Bright Horizons Family Solutions: Pre- And Post-COVID, Major Trouble Ahead (NYSE:BFAM)

Trading at 21x LTM (pre-COVID) EV/EBITDA and 33x FCF, the market views Bright Horizons Family Solutions (NYSE:BFAM), the child-care center operator, as a secular growth story largely untouched by the current maelstrom. Prima facie, this seems justified, as the business has put up high-single-digit revenue/low-double-digit EBIT growth CAGRs over the last decade; sports impressive returns on invested capital; and didn’t miss a beat during the financial crisis (EBITDA flattened out but never fell). But in my view the market has it all wrong. The reality is that BFAM’s margins haven’t grown in five years – despite continuing to raise tuition fees, improving utilization each year, and above-trend growth in higher-margin segments like back-up care. On closer inspection, BFAM has actually been a serial closer, not opener, of new centers – speaking to a much less attractive blue-sky runway than is currently perceived. Today, with enrollment at all-time highs heading into a recession (or depression), and with the balance sheet levered (2.5x funded/3.5x included rents), at the very least the “acquire, restructure and improve” growth story is over. In the worst case, the company could need to be recapitalized (since it is burning $50-$100mm/month in the current status quo, is already too levered, and faces huge operational deleverage in a worse economic environment). When the dust settles, I think 2021 EPS could be ~$1.75/share, or 60% below current consensus, and assuming just modest multiple compression, the stock could fall 65% even if the more draconian balance sheet restructuring scenario does not come to pass.

After a business summary/quick history, the investment thesis goes something like this:

  • Even pre-COVID, the growth story was running out of puff and misunderstood by the market;
  • COVID itself creates meaningful risks for the balance sheet;
  • potential for large earnings deleverage in a normalized post-COVID environment; and
  • perspectives on valuation post this crisis and key risks.

Business summary

BFAM is a child-care center operator, maintaining 1,084 centers across North America and Europe. Back in 2011, the company operated 760 centers; since then, growth has been mostly driven by rolling-up other providers. Child-care centers are generally good businesses, driven by long-term structural drivers (more urban density; more women/dual-parents in the workforce; more employer recognition of the benefits of company-sponsored child-care) as well as attractive underlying economics at scale (low initial and maintenance capital requirements, and high incremental margins). Partially offsetting these attractions, the market remains extremely fragmented, with the top 10 providers constituting <10% of the center-based market, and ~90% of the market operated by groups with <10 total centers.

The company has three segments: full-service, back-up, and educational. Full-service – 82% of LTM revenues/62% of LTM EBIT – encompasses, as you might expect, full-service child-care centers, offering care Monday-Friday, 7am-6pm, that vary widely in size and scope, but average around 126 children (at capacity) in the US and 82 children in Europe. About 30% of the centers in this segment are operated on a “cost-plus” model, where a corporation pays for the build out and maintenance of a center (on behalf of its employees), and BFAM earns a management fee that supplements the fees it charges that company’s employees (which are subsidized by the employer). The other 70% of the centers are operated under a “profit and loss” model, where BFAM undertakes all the costs of the operation, and earns all the rewards associated therein. The majority of P&L centers still have a corporate sponsor(s) associated with it, but these centers also serve third-party, unaffiliated families (often from locations at group office parks, etc). Personnel costs constitute the majority of operating costs in both models – around 70% in total blended, with a higher proportion for the cost-plus model and a lower proportion for the P&L model (where BFAM incurs a wide variety of other costs). Rent is generally the next highest discrete cost (at ~8-10% of COGS); with the other cost items (20-25% of COGS) comprising cleaning, maintenance, electricity, other overhead, etc.

BFAM guides that gross margins in the segment range from 20% to 25%, with the higher number coming from P&L centers, and the lower end from cost-plus centers. As you can imagine, most all the cost line-items are fixed and so incremental returns on higher child enrollment are high. Returns on invested capital in both models are also attractive: clearly BFAM is not committing much capital in the cost-plus centers; and even for the P&L centers, fit-out costs (for fixtures, etc) are very low relative to operating costs (basically all personnel, rent, and facilities maintenance). Low/mid-20s gross margins translate into ~10% EBIT margins on a segment basis, with a large portion of company SG&A (~11% of company-wide revs) – and basically all of amortization – allocated to this segment.

Back-up care – 14% of LTM revenues, but 30% of LTM EBIT – constitutes the provision of “last-minute” outsourced care and support for children (and the elderly). The reason margins are so much higher in this segment (mid-20s EBIT margin vs 10% for full-service) is that BFAM is essentially a platform provider of third-party care providers (through its call center and online service), taking a fee both from employers to organize and maintain the service and also from parents on a per-use basis. In my view, back-up care is the real “jewel” of the business – it is just much smaller in absolute earnings power than the full-service segment.

There is no denying that BFAM has executed impressively over the last 10+ years. In 2009, BFAM was doing 21% gross/8% EBIT margins on an $850mm revenue base; in 2019, BFAM printed 25.4% gross/13% EBIT margins on $2.06bn of total revenue. This represents a revenue/gross profit/EBIT CAGR of 8.4%/10.2%/13.6%, respectively. The growth algorithm has been quite simple:

  • Raise fees: Average tuition was $1435/month in 2012 (the earliest disclosure I could find); today it is $1825/month, representing a 3.5% CAGR in this time period. The company guides to ongoing tuition hikes of 3-4% annually.
  • Increase enrollment: There is no doubt that enrollment/utilization was sub-scale a decade ago. Whilst disclosures are spotty, BFAM has hiked enrollment by 7%, 12%, 5%, and 4%, respectively, over the last four years, collectively amounting to 31% growth in enrollment over this period. The last time a negative enrollment period was disclosed was 2010 (-6.4%).
  • Acquire, improve, and close: Acquisitions form the core of the BFAM model. BFAM operates 1,084 centers today, having grown from 760 at end-2011 – but in that time it has acquired a total of 510 centers. In other words, whilst total center growth has compounded at 4% in this period, net center growth has been negative 1%, as the company systematically acquires, improves, and subsequently closes underperforming centers. Whilst this juices enrollment growth (consolidating children into fewer, better-performing centers), it also creates challenges going forward, as we shall discuss, given the company has enjoyed many years of optimization of its center base at this point.
  • Growth in adjacent businesses: The education/advisory business has been a strong secular grower, from a non-existent base (revenue/EBIT went from $8mm/$0mm in 2009 to $82mm/$21mm in 2019). This has helped flip the broader entity as other segments have stagnated in earnings power, but for the purposes of this thesis still remain too small to move the needle (<8% of group EBIT today).

Running out of steam before COVID?

Despite the historical success of these various drivers, what’s most interesting is how the core segments (full-service and back-up) have stalled out – in earnings power terms, not revenue terms – in the last few years. That is, between 2009 and 2015, Full-Service EBIT margins expanded from 6.6% to 9.8%, as the top-line compounded at 7.3%. Similarly, back-up EBIT margins grew in tandem, from 19% to 31.3%, alongside a revenue CAGR of 10.2%. But from 2015 to 2019, margin growth has stuttered: Full-service margins in 2019 were 9.9% (despite ongoing revenue expansion of 6.4%); back-up margins have gone into reverse, falling 4+ pts to 27% – despite further top-line growth CAGR of 10.2%. Why, then, did margin expansion stop despite ongoing revenue growth?

Firstly, Bain acquired the business at the margin low-point in 2009 (coming out of the GFC), and no doubt extracted significant operational and cost synergies during its ownership (the business was relisted in 2013 and Bain fully exited in 2016). Many of the most attractive and synergistic acquisition targets also appear to have been monetized during this period (underperforming chains in London and Holland, for example). The retrospective, cynical view on private-equity ownership suggests this pattern – where margins expand during the PE hold period and then a fall-off thereafter – is not uncommon. But there are other reasons as well: coming out of the recession labor was far more available and at lower rates; this made it easier to hire (and keep) personnel, juicing margins in both full-service and back-up. In recent years, however, a tight employment market has made controlling personnel costs much tougher.

It is also likely that BFAM spent the initial period coming out of the GFC back-filling the most attractive areas and locations – dense urban areas in prosperous areas of the richest cities in the US and Europe – that by 2016 or so were largely penetrated. Thus, growth in more recent years appears to have been in less dense, and perhaps less wealthy, locales. In addition, as previously mentioned, the child-care market is highly fragmented, and capital requirements for single locations are not high. It seems likely competition for labor (and desirable rent locations) has contributed to the margin stagnation: since 2015, COGS have outgrown full-service segment revenues (7% CAGR vs 6.3% CAGR) and other expenses (SG&A) have grown even faster still (8.3% CAGR).

Near-term COVID impact is about the balance sheet…

COVID changes the equation for BFAM in many ways, both near- and medium-term. The company has said little about the impact thus far, other than closing half its centers worldwide, pulling 2020 guidance, and announcing cost-cutting measures. I expect at a minimum, the balance sheet to come under severe strain over the next few months.

With half the centers closed and most of the world on lockdown, I think it’s fair to assume enrollment even at those centers that remain open will be extremely low for the extent of the initial wave. Within the full-service segment, I assume half of the centers generate zero revenue (since they are closed); and half see attendance -75%; back-up care revenues I have estimated fall 50% (since most everyone is working from home, last-minute child care needs must necessarily come down); meanwhile I assume the Education segment revenue cadence is unchanged (generous). Even so I get revenues on a monthly basis of ~$38mm (vs 2019 LTM run rate of $173mm company-wide), I make no adjustment for the likelihood that many of BFAM’s most profitable centers – those in the NYC surroundings, for example – are quite likely to be the most affected, and thus most damaging to BFAM’s PnL, given the particular spread of the virus.

On the cost side, if BFAM can furlough 50% of its staff – i.e., all those who work at the closed centers – at no cost, and if personnel runs to 65% of COGS in aggregate, then monthly labor cost falls to $42mm. I assume rent still gets paid; this is ~$13mm a month. Then for all other COGS I assume a blanket cut of 25%. This suggests total monthly COGS of $79mm or -$40mm of gross profit per month. SG&A ex amortization likely comes down – I budget -25%, but even so the monthly operational burn is ~$55mm. Interest expense adds another ~$4-5mm per month.

Thus, I think it’s reasonable to conclude BFAM is currently burning $60mm cash per month in the current status quo. Note that I believe this is very much a minimum burn rate, because in practice it may be quite difficult to furlough/lay off staff in a frictionless manner for this kind of business. Hiring for childcare is not like hiring for McDonald’s (NYSE:MCD): rich families paying ~$1.5-2k per month to have their children taken care of often develop a personal relationship with their carers and expect a certain level of continuity, familiarity, and trust from their child-care provider. Even pre-COVID, safety and training regimens for new hires in child-care are rigorous and costly; it may not be simple, nor desirable, for BFAM to simply wield the axe now in the hope that business doesn’t suffer later. Similarly, I make no adjustment for the likelihood that many of BFAM’s most profitable centers – those in the NYC surroundings and in London, for example – are quite likely to be the most affected, and thus most damaging to BFAM’s PnL, given the particular shape of how the virus has spread thus far.

Beyond operational burn, working capital is a major problem. Parents normally pay for care monthly in advance, and at year end, BFAM had $191mm of deferred revenue (basically one month’s revenue in the Full-Service segment) and also ran negative working capital outside of deferred revenue due to favorable trading terms elsewhere in the business. Even if we assume suppliers exercise forbearance, the simple draining of deferred revenue from the balance sheet – which will be accomplished with most all the centers in lockdown for a couple of months – necessitates another $100-200mm of funding to be found, on top of the ongoing burn rate.

At this point it’s worth mentioning that BFAM is quite levered: it carried $1bn of funded net debt at year end (about 2.5x LTM EBITDA of $395mm); on a rent-adjusted basis this leverage is a bit more threatening at 3.5x. If we assume, then, the lockdown costs the business $120mm cash in operational burn (so two lost months at minimum burn rates) and another $130mm of lost deferred revenue, pro-forma leverage – against pre-COVID earnings levels – rises to 3.2x/4.1x (funded/including rents).

Clearly this isn’t levered to the gills, but it is enough to constrain future acquisitions for quite a while, at the very least. And, since the company only carries $27mm cash (and has $225mm only of revolver capacity available), this may prompt liquidity question marks (or worse) in a more bearish scenario.

Post-COVID earnings power looks structurally lower

But the main reason I like this short is NOT the near-term balance sheet impact of the temporary lockdown; it’s because I think the mid-/longer-term earnings power of the business will be significantly impaired from current levels, even if the longer-term reaction to COVID from a behavioral perspective is fairly muted. That is to say, even if we all go back to work in 12 months, and even if we can all agree that child-care is a necessary and valuable service, I can’t see how pre-COVID enrollment/utilization levels (let alone fees) are maintained through a recession (or, heaven forbid, a depression). And the PnL looks supremely vulnerable to even small changes in both of these items. (Note: this of course pre-supposes social distancing is done and dusted and normal child-care centers can be used similarly to before the crisis – perhaps a generous assumption).

The fact that this recession is different, as regards to its impact on BFAM, is something the market appears to be missing, precisely because last recession the business seemed so bulletproof. In 2008-2010, revenues kept growing (albeit at a lower rate), and EBITDA didn’t decline – not bad at all for the GFC! No doubt the market is today sanguine about the rebound potential here because the business was so resilient back then. But the market is missing that the starting point for the earnings power of the business today – mid-teens EBIT margins, 19% EBITDA margins – is a full 5+pts higher now than back then, and that this higher baseline level of earnings speaks to much higher – and thus more vulnerable – operating leverage in the model (that is, 10-15pts higher enrollment, and 35%+ higher fees in nominal terms). Furthermore, it ignores the very specific, COVID-related residual risks that are likely to crimp earnings potential even in a fully-normalized, post-COVID world.

Consider the unit economics today. Based on 10-K disclosures, the average Full-Service center does $1.65mm of annual revenue (blending US and Europe), and generates an average 23.5% gross margin (using blended averages for P&L/cost-plus models). This equates to ~$388k in gross profit per center – or, at company-wide segment EBIT margins (10% in 2019), around $39k in EBIT per average center. Since the average center – again, blending US and Europe – can hold 111 children at capacity, and since a simple average of fees on a monthly basis is $1,825/month/child, at those average revenue levels the implied utilization rate is around 70%. Actually, we know utilization is higher than this since younger children who garner fatter fees – infants and toddlers – should be a smaller component of total enrollment. Adjusting this assumed utilization rate slightly higher to account for this, to 75% (probably still too low based upon external research) suggests that gross profit per child per month is around $390. Keep in mind that average fees in 2012 were $1,435 per child per month; they are now $1,825 per child per month. That is to say – the entirety of the Full-Service center gross profit being earned today is simply the sum of fee increases pushed through during the last seven years.

That aside, what could a post-COVID environment look like? Well, I think it’s reasonable to assume at least some parents will be permanently scarred by COVID such that they fear for their children’s health in a child-care center. There will also be at least some structural trend towards work from home – likely alleviating some of the demand for out-of-home child-care at the margin. Of course, it also seems pretty clear we will go through either a recession or depression – none of which is good for household incomes and expensive line-items like $2k/month child-care. Finally, BFAM is over-indexed to large urban agglomerations where the virus has been particularly virulent – NYC area, SF, and London – and where the majority of its highest-performing centers are located (judging by average fees and density) – again, likely a significant negative during the new normal to come. Add it all up and I think a 10% decline in enrollment, along with some fee compression, is more than generous for a normalized base case, say from 2021.

Assuming a 10pt decline in utilization to 65%, then, and say a 5% decline in average fees, and I think average unit revenue falls to ~$1.5mm (vs $1.65mm today). On the cost side, personnel costs are probably largely fixed in numeric terms (you can’t necessarily fire 10% of your employees if you have 10% less kids), but maybe you can cut salaries in line with lower fees, so let’s lower the personnel cost by 5%; meanwhile other COGS – rent, facilities – are basically fixed if not higher (since we will definitely see stricter maintenance and cleaning requirements for all public spaces post-COVID). In total, I have gross profits per unit dropping to $291k, and gross margins fall to 19.3% – or around 420bps below where they are today. And in reality I think enrollment and fees could well fall further than this…

Whilst no doubt SG&A costs can be cut somewhat in this kind of reversal, the very fact that historically gross margin improvement was mostly responsible for EBIT margin improvement suggests in reverse the same should be true (looking at the group PnL, gross margins went from 21% in 2009 to 25.4% last year as EBIT margins went from 8% to 13%). Thus, a 400bps+ contraction in gross margins – based off just a 10pt enrollment drop and giving back not even one year’s worth of price hikes (since average tuition falls just to $1,733/month vs $1,715/month in 2018) suggests to me that Full-Service segment EBIT margins could realistically fall from current levels near 10% back near levels seen in 2010-11, or 6-7%.

But what about the Back-up segment? Whilst clearly harder to forecast as all the drivers are not readily observable, it further stands to reason that in a much weaker employment/recessionary environment, and one in which some portion of the workforce is out of work and/or working from home, there would be less demand for high-priced, last-minute child-care services. Still, it is hard to handicap how much lower demand translates into lower revenue, so I am simply assuming a minimal 10% decline here in nominal revenues, along with slightly higher decremental margins, for my 2021 estimates. I am not touching the Education segment.

What’s BFAM worth in the new normal?

Putting it all together, in even this somewhat mild downside scenario, I think group EBIT could fall to ~$180mm (vs $268mm in FY19) and EBITDA is closer to $300mm (vs $395mm in FY19); keeping tax and interest expense relatively constant implies FY21E EPS of $1.75/share – 60% below the current consensus of ~$4.25 (which is basically flat vs realized FY19 and may be stale at this point). At the same time, pro-forma leverage jumps to 3.8x funded/4.7x including rents (assuming deferred revenue normalizes back in the company’s favor and just the $120mm of cash burnt during two months of lockdown). Remember again this assumes no further burn/deterioration in the cap structure over the rest of 2020, and (I believe) a mild recessionary downside scenario in 2021…so I think reality could certainly look worse than this.

It is tough to estimate what the market may capitalize this kind of lower earnings profile at going forward. No doubt there will be some residual support for the name, as well as assumed bounce-back potential if/when the economy returns to growth (perhaps late 2021 or early 2022). Still, I find it hard to believe the name would not at least partially re-rate, especially as in this scenario the company would be breaking the historical pattern (namely, seeing strongly negative comps in this crisis versus the last), would probably trip covenants, and may at least have questions posed about its leverage burden. Thus, even a high residual multiple of say 20x EV/EBIT would imply a much lower stock price around $42, or 65% downside. Alternately, even at 20x EV/EBITDA – basically the current multiple, and where Bain paid to take out BFAM back in 2009 – the stock would be worth only $80 in this scenario, still good for substantial downside before considering derating potential. And to be clear I fully expect the balance sheet to be in much worse shape by the time we get to 2021, adding further pressure to residual equity value.

Upside case, other risks

Nothing in life or investing is without risk, and of course that applies here too. There is a chance BFAM could sail through this recession – perhaps the economy bounces back rapidly, and completely; perhaps BFAM is able to offset lower enrollments and/or lower fees with aggressive cost cuts and other efficiencies. More likely though is perhaps a higher multiple applied to lower or similar FY19 earnings (thanks, Jerome Powell!) and – in a fast recovery scenario – an unchanged perception of the business as a strong secular growth story. In that scenario I could see the stock push back up to recent valuation highs around 28x EV/EBITDA and 45x FCF – which, even with the added cash burn through COVID, would imply a stock north of $160 and up near the recent highs, so ~33% downside from here.

The other major risk is another PE-led takeout (given the history here). However, I am less concerned about this risk since Bain paid “only” 20x EV/EBITDA based on a much less profitable and less-scaled business – i.e., around the current pre-COVID multiple – and the absolute ticket size on a takeout is much larger now than then. Also, the business is now levered significantly (again a legacy of the original buyout) so PE can’t rerun the same levered playbook here even if the equity component derates significantly. Mostly, though, COVID, social distancing, and work from home have the potential to fundamentally change the calculus for a business like this over the long-term, such that a buyout near-term – before the dust settles and we can at least glimpse what the new normal looks like – seems remote.

Disclosure: Short BFAM

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Bright Horizons Family Solutions’ (BFAM) CEO Stephen Kramer on Q4 2019 Results – Earnings Call Transcript

Bright Horizons Family Solutions (NYSE:BFAM) Q4 2019 Earnings Conference Call February 13, 2020 5:00 PM ET

Company Participants

Michael Flanagan – Senior Director, IR

Elizabeth Boland – CFO

Stephen Kramer – CEO

Conference Call Participants

Ryan Leonard – Barclays

Andrew Steinerman – JPMorgan

Mario Cortellacci – Jefferies

Gary Bisbee – Bank of America

Blake Johnson – Goldman Sachs

Toni Kaplan – Morgan Stanley

Jeff Meuler – Baird


Greetings, and welcome to the Bright Horizons Family Solutions Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I’d like to turn the conference over to your host, Mr. Michael Flanagan, Senior Director, Investor Relations. Please go ahead, sir.

Michael Flanagan

Thanks Hector and hello to everyone on the call. With me today are Stephen Kramer, Chief Executive Officer; and Elizabeth Boland, Chief Financial Officer. I’ll turn the call over to Stephen after covering a few administrative matters. Today’s call is being webcast, and a recording will be available under the Investor Relations section of our website at

As a reminder to participants, any forward-looking statements made on this call, including those regarding future business and 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 and operating and financial results to differ materially and are described in detail in our 2018 Form 10-K.

Any forward-looking statements speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statements. We also refer today 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 the review and update on the business.

Stephen Kramer

Thanks Mike. We are thrilled that you have joined in the newly creative role of Senior Director of Investor Relations at Bright Horizons. Welcome. And thanks to all of you who’ve joined us on the call today.

I’ll review our financial and operating results for this past quarter and the full year 2019 and then update you on our growth plans and outlook for 2020 Elizabeth will then follow with a more detailed review of the numbers before we open it up for your questions.

We’re very pleased to continue our solid performance in the fourth quarter of 2019, and it sets us up well to drive continued growth across all of our business segments in 2020 and beyond. For the quarter, revenue grew 9% to $521 million, and adjusted EPS increased 12% to $1.01.

We added seven full service centers this past quarter, including programs for Lehigh University, two international lease models and a strategic acquisition on the West Coast. We also continued to expand our back up and educational advisory client base with recent client launches for Atrium Health, BAE Systems, WBP Group and Wayfair.

As we have shared previously, capitalizing on the synergy between our services remains a strategic priority for the company. We remain pleased with recent cross-selling successes as our sales and account management teams work collaboratively to broaden and deepen our existing client relationships.

We hit a new milestone as more than 300 of our clients or 25% of our client base now invest in multiple services, including Halliburton, Nielsen company and Volkswagen, who launched a second or third service with us this past quarter. With more than 1,150 employer partners, the cross-selling opportunity that exists remains significant. Tracking our solid topline growth, we continue to deliver strong and consistent operating results across the business, as adjusted operating income also expanded 6% in the fourth quarter.

Over the last few years, we have discussed the investments we have been making in technology, digital marketing and people. A few examples that illustrate the progress we are making as a result of these initiatives include improved conversion from registration to back-up use, increased usage of the mobile app and reserve now, also known as instant booking, and higher overall user satisfaction, all of which together translate to higher utilization.

On the people investment front, I’m especially pleased by the response to our Horizons Teacher Degree Program. This benefit provides our teachers the ability to earn a high-quality certificate, associates and bachelor’s degree in early childhood education, completely paid for by Bright Horizons with no out-of-pocket expense to the employee.

We now have more than three quarters of our centers with an enrolled learner. With these participants reporting increased employee engagement scores and significantly enhanced retention rates. These examples, along with a host of other initiatives, are in various phases of rollout. We will continue to invest in these kinds of efforts to continue to drive growth, operating leverage, and enhanced quality of client experience.

Turning to 2020, we continue to focus on our 4 strategic priorities: one, preserve a strong culture and a great workplace at Bright Horizons; two, deliver highest-quality education and care services; three, extend our impact through strategic growth; and finally, connect to cross function, service lines and geographies. Our team’s efforts continue to align with these pillars and allow us to accelerate the positive momentum we have across all aspects of our business.

Let me touch on a few strategic growth areas. First, our organic growth strategy continues to be focused on cultivating new clients and expanding our existing client partnerships through cross-sells and additional use of current services. After another solid year in these categories, I’m really optimistic about the sales and growth momentum across all three business lines in 2020 and beyond. The sales pipeline in each of our services remains strong, with interest across industries and with both new and existing clients.

Next, our lease/consortium centers. We’ve now opened 100 of these centers over the last seven years. We’ve focused on select urban settings, where we see a concentrated population of our targeted demographics, a limited supply of high-quality child care and strong opportunities to meet the needs of our client partners through both full service and back-up care solutions.

We continue to be encouraged by the progress in the newer and ramping cohorts by the positive enrollment and contribution from the group of centers that have reached mature operating levels and by the opportunities we’ve been able to tap into with nearby client partners.

With our growing density of centers in major metro areas, we are an increasingly attractive partner to leading employers located across these markets. And we, therefore, continue to see significant long-term value-creation opportunity in this multifaceted strategy.

Finally, with regard to M&A, we continue to cultivate a solid pipeline of acquisition prospects, and we expect acquisitions to continue to be a key element of our growth plan in the years ahead. As you know, the timing of acquisitions can be lumpy.

We completed seven center acquisitions in 2019. And based on the activity in process, we anticipate a more typical year of acquisitions in 2020, approximately 15 to 20 centers with a mix of smaller networks and single centers.

In addition to typical center acquisitions, our diversified model also provides us with opportunities to acquire non-center businesses from time to time, like My Family Care in the first quarter of 2019. Strategic additions, like this one, enable us to continue to allocate capital with highly attractive returns, while expanding our back up and educational advisory offerings.

Before I wrap-up, I’d like to comment on our strong values and unique culture. As many of you know, Bright Horizons’ central mission is to make a lasting difference in the lives of our clients, families and learners around the globe. It starts with our employees, and we spend a lot of time and resources to attract and retain the best, while fostering an environment where people want to grow and have a sense of belonging. Diversity, inclusion and equality have always been central to the Bright Horizons’ culture and history and are woven into the fabric of all that the company does.

Over the last few months, it’s been an honor to be recognized by Bloomberg, Forbes, Fortune and the Human Rights Campaign as a leader in creating inclusive workplaces, where all employees can feel a sense of respect and dignity and thrive in a meaningful way. Being on these lists is not our motivation, but it is a great affirmation of the work we do to build a strong culture and a great workplace and ultimately, a great business for the long run.

Another element that defines Bright Horizons is our commitment to working parents. We released our sixth annual Modern Family Index last week, which illustrates the priorities and challenges facing a modern working family. This year’s data continued to show the harsh truth that today’s working parents increasingly feel burned out, trying to balance both career and family commitments.

Our data reveals that employees are willing to walk out the door if their work-life balance isn’t achieved, and a significant majority are willing to abandon their professional commitments to manage their burnout.

The survey once again underscores the value and import of employers providing meaningful support to their employees by providing more family-friendly services that address the stresses at work and at home. We are very proud to be the partner of choice for so many leading employers looking to address the needs of the modern workforce and are also excited by the prospect of introducing our services to new employers who are looking to solve these challenges.

So, in summary, we believe that we are well-positioned to continue the positive momentum and operating agility we have demonstrated over years. For 2020, we anticipate continued strong performance with revenue growth in the range of 8% to 10% and operating leverage to drive adjusted earnings per share in the range of $4.11 to $4.18.

With that, Elizabeth can review the numbers in more detail, and I’ll be back with you during Q&A.

Elizabeth Boland

Thank you, Stephen and hello everybody. Thanks for joining us today. Once again, recapping the headlines for the quarter. Overall revenue was up $42 million or 9% in the quarter. The 6.1% growth in full service center revenue or $24 million was driven by rate increases, enrollment gains and from contributions from new centers.

Strong utilization by existing clients, along with the launches of new clients and contributions from My Family Care, helped drive 24% revenue growth in back-up and 13% in Ed Advising services in the quarter. In Q4, gross profit increased $11 million to just over $131 million or 25.2% of revenue, and adjusted operating income increased to $67.4 million or 13% of revenue.

As mentioned in our full service segment, the gains from enrollment growth in our mature and ramping centers and contributions from new and acquired centers as well as tuition increases were partially offset by the headwind of preopening and ramping losses in our new lease model centers.

With a larger cohort opening in 2019, over 17 in total compared to 12 in 2018, we incurred higher total losses this past quarter than in the prior period. The back-up and Ed Advisory segments both generated solid operating margins in the quarter, approximately 31% and 29%, respectively, on their strong — continued strong utilization levels and on continued scale in the operations, which brought efficiency of service delivery.

Interest expense of $11 million in Q4 of 2019 was down slightly over 2018 as lower average revolver borrowings and modestly lower average interest rates contributed. Our current borrowing cost approximates 4% with $500 million of our term loans fixed with an interest rate swap. We’ve repaid all outstanding borrowings under our revolver during 2019, and we ended the quarter at 2.6x net debt-to-EBITDA. The 2019 structural tax rate on adjusted net income came in at 21%, lower than our previous estimate due primarily to a higher tax — higher level of tax benefit on equity activity.

With our improved operating performance and positive working capital movements, we also continue to be very pleased with our strong cash flow generation. For 2019, operating cash flow was $330 million, up $35 million over 2018.

In terms of deploying net cash flow and our capital allocation strategy, our first priorities continue to be investments in the growth of the business. This is illustrated by the $100 million plus that we spent in 2019 on new centers and acquisitions as well as the $50 million that we reinvested in our existing operations and support functions. Share repurchases are our third priority after new business investment and acquisitions. And in 2019, we acquired a total of 210,000 shares under our share repurchase program.

Lastly, at 12/31/19, we operated 1,084 centers with the capacity to serve over 120,000 children. Adding to the guidance headlines that Stephen touched on earlier, we continue to project topline growth for 2020 in the range of 8% to 10%, including revenue gains in our back-up division in the range of 12% to 13% and topline growth in our Ed Advisory services in the range of 15% to 20%. In our full service segment, we’re projecting topline growth in the range of 7% to 8%.

On the operating side for 2020, we expect to continue to add approximately 1% to 2% to the topline from enrollment in our ramping and mature full service centers and to realize average price increases in the range of 3% to 4% across the P&L center network.

We’re looking to add approximately 45 to 55 new centers, including organic openings and acquisitions, and our outlook also anticipates that we will close approximately 25 centers. Topline growth and increased efficiency in our service delivery contribute to improved operating performance and margin improvement for 2020 in the range of 50 to 100 basis points compared to 2019.

On some other key metrics for the full year 2020, we estimate amortization of $32 million to $33 million, depreciation in the range of $80 million to $84 million, and stock compensation of $20 million to $22 million. Based on our outstanding borrowings and estimates of interest rates for the year, we project that interest expense will approximate $40 million to $42 million.

On the tax front, we’re projecting that the structural tax rate will increase from the 21% this past year to approximately 23% to 24% in 2020. This increase primarily reflects the diminishing impact of stock option exercises on our reported tax expense as well as higher effective rates in our European operations.

Lastly, weighted average shares are projected to approximate $59 million for the year. We estimate that we’ll generate approximately $350 million to $375 million of cash flow from operations and have $60 million of maintenance and overhead capital, yielding approximately $300 million of free cash flow to invest in the ongoing growth of the business.

We do expect to invest $50 million to $55 million in new center capital, specifically for centers that we have opening in 2020 and in early 2021. The combination of all these factors lead to our projection of adjusted net income of $242 million to $246 million and adjusted EPS growth in the low double digits to a range of $4.11 to $4.18.

Looking specifically to Q1 of 2020, we’re projecting approximately 7% to 8% topline growth and adjusted net income in the range of $54 million to $56 million. This translates to adjusted EPS in the range of $0.94 to $0.96 a share.

And so with that, Hector, we are ready to go to Q&A.

Question-and-Answer Session


Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions]

Your first question comes from the line of Manav Patnaik with Barclays. Please proceed with your question.

Ryan Leonard

Hey, this is Ryan on for Manav. Just if I could ask a little bit about the operating margins. It came in a little bit lower, especially after the commentary on the last call. I guess, you did talk a little bit about timing, did more just — did you open more centers towards the end of the year? Or maybe you could just help flush out what exactly the moving pieces were there?

Elizabeth Boland

Yes, I think primarily looking at some of the usual utilization variability that we see in the back-up and Ed Advising business, that’s a smaller factor, but it’s primarily the lease/consortium centers that I mentioned, having just a higher weighting of centers that opened this year and just how they came in timing-wise and the effect of Q4 losses against what we experienced last year. That’s probably the primary driver. We have a little bit higher equity expense in overhead as well. I think you can see that the overhead rates a bit ticked up, and so that’s also a little bit of a headwind on the margin. But I think primarily, it’s just the lease/consortium centers.

Ryan Leonard

Got it. Thanks. And then on the M&A front, it sounds like maybe there are some more opportunities kind of outside of the core center base, even though there are still opportunities within centers themselves. Do you think that as we go forward, as you look out five years from now, there’s much more opportunity on the M&A side to build out kind of some of the Ed Advisory and back-up offering?

Stephen Kramer

We do, Ryan. I think that as we continue to look across the landscape, certainly, we continue to see good opportunity on the center side of the business. But I think that as the capabilities and the interest of our clients grow in the areas of back-up and Ed Advisory, we continue to be very open-minded as it relates to service extensions as well as continuing to deepen around the core competencies and client base that we have. So, I think it’s really going to be that combination across the three that you’ll continue to see us build out, but we’re optimistic about what the acquisition landscape looks like.

Ryan Leonard

Got it. Thank you.

Elizabeth Boland

Thanks Ryan.


Your next question comes from the line of Andrew Steinerman with JPMorgan. Please proceed with your question.

Andrew Steinerman

Hi Elizabeth, I’d like to talk a little bit more about the fourth quarter margin within Ed Advisory. That was the segment where margins were down more than the other two segments. I think you were just making a reference to it a moment ago. But could you just go over why the Ed Advisory margins were down more in the fourth quarter? And how do you feel like margins in Ed Advisory will do in the current year?

Elizabeth Boland

Yes. So, a couple of factors in there. I think the — we have some — the additional revenue that we have from the contracts from GP Strategies that are — we need to integrate and ramp up to our margin profile. So, there is just some mix headwind there coming in. And I think the rest of it is attributable really to just timing of some of the investments that we’re making as the business grows and sort of sales, marketing and technology resources. So, nothing that looks to be changing the profile longer term.

As we’ve talked about, Ed Advising’s topline growth in the 15% to 20% range, and long-term operating margins being able to be sustained in the 25% to 30% range. We feel really good about how we performed for the full year. And so the quarter-to-quarter noise is really just that as how we look at it.

Andrew Steinerman

Right. A little bit — the second part of the question was how do you feel like Ed Advisory margins will do in 2020? Are they going to be helpful to that overall 50 to 100 basis point goal you laid out?

Elizabeth Boland

Yes, I thought that I was alluding to that with how we think that it can continue to perform. So, at a growth rate that’s in the 15% to 20% range and driving somewhere between 25% and 30% operating margins, it will contribute to some operating margin leverage we expect this year as — particularly, as we do complete the integration of those contracts with the GP Strategies Group and continue to just scale the business. So, yes, we do see it as a contributor.

Andrew Steinerman

Perfect. Thank you.

Elizabeth Boland

You’re welcome.

Stephen Kramer

Thanks Andrew.


Your next question comes from the line of Hamzah Mazari with Jefferies. Please proceed with your question.

Mario Cortellacci

Hi, this is Mario Cortellacci filling in for Hamzah. Just wondering if you can comment on your penetration rate or what you think it is for employer-sponsored child care in the U.S. And how that’s trended over time? And then maybe you can also compare that to how it looks in the U.K. as well?

Stephen Kramer

Sure. So, first, what I would observe is that from our earliest days, over 30 years ago, we’ve really been creating the market around employer-sponsored child care, right? So, it’s not like there’s a large installed base of child care centers associated with employers, aside from ones that we have — really, from a missionary standpoint developed. We estimate that there’s somewhere between 1,000 and 2,000 centers that exist that we don’t operate that are associated with employers.

But again, most of the growth in the market is being driven by new employers deciding that they are going to incrementally invest in on-site and near-site child care centers. We really think about the marketplace as one where an employer that has a site with greater than, call it, 1,500 employees is one that could certainly be capable of valuing and ultimately benefiting from on-site or near-site child care.

When we think about the U.S. versus the U.K., the U.S. primarily is a market that we are driving as it relates to employer-sponsored care. In the U.K., the government supports it citizens, especially those individuals that have three to five-year-old children with subsidy. And so in that way, some employers believe that the government is supporting child care, and therefore, they don’t need to play a role in that.

On the other hand, we do have direct employer contracts in that market as well. We just don’t see the long-term potential quite as large in that market. But again, since we are focused on markets with some form of third-party support that can be in the form, like here in the U.S. that is employer-driven or in the case of the U.K., where it’s both government and employer.

Mario Cortellacci

Great. And then just one more and I’ll turn it over. Just a question on your back-up business. Could you just give us a sense of what the competitive backdrop looks like there? And maybe just give us an idea of what your advantage is versus other centers, given the size of your network?

Stephen Kramer

Sure. Happy to. So, look, we are by far the market leader within back-up care here in the United States, and that is also true in the U.K. both countries we operate a significant back-up advantage over the next largest provider.

The competitive landscape here in the U.S., there are a few small competitors. But again, if you think about our business as being one that is north of $300 million and the next largest being sort of between $10 million and $20 million, we have a significant market share advantage over our next largest.

What I would say is that as we look out over time, we see ourselves continuing to outpace that market with a significant advantage in the fact that we place a lot of the care on behalf of our employer clients into Bright Horizons owned and controlled care.

And so therefore that care is only available through a partnership with Bright Horizons. And so given the quality of the care in our own centers and through our network, it really allows us to continue to sustain a pretty significant advantage.

Mario Cortellacci

Great. Thank you.

Elizabeth Boland



Your next question comes from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Gary Bisbee

Hey, hi everyone. Good afternoon.

Elizabeth Boland


Gary Bisbee

First question, I guess, you’ve occasionally in the past given us the revenue for the lease/consortium base of schools or the run rate revenue or some metric. Is that a number you can give us at year-end? How big is that?

Elizabeth Boland

Let me just pull that up, Gary. I don’t have the rate here, but let me just pull it up.

Gary Bisbee

And I guess, a bigger picture on just the lease/consortium strategy, in general. Now that you’ve got several classes that are in that mature camp and I think more balanced across it mature to developing to sort of new. Can you just give us an update on how the strategy is doing in total?

And really, what I’m thinking about is that sort of notional model, if you will, around revenue and gross profit growth that you sometimes have in your investor deck. I mean, is it broadly playing out to that model? What’s better, what’s worse? Any sort of lessons? And just trying to think about the long-term economic impact of continuing to prioritize growing this segment of your business? thank you.

Elizabeth Boland

Yes. Gary, let me just maybe lead off and Stephen can speak to maybe the broader strategy and how we’re thinking about it beyond the financial performance and that element. But I think that we would look at the earliest years of this strategy, if you will, in the urban centric. Starting in 2013, we now, as you say, have a number of classes that are mature. And I — if you’ve got a bell curve of 10 to 12 centers and how they’re performing, we are pleased that they are hitting those returns that we show in the investor deck.

Some of them have a higher revenue profile even in that $2.5 million average view because of where they are located and the tuitions that they can command. But in terms of a gross margin in the range of 20% to 25%, those earliest classes as a group are, in fact, in that range, not to say every center is in that range because we do have some that are on a much slower slope of ramping up and will take longer to get there.

So, I think in the round, we’re feeling like it’s working well, and we are establishing both a footprint of well-recognized, high-quality centers, and we’re focused in the right kinds of geographies to continue to deploy the strategy, both with the operations team that is dedicated to this. So, we have a dedicated division that’s focused on the new centers that are opening. It’s not each operator getting up to speed with what’s different about this kind of a center.

And as a result of that, we’ve got — we think — the right amount of attention on the operational side of it. But it’s true that the — we’ll have ways of these like we remarked about it in the prepared comments, but 17 centers in some of these locations, they do generate a substantial preopening loss. I’d say that might be one difference that we see.

Some centers have a higher preopening and ramp-in loss than a typical prototype because of the rents that they come in. So, that may be a bigger drag, a slightly bigger drag than we would have envisioned at the early stages of this strategy. And hence, the comment today that there’s a couple of million of an effect from that in this fourth quarter. But Stephen, the strategy?

Stephen Kramer

Yes. So, I think we feel really good about the strategy, and it’s very much in line with what the original thesis was, which is we’re looking to locate in areas where we can support working families where they work and live and as there has been more of a shift towards individuals and young families staying in the urban areas.

And likewise, a migration of employers either staying or moving back into urban areas. We feel like the urban strategy is really playing out well, both here in the United States as well as in the U.K. and The Netherlands.

What I would say is that with our increasing density, there have been some really positive network effects, both from an operational and a delivery standpoint. But also, as I alluded to in the prepared remarks, the idea that our client partners are finding the additional centers that are nearby their workplaces and nearby their employees where they live, has been a real positive.

So, again, I think that overall, the strategy is unfolding the way we would have hoped and we believe we’re really adding value both to the working families and the employers. And certainly, the financial characteristics have been very positive for us.

Elizabeth Boland

Yes. And so, Gary, just to answer the question about what’s the sort of revenue composition of these centers. It’s in the range of $175 million or so for these 100 centers, and they are positive in total. But if we look at full-service margins in the range of overall 20% to 25%, they’re closer to the 10% range as overall cohort.

Gary Bisbee

Great. That’s a helpful update. I appreciate that. And I guess, just one last on the full service center business. Is — this has been the majority of the growth in units outside of a couple of years ago, and there are a couple of more sizable acquisitions. Is that is that sort of by design as you like this model and you need the capacity from it to deliver on the back-up business? Or would you like to grow the non-lease/consortium faster?

And if the latter, what’s — that just hasn’t grown a lot in the last few years, what’s like the gating factor to delivering better growth outside of the lease/consortium? If, in fact, that’s a high priority at the moment. Thank you.

Stephen Kramer

Yes, I mean, we still are very focused on creating employer-sponsored centers. And I think actually we’ve had some really good consistency of our ability to convince employers to invest in on-site and near-site child care centers each year.

So, I think in the outlook, we continue to see that as a really positive driver of growth. We really view the lease/consortium as an additional leg on the stool and believe that both the positive economics based on enrollment in the centers, alongside the fact that they are a really important element of our capacity for back-up care, they really do add quite a bit in terms of their strategic value.

And then, as you alluded, the piece that has been less consistent is the acquisition side. And so we’re very clear headed that we are always out there. We are an acquirer of choice. And so if we look at the history, a lot of the lumpiness in terms of the number of centers is tied directly to the number of acquisition sites that we have in a given year. With this past year being fewer than what I would say is a typical year.

On the other hand, we had some really strategic non-center deals in the form of deal in back-up care in the U.K. and then GP Strategies, tuition management business here in the U.S. But as we look out, we continue to see good opportunities to align with high-quality child care centers that are good acquisition targets for us.

Elizabeth Boland

Yes. And just one other maybe follow-on comment on the sort of non-lease/consortium centers. And if we look at the three factors of new center adds in year acquisitions, client centers and lease/consortium, we’ve — there’s a little bit of noise year-to-year, but we are adding around 30 lease/consortium and client centers in any given year. So, it is about half and half coming from those two sources and so I think the — just to put more of a quantitative point on that.

Gary Bisbee

Okay. All right. Yes, that’s good. And then I’ll sneak one last one, and if I can, which is any update on labor cost inflation, including obviously the tuition reimbursement program that you commented on, is that picked up as we’ve seen with broader economy overall? And are you still comfortably able to pass on price in excess of that as you’ve done historically in the past? Thanks a lot.

Elizabeth Boland


Stephen Kramer

Yes. So, I think that what I would say is that comfortable is a relative term, right? So families never are appreciative of tuition increases. On the other hand, we have a long history of being able to pass along tuition increases and make sure that there is a margin between those and the wage increases that we provide to our staff, understanding that there are other elements of expense like benefits, et cetera, that are moving at a rate that is even greater than wage inflation. What I would say is that in the current climate, it’s much like what we’ve seen over many years, which is, it has been historically challenging to find and retain top educators and teachers for our programs.

On the other hand, we focus a lot of our time and energy on being an employer of choice. And so we feel that we really do get a disproportionate share of those individuals. Directly related to your question about the tuition program that we’re offering our employees. Again, we see really positive ROI on that investment. So, yes, that’s an incremental expense.

On the other hand, we believe that it is certainly adding to things like retention that allow us to reduce some other expenses that create friction in our model. And therefore, we think net-net, that investment is overall positive.

Gary Bisbee

Thanks. Appreciate all the color.

Stephen Kramer

Yes, thank you.


Your next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

Blake Johnson

Hi, good afternoon. This is Blake on for George. You mentioned that approximately 25% of your client base currently use multiple services. Can you discuss what’s driving the pace of cross-selling? Have you changed anything structurally on the sales side that might be driving an uptick in sales productivity?

Stephen Kramer

Yes. So, we have — thank you, Blake. So, certainly, our cross-selling efforts have been a real focus over the last few years. And what I would say is that there are a few things that we really have started to optimize. The first is that, historically, before a few years ago, we had individuals who were on our sales team that were focused on bringing new logos to the family. And then we had an account management team who is really focused on managing client relationships and upselling and cross-selling the clients.

Today, we have restructured that such that our sales team is going after both new logos, but also extending through opportunities in the existing client base. And so there’s a real positive partnership that exists now between our sales team and our account management team. I’d say the second piece of that is we absolutely have changed the structure of our incentive systems to align with the behavior that we’re looking to drive as I just shared.

And then the third piece is that I think we’re getting much more sophisticated about stratifying our account base to make sure that we understand the likely prospects within our account base and beginning to figure out who is most likely to buy what additional services and then trying to present those investment opportunities for our clients. So, again, I think overall, we’re seeing good success on that front and bringing our cross-selling efforts to a really positive place.

Blake Johnson

Great. That’s helpful. One more. It looks like enrollment growth was pretty healthy this quarter. But are you seeing any potential headwinds that could slow the pace of new enrollments in 2020?

Elizabeth Boland

I think that the trends in enrollment are — they are heartening. In general, we’ve been pleased with both the stability of being able to eke out a little bit of enrollment progress in our mature base and then ramping our newer centers. It is a cycle that occurs every three, four years as children age through the system. And so it’s really a matter of us making sure that we’re reaching as many parents at our client partners as possible and are being very mindful of having children age up through the center and backfilling spaces as quickly as we can.

So, that’s — it’s really just the nuts and bolts of operations, nothing fundamental that we see affecting that in our — certainly, if we look back in time and in past more economically challenged times, we’re in obviously quite a strong economy with some questions about what clouds are on the horizon. But we have been successful even in times when we’ve had some enrollment contraction because of a very severe recession. We’ve got some ability to cost manage through that.

So, in general, we feel like we can adapt to most situations pretty well. We’ve got good visibility on — forward visibility on when parents are in the centers when children are graduating out, et cetera. And it’s really a matter of staying on top of the front of the — the top of the funnel, if you will, to getting prospects and potential children in for backfilling as they age through.

Blake Johnson

Great. That’s helpful. Thank you.


[Operator Instructions]

Your next question comes from the line of Toni Kaplan with Morgan Stanley. Please proceed with your question.

Toni Kaplan

Thank you. You touched earlier on the call on the investments that you’re making. But are there specific ones that you’re especially excited about this year? Are you still really focused on the technology aspect? Or are there other areas like maybe labor that you’re looking at as well. Just any color on some of the specific investments would be helpful.

Stephen Kramer

Sure. Happy to. So, look, I had mentioned earlier in the call that the 3 areas of investments, certainly, are in technology, digital marketing and people. And what I would say is in the reverse order. On the people side, we certainly continue to see really good uptick and ultimately results from what I would consider to be a really important investment in a benefit around our Teacher Degree Program.

So, I think as that continues to play out and we continue to see the importance of that, both from a retention and an employee engagement perspective, but ultimately, what we’re trying to accomplish there as well is ensuring that we continue to deliver the highest-quality services through the highest-qualified workforce.

On the technology and digital marketing side, we continue to be on a journey, and I’ve been really pleased with the journey that we’ve been on. On the technology front, we continue to invest so we continue to be proud of our market-leading mobile apps and other technology to make the experience for the end user and for our clients more seamless. We’re also doing a lot to bring together and harness the power of all of our services.

So, for example, allowing our client liaisons a single place where they can see reports across all of our services is an example of how we’re trying to bring together and make even more sticky all of our services under the single umbrella.

On the personalized marketing side, I think, again, 2019, we began to see some really positive outcomes associated with that. And I’ll point your attention, for example, to the growth rate that we enjoyed on the back-up side of our business.

We continue to learn more and more about our end users, and we continue to use what we learn about their background and behaviors to ensure that we are doing more personalized outreach to them to stimulate use.

And so ultimately, we’ve — we’re finding that both from a registration perspective as well as from a reservation and reuse perspective, those personalized digital outreach efforts are really starting to pay fruit.

Toni Kaplan

That’s great. And just on the international side, can you give us an update on which geographies that you’re in, that you feel like you have the most opportunity in? And are there any other geographies that would really be conducive to the model?

Stephen Kramer

Absolutely. So, just to take a step back, we really look for markets where there is some form of third party support, whether that be in the form of employers, like here in the U.S. or government as is the case, for example, in The Netherlands or in a place like the U.K. where there’s a combination thereof. And so we continue to believe, there is tremendous opportunity here in the U.S., the U.K. and The Netherlands, which are the three places we have the most significant footprint.

In addition to that, as we look more broadly, we did make an investment in a company in Germany. And so it’s still early days. But we believe that we are learning a tremendous amount about that market. There is clearly — as is exhibited through the organization that we’re involved in, there is employer interest and support. And at the same time, there is government support in that market as well.

I would say, as we look further out and into other markets, we’re always continuing to look for potential acquisition opportunities and market-entry opportunities in markets that have that third-party support. So, you think about places like Singapore, you think about places like France or Australia, these are markets where there is either government or employer support or both.

And so we continue to have our ear to the ground. We continue to believe that globally, we are an acquirer of choice and are looking always for like-minded, high-quality providers that know the local market that we can then partner with and grow within those markets.

Toni Kaplan

Thank you.

Elizabeth Boland

Thanks Toni.


Your next question comes from the line of Jeff Meuler with Baird. Please proceed with your question.

Jeff Meuler

Yes, thank you and good afternoon. First, on lease/consortium of the centers — the total center count you’re planning on opening in 2020, how many roughly lease/consortium centers are you planning to open? Just trying to figure out if the year looks more like 2019 in terms of investment in that regard or a more typical year?

And then related to that, when you’re pitching or signing an employer sponsor up lease/consortium, since you’re talking about the importance of the density, what exactly are they signing up for? Because I think they’re not contributing capital. So, just what are they signing up for?

Elizabeth Boland

Yes. So, I’ll give you the numbers on the first, Jeff, and then Stephen can comment on the client side of it. So, similar to this year, what we’ve got in development is in the same range of 15 to 17, maybe. So, we opened 17 this year. So, roughly, would expect to see the same kind of investment.

Stephen Kramer

Yes. And in terms of the employee involvement within these centers. So there is the odd case where they are actually investing capital. But by and large, our employer partners are investing in 1 of 3 ways or multiple of the three ways.

First, they are providing priority access for their employees because, as you know, many of our centers, especially in the urban area, are running waitlists. And therefore, what they’re looking for is to provide greater access to their employee populations through investing in priority access.

They also have the ability to provide a tuition subsidy, so they can invest behind essentially lowering the cost of that access and of that space for their employee. And then, of course, these centers are an important element of our back-up care strategy. And so we also see employer support in the form of back-up care that’s being placed into those centers.

Jeff Meuler

Okay. And then just more generally on the back-up care business. If I look over a multiyear period, 12% growth has been really good, and you’re guiding to 12% to 13% for 2020. But just in the context of — in 2019, I think you had organic growth more in like the mid-teens, 16% or something like that.

So, I guess a couple of questions related to that. What drove the outsized growth in 2019? And/or why doesn’t it repeat in 2020 is the bigger question. But was there just like this outsized, really strong selling season at the end of in 2018? Or are you starting to get some pushback as you’ve driven up utilization, and therefore, expense for your employer partners? Just recognized on a multiyear basis, this is really good, just trying to compare it to 2019. Thanks.

Stephen Kramer

Yes. So, what I would say is we had a very productive year in 2019, and that was, as you say, a combination of new sales of back-up care to employer clients and also driving use through a lot of the efforts that we’ve been talking about through our personalized digital outreach strategies. And in many ways, we expect that we will continue to see very positive momentum. Of course, the comps that we’re now comping against, right, are more significant than what we have had in the past.

And so I think really that becomes some of the dampening effect that you’re describing. But at the end of the day, Jeff, we really do see continued support of employers as it relates to making new investments into back-up care, either in the form of taking it on as a new benefit and/or really encouraging their employees to utilize the benefit.

Jeff Meuler

Got it. Thank you everyone.

Stephen Kramer

Thank you.

Elizabeth Boland

Thank you.


Your next question is a follow-up from Manav Patnaik with Barclays. Please proceed with your question.

Ryan Leonard

Yes. This is Ryan on for Manav. Just curious, when you have to deal with something like the coronavirus, how parents kind of react? I’m sure it’s not much different than the procedures you have around flu season, but just curious to hear if that impacts the way you think about operating the centers, I guess, particularly in Europe, but maybe more broadly?

Stephen Kramer

Yes. So, I think that one of the reasons why families select Bright Horizons is because of our health and safety standards and the policies and procedures that we have in place. And it sort of underpins the overall quality experience and delivery that they expect from us. And again, I think part of the ultimate choice of what they make.

So, I would say that coronavirus similar to the flu and other illnesses that come in and out of a potential center. I think we get well ahead of it each season. And so we have tremendous policies, procedures around making sure that we keep everyone safe and keep everyone well within our centers.

Again, with the coronavirus, in particular, we were very much in front of communication with families as well as our teachers. And so I think our — both the families as well as our staff felt very confident in our ability to keep people well within our centers, and this was just an example of that.

Stephen Kramer

Excellent. All right. Well, thank you all very much for joining us this evening. We appreciate it, and we look forward to seeing you all out on the road. Take care.

Elizabeth Boland

Take care everyone. Thank you.


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

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