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

Thanks, Ben, and greetings to everybody from Boston where we have official blizzard conditions, but everybody is unfazed as they still bask in the afterglow of our big win this past weekend. Joining me on the call is Elizabeth Boland, our Chief Financial Officer, as usual, and she'll go through a few administrative matters before I kick off the call. Elizabeth?

Thank you, Dave. Hi, everyone. Thanks for joining us today. The call is also being webcast, as usual, and a recording of the call and our release, which was issued after the market closed today, are or they will be available under the Investor Relations section of our website, brighthorizons.com. Some of the information we're providing today represents forward-looking statements, including those regarding our growth and operating strategy and our financial outlook for 2017 as well as our expectations for revenue growth, for operating margins, contributions from acquisitions, our credit facility, business segments, foreign currency rates, tax rates, center openings and closures, capital spending, adjusted net income and earnings per share 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 our actual results to differ include risks related to implementing our growth strategies, client demand, the integration of 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. 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 also detailed and reconciled to their GAAP counterparts in our press release, and will be included in our Form 10-K, when filed with the SEC, and it will be available in the Investor Relations section of our website. So let me turn it back over to Dave for the review and update on the business.

Thanks, Elizabeth, and hello, again, to everybody on the call. As usual, I'm going to update you on our financial and operating results for the past year. My prepared comments will be a little bit longer as I provide – as we head into the New Year and I give you an outlook for 2017. Elizabeth will then follow with a more detailed review of the numbers before we open it up to your questions. To recap the headline numbers for this past quarter, revenue increased over 7% to $400 million, which yielded adjusted EBITDA of $76 million and adjusted earnings per share of $0.56, up 19% from last year. As we discussed with you in our last call, we've experienced some FX headwind related to our UK operations of approximately 3% in the second half of 2016. Therefore, on a common currency basis revenue growth approximated 10% in Q4, and the growth in adjusted earnings per share would have also been proportionally higher, north of 20%. For the full-year 2016, revenue of $1.6 billion, represented growth of 8% or 10% on a common currency basis. Adjusted earnings per share of $2.16 increased 17% over 2015, and on a common currency basis would have been up about 19%. Solid contributions from each of our three lines of business drove our top line growth of $19 million and 70 basis points of gross margin expansion in the fourth quarter. This quarter, we added 99 centers with highlights that include two for the University of Southern California and the 88 centers that we acquired from the Asquith acquisition, which I'll talk about in more detail in a minute. Our back-up and educational advising segments also continued to expand their respective client bases and breadth of services. We're now serving more than 750…

Thank you, Dave. So just getting into a bit more detail on the quarter's results. The $19 million increase in full-service center business revenue was driven by rate increases that we've talked about in the 3% to 4% range on average, enrollment gains in our mature and ramping centers, and the contributions from new centers, most significantly the 88 Asquith centers acquired in mid-November as Dave talked about. Those centers added about $11 million to the top line in Q4. The FX impact that we've discussed is most significant in the full-service segment. In Q4, we had approximately 3.5% headwind on the full-service growth rate. As lower pound FX rates in 2016 compared to 2015, dampened the revenue growth by over $11 million in the quarter. On a common currency basis, the full-service segment therefore grew 9.5% in Q4, approximately 5.25% organic and 4.25% from acquisitions. The back-up division expanded over $6 million on the top-line, or 13.6%, and ed advisory services was up almost $2 million, or 15%, in the quarter. As Dave mentioned, these growth rates can vary somewhat quarter-to-quarter based on the timing of new client launches and service utilization levels as well as the comparable prior quarter's performance. But for the full year, we did generate just over 10% revenue growth in back-up and 20% in ed advisory in line with our expectations. In Q4, gross profit increased $9 million to $99 million, or 24.9% of revenue. Adjusted operating income, excluding the transaction-type costs for our refinancing and the acquisitions, increased $4 million to $49 million, or 12.3%, of revenue. So starting off with our smaller segments, we reported over 29% operating margin in back-up and 24% for ed advisory in Q4 2016. Given the nature of the services that we deliver in these segments, the…

Thank you. We will now be conducting a question-and-answer session. The first question comes from Manav Patnaik of Barclays. Please go ahead.

Thank you, good evening.

Hi, Manav.

Maybe first just to clarify on the guidance, so I think 10% to 12% would be reported revenue growth that you're guiding to, 2% FX hit, so that means constant currency is 12% to 14% and then what is the organic number embedded in that?

So, it's 2% for the first half of the year, Manav, so it won't be 2% for the full-year, so it's probably more like 11% to 13% or so would be the full-year effect just to clarify the top-line.

Okay.

So, what is the organic element of that? We mentioned that Asquith would be contributing an incremental £65 million. So, that's the primary driver there, but let me pull that up for you. If you have another question, I'll try to...

Yeah. Sure. The other question maybe for Dave is, the strength of this revenue growth has been about 5% organic for two quarters in a row now. Maybe just some color there on, is that just financing like how should we expect it to get back to what it's historically been faster growth rate, so how should we think about that?

You know, I think as I commented earlier I think we have in our plan to open approximately 50 new centers in 2017 and have a pipeline that suggest that there's some visibility beyond that in good trends. So, I think that our center strategy as you know Manav, has changed from in addition to just going after single employer sponsored centers to also focusing on the lease/consortium centers. So I think that remains the same as we head into 2017. But all I can say on it now is what I see in the pipeline which is good momentum.

Okay. And I guess...

So the growth – let me just answer the earlier question on the acquisitions growth; it's about half and half of the overall guidance that would be acquisitions versus organic.

So at the midpoint roughly 6.6 (27:35), right?

Yup.

Yup, okay. And then just on the margin front as well, is there any way to help us quantify I guess you cited three buckets why you expect that margin would be the Asquith integration, the lease/consortium and then the tech investment any way to bucket that in terms of the impact from each?

Yeah, I mean, the elements of that are probably best quantified as it's – Asquith is in the neighborhood of probably 40 basis points to 50 basis points of a headwind as we get through the integration period and get their centers to a steady-state level. The overhead investment is probably similar, a similar range in that 40 basis points to 50 basis points of effect and the lease/consortium centers is the smaller effect of that in the 10 basis points to 20 basis points.

Okay. And then just the last question just tied to these, are these all sort of investments that will occur over 2017 and, therefore, probably don't repeat in 2018? Is that how we should think about it?

Well, I think, Asquith will naturally leverage itself, as we talked about earlier, and we'll begin to see that contributing in the back half of 2017 and then fully realize its value obviously in 2018. We do think that the overhead investments we're making mostly relate to areas of technology investments, mainly in our back-up and ed assist but also in our center business. And we're sort of in that time period where we started doing that this year, in 2016. Some of that is just a carryover effect of what we did in 2016 and just some continued investment in 2017. But as you probably hear from lots of companies, we sort of find ourselves in the phase where we're investing and not yet realizing the synergies that we expect to come from that or the leverage we expect to get from, on those investments or those systems that will happen in the future. Best example that I could give you on that would be, you think about the way in which our back-up care service works and all the investments that we're making in mobile and in sort of the user experience should create a more efficient process compared to what is a fairly human-intensive delivery of coordinating or scheduling that care today.

Okay. Thanks, guys.

Yes.

The next question comes from Trace Urdan of Credit Suisse. Please go ahead. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Thanks. I'd like to continue with that line for one more second, Dave. When you talk about technology investments, I think, CapEx and amortization. But it sounds like you're actually thinking that there are sort of operating expenses attached to these investments, too. Can you just give us a little bit more color on what that overhead looks like? Is it bodies to supervise new projects or what are we talking about?

Well, I'll jump in here and Dave can certainly weigh in too. A number of the solutions are – they are people, their development time, and there are a lot of software solutions that are Software-as-a-Service. And so to the extent that the entire technology world is shifting a bit from servers to the cloud and to subscription-type services, we're participating in that as well. And so there are many of those that are, they're driving through the sales and marketing effort and they're also driving into the actual operations of the centers. And so what I would say and adding on to what Dave said to Manav's question is, there are probably parts of these investments that are one time, but I think what we've learned and experienced over the years is, is that these investments make for a better overall experience for parents and families and all of the folks that are using our services and there are always new developments that are coming along, so we see it as an important investment to both stay ahead of and to continue to invest in proactively. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. Again, I'm just trying to grasp...

You're trying to figure out there. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Yeah. I'm just trying to figure what they are. So that kind of suggests that you're buying some sort of off-the-shelf SaaS solutions for some of the things you're describing. I was sort of picturing proprietary apps that you're building. So can you talk about what your – is these products that are in the market...

It can be both. Yeah, it can be. There are some capital expenditures here that will be hitting as you say depreciation or amortization, but there are also a number of people supporting the efforts and so it's a combination of some capital costs that has a relatively shorter lifespan of leasehold improvements in some other capital assets for one thing, but it's also a number of people and thought leaders to get there. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: And are these investments – sorry, last question on this. But are these investments that are going to sort of necessary in order to maintain your kind of current status in the market? You're sort of fulfilling expectations that consumers have about being able to access your services in a more automated fashion or are you actually anticipating that there could be some improvements in efficiency that would yield returns for these investments down the road?

I think, it's both, Trace. And so what we're talking about are making the user experience more efficient. We're talking about everything from when you – like I gave the example before in the back-up care area. Today, it's very intensive from the standpoint of most care is scheduled through a contact center, it's human intensive to the degree that moves more and more online via mobile than that has an operating efficiency associated with it. And also gives the customers what they want, which is the ability to do it in a more expedient way, and a way that's in sync with the way the world is going. So that's one example. There are examples of like that across ed advising business within centers, so it's really a little bit of both. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. That's really helpful, Dave. Thank you. And then, last question for me. There is all this kind of drama coming out of Washington, the stock market seems to like things so far. Are you sensing any kind of a difference in tone among your customers or prospective customers in terms of whether they're feeling more bullish, less bullish, more likely to make decisions, less likely to make decisions? Does it seem to be impacting your pipeline in any material way?

I think, as I commented earlier, I think, we feel good as we head into 2017 at the pipeline across all three of the services that we deliver is in good shape, and the momentum feels good. I think it's a little early to be able to attribute it, a month into specifically what's going on in Washington. But I think I expect that the feeling that companies have about the outlook is good. And the clients I've spoken to feel better about sort of the future and hopefully that translates into wanting to make more investments in people and our kinds of services. So, I think, in particular sectors like financial services, which has been an area that we have a lot of concentration in, but hasn't been the most robust from a new sales perspective in the past couple of years, I'm hopeful that things like some of the discussions that are going on with respect to that industry and deregulation may create a little more bullishness in that sector, and I think that will be good for us. But it's still too early I think for me to be able to point to it specifically, other than to say that we feel good about the way the pipeline looks. Trace Adair Urdan - Credit Suisse Securities (USA) LLC: Okay. Great. Thank you.

Thanks, Trace.

The next question comes from Andrew Steinerman of JPMorgan. Please go ahead.

Hi. Dave, could you give us a sense where we are in terms of penetration of full-service corporate child care in America? I know you say, we keep opening up centers at a rapid rate, but just give us a sense of like, kind of, what inning of the penetration story we're in? And is this lease/consortium center helping you penetrate more customers?

Yeah. I think, I'll answer the last question and then I'll answer your first question, Andrew. I think we started out with the lease/consortium strategy really for two particular reasons. One was that obviously we saw a trend with more of our types of customers and more of our clients locating employees in and around major urban centers and a lack of supply there, and obviously our ability to fulfill that was a driver. And then, secondly, those are the same markets where we have a big concentration of back-up care needs, so these new centers really cover up both of those drivers. I think what we've learned over the past year, two years in doing this and then talking to clients is, one of the factors that challenges employers as it relates to their desire to do their own work site center, is if they concentrate more and more people in urban and dense urban environments, they just don't have – it's not feasible. There's not enough space to do their own center. And so there is – so I think that what we're doing on the lease/consortium centers is really, we're benefiting from that. Although on the other side of it, it's obviously within those same geographies we would expect to see less single sponsored centers. On the other side of that, we still see single sponsored centers opening in our traditional more suburban campus environments. To answer your question directly and maybe to broaden a little bit, when I look at our three lines of business I look at the sort of center world of what we're doing in the employer sponsored world, I would say we're probably in the fifth or sixth inning of our development in that space. And I compare that to back-up where we're probably in the third inning, maybe bottom of the third inning going into the fourth inning. And ed advising, where we're still kind of in the first inning. So, I think that's how I would look at the three aspects of what exists in terms of where we are in each of the developments of those services.

Thank you. Appreciate it.

Yeah.

Thanks, Andrew.

The next question comes from Gary Bisbee of RBC Capital Markets. Please go ahead.

Hey, good afternoon.

Hi, Gary.

Hi Gary.

I guess going back to just all the questions about the technology and other investments, what's the timing to see those efficiency gains that you referenced in the future? Obviously, it's not this year but should we think that that's several years out? Or is that the kind of thing that some of these investments you could have fairly quick return on if it's the need for less labor, or whatever?

Yes, I mean, I think, Gary, first I would just say, we're pointing all this out as we head into the year. We had also told you last year, we were also investing in the same way and this is a continuation of what we have talked about before and I would just put it in perspective. It's relatively modest in the scheme of things, but important to call out as it relates to our strategy and where we see things in the future. I would expect that as we head into – that would come out of 2017 and head into 2018 and start to see some of the positive effects and essentially see some of those investments get leverage. Not all of them, but some of them. Much like I expect the – as I said earlier, the Asquith headwind to sort of a bait in the second half of 2017 and into 2018, I would expect a similar timeline for some of what we're doing because again some of this was started last year, and it is just a carryover effect in the first half that we're experiencing from investments we've made mid-way through 2016.

Okay. And then just a question on the margins, I think that covers the full-service centers for sure, but the other two businesses, back-up I know you've been – you begun to depreciate this year some IT systems investments, and so that was weighing on the margins. Is it safe to say that that is largely behind us and we'd see some more normal behavior, or are there other investments you're making there? And I guess ed advisory similar question, but just obviously very high margins, but down a lot in the last few quarters? What's the cadence going forward or what are the factors impacting how that will look the next couple of quarters? Thank you.

Yeah, so some of this investment we're talking about would be affecting those segments as well, Gary. But broadly speaking, back-up delivered around 29%, I think margins for the full-year. And as you say there was a bit of a new weight on the cost structure there with our operating system. We would expect to be able to sustain – broadly speaking, sustain margins in and around that level in back-up with the ongoing depreciation cost, of course, and just continued investment that we're doing there. But keeping in that and I'm talking about being in the similar range of 28% to 29%, 30%, ed advisory is just a little bit more immature business, where we delivered 24% I think for the full-year on the operating line. Over time, I think we're probably seeing some lumpiness there, but probably three years, four years away from being steady at 30%, but we think we can get to operating margins of 30%. How it plays out this year? I would posit that we've got good revenue growth. But probably we'll still be around that mid-20%s in terms of operating margin, because of just where we are with the evolution and development of what needs to go into service delivery now.

Okay. And then I guess just one bigger picture question. So, we're – what I guess four years now since the IPO. One of the challenges of how successfully and rapidly we've grown the business is you're penetrating more and more the opportunity every year. When you think about the next five years, is there any reason that the long-term growth targets that you occasionally referenced since the IPO would not be sustainable as we think over the next few years or is it reasonable to think there's some deceleration in that just as you scale the business and it gets harder and harder to grow or the 2017 guidance looks right in line with how you've talked about it, another really strong year. Is that give confidence as that can be sustainable over time? Thank you.

Yes, I think we still feel as we've commented in the prepared remarks, good about our longer-term targets. We still feel there's good opportunity in everything that we are doing and look forward and I can point to each segment that we operate in and feel like based on what I know now and see now it feels like there's good visibility for the next several years to continue to execute on the same plan that we've been talking about since we went public. And then on the bottom line, I feel like the – again, there's always these short-term effects when you sort of do an acquisition like we did with Asquith or you make periodic investments, but ultimately 50 basis points to 100 basis points of operating margin expansion we think longer-term – is the longer-term target and we still think is doable. We think there not a growth opportunity in the segments and I sort of outlined in Andrew's question of what's the right space it's left there and the cross-selling it's left there. But also I think we have considerable value that remains to be unlocked in the lease/consortium centers which is probably the biggest bucket of value creation opportunity that needs to be unlocked and levered some of the things that I talked about earlier and then it still feel like there's a lot to go there. So long-winded answer to, I think we still feel good about the longer-term targets that we've been talking about over the past several years.

And then just one last quick one on that last point Dave you said, considerable value to be unlocked from a lease/consortium. My sense is, we are getting close to the point where that was going to start deliver. You've got a couple of years of those that are now profitable, the drag is diminishing. When is that tipping point if there is such a thing or should we just think that it goes from the bigger drag to a smaller drag to a positive in a positive growth in the next couple years or is there some point you would call out?

I think maybe just to put it in context, right? So, the good news is that we've been able to offset the cash losses that we – where we see in the newer centers with the two-years of centers that are now mature, so that's a good news. But when you think about it that still leaves us with a considerable amount of revenue from 60 centers that nets to zero contribution. So until we get to another year or two, I think as we head into the back half of this year, and into 2018, and more of those next year classes start to mature, then it starts to move into positive contribution territory. And the value – in terms of margin growth – and then gets – and then value continues to get unlocked over the next – over a couple of years, not all at once, because we continue to open new classes of centers that offset that. So I think maybe we were confusing sort of the offset of losses getting to sort of net zero on that with sort of how the value truly gets unlocked once we start to see – once we see that group positively contributing.

Yeah, okay. That's helpful. I appreciate it. Thanks and stay warm and dry in the snow.

Yeah. Thanks. You too.

You too, thanks.

Next question comes from David Chu of Bank of America. Please go ahead.

Hi, thank you. So at this point, do you expect the new centers to be evenly distributed throughout the year or more heavily weighted let's say to the back half or for 2017?

Yeah, I mean relatively speaking on sort of the near-term horizon that we have, I'd say they may be 40/60, first-half/back-half, David.

Okay. And then just in terms of Asquith, so what are the economics like? I mean, in terms of revenue-margin profile, do they largely compare with your other UK centers?

They do. I mean, they're in and around the London Southeast area. So overall, revenue contribution annualized in the £73 million, £75 million range and margins in the 15% to 20% range, which is consistent with our UK business. So they do perform well there. We just have – they do have, as I mentioned, they've been new center providers. They have acquired some businesses over time. And they'll ramp those up and that will help get the margin more to that 20% range or may be north of that over time. But that's their general profile.

Okay. And then just lastly if I can, I know we're getting close in terms of the mature centers hitting the prior peak levels. But do you think we could possibly see it exceed that this time around?

Well, David, I guess the best way I can answer that is, if you go back to what happened with our mature base prior to the economic downturn in 2008, we were achieving 25 basis points to 50 basis points of growth in the mature base during that point in time. So I think, we're still even projecting about a percentage point of enrollment growth in the mature base, the P&L base, and that's still ahead of what I would call normal. So I would hope that we would get to a place where once we got back in the next two years or so, 2.5 years or so, that we would – it would still be able to eke out that – in and around that 25 basis points to 50 basis points per year of straight enrollment growth, not price, price is in addition to that, but just an enrollment.

Okay. That's very helpful. Thank you very much.

Yeah.

Thanks.

The next question comes from Jeff Silber of BMO. Please go ahead.

Thanks so much. I want to go back to the post-election euphoria, but focusing more on space and maybe some large municipalities. Were there any major changes in policy either universal child care, anything else that could impact your business that came on?

Jeff, as I think we've commented in the past, we've lived in environments where there have been varied forms of universal pre-K and other legislation that exists, whether it be in cities, states, cities or states. And I would say that nothing has subsequently affected our world or what we do. I would say that and I said this before that I'm hopeful, because I think that more investment is a good thing. I think that in a world where municipalities or states see it in their interest to provide funds to either support quality or to allow people to be consumers of quality and help them with affordability, I think that can help our centers, anything that can defray the cost of what parents have to pay, the portion that parents have to pay, and also really the portion that employers have to pay in their model is a good thing. And we have some states where we have this working. We have states like Georgia and several others where we participate as a provider in the state plan and all that does is act as a third leg to the stool between what the employer pays and what the parent pays. And so I remain – we're advocates for more. It's hard to know what the fiscal realities of states will actually produce in terms of the level of funding that will come out. But certainly, I would be hopeful that more could happen in the future.

Okay. Great. And forgive me, I might have missed it, but did you disclose the number of new centers that you opened and the ones that you closed? I think you mentioned the 88 centers acquired. But just to get to the 1,035 centers at the end the year, I just wanted to go back into it. Thanks.

Yeah, so we added a total of 99 centers in the quarter and we closed four centers. So for the full-year, a total of 128 centers added and 25 centers closed.

Okay. Thank you so much.

Yup.

The next question comes from Jeff Meuler of Baird. Please go ahead. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Yeah. Thank you. Can you remind us of the lease/consortium center margin target at maturity?

Yes, so we are – those centers have an average, Jeff, $2 million to $2.5 million of revenue and the targeted gross margin is – we target 25%, we tend to model 20% to 25% gross margins there. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. And then I guess what are you seeing in some of the urban areas where you have a concentration in terms of other high-quality providers adding capacity or opening new centers?

Yeah, I think, Jeff, depending on the state or the city we're talking about, there is varied competition. Mostly as we've talked to you about before, most of our competition tends to come from local providers who really do a good quality job on a very local basis, one center, two centers in a geography. And we see here and there those kinds of providers popping up. Occasionally, there's franchise groups that are opening centers in some of our markets and we see them continuing as competitors, but I would say it's not a different environment than what we've seen or what I'm seeing now then I would've answered that question last year. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. And then I just want to make sure I heard a comment that you made correctly. I think you said expanding the breadth of services in back-up care. Is there some new flavor to the offering in the back-up care business?

I think I was referring to – when I said that, I think I was referring to trying to get sell more of our services to our existing clients. So, as I commented earlier about 20% of our clients purchase more than one of our services, so I talked about expanding the breadth of our services in an individual client. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. And then Elizabeth, can you just help us isolate the EPS impact from two things, the acquisition and the stock comp accounting just so we can better compare it to the last round of guidance?

The acquisition meaning Asquith? Are you talking about 2017? Jeff P. Meuler - Robert W. Baird & Co., Inc.: Yes.

Yeah. So on an adjusted net income basis, so on that basis, which is what we've historically been describing, the Asquith acquisition adds a little bit on the bottom line sort of in neighborhood of a couple of cents, not as significant in 2017 for the reasons that we talked about. The stock comp is actually quite a – it varies depending on what level of exercises occur. So from estimated standpoint, it's in the neighborhood of $10 million or so. Jeff P. Meuler - Robert W. Baird & Co., Inc.: Okay. Thanks and thanks for getting payback on the Falcons for me.

Any time, Jeff.

You're welcome. Okay...

There are no – go ahead.

No, I think I was going to say, I think that's it then.

Okay. Thank you. This concludes today's – go ahead, sir.

No, Go ahead, Ben.

I'll hand it back to management for any closing remarks.

Okay. Well, thanks Ben, and thank you all. I know many of you are in markets where it's – the weather is equally as bad as we have in Boston. So, we appreciate you being with us and we look forward to talking with you all soon.

Safe home. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.