Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue increased by 11% to $670 million in Q2 2024.
- Adjusted EBITDA grew by 25% to $103 million.
- Adjusted EPS increased by 38% to $0.88 per share.
- Full-service childcare segment saw a revenue increase of 11% to $507 million.
- Back-up care segment delivered strong performance with a 15% revenue growth to $136 million.
Negative Points
- Closed 19 centers in Q2 2024, indicating potential operational challenges.
- UK full-service business continues to be a headwind to overall profitability.
- Interest expense increased to $12 million due to higher net rates on outstanding debt.
- Educational advisory segment's growth remains challenging with only a 2.5% increase in revenue.
- Full-service segment's occupancy levels are still in the mid-60s, indicating room for improvement.
Q & A Highlights
Q: You increased your full year guidance and mentioned some drivers of that increase, including the 2Q outperformance and strength in backup. Can you elaborate on some of the surprises to the upside that you saw in the quarter and what your assumptions are around occupancy rates that you're baking into the guide?
A: Sure. The performance was higher than our expectations, driven by both the full service and back-up segments. In the UK, we realized cost savings earlier than expected, particularly in reducing agency staff and increasing permanent staff. This, along with steady enrollment gains, improved our operating performance. For the rest of the year, we expect mid-single digits enrollment growth in full-service and continued strength in backup care.
Q: What percentages are you assuming for occupancy rates for the rest of the year and exiting into next year?
A: We expect mid-single digits growth compared to last year, with utilization in the low 60s to mid 60s for the full year.
Q: On the backup guidance of 11% to 13%, can you talk about the visibility you have and the third quarter expectations?
A: We had strong revenue growth last year, and despite the tough comp, we expect solid sequential growth this year. We've seen strong use in July, giving us confidence in our revenue guide and better earnings flow-through for the third quarter.
Q: Could you help us with the margin expectations for Q3 and the full year?
A: Backup care margins improve in the third quarter due to seasonal peak revenue and earnings, expected to be in the low 30s. Full-service margins will step down due to seasonality, with a natural decrease in enrollment and a slight increase in overhead costs.
Q: What is the current percentage wage inflation year over year for Bright Horizons teachers and staff? Do you feel like the percentage tuition increases will be ahead of wage increases on a going-forward basis?
A: Wage inflation is roughly 4%, and we've been able to price ahead of that by about 100 basis points on average. We expect to sustain that gap, although it's early to predict specific rates for 2025.
Q: Can you talk about the labor supply of teachers and staff? Is it improving due to other centers closing or more new entries into early childhood education?
A: We're getting better at attracting those interested in the field, both from existing employees and new entrants. Our education programs and competitive wages help us attract and retain educators.
Q: Can you talk about initiatives to better capture seasonal summer demand and any rate-limiting factors?
A: We're seeing increased demand for summer use in centers and camps. We've been proactive in outreach campaigns and building supply to accommodate this demand. We feel positive about the summer outlook.
Q: Could you bridge us from last year's 3% full-service margin to this year's 6.5%? What were the most impactful drivers?
A: Enrollment gains and pricing power were primary drivers, along with improved cost structure in the UK. Overhead allocation also provided a slight benefit in Q2.
Q: How are the US centers performing from a margin perspective, and how have the various cohorts trended?
A: US full-service margins are better than the UK, which is a headwind. The top-performing cohort (over 70% occupied) is back to pre-COVID levels, while the middle cohort (40%-70% occupied) is improving but still a headwind.
Q: Can you provide more color on the mix of business in backup care that helped margins this quarter?
A: The mix has shifted back to pre-COVID levels, with about two-thirds of use in centers and one-third in-home, which has driven lower provider fee costs and improved margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
