nurture a family from their initial inquiry all the way through to when they start. That comes in different forms. Some of that is through technology, some of that is through a white glove experience.

It really takes the form all the way through the funnel. We make sure that we’re cultivating that relationship all the way through, and in the middle of that process is typically when they are doing a center visit and making sure that visit really is a flawless experience and demonstrates the value of what that family can expect once they enroll. We’re spending a lot of time on making sure that experience end to end for prospective families is really strong. At the same time, we continue to see strong retention rates among those who are currently enrolled. It’s really the combination of those two that gives us confidence that we’ll continue to make progress in that middle cohort.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Great. Thank you. 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 your margin guide, which is still sort of 25% to 30%. I know historically you’ve talked about 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, what the various margin levels are, and is there a point where you can break out above this 25% to 30% range. Yeah. Let me take a stab at providing some color there.

The backup business, of course, is one that we have been at for a number of years and started out with center-based Backup Care and expanded it to a network solution. Since then, we have expanded to new care types which allow us to serve more eligible employees of the employers who are sponsoring the service. We are investing in this business and are consciously investing in making sure that we are developing and sustaining, cultivating and sustaining a very healthy network of 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.

In that way, we have a hybrid of our own care: our own centers, our own dedicated backup centers, our own full service centers where we can take Backup Care, the camp provider Steve & Kate’s Camp that we brought into the Bright Horizons family a couple of years ago. The augmenting of that with other third party providers enables us to rent networks where we don’t always have presence. In that way, the investment is critical to that service supply, as is the technology to be sure that 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.

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, all of that investment goes into continuing to grow the business. 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. 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 keeps us in that band. Got it. Thank you so much.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: Thank you. Thank you all very much for joining us on the call and wishing you a good night.

Elizabeth Boland, Chief Financial Officer, Bright Horizons Family Solutions: Thanks everyone.

Michael Flanagan, Group Vice President of Finance, Bright Horizons Family Solutions: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.

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