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Greetings, and welcome to the Bright Horizons Family Solutions Third Quarter Earnings Release Conference Call. [Operator Instructions] 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. 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 use 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. And 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 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. As we look 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 an 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 3 new centers this quarter, including 2 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 1 year increased at a low single-digit rate, while average occupancy ticked down to the mid-60s sequentially given 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. And 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 to 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 backup use. We are also ensuring our portfolio is aligned 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. In addition, 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. In closing, this terrific quarter reflects strong contributions across all of our service lines. As we look 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 up roughly 300 basis points over the prior year to 15.5%. Adjusted EBITDA increased 29% to $156 million and represents an adjusted EBITDA margin of 19% in the quarter. Lastly, adjusted EPS of $1.57 came in well ahead of our expectations, supported by strong back-up revenue performance and operating leverage. Breaking this down a bit further into the segment results. As noted, back-up care revenue grew 26% in the third quarter to $253 million, driven by strong demand over the peak summer season. At this high watermark of utilization for the year, we also delivered significant operating leverage as adjusted operating income of $95 million increased $25 million over the prior year, and that translates to an operating margin of 38%. Full service revenue of $516 million was up 6% in Q3, mainly on pricing increases, modest enrollment gains and an approximate 125 basis point tailwind from foreign exchange. The centers that we have closed since Q3 of 2024 did partially offset these top line gains. Enrollment in our centers opened for more than 1 year increased low single digits across the portfolio. As Stephen mentioned, occupancy levels across our portfolio opened for more than 1 year averaged in the mid-60s for Q3, improving over the prior year, but naturally stepping down sequentially from last quarter given typical summer seasonality. In the specific center cohorts that we've previously discussed, we continue to show improvement over the prior year. Our top-performing cohort, that is centers above 70% occupied, improved from 42% of these centers in the third quarter of '24 to 44% in the third quarter of '25. The bottom cohort of centers, those under 40% occupied, improved modestly from 13% last year to 12% this past quarter. Adjusted operating income of $20 million in the full service segment increased $8 million over the prior year and represented 4% of revenue in the quarter compared to 2.6% in the same 2024 period. This improved operating leverage was bolstered by higher enrollment to help drive that 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, largely due to lower interest rates and lower overall borrowings. The structural effective tax rate on adjusted net income was 27%. Relative to the balance sheet, through September of this year, we have generated $203 million in cash from operations, made fixed asset investments of $59 million and have repurchased $105 million of stock. We ended Q3 with $117 million of cash, and we've reduced our net leverage ratio of 1.7x net debt to adjusted EBITDA. Now moving on to our updated 2025 outlook. We're updating our '25 guidance for both revenue and adjusted EPS to reflect the outperformance in Q3 as well as our expectations now for Q4. We now expect revenue to approximate $2.925 billion and adjusted EPS to be 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 roughly 6%, back-up care to grow roughly 18% and ed advisory growth to be in the high single digits for -- again, for the full year. What this full year outlook translates to for Q4 is overall revenue in the range of $720 million to $730 million and adjusted EPS in a range of $1.07 to $1.12. So with that, Shamali, we are ready to go to Q&A.

[Operator Instructions] 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 type 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.

Yes. So thanks, Andrew. We're just looking at each other, who goes first. So thanks for the question. Well, as noted, we're looking at now, given the performance in the third quarter, which was certainly very substantial and outsized to our own expectations. We're looking at about 18% growth for this year. And that reflects, obviously, the growth over our prior year. And continuing that going forward, we would -- still it's early days. We're not going to be providing detailed guidance yet for 2026. But as we look ahead, certainly, that low double digits ticking up a bit probably from that to maybe 11% to 13% would be where we would be looking for next year, but it is a model that does have a tremendous amount of opportunity, as Stephen alluded to in terms of the piece parts of how we can grow that. And maybe I'll turn it over to him to talk a bit more about 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 around getting new users from among our client base, but also making sure that those who use return. And so when we think about the full scope of the opportunity, at this point, we have, call it, over 1,000 clients out of tens of thousands of potential clients. We have, call it, 10 million lives that we have the ability to impact. They're eligible for these services, of which we have less than 10% penetration. And so when we really think about the opportunity, we're really 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%?

Yes. So we had -- as we talked about last quarter, George, we had probably about 2% growth last quarter and are looking at something closer to 1%, 1% plus this quarter. So low single digits being a little bit of a taper from where we saw last quarter, and that's the pace at which we would expect to exit the year similar to that 1%, 1% plus.

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?

Yes. I mean certainly, the opportunity through what we're controlling our own initiatives include a variety of the improvements to the customer experience, the ability to move from inquiry or just interest in a place to actual registration and enrollment. We have a number of both initiatives in terms of more effective marketing, more targeted outreach to our customers, connecting customers who are part of our employer base across our network of centers. So there are a number of initiatives in that way, but just smoothing the experience for a parent who is able to register and then -- and start using care when they need it. But certainly, I think external factors are in play. There is, I think, an environment from an economic standpoint that is -- continues to be a bit unsettled with different pressures on the consumers and the return to office cadence continues to be moving faster in some areas than others. And so parent demand can be somewhat variable there. But we're pleased with our general placement of our portfolio in terms of being close to where working families are living and/or working and where employers are able to generate a concentrated amount of use, but we are also mindful of the pressures on the end consumer who does typically pay the lion's share for this service. So being affordable in the market, our value proposition very visible and available to parents to see, those kinds of things are certainly in 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. But 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, other choices or competitors that may be in an environment. And in the centers that we have that still remain under-enrolled, we may take a more aggressive pricing approach. And in those that have higher demand, we may price higher. And by aggressive, I mean we may go lower than that average and then we may price higher than average where the demand is higher. 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 just with the demand we're seeing and the strong execution we're seeing in 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 kind of 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. And first, I would say that our clients were really pleased with the way 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. I think we have done an increasingly positive job of articulating the ROI, especially as it relates to productivity related to our service. And so I think we're well set up going into 2026 for our clients to continue to be interested in investing. Contextually, back-up care still represents a really small part of a benefits budget. And so when they think about some of the larger items like health care 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 that we've experienced over the last several years is important for our business, I think it's very 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. Like 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. But in any given year, the reality is that the vast, vast majority of the growth that we experience is from the existing user base and existing client base. And so what we really saw was our ability to grow new users and continue to get existing users to come back and reuse was an important component of the outperformance. Clearly, in this quarter, we saw good use across the different use types, but school-age programs were an important component of the quarter. And what's nice about school-age programs, in particular, is our ability to flex up and down given ratios, given flexibility of space and the numbers of new opportunities through Steve & Kate's as well as through our extended network. And so all those things taken together really allowed for our outperformance. Manav, if you'll remember from the last quarter call, we highlighted that we saw some strong indications of early reservations. And I think what ended up happening was that got compounded with working families who came much more closer to the date of needed care and ultimately drove what we saw this quarter.

Okay. Got it. And Elizabeth, just you've given some good helpful color for the fourth quarter and some 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. So full service this quarter had a nice step-up in margin, 140 basis points or so. We would expect to finish off the year in the 125 basis points or so range for the full year. And back-up care obviously had a very strong quarter this 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% as our expected long-term sustainable target for the back-up care segment. And so 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. And then the ed advising business in the 20% or so plus, 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 3 of your representative clients have announced headcount reductions in the thousands in the past 6 months, 2 of which 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, that might have on their investment. What I would say is I would hearken back to what I shared about the low penetration that we have within the existing eligible base of employees within our client employees, right? So at a sort of sub 10% penetration, we categorically have a lot of room even with some reductions in force. And so yes, we have multiyear contracts. But ultimately, what is going to drive the day in terms of where we see continued investment is going to be in our ability to continue to get new users and to get existing users to repeat their use. And so given the small penetration that we have, our expectation is that with our efforts, we should continue to see good progress going forward even in those accounts that are having 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 normally built a center already?

Yes. So I think on the center side, as we've shared, I mean, that's a really long-term decision. And so I think clients generally, unless they get into an incredibly compromised position, generally will persist with their center. And so again, I think on the center side, we see really good retention rates on the basis that a client will understand that there'll be better and worse cycles and they'll continue to push through that. I would say 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 have access to because ultimately, when they do find themselves in situations where they are reducing their force, what that really means is they're expecting more from the employees that remain. And so given that back-up is so aligned with being a productivity tool for employees who use it, employers generally understand that for those that remain, they need all the support that they can get as it relates to staying focused on their work.

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

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

Yes. I mean look, we go through an extensive planning cycle, and we look at our expected demand client by client, and then we also look at it geography by geography. And so we have a really comprehensive team that focuses on the BI behind the business and then a provider relations team that really tries to map what expected demand is against the provider network that we have. And so what I would say is that we have fairly sophisticated tools to make sure that we don't get caught out with extra demand that can't be fulfilled. And because both in our own centers as well as in our own Steve & Kate's Camps in home care delivery as well as all of our extended partners, we are leveraging sort of excess capacity on any given day. We have a really good track record of being able to fulfill a high percentage of the care requests that ultimately are required. And so I appreciate the question. I think it's an important one, and we spend a lot of time making sure that we invest behind the capacity to make sure that it is available for our clients and their employees because that is such an important metric to those who we serve.

And I guess how does the backup strength, does it alleviate the need for you to raise enrollment quickly in full service as you think about maybe having some of that capacity to serve your strong back-up demand? Does that change the way you're thinking about enrollment in full service?

Well, I'll say -- I'll start and then perhaps Elizabeth will play color. But I think if we take a step back on that question, which I think is an important one, as I shared in the prepared remarks, our center footprint is a critical component of our ability to fulfill back-up cases. And so when we think about the value of that center footprint, we are increasingly seeing the amount of care that we can fulfill through our own network of Bright Horizons centers as an important sort of shared resource between back-up and full service. So the implication of what you just said is true, which is the strategic value of our full service centers is not just about how quickly can we enroll, but it is also about how much demand can we fulfill on the back-up side of our business in our own centers because clearly, when we think about the margin profile for the company, the margin profile for the company of fulfilling back-up care cases, obviously, is strong and therefore, is important to make sure we're able to deliver on.

Yes. And Josh, there's certainly some cases where we have been in a position where a center has not only pretty significant back-up demand, but predictable enough back-up demand that we can dedicate a room or 2 to specifically cover back-up care and/or school-age care in the vacation weeks and other things like that. So there are good opportunities for us to utilize the full service footprint in the way that you described that goes to what Stephen is talking about from the strategic fulfillment side of the equation, but also just utilizing the capacity that exists. In our full service centers now, certainly, some are still under-enrolled, but they have always had capacity since we don't operate full every day. And it's been both a helpful muscle that we've been able to develop over time. And as our systems of placement get more -- both speedier and more accurate from a time placement standpoint, 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. So I just wanted to get any more color. What percentage of the centers are there? What percent of revenue is it running? And I think you wanted to break even this year. I guess how has it been running year-to-date compared to your projections? And then I guess, what would you be saying -- what would you be thinking the contribution to '26 would be? Just anything around that would be very helpful.

Yes. Thanks for the question. And certainly, the team have been very hard at work in the U.K. to bring that well-positioned portfolio back to its prior operating capability. And the performance this year has been both steady. It's been steady for several quarters now, but it has been steady and improving enough that we are comfortable with the visibility of being more on the positive side than just breakeven side for the U.K. And as we look ahead to 2026, the performance for the U.K. has been a contributor to the improvement in the margin in full service this year. It still is a headwind, probably 50 basis points or so headwind. And as it continues to improve and contribute to next year, that will -- it still is trailing where we are in the U.S. business as an example. So it still is a bit of a tailwind but it will contribute to our momentum as well next year. Full service overall, I think that the point about enrollment, we talked about tuition rate increases, et cetera. Overall, we would continue to expect to see some margin expansion next year, maybe not at the pace that we're seeing this year, more like 50 to 100 basis points of margin expansion, 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. Just 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? And then what is your confidence level in just being able to price over that? I know it's a little bit different by market, but just in relation to the 4% pricing you said on average for next year?

Yes. We have -- I appreciate the context of some general market factors. We tend to be paying at certainly the median to higher on wages. And so we feel like we will be able to sustain that. We have typically targeted a 100-basis point spread between average tuition increases and average wages. And we would, at this point, expect to be able to sustain that given where we see our labor cohort. So I think confidence -- we do feel confident that we can price ahead of wage, balancing out, as mentioned before, some of the conditions where we may be a bit more aggressive on price in order to continue to drive demand and enrollment in the centers that are more underperforming.

That's very helpful. And then just for the follow-up, I was wondering how we should 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, I think, the 12%, sub-40% utilization you called out? And how do you kind of think about that going into the next year?

Sure. So this year, we had -- I think we entered the year looking to be plus/minus close to net 0 on the openings versus closures. And given the cadence of where we have a number of centers that are in development that have pushed into the early part of next year. So our openings are trailing by a handful this year. And then we have also been opportunistic about some of the closures. So we expect that we will be net closing this year, probably closer to 5 to 10 centers. As we look ahead to next year, and so that would be closures in the neighborhood of 25 to 30 or so centers. So we would be looking to close, I would estimate at this point, we're still in the planning process for 2026, but a closure level in that same range. So we may not be net positive in 2026, but that is really down to the -- those centers that are in the sub-40% occupied, as you mentioned. There's probably 80 P&L centers in that cohort. There are a handful of client centers, but there's 80 that are in our sort of P&L responsibility. And of those, a portion of them are operating at a level where they're partially covering their rent, and they have some strategic opportunity with the client relationships that Stephen mentioned, some back-up use. So not all of those would close, but they -- that's the group that would be the most likely candidates for closure.

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.