Gary Bisbee - Barclays Capital Jeffery Volshteyn - JPMorgan Ang Syng - Credit Suisse Jeff Silber - BMO Capital Markets Bob Craig - Stifel Nicolaus Tim Carl - William Blair Brian Zimmerman - Goldman Sachs Jeff Meuler - Baird

Greetings and welcome to the Bright Horizons’ Family Solutions First Quarter 2013 Conference Call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Lissy, CEO of Bright Horizons’ Family Solutions. Thank you Mr. Lissy, you may begin.

Thank you, Roya and greetings from Watertown and hello to everybody on our call today. Joining me as usual is Elizabeth Boland, our Chief Financial Officer and she has been waiting all day to go through our Safe Harbor Statements. So, let me turn it over first to Elizabeth. Elizabeth?

Thank you, Dave. Hi, everybody. Our earnings release did go out today after the close of the market and it’s available on our website under the investor relations section at brighthorizons.com. This call has been recorded and it’s also being webcast and so a complete replay is available in either medium. The phone replay number is 877-870-5176 or for an international caller it’s 858-384-5571 with conference ID number 413218. The webcast will be available at our website under the Investor Relations section also. In accordance with Regulation FD, we use these conference calls and other similar public forums to provide the public and the investing community with timely information about our business operations and financial performance, along with our expectations for future performance. We adhere to restrictions on selective disclosure and limit our comments to items previously discussed in these types of calls. We also discussed certain non-GAAP measures on this call and detailed disclosures relative to these measures are included in our press release as well as the Investor Relations section of our website. The risks and uncertainties that might cause our future operating results to vary from what we describe in our forward-looking statements made during this call include our ability to successfully implement our growth strategies, including executing contracts for new client commitments, enrolling children in our childcare centers, retaining client contracts and operating profitably in the U.S. and abroad. Secondly, our ability to identify complete and successfully integrate acquisitions and to realize the attending operating synergies, third, decisions around capital investment and employee benefit to employers that we are making, fourth, our ability to hire and retain qualified teachers and other key employees and management. Fifth, our substantial indebtedness and terms of such indebtedness, and lastly, the other risk factors which are set forth in our SEC filings. So back to Dave to summarize our results and give you all our business update.

Thanks Elizabeth and hello again to everybody on our call. It’s been a busy couple of months since we last spoke to you about our fourth quarter results and as usual I will kick things off of the broad overview and Elizabeth will follow up with a more detailed review of the numbers and our outlook before we open it up for Q&A. First, let me recap the headline numbers for the quarter. Revenue of $280 million was up 9% over prior year. An adjusted EBITDA of $49 million was up 17%. Adjusted net income of $16 million was up 85% over the first quarter of 2012, which yielded adjusted earnings per share of $0.25, up from $0.16 in last year’s first quarter. We started off 2013 strong as we continued to execute in our long term plan to grow our core center business while expanding or newer services and growing our footprint outside the United States. We added 11 new centers in the quarter and increased our full service center capacity by just over 5%. Some of these highlights in the first three months for new centers were St. Jude’s Children Research Hospital, Marion Regional Medical Center as well as our third Center for the University of California at San Francisco. Our back up in educational advisory services also continued to grow this quarter with new client additions that included limited brands, (inaudible) price and Ingersoll-Rand, just to name a few. We continued to be very optimistic about the cross selling opportunity that exist for us to expand our relationships with existing and new clients through these valuable service channels. Once again this quarter we have continued to deliver on our long term plans to improve our gross margins which expanded a 100 basis points to 23.5%. The main…

So my comments on our operating results will focus on revenue, gross margins and certain adjusted metrics, including adjusted EBITDA and adjusted net income and EPS. As a reminder, the earnings release includes tables that re-council our US GAAP reported numbers to these additional metrics including one time charges of 7.5 million to terminate our sponsor management agreement with (inaudible) 5 million associated with divesting of performance based options upon completion of the IPO and 1.5 million of deal costs in connection with our acquisition of Kidsunlimited. So, into this sort of detailed line items on the P&L; top line revenue growth with 22 million as Dave mentioned in Q1, with the full service center business increase in 18 million or back up division increase in 3 million and advisory services increasing 1 million. Revenue on our full service segment increased to the rate increases and enrollment gains of approximately 1% in our material class of P&L centers as well as through growth from new centers. Our revenue growth in this segment will dampen somewhat this quarter by lower than planned operating subsidies from our class of cost split centers. As Dave mentioned earlier, movements in revenue in costs plus contracts have no effect on our earnings given the fix nature of our management fees. This short volume estimated 3 million in the quarter. When additional offsetting effect to revenue growth this quarter was approximately 1 million from foreign exchange impact. Gross profits increased $7.8 million to $66 million in the quarter and were 23.5% of revenue compared to 22.5% in 2012. The largest contributor to this was in the full service segment which grew more than 6 million as the margins there expanded over a 100 basis points. Excluding the one-time costs and SG&A related to the IPO and…

(Operator Instructions) Our first question comes from the line of Sara Gubins with Bank of America Merrill Lynch. Please proceed with your question.

This is David for Sara Gubins. Can you just go over the cost plus situation a little bit more detail, why it was late for the quarter.

Yes, David, I will take that, so for some of you who follow the company for a long time, you know that in the cost plus class of centers the revenue component is made up in part by what parents pay us in those contracts in tuitions, and in part from what clients subsidize, and what ends up happening is we set budgets for that classes at the beginning of the year, for a variety of expenses and if subsidy spending which is good in the eyes of the client as you know running a little less, it turns into a slightly lower spend for them, a little less revenue for us, but doesn’t change our fee since the management fee is a fixed fee. So essentially what we were seeing in Q1, the numbers move around a little bit but directionally it’s not different. It really has not effect in our view in the underlying fundamentals of the business and has not effect on earnings.

Okay, that’s helpful and one more from me. What kind of economic expectations are embedded in your 2013 forecast, I am just trying to get a sense of, do you expect the job (inaudible) to improve and which could suggest improved capacity utilization?

I think our view David is we are not banking on any additional economic movement in our plan. I feel like we have been operating in a somewhat schizophrenic recovery period for a while now. I am hopeful that in time that will change, but for now our plan banks on sort of the experience we have had over the past year, a year and a half, to two years of whatever you want to call the recovery period we have been in, continuing at a pace similar to what we have seen in the second part of this year in the first quarter of this year and so. We are really not banking on any uptick in economic activity.

Our next question comes from the line of Gary Bisbee with Barclays Capital, please proceed with your question.

If I can just ask about the revenue growth in both backup and educational advisory, the growth rates decelerated somewhat from the recent trend, anything in particular you would point to?

No, it’s just timing more than anything else. I think there is no change in our view of the fundamentals, in those areas Gary. Quarterly growth rates may move a little bit based on the timing of leasing of contracts and things like that, but. No real change in the fundamentals.

Okay and are there reasons to believe both of those that the year-to-year growth rate would accelerate based on the contracted activity, and what not, as we move throughout the year?

Yes, so over the course of the rest of the year, there is a little bit of seasonality in the advisory business in particular so both the timing of the growth and then newer contracts in that area we would expect to see it moving up as the year goes along and the backup business has a bit of that seasonality as well and what we have in the plan for the rest of the year is openings we would see that tick up somewhat as well so that the rate you are seeing in Q1 is the lightest quarter of the year.

And then just on the acquisition it sounds like a rogue deal the 7 million of EBITDA once you have achieved the overhead savings is that a good number to plug-in for 2014 or is that, could that get better as you see their recent start-up facilities mature?

Yes Gary we are not yet in a position to give definitive guidance for 2014 so we wanted to provide you with a number that is a rational basis on which we looked at this deal and we believe that on an annualized basis that it will generate the GBP7 million of EBITDA. It is fair to say that in that number includes some of the ramp up within their centers sort of a realistic view of what that can be over the course of the next 12 months. also it includes a what I will call realistic view of overhead synergy opportunities that exist and it is also fair to say like in any acquisition there is risks and opportunities and we will be working hard to try and see if we can get the opportunities to play off and achieve upside but I think GBP7 million is a fair kind of annualized number and I think it also directionally helps you to understand the value that we saw in it in what we paid for it we believe is pretty much in our wheel house in terms of fair valuation of the deals we like.

And then just one last cleanup question, the 1.5 million this quarter in deal charges are there going to be one-time stuff in the second quarter or was the fee paid ahead of the…?

No there is some expectation of the final charges that we will have to complete some of the work that is necessary with our SEC filings Gary. So there will be a little bit more coming out of that scale but we would to expect another up to three quarters of a million probably in Q2 that we would just isolate as well.

Our next question comes from the line of Jeffery Volshteyn with JPMorgan. Please proceed with your question.

In the second quarter I appreciate the additional guidance can you help us think through the acquired revenue piece. I know the prior acquisition kind of rolls off and the new one comes in like what is the percentage of acquired revenues in the second quarter?

Let me just take that. After maybe I can circle back, I don't know if you have another question Jeff that I can better diagnose that.

Sure. International markets outside of US and the UK, can you comment on those what's going on there? I know they are much smaller.

Do you mean Jeff the ones we're currently in?

Yes and potentially where you are potentially looking.

As you know and I think it's early days and relatively small scale for us both in Netherlands and in India. I think in both places there are continued sort of challenges but also I think in those challenges we see opportunity. In the Netherlands for example we see, when we got into that market we anticipated some ultimate contraction in the market that we’re starting to see but we also saw an opportunity particularly around the major cities of Amsterdam, Rotterdam and The Hague and so we are growing in those areas and opening new centers this year in those markets. With respect to India its early days for us, we're still in the process of thinking through the right strategy, we only operate a cost plus center there and we'll continue to comment over time as we look at what the right growth vehicle should be for us in that market which is a big market but nonetheless you know as I've talked about before we want to take sort of a cautious approach to be sure we find the right platform for us to grow, with respect to other markets around the world there's a lot of activity in the world around child care and related services and obviously we have been the recipient of lots of interest both historically and now post IPO. I would say it's fair to say that we're interested in continuing to look at opportunities both in Europe and Asia and other places around the world but we're going to take a cautious approach there's nothing on our radar today that will suggest well we see something that we're going to jump off on, but we're going to keep our eyes open and I'm confident over the long run we'll find other markets where Bright Horizons can add value.

Great. Thank you. And just one follow-up on the one-time adjustments in the second quarter. So outside if you have the $0.75 million for the deal, will there be any other one-time adjustments in the second quarter?

In the second quarter? Not anticipating anything else in the second quarter, no.

And we can follow up on that.

We'll circle back on your other question, Jeff.

Thank you, our next question comes from the line of Ang Syng with Credit Suisse, please proceed with your question.

So my first question is just regarding the gross margin improvement that you saw in the quarter. Could you delve a little deeper into the drivers, specifically the enrollment gains? Are those proceeding in line? Are they exceeding your expectations? And also what sort of cost management efforts might be contributing to the increase?

I would say that the enrollment gains that we're seeing in our mature and our ramp up class are right in line with what we had planned for. So that's really contributing as we had expected. There are no additional sort of outside of our normal discipline around costs, there are no unique costs cutting efforts that are contributing to our results in the quarter; we have an ongoing discipline to be sure that we are managing costs wisely and step with enrollment. But we are leveraging again another big driver we are leveraging the tuition increases slightly ahead of our average increases in our other costs which are mainly driven by wages and benefits and so we continue to provide increases to our team and our managing to get some arbitrage between that and price. But I would say it's right in the gross margin expansion; overall that we had in the quarter is the drivers of it are all pretty much in line with what we had planned. There were no extraordinary events that were driving that in the quarter.

And also could you related to that question, could you comment on what utilization was like for this current quarter or for Q1?

I think what our goal here is to try to give you some context around enrollment improvement year-over-year so it's a quarter of the year. We may take an annual view at utilization but not a quarterly update on that so as we mentioned in the prepared remarks enrollments up in the mature class around 1% and our mature and ramping class we're looking to 1-3% improvement so we're on track with that but from a utilization level there is not a ton of change since December.

And then also just regarding the international opportunity that you touched upon, what is the scope for the backup and advisory businesses; the opportunity for those businesses internationally; if you could just talk a little bit about that?

Yes, we are operational today with our back-up business in both the US and the UK. And the UK is a little bit behind in US in terms of its maturity and time we have been selling so we don’t think the UK has a good back-up opportunity going forward and that will continue to play out and add to the overall whole. We're still evaluating how and if back up care in the Netherlands will employers will jump on board to that and so that is sort of to be decided question and we are not operational in our educational advisory services today outside the United States although we serve our client with EPACT-related educational advising services but that’s really generated through the American client, but we’ll be exploring that as we go forward.

And one final one if I could. You had indicated that the organic growth strategy would mature for Kidsunlimited under bright horizons; can we expect the same type of ramp up period of two to three years for those centers mature?

We respect the Kidsunlimited management team, they are good group and I think they know the business well and we competed in the market for a while. so I suspect we’ll have learn more specifically when we get in there that their dynamics around ramp up won’t differ too much from what we see in our mix.

Thank you. Our next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed with your question.

Thanks so much. Just want to follow up I think was from Gary’s question about added advisory and backup care. I know revenues were, we saw the growth rate slow a little bit but margins were down year-over-year, is anything that we need read into?

No, I think that is just the timing particularly in the advisory business as we scale that in the investment that we have and systems coming on online that nothing other than investment in the growth of business. I think on the backup side its timing of utilizations and where that the services are rendered and so we’re not seeing any weakness or change in the overall margin for year consistent with what we were able to realize last year, so we feel good about the overall annual performance just as you said it’s a little light this quarter.

And on the Kidsunlimited acquisition a pretty sizable deal, did it change your appetite in terms of the types of companies you might be acquiring over the next year or so?

No, Jeff, actually you know we have as I commented earlier we have pretty robust pipeline of potential acquisitions that we’re engaged within in every country in which operate. I think the dynamics of what’s available size wise in each country defer a little bit and specifically in the UK the Kids is one of handful of companies in and around their size range that are still there in the market, so we have an appetite for deals that did with us with all the same sort of attributes we look for in a small 5 -10 center operator, if we can find one that’s 50 or 60 centers that the same criteria fits and we think we can add value, we’re certainly interested in moving forward. So, I think you’ll see over the longer term other deals that sort of potentially could happen in that size range and then you’ll see us continue with our sort of bread and butter smaller center type deals.

If I could just one more and I apologies in events for asking this but I bet some folks ask this question. With the tragedy that happened in Boston especially what occurred around Watertown, was there any impact on your business, were you able to get into your offices et cetera?

Yes. I know it was obviously a horrible tragedy and anybody who’s watching CNN, you saw our office in the background. So we were in sort of ground zero for the media and for the law enforcement during that horrible Friday. Fortunately our office was locked down for one day on Friday and then we were back up and running over the weekend and back full board on Monday. Our centers in the Boston area rose to the occasion. We think while our employees are not first responders they are supporting those that are, they are the people caring for the children of the fireman and the policeman and the FBI agents in the hospital, doctors and nurses that were all sort of engaged in the tragedy and really proud of the way stepped up and obviously tough time for them try to getting home but they stepped up and did some incredible things. We saw no impact financially in our business.

Thank you. Our next question comes from the line of Bob Craig with Stifel Nicolaus. Please proceed with your question.

Dave, I know you’re no longer quantifying or breaking out the number of centers in the development pipeline, you can if you want by the way. But could you just offer some commentary there is that you find it growing with I guess what everybody tells us is an economic tailwind when we don’t see it in our coverage universe but that’s what the pundits are saying.

I think it’s consistent with everything we’ve said in the past, I wouldn’t tell you that that things are much different than they were when we talked a couple months ago when I said that we continue to add to it with things that are largely in line with where we’ve been before. I mean in the sectors that I talked about before are the ones that are, if I were to pick a few out the energy sector, healthcare, higher end the technology are the ones that sort of seen to stand out, not just for centers but also in the back up and educational advising area. So, we think it’s consistent and as I said in my comment to whomever asked before, we are not sort of banking on any kind of recovery, I view the time we have been as sort of a bit all over the place and as I said earlier schizophrenic in terms of the recovery itself so it’s steady and we continue to be confident in what’s in the pipeline as it relates to the projections we are giving you for center growth.

Okay and the overall sale cycle is staying fairly flat taken them?

Yes.

We have taken a step at this but give us any idea in terms of your numbers which I am sure better than ours of the profitability, profit sensitivity or impact of improving capacity utilization in your business, the incremental margin of that additional kid?

Obviously it’s in my nature to caviar almost anything, you know with of course each situation has its own new ones and it depends on the ages of the children and when you have the step, sort of the step variability of a classroom that needs to be staffed when you reach a ratio threshold of one to five or one to eight where you need to open it in the classroom but in general crossing enrolment, a general class of enrolment if our typical margins are in the 20% range the marginal improvement when you pass breakeven it’s going to more like 40%, a doubling ratio and on any one child there can be more than that but in generally you really do have to look at collectively because of the nature of the incremental staffing in those step variable threshold.

Last one from me, David I have seen some articles about the potential changes to childcare ratios in UK any thoughts on that.

The discussions that I have read, Bob, really it relate to trying to ease if you will some of the restrictions in their view to may be try to make it more affordable for families. I have mixed views on that, obviously if that would happen one could argue that gives us some opportunity financially. Obviously we are used to operating at the high end of quality and while there may be some of those opportunities depending on where you are in the UK and how we would run the things, I would say that that probably won’t have much of effect on our business just because we tend to already operate at ratios that we think are appropriate to drive the level of quality that we stand for.

Our next question comes from the line of Tim Carl with William Blair; please proceed with your question.

So in the UK it looks like you are sort of neck-in-neck for your number one, number two overall market share. What about in the employer’s concept market? Do you have any sense of what’s your share is within that segment?

Yes, I would say, and I would have to calculate the numbers, so like Elizabeth just cavy out something, I am going to caveat out mine, by saying I am going to give you an anecdotal answer. But with the combination of us and Kidsunlimited, you know it is like the U.S. very fragmented in that there are lot of small providers that have contracts, we are by far and away the largest provider of scale and I would guess our market share is probably two thirds at this point.

And then do you think over time you can get the margins in the UK up to U.S. levels; I believe they are a little bit lower right now.

I think that the longer term opportunity in the U.K. will be to continue to scale the overhead structure there to be in line with the U.S. Now it’s not fairly necessary to compare exact apples-to-apples because in the U.S. overhead structure, we have other businesses in there so you would have to kind of isolate the center business only for service center business. The backup business in U.K. is really relatively small compared to the U.S. So overall I think we still have little bit of room with respect to levering our overhead structure to have operating margins, get closer or meet the U.S. Yes, there is still some opportunity there over time.

I mean, I think, what I would add to that from a color standpoint is of course the addition of a group like Kidsunlimited and Casterbridge last year, adds centers of slightly larger size and so to the extent that we are able to do that, and so grow the average unit size, we have more opportunity to keep leveraging to that consistent level.

Okay thanks and then someone touched on it earlier, but the margins and back up, how far along do you think you are in in terms of getting the scale necessary in that business then and what are the scale opportunities in that business. Do you have significant opportunities in back up care.

I think our view on back up is that we will continue to maintain the margins that we had achieved last year in back up in 2013. We are not banking in our plan on expansion of the backup margin if you would isolate that on its own but obviously we are banking on backup continuing to grow at rates that are slightly faster than the core center business so that it is contributing to overall margin expansion in the year. But we think that when you look at the gross margins on backup they are strong and the overhead level necessary for that is slightly more on a percentage of revenue than it takes to manage the full service business of scale. But there may be overtime some smaller technology advances that help us on the sort of contact center staffing side but right now on the current view it is to maintain the ultimate operating margins of backup and then increase it through volume on the revenue side increase…

Okay and final one for me, maybe you already said this the net new center growth expectations for this year what are those now including Kidsunlimited I think last quarter you had gone through a breakout on that. I just wanted to confirm that if you had a new estimate for that?

Yes we are estimating 100 to 105 total new centers 75 to 80 net of closures.

(Operator Instructions) Our next question comes from the line of Brian Zimmerman with Goldman Sachs. Please proceed with your question.

You have talked in the past about government sector opportunities and with government spending cuts coming sequestration have you seen any impact in Q1 from this on your part of the business exposed to government jobs and how are you thinking about this going forward for the remainder of the year?

Yes Brian we have a pretty small exposure to government revenue we do operate some centers for the GSA we have a few for the military the defense logistics authority but overall it is a relatively small amount comparatively to the whole. So the exposure in general really is not that large. And the way those centers are funded there is no ongoing funding coming to us from the government. The only exposure we could potentially have is if people who are enrolled there lose their job and then they obviously would not, it could impact enrollment I guess potentially but to answer your directly no impact in the first quarter.

And then can you give us a bit more detail on the investments you have made in IT and marketing in the quarter and how should we think about these costs going forward?

I am not really answering so much in the quarter because it's been a process that we've been going through in terms of our IT spending, so with respect to the backup services it is a matter of some investment in both the specific software that allows us to handle calls from such a wide variety of both clients and parents and placed families into the backup care that they need on eve of the emergency or short term time frame so to be able to question and solicit space available and respond back to the parents. On the full service side we have also invested in updating our systems there, it's center operations management systems and advisory business of course these are newer nescient businesses and so we have invested in, these are mainly software applications and the attendant business drivers that go with been able to utilize both automated processing and automated service delivery.

And I would just add Brian that we're not breaking out specific line items by quarter like IT and marketing that everything Elizabeth just said is baked into our 2013 plan. So there's been no extraordinary expense beyond that.

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

I wanted to ask about the enrollment growth at existing mature centers. I think you said it was up 1% in Q1, and the guidance for the full year is 1% to 3%. I guess, what would have to happen to accelerate towards the middle or upper end of the guidance on a full-year basis, and are you seeing any sort of leading indicator signs that that is starting to occur or anything around registration rates or anything like that?

I'm glad you asked the question Jeff, because I want to make sure that I'm clear on the distinction between those two statistics. So the 1% year-over-year growth in the mature class is what we would typically be referring to as the same center or same stores kind of growth, in the group of centers that has been open for more than 2 years. So, we've got centers that are in a mature class that are growing 1% year-over-year. This is the class where we have the most opportunity over the next several years. This is a long-term trajectory that we're going to recover the enrollment that we saw under so much pressure in 2009-2010 and that we've been gaining back 1% or 2% a year. So we're continuing with that in '13, 1% growth in that mature class. The 1% to 3%, so immediately it includes the one on the lower end, so probably is closer to the 1.5% - 2% to 3% that's including centers that are ramping it's obviously a smaller group with centers that are mature class but the one, two, three is ramping and mature centers are gaining enrollment year-over-year. So not a real shift in our thinking or catalyst or a change in the rate of enrollment growth over the course of the year but really just reiterating that we are seeing good growth in our ramping centers. We have been very pleased with the centers we have opened over the last couple of years that have been doing very well in ramping quickly and then our mature class is also gaining year-over-year.

And then did you say Kidsunlimited is going to in 2013 be net neutral on an EPS basis or with an EPS and EBITDA?

Yes, I think we said that it was going to be not net neutral to the guidance that we had previously given to be clear about it on both levels; both on EBITDA basis and on the EPS basis. So the point that I made earlier Jeff was that we've already have something in our plans for the year, for acquisitions so it's not that the deal itself overall was net neutral; it was net neutral to the guidance we previously gave.

Our next question comes from the line of Gary Bisbee with Barclays Capital. Please proceed with your question.

It is one quick follow-up, can you give us a sense with the annualized amortization expense from the Kidsunlimited will be?

We have not really done the detailed purchase accounting Gary but the estimate is in the range of 1.5 million or so. Let me actually clarify, that's 1.5 million pounds or dollars because that have the same important so.

Mr. Lissy there are no further question at this time. I would like to turn the floor back over to you for closing comments.

Thanks so much. Thanks for everybody for being on our call today and as usual we'll be here with follow up questions and look forward to talking to you next quarter and seeing you on the road in between.

This concludes today's tele conference. You may disconnect your lines at this time and thank you for your participation.