Bright Horizons Family (NYSE:BFAM) held its first-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
Bright Horizons Family reported a 7% year-over-year revenue growth to $712 million in the first quarter, driven by increases in Backup Care and Full Service segments.
The company reaffirmed its 2026 full-year revenue guidance range of $3.075 billion to $3.125 billion and adjusted EPS guidance range of $4.90 to $5.10 per share.
Despite challenges in Australia leading to enrollment declines, the company saw sequential improvements in occupancy across its network and continued expansion in user growth for Backup Care, which exhibited a 12.5% revenue increase.
Strategic focus remains on enhancing user experience, rationalizing center portfolios, and expanding service adoption across clients.
Management highlighted significant share repurchases totaling $225 million in Q1, contributing positively to EPS despite increased interest expenses.
Full Transcript
Steven
By way of a real time example, we put this strategy into action this past week at our on the Horizon Summit. We hosted more than 100 clients including HR and benefits leaders from Bank of America, Comcast and Cone Health, to name a few. The discussion encompassed the future of employer sponsored education and care and modern ways to deliver a unified experience that for employees and their families. We received tremendous feedback from clients about the event and the innovations that we introduced. We look forward to sharing more over time and at this point I would like to turn back to our first quarter segment results in Backup Care revenue, increased 12.5% to $145 million in the quarter and adjusted operating margins were 18%, both in line with our expectations. Growth was driven by continued expansion in unique users with solid use across all care types and looking ahead to the summer months and peak utilization for school age programs. We are encouraged by continued user growth and the visibility of use through early reservations for the second and third quarters. Turning to full service, revenue grew 6% to $541 million in line with our expectations. Growth was driven by a combination of tuition increases and a tailwind from foreign exchange partially offset by center closures. As we continue to rationalize the portfolio, we opened 2 centers in the first quarter, one in the Netherlands and our third location for Toyota, here in the United States. Occupancy averaged in the mid 60% range in Q1, improving sequentially from the fourth quarter and the prior year. Enrollment growth in centers open for the last year was modestly positive in the first quarter. This included approximately 100 basis points of headwind from our Australia operations, where we experienced an elevated enrollment decline in this group of 78 centers. In contrast to our other geographies, our Australia portfolio’s occupancy has drifted lower in the years following the pandemic and this quarter, the enrollment contraction was much more significant than prior year’s school year transition cycle. With the broader Australian ECE industry, also experiencing meaningful weakness in 2026, we expect a more challenged enrollment picture and overall performance profile as we look to the rest of the year. More broadly, we remain encouraged by the sequential improvement in occupancy across our network of centers, the continued recovery across our middle and lower cohorts, and the improved operating margin we drove this quarter. Despite a headwind from Australia, our focus remains on expanding our enrollment with improved consumer experience and quality value, achieving improved operating leverage and operating efficiency, and rationalizing the center portfolio where appropriate. As previewed on our call in February, we closed 24 centers this quarter as we continue to position our portfolio to serve employees of our client partners and working parents where they live and work. Our education advisory business delivered revenue of $27 million in the quarter and increased 2% over the prior year. Notable new client launches in the quarter included NXP Semiconductors, Visa, and Huntington bank and we continue to be focused on driving participant growth and use across our college Coach and Ed Assist services. So to close our Q1 results demonstrate solid demand and execution across the business. We remain encouraged by the progress we are making in our core operations while maintaining financial and operational discipline. As such, we are reaffirming our 2026 full year revenue guidance range of 3.075 billion to 3.125 billion and our adjusted EPS guidance range of $4.90 to $5.10 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
Thanks Steven and hello to everyone who’s joined the call. I’ll start with our financial highlights. Revenue in the first quarter was 712 million representing 7% growth year over year and in line with our expectations. Adjusted operating income of 65 million is increased 4% over the prior year quarter and represented 9.1% of revenue. Adjusted EBITDA of 96 million also grew 4% and came in at 13.4% of revenue. Adjusted EPS of $0.82 a share rose 6% over the prior year quarter and finished slightly ahead of our guidance set at 75 to 80 cents. Taking a closer look at each of our three business lines, backup revenue grew 12.5% in the first quarter to 145 million. Increased users and expanded use within existing clients continues to drive majority of the growth and Q1 marked the 16th consecutive quarter of double digit top line growth. Adjusted operating margins were 18% in the quarter which we expect at this time of year when use is seasonally lower. As we move into the higher use quarters over the rest of the year, we gain operating leverage and we continue to expect to see margins achieve our full year target of 28 to 30%. Turning to full service revenue of 541 million expanded 6% over the prior year quarter driven primarily by tuition increases, enrollment gains and a tailwind from foreign exchange, which were all partially offset by an approximately 250 basis point headwind from the impact of closed centers over the past year and to a lesser extent to enrollment declines in Australia. During the quarter we had net closures of 22 resulting in a center count at quarter end of 988 centers. As Steven mentioned, enrollment in centers open for the last year was modestly positive in the first quarter, although it would have increased roughly 100 basis points without the enrollment contraction we experienced in Australia. Occupancy averaged in the mid-60s range, increasing from both the fourth quarter of 2025 and the prior year. With respect to the center cohorts we’ve discussed on prior calls, we also continue to see improvement over the prior year. Our top performing cohort, I.e. 7 centers that are above 70% occupancy, improved from 47% of these centers in the first quarter of 2025 to 48% in 1Q26. And more notably, our bottom cohort, centers below 40% occupancy, has now fallen below 10% of these centers, improving from 13% in the prior year to 8% this quarter, reflecting both enrollment progress and the results of our focus on closing underperforming centers. Adjusted operating income of 37 million in full service increased 4 million over the prior year and represented 6.8% of revenue. An expansion of 30 basis points, tuition increases ahead of average wage costs, and continued progress in our UK operations drove the margin expansion. That said, reported margin improvement was meaningfully constrained by the enrollment and operating challenges in Australia. Excluding this effect in Australia, margin expansion would have been more than 50 basis points over the prior year. Given the current operating performance and outlook for the rest of this year, we expect Australia to remain a larger headwind to reported margin performance than we had originally expected. Our educational advising segment had revenue of $27 million, an increase of 2% from the prior year quarter and adjusted operating margins of 9%, which were broadly consistent with the prior year quarter. Interest expense rose to 12 million in Q1, up from 10 million in the prior year quarter due to higher average interest rates as well as higher average borrowings on elevated share repurchases in the quarter. The structural effective tax rate on adjusted net income was also 27.5%, consistent with Q1 of 2025. Turning to the cash flow statement, we generated $108 million in cash from operations and made net fixed asset investments of 20 million, resulting in free cash flow of 88 million over the last 12 months. Free cash flow was 276 million, representing a 106% conversion relative to adjusted net income. As mentioned in Q1, we opportunistically repurchased 225 million of stock funding. The buybacks with free cash flow and incremental revolver borrowings as of the end of the quarter, 577 million remains on the new repurchase authorization that we announced in March. Lastly, we ended Q1 with $133 million of cash and a leverage ratio of 1.9 times net debt to adjusted EBITDA. Now moving on to our 2026 outlook, we are reaffirming our 2026 full year guidance for revenue in the range of 3.075 to 3.125 billion and adjusted EPS to be in the range of $4.90 to $5.10. Our guidance does not include the effects of any additional share repurchases on either interest expense or on the share count. If we look at a segment level in full service, we expect reported revenue to grow in the range of 2.5% to 3.5% on enrollment gains and tuition increases, offset by approximately 200 basis points of headwind from net center closings and approximately 100 basis points on reduced expected performance from our Australia operations. In Backup Care, we now expect reported revenue to increase 12 to 14% driven by the continued expansion of use. And lastly in net advisory, we expect to grow in the mid single digits. Lastly, on the full year guidance, we are now estimating full year interest expense of 50 to 52 million and an adjusted effective tax rate of 28 to 28.5% up approximately 100 basis points from our prior guide. As we look specifically to Q2, our outlook is for total top line growth in the range of 5.25 to 6.5%. Breaking that down by segments would be full service reported revenue growth of 2.5 to 3.5%, backup growth of 15 to 17% and ED advisory in the low single digits. In terms of earnings for Q2, we are expecting adjusted EPS in the range of $1.17 to $1.22. So with that, Stacy, we are ready to go to Q and A. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two …
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