Bright Horizons Family Solutions(BFAM) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2023, the company reported revenue of $2.4 billion, representing a growth of 20% compared to 2022, with adjusted earnings per share (EPS) of$ 2.84, an increase of 9% [6][21] - In Q4, total revenue increased 16% to $616 million, yielding adjusted EBITDA of$ 99 million and adjusted EPS of $0.83, an increase of 8% from the prior year [21][48] - Interest expense increased by$ 2 million to $13 million in Q4, and the structural tax rate on adjusted net income rose to 28.3%, an increase of 200 basis points over Q4 of 2022 [13] Business Line Data and Key Metrics Changes - Full Service revenue for Q4 was$ 447 million, up 15%, driven by increased enrollment and pricing, with occupancy levels averaging 58% to 60% [6][26] - Back-Up Care revenue grew 24% in Q4 to $135 million, with adjusted operating income at 30% of revenue, or$ 41 million, growing 25% over the prior year [28][45] - The education advisory segment reported revenue of $34 million in Q4, with notable new client launches [46][51] Market Data and Key Metrics Changes - U.S. enrollment increased by 10% in Q4, while international enrollment grew in the mid-single digits [44] - In the U.K., the Full Service business has been unprofitable, losing approximately$ 30 million in adjusted operating income in 2023, but improvements are expected in 2024 [12][44] Company Strategy and Development Direction - The company is rationalizing its U.K. footprint, having closed 12 centers in 2023 and identifying an additional 20 to 30 centers for closure over the next 12 to 18 months [27][60] - The focus is on expanding Back-Up Care as a structurally larger contributor to future earnings, with significant growth opportunities anticipated [8][23] Management's Comments on Operating Environment and Future Outlook - Management noted that the effects of the end of ARPA funding would unfold over 2024 and into 2025, with competitors adjusting pricing and staffing in response [34][58] - For 2024, the company expects revenue to be between $2.6 billion and$ 2.7 billion, translating to growth of 8% to 12% [30][47] Other Important Information - The company generated $256 million in cash from operations in 2023, compared to$ 188 million in 2022, and ended the year with $72 million in cash [29] - A minor change in segment reporting will impact growth comparisons in the education advisory and Back-Up Care segments starting Q1 2024 [52] Q&A Session Summary Question: What are the effects of the end of ARPA funding on the industry? - Management indicated that the effects would transpire over 2024 and into 2025, with competitors adjusting pricing and staffing [34][58] Question: What is the expected center count by year-end 2024? - The company expects to close a similar number of centers as in 2023, resulting in a net reduction of approximately 25 centers [35][60] Question: What occupancy rates are assumed in the guidance for 2024? - The company anticipates occupancy rates to average between 60% to 65% for the year, with a seasonal cadence [83] Question: How sustainable is the double-digit growth rate for Back-Up Care? - Management sees the opportunity to continue driving 10% to 12% growth over many years, primarily through expanding user penetration and usage [92] Question: Can you elaborate on the$ 36 million impairment? - The impairment relates to centers and includes right-of-use assets and leasehold improvements for underperforming centers [72][73]