Ladies and gentlemen, we're really sorry for the inconvenience. We're ready to begin. Please go ahead, Mr. Lissy.

Okay, Gerry, and sorry, everybody, for that. There was a little technical disconnect between us and the operator. But, anyway, greetings from Sunny Boston. And joining me on the call today is Elizabeth Boland, our Chief Financial Officer, as usual, and she'll starts us off with a few administrative matters. Elizabeth?

Thanks, Dave, and hi, everybody. Thanks for joining us today on the call, which is also being webcast. A recording of this call and our earnings release, which was issued after the market closed today, are or will be available under the Investor Relations of our website, at brighthorizons.com. Some of the information we're providing today represents forward-looking statements, including those regarding our current expectations for future performance, our business outlook, enrollment trends, our financial outlook for Q3 and the year, revenue growth, operating margins, growth acquisition and operating strategies, our business segments, foreign currency rates, tax rates, center openings and closures, capital spending, adjusted EBITDA, net income and EPS, and cash flow and share repurchases. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially. Factors that could cause actual results to differ include risks related to implementing our growth strategies, client demand, integrating acquisitions, currency fluctuations and our indebtedness, as well as the other risks and uncertainties that are described in the Risk Factors set forth in our Form 10-K for 2015 and in our other SEC filings. Any forward-looking statements speak only as of the date on which it's made, and we undertake no obligation to update you on any forward-looking statements. The non-GAAP financial measures we discuss are also detailed and reconciled to their GAAP counterparts in our press release, and they will be included in our Form 10-Q, when filed with the SEC, and be available in the Investor Relations section of our website. So, Dave, back to you for the review and update on the business.

Thanks, Elizabeth, and hi to everybody again, who joined us today. As usual, I'm going to update you on our financial and operating results for this past quarter as well as the business outlook for the rest of 2016. Elizabeth will then follow with a more detailed review of the numbers. And then, together, we'll be back with a Q&A at the end. So, first, let me recap the headline numbers for the quarter. Revenue increased 9% to $402 million, and adjusted EBITDA of $81 million was up 8%. Adjusted net income of $37 million yielded adjusted earnings per share of $0.61, up 15% from last year. This past quarter, we continued to experience about a 1% foreign exchange headwind, so that, on a common currency basis, revenue growth would have been 10%, and the growth in adjusted EBITDA and EPS would have also been proportionately higher. Our top line grew $32 million in this past quarter, with solid contributions coming from each of our three business lines. We added five full-service new centers, including new centers for clients like the Hertz Corporation, Burns & McDonnell Engineering, and our fifth location for Centene, this one in Ferguson, Missouri. In our backup and educational advising businesses, we recently launched service for new clients that included Cabot Corporation, the Lincoln Center for the Performing Arts, Hackensack University Medical System, and the Nielsen Companies. Our gross margin expanded about 10 basis points this past quarter. And the margin performance reflects the combination of factors that we've talked to you about on previous calls, including positive enrollment trends in our mature classes of P&L centers and price increases that average 3% to 4% across the system. Our international businesses are also performing well, as the U.K. and the Netherlands continue to deliver solid growth…

Thank you, Dave. So to get into a bit more detail on the results for the quarter, the $26 million increase in the full service center business revenue was driven by rate increases, enrollment gains in our mature and ramping centers, and contributions from the 46 centers that we've added since Q2 of 2015. As we've been reporting over the last year or so, we saw some modest impact from FX in the quarter. Lower Pound and Euro FX rates in 2016 compared to 2015, therefore dampened the revenue growth in the full-service segment by approximately $4 million or just over 1% in the quarter. On a common currency basis, the full-service segment therefore grew 9.5% in Q2, approximately 6% organic and 3.5% from acquisitions. The back-up division expanded over $3 million on the top line or 7%, and ed advisory services was up $2 million or 23% in the quarter. The growth rates can vary somewhat quarter to quarter based on the timing of new client launches, the service utilization levels, and the comparable prior quarter's performance. In Q2, gross profit increased 8.5 million to 104 million or 26% of revenue and operating income increased 4.4 million to 57 million or 14% of revenue. Starting with our smaller segments, the back-up and ed advisory services – as a reminder, both generate gross and operating margins that are well above what we earn in the full-service business. As we've discussed on prior calls, the top-line growth in these segments will therefore contribute to margin expansion over time; although both the gross profit and operating income can vary from quarter to quarter depending in part on the timing of the investments that we are making in technology as well as the personnel that support these growing businesses. On the full-service side,…

Thank you. At this time, we will be conducting the question-and-answer session. [Operator Instructions] The first question is from Trace Urdan, Credit Suisse. Please go ahead.

Hey. Good afternoon.

Hi Trace.

I wondered – just starting maybe with Brexit. Obviously, you described the currency impact precisely for us, so thank you for that. Any other maybe operating impact that you might anticipate at this point? Do you have a sense of whether your business has been impacted at all as a result of the Brexit vote?

Trace, at this point, the UK – still, the fundamentals are strong. We are pleased with the results. And based on what we can see for the remainder of this year and beyond, other than the currency fluctuation, we are not seeing much difference. So, we will be watching, of course, as things play out, as everybody will. But based on we see now, at least for the back half of this year, we are not seeing any change in our outlook.

Okay. And then David, I wonder if I could also ask you for maybe a little bit more elaboration on the College Nannies acquisition? You said they were sort of a long-time, sort of vendor back-up supplier for your back-up care business. What is it -what did you acquire exactly? Are they just centers like the ones that you operate or is it something different?

Well Trace, our back-up business is delivered, again, mostly through centers, but also through in-home care provision when center care isn't either preferred or available in an area or for sick care or for other types of care where centers aren't viable. So we have long had a preferred provider network of high quality groups around the country to provide that for us. And we met College Nannies and Tutors many, many years ago when they were first developing and have sort of worked in close partnership with them over the probably eight, nine years that we've been together. And as they were contemplating their future, we just felt like it made sense to join forces. It allows us to have a little more togetherness in the delivery of our back-up care service, in that they are our largest in-home care provider across the country. And so we thought it made a lot of sense from a lot of perspectives. What we acquired specifically – they are a franchise operator. So they have franchisees that operate in a variety of different markets across the country. So we acquired the franchisor of that business as part of this transaction.

Okay. I know you said it wasn't material, so I don't want to obsess on it. But I am interested in it just from the business model perspective. So the franchisors operate their on networks of in-home folks within certain geographies?

So the franchisees, not the franchisor – the franchisee employ and operate a network of caregivers in local markets – very localized markets. So as you can imagine, the delivery for nannies and other services is very local. And so the model, which we like, really has somebody locally operating it from a quality perspective. But we're not employing those caregivers, they are employed by the franchisee and we own the franchisor.

And would you anticipate expanding that model?

Yes. Well, we do believe thing – we do believe there's growth opportunity. I think they had a growth plan in place and we're going to continue to support. They've got a great team led by the entrepreneur who is joined – who founded it if it's joining us. And we think that they've got some good growth, they had some good growth already sort of in the pipe and we're going to support that. And we will continue to think about what other models make sense to bring to our corporate offering, which is really what we bring to the table. We have the ability to think about how these services can best be offered in the context of what an employer might find value in. And I think we'll continue to think about that as time goes on.

Okay. Fair enough. Thank you. I'll let you move on.

Thank, Trace.

Thanks, Trace.

[Operator Instructions] The next question is from Jeff Meuler, Robert Baird. Please go ahead, sir.

Yes, thank you. On the back-up care business, can you give us any sense of the breakdown in terms of the growth algorithm between increased volume at existing clients and bringing on new clients. And then I guess how much does pricing contribute? I'm not looking for a quarter; I'm looking for kind of a longer-term mix of growth drivers.

Yes, so roughly half, maybe 40% or so, from existing and 60% from new, depending on the timing of when they launch, Jeff, is how the new client breakdown would come out. We also have some modest price increase in there in the same range as we see in full-service, but the elements are in that context.

Okay. So can you just help me understand a little bit better in terms of the sequencing of the growth this year? It sounds like you have some new clients that you signed on. But they for some reason are getting implemented in a way that's a little bit more back-half heavy this year? Or what's going on in terms of the confidence in the full-year back-up care growth?

Yes, I think the first thing is what you just said. As Elizabeth just mentioned, 60% to two-thirds of the new growth that comes in is from the launch of new client contracts. And we just have a year where more of that is back weighted and that's what's causing some of the quarter-to-quarter variability, Jeff.

Okay. And then just finally, the back-up care or the new operating system that you're implementing, other than having mobile capabilities, any other callouts in terms of how it will change the interaction with you and your client, or your clients' client, or your clients' employee?

Well, I think like any operating system, it will bring a lot more intelligence to the business. We would hope in the end more efficiency to the way we deliver. The business has enabled at least initially either via a contact center contact with a consultant or online in order to arrange care in order to find out about the service. And like anything when we've grown pretty quickly over the years and we outgrew our technology capability and feel like the system that we needed to invest in is one that sets us up for the future. We think mobile capability and really more online sort of self-service delivery capability, has the advantage of both pleasing our customers and what they're looking for. And also I think making us more efficient from an overhead perspective in the future.

Is a significant portion of the requests coming through the contact center as it currently stands?

Yes.

Okay. Got it. Thank you.

Thanks, Jeff.

The next question is from Manav Patnaik, Barclays. Please go ahead, sir.

Yes, thank you. Just to clarify, Elizabeth, the FX impact, is that primarily again just on the center-based revenues? And just maybe some color on the organic part of that? I guess no real changes there?

I didn't hear what you said. Is it primarily on the what revenue?

The center-based revenue?

Yes, it's primarily on center-based revenue. There's a little bit of an effect, the UK has some back-up business, but it is primarily in full-service. And proportionate new growth in the UK as in the U.S. So there's – primarily it's organic, but there is certainly we’ve had the three center acquisition we did earlier this year was in the UK. And some of the comparability that we have is the group we acquired – we acquired two groups in the UK last year in the second half of the year. So we have a more – sort of a more challenging comp on a lower FX rate this year in the back half than we would have had last year. Last year’s second half was relatively higher. So just in terms of the details.

Okay. Fair enough. That's helpful. And Dave, I guess with the FX impacts on the GBP, I guess it gives you a sort of stronger buying power. And I guess your competitor, no pun intended, has been pretty busy out there in the UK making acquisitions. So maybe just an update on the pipeline. And maybe should we just expect more of the same, these really small deals, or anything sizable potential?

I think, Manav, as obviously you've heard me say in the past, the smaller deals will always be our bread and butter. And in fact, if I can think about sort of the back half of this year and look at what's in the pipe, we would expect to close on a few of them over the course of the next few months and into next year. The larger ones are always going to be lumpy and be periodic in terms of when we can get them to happen. And yes, I think categorically, it’s obviously more economical for us now in the UK than it was six months ago. But really, we can't allow that to affect our focus on the fundamentals and being sure we're acquiring something that's of quality, that's got the prospects to grow and fit for a long time to come. So we don't want to get too far out over our skis on things being – it being much cheaper and really stay focused on getting things that still make sense. So there's always going to be others out there that acquire things that aren't fits for us and that's fine. And when we find things of size that we think are really good fits, then we'll – then I think we have a good proposition to offer those sellers. So we'll continue to be active, but I think the larger ones will be lumpy.

All right. Good. Thanks a lot for the color there.

Yes.

Thanks.

We have a question from Sara Gubins, Bank of America. Please go ahead, ma'am.

Hi, thanks. Good afternoon.

Hi, Sara.

Could you talk about margins in the UK and how that might vary from the U.S. or the overall business?

Yes the way – the variability is really concentrated in the fact that it's primarily a full-service business. So proportionate gross margins, proportionate overhead, expenses pretty similar. And we've been acquisitive there, so have some amortization effects as well. So I think it's largely that it's more in the neighborhood of what the U.S. – what the full-service business margins look like than the overall business, because the back-up component is so modest.

Okay. And then overall, can you give us an update on center staff turnover? Anything that might be worth noting there and any variations across the network, either by type of center or by maturity level of center?

I think, Sara, overall, you’ve heard me say our turnover rate hovers in the 20-ish% range. And when the economy was less robust, we were – that shifted down into the teens and in times like this, it gets slightly higher. So I think we’re in one of those periods where it’s slightly higher than where it had been a few years ago. You know, I think that overall, the most challenging markets, probably no surprise, are the more urban markets, where things are more robust places like Seattle, San Francisco, Boston, New York. But there are also places still where our tuitions are able to absorb increases in salaries and I feel like we have good pricing power and demand is strong. So that’s sort of a little bit of color on it. No real color to provide you in terms of model type.

Okay. Great. And then just last question. Could you give us an update on capacity utilization levels at the mature centers and how much further you have to go before you reach prior peak levels?

So we are – as I mentioned, we are up about 1%, a strong 1% over last year coming off of several years of regaining enrollment in that 1% to 2% range. So we’re probably around 76% or so overall utilization and still targeting to get towards 78% to 80% as a steady-state target. And of course, if we can get higher than that, we would. But that’s what we saw as the sort of objective level that was sustainable across the system.

Great. Thank you.

Thanks, Sara.

Thanks, Sara.

The next question is from Jeff Silber, BMO Capital Markets. Please go ahead, sir.

Thanks so much, that’s close enough.

Well, we’ll rephrase Mr. Silber.

There you go, no problem. Can you talk about wage inflation trends? Are you seeing any spike in that, given where we are in the employment cycle? And if you are having any difficulty pushing through those wage inflation to your customers? Thanks.

Yes. Jeff, as I commented just a minute ago to Sara’s question, it sort of applies a little bit to the question you just asked. I do think that this is in this kind of labor market, where things are good from a labor market perspective we do see wage pressure in some markets, particularly in the more urban markets, where the labor market is even more robust. I then feel confident, though, with that said that we have been on this for a while, we’ve been looking at it, we monitor it really closely. And we feel good that we’ve been able to price in and expect to continue to be able to price in what we think we’ll need to do in the coming months and into next year. So that’s kind of where we stand.

All right. That’s helpful. And you had mentioned or you highlighted some of the areas of strength by industry vertical. Are you seeing any areas of weakness? I’m specifically interested in both energy and financial services. And if you can remind us what your exposure into those verticals, that would be great.

Yes. So overall, we still see activity in the financial services sector. I believe financial services is in the 18%-ish of our…

Yes, I’m just going…

Elizabeth, I’ll get the exact percentages in a second. So we have financial service clients do make up a piece of our pie. And we still see activity happening with regional banks and some smaller financial service companies. Many of the larger companies have long been our clients and continue to add services. So I feel like overall financial services has continued to be steady for us over the course of the past year. And I’d look at the pipeline; it’s also steady. It’s not – I wouldn’t call it out as the sector that’s the most robust, but also not the other direction either. I’d just call it steady. With respect to energy, that’s really a de minimis piece of our – it’s a very, very small piece of the pie. We had some activity a few years ago when that industry was more robust with some centers that we opened in Houston for some of the larger energy companies. And they are doing fine; they are doing well. But we really haven’t seen much expansion in the past year or two and I don’t expect that to be a sector of much promise in the near future. But the exposure there is not even on the map. It’s less than a percent. So – but in financial services, to answer your question is 16% of our center – excuse me – our client revenue.

And I’m sorry, if I can just sneak in another one. Can you give us the other percentages of the major industry verticals?

Yes, so this is an information that we have in our investor deck. So it’s through 2015, but it’s representative.

Yes, I can look it up then, I apologize. Thanks so much.

I don’t have it updated for June. Thanks.

We have a question from Andrew Steinerman, JPMorgan. Please go ahead, sir.

Hi, two quick questions. I just wanted to make sure the 8% to 10% organic that we are talking about is pre-closing. So there’s 1.5 closings after that, right?

That’s right.

Okay. And would you be willing to tell me how much revenue approximately the new consortium centers make up at this point, the years of newer consortium centers?

So, I mean, on average, the center – by newer, you mean the class that we’ve been talking about from 2013 forward?

Right, exactly.

So on balance for that cohort of centers is in the range of $65 million to $75 million or so.

Okay. Thank you.

Mr. Lissy, there are no further questions at this time.

Okay. Well, again, apologies for the initial challenge we had on the call. And we appreciate, as always, your support and your tuning in to these calls. And we will be seeing you on the road, I’m sure, in the back half of the year. And as always, let us know if there’s any other questions. Have a good night.

Thanks, everybody.

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