Greetings, and welcome to the Bright Horizons Family Solutions Third Quarter 2016 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Lissy, Chief Executive Officer for Bright Horizons Family Solutions. Thank you, David. You may begin.

Thanks, Bob, and greetings from Boston. And hello to everybody on the call today. Joining me, as usual, is Elizabeth Boland, our Chief Financial Officer and I'll let her walk through some administrative matters before I kick off the call. Elizabeth?

Hi, everybody. Thanks for joining us today. This call is also being webcast, and a recording of it and our earnings release, issued after the market closed today, are or will be available under the Investor Relations section of our website at brighthorizons.com. Some of the information we're providing today represents forward-looking statements, including those regarding our expectations for future performance, our business outlook, enrollment trends, our financial outlook for the remainder of 2016 and preliminary views for 2017, revenue growth, operating margins, new client launches, growth, acquisition and operating strategies, timing and impact of specific acquisition, our credit facility, business segments, foreign currency rates, tax rates, center openings and closings, capital spending, adjusted EBITDA, net income and EPS, as well as 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 other risks and uncertainties that are described in the Risk Factors in our Form 10-K that we filed for the year-ended 2015 and in our other SEC filings. Any forward-looking statement speaks only as of the date on which it's made, and we undertake no obligation to update any forward-looking statements. The non-GAAP measures that we discuss are 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 it be available in the Investor Relations section of our website. So, now back to Dave for the review and update on the business.

Thanks, Elizabeth. And hello, again, everybody on the call. As usual, I am going to update you on our financial and operating results for this past quarter, as well as our outlook for the rest of 2016 and also provide you with our initial views on 2017. Elizabeth will then follow with the more detailed review of the numbers before we open it up for your questions. So to recap the headline numbers for the past quarter, revenue increased 5% to $384 million, which yielded adjusted EBITDA of $70 million and adjusted earnings per share of $0.49, consistent with our previous outlook range and up 14% from last year. As we previewed in our last call, we experienced a more significant FX headwind related to our UK operations in the third quarter. This headwind approximated 3%, such that on a common currency basis, revenue growth approximated 8% in Q3 and the growth in adjusted EBITDA and earnings per share would have also been proportionately higher. Our top-line grew $18 million this past quarter, with solid contributions coming from each of our three lines of business. We added 15 full-service centers that highlights – that included additions of Wolverine Worldwide here in Massachusetts, the Philadelphia Health and Management Corporation, and Oxford University, along with five new lease/consortium model centers. In our back-up and ed advisory businesses, highlights of new client launches included Dignity Health, Southwest Airlines, and the University of Notre Dame. Our gross margin expanded 50 basis points this past quarter, and the margin performance reflects the combination of factors we've talked about on previous calls, including incremental enrollment in our mature and ramping P&L centers and price increases that average 3% to 4% across the system. Overall, our full-service segment operating margins expanded 90 basis points in the quarter…

Great. Thank you, Dave. So just getting into a bit more detail on the quarter results, the $11 million increase in full-service center business revenue was driven by rate increases, enrollment gains in our mature and ramping centers, and the contributions from the 39 centers that we've added since the end of the third quarter of 2015. The FX impact in the quarter approximated 3% as lower pound to dollar FX rates in 2016 compared to 2015 dampened the revenue growth in full-service by over $9 million in the quarter. On a common currency basis, the full-service segment therefore grew 7% in Q3, approximately 5.5% organic and 1.5% from acquisitions. The back-up division expanded over $5 million on the top-line or 11%, and ed advisory services was up $1.5 million or 13% in the quarter. The growth rate can vary somewhat from quarter-to-quarter based on the timing of new client launches as well as service utilization levels and the comparable prior quarter's performance. In Q3, gross profit increased $6 million to $92 million, or 24% of revenue, and operating income increased $3.2 million to $45 million, or 11.7% of revenue. Starting with our smaller segments, the back-up and ed advisory services both generated gross and operating margins that are well above what we earned in the full-service business. As a result, top-line growth in these segments contributes to margin expansion over time, even as both gross profit and operating income can vary from period-to-period depending on timing of new business launches as well as the personnel and technology investments that we make to support the growth and development of these businesses, both of which are earlier on the maturation curve than our full-service segment. For full-service, performance also remained strong in our mature and ramping classes of centers. As Dave…

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

Good evening.

Good evening.

I recall your team – evening, I recall your team talking about Bright Horizons overall margins would benefit as earlier classes of lease/consortium centers reached maturity, and we've got a fewer years of mixes of ramping classes in the lease/consortium centers. Has that inflection point shifted from second half of 2016 into 2017?

So I think we're seeing some of the benefit this year, Andrew, as I mentioned, our full-service operating margins are up 60 basis points for the full year but 90 basis points in Q3. So, we are seeing the benefit come in, but there is the ongoing – the immediate timing of centers that we open this year and the ones that we've opened over the last 12 months to 18 months, the timing of their ramp has some variability from quarter-to-quarter effect and so we do have we think some headwinds there that, that part of the inflection will come next year.

Is that a change from where you thought the timing would be about a quarter ago, or is that on track with what you thought on the kind of whole portfolio of lease/consortium centers would do in second half and going into 2017?

Yes, it's – I think that what we have now is October and November timeframe. The fall enrollment cycle is an important one for us and as we – quarter ago, we were looking at how we expected the ramp to continue into the fall. And I'd say, we are just – we're seeing it stretching out a bit into the latter part of this year because of the timing of when those centers, either did open or have opened this fall. So, it's a slight shift, and so you are seeing some effect of that this year pushing into next year.

One more time. Did they open later than expected or is that how – how the plan was?

So they have opened later than expected which is different than what the plan was. And so earlier this year those that had opened a year ago, the trajectory of their ramp is just – it's just affected by the natural order of business. We just have – we've come through the fall and we see where enrollment is now and we have adjusted accordingly to the timing of how they are ramping.

Okay. And now they are ramping well, right?

We see them ramping well, we think they are on track and we're just – they have an effect because of the concentration of the class is all.

Understand. Okay. Thanks for the time. Appreciate it.

Thanks, Andrew.

Thank you. Our next question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Thank you. Good evening, guys. Just in terms of the different components of that 7% top-line growth, I just was hoping you just reiterate that that for us for the full year. And I think FX last time you said, it's about 2%, it sounds like maybe that's 0.5 point more, is that correct? And then should pricing in all of the net new organic growth ranges you gave us before roughly come down on the high-end, is that what we should assume?

Well, if I'm following you right, yes, FX is a bit more onerous than we had guided to last time because of the current state of the pound. So, it is rough figures, your 0.5% is probably right. In terms of the remaining price increases were, we are seeing them probably in the upper half of our 3% to 4% range, so 3.5% to 4% and the other components of back-up, new center organic count, enrollment et cetera is in the same range.

Got it. So the revision on the high-end and the top-line and from organic is also just down to what you just said in terms of the timing of opening in the later enrollments, correct?

Right.

Okay. And then just in terms of these lease/consortium, I mean five in a quarter, I guess, is that a higher than normal number? And also just thinking about the 55 that you opened so far since 2013, like is there a target like do you need that to be a 100 number or how do you think about that sort of growth aspiration?

So, Manav, with respect to the five in a quarter, I think as I've spoken about in the past, while we have good visibility on center openings going out sort of 12 months to 18 months, predicting their opening in the micro can sometimes be challenging. So, it's hard to – there have been other quarters where we probably had as many that have opened in that quarter, but it's lumpy and sometimes hard to predict. And given the nature of where some of those centers are and the short-term losses associated with them and the need for them to ramp according to a schedule to offset those ramps, when we set out the year or reset out at a particular time to project it, we're sort of projecting where we think it's going to hit, and there are a lot of micro factors that affect our ability to get the center open, license, and be on track the way we had budgeted. So probably if we look back, we'd find other quarters where there have been as many openings, but, for example, we're going to open around 12 this year we expect in total and five of them just happened to be open in the third quarter.

Okay. All right. Thanks a lot, guys.

Thank you. Our next question comes from the line of Trace Urdan with Credit Suisse. Please proceed with your question. Trace Adair Urdan - Credit Suisse Securities (USA) LLC (Broker): Hey, good afternoon. I'm sure this is going to be more beating of the horse here, but you had said earlier that you thought that the revenue growth in this third quarter would be between 5% and 6%, with 3% of FX headwind. It sounds like the FX at least in this quarter came in line, so what was left was a little bit short, is that also a function of the delay in the opening of the lease/consortium centers, or is there some other factors that cause the disconnect between what you expected and where it came in?

I think the revenue growth that we had guided to is, we're basically in the range of that. I think the element of timing is just timing of all openings. So lease/consortium, everything isn't just a lease/consortium center, but the timing of all center openings will have some effect as well as the estimates for the fall enrollment cycle timing. Trace Adair Urdan - Credit Suisse Securities (USA) LLC (Broker): Okay. All right. So, you're suggesting there's nothing going on other than timing? That fair?

Yeah. That's fair. Trace Adair Urdan - Credit Suisse Securities (USA) LLC (Broker): Okay. And then if I missed this, I apologize, but the benefit resulting from the refinancing, did you size that for us for 2017?

I think it's a little premature to size it at this point, Trace. I think we commented that the effect will take place in 2017.

And then we need to finish the process of the amendment itself. It's not completed yet. So when we have that completed, we can guide to it. Trace Adair Urdan - Credit Suisse Securities (USA) LLC (Broker): Okay. Fair enough. Thank you.

Thank you. Our next question comes from the line of Gary Bisbee with RBC. Please proceed with your question.

Hey, good afternoon. Just one more I guess on the center, the full-service centers business. Is the enrollment ramping more slowly once you get one open this fall, or I thought I heard you say something that might have implied that, or is this typically only the timing of when you open them? And the second part of that is just can you give us an update on how the mature centers are ramping from an enrollment perspective? I know you're getting closer to that normalized level over the last year.

Yeah. Gary, it really relates to when the centers open, as Elizabeth talked about before, and then what enrollment trajectory you can achieve once they open. So when they open later, we're behind the curve and then you're sort of catching up to where you thought they would be as they play out. So with respect to your first question, it really comes down to timing. It is not – just to reiterate and say it again, we think we've chosen good locations for these centers. We think and expect them to add good value down the line. So in short-term with respect to that. I'll let Elizabeth comment on the mature base.

Yeah. So the mature enrollment base, we're up about 1% this year, Gary, and so they are continuing, as I think we talked about a bit last quarter. We're continuing to make headway to that targeted high 78% to 80% utilization level, although the closer we get to that, that some of the earlier years we had the first couple, 5 percentage points have come back and now we're getting to the small eking out to that top-level again. So 1% is about where we are this year.

Okay. And is it right then that that would then put you within a point or two of getting to that normalized 80%?

Yeah. We're still a couple percent to go, but it is sort of that gain curve is flattening out.

Okay. And then the timing of the openings aside this quarter, if we just think bigger picture beyond that, the center-based business has seen revenue grow more slowly the last two years in total relative to much of what you'd done prior to that, the recession aside. And I realize you haven't done the bigger change since you had a couple of big ones a few years ago, but can you just give us an update on maybe how you think about growing that business over the next few years and is there opportunity for more aggressive M&A? Should we think the last two years of bunch more of the onesies-twosies is realistically what you're at, at this point? And then also just any update on how you think about the potential and the opportunity to enter other markets? Thank you.

Yeah. So Gary, I'll try to get through each of them one-by-one. So with respect to center growth, we see steady growth on the organic side between the employer-sponsored centers and the lease/consortium centers. We feel like the pipeline is there to provide for the growth outlook. The overview that we gave you for 2017 is somewhat informed by our pipeline and feel good that that's on the organic side trending in a good direction. With respect to acquisitions, you're correct to point out that our larger strategic acquisitions have been lumpy because we've had – I think we had a year where he had a couple of them hit once and then it becomes a little bit lumpy from year-to-year. I will tell you that as I commented in my prepared remarks that the pipeline is in a good place and we feel good that there is a mix of larger strategic opportunities combined with the sort of more bread and butter acquisitions for us which are the smaller, few center operators. So when and if we can complete something, that's larger, remains a question mark. When and if we do, it will be because we've been able to find something we think will be a great value creator for us and it will make a lot of sense, we hope. So we continue to push toward that in conversations, but it is sort of unpredictable. So when we offer our forward guidance, we do so really not counting on something that's much larger than what our typical acquisition portfolio looks like in an average year. So but they are still out there, and we will see where it takes us is the answer to that question. And I think your third question was whether or not we would expand to other markets and the answer to that is we remain active in discussions to continue to research a handful of markets around the world that we think might have an opportunity for us to play a role in the future. And while there is – I think as I may have said this in the past and it still remains true. There is nothing on the new term horizon that I can point to right now. But I do believe there will come a point where we will decide that it makes sense for Bright Horizons to enter a new market and the more than likely manner in which we would do that would be acquiring a beachhead in the market, like we have done in several other markets that we've entered. So we continue to nurture relationships and research markets, and obviously over time we will see how that plays out.

Great. That you.

Yeah.

Thanks.

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

Hey, good evening, guys. It's Henry.

Hi, Jeff.

Hi. It's actually Henry Chien.

Hi, Henry.

Henry.

Hi, guys. I just had a question on the refinancing. Should we expect you to be adding to your essentially liquidity or your capacity in terms of your net sort of debt levels?

So what we are is, we are in market now with mainly in amend and extend arrangement and looking to have the opportunity to draw on liquidity, if we choose to for a period of time. So, it's an opportunistic, but not – opportunistic to be able to have some structural debt and we can draw on it if we have a need, but otherwise we are not adding without a need.

Got it. Okay. And in terms of using M&A, can you just update us on how you are thinking about your overall capacity in terms of taking on any additional leverage for M&A purposes?

Yeah. I mean, I think that as I commented earlier, I think we have – if we have an opportunity that presents itself from an acquisition standpoint, we feel good about the access we have to fund that, whether that's through the cash flow we generate, our revolver or as Elizabeth said the flexible liquidity that we will have through the new amendment. So, we feel good about the flexibility we have and we'll see how things play out. But as she commented, we're not taking on debt perhaps for the sake of taking it on, we'll take on new debt if we feel like we need to – we need it for strategic purposes.

Okay. All right. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of David Chu with Bank of America. Please proceed with your question.

Hi, good evening. Can you speak to fall trends and how they perform relative to expectations, and maybe you can allude to which age groups perform better or worse than expected?

Sure. So, as many of you know, we have a year round service that we provide, but we still have some cyclicality that comes in where families of older children withdraw over the summer and then we're rebuilding enrollment into the fall, so that's just by way of backdrop. And so from a fall enrollment standpoint, I think we feel like trends are positive. We don't really comment on enrollment trends by age group, but other than it tends to be certainly in our lease/consortium centers, the newer ones that we're opening as we've said we tend to enroll younger children first and grow our own preschools, but we've seen pretty consistent enrollment across all age groups, I would say, as we're going through the cycle. It's been where we have seen – we have talked about the price increases, they have also come through in the fall, and we've tended to be as I said about 3.5% to 4% on average, so at the higher end of the range that we would have targeted and that has been a neutral effect on the enrollment levels.

Okay. So, is the growth overall pretty comparable to last year?

Yes. I think that's the right way to think about it.

Okay. And just around back-up care, you guys saw a nice lift. Anything to point out that led to the acceleration? It sounds like you guys maybe signed a handful of new clients.

Well, I think as we had – as we had talked to you about in the past, we had anticipated that that would be the case that we would have a lift in the second half of the year, and I think we're seeing that happening and we expect that to continue. So it really comes down to the addition of – the timing of new client launches, the ability to have our existing clients who want to purchase more, and when they do that in the year and use of the service leads to that. So we had – I think we had told you that we anticipate that that would happen on the second half and we see that playing out.

Okay. And then just lastly, can we get an update on Brexit? I'm not sure if you have anything to add, but are there – have you guys had any conversations with clients that suggest that some firms will be relocating out of the UK?

Really, there hasn't – no conversations directly with anybody, any clients around that. It's sort of a big picture issue I think that continues to sort of be discussed, but really from a practical perspective, we haven't had any business related issues related to Brexit. I will tell you that in the UK, different than the U.S., other than currency, by the way I should say, obviously that's the obvious effect that it had on us, but, I mean, directing UK to your question. But I will tell you that in the UK, our business model is less reliant on individual employers, so we have fewer single employer-sponsored centers in the U.K. and more consortium/lease model centers because of the way the government support works for child care in the U.K., as we have discussed in the past. So in many ways, our risk is a little more diversified with respect to companies themselves moving out and thus losing as center because of that because we just have so few centers that are really aligned with one employer from whom that would matter.

Okay. Great. Thanks, Dave. That's very helpful.

Thank you.

Thank you. Our next question comes from the line of Jeff Meuler with Baird. Please proceed with your question. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): Thank you. Good afternoon. Can you just remind us the rollout of the new operating system for the back-up care business? What's the timeline of that and how is it going?

Yes. So we're – it is going well. We are in the process of just outlining what it will help us do. It is essentially a technology software platform with mobile capability that essentially allows us to take large data sets from our client partners, have them populated into an application that then allows us to with more agility and speed match up the users, the people who desire backup care, with where we have space available and so getting those matches to happen quickly and what the parent is looking for. So we have it rolled out in part and are on track to continue that over the next several months. And so I think that's essentially finishing out the rest of this year and is there any other color, Dave?

No. I think that's it. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): So you kind of go employer by employer and you have some of your employers live and the systems working, is that accurate?

Yes. We do roll it out employer by employer, Jeff. That's right. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): Okay.

Their needs versus our needs. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): Got it. And then I understand this is preliminary and high-level, but the 2017 preliminary outlook that you provided, just does it incorporate the refinancing savings and then some assumed normal level of tuck-in acquisition and share repurchase but none of the larger strategic things that you're looking at?

Yes. I think, we haven't, as I said earlier, included the impact from the refinancing because it's premature to do that, but I do think that we have assumed a normalized level of acquisitions like we typically do. I think our run rate is somewhere between 12 and 20 center acquisitions that we would...

Yeah, the equivalent of that.

The equivalent revenue and earnings on average what we've seen. That's no different than the way we've given views on upcoming years at this stage in prior years. Obviously, as I said earlier, it doesn't include something much larger and that's because we don't have sight on that yet.

And it wouldn't – an assumption around share repurchases either. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): Okay. And then just finally, just to confirm the ed advisory, still good growth but decelerated, that's just timing related from your perspective?

Yes, there is no difference in our view on the growth of ed advising and there is some quarter-to-quarter variability. There's some comp based on when clients were added last year at this time and when they are added now and then their use levels and the service. It's going to move around a little bit, but there's no change to our view for that business. Jeff P. Meuler - Robert W. Baird & Co., Inc. (Broker): Got it. Thank you.

We have a follow-up question coming from the line of Gary Bisbee with RBC. Please proceed with your question.

Yes. Hi, guys. I just wanted to follow up on the question about the preliminary 2017 comments. Did you just say that the 15% to 20% earnings per share growth did – or 16% to 20%, I actually didn't hear which you originally said, but did not include benefit from refinancing so that would be incremental if, in fact, it does result in a lower interest rate?

Yes. I mean, it was a 15% to 20% range, Gary, and we're tending a bit more visibility in all that.

And I guess here's the perspective in which I ask. Maybe I'll just ask it directly. Do you think there's more work to do to get to that type of earnings growth today looking forward to 2017 then maybe one of the last few years when you gave an initial read? And I guess the reasons I asked that is obviously the FX drag looks like that's going to continue as a bigger headwind. There hasn't been a huge amount of M&A this year. The margins look like they're expanding a little more slowly maybe than previously expected, though maybe that reverses next year, but it just feels to me like there might be some heavier lifting to get there relative to where you've been at this point in prior years. Is that fair or are there some reasons that you are very confident that the margins are quite stronger next year or something like that that would make that not accurate?

I think, Gary, as you know, I think we have – when we look at it over the course of a year, we have reasonable visibility into the carryover effects of the things that we know about in terms of trends this year and how we think they're going to play out next year. We have a reasonable view on trends and conversions on the new client side and new center side, centers under development, and those kinds of things. We always take a view on acquisitions that is informed by not only the pipeline, but what our past experience and don't get too far over our skews on that, take a reasonable view but that obviously has to be converted because it's not things that are already teed up. So I would say that we have a view that we gave you that we think is consistent with the way we run this business for a long time and the invisibility that we've always enjoyed. And that as we've commented before, we have a deliberate strategy around our lease/consortium model centers that if they add this sort of timing issue that we talked about before and some headwind, that's where we are now, and we have a view on where we think that trends into 2017 at this point. So I would say we are offering the view that we have now, and I really – I don't think if it as we have to work harder or less harder, we always have to work hard deliver on these results, so always have. But I don't really see it as out of the ordinary of we've done historically.

I think Gary, you do point out one thing that I will mention because I'd say this is a different condition than we were all maybe thinking about a year ago, and it's not about the political, it's not about the election, but it is about where interest rates may go. The plan next year doesn't contemplate a major shift in interest rates, and we – what we guided to the 15% to 20%. If interest rates rise much more substantially, we do have a variable rate term loan. So we'll have visibility to be able to read guide to that, but that's one variable that I just want to point out.

Okay. Great, thanks. I appreciate all that color.

Yeah.

Thank you. We have another follow-up question comes from the line of Andrew Steinerman with JPMorgan. Please proceed with your question.

I just want to make sure I understood the 7% to 9% 2017 gross rate, that's including FX, I believe. And so my question is what would be the constant currency equivalent to the 7% to 9%?

So, I don't have that right in front of me here, Andrew, sorry.

Okay. No problem. And then my last question is, I think to go from 7% to 9% to the 15% to 20%, you're talking about above average margin expansion year, isn't that correct?

I think that our view is that in 2017, yes, we would be in the range of the 75 basis points to 100 basis points of operating margin that we've talked about being the level that incorporates contributions from the lease/consortium centers and then continued ramp in our – or the enrollment gain in our mature base that we're still aching out a bit of a more in the normalized level. So that would be what we would be looking at for 2017.

Great. And just to go back to the first question, the 7 & 9 includes FX headwind rate that's a reported basis?

Yes.

Okay. Think you.

Yeah.

Thank you. There are no further questions at this time.

Okay. Bob, thanks. And thanks to everybody for joining us on the call. And as always, we are here as needed with questions and see many of you on the road in the coming months. Thanks.

Thanks, everybody.

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