Greetings, and welcome to the Bright Horizons' Family Solutions Third Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. It’d now turn the conference over to your host, Elizabeth Boland, Chief Financial Officer. Please go ahead.

Thank you, Chantelle, and hello to everybody on today’s call. With me today are Stephen Kramer, our Chief Executive Officer; and Dave Lissy, our Executive Chair. I'll turn the call over to Stephen after covering a few administrative matters.As Chantelle just mentioned, today's call is being recorded and webcast and a recording will be available under the Investor Relations section of our website at brighthorizons.com. As a reminder to participants, any forward-looking statements made on this call, including those regarding future financial performance are subject to the safe harbor statement included in our earnings release. Forward-looking statements inherently involve risks and uncertainties that may cause actual operating and financial results to differ materially and they are described in detail in our 2018 Form 10-K.Any forward-looking statements speaks only as of the date on which it's made and we undertake no obligation to update any forward-looking statements. We also refer today to non-GAAP financial measures, which are detailed and reconciled to their GAAP counterparts in our earnings release, which is available under the IR section of our website.Stephen will now take us through review and update on the business.

Thanks, Elizabeth, and thanks to all of you who have joined us this evening. As always, on today's call, I'll review our financial and operating results for this past quarter and will provide you with our updated outlook for 2019 and initial view on 2020.Elizabeth will then follow with a more detailed review of the numbers before we open it up for your questions. As we near the end of 2019, we continue to be really pleased with the performance against our goals for the year and with the progress we're making in our various initiatives to drive both near and long-term growth across all of our business segments.For the quarter, revenue grew 8.5% to $512 million. And adjusted earnings per share of $0.86, increased 18% from last year. We added 12 Full Service centers this past quarter, including locations for Stanford University and Jackson Healthcare. And expanded our back-up care in ed advisory client portfolios with recent launches for Boeing and Cedars-Sinai Medical Center. Our cross-selling efforts also continued to yield results. Our sales and account management teams are working diligently to broaden our existing client relationships by extending their investment into additional services.Several clients launched a second or third service with us in this past quarter, including Bayer, Charles Schwab and LinkedIn. At the same time, as it relates to clients deepening their commitment to existing services, Biogen and the University of California, both opened additional centers in Q3. And we are thrilled to transition the management of two self-operated centers for The Walt Disney Company. This was a great example of the strength of our existing relationships with other Disney operating companies, including ESPN and Fox.Our expertise in managing complex client relationships and our reputation for operating high-quality programs. Opportunities like this illustrate the addressable market potential…

Thank you, Stephen, and once again, recapping the headlines for the quarter. Overall revenue was up $40 million or 8.5% in the quarter. On a segment basis, our Full Service business expanded 6.2% or $24 million driven by rate increases, enrollment gains and contributions from new centers, including about 1.5% from acquisitions. Foreign exchange rates created approximately 150 basis points of headwind to the full service growth for the quarter. So on a common currency basis, this segment expanded 7.7%.Our back-up division generated another strong quarter with 20% top line growth driven by new client launches, strong utilization and contributions from My Family Care in the UK Ed advisory services grew 15% on new client launches and expanded use by our existing base. In Q3, gross profit increased $12 million to $125 million or 24.5% of revenue, and adjusted operating income increased $7 million to $62.8 or as Stephen mentioned, 12.3% of revenue, up 50 basis points from last year. On a segment basis, full service adjusted operating income expanded 20 basis points to 9%, on gains from enrollment growth in our mature ramping centers, contributions from new and acquired centers and tuition increases.The back-up and Ed Advising segments, both generated solid operating margins in the quarter, approximately 25% and 29% respectively. As we’ve discussed in the past, the top line growth in these segments contributes to margin expansion over time, even as margins can vary from period to period depending on the timing of our new client launches and the service utilization levels and the timing of certain marketing and technology spending, which supports the growth. In some other line items, interest expense of $11 million decreased $800,000 in Q3 compared to last year on lower average revolver borrowings and modestly lower interest rates.Our current borrowing cost approximates 4%…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Thank you. Your first question comes from George Tong, Goldman Sachs. Go ahead, please.

Hi thanks, good afternoon. Thanks for providing the preliminary outlook for 2020. You'd indicated expectations of revenue growth of 8% to 10% with low to mid-teens EPS growth helped by some margin expansion. Can you discuss how the pieces for 2020 might look different in terms of the bridge to that growth compared to 2019? Do you expect, for instance, enrollment tuition or new center openings to have a different growth profile in next year versus this year?

Yes. Good evening, George. Thank you for the question. We have an expectation that we will continue to see very similar characteristics as we saw in 2019 as it relates to the composition of the growth in the margin improvement. So again, I think that we're very excited about the prospects for 2020. And feel like those of you who have dialed in to 2019, will see similar type of performance in 2020.

Got it. That’s helpful. And then to switch gears to discuss Germany, can you provide some preliminary updates on how the PME partnership is progressing there? And whether the initial expansion in Germany can potentially open up the market there further for BFAM?

Sure. So it is still very early days in the relationship. Obviously, we've known the folks at PME for a number of years, but now we have sort of a front row seat into the actual business and are getting a front row seat into the market. So first I'd say, it's early days. That said, we have started to have some really good conversations with clients here in the U.S., who have demonstrated interest in Germany. And at the same time, we've started to get to understand the best ways to leverage the PME position that we have to the benefit of our client base. In terms of looking out into the future and the expansion in Germany, I would say it's still really early to make an assessment. But I'm very pleased to have the insights that we're already starting to garner about that market.

Very helpful. Thank you.

Thank you. Your next question comes from Manav Patnaik, [Barclays Bank].

Thank you. Good evening, guys. Just on 2020, again, I mean, it sounds like this year at least, none of the geopolitical events and uncertainties seem to have impacted your business really. And so, I guess, looking out next year, I'm presuming we should expect more of the same but these elections, one way or the other has any preference in your end?

Yes. So in terms of the global piece, obviously, the piece with the greatest amount of continued uncertainty that we have had this year, and it appears sort of not clarity going into next year is Brexit. Obviously, we have a strong portfolio that performs in the UK. That said, as we shared on the last call and I'll share again today, we have seen pockets, where we believe that people are transferring out of the country and/or the uncertainty, has caused us some challenge on the enrollment side.That said, it is at this point, still, again, in pockets as opposed to something that we're seeing more pervasively. In terms of the elections here in the U.S., I think that we continue to hear a lot around childcare and other issues. Our experience suggest that both the Republicans and the Democrats have a long history of prioritizing and showing and sharing commitment around childcare. With the biggest challenge over the years being the financial resources to back-up the promises that are often made during the election cycle.So at this point, we continue to listen closely, but if our 30-plus years of history and listening to the rhetoric in the election cycles is any indication, we don't suspect that there will be large changes that would have any material impact on our business.

Got it. And just to follow up on strategy and so forth, I think you guys just concluded your forum session internally there. And I was just curious like is there – like cross sell, for example, that you called out earlier in the call. Is that more of an effort to get that going. I mean, I know there's a lot more new logos, but if you'd like to cross-sell, it should be an easier opportunity? Or am I wrong in thinking that?

Yes. So first of all, just to reference what I think you were referencing, Manav. So we just had our New York City client forum. We had over 120 of our clients in New York City at one of our clients, The New York Times, for a day of sessions around depending care strategies and benefit strategies in general. It is the largest regional conference that we have held in terms of the number of clients who participated. It was a very energizing experience. There is a lot of conversation around employers wanting to differentiate themselves through their benefits and specifically in the area of childcare, dependent care and workforce planning around education.So we're really excited to hear all of the energy around that. What I would say in terms of cross-selling is we continue to see really good opportunities and closing opportunities in that area. This quarter, we are at – nearly 25% of our client base are now multiservice client. So they buy more than one service and it's opportunities like these client forums where we really allow for our clients to tell our story, and their story. And so it was wonderful to hear the number of clients who were talking about wanting to invest across the services.

All right, got it. Thank you guys.

Thank you.

Thanks.

Thank you. Your next question comes from Andrew Steinerman, JP Morgan. Go ahead, please.

Hi, Elizabeth. Could you say 50 basis points to 60 basis points of margin expansion for 2019? And wasn't the range broader kind of earlier in the year? And as we look into 2020, is there anything to suggest that the range for margin expansion might be tightening up?

I did say 50 basis points to 60 basis points. It's sort of the stage of the year where we have the visibility into how the year is playing out. And I think as Stephen alluded to, Andrew, the view next year is this preliminary will have more to say about the details of it on our next call. I think structurally, we feel good about the components of how the growth is, both in the pipeline to come in and what we – what the factors of what we can deliver in terms of the contributions from the different lines of business, the different geographies and the continued leverage in our centers that are ramping in. So I think that the reason we give a range is that the performance is – has components of it that are dependent on timing of a variety of things. So we feel good about the long-term opportunity in that range at this stage, and we'll just give more details next quarter.

Okay. Thank you.

Yes.

Thanks, Andrew.

Thank you. Your next question comes from Gary Bisbee, Bank of America Merrill Lynch. Go ahead, please.

Hey good afternoon. I guess the first question, Stephen, you had a comment about talking about lease/consortium strategy. And you said that as you are increasing the density in select markets, it's – I don't know if you said increasingly attractive, but becoming viewed as attractive to employers across those markets. I guess that's – are you referring to capacity to support continued back-up growth? Or are you seeing – what I would term new but maybe you could tell me if it's not, opportunities for employees are taking capacity in the full service across multiple of those centers. What are you really getting at? Thanks.

Yes. So Gary, thank you for picking up on that. Certainly, as we are densifying in these metro areas. And I did say exactly what you just quoted, "We are becoming an increasingly attractive" we've always been attractive, but increasingly attractive partner to employers that are looking to have capacity across centers. And so, yes, the answer is certainly, from a back-up capacity standpoint, the density in these metro areas is increasingly important for us to fulfill on the commitments that we're making on the back-up side of our business.But in addition to that, we're seeing a real interest from employers who are interested in taking capacity in these centers for the benefit of their employees that are living and working in these metro areas. So I think it comes in both flavors, both back-up as well as full service enrollment commitments that employers are making. And as we continue to build out and as this strategy continues to mature, we think that's a real competitive advantage in these markets.

Thanks. And then it's been, I guess, 1.5 years since you began – more than that now since you began the stepped-up tech investments last year. Can you give us a look back now that we're further into it, like how your efforts around marketing and consumer absent what not? Is that having an impact on utilization? Are you seeing whether it's satisfaction scores or other improving? What's the update on how that's done a while later?

Sure. So as it relates to the tech investments, we've been really focused in two areas. One is around user experience, in making the user experience more seamless. And then the second has been around marketing efforts, digital marketing efforts, specifically that are personalized to the end-user. And I think in both regards, we're seeing really good outcomes. So on making the experience more seamless, we're really proud. We just recently reintroduced and relaunched our mobile app on the back-up side. And again, the feedback has been quite strong. We're already seeing nice increases in terms of the number of back-up users that are leveraging the mobile app as a complement to both our web portal as well as contacting our contact center.So that's an example of creating that seamless experience. And we believe that with that, we have instant book and other ways that we're making our experience more real-time on-demand and ultimately easier for the end user. At the same time, on the digital marketing side, I think we are absolutely seeing good progress. And I think it's already showing itself, for example, again, in the back-up growth rate, where we're starting to see a slight step up as it relates to use. And I think a lot of that comes down to the fact that we are finding strong personalized messages that are really resonating with the end-user and prompting them to use the service more than they would do on an unprompted basis.And so examples of that are, we're certainly going back to registered users who haven't used in six months or never used since they registered. We have examples where we're helping employers who are really focused on getting employees who are on maternity leave back to work, with maternity and transition to work programs. And really targeting individuals that have a particular profile or need and helping them to see the value of using that service.So I hope that gives you a flavor of the kinds of outcomes that we're seeing in terms of use. And then also in terms of enhanced user experience and feedback.

That’s great. And just one quick one for Elizabeth. Just any comment you can give on the size of this tuition program management acquisition?

Yes. So they contribute on – it's about $1 million to $2 million in the fourth quarter of this year. So sort of in that range of, call it, $5 million to $7 million, $8 million of annualized revenue.

Great, thank you.

Welcome.

Thank you. [Operator Instructions] Your next question comes from Henry Chien, BMO Capital Markets. Go ahead, please.

Hey, guys. Good afternoon.

Hi.

I'm always very impressed by the consistency of the model. I was just curious to get your sense of, perhaps, the demand from corporate – your corporate customers for childcare, whether that's changing at all? And I'm just sort of thinking out loud in terms of whether demographics are having an impact of more families having children? Or perhaps more working mothers joining the workforce and so forth. Just kind of, again, want to get your sense of that, just to add some color to the consistent guidance that you're putting.

Yes. So in terms of the corporate market and the employers that we are selling into and servicing, we see really good strength in their interest in the services that we provide. As you'll appreciate, we are in an environment where there is a real focus on the war for talent and differentiating yourself as an employer and being attractive to individuals that have different needs at different life stages. And so the proposition that we have whether that be in early childhood education, whether that be in the teens transitioning to college, whether that be employees going back to work – sorry, going back to school, you will certainly see that employers are very interested in the kinds of things that we have on offer.In terms of the backdrop to that, we are certainly seeing that as employees and parents are older when they have their first child, that has certainly been a positive trend for us over a number of years because certainly, they are more valuable to their employer as they are later in their career and losing them is a bigger financial challenge for the employer. I think the other piece of it is that as the benefits that we offer become more pervasive in employer's, it becomes a real competitive necessity whether that be on a geographic basis or whether it be within an industry. And so we are certainly seeing that play out geographically and within industries, where people are looking to be competitive from an employment proposition with other employers.So we're finding, certainly, the current market and the context to be a real positive for our business.

Got it. Okay, that’s great. Thank you so much.

Thank you.

Your next question comes from Jeff Meuler from Baird. Go ahead please.

Yes, thank you. Two follow-ups to the way you answered Gary's first question. How much of the lease/consortium center capacity has some sort of enrollment commitment from employer, partners or other sponsors across the system?

I think that it's a – from a statistical standpoint, Jeff, it’s probably doesn't add up to much across the system. But in these particular markets, where we have this concentration. So looking at that as a subset, it may be anywhere from 5% to 10% of the capacity, may be taken up in this way. And it, obviously, varies by center but that's probably the order of magnitude.

Okay. And then just on the increased recognition to the value to the employer from having that density. I guess, is it extending the recognition of that? Is it extending into sales for full service employer-sponsored centers, meaning getting over the hurdle that, I think, you faced in the past around benefits the quality, benefits envy, if you only have a benefit for headquarter employees?

Yes, I think that is certainly the case, Jeff. So what we have in terms of the network and the breadth of our network is certainly something that is attractive to employees that have employees in disparate locations around the country. But likewise, for those who have concentrated populations that may not have real estate, for example, of their own, it also is another opportunity for them to get involved in childcare without providing space that they have otherwise allocated in a different way. So I think it comes in both of those two ways. One, for those that have disparate employees and making sure that network works for their employee base. And at the same time, for those that have a concentrated workforce and have a need within a particular geography. But may not have space, it also is very helpful to them.

Got it. And then just last for me. Can you just kind of give us reviews on how you perceive Brexit risk to the business either from potential lead clients moving headquarters out of the UK? Or I don't know if there's any risk in your employee base.

Yes. So on the Brexit side, different from our business here in the U.S. where the majority of our centers are for a specific single sponsored employers. In the UK, we have much more of a lease/consortium model. So the majority of our centers that we operate in the UK are lease/consortium that have the benefit of sponsorship either from a broad range of clients and/or individuals, who are enrolling in the community in which they live and work who work at different employers.So I would say that the risk concentration in the UK related to Brexit is fairly modest. So the number of centers that are for single sponsors, who may decide to exit London, for example, is pretty low. So we believe that if, for example, certain employers started to exit, our hope would be that individuals that are working for other firms would come in behind them and enroll in our centers. So again, because we don't have as many single sponsored relationships in the UK, we think that the risk is much more federated.

Thank you.

Thanks, Jeff.

Your next question comes from Toni Kaplan with Morgan Stanley, go ahead please.

In your comment on the guidance, you mentioned that you're expecting to open 14 new centers this year. And I think last quarter, you had given a number of more like 45 to 50. And so I was just wondering what the cadence is in terms of the change? What's driving that slower change of – pace of opening centers?

Right. Yes, it pretty much comes down to the number of acquisitions in the full service segment that we expect to complete this year, Toni. Typical year, we would be looking to add acquisition, overall acquisition growth that contributes to revenue in the range of about 2% of our top line growth, 1% to 2%. We have that this year, but it's coming from some acquisitions in the back-up in Ed Advising business. And on the full service side, we think we will complete somewhere more like six to eight center acquisitions this year rather than maybe a more normalized range of 13 to 15 in a typical year. So it really comes down to the numbers of acquisitions that we're closing in.Just as a note, I think it’s one of the hallmarks of our strategy, we certainly do grow through acquisition. There's a lot of great high-quality providers out there but we want to be very disciplined about the centers that we're adding to the portfolio. And so that takes a fair amount of cultivation of prospects and sort of really a lot of screening. So it will be – it will continue to be a bit lumpy even though we plan to execute on them each year.

That’s great enough that seasons perfectly my next question. So just given your leverage is comfortably within your target level. Could you talk about your propensity to do a large deal, if there are any adjacencies that you'd be particularly interested in or at geographies? And just how to think about your M&A strategy?

Sure, so we absolutely are open-minded as it relates to the acquisitions that we do assuming that they are high-quality and meet our financial parameters. What I would say is that in the geographies in which we currently operate, there are really good examples of smaller tuck-in acquisitions, some larger acquisitions as well as especially outside the United States. Certainly, our propensity as we think about expansion beyond the countries that we currently operate in, that would likely be through acquisition. And so could very well be through a small, medium or a larger sized acquisition. We also work very closely with our clients to understand what are the services that they would naturally be looking for from us to be delivering on. And so the client forum that Manav mentioned earlier was a great example of us being out in the market, listening to our clients to understand what adjacencies exist to our existing services to be really thoughtful about how we broaden our portfolio of services.

Thank you.

Thank you.

Thank you.

All right. Well, thanks everyone for joining the call, and I hope everyone has a great night and have a nice Halloween tomorrow.

Yes. Thanks, everyone. See you on the road.

Thank you. This concludes today’s conference. And you may disconnect your lines at this time. Thank you for your participation.