Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Tuesday, May 5, 2026 at 5 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Stephen Kramer
  • Chief Financial Officer — Elizabeth J. Boland
  • Senior Vice President, Investor Relations — Mike A. Ritchie

TAKEAWAYS

  • Revenue -- $712 million, representing 7% growth, with all segments contributing positively.
  • Adjusted EPS -- $0.82, up 6%, landing above guidance of $0.75 to $0.80.
  • Adjusted Operating Income -- $65 million, reflecting 4% year-over-year growth and a margin of 9.1%.
  • Adjusted EBITDA -- $96 million, with 4% growth and a margin of 13.4%.
  • Backup Care Revenue -- $145 million, up 12.5%, producing an 18% adjusted operating margin; segment guidance for full-year revenue was raised to 12%-14% growth.
  • Full Service Center-Based Child Care Revenue -- $541 million, a 6% increase, driven by tuition increases and foreign exchange, offset by a 250-basis-point headwind from center closures and enrollment declines in Australia.
  • Full Service Occupancy -- Averaged in the mid-60% range, improving sequentially from the prior quarter and prior year.
  • Full Service Operating Margin -- 6.8%, expanding 30 basis points, with impact from tuition pricing and UK improvement, though Australia offset margin gains.
  • Education Advisory and Other Services Revenue -- $27 million, up 2%, with adjusted operating margins steady at 9%.
  • Center Rationalization -- Net reduction of 22 centers in the quarter, ending with 988 locations, tracking toward a full-year net decrease of 25 to 30 centers.
  • Free Cash Flow -- $88 million generated, with $276 million over the last twelve months, equating to a 106% conversion to adjusted net income.
  • Share Repurchases -- $225 million of stock repurchased in the quarter, funded by free cash flow and incremental revolver borrowings; $577 million remains authorized.
  • Net Leverage -- Ended the quarter at a 1.9x ratio of net debt to adjusted EBITDA.
  • Full-Year Revenue and EPS Guidance -- Reaffirmed at $3.075 billion to $3.125 billion for revenue and $4.90 to $5.10 for adjusted EPS.
  • Backup Care Penetration -- Median client penetration under 5%, with healthcare median below 2% and the highest client penetration above 10%.
  • SMB and Enterprise Opportunity -- An estimated 90%+ of SMBs and roughly half the Fortune 500 lack a Backup Care solution, per management's remarks.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

  • Elizabeth J. Boland said, "Australia has a full-year revenue profile in the neighborhood of $140 million, with losses in the $20 million to $25 million range in total. It is about a 150 basis point headwind to the Full Service business.", and further characterized Australia as close to $0.40 of overall headwind to the earnings performance this year.
  • Stephen Kramer stated, "Turning to Q1, the enrollment degradation [in Australia] was sharper than we would have expected. ultimately we had a quite typical leaver dynamic and we did not see the level of new starters," and noted continued market saturation causing ongoing challenges.
  • Elizabeth J. Boland confirmed, "We now expect roughly flat margin growth for the year, whereas it would have been 25 to 50 basis points without the effect of Australia," indicating revised margin expectations due to this segment's performance.
  • Interest expense increased to $12 million from $10 million, attributed to higher average interest rates and increased borrowings from elevated share repurchases.

SUMMARY

Management highlighted structural enhancements including a unified salesforce and an integrated account management team to advance cross-segment adoption and efficiency. The company reported 16 consecutive quarters of double-digit revenue growth in Backup Care, emphasizing disciplined execution and underpenetrated client bases as ongoing growth levers. Segment-level guidance for 2026 calls for Full Service reported revenue growth of 2.5%-3.5%, Backup Care growth of 12%-14%, and mid-single-digit growth for Education Advisory, alongside updated expectations for net center closures and margin pressure from Australia. Management's updated long-term growth algorithm for Backup Care is now 11%-13% annually, reflecting higher conviction in sustained demand and adoption. Substantial remaining repurchase authorization and a 1.9x net leverage ratio provide flexibility, though future guidance excludes incremental share buybacks and associated interest effects.

  • Elizabeth J. Boland explained that the accretive impact from Q1 share repurchases is expected to add roughly $0.08 to 2026 earnings despite partially offsetting higher interest expense.
  • Enrollment challenges in the Australian market result from increased post-pandemic supply, sector saturation, and fewer new starters, as detailed by Stephen Kramer.
  • The company's top-performing Full Service cohort includes 48% of centers above 70% occupancy, and its bottom cohort—centers below 40% occupancy—has fallen to 8% of the total, down from 13% a year earlier.
  • Client event feedback and new service innovations were highlighted as strategic drivers for deeper employer and employee partnerships.
  • Leadership stated that U.S. tax code section 45F has not notably impacted conversations or adoption rates among employer clients.

INDUSTRY GLOSSARY

  • Backup Care: Employer-sponsored services offering temporary child, adult, or elder care alternatives for employees facing disruptions in regular arrangements.
  • Full Service Center-Based Child Care: Core business segment delivering ongoing child care and early education at company-operated centers.
  • Education Advisory: Employer-sponsored benefit programs focused on workforce education, tuition assistance, student loan repayment, and college admissions consulting services.
  • SMB: Small and Medium-Sized Business segment targeted for new contracted employer partnerships.

Full Conference Call Transcript

Stephen will start by reviewing our results and provide an update on the business, and Elizabeth J. Boland will follow with a more detailed review of the numbers before we open up to your questions. With that, let me turn the call over to Stephen Kramer.

Stephen Kramer: Thanks, Mike, and good evening, everyone. 2026 is off to a positive start. Revenue grew 7% in the first quarter, in line with our expectations, and earnings came in slightly ahead, reflecting continued execution across our business segments. In Q1, we delivered double-digit revenue growth in Backup, expanded operating margins in Full Service, and made progress on transforming our Education Advisory business. Taken together, these results reflect the diversity and strength of our model, and the enduring demand from working families and learners for the services that we provide, along with the employers who support them.

Before I get into the segment results for the quarter, I want to take a different approach tonight and start by addressing the thoughtful questions we have received from analysts and investors in recent quarters. Specifically, I want to take a few minutes to highlight how our strategy post-COVID is focused on delivering long-term growth and earnings performance, while increasing our impact on those we serve. Bright Horizons Family Solutions Inc.’s unique business model centers around working with employers to deliver high quality solutions that support client employees across critical life and career stages, while delivering a compelling ROI for our employer clients.

Over time, we have expanded our education and care offerings and more recently have sharpened our focus on the integration of our full suite of services for the benefit of our clients and their employees. To that end, we have taken steps to unify our go-to-market strategy, executed by a singular salesforce and integrated account management team, and underpinned by new resources and tools. In parallel, we are developing a fully connected continuum of service delivered through both our owned assets and trusted partners.

To make that work at scale, we are strengthening our foundational capabilities—specifically, a common client employee credit model across our offerings, an integrated CRM and consumer data platform, and ultimately, a more consistent and seamless customer experience. As Mike mentioned, alongside tonight’s earnings release, we have included an updated investor deck that outlines our client-centric business model, our competitive advantages, and illustrates the scope of the growth opportunity. As one example, I use Backup Care, our largest segment by earnings contribution. Using slides 12 through 15 in our new investor presentation, I will walk through the growth framework: penetration within existing clients, expansion of our care and education ecosystem, and winning new logos.

Starting with penetration on slide 12, user penetration is less than 5% across our client base, which highlights a significant opportunity ahead. The latent demand is substantial: more than four in five working U.S. adults have at least one care need that our Backup Care offering addresses. Over the last several years, we have thoughtfully listened to clients and broadened our capabilities to include an even wider range of care types, increasing relevance across employee populations. This in turn enables our employer partners to meet their strategic objectives of fewer vendors delivering broader and deeper value, directly aligned with our approach. We also break down penetration by industry and illustrate the dispersion within each sector on slide 13.

The takeaway is clear: penetration is low across all industries, and even within the same sector, there is wide variation, demonstrating that the opportunity is less about maturity and more about how the benefit is deployed within each client. To highlight one example, healthcare: the median client penetration is below 2%, which increases to more than 7% at the 95th percentile, and exceeds 10% among our most highly utilized healthcare clients. Next, on slide 14, we illustrate that a key driver of growing utilization is the breadth of our care network.

We have built an ecosystem that spans traditional child care centers, in-home care providers, school age programs, academic tutoring, pet care, and elder care through a mix of owned assets and a vetted network of partners. Expanding that network helps us to meet more employee needs, which supports adoption and retention among both new and existing users. Finally, turning to slide 15, new logos are another meaningful growth channel in Backup.

We estimate that 90+% of the SMB market remains unvended today, and roughly half of the Fortune 500 does not have a Backup Care solution in place, which positions us exceptionally well to capitalize on this opportunity given our ability to deliver high quality care across care types, geographies, and employee needs with flexibility, scale, and trust that are difficult to replicate. We believe this advantage becomes even more important as employer adoption continues to grow. I highlighted Backup Care as the example because it reflects the broader playbook across Bright Horizons Family Solutions Inc.: drive deeper client and user adoption, expand the range of needs we can serve, and deliver a more connected experience for families.

By way of a real-time example, we put this strategy into action this past week at our On the Horizon Summit. We hosted more than 100 clients, including HR and benefits leaders from Bank of America, Comcast, and Cone Health, to name a few. The discussion encompassed the future of employer-sponsored education and care, and modern ways to deliver a unified experience for employees and their families. We received tremendous feedback from clients about the event and the innovations that we introduced. We look forward to sharing more over time. At this point, I would like to turn back to our first quarter segment results.

In Backup Care, revenue increased 12.5% to $145 million in the quarter, and adjusted operating margins were 18%, both in line with our expectations. Growth was driven by continued expansion in unique users, with solid use across all care types. Looking ahead to the summer months and peak utilization for school age programs, we are encouraged by continued user growth and the visibility of use through early reservations for the second and third quarters. Turning to Full Service, revenue grew 6% to $541 million, in line with our expectations. Growth was driven by a combination of tuition increases and a tailwind from foreign exchange, partially offset by center closures as we continue to rationalize the portfolio.

We opened two centers in the first quarter, one in The Netherlands and our third location for Toyota here in the United States. Occupancy averaged in the mid-60% range in Q1, improving sequentially from the fourth quarter and the prior year. Enrollment growth in centers opened for the last year was modestly positive in the first quarter. This included approximately 100 basis points of headwind from our Australia operations, where we experienced an elevated enrollment decline in this group of 78 centers. In contrast to our other geographies, our Australia portfolio’s occupancy has drifted lower in the years following the pandemic, and this quarter, the enrollment contraction was much more significant than prior years’ school-year transition cycle.

With the broader Australian ECE industry also experiencing meaningful weakness in 2026, we expect a more challenged enrollment picture and overall performance profile as we look to the rest of the year. More broadly, we remain encouraged by the sequential improvement in occupancy across our network of centers, the continued recovery across our middle and lower cohorts, and the improved operating margin we drove this quarter, despite a headwind from Australia. Our focus remains on expanding our enrollment with improved consumer experience and quality value, achieving improved operating leverage and operating efficiency, and rationalizing the center portfolio where appropriate.

As previewed on our call in February, we closed 24 centers this quarter as we continue to position our portfolio to serve employees of our client partners and working parents where they live and work. Our Education Advisory business delivered revenue of $27 million in the quarter, an increase of 2% over the prior year. Notable new client launches in the quarter included NXP Semiconductors, Visa, and Huntington Bank. We continue to be focused on driving participant growth and use across our College Coach and EdAssist services. To close, our Q1 results demonstrate solid demand and execution across the business. We remain encouraged by the progress we are making in our core operations while maintaining financial and operational discipline.

As such, we are reaffirming our 2026 full-year revenue guidance range of $3.075 billion to $3.125 billion and our adjusted EPS guidance range of $4.90 to $5.10 per share. With that, I will turn the call over to Elizabeth J. Boland, who will dive into the quarterly numbers and share more details around our outlook.

Elizabeth J. Boland: Thanks, Stephen, and hello to everyone who has joined the call. I will start with our financial highlights. Revenue in the first quarter was $712 million, representing 7% growth year over year and in line with our expectations. Adjusted operating income of $65 million increased 4% over the prior-year quarter and represented 9.1% of revenue. Adjusted EBITDA of $96 million also grew 4% and came in at 13.4% of revenue. Adjusted EPS of $0.82 per share rose 6% over the prior-year quarter and finished slightly ahead of our guidance set at $0.75 to $0.80. Taking a closer look at each of our three business lines, Backup Care revenue grew 12.5% in the first quarter to $145 million.

Increased users and expanded use within existing clients continues to drive the majority of the growth, and Q1 marked the 16th consecutive quarter of double-digit top-line growth. Adjusted operating margins were 18% in the quarter, which we expect at this time of year when use is seasonally lower. As we move into the higher-use quarters over the rest of the year, we gain operating leverage, and we continue to expect to see margins achieve our full-year target of 28% to 30%.

Turning to Full Service, revenue of $541 million expanded 6% over the prior-year quarter, driven primarily by tuition increases, enrollment gains, and a tailwind from foreign exchange, which were all partially offset by an approximately 250 basis point headwind from the impact of closed centers over the past year and, to a lesser extent, enrollment declines in Australia. During the quarter, we had net closures of 22, resulting in a center count at quarter end of 988 centers. As Stephen mentioned, enrollment in centers open for the last year was modestly positive in the first quarter, although it would have increased roughly 100 basis points without the enrollment contraction we experienced in Australia.

Occupancy averaged in the mid-60% range, increasing from both the fourth quarter of 2025 and the prior-year period. With respect to center cohorts we have discussed on prior calls, we also continue to see improvement over the prior year. Our top-performing cohort, that is centers above 70% occupancy, improved from 47% of these centers in 2025 to 48% in 2026. More notably, our bottom cohort, centers below 40% occupancy, has now fallen below 10% of these centers, improving from 13% in the prior year to 8% this quarter, reflecting both enrollment progress and the results of our focus on closing underperforming centers.

Adjusted operating income of $37 million in Full Service increased $4 million over the prior year and represented 6.8% of revenue, an expansion of 30 basis points. Tuition increases ahead of average wage costs and continued progress in our UK operations drove the margin expansion. That said, reported margin improvement was meaningfully constrained by the enrollment and operating challenges in Australia. Excluding the effect in Australia, margin expansion would have been more than 50 basis points over the prior year. Given the current operating performance and outlook for the rest of this year, we expect Australia to remain a larger headwind to reported margin performance than we had originally expected.

Our Education Advisory segment had revenue of $27 million, an increase of 2% from the prior-year quarter, and adjusted operating margins of 9%, which were broadly consistent with the prior-year quarter. Interest expense rose to $12 million in Q1, up from $10 million in the prior-year quarter, due to higher average interest rates as well as higher average borrowings on elevated share repurchases in the quarter. The structural effective tax rate on adjusted net income was 27.5%, consistent with 2025. Turning to the cash flow statement, we generated $108 million in cash from operations and made fixed asset investments of $20 million, resulting in free cash flow of $88 million.

Over the last 12 months, free cash flow was $276 million, representing a 106% conversion relative to adjusted net income. As mentioned, in Q1 we opportunistically repurchased $225 million of stock, funding the buybacks with free cash flow and incremental revolver borrowings. As of the end of the quarter, $577 million remains on the new repurchase authorization that we announced in March. Lastly, we ended Q1 with $133 million of cash and a leverage ratio of 1.9x net debt to adjusted EBITDA. Now moving on to our 2026 outlook. We are reaffirming our full-year guidance for revenue in the range of $3.075 billion to $3.125 billion and adjusted EPS to be in the range of $4.90 to $5.10.

Our guidance does not include the effects of any additional share repurchases on either interest expense or on the share count. At a segment level, in Full Service, we expect reported revenue to grow in the range of 2.5% to 3.5% on enrollment gains and tuition increases, offset by approximately 200 basis points of headwind from net center closings and approximately 100 basis points from reduced expected performance in our Australia operations. In Backup Care, we now expect reported revenue to increase 12% to 14%, driven by the continued expansion of use. And lastly, in Education Advisory, we expect to grow in the mid-single digits.

On the full-year guidance, we are now estimating full-year interest expense of $50 million to $52 million and an adjusted effective tax rate of 28% to 28.5%, up approximately 100 basis points from our prior guide. As we look specifically to Q2, our outlook is for total top-line growth in the range of 5.25% to 6.5%. Breaking that down by segments, that would be Full Service reported revenue growth of 2.5% to 3.5%, Backup Care growth of 15% to 17%, and Education Advisory in the low single digits. In terms of earnings for Q2, we are expecting adjusted EPS in the range of $1.17 to $1.22. With that, Stacy, we are ready to go to Q&A.

Operator: Thank you. We will now open the call for questions. You may press star-2 to remove yourself from the queue. For participants using speaker equipment, it may be [inaudible]. Your first question comes from Jeffrey P. Meuler with Baird. Please go ahead.

Jeffrey P. Meuler: Yes, thank you. I think you raised the Backup Care annual revenue guidance. Correct me if I am wrong, but was that on the back of, or driven by, the early Backup Care reservations for Q2 or Q3? Or what was it? And just how much visibility at this point do you have into summer usage?

Stephen Kramer: Sure. Thank you for the question, Jeff. We certainly raised the guidance. The previous guidance was 11% to 13% for the year. Now we are at 12% to 14% for the year. It is really based on our conviction around the momentum that we have around active users as well as their use patterns. As you rightly noted, we have a large swath of our clients that have extended windows for reservations going into the summer, and so we do have good visibility around those reservations. Based on our historical trends, we believe that it was prudent to increase the guidance.

Jeffrey P. Meuler: Got it. And then just help us understand the fundamental issue in Australia—if it is supply, demand, immigration, affordability, or alternatives. What is the issue, and is there any reason to think it is cyclical versus the front end of a more structural headwind?

Stephen Kramer: Sure. Happy to talk about the Australia piece. We entered that market back in 2022, and we were attracted to the market given the third-party funding support that existed, in this case from government. At the time, we had the opportunity to acquire a high-quality leader in Only About Children. At the time, they enjoyed, and we enjoyed, high occupancy rates, and in fact the sector in general enjoyed high occupancy rates. The challenge that we were looking to ameliorate at that time was really around the workforce and labor, specifically around quantity of labor as well as the costs. We expected that would ameliorate over time.

That has not ameliorated as well over time, and the enrollment since 2022 has been on a slow degradation path over that time period. Different from other geographies, we saw pretty steady increases in supply in the post-COVID period. In that market, there was an acceleration of supply that came into the market, and the saturation rates of child care got higher, especially in the key markets in which we operate. Turning to Q1, the enrollment degradation was sharper than we would have expected.

It is certainly a time of year in Australia where families typically transition to school and new enrollments backfill, but ultimately we had a quite typical leaver dynamic and we did not see the level of new starters. Hopefully that encapsulates the challenges that we see, and we really do see them as different from other geographies in which we operate.

Operator: Next question, Andrew Steinerman with J.P. Morgan. Please go ahead.

Andrew Steinerman: Hi. So you are keeping the guide for the year, but Australia was worse, Backup was bumped up. Is there any other part of your, let us call it, non-Australia business that is performing better than expected, which overall as a portfolio is keeping you in line with your targeted range? And if you could just mention how big Australia is.

Elizabeth J. Boland: Sure. Yes, to answer the question, we had a pretty significant share repurchase cadence in Q1, and that is adding a tailwind to the earnings results. Although with the offset, we do have a bit higher interest expense because of the financing of it in the near term, it will continue to be accretive over time. This year, it would be contributing in the high single digits—call it roughly $0.08—net of the interest expense that we have incurred. That is a positive to the business that is also contributing.

The other factor besides Australia’s operating performance is that because the position in Australia is loss-making, we have a nondeductibility of those losses, so it has a more amplified effect in the year. Compared to our previous guide, it is close to $0.20 of an impact just from Australia between the operations and the tax impact.

Andrew Steinerman: And besides Backup being bumped up in the guided range, is there anything else outside of Australia that is coming in better than anticipated, now that you are a quarter into the year?

Elizabeth J. Boland: The share repurchase is adding, call it, $0.08 or so.

Operator: Next question, Jeffrey Marc Silber with BMO Capital Markets. Please go ahead.

Jeffrey Marc Silber: Thank you so much. You mentioned the Backup Care margins tend to be a little bit softer in the first quarter, but they were still down on a year-over-year basis. Is there something specific that happened this quarter relative to last year?

Elizabeth J. Boland: No, not really. It is somewhat mix dependent, Jeff. It is a relatively low-use quarter, and so it is dependent on more days out and school vacation weeks rather than the intensity of school-aged care that we see over the summer. Depending on the center versus in-home and different care types, the mix of the different provider network drives that. It is just down to that mix.

Jeffrey Marc Silber: Okay. If I could shift over to Full Service centers, I know it is a bit early, but can we get any color on how sign-ups are for the fall enrollment period?

Stephen Kramer: It is fair to say that we are seeing a similar cadence to how we closed out last year. As we look through this year, we see the opportunity to enroll at a similar rate as we saw in the second half of last year. We see that in terms of completed tours, which for us is a really important indicator, and in terms of forward bookings. We feel good that is the outlook that we have.

Operator: Next question, Toni Michele Kaplan with Morgan Stanley. Please proceed.

Toni Michele Kaplan: Thanks so much. I know you were expecting a bunch of closures in the beginning of the year, and we did see that in the numbers. Are you still expecting that 25 to 30 net to be the decrease in centers for the full year, and when you are opening new centers, are you going to open a bunch in the remaining part of the year? When is the best time to open new centers, just trying to understand the seasonality there?

Elizabeth J. Boland: If we could control the timetable of the opening, we would certainly be opening early or mid-year to be ready to be available in the fall season. Opening July or August so you can enroll for the fall is probably the optimal time, but it ends up being center construction cycles governing more of that opening cadence. The next best time would be opening right before the New Year turns over, because that is often when families are enrolling.

We do think that we will be in that neighborhood of 25 to 30 net reduction of centers for the full year, despite the outsized first quarter, because we do have some openings that we have already done this quarter, and we see more in the pipeline to be opened. They, of course, are governed by this timetable, but we have the closures pretty well circled up; that is the quantity that we are looking at.

Toni Michele Kaplan: Got it. And then, when I think about Backup and you did some nice slides there, you talked about Backup being under 5%. What do you attribute that to? Is it that employees just are not aware of the programs, and what are the ways that you can drive that higher?

Stephen Kramer: The reality is the employee benefits space is noisy. Employers offer a lot, and employees’ ability to understand all that they have on offer is challenged in that noisy environment. To stand out within that context, the onus is on our account management team that we have repositioned against our client base to build deeper partnerships, create more opportunities for us to get awareness out within the client base, and have our account management team partnering even more with our marketing apparatus to ensure that we are getting good communication and messaging out so that people receive the information at times when they might naturally need the service.

A lot of what we have talked about on prior calls is around personalization—really trying to get messaging that is personalized to the individual that helps to highlight what needs they may have and how we can help to solve those needs.

Operator: Next question, Keen Fai Tong with Goldman Sachs. Please go ahead.

Keen Fai Tong: Hi, thanks. You are focused on a unified approach to client engagement and service adoption. Can you talk about whether there are additional steps with the salesforce or sales process you still have to implement in order to fully realize this vision?

Stephen Kramer: I will talk about some of the recent actions that we have taken that are not yet bearing fruit, but will start to have impact over the coming quarters and years. First, we separated our enterprise approach from our geographic approach. We now have individuals squarely focused on the largest and most complex sales opportunities—both new logos as well as within our existing client base—and another set of individuals focused on the best opportunities outside of enterprise within geographic territories. Second, we have deployed new sales training and tools to allow them to be more effective against this unified message.

We used to have individuals selling individual products, and now our singular unified sales team is going out and talking about the full totality of the Bright Horizons Family Solutions Inc. set of offerings, tailoring the solution to the needs of individual clients. Separately, we are unifying at the user level as well—thinking about employers who offer more than one service and helping employees understand and value services across what were silos within Bright Horizons Family Solutions Inc. to enable additional use patterns. For example, a client that offers College Coach and, through Backup, offers tutoring—helping to cross-pollinate College Coach users to leverage a tutoring offering, and tutoring users to take advantage of the College Coach offering.

Keen Fai Tong: That is very helpful. And then on Backup Care, you mentioned you have seen 16 consecutive quarters of double-digit growth. Given that extended history, are you ready to update your longer-term target for Backup Care growth?

Stephen Kramer: Yes. Please see slide 28, where we update the Backup Care building block within our growth algorithm. We are calling for a longer-term growth algorithm of 11% to 13%, which is an upgrade from what you will have seen historically.

Operator: Your next question comes from Joshua K. Chan with UBS. Please proceed.

Joshua K. Chan: Hi. On the Backup Care penetration slide that you showed, what in your mind causes the difference in penetration? The slide suggests that industry has some factor to it, but is it tenure, geographic location—what causes some employers to have higher versus lower penetration?

Stephen Kramer: First, between industries, part of the differential comes down to employee demographics and work style. In financial services and professional services, where we tend to have the strongest penetration, when there is a breakdown in a care arrangement, employees really need and value having a replacement care arrangement, so we see higher utilization in those industries. In industrials—manufacturing plants or other traditionally male-dominated industries—we have seen less take-up. More interesting is the disparity within industries. We see wide variation between least and most penetrated companies with similar traits.

We are studying our most highly utilized clients and our least utilized, and through changes on the account management side we are working diligently to have our less penetrated clients look more like our more highly penetrated clients, and to continue extending growth among the highly penetrated cohort. On average, penetration is still modest, and between the work we are doing analytically and by aligning account management and marketing functions, we believe we can continue to show good progress.

Joshua K. Chan: Thank you. That is really helpful color on Backup Care. And then on the Full Service side, you outlined 4.5% to 6.5% growth over the long term. What underpins that, including tuition and center openings, in terms of the Full Service drivers?

Elizabeth J. Boland: Over time, the building blocks are price increases and enrollment, plus unit growth. As we return to at least neutral, hopefully next year, on net openings to positive again, the ramp-up of new centers and modest enrollment gains would contribute alongside a roughly 3% to 4% price increase.

Operator: Next question, Faiza Alwy with Deutsche Bank. Please go ahead.

Faiza Alwy: Yes, hi, thank you. On the Full Service margin side: could you help us frame the impact from Australia to margin specifically? You gave us a top-line impact, but do you still expect to see 25 to 50 basis points this year, and are there any offsets to the impact from Australia? Related, as part of the long-term building blocks, I see the 9% to 10% target—when do you expect to get there?

Elizabeth J. Boland: There are two ways to answer this. First, including Australia: we had guided to 25 to 50 basis points of margin expansion for the year, but given the headwind of revenue degradation—roughly 100 basis points from enrollment in Australia, call it about $20 million—the margin degradation is even more than that. We now expect roughly flat margin growth for the year, whereas it would have been 25 to 50 basis points without the effect of Australia. Second, standing alone, Australia has a full-year revenue profile in the neighborhood of $140 million, with losses in the $20 million to $25 million range in total. It is about a 150 basis point headwind to the Full Service business.

With the tax impact and that loss profile, Australia is close to $0.40 of overall headwind to the earnings performance this year.

Faiza Alwy: Great, that is super helpful. And on the long-term 9% to 10% target for Full Service margins—how have your views evolved and timing to get there?

Elizabeth J. Boland: We ended last year at 5.5%. We have about 150 basis points of headwind from Australia, and we are able to gain 25 to 50 basis points a year as we continue to gain enrollment. We also have a tail from centers we have closed that still carry dark lease costs; that is another roughly 50 basis points that will taper out over the next couple of years. With continued enrollment improvement, operating leverage and efficiency, and further portfolio rationalization, we are well on our way to that 9% to 10%. We see it in our best-performing centers, but some outliers are putting a severe headwind on the reported margin at the moment.

Faiza Alwy: Understood. And then just a quick follow-up: are you seeing any benefits, even in conversations with clients, from the 45F or EBDA impact that increased the annual cap for tax credits? How have your conversations trended on this topic?

Stephen Kramer: The quick answer is that 45F has not had much of an impact in terms of the conversation or adoption by our client base. While it can be an interesting talking point and a way into new client conversations, it is not moving the needle as it relates to getting clients over the line or being adopted by our current clients.

Operator: Next question, Stephanie Benjamin Moore with Jefferies. Please go ahead.

Stephanie Benjamin Moore: My apologies—sorry, everybody. Circling back to Backup Care, could you talk a little bit about clients that use more than one service within Backup Care services? I think that might be helpful.

Stephen Kramer: I will take a step back. How Backup Care was defined in the earliest days was around providing care in-center and then extended to in-home. Over time, we have extended that to include school-age programs, elder care, academic tutoring, and pet care. Almost universally, our clients offer the in-center and in-home for both children and aging adults. We have very strong majority take-up for academic tutoring. The lowest adopted offering is pet care, although from a user perspective it is quite popular. So most clients offer in-center, in-home, adult and child; most offer tutoring; and to a lesser extent, pet care.

Stephanie Benjamin Moore: Got it, that is really helpful. And I do not think anyone has asked so far on the UK business. A lot of progress has been made there over the last year or so. How should we think about the improvement in operating income and general performance there?

Elizabeth J. Boland: The UK business has been on a journey and we are very pleased to see both sequential and year-over-year progress. As a reminder, last year the UK turned the corner and was positive from an operating income contribution standpoint, still a headwind to the overall Full Service margins—low single digits rather than the 5.5% overall we were reporting. This year we continue to see improvement between enrollment gains and continued operating execution. It is making progress toward the overall average—still a little bit of a headwind—but a big contributor to the turnaround. The velocity of improvement contributes to our overall leverage, just at a slightly lower pace than in 2025.

Stephen Kramer: Wonderful. Well, thank you all very much for joining us on the call, and wishing you a great night.

Elizabeth J. Boland: Thanks, everyone.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time, and thank you for your participation.