Greetings, and welcome to the Bright Horizons Family Solutions Third Quarter Earnings Release Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Flanagan, Group Vice President of Strategic Finance. Thank you. You may begin.

Thank you, Shamali, and welcome to Bright Horizons' Third 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 Investor Relations 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 will 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 solid execution and performance with revenue increasing 12% to $803 million and adjusted EPS growing 41% to $1.57, both well ahead of our expectations. Demand persisted from both client employees and employers for our broad suite of education and care benefits, and our teams executed with discipline and focus. This quarter's performance positioned us to finish the year with strong momentum and confidence in our ability to deliver on our strategic objectives. Let me start with back-up care, which was a clear standout in the third quarter as it has been all year. Revenue increased 26% to $253 million with strong broad-based demand for all care types across our own supply and our partner network. The momentum we saw in early summer carried through the quarter, particularly in our programs catering to school-age children, supported by working parents' significant needs during the school breaks. More employees used care, existing users leaned in further, and more employers signed on to offer the benefit, notably new clients, MIT and Appian Corporation. Our operations team executed exceptionally well, delivering record levels of care during this compressed high-intensity period. Our marketing and technology teams continue to progress our personalization efforts to attract and stimulate use among client employees. Back-up care continues to be an exciting growth engine, both financially and strategically, and a core pillar of our long-term value creation. While today it stands as our largest driver of revenue and profit growth, we believe we are still in the early innings of the opportunity. Our current reach spans more than 1,000 employers and millions of eligible employees, but employer adoption and usage remains modest relative to its potential. Our strategy to close this gap is focused on expanding the number of unique users within our existing client base, increasing frequency of use among those who already value the service, and continuing to grow our client roster. Looking ahead, we will continue to invest to support the growth of back-up care, expanding capacity, deepening personalization, and reinforcing the value proposition for both employers and client employees. A critical differentiator in our model and our ability to deliver on this growth is the breadth and quality of our delivery network. Our full-service centers remain foundational in that effort, serving as a direct source of care and as essential infrastructure that supports reliability, responsiveness, quality, and scale across our global platform. Now moving to our full-service centers. Revenue in full service increased 6% to $516 million, driven by a combination of enrollment growth, tuition increases, and new center openings. We added three new centers this quarter, including two centers for a new higher ed client and a third location for Dartmouth Hitchcock Medical Center. These openings not only reinforce our leadership in employer-sponsored child care, but also underscore the enduring importance of on-site care as a strategic workforce solution. Enrollment in centers opened for more than one year increased at a low single-digit rate, while average occupancy ticked down to the mid-60s sequentially due to the usual summer-to-fall seasonality. While the pace of enrollment growth has moderated over the course of the year, we continue to see the fastest growth in select centers operating below 40% occupancy. Centers in the 40% to 70% occupancy range also continued to show enrollment growth and margin improvements. Among our top-performing centers, those with occupancy above 70%, we continue to have strong profitability, while the natural cycling of last year's strong occupancy levels tempered our overall enrollment growth. Outside the U.S., our U.K. full-service business continues to regain ground. Enrollment growth has continued with increased demand among working families, a segment we are well positioned to serve, and more favorable government support to families. Operationally, we are seeing the benefits of disciplined cost management, improved staffing and retention, and an improved labor environment. The U.K. remains a strengthening component of our full-service segment and is now on track to contribute modestly positive earnings in 2025. As we exit 2025 and plan for 2026, our focus in full service remains on delivering quality at scale, expanding occupancy, and fulfilling increasing amounts of back-up use. We are also ensuring our portfolio aligns with long-term opportunities for growth and margin improvement. Moving on to our education advisory segment. Revenue grew 10% this past quarter to $34 million, ahead of our expectations, led by the continued strength of College Coach, which contributed both top-line growth and strong margins. Furthermore, EdAssist expanded its participant base as employees continue to explore education benefits to support their career development. We believe that our investments in this product offering and customer experience position us well to meet the evolving client upskilling needs and create value over time. We added new clients to the portfolio this quarter, including Sony Music and Premier Health Partners, expanding our reach and reinforcing the relevance of education and coaching benefits in today's landscape. Before I turn it over to Elizabeth, I want to take a moment to reflect on one of the most meaningful traditions at Bright Horizons, our awards of excellence celebration. This year, we once again had the privilege of gathering in person to honor the extraordinary contributions of our employees. With more than 20,000 nominations from colleagues, families, and clients, the awards and the events were powerful reminders of the deep impact our teams have on the lives of those we serve. Celebrating together with our Westminster, Colorado, and Newton, Massachusetts teams was a true highlight, a chance to recognize the passion, care, and commitment that define our culture. To all our employees, thank you for the work you do every day and for the difference you make in the lives of children, families, learners, and employers around the world. This terrific quarter reflects strong contributions across all of our service lines. Looking ahead, we remain focused on building a more integrated Bright Horizons, one that aligns our delivery model, technology, and client partnerships to provide a more seamless experience for working families. Our broad portfolio is central to this effort, and back-up care stands out as a cornerstone of our One Bright Horizons strategy, serving as a strategic lever for strengthening client relationships, enhancing employee productivity, and driving enterprise-wide value. Given our results year-to-date and our current outlook for Q4, we are upgrading our full-year earnings guidance. We now expect revenue to be approximately $2.925 billion, representing 9% growth, and we are increasing our adjusted EPS to a range of $4.48 to $4.53. With that, I'll turn the call over to Elizabeth, who will dive into the quarterly numbers and share more details around our outlook.

Thanks, Stephen, and greetings to everyone on the call tonight. Let me start with our financial highlights. Revenue for the third quarter grew 12% to $803 million, driven by continued growth and disciplined execution across each of our segments. Adjusted operating income rose 39% to $124 million, with operating margins increasing approximately 300 basis points over the prior year to 15.5%. Adjusted EBITDA increased 29% to $156 million, reflecting an adjusted EBITDA margin of 19% for the quarter. Lastly, adjusted EPS of $1.57 exceeded our expectations, supported by strong back-up revenue performance and operating leverage. Breaking this down further into the segment results. As noted, back-up care revenue grew 26% in the third quarter to $253 million, driven by strong demand during the peak summer season. At this peak level of utilization for the year, we also achieved significant operating leverage as adjusted operating income of $95 million increased by $25 million compared to the prior year, which translates to an operating margin of 38%. Full-service revenue of $516 million was up 6% in Q3, mainly due to pricing increases, modest enrollment gains, and an approximate 125 basis point benefit from foreign exchange. Centers that we have closed since Q3 of 2024 did partially offset these top-line gains. Enrollment in our centers that have been open for more than one year increased by low single digits across the portfolio. As Stephen mentioned, occupancy levels for our portfolio open for more than one year averaged in the mid-60s for Q3, showing improvement over the prior year, but naturally declining sequentially from last quarter due to typical summer seasonality. In the specific center cohorts we previously discussed, we continue to show improvement over the prior year. Our top-performing cohort, which consists of centers above 70% occupancy, improved from 42% of these centers in the third quarter of 2024 to 44% in the third quarter of 2025. The bottom cohort of centers, those under 40% occupancy, improved modestly from 13% last year to 12% this past quarter. Adjusted operating income of $20 million in the full-service segment increased by $8 million compared to the prior year, representing 4% of revenue in the quarter compared to 2.6% in the same period of 2024. This improved operating leverage was supported by higher enrollment driving growth in earnings. Lastly, educational advisory revenue, which increased 10% to $34 million, delivered operating margins of 26%, an improvement over the prior year, with strong flow-through on the higher utilization of services. Recurring interest expense was $10 million in Q3, down from $12 million in Q3 of 2024, primarily due to lower interest rates and overall borrowings. The effective tax rate on adjusted net income was 27%. Regarding the balance sheet, through September of this year, we generated $203 million in cash from operations, made fixed asset investments of $59 million, and repurchased $105 million of stock. We ended Q3 with $117 million in cash and reduced our net leverage ratio to 1.7 times net debt to adjusted EBITDA. Now moving on to our updated 2025 outlook. We're updating our 2025 guidance for both revenue and adjusted EPS to reflect the outperformance in Q3 and our expectations for Q4. We now expect revenue to be approximately $2.925 billion and adjusted EPS in the range of $4.48 to $4.53. In terms of our updated full-year outlook by segment, we expect full-service revenue to grow about 6%, back-up care to grow around 18%, and educational advisory growth to be in the high single digits for the full year. This outlook translates to projected Q4 revenue in the range of $720 million to $730 million and adjusted EPS between $1.07 and $1.12. So with that, Shamali, we are ready to go to Q&A.

Our first question comes from the line of Andrew Steinerman with JPMorgan.

So obviously, I wrote a report sizing out the back-up care industry recently, and your back-up growth was just tremendous. I surely wanted to ask you about the sustainability of these types of growth rates. I remember that you like to refer to kind of low double-digit growth as the sustainable rate, but you're growing above that now and into the fourth quarter.

Thank you, Andrew. We're just deciding who will go first. Thanks for your question. As mentioned, we are reviewing our performance in the third quarter, which exceeded our expectations significantly. We are anticipating about 18% growth for this year, reflecting an increase over the previous year. Looking ahead, while it's still early and we won't provide detailed guidance for 2026, we expect next year's growth to be in the low double digits, likely ranging from 11% to 13%. There remains a considerable amount of opportunity for growth, as Stephen mentioned regarding the various components that contribute to this. I'll let him elaborate further on that.

Great. Thank you, Elizabeth. And Andrew, thank you for the note that you put out. It highlighted a really critical part of our business. And when we think about the long-term sustainability around the back-up care business, we were very encouraged this quarter, but candidly, for the whole year around our ability to continue to grow both the user base as well as the frequency of use. And look, at the end of the day, we're really focused on getting new users from among our client base, but also making sure that those who use return. And when we think about the full scope of the opportunity, at this point, we have over 1,000 clients out of tens of thousands of potential clients. We have approximately 10 million lives that we have the ability to impact, and they are eligible for these services, of which we have less than 10% penetration. So when we really think about the opportunity, we're looking at it through that lens and believe that long term, this continues to be an important part of our growth algorithm.

Our next question comes from the line of George Tong with Goldman Sachs.

You mentioned enrollments increased in the low single-digit range. Can you clarify what low single digits means and if your full-year enrollment growth outlook is still 2%?

We had about 2% growth last quarter and are expecting something closer to 1% this quarter, so low single digits indicating a slight decrease from last quarter. We anticipate exiting the year at a similar pace of around 1%.

Got it. That's helpful. And I guess following up on that, what would you think could be positive catalysts to drive a reacceleration in enrollment growth? Is it going to be external and market-driven? Or are there internal initiatives that you have that can help pick up that growth?

Certainly, we have various initiatives aimed at enhancing the customer experience, which include facilitating the transition from inquiry to actual registration and enrollment. We're implementing more effective marketing strategies and targeted outreach to our customers, and connecting individuals within our employer network to our centers. Our goal is to make the registration process smoother for parents so they can start using our services when needed. However, we also recognize that external factors impact demand. The current economic environment is somewhat unpredictable, with varying pressures on consumers and differing rates of return-to-office situations. This can lead to fluctuations in demand from parents. We are satisfied with the positioning of our services close to where working families live and work, enabling us to maximize usage where employers are concentrated. Nevertheless, we remain aware of the financial pressures faced by consumers, who typically bear most of the costs for our service. Therefore, maintaining affordability and ensuring our value proposition is clear and accessible to parents are key factors within our control.

Our next question comes from the line of Jeff Meuler with Baird.

Just given those economic conditions that you just referenced, how are you planning tuition pricing, I guess, in calendar year 2026 for full service?

Yes. On balance, Jeff, we're looking at around a 4% average that would be at the higher end of our historic range. However, in this kind of an environment, it's a bit of a middle-of-the-road pricing strategy. We have, as you know, a variable implementation of that. So that's an average, but we do make individual localized decisions that take into account market factors and other choices or competitors in the environment. In the centers that remain under-enrolled, we may take a more aggressive pricing approach. In those that have higher demand, we may price higher. When I say aggressive, I mean we may go lower than that average and then we may price higher than average where the demand is greater, but the average is looking to be in the neighborhood of 4%.

Okay. And then for back-up care, just with that big opportunity and also with the demand we're seeing and the strong execution we're experiencing with your results, I guess, how are those factors intersecting with the budgetary environment as clients do calendar year 2026 planning and budgeting for your service? Are they leaning in, like we've seen in the strong results this year? Or is there any sort of increased hesitancy for budgetary reasons?

Sure, Jeff. So we are through the lion's share of our renewal season at this point. First, I would say that our clients were really pleased with how this year has turned out for them and their employees. The feedback has been incredibly strong from their employee base, which is a real marker of the importance of the back-up care service. We've done an increasingly positive job of articulating the ROI, especially as it relates to productivity related to our service. I think we are well set up going into 2026 for our clients to continue being interested in investing. Contextually, back-up care represents a small part of a benefits budget. When they think about some of the larger items like healthcare or even a 401(k), those are areas where obviously, those are significant in terms of their investment. I think that for any individual client, while the kind of growth we've experienced over the last several years is important for our business, I think it's reasonably absorbed by our client base given that context and the importance of the service.

Our next question comes from the line of Manav Patnaik with Barclays.

My first question was just in the back-up performance this quarter. Where did you see the outperformance versus kind of the expectations of the guide that you had given? And maybe I don't know if that correlates with the context on, Stephen, you said it's very early innings in back-up care. Is that new logos, upsell, a combination of both? I was just hoping for some color there.

Sure. Happy to. So I think we mentioned a couple of new logos. However, in any given year, the reality is that the vast majority of the growth we experience is from the existing user base and existing client base. What we really saw was our ability to grow new users and continue to get existing users to come back and reuse, which was an important component of the outperformance. Clearly, in this quarter, we saw good use across the different types of use, but school-age programs were an important component of the quarter. The flexibility of space and the numbers of new opportunities through Steve & Kate's and our extended network allowed for our outperformance. If you'll remember from last quarter's call, we highlighted that we saw some strong indications of early reservations. It seems that working families came much closer to the date needed for care and ultimately drove what we saw this quarter.

Okay. Got it. And Elizabeth, you provided some good helpful color for the fourth quarter and an early look at '26. I was hoping you could just fill in the gaps on the margin front, like where do you think margins end up in '25? And then anything to keep in mind when we model out next year?

Yes. So we obviously, maybe ticking through the different segments. For full service this quarter, we had a nice step-up in margin, roughly 140 basis points. We would expect to finish off the year in the 125 basis points range for the full year. With back-up care, obviously, had a very strong quarter. The volume of use helps that, and we would expect to be at the upper end of the range. We've given a range of 25% to 30% for our expected long-term sustainable target for the back-up care segment. With the performance in the third quarter and that kind of volume, we would expect to be at the higher end of that range again for the full year. The ed advising business is expected to be in the low 20s as we've seen in the last couple of quarters.

Our next question comes from the line of Toni Kaplan with Morgan Stanley.

At least three of your representative clients have announced headcount reductions in the thousands in the past six months, two of which were in September and October. Should we expect to see any impact from that? Or because of your multiyear contracts and maybe back-up care strength, would that offset any impact from those?

So Toni, I think the question you just asked was related to layoffs at some of our clients and the impact that might have on their investment. What I would say is I would hearken back to what I shared about the low penetration we have within the existing eligible base of employees within our client employees. With sub 10% penetration, we categorically have a lot of room, even with some reductions in force. Yes, we have multiyear contracts, but ultimately, what drives the day in terms of where we see continued investment is our ability to continue to get new users and to get existing users to repeat their use. Given the small penetration we have, our expectation is that with our efforts, we should continue to see good progress going forward, even in those accounts that have reductions in force.

Great. Maybe in your experience of companies where they do have reductions in force, do they typically change their benefit levels? I'm sure there's like a delay or anything like that, but have you ever seen full-service clients switch to back-up care? Or is that not really a thing because they've already typically built a center?

Yes. On the center side, as we've shared, that's a really long-term decision. Clients generally, unless they get into an incredibly compromised position, will persist with their center. On the back-up side, from a program design standpoint, again, we don't typically see clients change their program design, for example, how many uses an individual employee can access. Ultimately, when they find themselves in situations with reductions in force, they expect more from the employees who remain. Back-up is aligned with being a productivity tool for those who use it. Employers understand that for those who remain, they need all the support they can get as it relates to staying focused on their work.

Our next question comes from Josh Chan with UBS.

Stephen and Elizabeth, congrats on the good quarter. As you think about going into next year, how are you planning to resource the back-up business? If you were faced with surprisingly high demand again, what do you do to fill capacity in that scenario?

Yes. We go through an extensive planning cycle; we look at our expected demand client by client and geography by geography. We have a comprehensive team that focuses on the BI behind the business and a provider relations team that tries to map what expected demand is against our provider network. We have sophisticated tools to ensure we don't get caught with extra demand that can't be fulfilled. We have a good track record of fulfilling a high percentage of the care requests required. I appreciate the question; it's an important one, and we spend a lot of time ensuring we invest in capacity to make it available for our clients and their employees because that is such an important metric to those we serve.

How does the back-up strength alleviate the need for you to raise enrollment quickly in full service as you think about having some of that capacity to serve your strong back-up demand? Does that change your thinking about enrollment in full service?

I'll start and then perhaps Elizabeth can add context. Taking a step back on that question, it's important. Our center footprint is critical for fulfilling back-up cases. The value of that center footprint is increasingly seen as an important shared resource between back-up and full service. The strategic value of our full-service centers is about the demand we can fulfill on the back-up side of our business in our own centers. This is because fulfilling back-up care cases has a strong margin profile and is important to deliver on.

Yes. We have been in positions where a center has significant back-up demand. We can dedicate a room or two specifically covering back-up care and/or school-age care in the vacation weeks. There are good opportunities for us to utilize the full-service footprint in the way you described, going to Stephen's strategic fulfillment side and utilizing the capacity that exists. Some centers remain under-enrolled, but they have always had capacity since we don't operate fully every day. It's been a muscle we’ve developed over time, and as our placement systems improve in speed and accuracy, we're able to fulfill more of that care.

Our next question comes from the line of Stephanie Moore with Jefferies.

This is Harold Antor on for Stephanie Moore. Just real quick on the U.K. I know you guys are seeing some improvements there. I just wanted to get any more color. What percentage of the centers are there? What percent of revenue is it running? I think you wanted to break even this year. How has it been running year-to-date compared to your projections? What would you be thinking the contribution to '26 would be? Anything around that would be very helpful.

Yes. Thanks for the question. The team has worked very hard in the U.K. to bring that well-positioned portfolio back to its prior operating capability. The performance this year has been steady and improving enough that we are comfortable with the visibility of being more on the positive side than just breakeven. As we look ahead to 2026, the performance for the U.K. has contributed to the improvement in the margin in full service this year. It's still a headwind; probably around a 50 basis point headwind. However, as it continues to improve and contribute next year, it will still be trailing where we are in the U.S. business. Thus, it is a bit of a tailwind, but it will contribute to our momentum next year. Overall, we expect to see some margin expansion next year, not at the pace we are seeing this year, more like 50 to 100 basis points, but the U.K. would be a component of that.

Our next question comes from the line of Jeff Silber with BMO Capital Markets.

This is Ryan on for Jeff. Just had a quick follow-up question on the pricing for next year. Based on the data we track on child care service wages, they've been growing around 4%. I'm not sure if you're seeing anything differently. So wondering how you see the wage inflation dynamic evolving? What is your confidence level in just being able to price over that? I know it's a bit different by market, but just in relation to the 4% pricing you mentioned on average for next year?

Yes. I appreciate the context about general market factors. We tend to be paying at the median to higher on wages. Therefore, we confidently believe we will sustain that. We have typically targeted a 100-basis point spread between average tuition increases and average wages. At this point, we expect to be able to sustain that given where we see our labor cohort. So, confidence-wise, we do feel confident that we can price ahead of wage inflation, balancing out, as mentioned before, with some conditions where we may take a more aggressive pricing approach to drive demand and enrollment in underperforming centers.

That's very helpful. And then just for the follow-up, how should we be thinking about the net center openings for next year? Are you in a position now where you think you'll be a net closer of centers just looking at the 12%, sub-40% utilization you called out? How do you think about that going into next year?

Sure. This year, we entered the year looking to be close to net 0 on the openings versus closures. Given the cadence of where we have a number of centers in development that have pushed into the early part of next year, our openings are trailing by a handful this year. We've also been opportunistic about some of the closures. We expect to be net closing this year, probably closer to 5 to 10 centers. Looking ahead to next year, we may not be net positive in 2026, but that is really down to those centers that are under 40% occupancy. There are about 80 P&L centers in that cohort. Some of those are client centers, but 80 of them are in our responsibility. A portion of them are operating at a level where they are partially covering their rent, and they have some strategic opportunity with the client relationships Stephen mentioned, plus some back-up use. Thus, not all of those would close, but those are the most likely candidates.

Okay. Well, thank you very much. Really appreciate everyone joining today's call and wishing you all a good night and a happy Halloween.

Thanks, everybody.

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.