Greetings, and welcome to the Bright Horizons Family Solutions First Quarter 2015 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Lissy, CEO for Bright Horizons Family Solutions. Thank you, and please go ahead, Mr. Lissy.

Thank you, Jerry, and greetings to everybody from the Boston area. Greetings to everybody out there. Joining me on the call today as usual is Elizabeth Boland, our Chief Financial Officer, who will take you through the safe harbor before I kick off the call. Elizabeth?

Thank you, Dave, and, hi, everybody. Thanks for joining us today. And our call is being webcast. Our earnings release, which was issued after the market closed today, and the webcast recording of the call are or will be available under the Investor Relations section of our website, brighthorizons.com. 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 recent business operations and our financial performance, along with forward-looking statements on our current expectations for future performance. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially. These risks and uncertainties include our ability to successfully implement our growth strategies, including executing contracts for new client commitment; enrolling children in our child care centers; retaining client contracts and operating profitably in the U.S. and abroad; our ability to identify, complete, successfully integrate acquisitions and to realize the attendant operating synergies; the decisions around capital investment and employee benefits that employers are making; our ability to hire, retain qualified teachers and other key employees in management; our substantial indebtedness and the terms of such indebtedness; and lastly, the other risk factors, which are set forth in our SEC filings. We'll also discuss certain non-GAAP financial measures on this call, which are detailed and reconciled to their GAAP counterparts in our press release. So let me turn it back over to Dave for the review and update of the business.

Thanks, Elizabeth, and hello again to everybody joining us on our call today. As usual, I'll update you on our financial and operating results for this past quarter as well as our business outlook for the rest of 2015. Elizabeth will follow me with a more detailed review of the numbers, and then we'll both be here for Q&A after that. First, let me recap the headline numbers for the first quarter. Revenue increased 6% to $350 million, and adjusted EBITDA of $65 million was up 14%. Adjusted net income of $27 million was up 20% over the first quarter of 2014, which yielded adjusted earnings per share of $0.43, up 26% from last year's first quarter. Our revenue growth of $18 million was roughly in line with our expectations for the quarter. Full Service revenue was up $13 million over last year, Back-Up revenues increased to $42 million in the quarter, and Ed Advisory grew to $9 million. We added 8 new centers this quarter, including new centers for Pioneer Natural Resources, the J.M. Smucker Company and Hoag Memorial Hospital. In our Back-Up and Ed Advising suite of solutions, we recently launched new -- service for new clients that included U.S. Bank, Rackspace, the Cleveland Clinic and The University of Chicago Medicine. On our last call, we discussed the potential impact of foreign currency fluctuations on our results. For the quarter, we saw a headwind of approximately 2% on our revenue growth, more than $6 million, in relation to Q1 2014 as the strength of the dollar affected our reported results from our European business. We're also pleased with the continued leverage at the operating income line. Our gross margin expansion this quarter drove a 180-basis-point increase in adjusted operating income from 10.4% to 12.2%. Consistent with what we've…

Thanks. So again, to recap a couple of the figures that Dave reviewed. Our top line revenue growth in the first quarter was $18 million. The Full Service Center business added $13 million on rate increases, enrollment gains in our ramping centers as well as the mature class and contributions from the 35 new centers that we have added since Q1 of 2014. As Dave mentioned, the pound and euro FX rates declined measurably in Q1 2015 compared to Q1 2014, which dampened our revenue growth in the Full Service segment by more than $6 million or approximately 2 percentage points. On a common currency basis, therefore, the Full Service segment growth was nearly 7% in the quarter. The impact of centers that we have closed since the beginning of last year also offset top line growth in Full Service by about 2 percentage points. The Back-Up division and Ed Advisory Services continue to grow the top line from both new clients as well as from expanded utilization of services by the existing client base. They also enjoy a rate increase in the same range of 3% to 5% -- 3% to 4%, excuse me. For Ed Advisory, in addition to the normal seasonality that we see from Q4 to Q1, the Q1 2015 revenue growth rate of around 11% reflects that slight variability that occurs in connection with the timing of our new client launches and the associated implementation phase of contracts that Dave discussed a minute ago. Gross profit increased $9.5 million to $87 million for the quarter. And gross margin was 24.7% of revenue, up 150 basis points in 2014 -- from 2014. As we've seen in prior quarters, our Back-Up and Ed Advisory Services both continue to deliver strong margin performance in concert with their revenue…

[Operator Instructions] The first question is from Gary Bisbee, RBC Capital Markets.

The -- can you clarify the Ed Advisory comment? Was there a change in policy of some sort? Or was it just sort of the timing as this stuff flowed in?

Well, the first issue on Q1, Gary -- I'll let Elizabeth talk about the change in what we talked about. But the first is there's always seasonality in Q1, so it's always a somewhat lighter quarter than what we expect to see as the year progresses. But we also have a -- we also had -- did have a change that I noted before. I'll let Elizabeth talk about it.

Yes. So we have -- the Ed Advisory business is serving clients through what is essentially Software-as-a-Service to a large degree on the administrative side. And so for the period of time where the client is not able to use the product, we're deferring that portion of the contract time to recognize it over the client life. So during that 3-month implementation period or so, we will be -- we won't be recognizing the revenue. It's not a huge number. It's maybe $0.5 million in the quarter. But it does show as a little bit of a sequential change, and so we just wanted to make note of it for the quarter. And after this year, it should be okay in the comps, but it'll have a little bit of an effect this year.

Yes. And just -- I'll just -- and I'll end that, Gary, by saying there's still really good momentum in that business. And none of what Elizabeth just said has any effect on our sort of ability to close new business, which continues to happen at levels similar to what I had reflected on the last time we talked.

But there -- for a couple of more quarters, this would linger through a delay from when you sign business relative to how you were booking it last year?

Yes. I mean, for the year, we had commented that we think it's a 20% or north of 20% grower. And I think if you didn't have this nuance, we would be right there. And I think this could have the effect of a few percentage points less once the year plays out.

Okay. All right, fair enough. And then little growth in centers again. I know you said there were 8 new ones, so presumably there were a number of closures again. I guess I wonder, are any of those from those 2013 acquisitions? And if you add -- if they are and you add those in aggregate with the closures from last year, do you evaluate in hindsight the acquisitions or think any differently of them than you did when you did them? Or were most of these closures really like subscale and you knew it when you bought them?

Yes. I mean, I think anytime we do diligence on acquisitions, Gary, particularly in '13, when we acquired large networks here in the U.S. and the U.K., there's always -- we always circle up some suboptimal performers that exist in any network that's out there. And so lots of times, it becomes more challenging, I'll say, to act on them too quickly because we're trying to get integration right and move -- proceed through. But we have them circled up. And as time goes on, we do act on them. Sometimes, the contract will come up. Other times, different things will happen. We had 7 closings in first quarter. 4 of them were associated with past acquisitions. So I think that gives you order of magnitude.

The next question is from Manav Patnaik of Barclays.

So on the M&A front, you mentioned there was a good pipeline, obviously, on the small to mid-sized. I was wondering, when you think about the larger ones, I guess, like you did in 2013, it seems like at least in your existing countries, it doesn't feel like there's a lot more of those larger ones that you can do. So I was wondering if that's a fair characteristic. And then as sort of an extension of that, like, when is the time that you decide to enter new countries?

Well, I would say, Manav, first, that as I look at the pipeline of active discussions on the M&A front, that it's a healthy mix of single, 2 or 3 center operators with some of what we'd call larger acquisitions for us. But I'd caveat larger by saying larger looks a little bit like the ones that we acquired in 2014, maybe even a little less than that, so -- in terms of numbers of centers. So I would say that in both the U.K. and the Netherlands and also here in the U.S., there still remains a few of those that are out there. And as I said earlier, I can't predict when we'll get them done or if we'll get them done. But based on what I can see now, particularly relative to where we were at this time last year, I feel good that we'll able to produce a year where acquisitions will look different than they did last year.

Okay, fair enough. And then just by -- I guess, on the Ed Advisory side of things. I mean, are there M&A opportunities there? Or is it just more sort of an organic growth business?

Yes. I mean, we are now the largest player in what is an emerging niche business line. So there clearly are smaller operators in that business but nothing that would be a game changer as it relates to changing the sort of -- wildly changing the trajectory of growth on that side. I think we may get -- who knows? Over time, we may find some smaller ones to tuck in. But I suspect that on the Ed Advising side, most of our growth will come organically.

Okay. And then just last one, just a follow-up for Elizabeth. The FX is obviously just in the center-based line item, correct? And also, I guess, the assumption of 2% headwind, I think, for the full year, that's based on current rates?

Yes. It's based on current rates where we are now. So there's obviously a variety of outlooks out there, but that's what it's based on. And it is in the Full Service. There's a -- we have some Back-Up in the U.K., but it's not meaningful.

The next question is from Sara Gubins, Bank of America Merrill Lynch.

This is David Chu for Sara Gubins. So you posted a strong margin expansion in the quarter but expect a slight downtick from this for the year. So why is the 1Q rate not sustainable?

You mean of the 180 basis points on operating margin?

Yes. Just the operating margin line, yes.

Yes. I think there is a couple of factors. One is what we're comping against in the first quarter of last year. Obviously, in Q4 of last year, we had also a very strong quarter, so I think it's just how it averages out for the year. Our view is that, as the year goes along, we have the same kinds of factors that will continue to drive improvement in the -- in each of the segments. So it's -- I mean, I think there's not -- we're not seeing it as a deterioration from an overall performance standpoint.

Okay, got it. And then last quarter, I believe you mentioned that Back-Up Care was supposed to grow in like the low teens; and Ed Advisory, north of 20% for the year. Is this still a reasonable expectation?

Yes. I think that's -- I'd say that's exactly right, David, except for what I caveated in response to Gary's question about the change that we talked about earlier. So on the Ed Advising side, it may be a few percentage points less than 20% based on the change, but -- based on the change of what we're doing with the recognition. So -- but on Back-Up, I'd say it's -- we're in the same place that we had talked to you about in the past.

The next question is from Jason Anderson, Stifel.

The question on -- you talked about -- I guess Manav or someone or somebody had a question about some other potential acquisitions, whether it be in Ed Advisory. But I was thinking, too, how about -- are there other employer benefit-type verticals you could expand into or that you see out there that may be something entirely different that -- kind of adding to your suite of products?

Yes. And I think that's certainly one of the -- one of our thoughts as we look to grow is how can we better leverage the relationships -- strong relationships that we have with our clients. And I think we've successfully shown we can cross-sell new services into existing clients. And it may be that in the future, we'll land on something that we think is the next great idea with respect to that. Right now, though, Jason, I would tell you that we're all in on what we have. We think Ed Advising has great growth opportunity. We want to invest in it. There are some product enhancements we can make to each one of our services that we think can drive additional revenue within those segments. And we're going to do that. And we'll continue to look. And if we find something, then it's entirely possible. But there's nothing in our sights right now that would affect 2015.

Okay. And then another one from me here. The closings you mentioned, it sounds like that ticked up a bit, I believe. Is that -- did I hear that correctly? And if so, what changed, I guess, from last quarter to this quarter? The closing guidance, I'm sorry.

Yes. No, I think it's -- I think that's just the additional 3 months of visibility into what the timing of either the centers that we'd circled up that Dave mentioned from the time of the acquisitions in 2013 and when we may be exiting a couple of those programs and/or just the normal -- some normal cycling that we just have better visibility on in the month of April than we did in -- earlier in the year. So it's nothing more than that.

We have a question from Andrew Steinerman, JPMorgan.

Did you mention it? If not, could you mention how much revenue from acquisitions contributed in the quarter? And then also looking at the second quarter with the acquisitions that we already have, what might the contribution be?

Yes. So the -- we acquired 5 centers in total last year, Andrew, and the contribution from those 5 in the quarter was just under $2 million. It's about $1.75 million, and it would be a similar -- about $2.5 million, perhaps, with the additional center that we acquired in Q1.

You're saying $2.5 million for the second quarter number?

For the second quarter, yes.

Perfect. And could you just mention if there's been a change in the competitive landscape domestically?

Yes. No real change, Andrew, to what we've been talking to you about in the past.

The next question is from Jeff Meuler from Baird.

Can we maybe revisit the Back-Up Care long-term margin potential and the framework? So what are the -- like the prereinvestment incremental margins for Back-Up Care? What investments do you need to make to accommodate the growth? And I guess, what's the current thinking in terms of how high the margins can go over the longer term?

Jeff, with respect to Back-Up, we're not foreseeing much more expansion in margin in that business. Each quarter, it may fluctuate a little bit. But overall, I think, as times goes on, it really is a top line growth story with very solid margins associated with it. With respect to longer term, if we're going to find improvement in that business, it's going to be through the use of technology, better service delivery that takes some of the manual processes and puts them online. That will require some investment upfront in order to make happen. But ultimately, if there's longer-term opportunity in the gross margins in that business, it's less volume flowing through the call center, for example, and moving to things like our mobile app, which we're just rolling out, and other ways that we can use technology to deliver service.

Okay. I just feel like that's been an area where you've been good at under-promising and over-delivering recently. And then, can you remind us, what are the -- what's the margin delta between the U.S. and the international markets in the Full Service business?

It's probably 3%, 4% or so. The centers in the U.S. have the advantage of both being a bit larger, and so they just have a little bit of innate leverage in some of the fixed costs that are there. But it's pretty close. Overall Full Service margins are in the range of 20% to 21%. So the U.K. business is in the high teens, and the U.S. is a bit over 20%.

Okay, then one more from me. Just with the unemployment rate dropping and starting to see some signs of wage inflation in the broader economy, just -- how are things going for your talent pool? So just any insight into voluntary turnover, wage inflation, ability to recruit employees, et cetera.

Yes. I mean, our biggest issue, which we've talked about in the past, is the declining supply of qualified teachers in the early childhood area, and that's been a long-term structural problem for the past 5 to 10 years. It's not getting any better. So as I've talked about in the past, we've had to make -- we've invested in our online university, and we're doing a lot more credentialing of our own and, as you say, focusing on retention. There are pockets around the country where wages are increasing slightly ahead of other places, but I think we've got a good plan in place for '15 that contemplates the right levels of wage increases against the tuition increases that we have. And so even though it averages out to what I talked about earlier, there are some places where we can move tuition slightly ahead of our average and, as a result, move up wages. So we continue to monitor it, obviously, on a very local basis, but I feel like we're in good shape for the year.

We have a question from Anj Singh, Crédit Suisse.

This is Mark in for Anj. I had a question on potential new center adds. I know you guided to 45 to 50 new centers in the plan for 2015. What could allow you to exceed or prevent you from meeting that plan?

Yes. I think within that plan, what would always -- there are 2 real challenges to our center number -- opening number in a year. One is just timing. Of course, we're sitting here in almost May and trying to project the specific timing of when things are going to open each quarter in Q3 and Q4. And sometimes, we see slippage from quarter to quarter or from quarter 4 to next year. So in the micro, there's always that slippage that could challenge it. On the other side of it, the thing that could provide an uplift would be acquisitions ahead of what our typical run rate would be for acquisitions. So a normal year acquisition-wise for us on the smaller stuff might be 10 to 15 centers. If we get a larger acquisition done, from purely a center count perspective, it could have some upside with respect to our center numbers.

Okay. And any color you can give us on the plan for geographical?

Do you mean new geography?

Yes. Like where do you expect those adds to be? Are they going to be new or -- yes.

We have -- our plan includes sort of proportionate growth, primarily organic growth in the U.S. And we would expect -- we're pursuing acquisitions in all 3 of the markets that we have. So the -- as Dave mentioned, our bogey is the equivalent of, call it, 15 centers from acquisitions. And there'd be an element that, that would be in the U.S., in U.K. and in Holland proportionately. But otherwise, we have the same -- the other growth would be proportionate to where the business is, so 80% U.S., 20% abroad.

Got it. And can you give us just a quick update on utilization and what you're seeing in the typical utilization for your acquisitions?

So on utilization, we had, as I think we mentioned, another solid quarter of year-over-year gains. So over 1.5%, rounding to 2% in the quarter. So our utilization is across the mature system in north of 75% at this stage. In terms of the utilization that we have from acquisitions, it's really -- it varies a lot but tends to be -- I would say the centers tend to be in that same range but could be anywhere from 65% to 75% or 80% occupied. They tend to be, on average, slightly smaller centers who have that opportunity to be a little bit more enrolled. As we've talked about in the past on acquisitions, we tend to be buying centers that are performing well and trailing earnings as forward earnings unless we're acquiring a group that has the centers in ramp.

The last question is from Jeff Silber, BMO Capital.

Elizabeth, when you gave your -- the details on the guidance for the year, I think you said the impact on revenues from acquisitions was about 2%. I'm just wondering if you can give us the impact on your adjusted EBITDA guidance and your cash expectations for the end of the year.

You mean from acquisitions?

From the acquisitions, correct.

Well, typically, acquisitions are going to be generating 15% to 20% or so of revenue. I'd actually -- let me actually try to see if I can sketch that out. I don’t have that right on my fingertips. But from a cash standpoint, our guidance included spending $25 million to $30 million on acquisitions and so ending the year with the cash balance, $140 million to $150 million, incorporated that sort of spending. So it's just the EBITDA question that I need to just take a gander at.

Yes. I guess, from a theoretical perspective of it has a 2% impact on revenues, would it have a smaller impact on EBITDA?

Yes.

Okay. That's it. I just wanted to double check on that. And then, just in the first quarter, was there any adverse impact from the bad weather you guys had in Boston and the rest of us had around the country?

Nothing that was material, Jeff. We obviously are counted on with -- on the Back-Up side to deliver in bad weather. And we had some pretty remarkable stories of centers opening up when pretty much everything else was closed and caring for employees of hospital workers and people that needed to get to work during that time. So Back-Up is a chance really to -- for us to really shine in that regard and really show clients what we can do. That really helps them in critical times. We did have some of our centers closed for a few days in the Boston area and some other areas. But again, I don't really think that anything that occurred had any material impact on the quarter. Okay. Well, I think we've circled through everybody who had a question, and we want to thank everybody for joining us on the call tonight. We are very pleased with the start for the year, and we look forward to seeing many of you on the road in the coming months. Thanks.

Thanks, everyone.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.