Bright Horizons Family Solutions Inc. (NYSE:BFAM) Q2 2025 Earnings Call Transcript

Bright Horizons Family Solutions Inc. (NYSE:BFAM) Q2 2025 Earnings Call Transcript August 1, 2025

Operator: Greetings, and welcome to the Bright Horizons Family Solutions Second Quarter 2025 Earnings Call. [Operator Instructions] 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.

Michael Flanagan: Thank you, Joe, and welcome 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 the 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 is our 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.

Stephen Howard Kramer: 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 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 5 new centers this quarter, including 2 additional centers for an existing multi-service client, the University of Virginia.

Openings like this reinforce our leadership in the employer-sponsored care market and underscore the strategic role on-site childcare continues to play in workforce strategies. Enrollment in centers opened 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 well. 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 U.K., 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 2 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 U.K. 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 back-up 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 youth perspective, we experienced particularly strong demand for center, camp and in-home care. We kicked off our seasonally high youth 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 program, has enabled us to deliver high-quality care when and where families need it most. I remain confident in the strong momentum in our back-up 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 educational 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 EdAssist 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 Horizons 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 back-up care to better support their national workforce facing everyday disruptions. At Northwell Health, a back-up 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 2/3 of parents report that childcare 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 back-up 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 childcare 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 billion 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 J. Boland: 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. And 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 1 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 continue 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 back-up 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 advisory 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 1.7x net debt to adjusted EBITDA. So 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 back-up care, we’ve increased our expectations for revenue growth to 14% to 16%. And in ed 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 back-up growth of 14% to 16% in Q3 and ed 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. So with that, Joe, we are ready to go to Q&A.

Q&A Session

Operator: [Operator Instructions] And the first question comes from the line of Manav Patnaik with Barclays.

Princy Mariyam Thomas: This is Princy Thomas on for Manav. Just wanted to see if you could expand your margin expectations by segment for full year as well.

Elizabeth J. Boland: Princy, yes, so let me start with the back-up business just because it’s been a pretty consistent story in back-up. So for the year we would be looking for 25% to 30% operating margins in back-up consistent with what we have said. The second half of the year is more heavily weighted than the first half of the year. So we would see 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 some more similar to where we were in 2024. In the full service 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.

And then ed advisory, again, pretty similar to last year in the high teens to 20% or so operating margin range for the full year.

Princy Mariyam Thomas: Got it. And 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?

Stephen Howard Kramer: Sure. Princy, I would say that most specific to our sector, we would focus on 45F and the updated 45F program. First and foremost, I would just observe, really underscores the importance of employer-supported childcare and that’s why I want to focus on that. Under the program, 40% of qualified childcare expenditures up to $500,000 are a taxable 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 back-up 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.

Operator: The next question comes from the line of Andrew Steinerman with JPMorgan.

Andrew Charles Steinerman: 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% to 3%? And if you could give a comment on how September enrollments are looking.

Elizabeth J. Boland: Yes. So we would expect it to look a lot like we saw this quarter. So low single digits, meaning probably close to 2%, similar cadence for the rest of this year. September enrollment cycle is certainly in full profit at this point, the fall cycle is where marketing well. We have good lead generation and we stepped up a lot of our efforts at targeted outreach and have — taking parents through the enrollment process. And so we are feeling good about that level of enrollment. It is one that we — obviously is 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 then those children are aging up into the preschool age group range, and this is where there’s the least supply in the market. And so given the structure of our centers, we’re able to serve more of the parents in those younger age groups. So that’s where we’re focused.

Operator: The next question comes from the line of George Tong with Goldman Sachs.

Keen Fai Tong: You mentioned taking initiatives to streamline the path from inquiry to enrollment. And 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’re seeing with the sales cycles and commitment cycles from new customers?

Stephen Howard Kramer: Sure. So 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 caving similar to what we saw this quarter and highlighted this past quarter. And so ultimately, as you alluded to, we are certainly taking action 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 sort of additional resource against white glove support by enrollment managers for families. And ultimately, we’re using technology to make sure that we are creating and providing a more personalized experience all the way from inquiry to enrollment. And so overall, I would say that’s how we’re thinking about the sales funnel from a family perspective.

Keen Fai Tong: 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 J. Boland: Well, for this year, as mentioned, we’re a couple 100 basis points of enrollment expansion this quarter. Expect that similar cadence the rest of the second half of this year. And so 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. So in terms of the overall — the time line for getting back to 70%, obviously we’ve got more than 50% of our centers are well above 70% and 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. And that is where we see probably the most drag on getting back to 70% as an overall average.

And I think that, 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. So we feel 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. And that’s where we’re looking to both replicate those — 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.

Operator: The next question comes from the line of Jeff Meuler with Baird.

Jeffrey P. Meuler: I just want to circle back to 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. So can you just talk about what your sales force is planning to message? And then within back-up care for 45 F, the increased credit seems pretty sizable relative to what I would think typical back-up care spend is. So what’s the opportunity in back-up care specifically from 45F including on potentially getting existing customers to increase spend levels?

Stephen Howard Kramer: Thanks. So here’s what I would say. Certainly appreciate the compliment that we are the leader in employer-sponsored 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 and 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 45F in particular and really helping them to see the value of leaning into this. I would say that in addition to all of 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 back-up care programs.

And 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. And so who actually needs to have the budget versus the people who are keeping score as it relates to the net cost are different. But certainly we are trying to do outreach not only to the HR community, but are also encouraging that coordination between HR and finance. But 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 and 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 45F than we have seen in the past.

Jeffrey P. Meuler: Got it. And then another great summer for back-up care, recognize you’ve expanded the coverage and the service types and everything. What are you seeing in terms of like client 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?

Stephen Howard Kramer: Sure. So I’ll answer that in 2 ways. The first is that we aren’t seeing employers changing the sizes of their banks. So 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, so 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. So again, I think that, that has given us more confidence going into this summer to be able to guide the way we have is certainly extending those windows of reservation allows us an even greater window into the amount of use that we can expect this summer.

And so those would be the 2 elements that I would highlight.

Operator: The next question comes from the line of Toni Kaplan with Morgan Stanley.

Toni Michele Kaplan: Based on the data that we track, wages in the industry are growing at about 4.5%, but I think the price increase this year, you were expecting to be in the 4% to 5% range. But full service margins have been particularly strong, especially just given sort of a tight spread there. And so 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. And so 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.

Elizabeth J. Boland: Sure. 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. So our 4% to 5% price increase has been, again, something that’s averaging closer to 3% to 4%. So it’s around 100 basis points, maybe 50 basis points in some areas. So 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, but in terms of the extra, if you will, the kick to the margin expansion, it’s pretty minor. Enrollment growth in the 200 basis point arena is really the primary driver, I think, along with the price to cost discipline.

So we — I think we mentioned U.K. has been recovering. That has been — I would point out that last year we were seeing the U.K. with a headwind to the overall margins. It was north of 150 basis points. It was even higher than that in of ’23, I believe. So that has come down. That has tapered to something that’s closer to 100 bps. So that’s the one other thing I would isolate.

Toni Michele Kaplan: Terrific. And then maybe just on a separate topic in terms of M&A, I think going — 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. And so just wondering if — how your M&A pipeline is looking? I think just wanted to understand also, like, 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.

Stephen Howard Kramer: Sure. Thank you, Toni. So look, 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. And 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 truthful price to pay. So we continue to be really disciplined about that. And certainly in the meantime, we’ve been really focused on continuing to build enrollment in our own centers. And so we continue to see a nice uptick in that way. So 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.

Operator: The next question comes from the line of Jeff Silber with BMO Capital Markets.

Jeffrey Marc Silber: 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 J. Boland: Yes. We opened 5 in the quarter, Jeff, and we closed 8. So a net decrement of 3 in the quarter. Year-to-date, we’re positive 1, net 1, and that is, broadly speaking, plus/minus 0 is what we would expect for the year.

Jeffrey Marc Silber: Okay. And on the 8 that were closed, was there any specific geographic area? Was it U.S.? Was it U.K. or kind of mix?

Elizabeth J. Boland: It was primarily U.S. There are a couple outside the U.S., but primarily U.S., more than half.

Jeffrey Marc Silber: All right. Great. And then Toni was asking about the U.K., you mentioned the headwind. But I think in the past that you said you might be or you were hoping to be on the pathway to breakeven by the end of the year in the U.K. Is that still a goal?

Elizabeth J. Boland: 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 segment specifically. We were close to $10 million of losses in the U.K., a little bit in that range and we are expecting to get to breakeven and the momentum has been really good in the first half of the year so we definitely feel on track to achieve that. And ideally, we make progress beyond that and are set up well for 2026 with that — with the progress. It’s 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. So 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.

Operator: The next question comes from the line of Stephanie Moore with Jefferies.

Stephanie Lynn Benjamin Moore: 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, 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?

Elizabeth J. Boland: Yes. 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. And so those centers are back to their pre-COVID operating margin level. They’re the best performers. So they actually are better than that 10% threshold. It’s the underperforming and the improving centers that are still — the underperformers, the sub-40% occupied centers are — they lose money as a group and the middle cohort, the improvers are probably mid-single digits. And so 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 so getting additional enrollment is a primary driver there. And then the sub-40%, which is roughly 10% of our centers, so it’s not a huge portion, but certainly the headwind of centers losing money is a barrier to having the whole portfolio at that high single digits to 10%. So 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.

Stephanie Lynn Benjamin Moore: Got it. And then just as a follow-up, can you remind us your outlook in terms of kind of reaching that — those targeted pre-COVID or just general targeted enrollment levels for the total, I guess, total mix?

Elizabeth J. Boland: Yes. 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%. So 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. And in the next year or 2, we would have a majority of the performance 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 in an explanation here as we’re talking with you, which — what the effect of that is. But the majority of the portfolio is certainly within eyesight of where the operating margins were in totality for the full service business, which is why we feel really good about the progress.

Operator: [Operator Instructions] And the next question comes from the line of Josh Chan with UBS.

Joshua K. Chan: Stephen, Elizabeth, really strong back-up care growth this quarter and 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?

Stephen Howard Kramer: Sure. Thank you, Josh. So what we mean by expanding the capacity is really partly down to owned assets, right? So obviously, we have our Steve & Kate’s camps 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 so we continue to stimulate more capacity through owned assets like that. And 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. And so 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.

Joshua K. Chan: That makes a lot of sense. And on the full service 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 J. Boland: 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, and that’s where we’ve — notwithstanding individual enrollment statistics that we’ve cited, we have 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 and when the 5-year-olds age out, there’s always a big group to backfill. And so 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 operating leverage that occurs because of the level of enrollment skewed toward preschool because that’s where the most capacity tends to be.

So 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 3, 4, 5 years as they come into a childcare experience that works for them. And starting as an infant and staying through preschool is built a long-standing relationship that can then extend, frankly, into back- up care and even to College Coach down the road. So 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.

Operator: The next question comes from the line of Faiza Alwy with Deutsche Bank.

Faiza Alwy: I wanted to ask about some of — you talked about replicating some of the success that you’re seeing with centers that are more than 80% occupied towards maybe some of that middle cohort. So I’m curious if you could talk a little bit more about that and if there’s any — sort of what specifically are you doing there?

Stephen Howard Kramer: Sure. So 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. And so 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, whether that be the actual environments and making sure that prospective families become aware of those differences, first and foremost. Then secondly, we continue to get sharper about how we really nurture a family from their initial inquiry all the way through to when they start.

And so that comes in different forms. Some of that is through technology. Some of that is through a white glove experience. But it really takes the form all the way through the funnel to make sure that we’re cultivating that relationship all the way through. And then in the middle of that process is typically when they are doing a center visit and making sure that, that visit really is a flawless experience and demonstrates the value of what that family can expect once they enroll. So we’re spending a lot of time on making sure that, that experience end-to-end for prospective families is really strong. And then at the same time, obviously we continue to see strong retention rates among those who are currently enrolled. And so it’s really the combination of those 2 that gives us confidence that we’ll continue to make progress in that middle cohort.

Faiza Alwy: Great. And then I also wanted to ask about back-up 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%. And I know historically you’ve talked about sort of 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, sort of what the various margins level are, and is there a point where you can sort of break out above the 25% to 30% range?

Elizabeth J. Boland: Yes. So let me take a stab at providing some color there. So the back-up business, of course, is one that is we have been at this for a number of years and started out with center-based back-up care and expanded it to a network solution and since then have expanded to new care types which allow us to serve more eligible employees of the employers who are sponsoring the service. So we are investing in this business and are consciously investing and 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.

And so in that way, we have a hybrid of our own owned care. So our own centers, our own dedicated back-up centers, our own full service centers where we can take back-up care, the camp provider, Steve & Kate’s camps that we brought into the Bright Horizons family a couple of years ago, but the augmenting of that with other third-party providers enables us to rent networks where we don’t always have presence. And so in that way the investment is critical to that service supply, as is the technology to be sure the parents can reserve care when they need it and for the type of care they need, and we can be completely connected to our third-party network. And then 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.

So all of that investment goes into continuing to grow the business in the — 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. So 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 is — keeps us in that sort of in that band.

Stephen Howard Kramer: Okay. Thank you all very much for joining us on the call and wishing you a good night.

Elizabeth J. Boland: Thanks, everyone.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.